Condo converters get busy as fundamentals are soaring.

Marcus & Millichap Real Estate Investment Brokerage Company recently released its latest Apartment Research Report for Manhattan, which indicates that greater-than-expected improvement in property fundamentals is possible if job growth exceeds current expectations over the remainder of the year, a fair possibility given the large work force employed in a wide variety of industries.

"A slight reduction in vacancy and higher rents are being recorded among Manhattan apartment properties, a trend that will continue through year end," comments Mitchell R. LaBar, a managing director of Marcus & Millichap and regional manager of the firm's Manhattan office.

"On the investment side, condo conversion buyers have become more active, and owners are showing a greater willingness to take advantage of the high prices typically associated with properties sold for conversion."

Following are some of the most significant aspects of the report:

* Employment in Manhattan is expected to rise 1 percent this year, an addition of 21,000 jobs.

While Manhattan apartment owners may receive only a slight boost in demand from job growth this year, the market's heated for-sale housing market will continue to relegate many residents to renter status. Following a 5.2 percent decline in 2004, housing affordability is expected to fall an additional 8.2 percent this year as prices continue to climb.

* Apartment completions will climb from 2,500 units last year to 2,800 units in 2005.

Given the robust nature of the condo market, it is possible that many units being built as rentals will ultimately be offered as for-sale units.

Nevertheless, more than 2,200 apartments will be added south of the area bounded by West 106th Street and East 96th Street in 2005. So far this year, 196 units have been completed at 420 East 96th Street and 650 units have been delivered at 2 Gold Street in Battery Park City.

* Vacancy will decrease to 3.9 percent as demand generated by job growth will offsets new supply.

Across the market, the Midtown West, Upper East Side and Upper West Side submarkets will register an aggregate 3.4 percent vacancy rate by year end, the same reading as year-end 2004.

High demand for apartments in these areas is typical and tenant retention is traditionally very strong, but demand will improve only if employment in high-paying financial activities, and professional and business services positions expands.

* Asking rents are on pace to rise 3.1 percent this year, to $3,030 per month, and effective rents will climb by an equivalent rate to $2,936 per month.

Properties in the Upper East Side submarket will register greater effective rent gains than asking rents, given the submarket's many long-tenured residents and exorbitant for sale housing prices.

Accordingly, asking rents in the submarket are expected to rise 3.7 percent to $3,262 per month, but monthly effective rents are forecast to gain 6 percent to $3,178 per month.

* The median per unit price in Manhattan has risen 15 percent to $172,000 so far this year.

More than $1 billion of properties have been sold, including almost $700 million to condo converters, a buyer group that is becoming more active. Prices paid by this investor group range from $120,000 per unit to more than $500,000 per unit.