Jan. 8 (Bloomberg) -- Manhattan office rents rose in 2006 at a record pace as rising stock prices and expanding investment banks and law firms fueled demand, reports by commercial brokers Colliers ABR and Jones Lang LaSalle Inc. found.

For ``Class A'' space, the most modern, best-appointed offices in the city, rents jumped 34.8 percent to $68.29 a square foot, according to Colliers ABR research. The average asking rent for this kind of space rose 13.1 percent in the fourth quarter, Colliers said. The previous record gain was in 2000, when Class A rents jumped 24.6 percent, Colliers said.

``Even during the dot-com boom things weren't as crazy as they are today,'' said Robert Sammons, New York-based Colliers's research director. ``There's a lack of space, and a continuing number of tenants in the market who are looking for more space. Firms want to expand, and others want to be here.''

Commercial rents rose 23 percent to an average of $52.22 a square foot overall, including so-called ``B'' space in older buildings, according to Jones Lang LaSalle. In Midtown Manhattan, the biggest and most expensive office market in the U.S., rents rose 24 percent to $61.31. Both figures are historic highs.

Competition intensified last year as law firms, hedge funds and money management firms sought high-profile office space. For example, law firm Akin, Gump, Strauss, Hauer & Feld LLP agreed to pay more than $100 a square foot for its new offices in the Bank of America building near Times Square.

Even if economic growth slows in the coming year, competition for prime New York space will remain heated, said Frank Doyle, Jones Lang managing director for Midtown.

`No End in Sight'

``Everybody I talk to says they don't see an end in sight,'' Doyle said. ``Instead, there's a fear of what the numbers are going to be in 2008 or 2009. It's a function of an economic expansion and a function of no new supply.''

Lower Manhattan's vacancy rate dropped to 7.1 percent, its lowest since before the Sept. 11, 2001 destruction of the World Trade Center, Colliers reported. Sammons said rents for class A offices there rose an ``amazing'' 43.4 percent to $48.43 a square foot, as Moody's Corp. and other tenants agreed to pay market- leading rents at 7 World Trade Center, the first new building in the Ground Zero area.

In Manhattan, an island with 360 million square feet of office buildings, there is only 3.7 million square feet of new office space due to be completed between now and 2009, and 86 percent of that space is already leased, reported Grubb & Ellis Co., another property brokerage. That's in two buildings, the 1.6 million square-foot New York Times tower on Eighth Avenue, due for completion this year, and the 2.1 million square-foot Bank of America tower near Times Square.

Relief could come early in the next decade when four towers with a total of 8.8 million square feet are scheduled to be completed at the World Trade Center site in Lower Manhattan, including the 2.6 million square-foot Freedom Tower, to be the second-tallest building in the world.

More Towers

Also, SJP Properties, a New Jersey development firm owned by Steven J. Pozycki, is scheduled to break ground this year on a 1.1 million square-foot skyscraper a block north of the Times tower.

Plans for more towers are expected to be announced this year, Sammons said. The city and state are at work on a plan to extend subway and commuter rail access to Midtown between Eighth Avenue and the Hudson River, opening up a possible 24 million square feet of potential office sites, according to the New York City Economic Development Corp.

As rising rents made Manhattan skyscrapers more valuable, their sale prices also rose, to a record average of $638 a square foot, reported Real Capital Analytics, a New York-based data service that follows commercial sales. That's a 60 percent jump from 2005, the firm reported, led by six sales for more than $1,000 a square-foot, a barrier not breached until last year.

Real Capital tracked 139 office building sales in New York, six more than in 2005, with an aggregate purchase price of $18.98 billion, almost double last year's $10.35 billion.

Trophy Properties

The top sale, both in dollars and on a per-square-foot basis, was 666 Fifth Avenue, which Tishman Speyer Properties LP agreed last month to sell to the Kushner Cos. of Florham Park, New Jersey, for $1.8 billion, or $1,200 a square foot. A month earlier, Boston Properties Inc. agreed to sell 5 Times Square, headquarters of Ernst & Young LLP, to AVR Realty Co. LLC, a Yonkers, New York-based real estate company, for $1.28 billion, or $1,165 a square foot.

``It's been amazing,'' said Dan Fasulo, Real Capital director of market analysis. ``The average was certainly pulled up by the number of trophy properties that sold this year.''

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net.

Last Updated: January 8, 2007 16:45 EST