Leasing market expected to take a breather in 2007.

With only one new office tower set to open in Manhattan in 2007, market experts predict the city will get the chance to take a well-earned breather after the roller-coaster ride that was 2006.

"It's going to be a good year. Even though we're running out of space, we'll probably have a lot of tenants moving around," said Robert Sammons, director of research at Colliers ABR. "It's going to be tough to beat 2006, but it gives the city a chance to take a breath."

The 1.5 million square feet New York Times Building is scheduled to open in the Spring, but space there is filling up fast. Law firm, Goodwin Proctor is said to be eyeing 150,000 s/f of the 800,000 s/f owned by The Times, joining the four other law firms that swallowed up virtually all of Forest City Ratner's portion of the building where asking rents are reportedly in the $80s per s/f.

According to the latest numbers from Colliers ABR, Class A average asking rent climbed to a record $66.65 per s/f in November, a 5.3% jump since October and an increase of 10.4% since the end of the third quarter.

The overall vacancy rate in the city continued to drop from 7.8% in October to 7.6%, according to Colliers whose report stated the it was the Class B market that saw most activity "Not only has Class A done well this year, but the number of leases in Class B, demonstrates how this period of time in New York is very well rounded," said Sammons, who explained that, although prices have risen in the Class A market, tenants who haven't been able to afford them have not strayed from the New York market but have looked for cheaper space within the city easing worries that the space crunch could spark an exodus from the city to the outer boroughs, New Jersey and Westchester.

"When you look at Manhattan, you have to look with two sets of eyes, because within the US market, we are by far the most expensive, but within the global market, we are cheap," said Sammons.

Michael Liss, vice president at Trammell Crow Company, agreed that the numbers were "mind boggling." Liss commented, "We are at a point where places like 7 World Trade are actually getting the asking rents ($50-$60 dollars per s/f). Landlords have taken the momentum of the market and really run with it."

With the market at equilibrium in terms of vacancy, Liss said all three submarkets Midtown, Midtown South and Downtown, are each performing in uncharted waters.

Although the vacancy rate for Class-A space in Midtown remained stable at 5.9%, asking rents rose an additional 4.7% to $77.41 per s/f, which has contributed to the decrease in vacancy levels for Class B space in Midtown South where it dipped to 7.9% in November down from 8.2% in October. Downtown vacancy fell to 8.2% in November from 8.6% in October.

"There is very little space to got to. We have to search pockets that are no longer conventional, like Times Square and Lower Manhattan, to make the next submarkets," said Liss.

With an obvious need for high quality office space, some building owners who had planned to convert to condos, have held off.

"The owners have pulled back from turning residential at 95 Wall Street, because of the slight weakness that the condo market showed at the end of this year, which is probably a good thing," said Sammons.

According to Grubb & Ellis' research services manager Rich Persichetti, the lack of available space will continue to put upward pressure on rents bringing rewards for developers like Larry Silverstein, who is securing upwards of $60 per s/f at his 7 World Trade Center.

"There is still some space downtown where I predict the market will probably mirror what happened in midtown during 2006," added Persichetti.