By Al Barbarino

Manhattan vacancy rates declined steadily into the fourth quarter of 2011 as a continued wave of new age companies solidified Midtown South as the least vacant central business district in the nation.

Total Manhattan vacancy rates fell to 9.1 percent during the fourth quarter, down from 9.3 percent in the third quarter and 10.5 percent one year ago, according to the latest data from Cushman and Wakefield. Midtown South saw the greatest decline from one year ago, falling from 8.6 percent to 6.4 percent – a national low.

“Midtown South is on fire,” said Joseph R. Harbert, COO of Cushman and Wakefield’s New York Metro region. He added, “We’re a magnet for intellectual capital right now,” referring to the slew of non-traditional companies flooding into Midtown South.

The market has given way to companies that often manufacture ideas and digital services more than they do tangible goods. The influx of technology, advertising, internet and media companies accounted for half the leasing in Midtown South, Harbert said, picking up the slack left by industries that were once considered staples of the city economy. The manufacturing and construction industries, for instance, lost a combined 5,200 jobs in 2011 as of November, according to the latest data from Eastern Consolidated.

In recent years hundreds of internet companies and startups have flooded into areas like the Flatiron District and SoHo, which are part of the geographical area dubbed “Silicon Alley” (the term has come to describe New York’s tech scene in general). The area gives them easy access to venture capital investors, and at $45.90 per square feet, the average rental rate is nearly $20 cheaper than it is in the Midtown market, according to the data from Cushman and Wakefield.

“The open loft style is particularly attractive because these aren’t glass and steel-type people or companies,” said Michael Moorin, a senior managing director with Newmark Knight Frank whose portfolio is focused primarily in Park Avenue South, Chelsea and the Garment District. Among the tenants in buildings Moorin oversees are General Assembly, a digital startup incubator at 902 Broadway; and Left/Right TV, a reality television production company 39 West 19th Street that just doubled their space from 10,000 to 20,000 square feet.

“They like the high, open ceilings, they like the feel of the neighborhood and the types of building that they’re in,” Moorin said.

Tenants were originally drawn to the area because it was seen as a lower cost alternative to Midtown, he added, but owners reacted when demand picked up, further bolstered when online giant Google stomped into Chelsea last year after paying nearly $2 billion for the former Port Authority building at 111 Eighth Avenue. Today, building owners and the firms that represent them are doing everything possible to capitalize on demand and cater to the latest wave of companies.

“Our marketing is specifically geared and designed to attract the digital revolution sector,” said Christel Engel, a senior managing director with Ollier’s International overseeing the leasing of a 1927-era art deco tower located at 245 Fifth Avenue. “We want to really focus on the creative industries.”

Engel is poised to attract “growth-type” companies to the building, as it offers prospective tenants the flexibility to expand within floors and from floor to floor, as well as a pre-build program that offers high-end finishes, glass front offices and open ceilings. Since officially launching their full efforts to market the building last week, Collier’s drew interest from 12 different parties within three days, Engel said.

“What we are capitalizing on is essentially the vibrancy of the neighborhood – and with the new construction in the hotel arena it has really moved this part of town,” she added, referring to the recent success of hotels like the Ace Hotel and The NoMad Hotel. “We like to look at this building as being in the middle of a digital revolution.”

Overall, Manhattan saw a record-breaking leasing year in 2011, with 5.2 million square feet of positive absorption – the highest full-year absorption rates since 2005 – and the first year since 2000 marked by four quarters of positive absorption. Midtown South accounted for 1.1 million square feet of the total figure.

Top lease transactions, representative of the broader terrain in the Midtown South market, involved Chandler Chicco Agency, a health care communications company; AppNexus, an advertising technology firm; and Vente-Privee USA, Inc., an online retailer.

Manhattan’s three submarkets remained three of the four tightest CBDs in the nation. Midtown South was followed by Portland, Oregon, with a 9 percent rate; Downtown, NY, at 9.5 percent; and Midtown, at 9.6 percent.