For the first time in months, downtown New York City posted positive absorption of office space. A report from Cushman & Wakefield shows that downtown office vacancy fell from 13.7% at the end of February to 13.3% at the end of last month.

Still, average asking rental rates fell slightly over the same period from $38.77 to $38.24 per sq. ft.

"Right now, New York City has a lot of office space available at a bargain. Add the business incentives being offered downtown to the large availability of space in some of Manhattan’s most modern office buildings and it’s no wonder that downtown has become a market in motion," says Ken Krasnow, senior managing director and head of Cushman’s New York office.

As of March 31, lower Manhattan’s Class-A space posted the highest vacancy rate of any asset class in Manhattan. The Class-A vacancy rate downtown stood at 16.3%, vs. 11.1% in midtown and 7.7% in midtown south.

Several major leases signed in March were responsible for driving vacancy down. They included the New York City Teachers Retirement Fund, who leased 157,000 sq. ft. at 55 Water St., and Shepardson Stern & Kaminsky’s 20,000 sq. ft. lease at 88 Pine St. Another lease for 22,000 sq. ft. was signed by the City of New York at 40 Rector St.

"[These] three leases in March represent a membership organization, a government agency and a marketing communications firm. That’s exactly the type of diversity that is helping alleviate downtown’s dependency on the financial services sector—an important transformation for the future health of the market," says Krasnow.

The war in Iraq will only hurt the Manhattan leasing market if it drags on for many months, says Krasnow. Such a scenario would hurt job growth, which is a key driver for the leasing market.

"If it’s a short and successful campaign, we should see a rise in corporate spending, productivity and eventually job creation," he says. Following the Gulf War in 1991, the New York City economy sustained eight consecutive quarters of job declines. That economy — like today’s — was in a recession.