No, we're not just talking about the wrath of Zeus that came down on Sunday, but the equally dampening news that Manhattan office vacancies are on the rise. They climbed for the second straight month, according to Cassidy Turley's Manhattan Market Research Newsletter for February 2011.

The vacancy rate closed February at 12.3 percent, up from 12.1 percent. Even Class A spaces—supposedly rarer than emeralds these days—were up slightly to 11.3 percent, from 11.2 percent.

Despite the increase in empty space, landlords also demanded higher rents last month. The average asking rent for Class A spaces jumped to $59.45 per square foot from $58.89 a foot. "That's totally not unexpected with sublet space pulling back," Robert Sammons, Cassidy Turley's research guru, told The Observer.

But what about huge leases signed by Deloitte, Bloomberg, Li & Fung and the like? "They didn't really balance out all of the space that came back to the market," said Mr. Sammons. Several of the major deals—International Securities Exchange comes to mind—were renewals. They didn't compensate for the mega-blocks that came back on the market, and for the one or two, such as the Societe Generale space at 1221 Sixth Avenue, that have yet to come on the market.

The good news is there are still 55 tenants looking for more than 125,000 square feet, according to Mr. Sammons. "I consider it really a blip," he said, "which should make everyone feel better." In contrast, downtown, he said, is stable for now, but could experience a flood of space in 2013 or 2014, when the World Trade Center spaces are complete.

While tenants jockey for space and landlords play hardball, it looks like we can all settle down: At least for now, there's still more the enough space to go around.

lkusisto@observer.com

Mr. Meyerson, who helped broker 2010's largest lease for tenant Société Générale, was not alone in eyeing the recovery in the office-leasing market and feeling not relief, but concern. Unlike 2009, when landlords and tenants circled each other warily, shaken by the past year and not knowing what the future could hold, 2010 belonged to the bold.

"All the companies in 2009 needed all the cash they could possibly hoard," Mr. Meyerson said. In 2010, "the storm was settling and ... tenants were more opportunistic."

This past year, the dam broke, the circling stopped. Tenants jumped to lock in cheap rents and generous concessions, in anticipation of a tightening office-leasing market driven by a recovering local economy.

SLIDESHOW: The Top 20 Leases of 2010

While in 2009 the top leases were dominated by renewals, in 2010 over half of the top 20 leases were new ones. And while none of this year's leases could top law firm Paul Weiss' 540,000-square-foot lease in 2009, activity on the beefier end was significantly more robust. Six deals were signed in 2010 of more than 300,000 square feet each, as opposed to only two in 2009.

Overall, more square feet of space was leased in 2010 than in any year since 2006. Activity rose 61.4 percent annually, in fact, according to Cushman & Wakefield's fourth-quarter Manhattan office report. But of the top 10 leases, seven of the deals were signed in the first half of 2010, when the market was weakest, suggesting that while activity was up, taking rents were not.

In a more encouraging sign for brokers, the deals were more or less evenly spread across industries. In 2009, law firms dominated from the top of the list down to No. 19. In 2010, financial services firms were back, with the Société Générale, Deloitte and Allianz Global leases; media held its own with the CBS and Meredith leases; and there was a smattering of retailers, with Avon and Tiffany among those securing corporate headquarters. In perhaps the most striking addition, three of the top 20 leases in 2010 were by nonprofits, government entities and unions, confirming the trend everyone's been whispering about.

Still, will the robust level of activity continue as landlords look to raise rents and scale back on concessions? Will conditions keep getting better and better, and therefore worse and worse for tenants?

In a recent briefing to journalists, Joe Harbert, Cushman & Wakefield's regional COO, said if unemployment drops more sharply, "we could see a little flattening" of office-leasing activity in 2011.

Brokers interviewed by The Commercial Observer said, of course, they anticipate the market will tighten yet more in 2011, making it tougher on tenants and more beneficial for landlords.

A few notes about the list. It was culled using statistics from brokerage Cassidy Turley and database CoStar, and from The Commercial Observer's own reporting over the past 12 months. Also, it reflects leases that were closed in calendar year 2010.

lkusisto@observer.com

Our island market is thought to be sheltered from the forces of over-building that imperil other cities. But in October 2007, 3 million square feet of office space flooded that market in a single month. "The news has caused a low buzz of concern in the industry," wrote the New Jersey Record, "that this could be the first sign that New York's office market is not as impregnable as once thought."

Fast-forward three years, and we have to hand it to our neighbors in Jersey. Several of the huge vacancies that opened up in that black month still haven't been filled, and many more have come onto the market since then. Of the three biggest space hogs in Manhattan, banks have collapsed and many media companies have shrunk; only law firms have held their own.

In 2010, mega-leases were signed by companies like Société Générale, Proskauer Rose and Polo Ralph Lauren-though none as big as 2009's largest of 540,944 square feet by Paul Weiss. Leasing volume was higher last year than in both 2008 and 2009, according to Grubb & Ellis' 2011 Forecast for the New York and the Tri-State Area, to be released this week. At last, deal activity climbed back up to the 13-year average.

Dozens of companies jumped around, taking advantage of a weak market to lock down cheap rents and sweet concessions. In the final tally, they took a 2.5 million-square-foot chunk out of the 52.5 million square feet of office space available at the beginning of 2010, according to the report.
Looking ahead to 2011 now, the year will see a "market of situations," said Richard Persichetti, market research director for Grubb & Ellis, meaning that landlords with nearly full buildings will be able to command higher rents and fewer concessions, while those with more empty space will keep offering recession-era deals. Overall, he expects the vacancy rate to continue declining this year.

Click through our top 10 list of the Manhattan towers with the most available space, contiguous and otherwise, and it reveals that in many cases, the glass (and brick and concrete) is still half-empty. From the chilly halls of 58 Broad Street to the darkened windows of 11 Times Square, there's plenty to watch in 2011.

The data was provided to The Commercial Observer by CoStar, and is current as of the end of 2010.

Click through 10 Biggest Available Spaces: Watch What Happens

lkusisto@observer.com

July brings more modestly optimistic news for the city's commercial real estate industry, according to the latest report from brokerage Cassidy Turley.

Manhattan-wide vacancies are still dropping, down from May's 13.1 percent to 12.8 in June, marking the lowest amount of empty office space since at least April of last year. Downtown is faring better, with vacancies at 10.6 percent. Class A vacancies in midtown saw the biggest fall, from 13 to 12.4 percent.

"Signs of stabilization appeared to have continued in June—though all is not quite what it seemed," reads the report, as "a significant portion of the improvement was due to a large block of availability removed from the market." June's big block: 229 West 43^rd Street, the old New York Times building, which will soon be home to a bowling alley cum theme park, according to Curbed.

And while office rents continue to slide all over, Times Square and Grand Central have bucked the trend and seen small hikes.

ajulius@observer.com