The bigger they come, the harder they fall is an expression that clearly does not apply to New York, according to Cushman & Wakefield’s first-quarter report on the commercial real estate market in Manhattan. Despite a slowdown in leasing and a rise in vacancy, overall asking rents were up to $67.13 per sq. ft. from $53.43 at the end of the first quarter last year.

"Commercial real estate is facing an uncertain economy from a position of fundamental strength," said Bruce Mosler, Cushman & Wakefield's president and CEO. "Until this quarter, years of uninterrupted job growth fueled office leasing and investment demand and limited new construction kept supply in check in most major U.S. markets. On top of the fundamentals, New York, in particular, has a position of strength stemming from its reputation as the global financial and business capital."

Even the higher vacancy in the office sector — now 6.1%, up from 5.7% a year ago — is considered below equilibrium of 7% to 9%. That is the point that neither tenants nor landlords are considered to have the upperhand in negotiations.

“Office leasing has slowed in the first quarter in direct response to economic uncertainty,” said Joseph R. Harbert, chief operating officer for Cushman & Wakefield’s New York metro region. “Although we have not seen financial industry write-offs turn into major layoffs in New York, we have seen that financial services sector leasing demand has weakened.”

While leasing only slowed, sales dropped precipitously. Coming off a year that recorded $48.5 billion in commercial real estate sales, the first quarter’s total investment sales of just $5.1 billion properties under contract is a paltry figure.

The slower market, however, has created new opportunities for foreign and institutional investors, who had a tough time competing in the heady days leading up to August 2007. At the end of the first quarter, foreign buyers accounted for 45% of the sales closed or under contract, a sharp increase from 15% last year.

“Because we are a supply-constrained city, we’re still seeing strong demand, especially from foreign retailers crossing over into the Manhattan market,” said Harbert. Manhattan’s upper tier retail market finished the quarter with both strong leasing volume and rent increases.

Fifth Avenue gained two high-profile leases — Tommy Hilfiger at 681 Fifth Avenue and Diesel at 685 Fifth Avenue — achieved asking rents of more than $2,000 per sq. ft., up from $1,500 per sq. ft. in the year ago period. In Soho, average asking rents increased to $280 per sq. ft. with available space on Broadway averaging $386 per sq. ft. and Spring Street averaging $377 per sq. ft.

The weak dollar, according to the report, has also given the city a boost in tourism and so far created a firewall against the national decline in consumer confidence. "On a risk-adjusted basis,” Harbert concluded, “the U.S. is at the top of the shopping list for global real estate investors."