Owners in driving seat as market fires on all cylinders.

Speaking at Cushman & Wakefield's 2005 first quarter review and market outlook breakfast, C&W executive vice president Ken Krasnow likened the Manhattan leasing market to a truck whose tow is about to be unhitched.

"This is a market firing on all cylinders," Krasnow said.

His optimism was supported by data, compiled by C&W analysts, that indicates the city's vacancy is dipping towards the cusp of equilibrium, which is considered to be between 7-9%. As it stands currently, the total vacancy rate in Manhattan is 10.4%, its lowest level in four quarters and nearly 2% below what it was in the first quarter of 2004.

While the current vacancy levels for the city would indicate that tenants still possess a slight advantage in negotiating leasing transactions, Krasnow stated that not only have the incentives offered by landlords shrunk, average rents have risen in Midtown climbing from $45.98 psf to $47.13 psf.

Rents for class A Midtown space, have risen commensurately, from $50.51 a year ago to $52.51 and could increase even more as the direct vacancy rate for class A Midtown office space has plummeted below equilibrium to 6.6%, a number that firmly puts landlords who have available chunks of institutional space in the driving seat.

The overall vacancy for Midtown, unsurprisingly, has decreased as well, dropping from 10.1% in the last quarter of 2004 to 9.8% for the first quarter of 2005, a figure 2% below where it was at the start of 2004.

Although Midtown's $52.51 psf rental average is the loftiest in the city, some Midtown submarkets command far more.

The Madison/Fifth Avenue submarket known as the Plaza district for instance, enjoys average class A direct rents of $71.33 psf--the highest average in the city--despite an 8.5% direct vacancy rate and 11.2% total vacancy rate, both notably higher than the corresponding rates for the Midtown class A market as a whole.

The Park Avenue submarket came in a close second with class A total average rental rates of $62.70 psf versus the Plaza district's $64.90 psf rents and was the only submarket to post an average sublease rental rate north of its own direct rental rate, a phenomena driven by the scarcity of large contiguous blocks of class A space. Direct rents in the Park Avenue market are $59.93 psf, while its average sublease rent is a whopping $63.60 psf, a rate that dwarfs the Plaza district's $44.74 psf average sublease rents.

"Chase just recently put a chunk of space on the sublease market at 245 Park and it's commanding high numbers because there is a scarcity in this area of large institutional spaces," said Mitchell Konsker, an executive vice president at Cushman & Wakefield.

Midtown South posted improving fundamentals as well in the first quarter of 2005 with a total vacancy rate of 9.9%, just a tenth of a percentage point behind Midtown's.

While One Madison Avenue's $918 million sale in the first quarter stole the show for opening quarter happenings in the Midtown South market, a prominent trend has been the slow turnaround of the SoHo retail sector. After attracting a plethora of carriage trade tenants like Chanel, Prada, Ferragamo, Burberry and Cartier in the late 90s and into 2000 and 2001, the SoHo market went into a tailspin in the wake of 9/11, a period during which many of those retailers were forced to close shop or, as C&W retail broker Brad Mendelson put it, were in a position where they might have "wished they did."

But according to Mendelson and fellow C&W retail broker, David Greene, SoHo has begun to rebound meaningfully and is attracting a different mix of retail tenants a lot less chic than the previous influx.

"Eddie Bauer and Old Navy have been doing great," said Greene, noting that Broadway, on which both retailers are located at the corners of Prince Street and Spring Street respectively, is one of SoHo's best retail streets.

The Apple Store on Prince Street is the kind of trendy new tenant of which both Green and Mendelson expect to see more of.

That store is estimated to gross $100 million annually. Based on that success, Apple is planning to expand into the 5th Avenue retail market whose $1000+ psf rents make it one of the most expensive markets in the city. Work is progress on its flagship location in the basement of the GM Building with only a large glass cube in the plaza area to identify its presence, but Apple won't be paying nearly that. When Trump owned the property, this basement area was marketed at $200 psf. Retail experts feel that Apple is leasing it for roughly half that.

"It's basement space, so it can't command the premium rents," Mendelson said. "Apple has that aura about it that the Gap had a decade ago. But where the Gap has slid, I think that Apple is going to continue to be trendy and will be in that space for a long time."