Manhattan office vacancy hit 11.1% at the close of 2004 thanks to roughly 30 million sq. ft. of absorption, reports real estate brokerage Cushman & Wakefield. In 2003, by comparison, 20 million sq. ft. of office space was leased—or 9 million sq. ft. fewer than the bulk of 2004.

The news wasn’t quite as good for the downtown market, however, where vacancy increased from 12.7% to 14.2% between the end of 2003 and 2004. "We were well aware of a few significant blocks of office space set to become available downtown. But the vacancy rate rise this quarter only gives a portion of the complete picture," says Ken Krasnow, executive managing director at Cushman & Wakefield.

"Businesses leased 500,000 sq. ft. more office space downtown this year than last year, indicating that demand continues to pick up, which we see as a positive for the overall health of the market."

In midtown, office vacancy fell from 11.9% to 10.1% over the course of 2004. Financial services firms led the charge in midtown, where rents average nearly $15 per sq. ft. higher than downtown.

"Financial services ran away with available space this year, leasing about 1.5 million sq. ft. in the fourth quarter alone for a total of 4.1 million sq. ft. in 2004," says Krasnow.

He believes that financial services firms will drive roughly one-third of the leasing market for office space while law firms should fuel "significant leasing" demand in the near term.