Drilling down into the numbers, the FSW report finds that theactual results for asking rents differed according to whether thespaced in question was direct or sublease—and further, whether thatspace was located in Midtown or Midtown South. Although askingrents slipped for direct space in Midtown, they rose for sublease.For Midtown South, it was just the opposite.

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"These highlighted rent movements in the direct and subletcomponents from quarter to quarter are more the result of thequalities of the available spaces in each of the two timeperiodsthan any subtle shifting of market supply/demand dynamics," FSWchairman Robert Freedman says in the report. "The overridingconclusion is that the amount of available space contracted inthese two markets, and there is no significant amount of newconstruction that will be completed in either of these marketsduring the next two years, aside from the completion of 11 TimesSquare in early 2010." He adds that even assuming only moderateeconomic growth, "space availabilities will become tighter in 2011and 2012."

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The report notes a "small but significant decline" of 2.6% inthe amount of sublease space across Manhattan during Q1. The sizeof the decline, though, resulted from what the report called"continued deterioration in the Downtown market," with a 32.7%increase in sublease space during the quarter. On their own,Midtown and Midtown South showed improvement.

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Observes Mark Jaccom, CEO of FirstService Williams, "Thesublease situation is substantially different in the Midtown andMidtown South markets, with the amount of sublease space availablefalling dramatically in both markets." In the case of Midtown, thequarterly decline was 9.3%, while for Midtown South it was 16.8%."Sublease space has become less of a factor" in both markets,Jaccom says in the report. At the same time, the report notes, "theavailability of direct space also fell."

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In the view of market experts, "a surfeit of sublease space isthe critical element in putting downward pressure on lease rates,"the report states. "Sub-landlords are more interested in minimizingthe net cost associated with a space decision gone badly, eventhough this real estate predicament is often a relatively shortterm issue. Property owners, on the other hand, may well bethinking about pricing in terms of maximizing returns on agenerational basis. They might be less willing to drive askingrents down to capture a deal in a momentarily depressedmarket."

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Another positive indicator cited by the FSW report is ayear-over-year improvement in leasing activity across Manhattan:3.8 million square feet for Q1, compared to 3.4 million feet duringthe first quarter of '09. The report says that Manhattan's overallavailability rate dropped to 13.6% by the end of Q1, down 200 basispoints from 13.8% at the end of last year.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.