Demand for Manhattan office space soft in Q3-Cushman & Wakefield

* Manhattan office vacancy rate ticks up-Cushman & Wakefield

* Rent nearly flat, more companies stay put than move

* Reis Inc report saw slight decline in NY office vacancies

By Ilaina Jonas

NEW YORK, Oct 2 (Reuters) - The Manhattan office vacancy rate ticked up in the third quarter and average rent was essentially flat, as demand for office space remained soft, real estate services company Cushman & Wakefield said on Tuesday.

The overall Manhattan vacancy rate at the end of the third quarter stood at 9.6 percent, up from 9.3 percent a year earlier and from 9.0 from in the second quarter, said the report.

During the third quarter tenants signed leases for 5.7 million square feet of new space, down from 6.4 million in the third quarter 2011.

The Manhattan office market totals about 392 million square feet of space.

Earlier on Tuesday, Reis Inc issued a U.S. office market report for the third quarter that showed a slight drop in office vacancies, including for New York. The two companies calculate vacancy rates based on a different time frame, with Cushman projecting space that will become available in the next six months.

Demand for new space was soft, said Cushman & Wakefield. Tenants were reluctant to spend to move but also to transform raw space into offices, Vice Chairman Lou D'Avanzo said during a presentation of the data.

Additionally, many companies have reduced the amount of space they lease per employee and have held off adding new hires.

"They're not taking additional space because their headcount is at best static," D'Avanzo said.

The soft demand for new space is reflected in the amount of office space leased so far this year.

Compared with the last year, the amount of office space called for under new leases in Manhattan fell 30 percent from the beginning of the year through September. After adding renewals, which rose 55 percent, it was off just 13.4 percent.

The average asking rent for Manhattan space overall totaled $58.83 per square foot at the end of the quarter, up 4.8 percent from a year earlier but essentially flat with the second quarter's $58.90 per square foot.

Asking rent is usually significantly higher than what tenants pay. Asking rent is often negotiated downward and does not include months of free rent and other perks landlords offer to lure or retain tenants. In strong markets, effective and asking rents are closer than they are when the market is weak.

At about 9 percent, the Manhattan office market is considered in "equilibrium," where tenants and landlords have about the same negotiating power.

For top class buildings, asking rent rose 3.7 percent over a year ago to $67.06 per square foot.

Even the hottest office market, Midtown South, saw its vacancy rate rise to 6.6 percent, up from 6.1 percent last quarter as more than 425,000 square feet of space came available or is expected to become available within the next six months, said Cushman & Wakefield.

But Midtown South remained the place to be for tech and tech/media tenants, who pushed the average asking rent up 10 percent to $42.12 per square foot.

The Downtown vacancy rate fell to 9.3 percent in the third quarter from 9.9 percent a year ago, but rose from the second quarter's 8.9 percent. The average asking rent rose 1.9 percent to $39.83 per square foot from $39.10 per square foot last quarter.

Meanwhile, sales of office buildings also trailed last year, with the value of sales so far this year down 30 percent to $13.6 billion. But the number of sales has increased to 195 from 187 as the average size of the deal has shrunk to $70 million from $100 million, according to Cushman & Wakefield.

Part of the reason for the decline in value of sales is the drop in distressed sales or sales of partial interests. The values of office buildings have rebounded significantly within the last couple of years, with fewer landlords finding their properties worth less than their loans.

Distressed sales during the third quarter comprised about 2.5 percent of the total volume, down from about 48 percent in the second quarter 2011, according to Cushman & Wakefield.

(Reporting By Ilaina Jonas; Editing by Tim Dobbyn)

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