THE first bright spots are beginning to appear in the depressed New York commercial market as tenants take advantage of lower rents to upgrade or expand. ''I've never seen the office busier. Over the first two months of this year there has been a clear increase in the number of people looking and the number of people doing deals,'' said Mr Allen Bisk of Montrose Realty. Much of the increase in activity appears to be coming at the top of the market. Figures by Newmark Realty show that the very top of the line buildings with asking rentals of US$49 per square foot and above have a vacancy rate of only 11 per cent, some six per cent lower than the rest of the market. The same report also shows a tightening in demand for large areas of space. Currently, only 30 leases above 100,000 sq ft are available compared to more than 60 three years ago. In another sign of tightening supply, concessions at top buildings are down to 12 to 16 months free rent and $50 per sq ft for work done by the tenant. In theory, any significant movement from class B to class A buildings should be accompanied by a noticeable shift of tenants from the southern central area to the more prestigious address to be found in the city centre. But the uptake of A Grade office space is occurring more rapidly than any shift, prompting speculation that new leases are being signed by new tenants coming into the market or by expansion of existing tenants. Much of the southern central market seems to be holding steady. ''Many companies such as architects or advertising agencies prefer the higher ceilings and bigger spaces of the older buildings. ''Many companies simply have no interest in moving, preferring simply to renegotiate at lower rents. ''The reason to stay put might be as simple as easy parking or a favourite restaurant nearby,'' said Mr Barry Gosin, president of Newmark. ''What makes the big difference at the moment is quality. ''Demand market is just at that stage where the quality buildings are attracting tenants but the less good buildings are still suffering.'' This is confirmed by Mendik, which owns and manages a portfolio of 11 million sq ft. The company predicted the downturn of the past three years and so started a major capital improvement programme five years ago. This helped them attract whatever business was available during the downturn and helped the company retain its existing tenant base. According to senior director Mr John Silberstein, Mendik is enjoying company-wide occupancy rates ''in the mid 90 per cent range''. But while top quality property returns to profitability the bottom end of the market will probably never return. New York city has lost 300,000 jobs over the past five years, each estimated to occupy the equivalent of 175 sq ft. The current surplus of 250 million sq ft is not expected to decline in the short term and city-wide vacancy rates remain at above 17 per cent. An increasing number of owners of poor quality older buildings, particularly in the central financial district, have realised they can no longer meet operating costs, or finance expensive renovations needed to attract tenants from revenue. The result is a growing number of boarded-up buildings. One analyst predicted that between three and four per cent of the total stock of commercial space would be rapidly converted to other uses. If leasing activity is up, so is the number of potential buyers coming into the market. Two sizeable commercial purchases have been made so far this year. A group of Italian investors purchased a building on East 53rd Street for $170 per sq ft, a price which reflects the lengthy period which the building had been on the market. But many observers were surprised by the $23 million, equal to $100 per sq ft, paid by the New York Public Library for a building at 34th and Madison. However, user occupiers are able to afford prices several per cent higher than investors, who must also assume a range of additional costs. Despite a large number of foreign and institutional buyers, there is clearly a lack of quality product available in the market. ''Another reason for the lack of property is that institutional owners still haven't realised how much of a backlog of property is yet to work through the system. ''They seem to assume that prices will rise, so they are waiting for the market to pick up,'' said Ms Darcy Stacom, a senior director at Cushman and Wakefield. A number of city centre buildings that have worked their way through the tortuous bankruptcy procedure are attracting the attention of Chinese buyers. Ms Stacom suggested this interest was due to the relative proximity of Chinatown.