NEW YORK - Vacancy rates for apartments in New York City's borough of Manhattan, the largest U.S. apartment market, declined in 2009, as lower rents and better landlord incentives attracted tenants, according to a quarterly brokerage report.

Average Manhattan rents fell about 7 percent last year from 2008. And when incentives like a free month's rent are factored in, effective prices were down as much as 14 percent, said the report by CitiHabitats, a residential New York City broker that closed on about 13,000 rental deals during the year.

Large apartment landlords such as Equity Residential, AvalonBay Communities Inc, Essex Property Trust Inc, UDR Inc and Post Properties Inc have reduced rents and offered perks to retain and attract tenants.

The average Manhattan rent for a studio apartment was $1,800 in the fourth quarter of 2009. A one-bedroom rented for $2,400, a two-bedroom for about $3,400, and three-bedroom apartments went for about $4,600 a month, on average.

Manhattan's apartment vacancy rate rose slightly during the quarter but remained below 2 percent. Rental vacancies peaked at nearly 2.5 percent in February 2009.

The U.S. vacancy rate hit a nearly 30-year high of 8 percent in the fourth quarter, according to real estate research company Reis Inc, reflecting continued high unemployment.

CitiHabitats noted that Manhattan vacancies typically increase from November to December, but the opposite happened last month, suggesting the market has stabilized. It also said price changes have been minor for the past nine months, evidence that pricing has found its footing.

Vacancies are highest on the Upper East Side and lowest in the SoHo (south of Houston Street) and TriBeCa (triangle below Canal Street) neighborhoods, according to the CitiHabitats report.

A three-bedroom apartment rents for more than $7,000 in Soho and TriBeCa, triple the price in Harlem and more than double the price in the Morningside Heights area in northern Manhattan.

(Reporting by Nick Zieminski, editing by Gerald E. McCormick)

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