However, a new Grubb & Ellis report notes that despite weakening conditions, Manhattan's office market is in better shape to withstand softening than in past downturns, because there will be minimal new supply of space. The report predicts that Midtown will witness a further decline in rents as additional sublease space becomes available--C&W says it already represents one-quarter of the total Manhattan market—and landlords begin to price direct space more competitively with sublease space.

There will also be "more generous concessions from landlords," according to G&E. Richard Persichetti, research manager with the company's New York office, tells GlobeSt.com the spread between asking rents and taking rents has widened from about 2% in '07 to as much as 15% today.

Perhaps surprisingly, '08 saw an increase in the number of large leases over '07--32 deals of 100,000 square feet or more, compared with 30 during '07. These represented 35% of all leasing activity in '08 versus 13% the year prior, according to C&W. Many of these leases came from tenants that chose to renew in place, most notably Viacom's 1.3-million-square-foot renewal and expansion at 1515 Broadway. On the other hand, Grubb's report notes that there are currently 65 blocks of space greater than 100,000 square feet available throughout Manhattan.

Investment sales activity on Manhattan properties priced at $10 million or more saw its second-weakest year in a decade, according to C&W. The $19.2 billion in closed sales through the end of '08 was off 60% from the previous year's record level of $47.8 billion. Harbert noted that by some estimates, asset prices have declined 20% to 30% from the mid-'07 peak, but added that the figures are difficult to substantiate with so few data points of late.

Much of the '08 activity occurred during the first half of the year and took the form of assumed debt, Harbert pointed out. It also centered around trophy properties such as the Macklowe Properties portfolio, Persichetti observes. This year could tell a different story, he says, as sales of distressed assets increase regionally and nationally.

In common with the Grubb report, a 2009 forecast from Marcus & Millichap Real Estate Investment Services sees increased vacancy nationwide in the retail and multifamily sectors, while cautioning against expectations of fire-sale prices. "Investors awaiting large-scale price discounting across markets and asset classes will be disappointed, as price and cap rate correction is heavily based on quality and location," the report states. "For sellers faced with operational challenges or maturing debt, however, price adjustments will be necessary to clear the market."

Cap rates for lower-quality properties in secondary/tertiary markets may need to be adjusted by as much as 200 basis points from one year ago, "while those for high-quality assets in primary markets may need to rise by 75 to 100 basis points," the Marcus & Millichap report states. "Overall, sellers who are not in need of an immediate sale are likely to hold properties until credit markets ease somewhat and buyers' expectations stabilize."

CB Richard Ellis is scheduled to release its own Manhattan Q4 report and market forecast next week, and GlobeSt.com will provide coverage at that time.