Investors continued to place outsize bets on Manhattan’s office market through the end of last quarter. Throngs of REITs, private buyers and offshore investors are leading a charge that shows no sign of slowing down anytime soon.

According to Manhattan-based real estate services firm Cushman & Wakefield, which unveiled its third-quarter market data this morning, more than $14.3 billion in Manhattan office sales were closed during the past nine months. With an additional $16 billion currently under contract, the firm expects 2006 sales volume to eclipse last year’s record of $20.9 billion.

“It’s an unrelenting flow of capital,” says Cushman & Wakefield investment sales broker Scott Latham. “There are just so few opportunities and so much capital trying to get into the market.”

Private buyers are dominating the market so far this year, closing on 42% of all office sales through the end of September. Public REITs, which have lost out to highly leveraged private buyers in many deals, were responsible for roughly 30% of all office acquisitions during that period. One such deal — Equity Office Properties Trust’s acquisition of 1540 Broadway for $820 million in May — helped drive REIT transaction volume. Foreign investors, meanwhile, accounted for nearly 14% of all Manhattan office sales, up from just 7.4% at the end of September 2005.

Joseph Harbert, COO for Cushman & Wakefield’s metro New York region, says that investors aren’t just buying office assets blind: Many are enamored by Manhattan’s impressive office fundamentals and shallow pool of new supply.

Leasing demand is vibrant. For example, financial services firms and legal firms helped drive overall Manhattan office vacancy down to 7% from 9.6% at the end of September last year — Manhattan’s lowest vacancy rate in five years. Deals are getting done throughout the city, not just in the red-hot Midtown submarket, and signed leases above $100 per sq. ft. are becoming less uncommon.

“In the past, only the Madison and Fifth Avenue submarket commanded this level of rent,” says Harbert. “[But] this year, and specifically during the third quarter, we’re seeing buildings on the East Side, on Park Avenue and in the Grand Central submarket with triple-digit taking rents.”

This is music to the ears of Manhattan office landlords, who are making stellar returns on their space. But for prospective tenants, notably those hunting for significant blocks of space (on average 250,000 sq. ft. or more), this is nothing to smile about. Cushman & Wakefield reports that more than a dozen tenants ranging from financial firms to government agencies are vying for sizeable pads in Manhattan. Only seven such blocks currently exist in Manhattan, setting the stage for one expensive round of musical chairs.

“Tenants in these situations have several options,” says Harbert. “Some tenants already locked in growth space early by negotiating renewals and expansions. Others may choose to diversify their operations into several locations.”

Bids are rolling in for Midtown south’s gigantic apartment complex, Peter Stuyvesant Town/Peter Cooper Village. Local sales brokers expect the winning bidder to fork over as much as $5 billion for the city’s largest apartment complex, which MetLife placed on the market earlier this year. The same brokers expect the buyer to somehow free up units (roughly three quarters of the complex’s 11,200 units are rent stabilized) and convert them to high-priced condos or market rate rentals.

One quirky theory making the rounds among Manhattan market watchers is that a new owner might want to develop office towers on the seven-acre site. Why would any buyer, after pouring billions into the city’s largest rental complex, decide to build office towers? Try a dearth of existing and planned office space: midtown south office vacancy was just 5.1% on a direct basis at the end of September. Not only was that lower than perennial market leader Midtown, but it stands as the lowest CBD vacancy in the nation. Another thing: There are currently just 15 Class-A office buildings in the immediate area.

Red tape could foil such plans, however. Converting parts of the complex to office use could take years of wrangling with city officials over a new zoning designation. Cushman & Wakefield broker Scott Latham doubts any buyer would be willing to take that risk: “It makes more sense to somehow isolate the stabilized units in one part of the complex and then sell the others as condos.”