First quarter numbers no cause for concern, say analysts.

Commercial office leasing in midtown dropped slightly in March. However, market analysts say the numbers aren't representative of the market's long-term recovery.

Although the first quarter of 2005 proved to be relatively healthy--overall vacancy rate for Manhattan properties decreased by 0.1% compared to the last quarter of 2004, according to Grubb & Ellis--both leasing activity and space absorption in midtown were worse off this month than last, and worse than the numbers posted for the same period last year.

There were fewer deals completed in March than in February, with the level of activity dropping off by about 280,000 s/f. There was also a significant amount of sublet space being put back on the market, with JP Morgan Chase trying to dispose of about 554,989 s/f at 245 Park Ave., in addition to the 157,000 s/f it has put out in February, and Sony BMG and Oppenheimer Funds trying to get rid of more than 100,000 s/f each.

On the positive side, the JP Morgan Chase space increased the average price for midtown sublets by setting its sights at $72 per s/f, at least $20 more than the expected number.

James Loughlin, research manager for the Manhattan market with CB Richard Ellis, attributes this minor slide in statistics to bad timing, rather than shaky market fundamentals. In the first quarter of last year, both the Bank of America and Pricewater-houseCoopers signed significant deals in midtown, making it difficult to duplicate market numbers for that period.

"Really, what we've seen is absence of big deals so far, we hadn't had any of those closed in March or February," Loughlin said. "We've seen negative absorption also. Last month, we had six large sublet blocks put on the market, the largest being Sony BMG's 160,000 s/f."

According to Kovid Saxena, director of research with Newmark & Company, statistics for just one month of the year often give the wrong impression. He noted, for example, that weighted average asking rents for Manhattan in general have decreased slightly by $0.45 per s/f. But "the rents have been increasing since the first quarter of 2004, it doesn't really become a trend just because it has happened once."

Richard Persichetti, senior research analyst with Grubb & Ellis, said the statistics for midtown Manhattan are not so much deteriorating as keeping flat. He expects that the class A sublet space will be taken off the market by the end of the year.

"Midtown is by far the strongest market right now and we are still seeing a lot of activity there," he said. "The availability numbers did go up, but I don't think it's really something to focus on. I don't see a major drop-off from last year, to me [the market] is flat." The market that Persichetti is worried about is downtown. He noted that most of the significant deals there have been renewals and that midtown tenants queuing up to lease downtown space. Leasing activity improved there in March because of large deals by the SEC and Bowne & Company, but it's unlikely this will continue to be a trend. "There are going to continue to be some midtown tenants who go to midtown south, but I don't see great improvements downtown for at least a year, if even that," Persichetti said. "The rents there are going to stop declining in the next six months, but I don't think they will start to go up.

Loughlin was more cautious in predicting the fate of downtown, but he also noted that market fundamentals are not very strong.

"When 7 World Trade Center hit the market, it was priced at $50 to $60 per s/f and that caused a jump in prices of about $4.50," he noted. "But it's too early to tell if it's going to be a continuing trend. [The market] has been steady at one level."