Adds James Delmonte, principal and VP of research, “Historically, we have seen that during certain market cycles, the price differential between Downtown average rents and those of Midtown reach a point whereby tenants will seize the opportunity to relocate Downtown. Recent market activity indicates that we are in the midst of one of those cycles,” he says.

The activity also prompted a dip in Lower Manhattan's vacancy rate, according to the report. After rising throughout 2012 and ending the year at 16% in the fourth quarter, Downtown's class A vacancy rate dropped to 14.8% in the first quarter of 2013. Recently completed new leases in Lower Manhattan include longtime Midtown tenant Harper Collins committing to 185,000 square feet at 195 Broadway, and Conde Nast taking 80,000 square feet at 222 Broadway. The latter is in addition to the much ballyhoed 1 million square feet leased by the media giant in 2011 at One World Trade Center. In another notable transaction, Liberty Mutual doubled its Downtown presence by taking 120,000 square feet at 55 Water St., the report says.

The Downtown market currently has several large-block opportunities in high-profile buildings, making it well positioned to attract large tenants willing to relocate from Midtown, as well as cost-conscious occupiers priced out of Midtown South, AY's report points out. “Average class A rents for Downtown changed minimally to $48.90 per square foot from $48.96 per square foot quarter-over-quarter, and was far below the average for both Midtown and Midtown South.

“Historically, we have seen that during certain market cycles, the price differential between Downtown average rents and those of Midtown reach a point whereby tenants will seize the opportunity to relocate Downtown,” notes James Delmonte, principal and VP of research, in the announcement. “Recent market activity indicates that we are currently in the midst of one of those cycles.”

Sure enough, Midtown's Class A vacancy rate rose slightly to 12.5% during the first quarter of 2013, from 12.3% at the end of 2012. Large blocks of space placed on the market at 335 Madison Ave. and 125 Park Ave. contributed to the increase. The announcement states.

Meanwhile, there was space to be had in Midtown South. Several blocks of space came onto the market at 395 Hudson St. and 28-40 West 23rd St., the report states. That availability pushed Midtown South's overall vacancy rate up to 9.1% and absorption was negative. The largest deal completed was J. Crew's expansion at 770 Broadway for 79,735 square feet, according to the report.

“Midtown South has been the darling of the Manhattan office market, with tech and new media firms flocking to the area and changing the landscape,” says Delmonte. “However, because of Midtown South's appeal, the increase in demand has led to pricing being pushed higher. This in turn is forcing newer tenants to seek out other alternatives, such as adjacent neighborhoods and even Lower Manhattan.

Going forward, the future of Downtown looks bright, notes AY principal Adam Rappaport. “While overall activity for the last two years was driven largely by renewals, it was encouraging to see that new leasing activity rose in the first quarter and that an accelerated pace of hiring is predicted for the latter part of the year, which should translate into positive absorption for the office market,” states Avison Young Principal Adam Rappaport.

“Downtown, in particular, remains attractive to a number of industries due to the best-in-class space available and value-driven pricing. In addition, recent stock market gains may foreshadow an increase in hiring on Wall Street, which should be another boon for Lower Manhattan.”