2Q15-Manhattan-Market-Report

Market Summary

Current Conditions

Market Analysis

MANHATTAN 2Q15 OFFICE MARKET

Uptick in activity from

legal and fashion

tenants drive top deals The Manhattan office market finished the second quarter of 2015 with 9.5

million square feet of leasing activity, outpacing the 10-year quarterly

average of 8.7 million square feet. Several large blocks hitting the market

countered the strong leasing and held overall availability stable at 11.4%.

Seven new blocks of available space came online in the second quarter,

including the 185,000-square-foot block at Bank of China’s 7 Bryant

Park, which was delivered in June. As a result, the quarterly absorption

total finished slightly negative with 45,945 square feet, while the year-to-

date total reached negative 3.7 million square feet. Manhattan’s average

asking rent finished the quarter at $68.80/SF, up from $68.25/SF in the

first quarter and up 6% from $65.20/SF one year ago.

The FIRE (financial, insurance and real estate) and TAMI (technology,

advertising, media, and information) sectors continued to comprise the

largest shares of market activity, capturing 32% and 22% of total market

activity, respectively. However, law firms and fashion tenants were highly

active in top-tier space this quarter, both expanding their current

footprints in trophy towers and committing to new high-end construction

projects. Law firms accounted for 19% of total leasing this quarter, up

from 8% in the first quarter. Fashion tenants saw an even bigger jump,

capturing 15% of total square footage leased, up from just 4% in the

first quarter.

The largest of these transactions saw high-end fashion house Chanel

renew and expand at 9 West 57th Street for a total of 230,000 square

feet. Law firm Morgan Lewis & Bockius leased an additional 100,200

square feet at 101 Park Avenue, expanding its footprint in the building to

300,000 square feet. In Midtown South, fashion company Ralph Lauren

added 62,197 square feet at the Starrett-Lehigh building in Chelsea for a

total occupancy of 100,000 square feet.

Additionally, legal and fashion firms showed increased interest in new

construction in the second quarter. Each of these firms’ commitments

marked a major milestone in the development of its respective building.

Law firm Skadden, Arps, Slate, Meagher & Flom’s deal for 538,321

square feet as the anchor tenant at Brookfield’s 1 Manhattan West on the

Far West Side will allow construction to commence. Athletic apparel

retailer Nike signed a 147,936-square-foot lease for the entire office

portion of Durst’s 855 Avenue of the Americas development. Law firm

Boies, Schiller & Flexner signed the first deal at Mitsui-Fudosan and

Related Properties’ 55 Hudson Yards, taking 81,835 square feet.

Second quarter leasing demonstrated a bifurcation of the market, as

much of the activity occurred in top-tier assets. As a result, base taking

rents for Manhattan finished the quarter up 21% from last year.

Research

• Legal and fashion firms combined for a 35% share of

market activity, up from 12% in the first quarter

• Overall asking rents rose to $68.80/SF, up 6% year-

over-year

• Availability was stable at 11.4% from 11.5% last quarter

• Seven blocks of space over 100,000 square feet reached

the market in the second quarter, including 185,000

square feet at 7 Bryant Park

-9

-6

-3

0

3

6

2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15

Net Absorption

Square Feet, Millions

6%

8%

10%

12%

14%

16%

$30

$40

$50

$60

$70

$80

2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15

Average Asking Rent (Price/SF) Availability (%)

Asking Rent and Availability

Current

Quarter

Prior

Quarter

Year Ago

Period

12 Month

Forecast

Total Inventory 451MSF 450MSF 447MSF

Availability Rate 11.4% 11.5% 11.3%

Quarterly Net Absorption -45,945 -3.3MSF -49,841

Average Asking Rent $68.80 $68.25 $65.20

Under Construction 8.6MSF 9.0MSF 8.3MSF

Deliveries 473,672 0 0

2

Average Asking Rent by Submarket Availability by Submarket

0

20

40

60

80

100

2Q99 2Q01 2Q03 2Q05 2Q07 2Q09 2Q11 2Q13 2Q15

Midtown Midtown South Downtown

Average Asking Rent ($/SF)

MIDTOWN

Top End of Market Performing Well Among Financial Firms

Midtown availability finished at 11.8% in the second quarter, down

slightly from 12.0% in the first quarter and remaining flat year-over-year.

Strong leasing was largely driven by financial firm expansions and

renewals, with premium assets attracting much of the activity. As a result,

net absorption for the quarter finished at positive 574,267 square feet.

However, leasing has not yet absorbed the large blocks added during the

first quarter. As a result, the year-to-date total remained in negative

territory, with 1.5 million square feet.

Financial services firms accounted for 44% of all Midtown leasing in the

second quarter, with tenant renewals and expansions comprising the

majority of activity. Two of the largest Midtown deals involved high-profile

financial giants opting to renew: Morgan Stanley’s 400,000-square-foot

renewal at 750 Seventh Avenue in April, and Bank of America’s renewal

of 114,767 square feet of space at 1133 Avenue of the Americas in June.

Additionally, two financial firms expanded their operations this quarter to

accommodate rapid growth: Blackstone, after taking 29,000 square feet

at 601 Lexington Avenue in March, added 60,000 square feet across two

additional floors in June for a total of 120,000 square feet; while PJT

Partners, after leasing nearly 100,000 square feet at 280 Park Avenue in

March, took an additional 42,849 square feet in the building in June. With

much of the activity occurring in high-end trophy space, Midtown base

taking rents increased 15% year-over-year.

The Grand Central submarket saw four blocks of space hit the market

this quarter. The influx of value-priced space brought Midtown asking

rents down slightly, to $80.21/SF from $80.40/SF in the first quarter.

However, asking rents finished up 5% from $76.37/SF this time last year.

The city council approved rezoning of Midtown East’s Vanderbilt

Corridor, including SL Green’s One Vanderbilt. The building, which will be

anchored by TD Bank, is due to deliver 1.8 million square feet in 2020.

MIDTOWN SOUTH

New Construction and Prime Neighborhoods Drive Leasing

Availability increased to 9.2% from 8.8% in the first quarter, but remained

down from 9.7% one year ago. While leasing activity was strong and

consisted chiefly of new relocation deals, several large blocks hitting the

market pushed the absorption total to negative 1.0 million square feet.

Year-to-date absorption finished at negative 1.4 million square feet.

Much of the leasing involved mid-size tenants circling top-tier office stock

in prime Midtown South areas while large companies committed to new

development projects on the Far West Side. In the Village, IBM’s Watson

Group added 25,401 square feet at 51 Astor Place in April, bringing the

building to full occupancy. In Soho, a creative firm led by Matthew

Moneypenny leased 29,750 square feet at RFR Realty’s newly-converted

190 Bowery. Meanwhile, the aforementioned Skadden Arps, Nike and

Boies Schiller deals demonstrated the heightened demand for large

modern floor plans in Midtown South.

Strong leasing centered around top-tier assets and new construction

TAMI tenants continued to dominate the leasing landscape in Midtown

South, capturing 32% of second quarter activity. However, there was a

considerable upswing in Midtown South activity from fashion and retail

tenants this quarter. Fashion and retail firms accounted for 25% of total

leasing, up from 13% in the first quarter. In addition to the

aforementioned Nike and Ralph Lauren deals, Foot Locker agreed to

lease 145,000 square feet at 330 West 34th Street while Republic

Clothing subleased 50,522 square feet at 1411 Broadway.

The average asking rent jumped to $62.02/SF from $60.03/SF in the first

quarter and finished up 6% from $58.55/SF one year ago.

Research


0%

4%

8%

12%

16%

20%

2Q99 2Q01 2Q03 2Q05 2Q07 2Q09 2Q11 2Q13 2Q15

Midtown Midtown South Downtown

Availability Rate (%)

3

Downtown Lease Transactions

Midtown South Lease Transactions

Skadden, Arps, Slate, Meagher & Flom 1 Manhattan West Penn Station Direct 538,321

Nike 855 Avenue of the Americas Penn Station Direct 147,936

Footlocker 330 W 34th St Penn Station Direct 145,000

WeWork 315 W 36th St Times Square South Direct 139,983

Paypal 95 Morton St Hudson Square Direct 95,000

Tenant Building Submarket Type Square Feet

DOWNTOWN

Availability Declines Despite Quiet Quarter of Leasing

Downtown availability fell to 13.5% from 14.0% in the first quarter, but

finished up from 12.5% this time last year. The year-over-year increase is

due to an influx of shadow space hitting the market over the past year.

With no large blocks coming online this quarter, net absorption finished

positive with 420,654 square feet. However, the year-to-date absorption

total remained negative with 789,236 square feet.

Leasing activity was relatively quiet in the second quarter, particularly

among large tenants. The biggest deal was signed by financial advisory

firm GlobeTax, which agreed to take 60,000 square feet at 1 New York

Plaza in June. The most significant news of the quarter involved News

Corp. and 21st Century Fox signing of a letter-of-intent to anchor 2 World

Trade Center. The agreement would have the media giant relocate from

1211 and 1185 Avenue of the Americas in 2020 and occupy 1.3 million

square feet in the building, which is still in the planning stages.

Also of note was the rapidly expanding Downtown presence of shared

workspace provider Coworkrs, which established two new locations in the

second quarter: A 33,000-square-foot location at 55 Broadway was

established in April, and a 40,000-square-foot location at 60 Broad Street

was leased in June. With WeWork’s four Downtown locations comprising

550,000 square feet, Lower Manhattan is emerging at the forefront of the

shared-office movement.

In other leasing news, Downtown incentive programs were renewed and

extended for two years in late June. The programs, which include the

Relocation and Employment Assistance Program (REAP) and Industrial

and Commercial Abatement Program (ICAP), offer tax breaks to

developers and businesses that commit to relocating Downtown.

Asking rents rose slightly to $56.65/SF from $56.30/SF in the first quarter

and finished up 11% from $50.90/SF one year ago.

Research


Midtown Lease Transactions

Morgan Stanley 750 Seventh Ave Westside Direct 400,000

Bloomberg 919 Third Ave Eastside Direct 254,556

Chanel 9 W 57th St Upper Fifth/Plaza Direct 230,000

Bank of America 1133 Avenue of the Americas Sixth Avenue/ Rockefeller Center Direct 114,767

Norton Rose Fulbright 1301 Avenue of the Americas Sixth Avenue/ Rockefeller Center Direct 107,215



GlobeTax 1 New York Plz Financial Direct 60,000

Cowork.rs 60 Broad St Financial Direct 40,000

Schnader Harrison Segal & Lewis 140 Broadway Financial Direct 38,161

Cowork.rs 55 Broadway Financial Direct 33,000

Holborn Reinsurance 180 Maiden Ln Financial Direct 29,878

4

Midtown 213,267,306 58,468 11.8% 574,267 -1,214,630 $81.29 $64.59 $80.21

Eastside 22,035,905 0 6.4% 149,435 167,955 $72.20 $50.96 $70.62

Grand Central 54,248,327 0 14.4% -632,663 -1,248,427 $74.34 $52.60 $73.62

Park Ave 24,033,915 0 10.2% 549,065 610,368 $92.72 $89.77 $92.22

Sixth Ave/Rock Ctr 45,765,539 0 12.0% 139,017 -755,896 $85.64 $65.82 $83.93

Upper Fifth/Plaza 27,162,687 58,468 12.0% 109,085 -11,498 $106.81 $71.96 $106.49

Westside/Times Sq 40,020,933 0 11.7% 260,328 22,868 $72.86 $47.23 $70.87

Midtown South 139,296,554 6,066,964 9.2% -1,040,866 -1,377,812 $63.01 $50.74 $62.02

Chelsea 8,575,663 85,202 4.1% -47,126 -43,788 $57.12 NA $57.12

Flatiron/Union Sq 16,170,051 0 11.2% -167,431 24,081 $66.69 $55.51 $65.83

Times Square South 35,984,794 0 11.6% -453,354 -1,002,004 $59.08 $48.80 $57.77

Hudson Sq 10,744,016 0 13.5% -304,011 -365,544 $76.24 $48.57 $75.66

Lower Sixth Ave 3,898,182 0 9.8% 50,884 -127,979 $71.56 NA $71.56

Park Ave South 21,545,546 0 7.8% -151,434 -92,050 $60.95 $47.62 $59.23

Penn Station 32,116,620 5,804,950 7.6% 80,835 55,147 $55.46 $54.26 $55.43

SoHo/NoHo 6,151,367 33,707 5.6% 11,925 76,976 $71.49 $64.58 $70.50

Village 4,110,315 143,105 4.7% -61,154 97,349 $62.40 $55.34 $60.92

Downtown 98,381,772 2,500,000 13.5% 420,654 -731,667 $57.27 $40.12 $56.65

City Hall/Insurance 24,643,832 0 10.2% 110,753 239,435 $48.78 $30.32 $48.05

Financial 55,760,145 0 13.6% 318,955 -418,510 $52.62 $42.80 $52.12

WTC/WFC 17,977,795 2,500,000 17.7% -9,054 -552,592 $73.16 NA $73.16

Manhattan 450,945,632 8,625,432 11.4% -45,945 -3,324,109 $69.62 $55.74 $68.80

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Total Under Total Qtr YTD Direct Sublet Total

Inventory Construction Availability Absorption Absorption Asking Rent Asking Rent Asking Rent

(SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF)

Submarket Statistics


5

Consumer Price Index (CPI) Employment Growth by Industry

Unemployment Rate Payroll Employment

Employment By Industry

0%

3%

5%

8%

10%

13%

May-10 May-11 May-12 May-13 May-14 May-15

United States New York City

Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics, New York State Department of Labor

Economic Conditions The local economy maintained steady improvement through May 2015,

with payroll employment growing 2.4% over the past year to reach 4.203

million jobs. The private sector continued to drive growth, adding 94,600

jobs over the same span, while the government sector gained 3,300 jobs.

Considering the burgeoning development boom in New York City, it is

not surprising that the construction industry experienced the largest year-

over-year percentage growth, adding 6,100 jobs for a 17.2% year-over-

year increase. Office-using sectors maintained positive momentum in

May: financial activities employment grew by 1.4% in the past year;

information employment grew 1.9%; and the professional and business

services sector saw the biggest gain, adding 22,000 jobs in the past

year, a 3.3% increase. Lastly, the leisure and hospitality sector continued

strong growth, adding 12,600 jobs since May 2014.

Unemployment in New York was stable at 5.6% in May, well below the

May 2014 rate of 6.4% but still above the national rate of 5.5%.

Total

Manufacturing

Construction

Trade/Transportation/Utilities

Information

Financial Activities

Prof & Bus Services

Education/Health

Leisure/Hospitality

Other Services

Government

-5.0% 0.0% 5.0% 10.0% 15.0% 20.0%

New York City, May 2015, 12-Month % Change, Seasonally Adjusted

Source: New York City Comptroller’s Office

-1%

0%

1%

2%

3%

4%


United States New York-Northern NJ-Long Island

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100

Source: U.S. Bureau of Labor Statistics

-4%

-2%

0%

2%

4%

6%


United States New York City

Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

Source: U.S. Bureau of Labor Statistics, New York State Department of Labor

1.8% 3.1%

4.4%

4.5%

5.1%

10.2%

10.8%

13.1%

14.9%

15.9%

16.3%

Manufacturing

Construction

Information

Other Services

Education

Leisure/Hospitality

Financial Activities

Government

Trade/Transportation/Utilities

Health

Business & Professional

New York City, May 2015

Source: New York City Comptroller’s Office

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All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Grubb Knight Frank (NGKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NGKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.

Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has

been revised. With this expansion and refinement in our data, there may be adjustments in historical

statistics including availability, asking rents, absorption and effective rents.

Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research

Newmark Grubb Knight Frank United States Office Locations

Jonathan Mazur

Managing Director, Research

212.372.2154

[email protected]

Stephanie Jennings

Tri-State Director, Research

212.372.2099

[email protected]

David Chase

Research Analyst

Garrett Derderian

Research Analyst

James Rorty

Senior GIS Analyst

Alex Schwartz

Research Analyst

Edward Son

Senior Research Analyst

Ronnie Wagner

Director, Research

New York City

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2Q15-Manhattan-Market-Report