New York ranked No. 7 in national office index.

Marcus & Millichap Real Estate Investment Brokerage Company, released its Office Research Report for the New York City market.

Relatively low vacancy and projected employment growth pushed New York City's office market ranking up five places, to No. 7, in Marcus & Millichap's National Office Index.

"New York City has suffered more than most cities from the recent economic downturn, but it's expected to rebound in 2004 with the return of job growth," comments Mitchell R. LaBar, senior vice president and regional manager who oversees the firm's New York, New Jersey and Connecticut offices. "This strong projected growth, coupled with low vacancy, places Manhattan's office market in a strong position compared with many other major cities."

Marcus & Millichap's National Office Index (NOI) is a snapshot analysis that ranks 38 office markets nationwide based on a series of 12-month forward-looking supply and demand indicators.

Washington, D.C., topped the 2004 NOI, moving up four positions from last year, as increased defense spending and an ever-expanding federal government support top-10 rankings in half the variables used to create the index.

Four markets in California rounded out the top five: San Diego (No. 2), Riverside-San Bernardino (No. 3), Orange County (No. 4) and Los Angeles (No. 5). The NOI ranks markets according to their cumulative weighted-average scores for various indicators, including forecast employment and rent growth, vacancy, construction and absorption. Office employment growth and vacancy are weighted most heavily in the index.

The markets that make up the bottom of the index have economies with above-average exposure to manufacturing, technology or telecommunications, although corporate cutbacks and bank mergers have also played roles.

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

In 2004, the City will add 53,000 jobs, offsetting most of the combined losses from 2002 and 2003. The strongest gains are expected in the education and health services sector. New York City will lose an estimated 24,000 jobs in 2003, a decline of just 0.6 percent.

Slowing construction will not add a significant amount of new space to the market next year. Construction is expected to reach 3.5 million square feet in 2003 but will dip to 2 million square feet in 2004.

Vacancy is projected to increase by 140 basis points, to 11.1 percent, by year-end 2003. Sublease space will be absorbed first and will drop by 50 basis points in 2004, to 2.4 percent, while overall vacancy will fall by 20 basis points, to 10.9 percent. The Midtown submarket, with vacancy of 10.2 percent, is expected to tighten to 10 percent in 2004. Downtown properties are estimated to be 11.5 percent vacant, with a 20 basis point decrease expected in 2004, as positive absorption takes hold.

Effective rents dipped in 2003 as owners encouraged tenants to remain in their buildings. Effective rents will end 2003 at $36.71 per square foot, down 6.7 percent from 2002.

Effective rents are forecast to increase by 0.4 percent in 2004, to $36.87 per square foot.

Demand for properties persists, but rising costs have squeezed profits. Accordingly, office property prices may be flat in the short term.

For a copy of the report, visit www.marcus millichap.com.