''That building had Citigroup and Lehman Brothers committed to long-term leases, which made it an extremely attractive investment,'' said Timothy J. Welch, an executive managing director of Cushman & Wakefield. ''It was clearly like a bond, with very stable return of 8 to 9 percent a year, compared with 4 or 5 percent'' in the conventional bond market, he said.

But investors are no longer willing to buy vacancies -- in hopes of renting spaces at higher rates -- as they were a year or two ago, said Anthony E. Malkin, the president of W&M Properties, the operating affiliate of his family's investment syndicates. As a result, he said, ''a lot of deals have gone bust'' as prospective buyers could not secure financing to close the transactions.

''The market has hit reality,'' said Leslie W. Himmel, a partner in Himmel & Merringoff Properties, an investment company. ''You can see the correction; the velocity of deals is off and properties are being taken off the market.'' She said many owners are still trying to get sales prices of $300 a square foot that may have been justifiable when annual rents were in the $40's, but which are not with rents in the $30's.

The 18.5 percent increase in city property taxes is also helping to chill the investment sales market, by threatening to increase owners' costs as leases expire, Ms. Himmel observed. ''The increased taxes can generally be passed on to tenants, but when leases expire, a lot of landlords are going to be hit hard,'' she said.

Record-low interest rates are providing an alternative for landlords who cannot sell for the price they want or do not want to face the tax consequences of a sale. They can pull their own capital out of a property by refinancing the debt and locking in a low rate.

For many hard-pressed property owners, this is a way to hold on to properties they might otherwise lose to lenders. ''For some people, refinancing is not an alternative to selling; it is an alternative to getting wiped out,'' Mr. Heller said. ''With vacancies up and rents dropping, refinancing lets an owner cover up and wait for a better day. It extends the life of owners who otherwise would have lost properties.''

The desire to make properties suitable for refinancing may help clear the overhang of sublet space by inducing landlords to take back space being offered by tenants in return for the tenants' signing of long-term renewal leases for the space they are occupying, real estate executives said.

''I think we are going to see the recasting of leases this year with a twist,'' said Robert Freedman, vice chairman of GVA Williams, a brokerage and services company. If a tenant occupies, say, 250,000 square feet with three to five years left on the lease and also has 50,000 square feet vacant and being offered for sublease, conditions are ripe for a deal, he said.

To induce such tenants with strong credit ratings to extend leases on the spaces they are occupying, landlords may be willing to take back the sublet space, which they can market directly, Mr. Freedman said. ''With a short-term lease, you have a wasting asset, but with a long-term renewal, an owner can monetize the asset,'' he said.

The arrangement has benefits for tenants as well, Mr. Freedman said. Not only are they freed of the obligation to pay rent on space they do not need, but they can clean up their balance sheets by eliminating the lease obligation on the space taken back by the landlord. ''These are silent workouts that are happening because landlords want to lock in cheap money for the long term,'' Mr. Freedman said.

Following are developments in other sectors of the commercial property industry:

Suburban Offices
Vacancies Continue To Increase

The office market in northern New Jersey, by some measures the fourth largest in the country, reflects the overall economic slowdown in the region and big cutbacks in the telecommunications industry.

''The vacancy rate increased to 18.9 percent in 2002 from 13.9 percent in 2001,'' said Christopher Kinum, senior managing director of Cushman & Wakefield of New Jersey. ''And the average asking rent declined to $25.92 a square foot from $26.24.'' In addition, he said, the pace of leasing dropped sharply to a total of 8.8 million square feet in 2002, from 15 million feet in 2001.

He said that as more telecommunications space comes to the market this year amid job cuts, there will be downward pressure on rental rates. ''I have never seen this market go more than 18 to 24 months without an uptick,'' he said, ''but this may be different. I keep reading that the recession is over, but I don't see it.''

The industrial sector of the market, which largely means warehouses and distribution centers, has slowed as well, Mr. Kinum said. ''There has been a big slowdown in speculative building of big boxes along the Turnpike and in the Meadowlands,'' he said. ''Build-to-suit is the way to get financing today.''

Nevertheless, capital continues to pour into the state, seeking investments in commercial and industrial real estate, said Andrew J. Merrin, executive vice president for investment at Cushman & Wakefield. ''We actually call it the paradox,'' he said.

''There are a number of things going on here,'' he said. ''First, there is disenchantment with Wall Street, and pension funds are increasing their allocations for real estate. Second, with the low interest rates, financing is about as good as it gets. And, third, the presence of all this capital is driving product that you would not ordinarily see onto the market.''

In the boroughs of New York City, uncertainty about what will be built in downtown Manhattan and the sublet overhang in the rest of Manhattan is likely to limit development, even in areas like Long Island City that have been rezoned for more intensive development, real estate executives say.

''Our affiliate, Octagon Properties, just bought 10 one-story buildings near the base of the 59th Street Bridge,'' said Frank Zuckerbrot, an executive vice president of Sholom & Zuckerbrot, a brokerage specializing in property outside Manhattan, most of it in Queens. ''Some of them are contiguous, so there is potential for development, but it is our intention to operate them as industrial properties for tenants serving customers in Manhattan,'' he said.

The rezoning aside, he said, most development sites in the area have not been assembled, and he said there will be little incentive to do so until it becomes clear what is going to happen in Manhattan.

Vacancies continued to rise in Westchester and Fairfield Counties although overall asking rents have not declined significantly. However, concessions by landlords, such as periods of free rent, have cut effective rents in some submarkets, according to Jeffrey Dunne, an executive vice president in the Stamford office of CB Richard Ellis.

''Asking rents are just that,'' he said. ''In some places they are being achieved, and in some they are not.'' Landlords in Greenwich have been among those most reluctant to offer concessions, he said.

Retail Space
Demand Stays Strong In Manhattan

In spite of a soft leasing market for office space, demand for retail space remained strong as consumers continued spending and new stores sought to enter the rich Manhattan market. As a result, rental rates have held their previous levels or even increased in some locations.

''The international and national tourists have returned, and there is retail activity all over town,'' said Faith H. Consolo, vice chairman of Garrick-Aug Associates, a brokerage specializing in retail space. One new entrant last year, she said, was Best Buy, the big electronics operation that opened a store at 23rd Street and the Avenue of the Americas and is building out another at 86th Street and Lexington Avenue.

''The retail market has been consistent,'' said David A. Green, executive director of the retail group at Insignia/ESG. ''Demand has been sufficient to take up the available supply, so pricing has gone up.''

He said demand was coming from sources as diverse as four banks -- Commerce, Fleet, Washington Mutual and North Fork -- that seem determined to have a branch in every neighborhood in the city, to DeBeers, the diamond company, which is opening its first store in this country in the St. Regis Hotel at 55th Street and Fifth Avenue.

He noted that SoHo, which suffered from a lack of tourist traffic after the terrorist attack, seems to be making a comeback, with Bloomingdale's planning to open a 125,000-square-foot store at 504 Broadway, a space formerly occupied by a Canal Jeans store. Other new entrants to SoHo, Ms. Consolo said, were the Puma and Adidas shoe stores and the Crate & Barrel and Sharper Image houseware stores.

Downtown, retailers displaced from the World Trade Center sought new locations to tap what remains the nation's third largest central business district, after Midtown Manhattan and Chicago. Notable was the deal to place a 33,000-square-foot Borders bookstore at 100 Broadway at Pine Street.

Broadway may become the main retail avenue in Lower Manhattan, said Richard Hodos, the president of Madison HGCD, a brokerage specializing in retail properties. ''The area will not be successful if people place stores here and there,'' he said. ''You need to have a concentration to provide synergy, and Broadway is a natural corridor for retail.''

Borders started looking for a new location soon after its 40,000-square-foot, three-level store in the base of the Trade Center was destroyed in the Sept. 11 attack, said Virginia M. Pittarelli, a senior vice president of Madison. ''Borders considered itself part of the community and there was no question about replacing their flagship store,'' she said. ''Within 90 days after 9/11 we were analyzing the market to find a new location.''

Suburban malls appear attractive as well. Near the end of last year, the Mills Corporation of Arlington, Va., announced that it was purchasing the 885,000-square-foot Galleria at White Plains in Westchester County and the 637,000-square-foot Riverside Square in Hackensack, N.J.

Mills, a real estate investment trust, is also one of three finalists in the competition to redevelop the Meadowlands Sports Complex in northern New Jersey. Mills has joined forces with a New Jersey-based REIT, the Mack-Cali Realty Corporation, in advancing its proposal.

Hotels
Lower Rates Mean Higher Occupancy

New York's hotel operators have largely succeeded in filling the rooms that were left vacant after 9/11 by domestic and foreign tourists who were reluctant to visit the city. They did so, largely, by cutting room rates to attract customers. As a result, their revenues fell sharply.

''Hotel operators have been increasingly successful in inducing people to come here by offering great rates,'' said Sean Hennessey, director of the New York area hospitality consulting practice of PricewaterhouseCoopers, the accounting and consulting firm. ''But the business is hobbling along.''

He said the outlook for next year is for small gains in occupancy and revenue, although 2003's first quarter will look especially good because the occupancy rate early last year was an unusually low 64 percent.

Over all, the estimated occupancy rate for all of 2002 was 74 percent, compared with 73.3 percent in 2001, but a far cry from the virtually-sold-out rate of 83.9 percent in 2000. The average room rate last year was an estimated $185 a night, a decline from the average of $192 in 2001, which included nine months of normal business before the attack, and well off the record $222 in 2000.

A more telling statistic is revenue per available room, which combines both room rates and vacancies. That was $137 in 2002, down from $141 in 2001 and $186 in 2000.

The outlook for this year, Mr. Hennessey said, is for occupancy to improve to 76 percent, with an average rate of $192 a night and revenue per available room of $142.

He said hotel managers would be seeking to re-establish relations with corporate customers who are less sensitive to price and trying to wean themselves from dependence on tourists scanning the Internet for bargains.