NEW YORK CITY-While there is little office space available in Manhattan, the rocky road the credit markets are traveling down could affect that number in the short term. However, long-term outlooks for the borough’s office market remain good.

According to Peter Von Der Ahe, director of the National MultiHousing Group in Marcus & Millichap Real Estate Investment Service’s Manhattan office, the financial services industry has provided roughly 25,000 new jobs over the past five years. However, any scaling back in the sector could have a trickle down effect causing other areas, like the legal sector, to readjust their space needs as well.

“I think the biggest question in the market right now is how will the uncertainty in the credit markets affect the market,” Von Der Ahe tells “Will the recent turbulence in the credit market cause downsizing in the financial services industry? If what happens now, and over into the fourth quarter, will it affect space needs in 2008? That is the biggest unknown in the market right now.”

However, despite the concerns for the office market over the next six months, Von Der Ahe explains the long-term prospects for Manhattan remain solid. “All this is very short term. The long-term prospects are really healthy in all the submarkets,” he says. “There is no space left in Manhattan.”

And even with the question marks surrounding the credit markets, Marcus & Millichap’s second quarter Office Research Report still sees vacancy rates decreasing in Manhattan, with that figure falling below 7% for the first time since 2001. In fact, the firm puts that rate for the year at 6.3%.

According to the firm’s report, “robust job growth is stimulating demand, as five of the borough’s seven submarkets have recorded year-over-year vacancy declines greater than 100 basis points.” The 36,000 new jobs expected this year represents a 1.5% gain, the firm adds, with office-using employment in Manhattan expected to grow by 17,300.

And of the seven submarkets, Von Der Ahe tells the Midtown and Grand Central submarkets are the two tightest right now, with the space crunch pushing tenants into Downtown.

In a push to meet the rising demand, developers are slated to deliver 1.8 million sf of office space this year, with some building owners putting aside plans for residential conversion to keep properties office, the report adds. “The strength of the office market is causing some investors who recently purchased class B and class C office buildings for conversion to residential use to abandon those plans in favor of office use,” explains Edward Jordan, regional manager at Marcus & Millichap. “Some of these owners are finding that reselling to an office investor is a profitable exit strategy, as evidenced by the recent sale of the International Toy Center on Madison Square Park for $500 million.”

L&L Holding Co. purchased the center at 200 Fifth Ave. in April. L&L’s plans for the building include a $75-million renovation to convert the 800,000-sf building into class A office space, as previously reported.

And as with any space crunch comes rent increases. According to Marcus & Millichap’s second quarter report, both asking and effective rents in Manhattan will increase 15.2% to $59.27 per sf and $50.42 per sf, respectively.

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