3Q 2014 OFFICE MANHATTAN OFFICE MARKET REPORT MANHATTAN Leasing ACTIVITY Availability RATE ABSORPTION 4.2% 0.8PP Asking RENTS 2.3% Note: Compared to 2Q 2014 Statistics 1.98MM SF Manhattan Office Sector Continues Recovery as Downtown Breaks Record By nearly every measure, the Manhattan office market posted positive gains during the third quarter. In Midtown North, Midtown South and Downtown, asking rents increased while availability rates decreased. Absorption was positive and leasing activity was greater as compared to 3Q 2013. Indeed, in each of the markets, there is recovery at some level from Great Recession lows or even a return to, or beyond, pre-recession levels. MANHATTAN The Manhattan office market experienced an exceptionally strong quarter. Leasing activity was 8.28 million square feet, 4.2% higher than the 7.95 million square feet last quarter and 31.3% more than the 6.31 million square feet in 3Q 2013. Year-to-date leasing of 28.13 million square feet surpassed the 20.81 million square feet from first nine months of 2013 by 35.2%. The availability rate dropped from 11.0% last quarter to 10.2% -- the lowest availability rate since 10.1% in 4Q 2008 and 1.7pp (percentage points) lower than the 11.9% availability rate in 3Q 2013. However, the availability rate is still 2.4pp higher than the 2008 pre-recession 7.8% low recorded in 1Q 2008. Class A availability decreased from 12.4% last quarter to 11.4% and is 2.4pp lower than the 13.8% availability rate at this point last year. It is also the lowest availability rate since 4Q 2008 (11.1%). The sublet availability rate remained unchanged from last quarter s 1.5%, and is still less than the 1.7% from 3Q 2013. Positive year-to-date absorption of 7.31 million square feet contributed to the decrease in availability, a reversal from the negative 670,000 square feet of absorption during the first nine months of 2013. Manhattan s positive absorption of 3.92 million square feet is more than double last quarter s positive 1.94 million square feet and 41.8% above the positive 2.77 million square feet at this point last year.
MANHATTAN MARKET OFFICE LEASING REPORT 3Q 2014 ASKING RENT DELTAS MIDTOWN NORTH & MIDTOWN SOUTH $17.55 MIDTOWN NORTH & $24.04 MIDTOWN SOUTH & $6.49 MIDTOWN NORTH Asking rents increased 2.3% to $65.97/ square foot from $64.46/ square foot the previous quarter and are now 10.0% higher than the $59.98/ square foot asking from 3Q 2013. Class A asking rents increased 2.1% to $69.92/ square foot from $68.46/ square foot last quarter, the highest asking rent since $70.49/ square foot in 1Q 2009. Class A rents have increased 11.0% above the $63.00/ square foot average from a year ago. Measuring cumulative rent growth over the last five years, Midtown South posted the largest gains at 28.0%, followed by Downtown at 19.3% while Midtown North grew by only 1.5%. There is now a $17.55 difference between asking rents in Midtown North and Midtown South and a $24.04 difference between Midtown North and Downtown. The delta between Midtown South and Downtown asking rents is $6.49. The gap in asking rents between the three markets has narrowed as compared to last quarter, but remains slightly larger than this time last year. Some of the largest transactions so far this year have resulted in downsizing of total leased space. In large measure due to more efficient and tighter employee space planning standards as companies seek to densify employees into smaller space. Downsizing tenants included: Weil, Gotshal & Manges 390,000 square-foot renewal at 767 Fifth Avenue, which will result in the firm decreasing their footprint in the building by 100,000 square feet. Also, Sony will be relocating from the 853,000 square-foot building they once owned and occupied at 550 Madison Avenue to 520,000 square feet at 11 Madison Avenue. Additionally, Credit Suisse s 1.07 million square-foot renewal at 11 Madison Avenue decreased their occupancy by over 500,000 square feet, and BNY Mellon is relocating from the 1.1 million square-foot building they once owned and occupied at 1 Wall Street to 358,000 square feet at 225 Liberty Street, though they retain ownership of and will continue to occupy 101 Barclay Street. MIDTOWN NORTH LEASING ACTIVITY Leasing ACTIVITY Availability RATE ABSORPTION 17.5% 0.8PP 974K SF Leasing activity fell 17.5% from 4.01 million square feet last quarter to 3.30 million square feet, but is better than the 3.12 million square feet leased in 3Q 2013. Year-to-date leasing of 11.86 million square feet outpaced the 10.81 million square feet recorded during the comparable nine month period last year by 9.8%. AVAILABILITY RATE/ABSORPTION The availability rate decreased from 11.4% last quarter to 10.6%, the largest decline in availability since 2Q 2010. The availability rate is now 1.0pp lower than the 11.6% from a year ago. Class A availability also declined from 11.9% last quarter to 11.0% and is lower than the 12.3% availability rate in 3Q 2013. The current 10.6% availability rate is the lowest since 3Q 2008 and is 3.5pp lower than the Great Recession high of 14.1% set in 4Q 2009. Sublease availability tightened, quarter to quarter, from 1.8% to 1.7% and is below the 2.0% from 3Q 2013. Asking RENTS 2.0% Note: Compared to 2Q 2014 Statistics Absorption was positive at 1.88 million square feet, the strongest quarter of positive absorption since 2Q 2010. Absorption this quarter was more than double the positive 903,000 square feet last quarter and 24.0% ahead of the positive 1.51 million square feet from a year ago. Absorption this quarter brought the year-to-date absorption rate into positive territory at 1.51 million square feet, but is 12.0% below the positive 1.72 million square feet at this same point last year. 2
MIDTOWN NORTH RENT GROWTH 1Q 2009 to 3Q 2014 1.5% CHALLENGES AND OPPORTUNITIES 2.31MM SF On the east side of MIDTOWN NORTH expected to become available over the next few years in committed relocations 2.05MM SF expected to become available over the next few years in the SIXTH AVENUE corridor in committed relocations Availability Rate (%) Midtown North Availability Rate and Rent (3Q 2014) 16% 14% 12% 10% 8% 6% 4% 2% 0% ASKING RENTS Overall Availability Rate $74.64 $75.74 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 Source: Colliers International and CoStar Overall Average Asking Rent $80 $75 $70 10.6% $65 Average asking rents increased 2.0% to $75.74/ square foot from $74.29/ square foot last quarter. The current asking rent is 9.7% higher than the $69.03/ square foot in 3Q 2013 and represents the sixth consecutive quarter of increasing asking rents. Asking rents are now at their highest quarterly average since 4Q 2008 at $85.76/ square foot but still 17.7% below the all-time quarterly high of $92.04/ square foot set during 3Q 2008. Class A asking rents are $77.66/ square foot representing a 2.2% increase from $76.00/ square foot last quarter and a 10.7% increase from $70.17/ square foot in 3Q 2013. This is Midtown s highest Class A asking rent since $88.10/ square foot in 4Q 2008. COMMENTARY ON MIDTOWN NORTH: CHALLENGES AND OPPORTUNITIES Solid leasing activity on the east side of Midtown North included: Mount Sinai Hospital s 449,000 square-foot new lease at 150 East 42nd Street, Weil, Gotshal & Manges 400,000 square-foot renewal at 767 Fifth Avenue, Paul Hastings new lease at 200 Park Avenue for 181,000 square feet and FactSet Research Systems 102,000 square-foot renewal at 90 Park Avenue. The Sixth Avenue corridor between 42nd Street and 57th Street also had its share of significant leases: AXA Equitable Life Insurance Company expanded at 1290 Avenue of the Americas with a 58,000 square-foot deal, Davis Wright Tremaine leased 42,000 square feet at 1251 Avenue of the Americas in a relocation from 1633 Broadway, and four separate tenants each sublet approximately 40,000 square feet at 1166 Avenue of the Americas. $60 $55 $50 $45 $40 $35 $30 Rent $/SF/Yr Looking ahead, several large blocks of space are expected to become available over the next few years when large tenants vacate 2.31 million square feet on the east side of Midtown North and 2.05 million square feet in the Sixth Avenue corridor in committed relocations. This older building stock will then be forced to compete against new inventory, with more efficient and attractive floor plates, and coming on line at Hudson Yards, Manhattan West, World Trade Center and in other areas of Manhattan by 2020. 3
MANHATTAN MARKET OFFICE LEASING REPORT 3Q 2014 MIDTOWN SOUTH MIDTOWN SOUTH LEASING ACTIVITY Leasing at 2.89 million square feet this quarter is 48.0% greater than last quarter s 1.95 million square feet and 47.7% higher than the 1.95 million square feet one year ago. Since January, leasing of 9.81 million square feet is 57.6% higher than the comparable period in 2013. Indeed, it is the most leasing activity during the first nine months of the year since 2005, nearly ten years ago. Leasing ACTIVITY Availability RATE 48.0% 0.4PP Recently renovated or repositioned buildings continue to attract tenants, with TAMI (technology, advertising, media and information services) sector companies continuing to lead the market, including: Google s new lease for 178,000 square feet at 85 Tenth Avenue, R/GA s 173,000 square-foot new lease at 450 West 33rd Street, Palantir Technologies nearly 100,000 square-foot new lease at 430 West 15th Street, Yodle s 84,000 square-foot new lease at 330 West 34th Street, Deutsch s 74,000 square feet new lease at 330 West 34th Street and Twitter s expansion by 73,000 square feet at 245-249 West 17th Street. AVAILABILITY RATE/ABSORPTION ABSORPTION 935K SF Asking RENTS 3.0% The availability rate dropped from 8.9% to 8.5%, quarter to quarter, and is 1.2pp lower than the 9.7% availability rate from 3Q 2013. The availability rate now matches the rate from 4Q 2008, though has not yet achieved the pre-recession 7.1% recorded in 2Q 2008. The current availability is, however, 3.1pp lower than the Great Recession high of 11.6% set in 4Q 2009. Class A availability rate decreased 1.0pp from 9.4% last quarter to 8.4%, the lowest rate since 7.8% in 3Q 2012. Year over year, Class A availability is now 3.8pp lower than 12.2% a year ago. Sublet availability increased from 1.4% to 1.5%, quarter to quarter, and is slightly higher than at this same point last year at 1.4%. Midtown South recorded 772,000 square feet of positive absorption, a reversal from the negative 163,000 square feet last quarter, and well ahead of the positive 38,000 square feet recorded in 3Q 2013. Year-to-date positive absorption of 2.08 million square feet completely erased the 1.86 million square feet of negative absorption from the first three quarters of 2013. ASKING RENTS Asking rents increased 3.0% to $58.19/ square foot from $56.47/ square foot last quarter and 9.3% from $53.23/ square foot in 3Q 2013. This is the 15th consecutive quarter of increasing asking rents. Current asking rents are nearing the highest ever recorded -- $61.60/ square foot -- in 1Q 2008. Midtown South s recovery from the Great Recession has been extensive across all three building classes: Class A asking rent is now $66.03/ square foot, a 1.7% decrease from $67.16/ square foot from the prior quarter, but 3.6% higher than the $63.75/ square foot than a year ago. Class B asking rents have increased to $61.05/ square foot and Class C increased to $50.05/ square foot, respectively; both eclipsing their 2008 pre-recession highs. The increases this quarter in Class B and C are attributable to cases of upwards repricing and to large new available blocks of space being priced above the current average asking rent. Note: Compared to 2Q 2014 Statistics 4
MIDTOWN SOUTH Midtown South Availability Rate and Rent (3Q 2014) Overall Availability Rate Overall Average Asking Rent 14% $58.19 12% $70 $60 10% $45.46 $50 RENT GROWTH 1Q 2009 to 3Q 2014 28.0% Availability Rate (%) 8% 6% 4% 2% 8.5% $40 $30 $20 $10 Rent $/SF/Yr STRONG DEMAND V. FUTURE SUPPLY 0% 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 Source: Colliers International and CoStar COMMENTARY ON MIDTOWN SOUTH: STRONG DEMAND V. FUTURE SUPPLY $0 TAMI tenants continue to fuel the market in MIDTOWN SOUTH with six of the ten largest transactions so far this year As Colliers International reported in The Real Deal in October of this year, TAMI tenants continue to fuel the market in Midtown South with six of the ten largest transactions so far this year. Comparatively, during the same period in 2013, five of the top ten deals in Midtown South were to TAMI tenants. New or newly refurbished building inventory will increase supply in Midtown South in the near term including the 175,000 square-foot office building planned at 510 West 22nd Street, a 12-story office building planned at 61 Ninth Avenue, the 114,000 square feet of space at 860 Washington Street listed during 3Q 2014 with a 3Q 2015 possession date and the new buildings being developed at the Hudson Yards. New or newly refurbished building inventory will increase supply in MIDTOWN SOUTH in the near term 5
MANHATTAN MARKET OFFICE LEASING REPORT 3Q 2014 Leasing ACTIVITY Availability RATE 4.9% 1.1PP LEASING ACTIVITY Downtown s 2.09 million square feet of leasing was 4.9% higher than the previous quarter s 1.99 million square feet and 69.9% higher than the 1.23 million square feet from 3Q 2013. Year-to-date leasing of 6.46 million square feet is 70.8% higher than the 3.78 million square feet from a comparable period in 2013. This represents the highest level of leasing activity recorded Downtown since 8.40 million square feet was leased during the first nine months of 2000. Year-to-date leasing has now surpassed pre-recession levels -- of 5.77 million square feet -- from the first three quarters of 2008. Downtown continues to attract new tenants from various industry sectors. Notable new leases include: Hudson s Bay new lease for 399,000 square feet at 225 Liberty Street and 250 Vesey Street, MediaMath s new lease for 106,000 square feet at 4 World Trade Center, Engine USA s new lease for 64,000 square feet at 180 Maiden Lane and AKF s new lease for 57,000 square feet at 1 Liberty Plaza. AVAILABILITY RATE/ABSORPTION ABSORPTION 74K SF Asking RENTS 5.6% Inventory decreased with the availability rate declining from 13.3% last quarter to 12.2%. The availability rate is now 3.7pp lower than the 15.9% from 3Q 2013. This was the fifth straight quarter of declining availability rates. Downtown s availability rate is now the lowest since 4Q 2009 at 11.5%. However, the availability rate is still 4.6pp higher than its 2008 pre-recession low of 7.6%. The 6.9 million square feet of available space that was added at 1 and 4 World Trade Center and Brookfield Place starting in 2011 -- and which caused the availability rate to peak at 17.0% during the second quarter of 2013 -- has been partially leased over the course of the last year with several significant sized transactions including: Time Inc. s new lease for 670,000 square feet at 225 Liberty Street, Hudson s Bay Company s new lease for 399,000 square feet at 225 Liberty Street and 250 Vesey Street, BNY Mellon s new lease for 358,000 square feet at 225 Liberty Street, Jones Day taking 330,000 square feet of new space at 250 Vesey Street, The College Board s 145,000 square-foot new lease at 250 Vesey Street, Jane Street Capital leasing 114,000 square feet of new space at 250 Vesey Street and MediaMath s 106,000 square-foot new lease at 4 World Trade Center. Class A availability also decreased from 15.0% last quarter to 13.5% and is significantly less than 18.1% from 3Q 2013. The Class A availability rate is now the lowest it has been since 11.2% in 4Q 2009. Sublease availability remains unchanged from last quarter s 1.2%, but is down from the 1.5% rate in 3Q 2013. Downtown has the lowest sublet availability of all three Manhattan markets. Positive absorption this quarter was 1.27 million square feet, 6.1% ahead the prior quarter s 1.20 million square feet of positive absorption. It is the strongest quarter of positive absorption since 1.66 million square feet in 2Q 2011. Absorption this quarter was also 5.0% stronger than the 1.21 million square feet of positive absorption during 3Q 2013. Year-to-date positive absorption of 3.72 million square feet is a significant improvement over the negative 526,000 square feet of absorption recorded during the first nine months of 2013. ASKING RENTS Note: Compared to 2Q 2014 Statistics Asking rents continue to rise as landlords are encouraged by sustained leasing activity, new office and retail construction, long awaited transportation infrastructure improvements and a growing residential population. 6
DOWTOWN RENT GROWTH 1Q 2009 to 3Q 2014 19.3% GROWING APPEAL Of the ten largest leases signed during the first three quarters of 2014, half (1.56 million square feet) are tenants relocating to An estimated 2.4 million square feet of office space will be added to S availability from committed large tenant relocations by early 2015 Availability Rate (%) Downtown Availability Rate and Rent (3Q 2014) 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% $43.34 Overall Availability Rate Overall Average Asking Rent $51.70 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 Source: Colliers International and CoStar $60 $50 $40 $30 12.2% $20 Upward repricing by landlords and the removal of lower-priced blocks of space caused asking rents to increase 5.6% to $51.70/ square foot from $48.96/ square foot last quarter. Year over year, Downtown rents are also 8.9% higher from $47.48/ square foot in 3Q 2013. Even more significantly, these asking rents are the highest ever recorded Downtown. Class A asking rents increased 5.8% to $53.93/ square foot from $50.97/ square foot in 2Q 2014. Year over year, Class A rents are 10.0% above the $49.01/ square foot from a year ago. COMMENTARY ON : GROWING APPEAL Of the ten largest leases signed during the first three quarters of 2014, half (1.56 million square feet) are tenants relocating to Downtown (three from Midtown North and two from Midtown South). Downtown s appeal now extends beyond the traditional financial services, government and legal tenants. These five relocations involved education, TAMI and consumer products tenants, all contributing to continuing diversification of Downtown s tenant mix. In the last ten years, there has been 13.21 million square feet in total tenant relocations to Downtown below Chambers Street. 1 On the immediate horizon, Condé Nast is slated to begin its relocation to 1 World Trade Center and the building is scheduled to open before the end of the year. The observation deck at 1 World Trade Center is scheduled to open in 2015 as is the World Trade Center Transportation Hub. At Brookfield Place, the 25,000 square-foot French marketplace -- Le District -- is scheduled to open by 2Q 2015. All of which will help to continue to attract office and residential tenants alike to Lower Manhattan and will be needed if the demand is to keep pace with future availability: An estimated 2.4 million square feet of office space will be added to Downtown s availability from committed large tenant relocations by early 2015. $10 $0 Rent $/SF/Yr 1 Source: The Alliance for Downtown New York 7
MANHATTAN OFFICE MARKET SUMMARY Change 3Q13 4Q13 1Q14 2Q14 3Q14 Last Year Last Qtr Midtown North Availability Rate (%) Class A 12.3% 11.8% 12.4% 11.9% 11.0% -1.3-0.9 pp Class B 7.3% 8.1% 8.5% 8.8% 8.5% 1.2-0.3 pp Class C 8.6% 5.7% 6.7% 7.2% 5.9% -2.7-1.3 pp Overall 11.6% 11.2% 11.8% 11.4% 10.6% -1.0-0.8 Asking Rental Rate Class A $70.17 $71.25 $75.02 $76.00 $77.66 $7.49 $1.66 Class B $51.01 $51.84 $55.03 $55.05 $53.58 $2.57 -$1.48 Class C $35.80 $37.61 $39.38 $41.84 $47.73 $11.93 $5.89 Overall $69.03 $69.73 $73.49 $74.29 $75.74 $6.71 $1.45 Leasing Activity (Qtr) Total 3,120,607 4,971,951 4,555,084 4,005,742 3,302,935 182,328-702,807 Absorption (Qtr) Total 1,513,629 794,839 (1,270,068) 902,866 1,877,166 363,537 974,300 NEW YORK CITY 666 Fifth Avenue New York, NY 10103 TEL +1 212 716 3500 FAX +1 212 716 3566 ABOUT COLLIERS INTERNATIONAL Colliers International NY LLC is the New York - New Jersey - Connecticut hub of the world s third largest commercial real estate services organization. Our company is a leading provider of specialized realty services, including tenant advisory services, owner representation, corporate services, capital markets, retail, industrial, consulting, financial services, asset management and project management. With nearly 300 employees and offices in Manhattan, New Jersey and Connecticut, the firm advised on more than $4.5 billion in sale, lease and capital markets transactions over the last 12 months. The firm manages more than 16 million square feet of prime commercial property in the tri-state region. For more information, please visit the Colliers International web site at www.colliers.com. Information contained herein has been obtained from sources that we deem reliable. We have no reason to doubt its accuracy, but we do not guarantee it. Some statements in this report are forward-looking statements or statements regarding future events, which involve risk and uncertainty, and there can be no assurance that the results described in such statements will be realized. Midtown South Availability Rate (%) Class A 12.2% 12.5% 9.6% 9.4% 8.4% -3.8-1.0 pp Class B 10.2% 10.0% 9.4% 9.8% 9.9% -0.4 0.0 pp Class C 6.5% 7.0% 7.1% 6.8% 5.8% -0.8-1.0 pp Overall 9.7% 9.7% 8.8% 8.9% 8.5% -1.2-0.4 Asking Rental Rate Class A $63.75 $64.52 $65.88 $67.16 $66.03 $2.28 -$1.13 Class B $52.88 $55.05 $56.24 $57.31 $61.05 $8.18 $3.75 Class C $41.39 $44.26 $44.75 $47.07 $50.05 $8.67 $2.99 Overall $53.23 $55.32 $55.53 $56.47 $58.19 $4.96 $1.72 Leasing Activity (Qtr) Total 1,954,639 2,211,898 4,973,665 1,950,918 2,887,973 933,334 937,055 Absorption (Qtr) Total 38,127 (106,198) 1,468,753 (162,903) 771,943 733,816 934,846 Downtown Availability Rate (%) Class A 18.1% 17.7% 16.4% 15.0% 13.5% -4.6-1.5 pp Class B 11.5% 11.2% 10.2% 10.3% 9.8% -1.7-0.5 pp Class C 4.8% 4.6% 4.4% 3.4% 3.6% -1.2 0.2 pp Overall 15.9% 15.6% 14.4% 13.3% 12.2% -3.7-1.1 Asking Rental Rate Class A $49.01 $51.80 $52.40 $50.97 $53.93 $4.92 $2.96 Class B $38.19 $39.98 $40.57 $40.77 $42.78 $4.59 $2.01 Class C $31.73 $31.73 $31.73 $31.73 $31.73 $0.00 $0.00 Overall $47.48 $48.60 $50.25 $48.96 $51.70 $4.22 $2.74 Leasing Activity (Qtr) Total 1,231,617 5,922,854 2,368,678 1,994,134 2,092,273 860,656 98,139 Absorption (Qtr) Total 1,214,762 433,314 1,246,463 1,201,140 1,274,979 60,217 73,839 Manhattan Availability Rate (%) Class A 13.8% 13.4% 13.1% 12.4% 11.4% -2.4-1.0 pp Class B 9.9% 9.8% 9.4% 9.7% 9.6% -0.3-0.1 pp Class C 6.6% 6.7% 6.8% 6.5% 5.6% -1.0-0.9 pp Overall 11.9% 11.7% 11.4% 11.0% 10.2% -1.7-0.8 Asking Rental Rate Class A $63.00 $64.14 $67.45 $68.46 $69.92 $6.91 $1.46 Class B $49.48 $51.40 $52.88 $53.61 $56.11 $6.63 $2.50 Class C $39.80 $42.33 $42.75 $45.38 $48.67 $8.87 $3.30 Overall $59.98 $60.46 $63.59 $64.46 $65.97 $5.99 $1.51 Leasing Activity (Qtr) Total 6,306,863 13,106,703 11,897,427 7,950,794 8,283,181 1,976,318 332,387 Absorption (Qtr) Total 2,766,518 1,121,955 1,445,148 1,941,103 3,924,088 1,157,570 1,982,985 pp: percentage points