According to a research report by Cushman & Wakefield, a privately held commercial real estate services firm, office rents in Manhattan has increased in fourth quarter 2010 – the first of its kind since recession that had pushed several companies into bankruptcy.

Rents sought by landlords increased to $54.34 per square foot at year-end 2010 from $53.80 in  the third quarter. About 7.5 million square feet of office space were leased during the quarter in the region –  maximum since third quarter 2006, as lessees sought to occupy premium assets before rents escalate further.

The office vacancy rate in Manhattan dropped significantly from 11.1% at year-end 2009. The overall office vacancy rates decreased to 10.5% at year-end 2010 from 10.9% at September 30, 2010 – the greatest vacancy rate decline in a quarter since June 2007.

Vacancies in the Midtown region, the biggest and most expensive office market in the U.S., plummeted to 10.6% during the quarter from 11.0% in the previous quarter and 12% in the year-earlier period. Midtown office rents increased to $62.46 per square foot from $61.69 in the third quarter and $61.82 at year-end 2009.

On the other hand, lower Manhattan's vacancy rate plunged to 11.5% during the quarter from a six-year high of 12.1% in third quarter 2010. However, office rents in the region fell to $38.78 per square foot from $39.08 in the previous quarter and $40.36 in the year-ago period. Midtown South had a vacancy rate of 8.6% during fourth quarter 2010, down from 9.2% in the third quarter and 10.0% in the year-earlier period.

The development marks a significant volte-face from early 2009, when most of the real estate companies were forced to lower rents to attract as well as retain tenants. In addition, tenants were asking for and getting more concession in the form of free rent and capital improvements.

The erstwhile market fundamentals reflected a demand-supply imbalance triggered by the slowdown in demand due to the prolonged economic downturn and an oversupply due to bankruptcies of large companies.

Furthermore, unemployment rate in the city fell to 9.1% in November 2010, the lowest since April 2009. Data from the New York State Department of Labor also reveal that employment in the private sector increased 1.6% in the last 12 months to about 3.2 million, with financial-services jobs rising by 5,900. This justifies to some extent the significant hike in office rents in the region.

We presently have a Neutral recommendation for both Vornado Realty and Boston Properties, which currently have been assigned a Zacks #3 Rank each that translate into a short-term ‘Hold' rating and indicates that the stocks are expected to perform in line with the overall U.S. equity market for the next 1–3 months.