Brokers keep their cool as summer slowdown starts.

The numbers for the second quarter of 2004 show that the Manhattan real estate market is out of the woods--but full recovery is likely to be slow and labored.

After a strong beginning in January through March, the availability rates have remained stable, posting only modest changes of 0.2% to 0.5%, according to a report from Newmark & Company. "The overall Manhattan market has made positive changes in the first quarter of 2004 and it's been pretty stable [since then]," said Kristen Hickcox, national director of research with Newmark.

"I think it will continue to be stable, but from what I've seen using other people's indicators, it doesn't seem we'll have significant job growth before the end of the year."

According to a number of brokers, a better economic climate has given tenants more confidence to take on large blocks of space, but as the usual summer slowdown approaches, leasing numbers are not likely to jump up.

"I believe that there is a general consensus that the market has reached an inflection point and will continue to rise," said Benjamin Friedland, a broker with CB Richard Ellis. "The question is: will it shoot up quickly or will it be a slow, gradual climb?

"Recent numbers indicate that the market is tightening, the availability rate in April continued to drop for the fifth straight month since November 2003. Some of the large financial services companies are beginning to look for more space and that, coupled with the diminishing availability of large blocks of space, is helping to fuel the market's recovery."

CBRE's Kenneth Rapp agreed. "I think we are seeing a lot of activity in the larger tenant sizes, those spaces are starting to disappear rapidly. If you are looking for 250,000 s/f, there is not that much product out there.

"The general consensus is that the market is turning around and becoming healthier, but we are a way off from doing great. And once we hit July 4th, we'll just naturally slow down."

According to Donald Lutt, managing director with GVA Williams, many tenants will be pressed to sign deals now, before the market changes to the landlords' advantage. And the landlords, for their part, are too happy to sign a long-term tenant to fuss over the price.

"We are definitely past the bottom. All three sub-markets showed positive absorption this quarter," Lutt said. "Things are slowly shifting from tenants being the drivers of the market to landlords being more in control. The tenants are definitely advised to act now and the landlords would rather have the deal done--they don't want to hold out in an uncertain environment, even though it seems like the market is improving, there are no guarantees."

Lutt thinks that if the economy continues to grow at its present rate, Manhattan might even see some rent increases--but he's skeptical about the possibility.

"The New York City economy grew by 7% in the first quarter and if that continues, the rents will accelerate," he said. "But we don't expect it to happen."

What worries some brokers, however, is not lack of job growth but lack of activity downtown. According to Hickcox, the availability rate in the area is negatively affecting the overall market numbers.

"There is so much unknown in that sub-market and the impact of the incentives affects the prices," she said. "I am very concerned about the large amount of subleases there that could go unused."

But David J. Goldstein, executive managing director with Studley, thinks that the downtown prices are so attractive, people are just bound to take advantage before the end of the year.

"The pace of leasing in lower Manhattan is still sluggish," he said. "That said, there are some tremendous values in class A product for medium and large size users that should spur leasing activity in the next 12 to 18 months. Class A pricing in the better buildings downtown is in the low to mid 30's per s/f, which is a tremendous value. Eventually you'll see an increase in leasing activity and a likely corresponding increase in rental rates, but it could take some time."

"Downtown is still the low cost provider, the value proposition and they have been diversifying their target markets--they are looking to attract architecture and engineering firms, law firms, marketing, education and publishing companies," agreed Lutt. "People are seriously looking around downtown and what's really going to give the market a push is that most of the incentive programs expire at the end of the year. That may cause a flurry of [downtown] deals between now and the end of the year, but after that the future is uncertain."