City's space crunch sending tenants to New Jersey in hunt for premises.

Developers can't get buildings up fast enough to meet demand from tenants who may start looking across the Hudson River to Jersey for space, according to market watchers.

With few Manhattan developers building on spec and the average wait time for new buildings to be made ready for tenants stretching to three years, an 18-month wait in Jersey City is starting to look tempting, says Robert Sammons, director of research for Colliers ABR.

"Those tenants who want to stay in Manhattan, particularly those who are price sensitive--and who isn't nowadays--are being forced to look at the B buildings," added Sammons, whose firm's latest market report confirms all the significant Class A footage in the city is virtually full.

The Manhattan vacancy rate for Class A space in Manhattan held steady at 7.1% in July, while the Manhattan vacancy rate for Class B space dropped to 10.8%, according to the Colliers report.

In particular, contiguous blocks in the B market are also becoming a rarity, with the exception of the concentration of 2 million s/f of vacant space in Hudson Square area, which currently has a 36.4% vacancy rate.

"I expect even this vacancy rate will tighten up in the near future for lack of other space," Sammons said.

Though three new contiguous 100,000 s/f blocks of space were added in July to each major Manhattan submarket, limited contiguous blocks of A space still exist in Manhattan. These include 10 blocks in Midtown, one block in Midtown South and 9 blocks downtown.

"That's pretty tight, especially when you consider there is a lot of activity on those blocks, a lot of people looking for open space," Sammons said.

Additionally, open space in building projects currently in the pipeline--like the New York Times Building and the Bank of America building--are, for the most part, already leased up.

Latest numbers from Newmark, Knight and Frank corroborate that people needing big blocks of space are opting to move into class B space or to move their businesses away from the city, according to Peter Kozel. executive managing director of research and real estate strategies.

Kozel also noted a trend in tenants snatching up Class A space downtown as a result of the skyrocketing midtown rents and government sponsored incentive programs encouraging businesses to help re vitalize downtown. The average rent for Class A space in midtown is $62.10. The average rate for Class A space downtown is $38.55.

"There's a little bit of sticker shock going on when rents are climbing so high so fast," Kozel said.

"At the same time, a sensible person is going to compare rates and think twice before making a ten or fifteen year commitment to those rates."

Though Kozel anticipates tenants being cautious with their long-term plans, and recognizes the possibility of the market cooling, he does not recognize any significant slow down or immediate threat to the market.

"We have absorbed 8 1/2 million s/f since January. That's a lot considering last year we only absorbed about 9 1/2-10 million s/f for the entire year. So the first seven months of the year have been very strong. Rents are moving up significantly, there is a strong demand for space," Kozel said.

"Of course people are apt to open the newspaper and read the National news and wonder how can that be. I think one of the main reasons for that is because New York is integrally tied to the global economy.

Sammons, on the other hand, anticipates a cooling sooner, but said, "Maybe that will be a good breather for us. Maybe we will be able to stand back and play catch up a little and start some new construction," he added.