Manhattan Office Market

Transcription

1 Manhattan Office Market 2 ND QUARTER 2015 REPORT A NEWS RECAP AND MARKET SNAPSHOT Pictured: 1001 Avenue of the Americas

2 Looking Ahead Partnership for New York City: New York s Future as the World Financial Capital The report released in June concluded that while New York City remains the preferred location of global financial companies to establish their headquarters, there is a growing trend to relocate jobs and business operations to lower cost, more business-friendly locations that are beyond the city s border. A comprehensive survey was conducted in collaboration with Gerson Lehrman Group (GRG), intending to better understand how the financial industry is evolving; and what measures are required to solidify New York s competitive advantage as a global financial center. Collected data represents an overview of the responses from 50-firm respondents that included large banks, insurance companies and asset managers, private equity firms, hedge funds, and financial technology (FinTech) startups; and represent about 1/3rd of the total industry employment in the city. Additionally, observations were included from 8-real estate firms that were surveyed; along with interviews from other related experts in the field. Financial Industry an economic snapshot Contributes 20% of the city s economic output, representing twice that of the next top-grossing industry. Accounts for nearly 1/3rd of the city s private sector payroll, despite accounting for only 8%, or about 310,000 of the city s private sector jobs in 2013; of which 23,000 jobs are high-technology in the areas of software, data processing and network management. Accounts for at least $18 billion, or 18% of the city s annual tax revenues. Has a significant impact on the creation of new jobs outside the industry. Typically for every job added in the financial sector, 2 jobs are created in such industries as healthcare, hospitality (hotel and food services), and retail trade. The commercial banking sector has a higher ratio of 1:3.5 versus the 1:2 for most other sectors. Over 700,000 jobs currently depend on the financial services industry. About 71% of the industry s employees live in New York City and comprise a vital segment of the city s middle class. Average employee earnings are $266,000 annually a figure that is somewhat skewed by the 53% employed in the higher income bracket of securities brokerage earning an average of about $356,000 annually. Since 2000, the industry s inflation-adjusted payroll has declined 6.7% in contrast to the 4.7% figure that represents the city s overall private sector payroll decline. Amongst the 50-firm respondents 62% reported that they expanded New York City operations over the past 3-years; but only 52% expect further expansion in the upcoming 3-5 years, primarily due to cost pressures, lack of government incentives, and competition from domestic and international financial hubs which are prompting operation relocations to states including Florida, Delaware, New Jersey, Pennsylvania, California, North Carolina. Rate of job growth has slowed to about 50% of that of the city s overall private sector a rate that is expected to accelerate over the next 5-years. While the FinTech sector presents opportunity for job growth, companies have been attracted away from New York City to stronger high-tech cultures in lower cost cities such as Silicon Valley, San Francisco, Texas, Stamford, CT, Nashville, D.C. Metro as well as Canada and London. P2 P.2

3 Looking Ahead Partnership for New York City (cont d) Suggested Recommendations to Maintain New York City s Competitive Edge include: Increased investment in the currently overloaded transportation system; and improved airport capacity. Upgrades to the city s digital infrastructure which currently lags behind competitors. Expand the NYS Excelsior Jobs Program to provide tax incentives for retention of middle wage jobs, including the financial industry. Reform New York City and State tax structure to reduce income tax on high earners to a maximum of 50% as compared to the current 54%; and eliminate the city s Commercial Rent Tax which imposes a 6% surtax on large commercial tenants. Prepare New Yorkers for financial services jobs to strengthen the city s job pool by working with industry and educators to develop a roadmap of career opportunities; plus coordinated public and private investment in non-profit organizations that have a proven record of preparing students for financial industry positions. Increased efforts to build on the success of programs such as Fintech Innovation Lab. The annual program which assists startups developing innovative technology products targeted at financial services customers is run by the Partnership Fund of New York City and Accenture. In addition, government and industry should work with venture capitalists to identify promising new firms and expand procurement of local tech vendors. Office of the NYC Comptroller: NYC Quarterly Economic Update 1Q15 The report released in May revealed a continued strengthening of the city s economy, surpassing the rate of economic improvement on the national level which was sluggish during the 1st quarter. Real Gross City Product (GCP) Grew at an estimated annual rate of 3.5%, in comparison to the negligible advanced estimated 0.2% rate nationwide. The growth in the 1st quarter represents a 25% increase of the 2.8% rate of the 4th quarter. The city s GCP accounted for just over 4% of the nation s total economic output in Venture Capital Investment (VC) Totaled about $1.4 million representing a year-over-year surge of 45.2% in the New York metro area (NYMA); and the highest 1st quarter level in 14-years. Average deal sizes have swelled, indicated by the rise in total dollars despite a drop of 16 deals from the 119 made during the 1st quarter of VC investment in the NYMA represented 10.4% of the national total of $13.4 billion; up 1.4% year-over-year. NYC Personal Income Tax Revenues Rose 4.9% year-over-year to an estimated over $3 billion in the 1st quarter. While the figure represented the highest 1st quarter level on record, it rose at a slower rate than the steeper 10.8% year-over-year change in the 4th quarter. Sources: P3 P.3

4 In the News Second Avenue Subway Progress Update After several opening delays, Metropolitan Transportation Authority (MTA) officials reportedly expect that Phase 1 of the long-awaited Second Avenue subway line is on track to open by December Currently about 82% complete, but the remaining 18% will be the most difficult to complete and includes installing communication, electrical, fire-safety and signal systems. In addition, the stations are still a work-inprogress and the installation of elevators, stairways, turnstiles, and platform flooring not completed. 72nd Street Station Entrance - Rendering The first phase will run from a new stop at 96th Street to an existing station at East 63rd Street, which will be getting an upgrade. The 3-newly created stations at 72nd, 86th and 96th Street will be served by the existing Q-line; but ultimately an added T-line which is part of later construction phases, will also stop at the 3-new stations. The congested urban area throughout which Phase 1 construction took place resulted in heightened challenges throughout the project, the Upper East Side area having about 100,000 people per square mile according to MTA officials. In total, some 583,600 cubic yards of rock and 460,300 cubic yards of soil equating to over half the volume of the Empire State Building have reportedly been excavated; and about 8,780-feet of the total 13,220-feet of track have been laid with most of the third-rail system yet to be installed. The new stations will feature a column-free design similar to those in Washington, D.C.; be the first to be outfitted with sound-absorbing panels along the ceiling; have air-tempering systems to cool platforms; and be equipped with WiFi. Although the project has a long way to go before the completion of its intended full length span that will stretch from Harlem s East 125th Street to Lower Manhattan s Hanover Square, the Second Avenue line whose vision dates back to the 1920s has made great strides since modern construction began in However a shortfall in funding could prompt further delays with Phase 2 of the project, which is just one of many on the MTA s project list. To date, the project has reportedly generated $842 million in wages, created 16,000 jobs, and produced $2.87 billion in economic activity. Harlem Activity Highlights Corn Exchange, East 125th Street (Harlem) Artimus Construction has introduced 25,000 square feet of office space to the market, following the recently completed full restoration of the historic building located at the corner of Park Avenue. The project was awarded to the company by the city s Economic Development Corporation which took control of the property in 2003, selling it to Artimus affiliate 125th Street Equities LLC, for roughly $1.472 million in In 2013, the $16 million renovation plans were approved by the Landmarks Preservation Commission. The building which received landmark status in 1993 was originally constructed in as the home of the Mount Morris Bank. The restoration required preservation of the landmarked base 2-floors, which total about 10,000 square feet and currently being marketed for retail use; and reconstruction of the 3rd- 7th floors. In addition to adding modern amenities to receive LEED-certification, new heating and cooling systems were installed. Now taking its place once again in the burgeoning neighborhood of Harlem along the very active 125th Street corridor, ownership is hoping to attract technology or educational non-profit tenants. Corn Exchange - Rendering The City of New York / Third Avenue (Harlem) The 20-year renewal of approximately 100,000 square feet is reportedly the 2nd time the city has renewed and extended their lease. City agencies Child Care Center and the Department for the Aging Beatrice Lewis Senior Center have been tenants at the building since Currently occupying the entire 5-story building, the city s Human Resources Administration and the Administration for Child Services have also established offices at the property over the years. Sources: P4 P.4

5 Market Snapshot: Class A & B New York City s Unemployment According to the New York State Department of Labor s figures, the city s unemployment rate fell to 5.9% (not seasonally adjusted) at the end of May; in comparison to 6.5% at the end of the 1st quarter. Year-over-year figures resulted in a 19.18% improvement from the 7.3% rate of May Unemployment on the National level fell to 5.2% at the end of May, decreasing 5.45% from the 1st quarter figure of 5.5%. Year-over-year figures resulted in an 11.86% improvement from the 5.9% rate of May Q 2015 Vacancy Rental Rate Net Absorption Total Class A Class B Employment activity in New York City s private sector resulted in the gain of 67,500 jobs for the 3 month period between February 2015 and May Yearover-year figures resulted in a 2.7% gain of 94,600 jobs; in comparison to 1.8% and 2.6% year-over-year growth for New York State and the nation respectively. Educational and Health Services continued to lead the way, followed by Professional & Business Services. While job numbers continue to rise, the rate of increase was comparatively more moderate than that of the previous year. Weekly Wages Overall weekly wages in New York City averaged $2,138 at the end of the 4th quarter 2014, representing a positive 5% improvement year-over-year according the recent report released by the U.S. Department of Labor. The Information sector boasted an over 7.5% increase year-over-year, in contrast to the Education & Health sector that came in at the low with a rate of increase equaling 3.17%. Vacancy for Class A & B office space fell 3.8% over 1st quarter s 8.33% figure, resulting in an 8.01% vacancy at the end of the 2nd quarter. Downtown accounted for the strongest quarter-over-quarter improvement, shrinking 8.12% resulting in a vacancy of 10.62%; solidly rebounding from a 1st quarter rise. Midtown and Midtown South continued a downward trend at a more moderate decline of 1.72% and 1.37% resulting in respective vacancies of 7.75% and 4.40%. The vacancy rate in Midtown s Penn Plaza neighborhood rose sharply in part due to 7 Bryant Park coming online, introducing over 180,000 square feet of new inventory. 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 2Q2004 2Q2005 2Q2006 2Q2007 NYC Yr-over-Yr Job Statistics 1,000, , , , , , , , , , , ,300 NYC Unemploy Rate 664, ,500 2Q ,200 2Q ,400 2Q2010 US Unemploy Rate 414,300 2Q2011 May 2014 Job#'s 4Q2013 Weekly Wage 426,900 2Q ,900 2Q ,400 2Q2014 $0 May 2015 May 2015 Job#'s 4Q2014 Weekly Wage $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 Source: NYS Department of Labor and US Department of Labor, Bureau of Labor Statistics Absorption closed the 2nd quarter at positive 1,395,942 square feet, representing a rebound over 1st quarter s negative 496,405 square feet. All 3 major commercial submarkets saw improvement during the quarter, Downtown boasting the highest figure. Rental Rates rose moderately in the 2nd quarter. The overall weighted average asking rent for Class A & B office space of $59.65 per square foot represented a 0.55% increase over the previous quarter, as the rate of increase continued to slow as compared to 1st quarter s 0.90%. Class B asking rents continued to account for the more significant increase of 4.88%, while Class A asking rents saw a slight reversal of negative 0.63%. Sources: P5 P.5

6 Class A & B Statistics At A Glance 2nd Quarter 2015 Vacancy WTD Average Asking Lease Rent Net Absorption Downtown 5.13% 12.42% Downtown $56.20 $43.79 Downtown Midtown South 2.55% 5.00% Midtown South $69.19 $90.38 Midtown South Midtown 6.31% 8.13% Midtown $53.31 $66.06 Midtown % 5.00% 10.00% 15.00% $0.00 $50.00 $ Class A Class B Thousands (500) ,000 Quarter-over-Quarter Vacancy Lease & Sublease Sq. Ftge Net Absorption 6.20% 9.89% Net Absorption Class A Class A Class B Lease SF Class AB Sublease SF Class AB 5.93% 9.45% 5.60% 9.00% 5.43% 9.53% 5.53% 9.33% 2Q14 3Q14 4Q14 1Q15 2Q % 9.00% 6.00% 3.00% 0.00% Thousands 40,000 30,000 20,000 10,000 0 Lease Rent AB Sublease Rent AB $65.00 $60.00 $55.00 $50.00 $45.00 $ Q14 3Q14 4Q14 1Q15 2Q15 2Q14 3Q14 4Q14 1Q15 2Q15 3,779 34,749 3,699 33,145 3,504 32,718 3,420 33,298 3,295 32,027 (51) 468 1, Net Absorption Class B 129 (626) 1,648 (252) 2,000 1,500 1, ,000 Thousands Quarter-over-Quarter Inventory Changes Downtown Midtown South Midtown Removed Added Removed Added Removed Added 2Q2015 1Q2015 4Q2014 3Q2014 2Q2014 2Q2015 1Q2015 4Q2014 3Q2014 2Q2014 2Q2015 1Q2015 4Q2014 3Q2014 2Q2014 Thousands Thousands Thousands *Buildings 75,000 SF and larger; vacancy and absorption calculations based upon move-in date versus deal signing date P6 P.6

7 Submarket Statistics Overview: Class A & B Offi ce Manhattan Inventory Vacant Sq. Ftge. Vacancy Rate WTD Avg Rent PSF Submarkets Districts Total RBA* Direct Sq. Ftge. Sublet Sq. Ftge. Total Sq. Ftge. Direct Vacancy Sublet Vacancy Overall Vacancy Direct Asking Net Absorption Year-to-Date Sq. Ftge Downtown 109,652,518 11,059, ,362 11,642, % 0.53% 10.62% $ ,499 City Hall 14,746, ,321 1, , % 0.01% 5.07% $ ,000 Financial District 41,755,471 4,424, ,447 4,699, % 0.66% 11.25% $ ,760 Insurance District 12,046, ,501 1, , % 0.01% 3.87% $ ,338 TriBeCa 6,647, , , , % 1.81% 4.80% $ ,706 World Trade Center 34,457,265 5,226, ,764 5,410, % 0.54% 15.70% $ ,125 Midtown South 59,985,039 2,330, ,712 2,636, % 0.51% 4.40% $ ,849 Chelsea 10,417, ,346 20, , % 0.20% 2.18% $ ,707 Flatiron 21,589, , , , % 0.52% 3.82% $ ,749 Gramercy Park 10,288, ,466 19, , % 0.19% 9.16% $ ,245 Greenwich Village 4,353, ,832 3, , % 0.07% 3.35% N/A 45,219 Hudson Square 9,393, , , , % 1.57% 4.23% $ ,796 SoHo 3,942,692 96,792 3, , % 0.10% 2.55% $ ,371 Midtown 271,578,059 18,637,115 2,405,255 21,042, % 0.89% 7.75% $ ,189 Columbus Circle 32,157,669 1,476, ,314 1,762, % 0.89% 5.48% $ ,865 Grand Central 52,773,745 4,851, ,621 5,200, % 0.66% 9.86% $ ,440 Murray Hill 11,144, ,832 59, , % 0.53% 5.00% $ ,949 Penn Plaza/Garment 46,974,585 3,359, ,477 3,910, % 1.17% 8.32% $ ,280 Plaza District 80,641,592 5,824, ,277 6,470, % 0.80% 8.02% $ ,696 Times Square 44,323,129 3,301, ,391 3,807, % 1.14% 8.59% $ ,155 U.N Plaza 3,562,575 16,581 16,666 33, % 0.47% 0.93% $ ,007 Grand Total 441,215,616 32,026,761 3,295,329 35,322, % 0.75% 8.01% $ ,537 *Buildings 75,000 SF and larger; vacancy and absorption calculations based upon move-in date versus deal signing date P7 P.7

8 Leasing - Landlords Reach to the Sky to Maximize Revenues Efforts to squeeze more revenue out of real estate assets has prompted owners and developers to look up, taking advantage of building rooftop space to help lure tenants and extra retail business. Rooftop observatories and venues date back to the early 1900s when buildings like the former Hotel Astor, now the site of the office tower One Astor Place at 1515 Broadway, offered a vast rooftop garden for public gatherings in the heat of the summer. However in subsequent years their popularity dwindled with the introduction of air conditioning wich transitioned rooftops into a destination for air conditioning units, fans and power generators. New York City s competitive real estate market brings a return to rooftop attractions, offering extra amenities for tenants; and added attractions for tourists as owners and developers attempt to make their assets distinctive. The following examples of some of today s popular rooftop and observatory destinations that further substantiate the growing trend, despite some concern amongst real estate analysts of possible over-saturation: World Trade Center Observatory The newest attraction that opened the end of May featuring panoramic views from 1,250 feet above ground on floors of One World Trade Center. Visitors are able to view a time-lapse video of the development of New York City s skyline from the 1500s to present during the approximately 47 second elevator ride to the observatory level. In addition to other hightechnology features, visitors are offered the choice of 3-sky-high dining options. Legends Hospitality LLC which was awarded the contract to run the observatory reportedly spent close to $80 million on the venue; hoping to attract about 3.2 million visitors. The Empire State Building Offers an outdoor deck on the tower s 86th floor as well as an indoor deck on the 102nd floor. Visitation continues to rise with annual revenues reportedly reaching $111.5 million in 2014, from $40 million a decade ago. The deck now accounts for 40% of the building s entire revenue with a reported profit in 2014 of $82.5 million. Top of the Rock at Rockefeller Center Offers 360º views on the 70th floor of 30 Rockefeller Plaza via 3-viewing decks. In addition, the building s cocktail bar SixtyFive has an outdoor terrace for guests on the 65th floor. P8 P.8

9 Landlords Reach to the Sky (cont d) In addition - Manhattan: Whitney Museum of American Art, 99 Gansevoort Street The May opening of the new facility in the Meatpacking district offers an 8th floor terrace for museum visitors featuring water views of the Hudson River and food. Jane Hotel, 113 Jane Street The once private-party bar and rooftop at the 5-story boutique hotel in the West Village opened to the general public in mid-may offering cocktails and food with views of the Hudson River. Roof at Park South Hotel, 124 East 28th Street The rooftop cocktail lounge atop the boutique hotel in the NoMad neighborhood offers views of Murray Hill and the Chrysler Building. Skylark, 200 West 39th Street The cocktail lounge located on the 30-32nd floors in the Garment District building offers multi-level indoor spaces and an open-air rooftop terrace with views of the Hudson River, The Empire State Building, and Midtown Manhattan. Catch, 21 Ninth Avenue The rooftop eatery atop the 3-story landmark building located in the Meatpacking district offers views of Lower Manhattan and MePa. Brooklyn: The Gorbals, 98 North 6th Street The restaurant offers rooftop dining as part of the 4-story Space Ninety 8 concept store from clothing retailer Urban Outfitters located in Brooklyn s Williamsburg. Sheltering Sky at McCarren Hotel, 160 North 12th Street The rooftop lounge atop the 8-story boutique hotel in Williamsburg offers views of the East River, East Manhattan, and parts of Williamsburg and Greenpoint. Northern Territory, 12 Franklin Street The bi-level Greenpoint eatery offers rooftop dining with views of the East River, Williamsburg and Greenpoint. New rooftop destinations on the horizon: 30 Hudson Yards The tower being developed by Related Companies and Oxford Properties will reach a linear height of 1,287 feet and expected to feature a cantilevered public observation deck at approximately 1,102 feet. The tower that is expected to begin construction this year will be anchored by Time Warner, Inc. 70 Pine Street The former AiLife tower that is being redeveloped by Rose Associates into a mixed-use residential and extended stay building will be featuring a boutique-size observatory. In addition a 4-story restaurant will spread across floors and 66, and be run by Spotted Pig restaurateurs April Bloomfield and Ken Friedman as a result of a recently signed deal announced in May. The venue reportedly comes at a price tag of about $5 million to create and will be open to tenants, guests, and the general public. The repositioned building is expected to open by the end of the year. 75 Rockefeller Plaza The 33-story office tower that is currently under renovation by RXR Realty will reportedly see the addition of multiple outdoor decks with the focus of attracting new tenants such as the Bank of America which reportedly has a lease out for 200,000 square feet at the tower. St. Cloud at the Knickerbocker Hotel, 6 Times Square The hotel that first opened in 1906, and recently reopened following the completion a $240 million redevelopment will be featuring a rooftop space offering dining and a cigar lounge. Sources: P9 P.9

10 Leasing - Co-working Space Providers Continue Expansion Mode The continued popularity of shared office space, while establishing 2 major New York City players WeWork and Regus, is seeing several other smaller firms on the rise. WeWork launched in 2010 offers office aesthetics more attractive to freelancers and creative types, taking advantage of the changing vibe in Midtown South to take the office suite business model to the next level. The 1989 launched Regus offers office-centers that utilize a more traditional executive suite model. Providing flexibility and little capital investment for small and startup companies, some providers seem to be devoid of concerns of oversaturation; claiming that the facilities are larger and nicer offering amenities that a small company could not find in a lease on their own. NYC s Largest Share Office Providers Company Total Sq. Ft. in NYC # of Locations WeWork 1.85 Million 21 Regus 1.47 Million 48 The company has 4-more locations on the way Jay Suites 228,000 7 Virgo Business Centers 192,000 6 Corporate Suites 169,155 9 PowerSpace 153,000 4 Emerge212 (SL Green) 120,000 3 Select Office Suites 106,000 2 Alley NYC 92,000 3 TheYard 80,000 4 ServCorp 62,715 4 Tech Space 59,345 3 Cowork.rs 57,774 2 Micro Office Solutions 35,300 6 Grind 22,374 2 Projective Space 12,700 2 P.10

11 Co-working Space Providers (cont d) A recent report took a close look at WeWork to try to predict whether or not the high-profile co-working space provider would be able to weather an economic downturn. The company s rapid rate of growth during an escalated real estate market has some sources viewing the company as financially vulnerable. However WeWork s founders are not new to running a company during challenging times, having launched their predecessor startup Green Desk in 2008 at the height of the economic crash by converting a single floor of a DUMBO warehouse into an eco-friendly co-workspace; ultimately expanding to 7-locations in Brooklyn and Queens before selling their stake and reinvesting the money into the launch of WeWork in To date, WeWork has reportedly leased over 3 million square feet of office space globally with future reported plans to lease over 50 million square feet over the next 5-years. The company s footprint in New York City accounts for over half of their existing space, equating to about 1.85 million square feet; making them one of the city s largest tenants. An overview of the report attempts to present supportive information to help predict the company s ability to withstand a reversal of the current rising economic tide. Lease Terms: Typically years Lease Rent: In some cases, landlords offer discounted rates in exchange for WeWork s commitment of large blocks of space Rudin Management s 110 Wall Street was cited in example. The entire 300,000-square-foot building was leased to WeWork who also assumed much of the cost of renovations, having incurred severe damage during Hurricane Sandy; and previously only about 60-70% leased. According to a landlord spokesperson, the deal made sense; and in the event that the tenant defaulted, they would be left with an improved building. Tenant Rent Premiums: Companies sublet space on a month-to-month basis, taking advantage of numerous amenities and networking opportunities. The subtenants (dubbed members) pay a significant premium in exchange; an expense that some members have noted is significantly offset by the business they derive through the membership network. Profit Margins: In one cited example, a tenant at 261 Madison Avenue pays an estimated $200 per square foot in comparison to the low- $40s per square foot base rent that WeWork pays for their roughly 44,000-square-foot footprint at the building. While some of the rent/ premium income generated goes towards expenses including space renovation, on-site management and offered amenities, it still leaves room for a comfortable profit margin. Tenant Profile: The majority of WeWork s subtenants are small businesses, that despite frequently seen as primarily tech startups, come from a mix of industry sectors. P.11

12 Co-working Space Providers (cont d) Economic downturn trying to predict Some anticipate that small businesses would be the first to disappear at the onset of another economic downturn; and with shorter-term contracts could potentially leave providers with long-term leases and large blocks of vacant space. However a reported analysis of data compiled between 2007 and 2011 based upon research from the Federal Small Business Administration showed that small firms with less than 10-employees barely declined, in contrast to companies with employees that incurred the steepest decline; concluding that shared office space demand is unlikely to fade in an economic crisis. Some sources further point out that leasing activity would likely escalate due to the flexibility of short-term opportunity at a time when companies may become weary of making long-term commitments; and staff reductions giving rise to the need for the kind of shared services such as accounting, legal, and IT that are generally offered by companies such as WeWork and Regus. In comparison to some of the more conservative companies that prefer to lease space at market lows, We Work continues to expand its footprint at peak pricing; but on the plus side, expansion during a peak market has made it easier for the company to raise capital from investors which according to reports has totaled $570 million to date. Having also generated revenue from the sale of a roughly 37% ownership stake which observers predict will further bolster WeWork s ability to weather a downturn despite paying high rents. Leasing activity by WeWork in 2015 has brought the announcement of several new deals in the city. In addition, talks of the debut in the city of the company s recently launched WeLive at 110 Wall Street will bring a block of residential micro-units and community living facilities atop the office tower; offering a residential version of the company s current office-shared product. Rumors have also resurfaced of a potential combined WeWork/WeLive development project being considered at the Brooklyn Navy Yard. While it has been anticipated that at some point even with rent discounts, the city could become too overpriced and prompt WeWork to further explore more affordable cities, many agree that the company s business model is here to stay. Although some sources suggest ownership or becoming a developer as a next step, a company spokesperson commented that it would be contrary to the company s foundation as an asset-light business whose success in part has come from the emphasis of building community and selling atmosphere and service. Month Sq. Ft. Location February 240, Broad Street April 180,000 72, ,118 8 Times Square (1460 Broadway) 77 Sands Street - Dumbo Heights (part of former Watchtower complex in Brooklyn)* 315 West 36th Street *Nearing expansion deal on top of the 90,000-square-foot deal at 81 Prospect Street signed last year Source: P.12

13 Leasing Activity Big Block Tenants in the Market Cushman & Wakefield, the Manhattan-based global real estate company that was recently acquired by DTZ is reportedly in the market for 300,000-square feet to serve as a new consolidated global headquarters to house DTZ, Cushman & Wakefield, Massey Knakal, and Cassidy Turley. Currently located in about 175,000 square feet at 1290 Sixth Avenue, the company in a team effort with DTZ has launched the preliminary stages of the search. Some sources have noted that nearby 1271 Sixth Avenue could present a potential site, offering adequate space as a result of the upcoming relocation of Time, Inc. to Lower Manhattan s 225 Liberty Street that will result in roughly 1.9 million square feet being vacated at the Sixth Avenue tower. Cushman & Wakefield s 10,222-square-foot outpost at 1 World Trade Center, leased last year in a 10-year signing that resulted in the company s relocation from 100 Wall Street will most likely be maintained. Historic Timeline Snapshot of Acquisitions: November 2014: DTZ The global commercial real estate services firm whose origins date back over 255 years was acquired by private equity firm TPG Capital 1 last year for $1.1 billion. The DTZ brand was launched in Their 24,327-square-foot New York City office located at 1271 Sixth Avenue is currently being offered for sublease. January 2015: Cassidy Turley The real estate company was acquired by a private equity consortium backed by TPG Capital, PAG Asia Capital 2, and Ontario Teachers Pension Plan 3 for an undisclosed price that has been estimated to be roughly $557 million. Cassidy Turley officially launched in 2010 through the ownership consolidation of 4-firms in Headquartered in St. Louis, MO expanding over the next 4-years, the company continued to grow through several mergers and acquisitions ultimately establishing 60 countrywide offices. Their approximately 47,000-square-foot New York City office is located at 277 Park Avenue and currently serves as the combined office for both DTZ and Cassidy Turley. January 2015: Massey Knakal The real estate company was acquired by Cushman & Wakefield for roughly $100 million per reports. Founded in 1998, at the time of acquisition, Massey Knakal had over 200 employees providing real estate services throughout New York City, Westchester County, Long Island, and New Jersey. Currently headquartered in 40,738 square feet at 275 Madison Avenue through a 15-year expansion deal announced last July. May 2015: Cushman & Wakefield The real estate company with origins dating back to 1917 reached a deal with DTZ to be acquired for $2 billion from Exor SpA. The investment arm of Italy s Agnelli family, Exor SpA acquired a 67.5% stake in the firm in late 2006 for $565.4 million, subsequently increasing their ownership stake to 81%. The newly combined company will retain the Cushman & Wakefield brand. The acquisition is expected to be completed before the end of the year. 1 TPG Capital: a global private investment firm founded 1992 (formerly Texas Pacific Group) and headquartered in Fort Worth, TX and San Francisco, CA. 2 PAG Asia Capital: one of the largest Asian-based alternative investment managers 3 Ontario Teachers Pension Plan (OTPP): the largest single-profession pension plan in Canada. An independent organization that invests the pension fund s assets and administers the defined benefit pensions for active and retired teachers in Ontario. Sources: P.13

14 Leasing Activity (cont d) Large Vacancy on the Horizon Norton Rose Fulbright / 666 Fifth Avenue (Plaza) The law firm will be vacating roughly 107,000 square feet upon relocating to a similar size office at 1301 Sixth Avenue in the fall of Ironshore / 1 State Street (FiDi) The insurance company will be vacating abut 54,000 square feet upon relocating to a 100,000-squarefoot space at 28 Liberty Street (FiDi). Large Blocks of Space that became Vacant in the 2nd Quarter 1700 Broadway (Midtown/Columbus Circle) 119,093 square feet as a result of DC Entertainment ending its nearly 80-year presence in New York City, relocating the company s comic book unit to Burbank, CA in an effort to consolidate all operations. The move was first announced in Bryant Park (Midtown/Penn Plaza) 184,751 square feet was introduced to the market upon delivery of the newly constructed tower. 114 West 41st Street (Midtown/Penn Plaza) 63,724 square feet came online as a result of knitted sweater manufacturer Hamphshire Group securing an amended lease agreement allowing the company to return 4 of the 5-floors originally leased, but never occupied. 1 Liberty Plaza (Downtown/World Trade Center) 263,509 square feet of the former Goldman Sachs space that came online last year with an April 1st occupancy. Notable Move-ins WeWork / 205 East 42nd Street (Midtown/Grand Central) 122,129 square feet. The deal announced in December added a new outpost for co-working space provider. The new space spans 7-floors including the building s penthouse unit on the 21st floor which features an outdoor area. 875 Third Avenue (Midtown/Plaza) 117,972 square feet. - Troutman Sanders: The law firm moved into the 87,216 square feet that spreads across entire floors in a relocation deal announced last May; vacating about 145,000 square feet at 405 Lexington Avenue as a result of the 15-year signing. - JPB Foundation: The philanthropic agency moved into the 30,816-square-foot space on the tower s entire 29th floor; having signed a 15-year lease earlier this year. Estée Lauder / West 23rd Street (Midtown South/Flatiron) 100,000 square feet. The cosmetic company will use the expansion space for its Aramis and Designer Fragrance divisions, along with digital and social media staff. The deal announced in February will see the company add entire floor 6-9 to their existing 3rd floor space for a total footprint of about 166,000 square feet. Bank of New York Mellon Corp (BONY)/ 2 Brookfield Place, 225 Liberty Street (Downtown/World Trade Center) 376,818 square feet. The bank relocated upon selling their former headquarters at 1 Wall Street in October, relocating about 850 of their 1,700 employees, with the remainder being shifted to the BONY owned building at 101 Barclay Street. The 20-year deal that spans entire floors was announced last June. Macmillan Science & Education / 1 New York Plaza (Downtown/FiDi) 176,121 square feet. The publisher, a subsidiary of Holtzbrinck Publishing Group consolidated offices spread across 3-Manhattan locations. The 17-year lease was announced in March 2014, and will spread across entire floors and a portion of the 45th floor. 1 World Trade Center (Downtown/World Trade Center) 166,287 square feet. - High 5 Games: The content creator for online gaming leased 87,663 square feet spread across entire floors in the 15-year deal announced in November. - xad: The mobile ad startup leased 43,849 square feet across the entire 60th floor in a 10-year deal announced in November. - Servcorp: The Australia-based co-working & virtual space provider leased 34,775 square feet across the entire 85th floor in a 15- year deal announced last August. P.14

15 Submarket ReCap: Midtown Office Rents to Reach New Heights The ground breaking of the long awaited 425 Park Avenue (Midtown East) being developed by L&L Holdings Co. arrived in early June along with news that the developer will be seeking asking rents of $250 per square foot and north for office space on the upper floors of the tower being built on speculation. The 47-story, 670,000-square-foot tower will include a 14,000-square-foot high-end eatery operated by chef Daniel Humm and restaurateur Will Guidara, known for the Michelin-starred restaurant Eleven Madison at 11 Madison Avenue in the Flatiron. Construction is expected to be completed in 2018; and will be the city s first tower to receive Well Building Standard Certification. The mid-$200 pricing will also reportedly be a first, even amongst such renowned buildings as Salow s 9 West 57th Street and the GM Building at 767 Fifth Avenue which have successfully commanded rents just over $200 per square foot. Midtown Class A and B Vacancy 7.75% Rental Rate $63.36 per sq. ft. Net Absorption 330,832 sq. ft. In addition, nearby 432 Park Avenue, a mixed-use project that is currently under construction by Macklowe Properties and Los Angeles, CA-based CIM will include a 6-story, 71,000-square-foot office component owned solely by Macklowe that will seek asking rents nearing $200 per square foot. Tenants of the luxury office space will be able to utilize the high-end amenities from the attached residential condominium including a pool, gym, and private restaurant and lounge. New to Market MetLife / 3 Bryant Park aka 1095 Sixth Avenue (Penn Plaza/Garment) The insurance company has introduced roughly 355,924 square feet to the market as a sublease in preparation of their relocation to their namesake building at 200 Park Avenue. The sublease includes a private ground floor lobby; and spreads across floors 13-20, 23, and In March, the company signed a lease for 430,000 square feet that will consolidate their Manhattan offices. Relocation is expected to begin in December 2016 and proceed in phases for a mid-2017 completion. Previously it had been reported that MetLife was in discussions with the tower s co-owners Canadian-based firm Cambridge and Chicago, IL-based Callahan Capital Partners to release them from their existing lease, freeing up the space to re-rent at the higher current market price. Evidently MetLife has decided to sublease the space and take advantage of the escalated rents that will allow the space to be offered to a subtenant at an attractive rate while potentially still netting a profit. Remaining term on the space was not released. P.15

16 Submarket ReCap: Midtown (cont d) Lease Deals to Watch For Pershing Square Capital / 250 West 55th Street (Columbus Circle) The hedge fund is reportedly close to signing a lease for 49,000 square feet spanning entire 34th- and 35th floors at the Boston Properties tower. The relocation deal would result in an expansion from their current 31,000-square-foot office just a few blocks away at 888 Seventh Avenue (Columbus Circle). Morgan Stanley / 750 Seventh Avenue (Times Square) The financial firm is reportedly nearing a deal to renew its over 400,000 square feet at the tower. Currently headquartered at nearby 1585 Broadway, several of the company s key divisions including its wealth management business are housed at the 7th Avenue building. If the renewal moves forward, the decision to remain in place will follow in the footsteps of JPMorgan Chase who earlier this year opted to remain in 230 Park Avenue and 383 Madison after exploring relocation options; further substantiating the more conservative approach that financial firms are taking with regard to their office space. Bank of America / 75 Rockefeller Plaza (Plaza) The Charlotte, NC-based bank reportedly has a lease out for 200,000 square feet at the tower that is currently undergoing a $140 million modernization program. RXR Realty had acquired the 99-year leasehold in 2013 from former Harrods department store owner Mohammed Al Fayed. The tower previously served as the home of Time Warner, which had been leasing and self-managing the building since 1993; ultimately subleasing the space and deciding not to renew its lease that expired in Hogan Lovells / 55 Hudson Yards aka West 34th Street (Hudson Yards) The Washington, D.C.-based law firm is reportedly considering a move to the 1.3 million-square-foot tower. The announcement comes just about 2 weeks following the 83,000-square-foot deal signed by law firm Boies Schiller & Flexner. The firm is currently located at 875 Third Avenue (Plaza), where they have been a tenant for 13-years. The 111,000-square-foot office spread across 3-floors is under a lease that will be expiring in P.16

17 Submarket ReCap: Midtown (cont d) Lease Deal Highlights - 2nd Quarter 2015 Skadden Arps Slate Meagher & Flom LLP / 1 Manhattan West aka 400 West 33rd Street (Penn Plaza/Hudson Yards) The law firm signed a 20-year lease for 550,000 square feet spread across entire floors within one of the two planned office towers at Brookfield Property Partners L.P. s Manhattan West complex. The deal announced mid-april will allow Brookfield to begin construction of the 2.1 million-square-foot tower located on the southwest corner of 9th Avenue at 33rd Street. The relocation will represent a downsizing from the company s current footprint of approximately 644,671 square feet at 4 Times Square (Times Square); and is expected to take place sometime in 2020 upon expiration of their current lease. The building is slated for a 2019 delivery and financed by a $1.25 billion construction loan co-led by lenders Wells Fargo Bank, N.A., Deutsche Bank AG New York Branch, The Bank of New York Mellon, and the Toronto-Dominion Bank; and Brookfield investing $850 million for a total project cost for the tower of $2.1 billion. Norton Rose Fulbright / 1301 Sixth Avenue (Columbus Circle) The law firm will be making a parallel move in the fall of 2016 from its current location at 666 Fifth Avenue (Plaza). The firm s new 107,215-square-foot office will be similar in size to the 5th Avenue office and spread across entire floors 29-31, and part of the 28th floor. The Paramount Group building which incurred a significant rise in vacancy upon the bankruptcy of law firm Dewey & LaBoeuf in 2012, resulting in over 470,000 square feet being vacated, now boasts a current occupancy of roughly 92%. Texas Pacific Group (TPG) / 888 Seventh Avenue (Columbus Circle) The private equity firm which owns real estate company DTZ, and soon to add Cushman & Wakefield to the mix, has committed to remain at the tower another 10-years. The renewal/expansion deal will see the company expand from its current 80,000-square-foot office to a total of 100,000 square feet spread across entire floors 33-38; expanding from an original footprint of 20,000 square feet when they first came to the building 10-years ago. Asking rent for the space was reportedly $115 per square foot. Interpublic Group (IPG) / 909 Third Avenue (Plaza) The global advertising firm will be expanding its presence at the tower as a result of an 112,300-squarefoot sublease from sublandlord Forest Laboratories. Currently leasing roughly 220,000 square feet at the SL Green tower, IPG s corporate group will join other IPG agencies, relocating from 1114 Sixth Avenue (Times Square) into the new space that spans across entire floors and part of the 20th floor. Bank of America / 1133 Sixth Avenue (Times Square) The North Carolina-based bank will be expanding its presence at the tower to roughly 205,000 square feet, adding 115,000 square feet in a 15-year deal announced mid-june. The expansion space will spread across floors 17, 39, 40, 42 and 43. The bank exercised its 5-year option, negotiating the additional 5-years to make the deal that had a per square foot asking rent in the $90s. Nike / 855 Sixth Avenue (Penn Plaza) The Beaverton, OR-based athletic footwear company will be relocating from their current office at Google s 111 Eighth Avenue as a result of an 11-year, 147,000-square-foot deal for the entire office component of the mixed-used building currently under construction by The Durst Organization. The space that will spread across entire floors 3-6, plus a portion of the 2nd floor had a reported asking rent of $78 per square foot; and boasts double-height ceilings on the 6th floor with a 15,000-square-foot roof deck for Nike s exclusive use. The 570,000-square-foot mixed-use development is expected to be completed in The deal marks the 3rd large relocation announced over the last year from Google s headquarters, as the technology giant continues its efforts to free up space at the building they have been unable to fully occupy since acquiring it in It was not clear whether or not Nike received a buyout of their lease of about 90,000 square feet that included a renewal option and the potential extension of their stay at the building through Other recent relocations include: Deutsch Inc The advertising firm relocated to 330 West 34th Street (Penn Plaza) earlier this year, vacating over 134,000 square feet. WebMD the online health information and news provider negotiated a buyout deal with Google for the company s remaining term of November 30, 2015, vacating approximately 100,000 square feet. Boies Schiller & Flexner / 55 Hudson Yards aka West 34th Street (Hudson Yards) The law firm is the first lease signing at the roughly 1.3 million-square-foot tower currently under construction by co-developers Related Companies, Oxford Properties Group, and Mitsui Fudosan America, Inc. The 83,000-square-foot space will spread across 3-floors at the tower to be designed for creative atmosphere similar to the firm s current office which has a small art gallery; and there are even considerations to add music in the form of a Steinway baby grand player piano in an open space. The new tower that will open onto a new park and 7-train subway station is expected to deliver in 2018; and is intended to attract servicetype tenants that move to the Hudson Yards complex but require smaller floor sizes. The firm will be relocating from 575 Lexington Avenue (Plaza) where they occupy about 100,000 square feet, being able to take advantage of housing its staff in a smaller space. The deal is the second major shift by a law firm to the neighborhood, Skadden Arps Slate Meagher & Flom s recently signing to anchor Brookfield Property Partners L.P. s 1 Manhattan West, 400 West 33rd Street. 55 Hudson Street - Rendering Source: P.17

18 Submarket ReCap: Midtown (cont d) Lease Deal Highlights (cont d) Yodle / 330 West 34th Street (Penn Plaza) The Manhattan-based online advertising platform for small businesses moved into its new offices in April. The company s relocation had been announced back in July however, it now seems that their new offices will be larger than the 85,000 square feet originally reported. Relocating from 50 West 23rd Street (Chelsea), Yodle s new headquarter location will spread across the 18-story building s entire top floors for an updated square footage of 114,000 square feet. Initially about 85,000 square feet will be occupied, growing into the remainder over the next 2-years with an expect increase in staff from 300 to 550 in 3-years. In order to secure the deal, ownership Vornado Realty Trust agreed to build a dramatic 30-foot by 60-foot glass skylight that sits across the central staircase connecting the 3-floors, flooding the space with natural light. Vornado invested $6.4 million building out the new office, with Yodle contributing $2.2 million plus an additional $1 million for furnishings. Despite the tenant s preference for a 15-year lease, the lease that carries rents in the mid-$60s will only run for just over 9-years with the landlord hoping rents in the area will rise over the next decade. More recently, footwear and sports apparel retailer Foot Locker negotiated a lease for 145,000 square feet that will spread across entire floors 2-4 at the tower. The deal has a term of at least 10-years, and will see the company relocate from 112 West 34th Street (Penn Plaza) where they just renewed the lease for their 34,200-square-foot retail flagship location. A dominant landlord in the area around Pennsylvania Station, Vornado plans to invest hundreds of millions of dollars to improve their over 8 million-square-foot portfolio in the neighborhood. Efforts have already been initiated with last May s announcement of the planned closure of at least 10 fast-food eateries along the retail passageway inside Penn Station s Long Island Rail Road hub which the REIT controls through its 1 Penn Plaza tower. Vornado is hoping to spark a revitalization of the area that currently remains somewhat gritty and congested with commuters. A June meeting of a committee of Community Board 5, which oversees the area, brought the announcement of Vornado selecting Oslo, Norway-based architectural firm Snohetta to create a framework for the redesign of their buildings and street-level spaces in the district; creating a similar concept of the public plaza the firm designed for the Times Square area. While planning is still in preliminary stages, some of the more prominent ideas include tearing down the retail space currently occupied by Duane Reade and Kmart, and adding new retail on the block of the REIT s 1 Penn Plaza building which sits one block north of the railway station. In addition, suggestions to help alleviate the commuter congestion in the area that the company has agreed to cover the associated costs include: Closing off a portion of West 33rd Street to vehicular traffic beginning around July 19 through October 11th in order to collect data to be used to devise a more permanent solution to commuter congestion that may lead to a permanent pedestrian area near Madison Square Garden; Reducing the vehicular lanes along 32nd Street to a single lane to widen space for pedestrian foot-traffic along Vornado-owned Hotel Pennsylvania and Manhattan Mall that make up the entire north side of that block; Possibly installing some additional entrances to Penn Station. As one of the two designated developers for part of the proposed expansion of Penn Station into the Farley Post Office s redevelopment into the new mixed-use Moynihan Station, Vornado s further redevelopment plans for the area will most likely require city or state approvals; but the company intends to work closely with the city and the 34th Street Partnership, which represents the area s retailers. While suggestions by some sources include the creation of a curated food hall which has had success in the city, exemplified by MePa s Gansevoort Market and the Plaza Hotel s Plaza Food Hall, current efforts by some landlords with properties in the area include: 1359 Broadway The Empire State Realty Trust (ESRT) is currently seeking an upscale eatery to occupy the 13,900-square-foot multi-level space at the base of the tower located at West 36th Street. The asking rent for the 6,200 square feet of ground level space is in the low $200s per square foot. 210 West 31st Street Onyx signed a $6.5 million, 99-year net lease with the Province of St. Mary of the Capuchin Order, planning to demolish the existing 12,544-square-foot structure and erect a modern 3-story, 30,000-square-foot retail building which will include a 7,500-square-foot roof for outdoor dining. Ownership is hoping to attract an upscale bar and grill restaurant and ground floor asking rent in reportedly $350 per square foot. However, some sources comment that without residential construction, the ability to attract better food options could be challenging. Further noting that people typically seek out eateries close to their homes or in areas that offer a good nightlife, both of which are currently lacking. While Madison Square Garden (MSG), which recently underwent a renovation and Pennsylvania Station are the main draw to the area, MSG s future at the location is uncertain due to the impending renovation and expansion of the transportation hub as part of the proposed Moynihan Station redevelopment project; and the high volume of foot-traffic that flows through Penn Station is transient and probably less apt to want to linger as they rush to-and-fro to catch trains home. Source: P.18

19 Submarket ReCap: Midtown (cont d) Lease Deal Highlights - Double Header Spring Openers The month of April brought news of multiple deals at 2 of SL Green s buildings. According to the landlord s website, both deals required extensive work with multiple tenants to create the large blocks of space. Bloomberg / 919 Third Avenue (Plaza) The data and media company signed on for a 15-year, 254,556-square-foot lease that will spread across 8 floors at the 47-story, 1.5 million-square-foot tower. WeWork / 315 West 36th Street (Garment) The fast growing co-working space provider has leased the entire 9-story, 136,118-square-foot commercial component of the 17-story building in a 15-year deal. The space has a separate entrance as a result of a divided lobby that was created upon repositioning the upper 7-floors into residential condominiums around Another duo of signings at One Worldwide Plaza, 825 Eighth Avenue (Clinton-Hell s Kitchen) by co-owners George Comfort & Sons, RCG Longview, DRA Advisors, and the New York REIT brings the tower to 98.2% occupancy. Although details of the 2-deals were not released, they totaled 103,000 square feet. Rubenstein Associates The public relations firm signed a lease for 68,000 square feet spread across 2-floors at the tower. David Barton Gym The high-end fitness club leased 35,000 square feet adding its 6th location in the city. Source: P.19

20 Submarket ReCap: Midtown South Bowery - Developing Enclave for Creative Tenants The neighborhood that overlaps sections of the East Village, Chinatown, the Lower East Side, and Little Italy is starting to enjoy rising leasing activity amongst creative tenants. In part due to an overflow from the tight office market in SoHo. TAMI (technology, advertising, media and information sectors) start-ups typically begin in co-working locations, but space requirements can quickly change when injected with an influx of funding from a venture capital investor prompting the immediate need to expand. Instacart, the San Francisco, CA-based startup that provides rapid grocery delivery for companies including Whole Foods and Costco recently raised Midtown South Vacancy Rental Rate Net Absorption Class A and B 4.40% $71.65 per sq. ft. 36,699 sq. ft. $220 million in a Series C funding round prompting the company to open its first New York City office and relocate from a co-work space at 72 Allen Street to a 3,000-square-foot space at 580 Broadway (SoHo). Although some sources point out that currently there are not many properties available yet that can accommodate TAMI tenants, or many in the midst of rehabilitation, there are some proactive developers ready to take on commercial projects and turn them into turnkey spaces hoping to take advantage of the signs of a growing interest. Approximately 20 startups have already established outposts in the area with some willing to do the renovation work themselves such as AppFigures, a tech company that builds reporting systems for mobile apps with clients that include ebay, Evernote and PBS relocated from Midtown to 133 Chrystie Street in 2013; and Bureau Blank, a creative agency focused on organizations and government at 273 Grand Street. P2 P.20