C&W gives upbeat forecast.

Ken Krasnow, executive managing director at Cushman & Wakefield, offered a positive forecast for real estate fundamentals in 2005 at a C&W market outlook conference on January 4.

According to Krasnow, 2004 sported just the right mix of rising rental rates and tenancy that should continue to improve in tandem--albeit slightly delayed--with the strengthening economy. "Real estate performance tends to lag the economy," said Bruce Mosler, C&W's newly named president and CEO of global operations.

Both Mosler and Krasnow indicated that the turnaround from 2003's trough level performance is already very much afoot. 2004 saw 29 million s/f of office space leasing, up by about 9 million from the previous year.

In Midtown, vacancy dropped from 11.9% to 10.1% despite the addition of office space and rents gained steam, rising from $45.37 to 45.98 per s/f. Sublease space also accounted for a smaller portion of available space as compared to 2003.

"We're getting closer to equilibrium," Krasnow said. "And that's when rents will see real increases."

Financial companies and legal firms drove the year's biggest transactions and were the workhorse leasers of '04, something that C&W expects will continue through 2005. The two largest leasing transactions of the year were PricewaterhouseCooper's 798K s/f lease at 300 Madison Avenue and Cadwalader Wickersham & Taft's 460K s/f lease at One World Financial Center, a financial and law firm respectively.

With the prospect of rising rents imminent, and competition for increasingly rare, large blocks of class A space heightening, firms in these real estate gobbling industries have been and will continue to be more readily motivated to pounce on opportunities.

Midtown's tightening availability should help generate more interest Downtown, a market that didn't fair quite as well in 2004. Vacancy there increased overall from 13.5% in 2003 to 14.2% a year later. But record disparities between rents in Midtown and Downtown are sure to draw tenants to the latter market based simply on its more economical pricing. An economic indicator for Downtown developed by Pace University shows that the Downtown economy is slowly improving.

Ushered in by massive 280K s/f and 320K s/f leases taken by Ecko Unlimited and Ann Taylor respectively, what was dubbed as "a mini apparel boom" by Krasnow has taken hold in the Midtown South market, where class A spaces are few and far between. Real estate sales hit an all time high in 2004 with an estimated $14.3 billion in total sales transactions. The closest any other year came was $12 billion in 2001, a year when both Rockefeller Center and the World Trade Center were sold.