C&W officials predicting stable market for 2003.

Despite a soft leasing market in 2002, Cushman & Wakefield officials are predicting a stable market for 2003.

"2002 has been, by all accounts, a tough year," said Ken Krasnow, senior managing director and head of C&W's New York office at a Jan. 7 event. "But there are signs that bode well for 2003."

With the slow economy, corporate scandals and the continuing specter of terrorism, corporate inertia was prevalent last year resulting in slow leasing activity throughout 2002. C&W released year-end statistics showing that overall leasing activity for the year in Manhattan totaled 20.8 million SF, above last year's level of 18.9 million SF. As of Dec. 31, the overall office vacancy rate in Manhattan was 12%, up from 9% a year ago and 3% in 2000. Average asking rental rates have declined to $42.96 per SF from $46.67 a year ago.

In Midtown for the fourth quarter, the vacancy rate was 11.1% and average rents were $48.15, up from 8.2% and $52.83 a year ago. In Midtown South, the vacancy rate was 13.5% and average rents were $33.23, up from 11.2% and $38.74 a year ago. In Downtown the vacancy rate was 13.2% and average rents were $39.17, up from 9.5% and $39.45 a year ago.

Among significant leases completed in 2002 included the 379,841-SF lease by United Federation of Teachers at 53 Broadway, the 299,200-SF lease by Morgan Stanley at 1221 Avenue of the Americas, the 273,882-SF lease by Foote Cone & Belding at 100 West 33rd St., and the 242,658-SF lease by Aon Corp. at 55 East 52nd St.

Krasnow said he was anticipating the national employment picture to be slow in the first half of 2003, but to pick up in the second half. With the underlying fundamentals of the Manhattan market strong, it is well positioned for 2003 even if the national economic recovery is tepid.

"Even with modest job growth and space coming back on the market, we're only anticipating a slight rise in vacancy rates," he said.

C&W officials pointed to an uptick in the fourth quarter's leasing market as a positive sign for the future. They also pointed out that Manhattan's vacancy rate is 2.8% lower than the national average, which stands at 14.8%.

"The Manhattan vacancy rate is well below the national average, and a relatively stable fourth quarter lends credibility to a positive outlook at the start of 2003," said Bruce Mosler, president of U.S. operations at C&W.

Krasnow cautioned that any positive outlook for 2003 hinges on job growth and the sublease market.

"Subleases are competing with direct space and space is starting to be filled," Krasnow said. "But if the market experiences any more major space additions due to corporate downsizing, we'll be looking at higher vacancies by the end of this year."

Despite the weak leasing market, 2002 saw strong activity in other areas such as the investment sales and retail markets. Low interest rates and the volatility of the stock market contributed to strength in investment sales, resulting in 20 million SF of real estate that traded hands during the year.

Among significant sales transactions completed were the sale of 399 Park Ave. for $1.06 billion, 1290 Avenue of the Americas for $475.5 million and 1515 Broadway for $483.5 million.

Krasnow said he expects the investment sales market will continue to be strong in the year ahead.

"We look for it to stabilize but it won't fall off the charts," he said.