The vacancy rate dropped 20 basis points to 4.9%--its lowestlevel in more than 25 years--and average asking rent on all classesof space increased $2.15 per sf from the second quarter to $69.55per sf. Investors, however, were not as bullish on the real estatemarket as landlords were, as the blistering pace of investment ofthe first half of the year showed evidence of slowing, the reportnoted. In Q3, $5 billion in transactions were completed, which is asharp decline from the $13.1 billion average in each of the twoprevious quarters. Still, with more than $31 billion in totalinvestment transactions so far this year, the market is on track todouble 2006's total of $17 billion.


"Changes in the cost of debt and equity are having an impact onthe commercial real estate investment market," explains DavidArena, president of Grubb & Ellis New York. "Assets are being're-priced' accordingly, driving cap rates up." Arena went on tonote that rental rates, however, should remain steady over the next12 to 18 months due primarily to the low vacancy, lack of newsupply in the marketplace and the cost of bringing new developmentsto market. "If employment growth slows for a sustained period, wemay see some softness around the edges--and demand for 'growth'space will diminish while tenants who occupy large blocks mayconsider partial sublets," he explains. "But New York is a terrificmarket with access to the best educated, most productive work forceon the planet…I am bullish on its long-term health andvitality."


Arena says that for now, Grubb & Ellis is counseling clientsto act with caution, but to be prepared to move quickly whenopportunities arise. The report notes that tenants seemed to focustheir activity in the third quarter on Midtown, despite the factthat asking rents have reached an all-time high. Most must decidebetween remaining in Midtown and absorbing a steep increase in realestate expenses or moving their operations to another part of thecity. And for some--the rents are truly astounding--severaltransactions closed in the third quarter at rents starting as highas $180 per sf, the report explained.


But the perception that $100-plus-per-sf rent is the new norm isactually a fallacy, according to the report. A closer look atMidtown reveals many viable options in Midtown for tenants whocannot afford to triple their rent. In fact, according to RichardPersichetti, manager of research services for Grubb & Ellis NewYork says that "transactions starting at $100-plus per sf onlyaccounted for 13% of the transactions completed in 2007." The bulkof the transactions in Midtown--62%--fell into the $35 to $75 persf range, he adds.

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Natalie Dolce

Natalie Dolce, editor-in-chief of and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel,, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including and Museums New York magazine.