An aggregate of 2.59 million square feet came back onto the Manhattan market in November, bringing YTD net absorption to 9.68 million square feet, according to NKF. Although the vacancy rate remained unchanged at 6.3%, "with employment dropping, the intensity with which space is used has fallen," the report states. "As a result, the amount of vacant space will continue to move higher."

The average asking rent in Manhattan dropped to $57.49 per square foot from $59.81 per square foot in October, down sharply from the peak of $65.75 per square foot last February. The NKF report attributes the decline to a major drop in sublet rents, which fell more than $4 per square foot in November to an average of $52.11 per square foot. Direct rents declined by a more modest $1.51 per square foot, to $59.34 per square foot.

"Effective rents are even lower, as landlords step up concessions, such as free rent and build outs," the report states. "Turnkey installations have the greatest attraction to tenants, as their capital expenditure budgets have been trimmed."

Looking ahead to next year, NKF's national report from late November offers this forecast for Manhattan: "With activity in virtually all segments of New York City's financial industries down significantly, improvement in the pace of business will not likely happen before the second half of '09 at the earliest. Total office sector employment could fall by 5% to 6% before the recovery begins and close to four million square feet of new space will likely come on line in '09 or early 2010."

Asking rents will decline substantially next year, NKF says, with the average for '09 at least 10% lower than the average level in '08. "The peak-to-trough decline in asking rents will be much larger, and the fall in effective rents will be larger again."