MARKETVIEW Downtown Manhattan Office, Q3 216 Leasing cools, but deal flow consistent Leasing Activity.85 MSF Net Absorption (.12) MSF Availability Rate 11.7 Vacancy Rate 9.3 Average Asking Rent $57.5 PSF *Arrows indicate change from previous quarter. Leasing activity totaled 846, sq. ft. in Q3 216, 34 below its five-year quarterly average. Downtown experienced a 39 drop in leasing activity compared to Q3 215, and a 21 decline from last quarter. The availability rate fell 2 basis points (bps) from one year ago, ending the quarter at 11.7. Of the three Manhattan markets, Downtown was the only one with positive year-to-date net absorption, at 451, sq. ft. Downtown s average asking rent, at $57.5, was essentially unchanged quarter-over-quarter. Sublease availability dipped slightly quarter-overquarter, to 1.5, with an average asking rent that remained virtually unchanged at $45.22 per sq. ft. Leasing activity fell 21 quarter-over-quarter and 39 from Q3 215 to the current 846, sq. ft. Despite the drop, deal volume was relatively on a par with last quarter s total. This quarter s leasing activity was dominated by deals 5, sq. ft. and under, while several large leases await closing. Three of the top five transactions occurred at the World Trade Center, as tenants are increasingly drawn to new construction. In terms of rents, the World Trade Center offers good value compared to new construction elsewhere in Manhattan. The availability rate stands at 11.7, an increase of 2 bps from Q2 216, but a 2 bps fall from one year ago. The largest space added to the market during Q3 216 was 323, sq. ft., which is AIG s space at 32 Old Slip. Most of the space additions during the quarter were less than 35, sq. ft. Figure 1: Top Lease Transactions Size (Sq. Ft.) Tenant Address 131,876 Zurich-American Insurance Group 4 World Trade Center 45,558 Solomon R. Guggenheim Museum and Foundation 1 Liberty Plaza 44,711 Global Atlantic Financial Group 4 World Trade Center 41,986 Hawkins Delafield & Wood 7 World Trade Center 4,274 (E) Weill Cornell Medicine 156 William Street Renewal (R), Expansion (E), Renewal and Expansion (RE) Source: CBRE Research, Q3 216. Q3 216 CBRE Research 216 CBRE, Inc. 1
Sublease availability currently stands at 1.5, a 1-bps decrease quarter-over-quarter and a 1-bps increase from one year ago. Despite the year-overyear increase, Downtown has maintained the lowest sublet availability rate of the three Manhattan markets for the third quarter in a row. Sublet rents average $45.22 per sq. ft., an amount that has changed very little over the past year. Downtown experienced 123, sq. ft. of negative net absorption during Q3 216. Nearly half of the quarter s positive absorption was eliminated with the large-block additions at 32 Old Slip and 375 Pearl Street. Despite this, year-to-date net absorption has remained positive for every month of 216 an occurrence not seen since 211. While Midtown and Midtown South witnessed a combined 3.9 million sq. ft. of negative absorption year-to-date, Downtown registered 451, sq. ft. of positive absorption. Downtown s average asking rent stands at $57.5 per sq. ft., virtually unchanged from last quarter. Average asking rents have hovered around record highs for the past 19 months. Figure 2: Leasing Activity Historical MSF 8 Q1-Q3 Q4 7 6 5 4 3 2 1 29 21 211 212 213 214 215 216 Source: CBRE Research, Q3 216. Figure 3: Leasing Activity By Submarket s Sq. Ft. 1, 5Y Quarterly Avg. Q3 216 8 6 4 2 By year-end 218, more than 2.5 million sq. ft. of office space is poised to be added to the Downtown West submarket, when 3 World Trade Center comes online. Approximately 687, sq. ft. of this has already been pre-leased by GroupM, as the citywide trend of major occupiers relocating their headquarters to new construction continues. LEASING ACTIVITY Downtown recorded 846, sq. ft. of leasing activity during Q3 216, down 21 from last quarter. Year-to-date leasing stands at 2.9 million sq. ft., a 15 drop from one year ago. Downtown West was a bright spot, experiencing a 39 jump in leasing activity from last quarter, all of it due to activity at the World Trade Center complex. Leasing at 4 World Trade Center singlehandedly Source: CBRE Research, Q3 216. Figure 4: Net Absorption Historical MSF 3. 2. 1.. (1.) (2.) (3.) (4.) 29 21 211 212 213 214 215 216 Source: CBRE Research, Q3 216. Q3 216 CBRE Research 216 CBRE, Inc. 2
accounted for 78 of Downtown West s total bringing the building to 78 leased. After achieving the highest leasing total in five years, City Hall activity fell 67 last quarter. The Financial submarket saw leasing activity drop 18 from last quarter, with no deals above 5, sq. ft. fully executed. NET ABSORPTION Figure 5: Quarterly Net Absorption By Submarket s Sq. Ft. 25 2 15 1 5 (5) (1) (15) (2) In Q3 216, Downtown registered 123, sq. ft. of negative net absorption. Driven by a relative decline in leasing activity, in addition to large space additions, the Financial and City Hall submarkets recorded 17, and 137, sq. ft. of negative absorption, respectively. Downtown West bucked this negative trend, with 183, sq. ft. of positive absorption, due to little space being added and a healthy quarter of leasing activity. Downtown still outperformed the other two Manhattan markets for the third consecutive quarter when comparing this metric. AVAILABILITY The availability rate rose 2 bps quarter-overquarter to 11.7. The Financial submarket witnessed a 3-bps quarterly uptick in availability to 12.5 with the addition of 323, sq. ft. at 32 Old Slip. Downtown West saw availability drop 1 bps from Q2 216 to 13, as the World Trade Center complex continued to lease up, tempering the increase in availability at the market level. AVERAGE ASKING RENTS The average asking rent, at $57.5 per sq. ft., was virtually flat quarter-over-quarter; however, nominal changes were witnessed across all Downtown submarkets. In the Financial submarket, upward re-pricing of available space in buildings such as 1 State Street Plaza drove the average asking rent to an all-time high of $54.8 per sq. ft. Source: CBRE Research, Q3 216. Figure 6: Sublease and Direct Availability Rate Historical 16 Direct Sublease 14 12 1 8 6 4 2 29 21 211 212 213 214 215 216 Source: CBRE Research, Q3 216. Figure 7: Availability Rate By Submarket 2 Q3 215 Q3 216 Downtown 15 1 5 Source: CBRE Research, Q3 216. Q3 216 CBRE Research 216 CBRE, Inc. 3
TAKING RENT INDEX The taking rent index posted a 2-bps increase quarter-over-quarter, rising to 93.8. Concession packages for new leases of raw space completed during Q3 216 included an average of $72 per sq. ft. in tenant improvement allowance and 11 months of free rent. Figure 8: Concession Values Rent Abatement and T.I. Allowance* $ per Sq. Ft. 1,-24,999 SF 25, SF+ Average 86 Figure 9: Average Asking Rent Historical $ per Sq. Ft. 6 Overall Sublease 55 5 45 4 35 3 25 2 29 21 211 212 213 214 215 216 Source: CBRE Research, Q3 216. $57.5 $45.22 84 82 8 78 76 74 72 7 2 4 6 8 1 12 14 16 Months *Identical concession packages will overlap in graphic. Average excludes highest and lowest values. Source: CBRE Research, Q3 216. Figure 1: Average Asking Rents By Submarket $ per Sq. Ft. 8 7 6 5 4 3 2 1 Q3 215 Q3 216 Downtown Source: CBRE Research, Q3 216. Figure 11: Taking Rent Index Historical 98 96 94 92 9 88 86 84 82 8 93.8 Source: CBRE Research, Q3 216. Q3 216 CBRE Research 216 CBRE, Inc. 4
INVENTORY AT A GLANCE DEFINITIONS Availability Space that is being actively marketed and is available for tenant build-out within 12 months. Includes space available for sublease as well as space in buildings under construction. Asking Rent Weighted average asking rent. Concession Values The combination of rent abatement and T.I. allowance. The graph is for new leases for raw space of 1, sq. ft. or greater consummated over the past 3 months. Leasing Activity Total amount of sq. ft. leased within a specified period of time, including pre-leasing and purchases of space for occupancy, excluding renewals. Net Absorption The change in the amount of committed sq. ft. within a specified period of time, as measured by the change in available sq. ft. Rent Abatement The time between lease commencement and rent commencement. Taking Rent Actual, initial base rent in a lease agreement. Taking Rent Index Initial taking rents as a percentage of asking rents. This graph represents a 6-month rolling weighted average (for size and month). T.I. Tenant Improvements. Vacancy Unoccupied space available for lease. SURVEY CRITERIA CBRE s market report analyzes fully modernized office buildings that total 75,+ sq. ft. in Downtown, including owner-occupied buildings (except those owned and occupied by a government or government agency). New construction must be available for tenant build-out within 12 months. CBRE assembles all information through telephone canvassing and listings received from owners, tenants and members of the commercial real estate brokerage community.. CONTACTS Nicole LaRusso Director, Research & Analysis +1 212 984 7188 Nicole.LaRusso@cbre.com Mike Slattery Analyst Team Lead +1 212 656 583 Michael.Slattery@cbre.com Beau Garrido Senior Research Analyst +1 212 984 8153 Beau.Garrido@cbre.com Victor Rodriguez Senior Research Analyst +1 212 618 791 Victor.Rodriguez@cbre.com To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at: www.cbre.com/researchgateway. Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.