NEW YORK, July 1, 2003 - Cushman & Wakefield today released second quarter statistics for the Manhattan office market that indicate a drop in the overall vacancy rate in June. Commercial real estate experts attribute the decline primarily to an upsurge in office leasing activity year-to-date, as well as the first signs of significant sublease-space reductions throughout Manhattan. For the one-month period ending June 30, the overall Manhattan vacancy rate (including Midtown, Midtown South and Downtown) declined 0.1 percent, hitting 12.5 percent from 12.6 percent at the end of May. Of the three Manhattan submarkets, the most significant decline over the last quarter occurred Downtown, where the vacancy rate fell to 12.6 percent from 13.3 percent at the end of March. Despite the climb in leasing activity, average asking rental rates continued to decline Downtown to $36.36 per square foot, from $38.24 at the end of the first quarter. Overall Manhattan rents have fallen slightly from $41.97 to $41.12 during the same period. Ken Krasnow, senior managing director and head of Cushman & Wakefield's New York office, cited two primary reasons for the vacancy rate declines. "Big deals have helped revive the market," Mr. Krasnow said. "Through midyear, 12 leases of more than 100,000 square feet have been completed in Manhattan, double the amount of similar-sized leases we saw through midyear 2002. "On top of that, the other major development has been the absorption and removal of sublease space availabilities," Mr. Krasnow added. "Companies are targeting sublease space and are taking advantage of rent disparities. What's more, we've now started to see major companies take sublease space off the market." Two recent examples of companies taking space back include Lehman Brothers and Citigroup, which have both pulled space off the market that they were previously offering for sublease. According to Cushman & Wakefield's second quarter statistics, over the last quarter, class-A space Downtown had the most significant vacancy rate decline of any asset class in all three submarkets. As of June 30, the class-A vacancy rate Downtown - which has a total inventory of 45 such buildings - stood at 14.3 percent, compared to 16.3 percent at the end of March. According to Mr. Krasnow, several leasing transactions completed during the second quarter that have made the most impact on vacancy rates include the Health Insurance Plan of New York at 55 Water St. (467,556-sq.-ft.), the Associated Press at 450 West 33rd St. (290,773-sq.-ft.), Mass Mutual at Two World Financial Center (193,761-sq.-ft.), Revlon at 237 Park Ave. (151,484-sq.-ft.), the Food Network at 75 Ninth Ave. (107,636-sq.-ft.), St. Vincent's Medical Center at 450 West 33rd (104,562-sq.-ft.), and Warnaco at 501 Seventh Ave. (103,335-sq.-ft.). OFFICE MARKET STATISTICS BREAKDOWNManhattan2Q'03May '031Q'034Q'022Q'02Vacancy12.5%12.6%12.3%12.0%11.3%Rent$41.12$41.52$41.97$42.96$44.46Downtown2Q'03May '031Q'034Q'022Q'02Vacancy12.6%12.5%13.3%13.2%13.4%Rent$36.36$37.07$38.24$39.17$40.15MT South2Q'03May '031Q'034Q'022Q'02Vacancy14.5%14.6%13.9%13.5%13.3%Rent$31.09$31.56$31.43$33.23$35.72Midtown2Q'03May '031Q'034Q'022Q'02Vacancy12.0%12.0%11.5%11.1%9.9%Rent$46.56$46.80$47.30$48.15$50.15OUTLOOKAccording to Cushman & Wakefield, companies with leases expiring in the short term have driven leasing activity year-to-date. For sustained reductions in the vacancy rate, Mr. Krasnow said the market's outlook would be pegged to job growth. Citing a recent report by the New York City Office of Management and Budget (OMB), Mr. Krasnow said the New York City unemployment rate dropped to 8.3 percent from 8.5 percent during the second quarter. "It's a good initial sign for the economy that unemployment rates dropped in the second quarter," said Mr. Krasnow. "If the stock market maintains its recent improvements and interest rates continue to spark consumer spending, the overall economy will have an opportunity to gain some steam and the jobs outlook will improve significantly from the last two years. That's when the vacancy outlook will improve decisively."