jll new york office · pdf file• the new york city investment sales market saw a record...

Returned blocks combined with slower leasing activity to drive vacancy higher • A number of available blocks of space—most of which had been

anticipated by the market—were added during the first quarter that offset positive absorption elsewhere. Manhattan Class A vacancy rose to 11.0 percent from 10.5 percent last quarter.

• Many non-financial services tenants—advertising, fashion and new media—while buoyed by the expanding economy, have preferred to locate outside the Class A, core Midtown market.

• The New York City investment sales market saw a record pace for number of transactions and total dollars invested in the first quarter of 2015, with 153 transactions totaling more than $15 billion of investments completed.

Office Outlook

New York | Q1 2015

JLL • Office Outlook • New York • Q1 2015 2

New York overview Despite moderate leasing activity and sustained job growth, Manhattan vacancy increased in the first quarter as a number of large blocks came to market. Manhattan Class A vacancy rose to 11.0 percent from 10.5 percent last quarter, and absorption was negative for the first time since the first quarter of 2014. While Midtown South and Downtown outperformed in early 2014—and for much of the year—Midtown took the lead in the first quarter with several large leases by financial services companies. The so-called FIRE industries (financial services, insurance and real estate) saw major Midtown commitments from MetLife, Fiduciary Trust, Fortress and Bank of America. Asking rents were higher for the quarter, with Manhattan Class A rents rising to $73.90 per square foot from $71.68 per square foot. Concessions remained elevated, however.

New York City private-sector employment rose a robust 2.9 percent, year-over-year, through the first quarter. New jobs in the creative sectors—including tech, media and advertising—as well as retail, education and healthcare fueled most of this growth, but recent, albeit modest gains in the financial services industry also contributed. The financial services profile in Manhattan, however, is changing as the traditional banking industry has lessened its dependence on the securities segment, including trading and investment banking. To maintain profits amid stricter capital regulations, Wall Street has cut securities employment by 20 percent since 2007. That said, the financial services industry remains the largest office-space user in Manhattan, occupying nearly one-third of top-tier space, and even slight shifts in the sector’s demand can significantly impact overall activity. Mid-size financial services firms—Fintech (financial services technology) and compliance, in particular—have shown job growth. Traditional large banks have re-entered the market to plan for future needs.

A number of available blocks of space—all of which the market anticipated—were added during the first quarter that offset positive absorption elsewhere. In the Penn Plaza submarket, available space at 7 Bryant Park and 10 Hudson Yards, both currently under construction, drove Class A vacancy higher for the submarket. In the Plaza District, Time Inc. made 554,524 square feet of sublease space available at 1271 Avenue of the Americas in preparation for its eventual move to Brookfield Place in 2018. RXR returned 609,056 square feet to the market at 75 Rockefeller Plaza, which is undergoing extensive renovation. In Downtown, newly marketed blocks at 28 Liberty Street and 300 Vesey Street drove Class A and Trophy vacancy and asking rent averages higher.

Midtown Class A vacancy increased to 10.9 percent from 10.7 percent last quarter, mostly as a result of the new blocks added. Midtown Class A asking rents also moved higher to $78.42 per square foot from $77.11 per square foot at the end of the fourth quarter. Leasing activity, especially among large tenants, was brisk. Eight large-block leases—those totaling 100,000 square feet or greater—were signed in the first quarter, compared to only five at this time last year. All but three were located on the East Side, reversing—at least temporarily—what had been a trend of westward migration. In another shift, FIRE industries accounted for 11 of the top 20 Midtown leases in the first quarter, compared to only five of the top 20 in all of 2014. Publicis Groupe, part of the TAMI sector, however, signed the largest lease of the quarter: 506,009 square feet at 1675 Broadway. In the second-largest lease of


the quarter, MetLife expanded to approximately 550,000 square feet at its namesake tower at 200 Park Avenue. The expansion was driven by a consolidation from its other New York locations, including 1095 Avenue of the Americas, 277 Park Avenue and One MetLife Plaza in Long Island City.

After a record year, activity in Midtown South slowed in the first quarter. As one of the tightest markets in the country, with an overall vacancy of 6.1 percent, some of the slowdown could be more a function of supply than demand. Only one lease was reported in excess of 100,000 square feet—a sublease—compared to four in the first quarter of 2014. In the largest lease of the quarter, WebMD signed a 152,670-square-foot sublease at 395 Hudson Street. Facebook expanded by 79,998 square feet at 770 Broadway in Greenwich Village for rents reportedly starting at more than $100 per square foot. At $79.97 per square foot, the Midtown South Class A asking rent average was higher than Midtown. Year-over-year, Class A rents have grown 7.2 percent as higher-priced buildings in Hudson Square and SoHo were added to Class A inventory. Class B rents, however, increased at a slightly slower clip at 560 basis points to $55.18 per square foot, year-over-year.

Activity also slowed in the first quarter for the Downtown office market. Combined with the addition of the blocks at 28 Liberty Street and 300 Vesey Street, weak leasing velocity, especially among larger tenants, allowed for a 1.9 percentage point increase in Downtown Class A vacancy to 13.5 percent. The Class A asking rent index also moved higher to $61.33 per square foot, an increase of $2.72 per square foot from December to March. WeWork signed the only large Downtown lease of the quarter when the growing shared office space provider committed to 234,879 square feet at 85 Broad Street.

A number of high-profile leases are expected to close by midyear and year-end. Many of these will be migrations to the West Side or Downtown, reinforcing a recent trend. Many non-financial services tenants—advertising, fashion and new media—while buoyed by the expanding economy, have preferred to locate outside the Class A, core Midtown market. Others, including more traditional tenants in legal and financial services, are choosing to take advantage of space efficiencies and lower costs. This leasing, however, will be balanced by further large block additions to the market over the summer. Manhattan-wide, even with strong activity, absorption and vacancy could end the year flat. Asking rents, however, are likely to trend higher as sublease space, low by historical standards at 1.8 percent, has given landlords more confidence to raise rents in select submarkets.

While job growth projections remain aggressive, the last cycle proved that employment numbers often lag both economic events and the real estate market. Other indices, like the stock market, interest rates, business confidence, and even crime rates and other quality-of-life metrics, have proven to be better leading indicators for the New York office market. While all these are currently trending positive, some have flattened, raising near-term uncertainty. The presidential election in 2016 could create more doubt—the two previous election years, 2008

and 2012, both saw negative absorption. Longer-term, New York City continues to attract both capital and talent from around the world—and this shows no sign of tapering—yet construction of new office space in Manhattan, currently in an active phase, is lengthy, expensive and ultimately limited by available sites.

Tristan Ashby Vice President, Research Director


Capital Markets overview The first quarter of 2015 for the New York City investment sales market saw a record pace for number of transactions and total dollars invested, with 153 transactions totaling more than $15 billion of investments. Incorporating deals under contract, the quarter’s results reached 201 deals with $26.5 billion of activity. As a comparison, the first quarter of 2014 witnessed 104 closed deals totaling $6 billion, and in all of 2014 there were 442 deals and $39.8 billion of activity. The residential segment of the market continues to lead the way, capitalizing on unabated demand for New York City housing. The multifamily market accounted for 37.0 percent of all transactions, with an average sales price per unit of $850,000 or $800 per square foot. The most active segment of the multifamily investment market continued to be Midtown South, where there is a marked shortage of housing to satisfy the demand driven by nearby TAMI tenants, and Uptown, where investors are finding better risk-adjusted returns in Washington Heights and Harlem. Demonstrating the continued strength in the residential condominium market, the average price of land throughout Manhattan rose to nearly $690 per square foot, up 25.0 percent from mid-2014 to the highest level in history. Land prices have seen nearly the same percentage increase in prime Brooklyn and Queens markets, driving prices to record levels in the boroughs as well. Investors continued to seek burgeoning markets in underdeveloped parts of New York City, with areas in the Bronx and eastern Queens beginning to attract attention. The office segment of the market accounted for 14.0 percent of transactions, but 40.0 percent of investment sales dollars, with an average of $1,050 per square foot across all classes and $1,550 per square foot for Midtown Class A buildings (both closed and under

contract). Weighted average Midtown Class A cap rates totaled 3.3 percent, nearing parity with global gateway cities as the low-return environment continues to permeate through the market.

The national economy continued to grow at a steady pace as unemployment dropped to 5.5 percent during the quarter, its lowest level in seven years. Personal spending continued to edge up as the big drop in gasoline prices put more money in consumers’ pockets. Severe winter weather kept shoppers away from malls and auto dealerships in both January and February. While the weather-related weakness is expected to dampen overall economic growth during the January-March quarter (forecasting a 1.5 percent increase), many economists anticipate growth of more than 3.0 percent for the balance of the year. The strengthening dollar started the year at an exchange rate of $1.21 and neared parity with the Euro in mid-March, but has since pulled back and is now at $1.08. The Federal Reserve could likely begin to gradually raise interest rates in June or September, as the economy continues to recover from the previous recession. The 10-year Treasury closed the quarter at 1.94 percent, 18 basis points lower than the beginning of the quarter.

Scott Latham Yoron Cohen Vice Chairman Vice Chairman Jon Caplan Richard Baxter Vice Chairman Vice Chairman


New York property clock

Peaking market Falling market

Rising market Stabilizing market

Clock description • This diagram illustrates JLL’s estimate of the location of each prime office market

within its individual rental cycle at the end of the quarter. • Markets can move around the clock at different speeds and directions. • The diagram is a convenient method of comparing the relative position of

markets in their rental cycle. • The position is not necessarily representative of investment or development

market prospects. • The position refers to prime face rental values.

Midtown

Downtown

Q1 2015 positions • Midtown South – Interest in Midtown South remains high, as tenants in the creative

sector continue to view a real estate footprint in the market as a competitive advantage. Though several new developments slated for delivery by the end of this year could provide near-term relief to supply constraints, these projects are small in size and priced at the top of the market. Few opportunities, paired with elevated rents, could result in even cooler leasing velocity as tenants consider more affordable options elsewhere in Manhattan.

• Midtown – An improving outlook for the financial services sector could have a direct impact on the Midtown office market and future leasing activity if employment gains continue. Longer-term, large blocks coming to market, both returning space and new construction, will temper absorption and rent gains. With a vacancy rate consistently above 11.0 percent, the potential for a near-term rent spike is low. The exception could be well-placed, top-tier Trophy-quality buildings in areas where demand remains strong and opportunities are limited.

• Downtown – While not on the scale of 2013 and 2014, when Time Inc., GroupM, Hudson’s Bay and BNY Mellon signed transformative leases, momentum has been strong and diversified enough to ignite new optimism for the Downtown market. Tempering this positive outlook are concerns that demand, while robust, does not justify the rapid escalations in asking rents observed in recent months and which show no sign of waning.

Midtown South


New York market definitions

The New York City market is comprised of three major submarkets: Downtown, Midtown and Midtown South Manhattan. These markets are further divided into four, five and five submarkets, respectively.

Downtown submarkets: Tribeca/City Hall, World Trade Center, Financial District, Water Street Corridor Midtown submarkets: Columbus Circle, Plaza District, Grand Central, Times Square, Penn Plaza/Garment District Midtown South submarkets: Chelsea, Hudson Square, Gramercy Park, SoHo, Greenwich Village


New York space statistics

Current inventory

(s.f.)

Under construction

(s.f.)

YTD completion

(s.f.)

Overall net absorption

(s.f.)

YTD overall net absorption

(s.f.)

YTD overall net absorption

(% of inventory)

Overall vacancy

Overall asking rent

(gross $ p.s.f.)

Downtown

Financial District 38,888,338 0 0 -877,060 -877,060 -2.3% 12.9% $51.18

Tribeca/City Hall 17,704,327 0 0 -538,302 -538,302 -3.0% 8.0% $50.18

Water Street Corridor 23,371,590 0 0 75,894 75,894 0.3% 12.9% $48.88

World Trade Center 17,960,067 2,861,402 0 -305,127 -305,127 -1.7% 15.6% $75.90

Downtown market totals 97,924,322 2,861,402 0 -1,644,595 -1,644,595 -1.7% 12.5% $56.25

Midtown

Columbus Circle 25,364,551 0 0 79,191 79,191 0.3% 9.6% $68.71

Grand Central 71,617,501 858,710 0 299,143 299,143 0.4% 10.1% $62.09

Penn Plaza / Garment District 45,880,842 2,173,672 0 85,081 85,081 0.2% 9.5% $60.35

Plaza District 102,377,224 0 0 -565,245 -565,245 -0.6% 9.5% $84.63

Times Square 39,886,506 0 0 -528,353 -528,353 -1.3% 11.5% $72.86

Midtown market totals 285,126,624 3,032,382 0 -630,183 -630,183 -0.2% 10.0% $71.60

Midtown South

Chelsea 21,618,747 412,558 0 -85,856 -85,856 -0.4% 6.2% $58.94

Gramercy Park 21,855,176 0 0 312,497 312,497 1.4% 6.8% $68.22

Greenwich Village 5,846,306 0 0 146,727 146,727 2.5% 3.3% $62.74

Hudson Square 9,590,863 882,000 0 375,658 375,658 3.9% 6.3% $74.99

SoHo 4,811,971 18,000 0 -88,354 -88,354 -1.8% 5.3% $61.78

Midtown South market totals 63,723,063 1,312,558 0 660,672 660,672 1.0% 6.1% $65.39

Market totals 446,774,009 7,206,342 0 -1,614,106 -1,614,106 -0.4% 10.0% $66.74


New York Downtown


New York Downtown boundaries

Tribeca/City Hall South of Canal Street, west of the East River and Pearl Street, north of Ann Street and east of West Street. World Trade Center South of Vesey Street, but inclusive of 7 World Trade Center, west of Trinity Place, north of Albany Street and east of the Hudson River.

Financial District South of Ann Street, west of Pearl Street, east of the Hudson River, south of Albany Street and east of Trinity Street. Water Street Corridor South of the Brooklyn Bridge, west of the East River and east of Pearl Street.


Market outlook Several high-profile tenants from a range of industries are expected to close major leases by midyear, causing lower vacancy in the coming months. More large blocks, however, are also expected to impact the vacancy by year-end, including the former New York Stock Exchange-occupied 20 Broad Street. While not on the scale of 2013 and 2014, when Time Inc., GroupM, Hudson’s Bay and BNY Mellon signed transformative leases, momentum has been strong and diversified enough to ignite new optimism for the Downtown market. Tempering this positive outlook are concerns that demand, while robust, does not justify the rapid escalations in asking rents observed in recent months and which show no sign of waning.

Downtown Submarket boundaries map

Key market indicators—Q1 2015

Stock 97,924,322 s.f.

Overall net absorption -1,644,595 s.f.

Overall vacancy rate 12.5%

Average asking rent $56.25 p.s.f.

Under construction 2,861,402 s.f.

Quarter in review Muted leasing activity, compared with the flurry of large leases recorded in 2014, combined with new Trophy-quality availabilities to drive top-end Downtown vacancy and asking rents higher to begin the year. Nearly one million square feet of space formerly occupied by JPMorgan Chase and 319,644 square feet of space formerly occupied by NYMEX became available at 28 Liberty Street and 300 Vesey Street (Brookfield Place), respectively, in the first quarter. The Class A vacancy rate increased by 1.9 percentage points quarter-over-quarter to 13.5 percent, though it would have declined by 0.3 percentage points if not for the two aforementioned large block additions. Class A rents skyrocketed to a new record high of $61.33 per square foot, which represented a 4.6 percent increase quarter-over-quarter and a 12.0 percent increase year-over-year. Removing the high-priced spaces at 28 Liberty Street and 300 Vesey Street would have resulted in a more modest 2.0 percent pricing increase from December to March.

WeWork signed the only large Downtown lease of the quarter when the growing co-working space provider came to terms on a 234,879-square-foot space at 85 Broad Street. This transaction was the latest prominent example of how second-generation former financial services space has been repurposed in the Downtown market: 85 Broad Street previously served as Goldman Sachs’ headquarters. The second-largest first quarter lease was a relocation from Midtown—Namely Inc. leased 41,982 square feet at 195 Broadway, a landmarked building that also made headlines when it landed a retail commitment by the world-famous Nobu restaurant.

Sharp moves in Downtown’s Class B metrics in the first quarter of 2015 were largely due to the reclassification of several pre-war properties from Class A to Class B and the reintroduction of 375 Pearl Street to the inventory. As a result, the Class B inventory increased by approximately 5.4 million square feet from 2014 to 2015, though continued conversion activity, namely the former BNY Mellon headquarters at 1 Wall Street, pushed the total Downtown market stock downward. 375 Pearl Street, which had been marketed as a data center for several years, added a 713,962-square-foot block of available space to the market. This largely contributed to the 2.1 percentage point move in Class B vacancy to 11.0 percent in the first quarter. Rents increased by 9.1 percent to $46.81 per square foot from December to March—the highest posted since the market peak in the second quarter of 2008. Thirteen properties increased and none decreased their direct available asking rents in the first quarter, an indicator that landlords have been particularly bullish in this sector as tenants continued to get priced out of Midtown and Midtown South.


Recent sales transactions

180 Maiden Lane 1,078,751 s.f.

Class A $436 p.s.f.

123 William Street 545,000 s.f.

Class B $464 p.s.f.

Downtown

$25

$30

$35

$40

$45

$50

$55

$60

$65

2007 2008 2009 2010 2011 2012 2013 2014 Q12015

$ p.

s.f. Class A rental rate Class B rental rate

Significant lease transactions

WeWork 85 Broad Street

234,879 s.f.

Namely, Inc. 195 Broadway

41,982 s.f.

D.F. King 48 Wall Street

25,650 s.f.

Samuel A. Ramirez & Co. 61 Broadway

24,000 s.f.

Average rental rates (Class A vs. Class B)

Large availabilities

4 World Trade Center Class A 873,771 s.f.

180 Maiden Lane Class A 745,993 s.f.

375 Pearl Street Class B 713,962 s.f.

28 Liberty Street

Class A 579,880 s.f.

4%

6%

8%

10%

12%

14%

16%

18%

-4.5

-3.0

-1.5

0.0

1.5

3.0

4.5

2007 2008 2009 2010 2011 2012 2013 2014 Q12015

s.f. in

milli

ons

New deliveries YTD Net absorption YTDVacancy Class A YTD Vacancy Class B YTD

Overall new deliveries / overall net absorption / overall vacancy rates


New York Midtown


New York Midtown boundaries

Columbus Circle South of West 66th Street, west of Central Park West and Avenue of the Americas, north of West 50th Street, east of the Hudson River. Grand Central South of East 47th Street, north of East 30th Street, east of Fifth Avenue. Penn Plaza / Garment South of 40th Street, west of Fifth Avenue, north of 30th Street, east of the Hudson River.

Plaza District South of East 65th Street, west of the East River, north of 47th Street, east of Sixth Avenue. Times Square South of West 50th Street, west of Sixth Avenue, north of West 40th Street, east of the Hudson River.


Quarter in review Vacancy rose in Midtown in the first quarter despite strong leasing activity, particularly in financial services, as large blocks were added to the market—most of which had been anticipated. In the Plaza District, media company Time Inc. placed 554,524 square feet of sublease space on the market at 1271 Avenue of the Americas, prior to its eventual move to Brookfield Place in 2018. RXR Realty placed 609,056 square feet on the market at the under-renovation 75 Rockefeller Plaza. New product at 7 Bryant Park and 10 Hudson Yards, slated for completion this year, will bring the first new inventory to the Penn Plaza/Garment District submarket in over two decades. The overall vacancy increased to 10.0 percent from 9.7 percent at year-end.

As a result of the new product in the Penn Plaza/Garment District, the submarket’s Class A average rent index rose 36.0 percent to $73.77 per square foot in the first quarter and the Class A vacancy rate increased to 10.8 percent from 7.6 percent at year-end. The submarket is typically the most affordable in Midtown due to its high concentration of pre-war and Class B buildings. As of the end of March, the Penn Plaza/Garment District was a 15.7 percent discount to the overall Midtown average, a significant drop from the 25.9 percent discount recorded at year-end 2014.

The remainder of the Midtown Class A market experienced more modest rent growth, increasing only 1.7 percent year-to-date to $78.42 per square foot. Year-over-year, the average Midtown Class A asking rent is up 2.8 percent.

Eight large-block leases, those totaling 100,000 square feet or greater, were signed during the first quarter in Midtown compared to only five in the same period of last year. All but three were located on the East Side, reversing—at least temporarily—what had been a trend of westward migration. The increase in East Side activity is the result of leases by large financial services tenants, which have historically been attracted to the more established submarkets of Grand Central and the Plaza District.

The FIRE (financial services, insurance and real estate) sector accounted for 11 of the top 20 Midtown leases in the first quarter compared to only five of the top 20 in all of 2014. However, Publicis Groupe, part of the TAMI (technology, advertising, media and information) sector, signed the largest lease of the quarter at 1675 Broadway for 506,009 square feet. In the second largest lease of the quarter, MetLife expanded within its namesake tower at 200 Park Avenue. The expansion was driven by consolidation from other New York locations including 1095 Avenue of the Americas, 277 Park Avenue and One MetLife Plaza in Long Island City. PJT Partners will considerably enlarge its New York footprint when it moves to just under 100,000 square feet at 280 Park Avenue from only 13,000 square feet at 40 West 57th Street. The lease highlights the increasing demand from midsize financial firms.

Submarket boundaries map


Stock 285,126,624 s.f.

Overall net absorption -630,183 s.f.




Midtown

tenants from a range of industries remains strong at Hudson Yards, the massive mixed-use development zone on Midtown’s West Side. Significant commitments are expected by year-end. Longer-term, large blocks coming to market, both returning space and new construction, will temper absorption and rent gains. The past cycle, where Class A space flooded the market, notably on Avenue of the Americas, has however shown that demand for prime Midtown product is resilient and that space can be leased more quickly than many had expected. But with a Class A vacancy rate consistently above 10.0 percent, the potential for a near-term rent spike is low. The exception could be well-placed, top-tier Trophy-quality buildings in areas where demand remains strong and opportunities are limited.

Market outlook The large block leasing momentum experienced during the first quarter in Midtown will continue as a few leases are expected to close in the coming weeks. An improving outlook for the financial services sector could have a direct impact on the Midtown office market and future leasing activity if employment gains continue. Interest among major


Midtown


Publicis Groupe 1675 Broadway

506,009 s.f.

MetLife 200 Park Avenue

443,107 s.f.

Bloomberg LP 919 Third Avenue

254,556 s.f.

Fortress Investment Group 1345 Avenue of the Americas

200,030 s.f.

Markit 5 Manhattan West

140,000 s.f.



4 Times Square

Class A 817,252 s.f.

75 Rockefeller Plaza Class A 565,877 s.f.

285 Madison Avenue Class B 445,135 s.f.

1633 Broadway Class A 415,467 s.f.

$0$10$20$30$40$50$60$70$80$90

$100

2007 2008 2009 2010 2011 2012 2013 2014 Q12015

$ p.s.

f.

Class A rental rate Class B rental rate

0%

4%

8%

12%

16%

-12.0

-8.0

-4.0

0.0

4.0

8.0

2007 2008 2009 2010 2011 2012 2013 2014 Q12015

s.f. in

milli

ons

New deliveries YTD Net absorption YTD

Vacancy Class A YTD Vacancy Class B YTD



1095 Avenue of the Americas 1,036,534 s.f.

Class A $2,122 p.s.f.

11 Times Square (45% interest) 1,016,406 s.f.



New York Midtown South


New York Midtown South boundaries

Chelsea South of 29th Street, west of Fifth Avenue, north of 14th Street and east of the Hudson River. Gramercy Park South of 29th Street, west of the East River, north of 14th Street and east of Fifth Avenue. Greenwich Village North of Houston Street, south of 14th Street, west of the East River and east of Sixth Avenue.

Hudson Square South of 14th Street, west of Avenue of the Americas, north of Canal Street and east of the Hudson River. SoHo South of Houston Street, west of the East River, north of Canal Street, and east of Avenue of the Americas.


Midtown South

Quarter in review The Midtown South office market continued to strengthen in the first quarter of 2015 as creative tenants dominated leasing activity, drove vacancy lower and further pressured asking rents to new highs. Limitations on locations for that demand continued, especially for bigger tenants, however, as the number of large blocks available in the market—those exceeding 100,000 square feet—stood at just eight as of the end of the quarter. Asking rents reflected the market’s tight situation: at $65.39 per square foot, the overall asking rent reached a new peak after increasing 7.6 percent from year-end 2014. Leasing volume for the first quarter of 2015 was light in comparison to the same period of 2014. In fact, this year’s velocity reached just 37.1 percent of last year’s first quarter total. Only one lease exceeding 100,000 square feet was signed compared to four in the first quarter of 2014. In the largest transaction thus far this year, WebMD subleased 152,670 square feet at 395 Hudson Street. WebMD will move from 111 Eighth Avenue, where building-owner Google has been vacating tenants to accommodate its own rapid expansion. Subleases drove leasing velocity, accounting for 52.9 percent of the total square feet leased, compared to 2.1 percent in the first quarter of last year. TAMI (technology, advertising, media and information) tenants continued to squeeze out other industries in Midtown South, accounting for 46.9 percent of total square feet leased in 2015 compared to 35.4 percent in first quarter 2014. Contrastingly, FIRE (financial services, insurance, real estate) tenants’ market share shrunk from 42.9 percent in the first quarter of 2014 to zero this quarter. Only one large availability was added to Midtown South this quarter: 181,950 square feet came on the market at 50 West 23rd Street. Several new office development projects along the High Line in the Meatpacking District that are slated for delivery later this year and in 2016 were also added to Midtown South’s Class A inventory, including the introduction of 88,588 square feet at 860 Washington Street and 130,628 square feet at 125 West 25th Street. Despite these new additions and the upgrading of several buildings to Class A from Class B over the course of the first quarter, Class A vacancy dropped 11.6 percent year-over-year to 6.1 percent. Facebook’s 79,998-square-foot expansion at 770 Broadway in Greenwich Village strongly contributed to this result. Overall vacancy in Midtown South tightened to 6.1 percent from 6.9 percent at the end of 2014. Moreover, net absorption for the quarter was positive, at 660,672 square feet, as three out of five submarkets posted positive absorption. As the market continued to compress, owners escalated Class A asking rents to new records. At $79.97 per square foot, the Midtown South Class A rental average is the most expensive in Manhattan. Year-over-year, Class A rents grew 7.2 percent as higher-priced buildings in Hudson Square and SoHo were added to Class A inventory. Class B rents increased 560 basis points to $55.18 per square foot, year-over-year.

Submarket boundaries map


Stock 63,723,063 s.f.

Overall net absorption 660,672 s.f.




Market outlook Interest in Midtown South remains high, as tenants in the creative sector continue to view a real estate footprint in the market as a competitive advantage. The market remains on course to further tighten its overall availability, limiting options. Though several new developments slated for delivery by the end of this year could provide near-term relief to supply constraints, these projects are small in size and priced at the top of the market. Few opportunities, paired with elevated rents, could result in even cooler leasing velocity as tenants consider more affordable options elsewhere in Manhattan.



837 Washington Street 63,131 s.f.


623 Broadway 37,869 s.f.

Class B $1,479 p.s.f.

Midtown South


WebMD 395 Hudson Street

152,670 s.f.

Facebook 770 Broadway 79,998 s.f.

TED Conferences 330 Hudson Street 47,436 s.f.

Criteo 387 Park Avenue South 40,238 s.f.



225 Park Avenue South Class A 134,774 s.f.

233 Spring Street Class B 132,191 s.f.

50 West 23rd Street Class B 123,625 s.f.

125 West 25th Street Class A 122,800 s.f.

$20

$30

$40

$50

$60

$70

$80

$90

2008 2009 2010 2011 2012 2013 2014 Q1 2015

$ p.

s.f. Class A rental rate Class B rental rate

0%

2%

4%

6%

8%

10%

12%

-1.5

-1.0

-0.5

0.0

0.5

1.0

2008 2009 2010 2011 2012 2013 2014 Q1 2015s.f

. in m

illion

s

New deliveries YTD Net absorption YTDVacancy Class A YTD Vacancy Class B YTD


New York appendix

Statistics Contiguous space New construction and map Glossary

JLL • Office Outlook • New York • Q1 2015 • Appendix

JLL • New York Office Outlook • Q1 2015 • Appendix

Class Inventory (s.f.)Total net

absorption (s.f.)

YTD total net absorption

(s.f.)

YTD total net absorption (%

of stock)

Direct vacancy (%)

Total vacancy (%)

Average asking rent ($

p.s.f.)

YTD completions

(s.f.)

Under construction

(s.f.)

Financial District Totals 38,888,338 -877,060 -877,060 -2.3% 11.8% 12.9% $51.18 0 0Tribeca/City Hall Totals 17,704,327 -538,302 -538,302 -3.0% 7.6% 8.0% $50.18 0 0Water Street Corridor Totals 23,371,590 75,894 75,894 0.3% 9.4% 12.9% $48.88 0 0World Trade Center Totals 17,960,067 -305,127 -305,127 -1.7% 15.3% 15.6% $75.90 0 2,861,402Downtown Totals 97,924,322 -1,644,595 -1,644,595 -1.7% 11.1% 12.5% $56.25 0 2,861,402Columbus Circle Totals 25,364,551 79,191 79,191 0.3% 8.2% 9.6% $68.71 0 0Grand Central Totals 71,617,501 299,143 299,143 0.4% 8.6% 10.1% $62.09 0 858,710Penn Plaza/Garment Totals 45,880,842 85,081 85,081 0.2% 7.2% 9.5% $60.35 0 2,173,672Plaza District Totals 102,377,224 -565,245 -565,245 -0.6% 7.1% 9.5% $84.63 0 0Times Square Totals 39,886,506 -528,353 -528,353 -1.3% 9.1% 11.5% $72.86 0 0Midtown Totals 285,126,624 -630,183 -630,183 -0.2% 7.9% 10.0% $71.60 0 3,032,382Chelsea Totals 21,618,747 -85,856 -85,856 -0.4% 5.1% 6.2% $58.94 0 412,558Gramercy Park Totals 21,855,176 312,497 312,497 1.4% 6.1% 6.8% $68.22 0 0Greenwich Village Totals 5,846,306 146,727 146,727 2.5% 2.9% 3.3% $62.74 0 0Hudson Square Totals 9,590,863 375,658 375,658 3.9% 5.4% 6.3% $74.99 0 882,000SoHo Totals 4,811,971 -88,354 -88,354 -1.8% 3.3% 5.3% $61.78 0 18,000Midtown South Totals 63,723,063 660,672 660,672 1.0% 5.2% 6.1% $65.39 0 1,312,558New York City Totals 446,774,009 -1,614,106 -1,614,106 -0.4% 8.2% 10.0% $66.74 0 7,206,342

Financial District A 14,244,606 -1,014,259 -1,014,259 -7.1% 13.7% 14.3% $59.31 0 0Tribeca/City Hall A 4,355,865 0 0 0.0% 0.8% 0.8% $59.00 0 0Water Street Corridor A 21,336,304 65,139 65,139 0.3% 10.1% 13.9% $48.95 0 0World Trade Center A 17,960,067 -305,127 -305,127 -1.7% 15.3% 15.6% $75.90 0 2,861,402Downtown A 57,896,842 -1,254,247 -1,254,247 -2.2% 11.9% 13.5% $61.33 0 2,861,402Columbus Circle A 17,319,246 110,567 110,567 0.6% 9.7% 11.1% $73.59 0 0Grand Central A 37,158,542 234,327 234,327 0.6% 10.6% 12.2% $66.37 0 858,710Penn Plaza/Garment A 17,512,646 282,329 282,329 1.6% 7.4% 10.8% $73.77 0 2,173,672Plaza District A 84,877,266 -599,146 -599,146 -0.7% 7.6% 10.2% $87.59 0 0Times Square A 31,593,973 -171,327 -171,327 -0.5% 9.2% 11.1% $77.43 0 0Midtown A 188,461,673 -143,250 -143,250 -0.1% 8.6% 10.9% $78.42 0 3,032,382Chelsea A 8,620,544 69,846 69,846 0.8% 3.6% 4.3% $76.28 0 412,558Gramercy Park A 10,681,791 359,454 359,454 3.4% 7.7% 8.1% $75.98 0 0Greenwich Village A 1,915,423 112,709 112,709 5.9% 0.3% 1.2% $59.12 0 0Hudson Square A 3,884,577 159,661 159,661 4.1% 6.1% 6.7% $105.27 0 882,000SoHo A 891,959 -29,707 -29,707 -3.3% 7.5% 9.7% $69.12 0 18,000Midtown South A 25,994,294 671,963 671,963 2.6% 5.5% 6.1% $79.97 0 1,312,558New York City A 272,352,809 -725,534 -725,534 -0.3% 9.0% 11.0% $73.90 0 7,206,342

Financial District B 24,643,732 137,199 137,199 0.6% 10.7% 12.0% $45.36 0 0Tribeca/City Hall B 13,348,462 -538,302 -538,302 -4.0% 9.8% 10.3% $49.94 0 0Water Street Corridor B 2,035,286 10,755 10,755 0.5% 2.3% 2.4% $44.62 0 0World Trade Center B 0 0 0 0.0% 0.0% 0.0% $0.00 0 0Downtown B 40,027,480 -390,348 -390,348 -1.0% 10.0% 11.0% $46.81 0 0Columbus Circle B 8,045,305 -31,376 -31,376 -0.4% 5.0% 6.3% $47.89 0 0Grand Central B 34,458,959 64,816 64,816 0.2% 6.4% 7.9% $54.98 0 0Penn Plaza/Garment B 28,368,196 -197,248 -197,248 -0.7% 7.0% 8.7% $49.99 0 0Plaza District B 17,499,958 33,901 33,901 0.2% 4.8% 6.2% $57.36 0 0Times Square B 8,292,533 -357,026 -357,026 -4.3% 8.9% 13.0% $57.65 0 0Midtown B 96,664,951 -486,933 -486,933 -0.5% 6.4% 8.1% $53.56 0 0Chelsea B 12,998,203 -155,702 -155,702 -1.2% 6.2% 7.6% $52.13 0 0Gramercy Park B 11,173,385 -46,957 -46,957 -0.4% 4.6% 5.5% $57.30 0 0Greenwich Village B 3,930,883 34,018 34,018 0.9% 4.3% 4.3% $63.24 0 0Hudson Square B 5,706,286 215,997 215,997 3.8% 4.9% 6.1% $54.28 0 0SoHo B 3,920,012 -58,647 -58,647 -1.5% 2.4% 4.3% $58.65 0 0Midtown South B 37,728,769 -11,291 -11,291 0.0% 4.9% 6.1% $55.18 0 0New York City B 174,421,200 -888,572 -888,572 -0.5% 6.9% 8.3% $51.77 0 0


Contiguous blocks greater than 100,000 square feet

Midtown buildings with large contiguous blocks of space

47 Blocks 9,182,656 s.f.

4 Times Square – 817,252 s.f.

75 Rockefeller Plaza – 565,877 s.f.

285 Madison Avenue – 445,135 s.f.

1633 Broadway – 415,467 s.f.

1271 Avenue of the Americas – 303,142 s.f.

10 Hudson Yards – 294,714 s.f.

55 West 46th Street – 290,866 s.f.



237 Park Avenue – 230,566 s.f.

1633 Broadway – 212,122 s.f.

1501 Broadway – 203,245 s.f.

1601-1611 Broadway – 196,522 s.f.


1675 Broadway – 181,114 s.f.


One Park Avenue – 177,267 s.f.

622 Third Avenue – 171,932 s.f.


1700 Broadway – 166,487 s.f.

11 Times Square – 163,305 s.f.


1333 Broadway – 162,005 s.f.



405 Lexington Avenue – 145,813 s.f.

450 West 33rd Street – 139,332 s.f.


1411 Broadway – 132,543 s.f.


1440 Broadway – 127,525 s.f.





463 Seventh Avenue – 120,801 s.f.





885 Second Avenue – 115,485 s.f.

31 West 52nd Street – 115,230 s.f.

10 East 53rd Street – 109,609 s.f.



530 Fifth Avenue – 101,942 s.f.


A A B A A A A A A A

A A B A A A B A A A

A A B A A A A A A

B A B A A B A A A A A

A A A A B B A


Midtown South buildings with large contiguous blocks of space

8 Blocks: 959,140 s.f.

225 Park Avenue South – 134,774 s.f.

233 Spring Street – 132,191 s.f.

50 West 23rd Street – 123,625 s.f.


75 Varick Street – 121,240 s.f.

860 Washington Street – 114,000 s.f.

75 Varick Street – 110,510 s.f.

261-271 Eleventh Avenue – 100,000 s.f.


B

A A

A A B B A


Downtown buildings with large contiguous blocks of space


B

A A A A

A A B A

A B B

23 Blocks: 6,668,511 s.f.

4 World Trade Center – 873,771 s.f.

180 Maiden Lane – 745,993 s.f.

375 Pearl Street – 713,962 s.f.

28 Liberty Street – 579,880 s.f.


195 Broadway – 415,127 s.f.

300 Vesey Street – 319,644 s.f.

1 State Street – 269,861 s.f.

1 Liberty Plaza – 263,509 s.f.


115 Broadway – 183,140 s.f.

140 Broadway – 159,755 s.f.

1 Liberty Plaza – 156,230 s.f.



A

A


17 Battery Place North – 121,189 s.f.

60 Hudson Street – 120,000 s.f.

85 Broad Street – 115,221 s.f.

85 Broad Street – 112,789 s.f.

233 Broadway – 112,392 s.f.

120 Broadway – 107,282 s.f.

1 New York Plaza – 104,067 s.f.

A A A

A

A B B

A B


Market CBD under construction

Market/building Class Developer/owner RBA Pre-leased Major tenants signed Net rent Delivery date

CBD

Downtown

Three World Trade Center Trophy Silverstein Properties 2,861,402 s.f. 18.0% GroupM N/A 2018

Midtown 10 Hudson Yards Trophy Related Companies 1,700,000 s.f. 77.5% Coach, L’Oreal, SAP N/A 2016 390 Madison Avenue A L&L Holding Company 858,710 s.f. 0.0% N/A N/A 2016 7 Bryant Park Trophy Hines 473,672 s.f. 40.0% Bank of China N/A 2015

Midtown South One SoHo Square A Rockpoint Group 768,000 s.f. 0.0% N/A N/A 2016 510 West 22nd Street A Albanese Organization 175,000 s.f. 0.0% N/A N/A TBD 125 West 25th Street A Waterbridge Capital 138,000 s.f. 0.0% N/A N/A 2015 860 Washington Street A Romanoff Equities 114,000 s.f. 0.0% N/A N/A 2015 430 West 15th Street A Atlas Capital Group 99,558 s.f. 100.0% Palantir Technologies N/A 2015 135 Bowery A First American International Bank 18,000 s.f. 0.0% N/A N/A 2015

CBD totals 7,206,342 s.f. 34.5%


Midtown South 180 Maiden Lane

Class A

RBA 1,078,751 s.f.

Buyer Murray Hill/Clarion Partners

Seller SL Green/The Moinian Group

Price per s.f. $436

Date sold January 2015

Midtown 1095 Avenue of the Americas

Class A

RBA 1,036,534 s.f.

Buyer Ivanhoe Cambridge

Seller Blackstone

Price per s.f. $2,122

Date sold January 2015

Midtown South 837 Washington Street

Class A

RBA 63,131 s.f.

Buyer TIAA-CREF

Seller Thor Equities/Taconic Investment Partners


Date sold March 2015

Midtown 11 Times Square (45% interest)

Class A

RBA 1,016,406 s.f.

Buyer Norges Bank

Seller SJP Properties/Prudential


Date sold February 2015

Manhattan CBD select sales

Glossary


Common real estate terms

Active requirements: Tenants actively seeking space in the market Average asking rent: Quoted at a gross price exclusive of tenant electricity based on a weighted average of available space Available space: Existing space that is being actively marketed for immediate or future occupancy, including both direct and sublease space Build-out: The cost of configuring and finishing new space in accordance with a tenant’s specifications Build to suit: A method of leasing property whereby the landlord builds a new building in accordance with a tenant’s specifications Capital improvement: Any major physical development or redevelopment to a property that extends the life of the property. Examples include upgrading the elevators, replacement of the roof and renovations of the lobby Class: Building classification system broken down by Trophy, Class A, B and C buildings. Location, building amenities, mechanical / HVAC systems, age of building and tenant roster are some of the components that determine an office building's class Concessions: Cash expended by the landlord in the form of rent abatement, build-out allowance or other payments to induce the tenant to sign a lease. The level of concessions fluctuates with supply and demand conditions in the market and is up for negotiation in a similar fashion to rental rates Contiguous space: Adjoining office space Delivered buildings: Buildings that have completed construction and are ready for tenant build-out. May or may not yet have a Certificate of Occupancy Direct rent: Rents quoted directly from the landlord on vacant space

Effective rent: The rental rate actually achieved by the landlord or tenant after deducting the value of concessions from the base rental rate paid; usually expressed as an average rate over the term of the lease Face rental rate: The “asking” or nominal rental rate published by the landlord Gross leases: The quoted rents include tax and operating costs (property taxes, insurance and maintenance expenses) Hard cost: The cost of actually constructing property improvements Indirect (soft) costs: Development costs other than material and labor costs, which are directly related to the construction of improvements, including administrative and office expenses, commissions, architectural, engineering and financing costs Lease: A legally binding agreement whereby the owner of real property (i.e., landlord) gives the right of possession to another (i.e., tenant) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent) Leased space: Existing space under contract, regardless of if it is occupied; also includes subleased space NNN leases: The quoted rents do not include tax and operating costs (property taxes, insurance and maintenance expenses) Net absorption: Net change in occupied space between two dates measured as square footage. (i.e. a measure of the total square feet leased over a period of time taking into consideration office space vacated in the same area during the same period) Occupied space: Total supply minus available space Operating expense: The actual costs associated with operating a property, including maintenance, repairs, management, utilities, taxes and insurance Preleased space: Space that has been leased prior to construction completion date or Certificate of Occupancy date


Proposed construction: Buildings are proposed when permits are in place, site is being actively marketed but significant base building has not yet commenced. Proposed asking rents are not included in market calculations Shell space: The interior condition of the tenant's usable square footage when it is without improvements or finishes. Shell construction typically denotes the floor, windows, walls and roof of an enclosed premises and may include some HVAC, electrical or plumbing improvements but not demising walls or interior space partitioning Sublease space: Leased space that is being actively marketed by the tenant under contract to another party Tenant at will: One who holds possession of premises by permission of the owner or landlord, but without agreement for a fixed term Tenant improvement allowance (TI): Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling, and may be paid for by the landlord, the tenant, or shared Total supply: The entire area of an office building comprised of both usable space and an allocated portion of the common area Turn key project: A project in which the developer is responsible for the total completion of a building (including interior design and construction) or demised premises to the customized requirements of a future owner or tenant Under construction: Buildings are under construction when significant work is underway from ground up development (i.e. steel is going up) Under renovation / rehab: Buildings are under renovation / rehab when significant base building renovation is underway Vacant space: Direct existing space being actively marketed for immediate occupancy as of the survey date, not including sublease space


About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316.0 million square meters, and completed $118.0 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. About JLL Research JLL’s research team delivers intelligence, analysis, and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our 300 professional researchers track and analyze economic and property trends and forecast future conditions in over 70 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.

©2014 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.

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