vacancy and rents stable amid slower leasing activity - · pdf filevacancy and rents stable...

Vacancy and rents stable amid slower leasing activity• The Manhattan office market remained cautious in the second

quarter of 2016 as economic and political events continued to stem leasing activity. At midyear, leasing volume was down approximately 13 percent from last year.

• Midtown South, New York’s technology and creative hub, recorded strong demand, stable rents and one of the lowest vacancy rates in the country.

• Foreign investors continued the flight-to-safety with 40 percent of New York City investment volume attributable to offshore capital through the second quarter.

Office Outlook

New York | Q2 2016

JLL • Office Outlook • New York • Q2 2016 2

New York overviewThe Manhattan office market remained cautious in the second quarter of 2016 as economic and political events continued to stem leasing activity. At midyear, Manhattan is on track to record the lowest leasing volume since 2009, down approximately 13 percent from last year. Large renewals—rather than relocations and expansions—have captured the bulk of activity year-to-date. With vacancy moving sideways, and perhaps headed higher, some landlords have begun moderating rents and increasing concessions. Still, a number of large tenants are currently in the market, and activity could rebound following the presidential election later this year. A more encouraging trend for the quarter—once again—was strong demand and stable rents in Midtown South, New York’s technology and creative hub, which remained one of the tightest submarkets in the country.

New York City’s current unemployment rate of 5.1 percent, down from 5.7 percent recorded at this time last year, has neared a historical low. The city’s tight labor market is even more notable because it has occurred despite several years of inward migration from job seekers; yet growth appears to be tapering. Total employment declined to 4,296,500 payrolls at midyear 2016—11,600 jobs below the record high posted in April. In particular, the rate of financial services job growth, paramount to the office market, is slowing again. At midyear 2016, the sector had only growing at 0.3 percent year-over-year. The healthcare and education sector—a leader in overall job growth since the recovery—has added 167,200 jobs since December 2008 and was up 3.5 percent year-over-year for the same period.

While not typically considered a large occupier of office space, this sector has increasingly become important to the New York market. Since 2010, nearly 8.0 million square feet have been leased by the combined industries.

Despite a decline in overall activity, large-block leasing of 100,000 square feet or greater has been roughly on par with last year—21 transactions year-to-date vs. 23 transactions through the first half of 2015. For the quarter, most large-block transactions were completed in Midtown. UBS signed the largest lease of the quarter, a 891,000-square-foot renewal at 1285 Avenue of the Americas. NYU LangoneMedical Center committed to the entire building at 222 East 41st Street for a total of 389,522 square feet. PricewaterhouseCoopers (PwC) has expanded its Midtown footprint with a 240,000-square-foot lease at 90 Park Avenue, adjacent to its headquarters at 300 Madison Avenue. The two new lease commitments helped drive the Midtown Class A vacancy rate down to 11.4 percent from 11.6 percent last quarter.

In the second quarter, Olayan America, a division of Saudi conglomerate Olayan Group, and Chelsfield acquired the former Sony Building at 550 Madison Avenue for $1.4 billion. The building had been previously purchased from Sony by the Chetrit Group and Clipper Equity with plans to convert the tower to a mix of non-office uses, including residential condominiums and possibly a hotel.


The new owners have announced their intention to lease the tower as commercial office space, which will add nearly 1 million square feet of Class A vacancy to the market in the coming months. With large impending blocks elsewhere, it is becoming less clear if some planned developments will go forward.

Disruption in the hedge fund industry—which as a whole has underperformed in the stock market for several quarters—may finally impact the top of the office market. Top-tier leases, typically defined as those with starting rents at $100 per square foot or greater, have declined significantly. Only 26 such transactions have been recorded at midyear, while a record 138 top-tier leases were completed last year. While many of these leases are difficult to track, which could result in a revision of the current number to be higher by year-end, it appears the top of the market may be slowing. The Midtown Trophy index, which tracks the average asking rent at Manhattan’s premier office properties, has fallen to $98.64 per square foot from $99.94 in the first quarter, or 1.3 percent.

Midtown South, still the preferred location for New York’s creative industries, recorded a decrease in Class A vacancy for the fourth consecutive quarter, to 5.3 percent. Several large blocks at new-construction buildings, however, are slated for delivery by the end of 2018, including 512 West 22nd Street, 61 Ninth Avenue and 412-414 West 15th Street. Because of site size, historic preservation efforts and other height restrictions, most of the new construction in Midtown South is small in size and, consequently, priced at the top of the market.

If not for McGraw-Hill Financial’s renewal at 55 Water Street earlier this year at nearly 1 million square feet, Downtown volume would be near a historical low point. This quarter, QBE North America recorded the largest Downtown lease with a 97,228-square-foot sublease, also at 55 Water Street. After a few slow quarters, activity at the World Trade Center increased with two significant commitments: Hudson River Trading leased 69,000 square feet at 4 World Trade Center and Ameriprise Financial leased 38,000 square feet at 1 World Trade Center. Both tenants are moving within the Downtown market.

The uncertainty surrounding the presidential election, foreign political events and slower job growth will impact New York leasing activity through year-end. Due to the size and complexity of the New York office market, not all industries and properties would be affected evenly. For example, dislocation in the European markets could allow New York City to capture a larger share of international capital and financial services. Other industries, like healthcare and education, are expected to remain in growth mode for the next decade despite any cyclical weakness in the economy. In terms of future supply, several blocks of available space, both new construction and tenants vacating current inventory, will be coming to the market over the next few years, which could significantly raise vacancy rates. However, the timing and long-term impact of future blocks are unclear. In past cycles, the New York office market has been highly effective in adapting to changing demand by delaying or shelving new-construction projects, converting obsolete office space to different uses, and re-positioning older assets for growing industries.

Tristan AshbyVice President, Research Director


Capital Markets overviewInvestment sales activity has continued its strong pace in 2016 with 250 transactions totaling $23 billion through the first half of the year. While 2016 sales volume will likely fall below 2015’s record volume of $60 billion, 2016 is set to outpace the previous five-year average of $36 billion of annual investment activity with an additional 69 deals totaling $4.3 billion under contract and nearly $9 billion of deals actively in the market.

After a volatile first two months of the year amid sinking oil prices and Chinese currency devaluation, the New York City market saw little impact in both volume and capital values. As the second quarter came to an end, the fallout from the Brexit referendum persisted in the equity and fixed income markets. Despite the market gyrations, there will likely be no negative long-term impact on the NYC real estate market. In fact, this may steer additional offshore capital to NYC which otherwise may have been captured by the United Kingdom or other European markets.

Capital values remain up across nearly all product types as demand continues to outpace supply. Land pricing has not yet witnessed a significant correction, despite a slowdown in the condominium sales market, as the number of land sales has dropped significantly due to both waning demand and less readily available construction financing.

Investors continue to be drawn to the strength of the NYC multifamily rental market, which consistently registers a sub-2 percent vacancy rate. Year-to-date, ten multifamily rental building sales in excess of $150 million have been placed under contract. There have also been five multifamily portfolio transactions (closed or under contract), with a concentration in Upper Manhattan.

Despite a marked slowdown in leasing activity, a shortage of capital for office sale transactions has not resulted. To date, there have been ten transactions in excess of $500 million, with four of those deals over $1 billion, including 550 Madison Avenue, a vacant office building which will require a full lease-up program. The average price per square foot price for Midtown Class A assets held steady at nearly $1,100 per square foot, while the overall average price for a Manhattan office building was nearly $850 per square foot.

With 40 percent of investment volume attributable to offshore capital through the second quarter, foreign investors continue the flight-to-safety to NYC assets across all product types. The diversity of geographic investment continues to flow from all corners of the globe with participation from 13 different countries, led this year by China, Canada and Germany.

Mixed macroeconomic signals continue to dominate the landscape with the lowest domestic job creation in years during May, a rebound in June, persistently low oil prices, Brexit fears and sustained currency devaluation across the globe. As a result, the Fed is not expected to increase the Federal Funds Rate before September, and may choose to keep it steady through the end of the year. This would be a departure from what some economists predicted at the beginning of the year, when many expected the Fed to increase the rate by 50 to 75 basis points by year-end 2016.

Scott Latham Yoron Cohen Vice Chairman Vice Chairman

Jon Caplan Richard BaxterVice 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

Q2 2016 positions• Midtown – Political and economic uncertainty—both nationally and internationally—is

expected to weigh on the market through at least the third quarter. With the presidential election in November, a rebound in activity could occur late in the fourth quarter that might spill over into the first quarter of next year. Concessions will remain elevated as some landlords will be reluctant to reduce rents.

• Midtown South – Despite slower rental growth in the past 12 months, an imminent and major correction in Midtown South does not appear likely without a collapse in the tech industry and a subsequent increase in sublease availability. As vacancy is expected to remain tight and asking rents are at record highs, ongoing demand in the market will be tested as traditional tenants are forced to explore options elsewhere in Manhattan, Brooklyn and Long Island City.

• Downtown – Uncertain economic conditions and rising rents have had a material impact on Downtown leasing activity, which has been subpar over the past six quarters. Despite the rise in asking rents over the previous two years, Downtown will continue to benefit from discounted rents compared with Midtown and Midtown South.

Midtown South


New York market definitions

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

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


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.)

Midtown

Columbus Circle 25,296,466 0 0 59,701 -41,640 -0.2% 6.6% $71.93

Grand Central 72,205,869 858,710 0 269,455 -873,001 -1.2% 11.7% $69.53

Penn Plaza/Garment District 46,189,228 6,245,077 1,946,970 74,218 -266,748 -0.6% 10.1% $62.85

Plaza District 103,086,508 670,000 0 -109,075 -276,311 -0.3% 10.4% $85.28

Times Square 40,221,709 0 0 3,269 275,372 0.7% 10.1% $75.85

Midtown market totals 286,999,780 7,773,787 1,946,970 297,568 -1,182,328 -0.4% 10.3% $75.02

Midtown South

Chelsea 23,417,520 761,669 237,558 -35,052 -147,950 -0.6% 6.1% $62.61

Gramercy Park 21,982,308 0 0 106,723 105,454 0.5% 6.9% $71.09

Greenwich Village 5,801,496 0 0 52,497 -26,154 -0.5% 2.8% $73.53

Hudson Square 10,646,931 820,413 0 6,909 -76,305 -0.7% 9.8% $78.88

SoHo 4,730,123 81,000 0 -26,528 -86,404 -1.8% 6.6% $73.79

Midtown South market totals 66,578,378 1,663,082 237,558 104,531 -231,359 -0.3% 6.7% $70.43

Downtown

Financial District 37,695,289 0 0 -45,500 -46,969 -0.1% 11.3% $52.83

Tribeca/City Hall 17,721,155 0 0 10,647 -42,982 -0.2% 8.1% $49.44

Water Street Corridor 22,475,340 0 0 -130,719 -27,614 -0.1% 11.4% $52.45

World Trade Center 18,402,964 2,861,402 0 52,139 239,000 1.3% 13.7% $76.53

Downtown market totals 96,294,748 2,861,402 0 -113,433 121,435 0.1% 11.2% $57.95

Market totals 449,872,906 12,298,271 2,184,528 288,666 -1,292,252 -0.3% 9.9% $70.39


New York Midtown


New York Midtown boundaries

Columbus CircleSouth of West 66th Street, west of Central Park West and Avenueof the Americas, north of West 50th Street, east of the Hudson River.

Grand CentralSouth of East 47th Street, north of East 30th Street, east of Fifth Avenue.

Penn Plaza / GarmentSouth of 40th Street, west of Fifth Avenue, north of 30th Street,east of the Hudson River.

Plaza DistrictSouth of East 65th Street, west of the East River, north of 47th Street, east of Avenue of the Americas.

Times SquareSouth of West 50th Street, west of Avenue of the Americas, north of West 40th Street, east of the Hudson River.


Quarter in reviewMidtown leasing volume improved in the second quarter but still lags behind last year as political and economic events continue to weigh on the market. Nine large-block leases of 100,000 square feet or greater were signed in the second quarter of 2016 compared with 12 in the second quarter of 2015. Continuing a trend of large-block renewals accounting for a larger percentage of activity, eight of the 15 large-block leases year-to-date have been renewals compared with six of 20 in the first half of 2015.

UBS signed the largest lease of the quarter, a 891,000-square-foot renewal at 1285 Avenue of the Americas. The financial services company returned roughly 60,000 square feet of space in the renewal. NYU Langone Medical Center committed to the entirety of 222 East 41st Street for a total of 389,522 square feet. The building was previously occupied by Jones Day until the law firm relocated Downtown to 250 Vesey Street. 222 East 41st Street will be a new facility for the medical center encompassing the lobby, common areas, parking garage and all 25 floors of office space in the building. PricewaterhouseCoopers (PwC) expanded its Manhattan footprint with a commitment of 240,000 square feet at 90 Park Avenue, bringing its total size to nearly 1.2 million square feet between 300 Madison Avenue, 101 Park Avenue and the new location at 90 Park Avenue. Schroder Investment Management will relocate to 73,796 square feet in the recently completed 7 Bryant Park from 875 Third Avenue. Bank of China purchased the leasehold interest in the building and will occupy roughly 60 percent of the tower, but Schroders’ commitment marks the first leasing activity in the building.

Midtown Class A vacancy decreased slightly in the second quarter to 11.4 percent from 11.6 percent in the first quarter. Vacancy has risen seven of the past nine months, bringing it to just over a full percentage point higher than the second quarter of 2015. Overall vacancy decreased 10 basis points to 10.3 percent in the second quarter but is up from 9.6 percent recorded at this time last year.

The Midtown Class A average asking rent was flat in the second quarter and grew a modest 2.3 percent year-over-year to $81.19 per square foot. The overall average asking rent was also flat for the quarter but is up 3.9 percent year-over-year. Though rents have remained flat this year, concessions have increased, and leases are reportedly taking longer to close. With marked leasing activity reducing availability at Hudson Yards and 7 Bryant Park, the average Class A asking rent in the Penn Plaza/Garment District submarket declined 3.6 percent year-over-year to $70.94 per square foot.

In the second quarter, Olayan America and Chelsfield acquired the former Sony Building at 550 Madison Avenue for $1.4 billion. The building had been previously purchased from Sony by the ChetritGroup and Clipper Equity with plans to convert the tower to a mix of non-office uses including residential condominiums and possibly a hotel. The new owners have announced their intentions to lease the tower as commercial office space, which will add nearly 1 million square feet of Class A vacancy to the market in the coming months.

Submarket boundaries map

Key market indicators—Q2 2016

Stock 286,999,780 s.f.

Overall net absorption 297,568 s.f.

Overall vacancy rate 10.3%

Average asking rent $75.02 p.s.f.

Under construction 7,773,787 s.f.

Midtown

Market outlookPolitical and economic uncertainty—both nationally and internationally—is expected to weigh on the market through at least the third quarter. With the presidential election in November, a rebound in activity could occur late in the fourth quarter that might spill over into the first quarter of next year. Yet, with light activity and several large blocks expected to return to the market, vacancy may drift higher in the meantime. Concessions will remain elevated as some landlords will be reluctant to reduce rents. In the long-term, development could still impact the market—as tenants vacate older space—but some projects could be delayed amid fluctuating market dynamics.


Midtown

Significant lease transactions

UBS1285 Avenue of the Americas

Class A891,000 s.f.

NYU Langone Medical Center222 East 41st Street

Class A389,522 s.f.

PwC90 Park Avenue

Class A240,000 s.f.

C.V. Starr399 Park Avenue

Class A210,934 s.f.

D.E. Shaw & Co.1166 Avenue of the Americas

Class A195,000 s.f.

Average rental rates (Class A vs. Class B)

Large availabilities

390 Madison Avenue Class A843,674 s.f.

4 Times Square Class A817,252 s.f.

75 Rockefeller Plaza Class A446,087 s.f.

575 Fifth Avenue Class A352,913 s.f.

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

$100

2007 2008 2009 2010 2011 2012 2013 2014 2015 Q22016

$ 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 2015 Q22016

s.f.in

milli

ons

New deliveries YTD Net absorption YTD

Vacancy Class A YTD Vacancy Class B YTD

Overall new deliveries / overall net absorption / overall vacancy rates

Recent sales transactions

1211 Avenue of the Americas (49% interest)2,000,000 s.f.

Class A$913 p.s.f.

1285 Avenue of the Americas1,790,263 s.f.

Class A$921 p.s.f.


New York Midtown South


New York Midtown South boundaries

ChelseaSouth of 30th Street, west of Fifth Avenue, north of 14th Street andeast of the Hudson River.

Gramercy ParkSouth of 30th Street, west of the East River, north of 14th Street andeast of Fifth Avenue.

Greenwich VillageNorth of Houston Street, south of 14th Street, west of the East Riverand east of Avenue of the Americas.

Hudson SquareSouth of 14th Street, west of Avenue of the Americas, north ofCanal Street and east of the Hudson River.

SoHoSouth of Houston Street, west of the East River, north of Canal Street, and east of Avenue of the Americas.


Midtown SouthQuarter in reviewMidtown South continues to be one of the tightest markets in the country as demand remains steady, particularly in the creative sector, which values the area’s branding and access to talent. Only three large blocks (100,000 square feet or greater) of space currently remain available in the next twelve months. Three large leases have been signed year-to-date compared with only one signed during the first half of last year as established tenants such as Facebook continued to expand. Despite rising concerns that venture capital funding has decreased, the first half of the year did not indicate signs of a dramatic slowdown in the creative sector, including technology companies and startups. TAMI companies represented 64.6 percent of activity in Midtown South in the first two quarters compared with 65.5 percent last year.

Midtown South leasing activity was moderate for the first half of the year, mirroring activity exactly one year prior. In the only large transaction of the quarter, The Simons Foundation expanded across the street and leased the entire 125,000-square-foot-building at 162 Fifth Avenue. In its first East Coast location, software school Galvanize committed to 54,500 square feet at 315 Hudson Street. Additionally, 860 Washington Street landed its second tenant as e-commerce giant Alibaba inked a lease for 21,706 square feet at high-market rents.

Options for midsize to large blocks of space in the market are limited, as overall vacancy decreased to 6.7 percent from 6.9 percent last quarter. This marks a 0.5 percentage point decrease from last year when vacancy was 7.2 percent. Class A vacancy decreased for the fourth consecutive quarter to 5.3 percent as demand remains strong for high-quality space in the creative sector. Year-over-year, vacancy declined by 1.5 percentage points.

At $81.67 per square foot, the Midtown South Class A average rent is commensurable with Midtown. Rents continue to rise in Midtown South, albeit at a slower pace than in the years following the 2008 recession. The 3.1 percent year-over-year increase was mostly a result of above-market pricing at new developments, including One SoHo Square and 860 Washington Street. Overall rents increased to $70.43 per square foot from $68.03 per square foot this time last year.

Submarket boundaries map


Stock 66,578,378 s.f.

Overall net absorption 104,531 s.f.



Under construction 1,663,082 s.f.Market outlookDespite slower rental growth in the past 12 months, an imminent and major correction in Midtown South does not appear likely without a collapse in the tech industry and a subsequent increase in sublease availability. With limited large blocks of space and minimal lease roll expected in the upcoming years, major landlords are adding new developments to the Midtown South market. Several large blocks within new-construction buildings are slated for delivery by the end of 2018, including 512 West 22nd Street, 61 Ninth Avenue and 412-414 West 15th Street; however, these buildings are small in size and priced at the top of the market. As vacancy is expected to remain tight and asking rents are at record highs, ongoing demand in the market will be tested as traditional tenants are forced to explore options elsewhere in Manhattan, Brooklyn and Long Island City.



243 Canal Street21,700 s.f.

Class C$1,152 p.s.f.

Midtown South


The Simons Foundation162 Fifth Avenue

Class B125,000 s.f.

Galvanize, Inc.315 Hudson Street

Class B54,500 s.f.

SYPartners395 Hudson Street

Class B45,308 s.f.

Nielsen675 Avenue of the Americas

Class A43,529 s.f.



233 Spring Street Class A132,191 s.f.

360 Park Avenue South Class B112,500 s.f.

261-271 Eleventh Avenue Class B100,000 s.f.

$20

$30

$40

$50

$60

$70

$80

$90

2008 2009 2010 2011 2012 2013 2014 2015 Q22016

$ 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 2015 Q22016s.f

.in m

illion

s

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



New York Downtown


New York Downtown boundaries

Tribeca/City HallSouth of Canal Street, west of the East River and Pearl Street, north of Ann Street and east of West Street.

World Trade CenterSouth 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 DistrictSouth of Ann Street, west of Pearl Street, east of the Hudson River, south of Albany Street and east of Trinity Street.

Water Street CorridorSouth of the Brooklyn Bridge, west of the East River and east of Pearl Street.


near-term market sentiment. Additionally, several large-block leases are pending in Lower Manhattan, potentially giving way to a stronger second half of the year. Despite the rise in asking rents over the previous two years, Downtown will continue to benefit from discounted rents compared with Midtown and Midtown South. To date, fewer sizable Manhattan tenants have chosen the expanding Brooklyn or Long Island City Waterfront over Downtown.

Downtown Submarket boundaries map


Stock 96,294,748 s.f.

Overall net absorption -113,433 s.f.



Under construction 2,861,402 s.f.

Quarter in reviewAfter benefiting for several years from inward migration—with tenants drawn to newer space at attractive rents—Downtown leasing activity continued to trend lower in the second quarter while vacancy and asking rents remained flat.

At approximately 1 million square feet, leasing activity in Lower Manhattan remained slow in the second quarter, continuing a trend that has been developing since the beginning of 2015. QBE North America recorded the largest Downtown lease of the quarter with a 97,228-square-foot sublease at 55 Water Street. Activity at the World Trade Center increased with two significant commitments: Hudson River Trading leased 69,000 square feet at 4 World Trade Center and Ameriprise Financial leased 38,000 square feet at 1 World Trade Center. Both tenants are moving within the Downtown market.

Downtown Class A vacancy was flat for the quarter at 11.5 percent, as the market saw few changes in supply or demand. Vacancy, however, could fluctuate in the coming months due to a few pending large-block leases and space additions. Long-time Downtown law firm Milbank, Tweed, Hadley & McCloy signed a letter of intent to move from 28 Liberty Street to 55 Hudson Yards, potentially freeing up a large block at the top of the tower. The World Trade Center submarket, at 13.7 percent, recorded the second highest Class A vacancy rate in Manhattan, behind Grand Central, as several large blocks remain available at 1 and 4 World Trade Center.

After rising markedly over the last two years, Downtown asking rents have begun to stabilize. In the Class A sector, three buildings increased direct rents, and one building decreased direct rents. In the Class B sector, 11 buildings increased direct rents, and one building decreased direct rents. Despite the same-suite escalations, Class A asking rents, at $63.25 per square foot, were only 1.8 percent higher than last year at this time and were still 22.1 percent lower than Midtown. The Water Street Corridor remains one of the few value options in Manhattan with an average Class A rent of $52.52 per square foot, 32 percent below the Manhattan Class A average. Recently, the Water Street Corridor has attracted a number of cost-sensitive, though established, nonprofits seeking a New York presence. For example, Cornell University recently leased 21,750 square feet at 88 Pine Street.

Construction of Three World Trade Center, the only ground-up development in the market, recently topped out at 80 stories. The 2.9-million square foot, $2.5-billion tower, which will be anchored by GroupM, is on pace for an estimated completion date of early 2018.

Market outlook Uncertain economic conditions and rising rents have had a material impact on Downtown leasing activity, which has been subpar over the past six quarters. However, recent leasing velocity at the top of the market, including the World Trade Center, was a positive sign for


Downtown

$25$30$35$40$45

$50$55$60$65$70

2007 2008 2009 2010 2011 2012 2013 2014 2015 Q22016

$ p.

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


QBE North America55 Water Street

Class A97,228 s.f.

Hudson River Trading4 World Trade Center

Class A69,000 s.f.

Paradigm140 Broadway

Class A50,604 s.f.

Ameriprise Financial1 World Trade Center

Class A 37,704 s.f.



375 Pearl Street Class B762,612 s.f.

180 Maiden Lane Class A683,667 s.f.

1 World Trade Center Class A602,144 s.f.

4 World Trade Center Class A481,263 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 2015 Q22016

s.f.in

milli

ons

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



388-390 Greenwich Street2,634,670 s.f.

Class A$671 p.s.f.

1 New York Plaza (49% interest)2,521,322 s.f.

Class A$567 p.s.f.

New York appendix

StatisticsContiguous spaceNew constructionSelect salesGlossary

JLL • Office Outlook • New York • Q2 2016 • Appendix

JLL • New York Office Outlook • Q2 2016 • 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 direct asking rent ($

p.s.f.)

Average overall asking rent ($

p.s.f.)

YTD completions

(s.f.)

Under construction

(s.f.)Financial District Totals 37,695,289 -45,500 -46,969 -0.1% 10.2% 11.3% $53.63 $52.83 0 0Tribeca/City Hall Totals 17,721,155 10,647 -42,982 -0.2% 7.8% 8.1% $49.27 $49.44 0 0Water Street Corridor Totals 22,475,340 -130,719 -27,614 -0.1% 7.9% 11.4% $56.57 $52.45 0 0World Trade Center Totals 18,402,964 52,139 239,000 1.3% 12.8% 13.7% $77.28 $76.53 0 2,861,402Downtown Totals 96,294,748 -113,433 121,435 0.1% 9.7% 11.2% $59.54 $57.95 0 2,861,402Columbus Circle Totals 25,296,466 59,701 -41,640 -0.2% 5.7% 6.6% $75.20 $71.93 0 0Grand Central Totals 72,205,869 269,455 -873,001 -1.2% 9.8% 11.7% $72.36 $69.53 0 858,710Penn Plaza/Garment Totals 46,189,228 74,218 -266,748 -0.6% 8.4% 10.1% $65.42 $62.85 1,946,970 6,245,077Plaza District Totals 103,086,508 -109,075 -276,311 -0.3% 8.9% 10.4% $88.11 $85.28 0 670,000Times Square Totals 40,221,709 3,269 275,372 0.7% 8.7% 10.1% $76.77 $75.85 0 0Midtown Totals 286,999,780 297,568 -1,182,328 -0.4% 8.7% 10.3% $77.64 $75.02 1,946,970 7,773,787Chelsea Totals 23,417,520 -35,052 -147,950 -0.6% 4.6% 6.1% $61.48 $62.61 237,558 761,669Gramercy Park Totals 21,982,308 106,723 105,454 0.5% 5.1% 6.9% $74.17 $71.09 0 0Greenwich Village Totals 5,801,496 52,479 -26,154 -0.5% 1.5% 2.8% $76.70 $73.53 0 0Hudson Square Totals 10,646,931 6,909 -76,305 -0.7% 8.0% 9.8% $83.11 $78.88 0 820,413SoHo Totals 4,730,123 -26,528 -86,404 -1.8% 5.9% 6.6% $75.18 $73.79 0 81,000Midtown South Totals 66,578,378 104,531 -231,359 -0.3% 5.1% 6.7% $72.53 $70.43 237,558 1,663,082New York City Totals 449,872,906 288,666 -1,292,252 -0.3% 8.4% 9.9% $72.63 $70.39 2,184,528 12,298,271

Financial District A 14,246,623 96,654 103,789 0.7% 10.6% 11.1% $59.14 $58.71 0 0Tribeca/City Hall A 4,372,411 10,547 10,547 0.2% 0.2% 0.2% $60.00 $60.00 0 0Water Street Corridor A 20,941,226 -132,363 -77,537 -0.4% 8.4% 12.1% $56.64 $52.52 0 0World Trade Center A 18,402,964 52,139 239,000 1.3% 12.8% 13.7% $77.28 $76.53 0 2,861,402Downtown A 57,963,224 26,977 275,799 0.5% 9.7% 11.5% $65.95 $63.25 0 2,861,402Columbus Circle A 17,370,464 6,756 -133,863 -0.8% 7.0% 7.8% $79.49 $76.70 0 0Grand Central A 39,504,012 373,061 -819,093 -2.1% 12.8% 15.0% $78.47 $75.60 0 858,710Penn Plaza/Garment A 18,095,692 120,202 -164,336 -0.9% 9.7% 11.5% $73.74 $70.94 1,946,970 6,245,077Plaza District A 85,911,374 -85,210 -364,854 -0.4% 9.7% 11.3% $90.23 $87.68 0 670,000Times Square A 31,959,230 -40,662 230,962 0.7% 8.1% 9.2% $81.32 $81.37 0 0Midtown A 192,840,772 374,147 -1,251,184 -0.6% 9.8% 11.4% $83.53 $81.19 1,946,970 7,773,787Chelsea A 10,592,111 -13,611 23,828 0.2% 1.2% 2.3% $74.81 $72.19 237,558 761,669Gramercy Park A 10,721,487 175,109 142,498 1.3% 5.4% 6.7% $78.42 $76.80 0 0Greenwich Village A 1,915,423 -13,018 -19,801 -1.0% 1.9% 1.9% $96.71 $96.71 0 0Hudson Square A 4,589,421 30,416 22,457 0.5% 9.5% 10.1% $95.73 $94.11 0 820,413SoHo A 964,765 10,288 19,401 2.0% 5.2% 5.4% $72.84 $73.03 0 81,000Midtown South A 28,783,207 189,184 188,383 0.7% 4.3% 5.3% $84.49 $81.67 237,558 1,663,082New York City A 279,587,203 590,308 -787,002 -0.3% 9.2% 10.8% $79.66 $77.18 2,184,528 12,298,271

Financial District B 23,448,666 -142,154 -150,758 -0.6% 10.0% 11.3% $50.07 $49.30 0 0Tribeca/City Hall B 13,348,744 100 -53,529 -0.4% 10.2% 10.7% $49.19 $49.36 0 0Water Street Corridor B 1,534,114 1,644 49,923 3.3% 0.6% 1.5% $45.27 $45.12 0 0World Trade Center B 0 0 0 0.0% 0.0% 0.0% $0.00 $0.00 0 0Downtown B 38,331,524 -140,410 -154,364 -0.4% 9.7% 10.7% $49.74 $49.30 0 0Columbus Circle B 7,926,002 52,945 92,223 1.2% 2.8% 3.9% $52.14 $51.05 0 0Grand Central B 32,701,857 -103,606 -53,908 -0.2% 6.2% 7.8% $56.93 $54.76 0 0Penn Plaza/Garment B 28,093,536 -45,984 -102,412 -0.4% 7.5% 9.2% $58.47 $56.32 0 0Plaza District B 17,175,134 -23,865 88,543 0.5% 4.7% 6.0% $65.48 $62.01 0 0Times Square B 8,262,479 43,931 44,410 0.5% 11.2% 13.4% $64.00 $61.16 0 0Midtown B 94,159,008 -76,579 68,856 0.1% 6.5% 8.0% $59.45 $57.06 0 0Chelsea B 12,825,409 -21,441 -171,778 -1.3% 7.4% 9.2% $59.71 $60.58 0 0Gramercy Park B 11,260,821 -68,386 -37,044 -0.3% 4.7% 7.1% $69.46 $65.86 0 0Greenwich Village B 3,886,073 65,497 -6,353 -0.2% 1.3% 3.3% $61.99 $66.81 0 0Hudson Square B 6,057,510 -23,507 -98,762 -1.6% 7.0% 9.6% $70.10 $66.50 0 0SoHo B 3,765,358 -36,816 -105,805 -2.8% 6.0% 6.9% $75.81 $73.96 0 0Midtown South B 37,795,171 -84,653 -419,742 -1.1% 5.8% 7.8% $65.63 $64.49 0 0New York City B 170,285,703 -301,642 -505,250 -0.3% 7.0% 8.6% $57.53 $56.36 0 0


Contiguous blocks greater than 100,000 square feet

Midtown buildings with large contiguous blocks of space

40 Blocks 8,435,489 s.f.

390 Madison Avenue – 843,674 s.f.

4 Times Square – 817,252 s.f.

75 Rockefeller Plaza – 446,087 s.f.

575 Fifth Avenue – 352,913 s.f.

5 Manhattan West – 306,004 s.f.

9 West 57th Street – 278,200 s.f.

Tower 46 (55 West 46th Street) – 256,423 s.f.

237 Park Avenue – 230,566 s.f.

1633 Broadway – 212,122 s.f.


485 Lexington Avenue – 210,373 s.f.

65 East 55th Street – 208,049 s.f.

605 Third Avenue – 194,763 s.f.

135 West 50th Street – 183,948 s.f.

237 Park Avenue – 182,324 s.f.

One Park Avenue – 177,267 s.f.

1345 Avenue of the Americas – 169,226 s.f.



11 Times Square – 157,807 s.f.


111 West 33rd Street – 156,862 s.f.

787 Eleventh Avenue – 155,951 s.f.

220 East 42nd Street – 152,125 s.f.

1501 Broadway – 147,108 s.f.

622 Third Avenue – 146,395 s.f.

405 Lexington Avenue – 145,813 s.f.




1675 Broadway – 132,724 s.f.

5 Manhattan West – 129,480 s.f.



1 Penn Plaza – 122,686 s.f.

2 Herald Square – 122,057 s.f.

31 West 52nd Street – 115,230 s.f.

1440 Broadway – 112,541 s.f.

130 West 42nd Street – 107,603 s.f.

424-438 West 33rd Street – 103,343 s.f.

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ABBBBBBBBBA


Midtown South buildings with large contiguous blocks of space

3 Blocks: 344,691 s.f.

233 Spring Street – 132,191 s.f.

360 Park Avenue South – 112,500 s.f.

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


BB

A


Downtown buildings with large contiguous blocks of space


A

AAAA

AAAA

BAA

23 Blocks: 5,744,751 s.f.

375 Pearl Street – 762,612 s.f.

180 Maiden Lane – 683,667 s.f.

1 World Trade Center – 602,144 s.f.


28 Liberty Street – 477,922 s.f.

1 Liberty Plaza – 263,509 s.f.

195 Broadway – 247,199 s.f.

200 Vesey Street – 201,580 s.f.

55 Water Street – 190,879 s.f.

1 State Street – 188,213 s.f.


1 Liberty Plaza – 156,230 s.f.

300 Vesey Street – 150,580 s.f.


17 Battery Place North – 121,189 s.f.

A

A

60 Hudson Street – 120,000 s.f.


85 Broad Street – 115,221 s.f.

1 New York Plaza – 112,677 s.f.



233 Broadway – 107,990 s.f.


AAA

B

AA B

BB


Market CBD under construction

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

CBDMidtown

30 Hudson Yards Trophy Related Companies 2,600,000 s.f. 100.0% Time Warner, KKR, Wells Fargo, Related 20191 Manhattan West Trophy Brookfield Properties 2,088,941 s.f. 28.8% Skadden 201955 Hudson Yards Trophy Related Companies / Mitsui Fudosan 1,556,136 s.f. 5.4% Boies, Schiller & Flexner 2018390 Madison Avenue Trophy L&L Holding Company 858,710 s.f. 0.0% N/A 2017425 Park Avenue Trophy L&L Holding Company 670,000 s.f. 29.9% Citadel 2018

Midtown SouthOne SoHo Square A Rockpoint Group/Stellar Management 700,000 s.f. 11.4% Warby Parker, Managed by Q 2016512 West 22nd Street A Vornado/Albanese 174,222 s.f. 0.0% 201861 Ninth Avenue A Vornado/Aurora 167,179 s.f. 0.0% 2018540 West 26th Street A Savanna 163,000 s.f. 52.4% Avenues: The World School 2017414 West 15th Street A Rockpoint Group/Highgate Holdings/Meilman 144,273 s.f. 0.0% 2017860 Washington Street A Romanoff Equities 120,413 s.f. 38.6% Delos, Alibaba 2016413 West 14th Street A Rockpoint Group/Highgate Holdings/Meilman 113,004 s.f. 0.0% 2016300 Lafayette Street A LargaVista/Related 81,000 s.f. 0.0% 2018

DowntownThree World Trade Center Trophy Silverstein Properties 2,861,402 s.f. 37.0% GroupM 2018

CBD totals 12,298,271 s.f. 38.7%


Midtown 1211 Avenue of the Americas (49% interest)

Class A

RBA 2,000,000 s.f.

Buyer Ivanhoe Cambridge/Callahan Capital Partners

Seller Beacon Capital Partners

Price per s.f. $913

Date sold June 2016

Downtown 1 New York Plaza (49% interest)

Class A

RBA 2,521,322 s.f.

Buyer China Investment Corp

Seller Brookfield Property Partners

Price per s.f. $567

Date sold May 2016

Midtown 1285 Avenue of the Americas

Class A

RBA 1,790,263 s.f.

Buyer RXR Realty/David Werner/China Life Insurance

Seller AXA/JPMorgan Chase

Price per s.f. $921

Date sold May 2016

Downtown 388-390 Greenwich Street

Class A

RBA 2,634,670 s.f.

Buyer Citigroup

Seller SL Green Realty

Price per s.f. $671

Date sold June 2016

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 improvementsIndirect (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


All About JLLJLL (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. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 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 ResearchJLL 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 more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 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.

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