Employment figures good news for office market.

Marcus & Millichap Real Estate Investment Brokerage Company recently released its National Office Report for 2005, which shows the Manhattan office market is set for an upswing this year on the strength of a resurgent economy and business expansion.

Also included in the report is the firm's annual National Office Index (NOI), a snapshot analysis that ranks 42 office markets based on a series of 12-month forward-looking supply and demand indicators. New York City climbs two places to No. 5 in this year's rankings based on one of the lowest forecasted vacancy rates in the nation and above-average office-using job growth.

"Over the past year, brokerage firms reported a surge in traffic among companies looking for large blocks of space, and net absorption turned positive for the first time since 2000," comments Mitchell R. LaBar, managing director of Marcus & Millichap and regional manager of the firm's New York office. He adds, "As demand indicators begin to point upward, Manhattan office owners should be able to rebuild gross revenues."

Fort Lauderdale tops the 2005 NOI, propelled by the second-highest forecast revenue growth of all markets and a relatively thin construction pipeline. Last year's No. 1, Washington, D.C., falls to the No. 2 spot, with slightly lower expectations for job growth this year. Southern California's Orange County and Riverside-San Bernardino secure the No. 3 and No. 4 spots.

Orange County boasts one of the lowest completions-to-existing inventory ratios this year, and Riverside-San Bernardino's expanding population is spurring significant hiring activity in the professional and business services industry. The NOI ranks markets according to their cumulative weighted-average scores for various indicators, including forecasted office employment and rent growth, vacancy, construction and absorption. The markets at the bottom of the index (Columbus, No. 40; Raleigh-Durham, No. 41; New Haven, No. 42) continue to be challenged by below-average economic outlooks.

The report indicates the following for the New York City office market in 2005:

* Total employment in Manhattan will expand 1.7 percent in 2005 as 69,000 jobs are created.

Office-using employment will increase by 1.2 percent with the addition of 14,600 positions.

* Completions will total 2.1 million square feet, an increase from 2004.

The largest project scheduled for completion is the 1.8million-square foot 7 World Trade Center.

* After declining each year since 2000, recovering tenant demand will permit owners to push effective rents up 1 percent in 2005 to $36.24 per square foot.

More significant improvement is possible if vacancies, such as those in the Midtown submarkets, fill quicker than expected.

* Manhattan office vacancy is forecast to rail 10 basis points to 10.1 percent in 2005 as completions and the availability of sublease space withhold more substantial improvement.

Major submarkets such as Grand Central, Midtown South and Penn Station, however, should record vacancy reductions ranging from 20 to 40 basis points.

* Investor interest in the market has persisted despite weakened fundamentals, with prices for assets selling for $100 million and greater rising 12.2 percent since 2001 as buyers positioned themselves in front of the expected recovery.

Condo converters have driven deal flow Downtown, and these buyers should remain active as long as low short-term interest rates persist Greater activity may occur in Brooklyn and Queens, as investors look to reposition assets to compete with properties in the New Jersey waterfront.