NEW YORK CITY-It’s a mark of the continued vigor of Manhattan’soffice leasing market that as a single brand-new property wasresponsible earlier this year for a slight uptick in the vacancyrate, so that same property—11 Times Square, where law firmProskauerRose in May committed to more than 400,000 square feetof headquarters space—is largely responsible for a month-to-monthimprovement. However, that same statistic can also be cited to showthat the recovery is still fragile.

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The 30-basis point decrease in Manhattan’s vacancy rate, from13.1% in May to 12.8% last month, occurs as asking rents also tickdownward, says Cassidy Turley. Robert Sammons, director of researchfor the services firm’s New York region, writes in the report thatthe overall average asking rent slid for the third consecutivemonth, easing to $47.95 per square foot from $48.42 per square footin May. “The recent decline, however, can be tracked back to a risein availability Downtown with its generally lower rent levels, astwo Midtown submarkets actually recorded increases in askingprices,” Sammons writes.

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Concurrently, James Delmonte, VP and director of research forJones Lang LaSalle’s New York office, says in a releasingannouncing JLL’s midyear report that leasing activity has been upconsiderably over the year thus far, “while the number of largeblocks of space coming back to the market has slowed.” With demandfinally outweighing supply, Delmonte says, “vacancy levels improvedin some submarkets leading to positive absorption for the overallmarket. Encouraging data in the labor market bodes well for themarket in the long term, but overall asking rents are likely toremain stationary for the remainder of the year.”

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JLL puts Midtown’s overall vacancy rate at 13.2% at mid-year2010, a decrease of 3% from the overall vacancy rate of 13.6percent recorded in the first quarter. Midtown South’squarter-to-quarter vacancy decline was even sharper with a 6.3%drop to 10.1%, while Downtown’s overall vacancy rate rose 5.7% to12.1%, an increase due largely to an uptick in the class B vacancyrate. Class A vacancy in Lower Manhattan saw a decline during thesecond quarter, according to JLL.

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In terms of rents, JLL’s spring 2010 Skyline Review notes thatthe rate of decline in asking rents among Manhattan’s trophy officeproperties has decreased substantially. For both Midtown andDowntown’s top-end buildings, the six-month was in the lowsingle-digit range at 1.2% and 1.1%, respectively. That compares tothe six-month declines of 17.2% in Midtown and 21.7% for Downtownthat JLL reported in the fall of 2009.

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“With Manhattan’s office market reaching bottom and leasingactivity increasing, there are signs that trophy properties will bethe first segment of the office market to recover,” Delmonte saysin a release. “Historically, trophy properties outperform thebroader Class A inventory, in pricing and leasing, even during downmarkets.”

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Meanwhile, job growth in New York City through May, the latestmonth for which data are available, was positive for fiveconsecutive months although it did slow in May, Sammons writes. For2010, private sector positions have now climbed by 58,500, withoffice-using jobs up by 23,000. “Going forward, financialregulation, soon to be passed by Congress, could affect the jobssituation in New York City (in a negative or, interestingly enough,positive manner), though that remains to be seen,” writesSammons.

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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.