Quarter sees most space absorbed downtown in five years.

The New York City commercial real estate market has taken off, according to the most recent market report by GVA Williams. Nearly 3 million square feet of office space were absorbed in Manhattan, the biggest net gain of space removed from the market vs. space added since the second quarter of 2000.

"After a brief pause in the action at the close of 2004, the first quarter of 2005 has witnessed the largest quarterly absorption of space in the nearly five years," said Michael T. Cohen, chairman of GVA Williams' executive committee. "It's not a return to the halcyon days of the dot.com bubble, but there is increased activity in the market. With unemployment in the city reaching its lowest level since July 2001, we anticipate continued absorption in the office market for the foreseeable future."

GVA Williams reports that more than 800,000 square-feet of sublease space alone was absorbed in Midtown South, reducing sublease space as a percentage of total availability to 17 percent, down from 25 percent in the fourth quarter of 2004. Overall, the vacancy rate in Midtown South currently stands at 9.3 percent.

"Tenants seeking to move or to renew leases would be well advised to act now," Cohen said. "Historically, when availability drops below 10 percent, a significant spike in asking rents is not far behind."

Indeed, rents already have increased. Midtown South asking rents jumped from $33.08 in the fourth quarter of 2004 to $36.31 in the first quarter of 2005--close to a ten percent jump. Rents in Midtown South have risen over 17 percent since the first quarter of 2004.

"Midtown South is showing real growth for a number of reasons," Cohen said. "Tenant demand continues to be strong as unemployment drops. In addition, there is tremendous pressure on the building stock in this sector due to the fast pace of commercial-to-residential conversions. What can be converted, will be converted.

"Downtown, meanwhile, is going sideways," Cohen continued. "It's slow and steady, and it continues to be the value option for Manhattan tenants." Overall Manhattan availability rates and average asking rents reflect the resurgent market. Availability dipped to at 12.2 percent, down from 13.1 percent the previous quarter. Average asking rents rose to $42.84 per square foot, up from $41.56.

Manhattan sublease space, as a percentage of the total amount of space available, dipped again to 24.9 percent.

MARKET-BYMARKET SNAPSHOT

I. Availability

                1st Quarter 2005   4th Quarter 2004   1st Quarter 2004

Midtown North         9.9%              10.7%               11.8%
Midtown South         9.3%              10.7%               11.3%
Downtown             17.5%              18.1%               16.7%
Overall              12.2%              13.1%               13.9%

II. Asking Rents (approximate)

                1st Quarter 2005   4th Quarter 2004   1st Quarter 2004

Midtown North        $53.58            $51.30               $48.44
Midtown South        $36.31            $33.08               $30.88
Downtown             $33.74            $34.62               $34.28
Overall              $42.84            $41.56               $39.67