First quarter brought modest gains for Manhattan market.

The Manhattan office market improved moderately in the first quarter of 2002. According to Insignia/ESG's April '2002 "i on the market" reports for Midtown, Downtown and Midtown South, the first quarter closed with modest leasing activity and generally increasing availability, indicating that the apparent national economic recovery has not yet translated into increased demand for office space in New York. The decrease in new sublease offerings throughout Manhattan, however, may be an early signal that the worst' effects of the recession are over.

Total sublease space in Midtown South declined in March by 129,000 SF - the first decrease in more than two years. Sublease space in Midtown increased by just 42,000 SF, while Downtown's sublease supply increased by 142,000 SF.

Insignia/ESG reports that March's largest transaction was completed in Downtown, where the New York State Banking Department signed a 135,000-SF lease for IBJ Whitehall Bank & Trust's former space at 1 State Street Plaza. The Banking Department is moving from 95,000 SF at 2 Rector Street. Overall, small leases continued to fuel activity throughout Manhattan. Of the more than 500 leases recorded throughout Manhattan in March, there were only four transactions in excess of 50,000 SF in Downtown, six in Midtown and only three in Midtown South.

Other highlights in Insignia/ESG's April "i on the market" reports include:

* Downtown's year-to-date leasing activity totaled 1.74 million SF, a 19 percent improvement from the 1.46 million SF leased in the same period a year ago. Of this quarterly total, however, 47% comprised The Bank of New York's short-term-lease in January for 821,000 SF at 15 Broad St. Midtown tallied 2.63 million SF of leasing, up 2% from last year's 2.58 million SF. Midtown South's activity declined to 1.09 million SF from 2.27 million in first-quarter 2001.

* Midtown South recorded posted 53,000 SF of positive net absorption and a drop in availability of 0.1 points to 11.6%. Midtown's availability rose 0.3 points to 9.3%, and Downtown's rate increased 0.5 points to 14.2%.

* Midtown South's average asking rent increased by $0.08 to $37.40 per SF in. March. Average asking rents in Midtown declined $0.46 to $57.11 per SF and in Downtown dropped $1.30 to $39.47 per SF for the month.

According to Insignia/ESG's April 2002 "i on the market" report for Midtown South:

Midtown South's modest revival in March was in marked contrast to the weakening conditions that had held sway over the past several months. Although the submarket's quarterly leasing of 1.09 million SF in 2002 fell 52% short of the first-quarter 2001's total, the previous year's activity was affected by Credit Suisse First Boston's 1.40 million-SF lease at 1 Madison Avenue. Tenants seem particularly drawn to Midtown South's best-located "avenue" properties, where quality space, can be had at newly reduced prices.

According to Insignia/ESG's April 2002 "i on the market" report for Midtown:

Despite year-to-date leasing activity that is keeping pace with levels recorded at this time in 2001, Midtown's net absorption remained in negative territory during the first quarter at 2.22 million SF - comparable to 2001's negative 2.12 million SF. March's 531,000 SF of negative net absorption, however, was an improvement upon February's negative 809,000 SF. The decline in new sublease offerings, should it continue; might be the tipping point in turning this trend around. Still, the Midtown market has hovered around equilibrium so far this year. The availability rate finished the quarter at 9.3%, its highest level since October 1997.

According to Insignia/ESG's s April 2002 "i on the market" report for Downtown:

Optimism about Downtown's recovery is on the rise. Cleanup of the World Trade Center site is proceeding ahead of schedule and now is slated for completion in late May or early June (original estimates anticipated it would take at least a year). Construction of the new 7 World Trade Center is expected to break ground in the fourth quarter of 2002 and could be completed as early as 2005. Seven of the 11 damaged subway stations are back on line, with the rest due by the end of the year. Traffic flow received a boost. in March with the re-opening of West Street, the tunnel connecting West Street to the FDR Drive, and the Brooklyn-Battery Tunnel. Downtown's leasing activity jumped substantially in March to 549,000 SF. The Financial District's dominance in the Downtown market is greater than ever, now that the World Financial submarket is devoid of activity. All but 30,000 SF of Downtown's 1.74 million SF of leasing so far in 2002 was completed in the Financial District