Sales thrive in 2005.

Office rents may be slow to markedly improve in Midtown and even on the slide downtown, but slack fundamentals still haven't managed to put a damper on the pace of investment sales during the first two quarters of 2005.

Speaking at Cushman & Wakefield's second quarter market report breakfast, C&W executive managing director Ken Krasnow indicated that sales activity is on track to top last year's record $15.1 billion mark.

Fuelled by massive transactions such as the sale of MetLife's $1.7 billion 200 Park Avenue and $918 million One Madison Avenue, as well as the $500 million disposition of the

Verizon building to REIT Equity Office, the market has tallied $12.67 billion worth of deals through the start of June according to C&W data.

In comparison to the MetLife behemoths, 2004's biggest deal was the still lofty but far smaller $775 million sale of 111 Eighth Avenue to German fund, Jamestown.

"Investors have firmly put real estate in its place," Krasnow said. "They have kept sales strong throughout 2005."

Helping to drive the selling boom in Midtown South are redevelopment opportunities. Krasnow said that roughly 59% of sales in MTS are for construction projects, mostly condo conversions. Among the more prominent examples are One Madison Avenue, whose clock tower has been slated for a conversion to apartments and also the International Toy Center, which was closed on in March by the Chetrit brothers for $350 million and is scheduled to undergo a similar revamp.

Conversions, along with a number of very large subleases done in the first half of the year, have helped tighten fundamentals downtown. With less office stock on the market because of residential converts and sublease space taken up by major deals like Morgan Stanley's 650K s/f sublease space at One New York Plaza, total vacancy downtown dropped from 13% this time last year to 12%. Vacancy for Class A properties downtown, whose rents seem like a bargain compared with comparable space in Midtown, dropped to 11.5%, its lowest level in three years.

But despite the tightening of space, rents have not yet responded and have in fact declined since the same period last year, dropping from $32.25 per square foot on average to $31.20 psf currently.

Krasnow indicated that, since the West Side stadium was nixed and the Olympic bid lost, focus can return with greater intensity to rebuilding downtown into a premiere office district. But to reverse its fortunes, those involved in the rebuilding of the WTC site and surrounding area must act fast and reverse the stagnancy that has seemingly overtaken many of the projects there.

"Washington DC just surpassed downtown as the third largest business center," Krasnow said. "We are at that tipping point ... there are great plans for downtown, now is the time to complete that vision."

Riding on the back of financial, law, and media firms, Midtown posted its sixth consecutive quarter of dropping vacancy. Vacancy stands at 9.2%, down from 11.3% a year ago. Class A space performed similarly, its vacancy dropping to 9.2% from a slightly higher 11.5%. Unlike downtown, rents in Midtown have responded to tightening space, increasing from $47.16 psf a year ago to $47.87 psf. Direct class A space in the Madison/ Fifth Avenue submarket, the priciest in the city, reached $72.76 psf, its highest in three years.