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NEW YORK CITY-The latest quarterly market report from CRESA Partners LLC says vacancy rates in some submarkets may be 20% to 37% higher than most surveys show if two extra factors are taken into account: space that is leased, but unoccupied and space that is occupied, but available for lease. Neither aspect of so-called “hidden space” is usually reflected in market surveys.

Marcus Rayner, principal in CRESA’s New York office, says it suggests that tenants “have an increasingly broad range of choices and options under favorable terms, especially if they will consider shorter-term leases. On long-term deals, owners are maintaining a tougher negotiating position.”

The report also notes that the gap in asking rents between direct and sublease space is as much as 40% in some submarkets. “Tenants disposing of space need to reassess pricing on a monthly basis to remain competitive,” according to the report. “The ability to be flexible during negotiations has never been more important.” Rayner tells GlobeSt.com that this is a problem affecting all areas of Manhattan. “We’re seeing notable price corrections all over.”

CRESA’s report for the first quarter of this year indicates some sign of firming in Class-A downtown space, with the vacancy rate declining nearly a percentage point, compared with the last quarter of 2002, to 11.77%, not including “hidden space” factors. Average asking rents rose by 10 cents to $34.52. However, the total Class-A downtown vacancy rate, including sublease space, remains at a high 16.15%.

The Class-B downtown vacancy rate continued to rise in the first quarter, up more than three-quarters of a point to 14.10%. Average asking rents fell by more than a half-dollar to $27.76. The total Class-B downtown vacancy rate is 16.81%.

In midtown Manhattan, Class-A average asking rents declined by nearly $2, to $49.78, as the vacancy rate rose nine-tenths of a point to 8.8%. Total available space is at 11.75%. Class-B average asking rents dropped by 34 cents, to $34.56, while the vacancy rate rose 66 points to 9.93%. Total available Class-B space is 12.24%.

In midtown south, the combined vacancy rate for both classes rose modestly to 11.88%, while average asking rents declined nearly $1, to $30.02. Total available space is 14.22%.

Rayner tells GlobeSt.com that “hidden space” could affect how quickly an economic recovery can take hold. “We expect this to go on for awhile until people are hired and fill the space,” Rayner notes, adding that he does not anticipate financial recovery until the middle of 2004.

An international corporate real estate advisory firm exclusively serving space users, CRESA Partners specializes in tenant representation, portfolio administration, project management and capital markets expertise. Worldwide, the firm provides service in 35 countries and more than 125 cities – including 45 North American CRESA Partners locations. In 2002, CRESA Partners’ North American assignments totaled 37 million sf valued in excess of $4 billion.

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