Manhattan Office Market

Transcription

1 Manhattan Office Market 3 RD QUARTER 2015 REPORT A NEWS RECAP AND MARKET SNAPSHOT Pictured: 162 Fifth Avenue

2 Looking Ahead City s Commercial Rent Tax: Small Business Exemption Prompts Mixed Response The introduction of a bill in May that would exempt small businesses from the city s controversial commercial rent tax, while requiring more revenue from large businesses has triggered mixed response. The much criticized tax is imposed upon all commercial tenants in Manhattan that pay over $250,000 in rent and are located below 96th Street (excludes non-profits and businesses near the World Trade Center); and while many would like to see the tax levy totally abolished, the new bill would raise the rent threshold to $500,000. The bill proposes that the loss in revenue would be reclaimed by raising the rate of the tax levy for businesses paying over $3 million in annual rent. Some business leaders anticipate that the increased tax burden would further threaten middle-class jobs as companies such as JPMorgan Chase, which is rumored to be nearing a deal across the Hudson River to move 2,150 middle-class jobs to New Jersey, lured in part by big tax incentives. Other alternative suggestions to offset the loss of revenue from the rent tax should it be totally eliminated were to simultaneously undergo a property tax overhaul, increasing the property tax revenue collected from high-income apartment owners which is reportedly rarely more than 1% of the market value of their homes. Mayor de Blasio s mansion tax proposal that was intended to accompany reform of the 421-a Tax Exemption Program fell through the cracks in Albany; and a controversial proposal for a pied-à-terre tax on units worth more than $5 million, that would require approvals by state lawmakers, was recommended late last year by the Fiscal Policy Institute. The current commercial rent tax code results in a double taxation for affected businesses since it applies to all payments tenants make to landlords under the terms of their lease, which in many cases already includes the property taxes incurred by the landlord. As a result, the current tax code creates a double dipping tax levy collecting from both the building owners and the tenants whose lease terms already include a share of the same property tax being paid directly to the city by the landlord. The city expects to collect $770 million in revenue for the 2016 fiscal year, representing close to 1% of the city s entire $78.5 billion budget; and while total elimination of the commercial rent tax would significantly diminish city revenue, it is hoped that the bill will prompt further discussion. P2 P.2

3 In the News New 7-Subway Station Entrance 7-Subway Extension Opens on the Far West Side The city s 469th subway station located at 34th Street and 11th Avenue opened on Sunday, September 13th. The long awaited extension of the 7-subway line which intersects 18 out of the total 22-lines is the first new station to open in 25-years. Ridership was expected to bring over 30,000 to the Hudson Yards neighborhood that is currently in different stages of planning and construction; but has currently only seen the activity of about 7,000 riders per day, a figure that the MTA believes will change as development in the Hudson Yards progresses; and the High Line park entrance at 34th Street which has been temporarily closed reopens. The project which broke ground in 2007 was originally slated for a December 2013 completion. The cost of $2.4 billion which was funded by the city under the Bloomberg administration had escalated from the original $2.1 billion; but the elimination of a proposed intermediate subway station at 10th Avenue and 41st Street kept costs from reaching what would have been a significantly escalated figure of $2.9 million. However, despite completion delays and cost overruns, the opening of the new station received enthusiastic response from many city residents. New 7-Subway Station - Entry Views New 7-Subway Station - Platform Views P3 P.3

4 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 5.3% (not seasonally adjusted) at the end of August; in comparison to 6.7% at the end of the 2nd quarter. Year-over-year figures resulted in a 25.35% improvement from the 7.3% rate of August Unemployment on the National level fell to 4.9% at the end of August, decreasing 5.45% from the 2nd quarter figure of 5.0%. Year-over-year figures resulted in an 15.52% improvement from the 5.8% rate of August Q 2015 Vacancy Rental Rate Net Absorption Total Class A Class B Employment activity in New York City s private sector resulted in the loss of 9,600 jobs for the 3 month period between May 2015 and August Year-over-year figures resulted in a 2.6% gain of 91,400 jobs; in comparison to 2.1% and 2.3% year-over-year growth for New York State and the nation respectively. Educational and Health Services continued to lead the way, followed by Leisure & Hospitality. While job numbers continue to rise, the rate of increase was comparatively more moderate than that of the previous year s 3.9%. Weekly Wages Overall weekly wages in New York City averaged $2,847 at the end of the 1st quarter 2015, representing a positive 3.6% improvement year-over-year according the recent report released by the U.S. Department of Labor. The Leisure & Hospitality sector boasted an over 3.1% increase year-over-year at the high, in contrast to the Financial Services sector where wages fell 3.55%. Vacancy for Class A & B office space fell 0.34% over 2nd quarter s 8.01% figure, resulting in an 7.98% vacancy at the end of the 3rd quarter. Downtown accounted for the strongest quarter-over-quarter improvement, shrinking 3.12% resulting in a vacancy of 10.25% the low for Midtown continued a downward trend at a nominal decline of 0.28% resulting in a vacancy of 7.75%. Only Midtown South incurred a reversal as vacancy rose 11.41% to 4.94% quarter-over-quarter in part due to the introduction of the entire 138,000 square feet at 125 West 25th Street, a property that had been taken off the market in 2013 for a full building renovation. Absorption closed the 3rd quarter at positive 109,847 square feet, representing a more moderate improvement over 2nd quarter s sharper climb of positive 1,378,046 square feet. Both Midtown and Downtown s positive absorption of 59,985- and 359,831 square feet respectively was able to offset Midtown South s negative 309,969-square-foot figure. Rental Rates rose more sharply in the 3rd quarter. The overall weighted average asking rent for Class A & B office space of $61.17 per square foot represented a 2.68% increase over the previous quarter, as the rate of increase jumped from the more moderate 042% in the 2nd quarter. Class B weighted average asking rents of $57.94 per square foot accounted for the more significant increase of 5.23%, while Class A asking rents of $62.22 per square foot saw a 2.34% rise representing a rebound of 2nd quarter s moderate reversal of 0.75%. 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 3Q2004 3Q2005 3Q2006 3Q2007 NYC Yr-over-Yr Job Statistics 900, , , , , , , , , , ,500 NYC Unemploy Rate 677, ,500 3Q ,900 3Q ,400 3Q2010 US Unemploy Rate 409,200 3Q2011 Aug 2014 Job#'s 1Q2014 Weekly Wage 425,900 3Q ,500 3Q ,700 3Q2014 $0 Aug 2015 Aug 2015 Job#'s 1Q2015 Weekly Wage $10,000 $9,000 $8,000 $7,000 $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 Sources: P4 P.4

5 Class A & B Statistics At A Glance 3rd Quarter 2015 Vacancy WTD Average Asking Lease Rent Net Absorption Downtown 5.07% 11.90% Downtown $57.17 $43.98 Downtown Midtown South 2.58% 5.71% Midtown South $71.07 $85.88 Midtown South Midtown 6.29% 8.13% Midtown $54.06 $67.32 Midtown % 5.00% 10.00% 15.00% $0.00 $50.00 $ Class A Class B Thousands (500) Quarter-over-Quarter Vacancy Lease & Sublease Sq. Ftge Net Absorption Net Absorption Class A Class A Class B Lease SF Class AB Sublease SF Class AB 5.83% 8.87% 5.56% 9.02% 5.38% 9.54% 5.47% 9.34% 5.88% 9.47% 3Q14 4Q14 1Q15 2Q15 3Q % 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 4Q14 1Q15 2Q15 3Q15 3Q14 4Q14 1Q15 2Q15 3Q15 3,579 33,162 3,384 32,734 3,300 33,334 3,201 32,056 2,964 32,182 1, (626) Net Absorption Class B 1,627 (249) 477 (367) 2,000 1,500 1, ,000 Thousands Quarter-over-Quarter Inventory Changes Downtown Midtown South Midtown Removed Added Removed Added Removed Added 3Q2015 2Q2015 1Q2015 4Q2014 3Q2014 3Q2015 2Q2015 1Q2015 4Q2014 3Q2014 3Q2015 2Q2015 1Q2015 4Q2014 3Q2014 Thousands Thousands Thousands *Buildings 75,000 SF and larger; vacancy and absorption calculations based upon move-in date versus deal signing date P5 P.5

6 Submarket Statistics Overview: Class A & B Office 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 108,939,457 10,772, ,904 11,162, % 0.36% 10.25% $ ,330 City Hall 14,327, ,344 1, , % 0.01% 5.48% $ ,977 Financial District 41,586,410 3,962, ,434 4,246, % 0.68% 10.21% $ ,760 Insurance District 12,046, ,895 7, , % 0.07% 3.78% $ ,740 TriBeCa 6,522, , , % 0% 2.97% N/A 11,576 World Trade Center 34,457,265 5,385,621 95,565 5,481, % 0.28% 15.91% $ ,797 Midtown South 60,047,539 2,518, ,805 2,966, % 0.75% 4.94% $ ,120 Chelsea 10,555, ,670 17, , % 0.17% 3.33% $ ,850 Flatiron 21,589, , , , % 0.87% 4.32% $ ,546 Gramercy Park 10,212, ,316 26, , % 0.26% 7.82% $ ,815 Greenwich Village 4,353,399 23,396 13,500 36, % 0.31% 0.85% $ ,155 Hudson Square 9,393, , , , % 2.02% 7.59% $ ,689 SoHo 3,942, ,457 15, , % 0.38% 3.38% $ ,097 Midtown 271,313,991 18,890,922 2,125,543 21,016, % 0.78% 7.75% $ ,278 Columbus Circle 31,893,601 1,874, ,819 2,027, % 0.48% 6.36% $ ,509 Grand Central 52,773,745 4,754, ,012 5,140, % 0.73% 9.74% $ ,893 Murray Hill 11,144, ,931 65, , % 0.59% 4.07% $ ,346 Penn Plaza/Garment 46,974,585 3,203, ,675 3,664, % 0.98% 7.80% $ ,843 Plaza District 80,641,592 5,447, ,150 6,048, % 0.75% 7.50% $ ,420 Times Square 44,323,129 3,196, ,999 3,638, % 1.00% 8.21% $ ,659 U.N Plaza 3,562,575 27,188 16,666 43, % 0.47% 1.23% $ ,830 Grand Total 440,300,987 32,182,071 2,964,252 35,146, % 0.67% 7.98% $ ,488 *Buildings 75,000 SF and larger; vacancy and absorption calculations based upon move-in date versus deal signing date P6 P.6

7 Leasing - Small Co-working Space Providers Unable to Make the Cut As the larger providers of co-working space particularly WeWork continue to take over space within the city s buildings, some of the smaller firms have found it difficult to stay afloat. Recent news brought the announcement that Makeshift Society-Brooklyn will be shuttering its outpost in Williamsburg in October despite having moderate success in a short period of time. Planning to vacate the 5,775-square-foot space leased in late 2013 under a 5-year deal in October, a spokesperson for the company commented that their research and guestimated profile of tenant needs fell short of what people wanted doored offices. Makeshift Society has another location in San Francisco, which in contrast to the Brooklyn outpost enjoyed almost immediate success. The news of Makeshift s closure comes about 2 months following the June closing of another co-working facility at 412 Broadway (Downtown) by the New Work City, which was reportedly considered a pioneer in co-working for freelancers and creative employees. In the meantime WeWork continues to expand, recently partnering with developers Boston Properties Inc. and Rudin Management Co. to construct their first ground-up development in Brooklyn. Dubbed Dock 72 at the Brooklyn Navy Yard, the co-working space provider will be anchoring the 675,000-square-foot development in 222,000 square feet. The project that is expected to break ground before the end of the year is projected to have a price tag of $380 million. Asking rents are expected to be at least $60 per square foot for what is anticipated to deliver the highest-end product in the New York tech market. The building will boast 40,000-60,000-square-foot floor plates and 14-foot ceiling heights; and feature amenities such as a health and wellness center, specialty vendors, a massage room, valet bicycle parking, outdoor terraces, a rooftop conference center, and a basketball court that will be open to all Navy Yard workers. Some industry sources that remain optimistic about the future for co-working space providers have characterized the co-working frontrunner WeWork as a mid-market product that offers a broad appeal, further pointing out that there is an enormous amount of opportunity for budget options, premium options and luxury options. Granted the city s high rents are presenting challenges for turning a profit by some newcomers, but others continue to operate in existing smaller spaces despite significant membership growth with efforts for the time being focused on improving operations while keeping a watchful eye on the real estate market and a financially more opportune time to expand. Looking ahead, it has been noted that some co-working space providers have begun exploring possible opportunity in the suburbs and smaller cities surrounding major metropolitan area like New York. P7 P.7

8 Leasing - Law Firms Join the Modernized Office Movement Law firms have become the latest industry to take advantage of modern technology and open floor plans to improve space use efficiency and reduce rent overhead expenses. Some sources anticipate that future space expansion by law firms will only be seen amongst those that have recently acquired other organizations, or by smaller firms on a growth path. Traditionally, square feet per attorney ratios averaged around 1,000 square feet 10-years ago, but that figure has been declining to today s more typical average of square feet a ratio that is expected to continue a further downward trend. The move to economize has prompted some firms to seek buildings that offer wide-open, column-free floor plates that will allow a more efficient and flexible office layout design. In addition, up-to-date technology with improved connectivity has become another highly sought after feature as non-essential office components such as physical libraries and file cabinets are being replaced by digitized archives. The younger, more tech-savvy attorneys that are entering the job market has opened the door to cut-backs in administrative staff, allowing law firms to reposition the freed-up space for additional attorneys, conference rooms, and pantries. Common areas are becoming mixeduse areas that can accommodate both informal meetings or dining space, while also promoting increased collaboration. Private offices are being downsized and in some cases eliminated for associates. Skadden Arps Slate Meagher & Flom LLP / 1 Manhattan West aka 400 West 33rd Street (Penn Plaza/Hudson Yards) The global firm will be reducing its footprint in Manhattan by roughly 300,000 square feet as a result of a relocation deal signed earlier this year for 550,000 square feet. Although design plans for the new office were not released, the move is expected to take place sometime in 2020 upon expiration of their current lease at 4 Times Square. White & Case / 1221 Sixth Avenue (Times Square) The law firm will be reducing its footprint by about 50,000 square feet, having signed a lease for 440,000 square feet last year. The firm intends to redesign the new space to improve efficiency as they prepare to relocate in 2017 from 1155 Sixth Avenue. The new location offered larger floor plates that will facilitate a more flexible and collaborative design. Kirkland & Ellis / Citigroup Center, 601 Lexington Avenue (Plaza) The law firm signed an early extension for its 403,000-square-foot space, opting to retain its existing footprint despite the increase in attorney numbers. Morrison & Foerster / 250 West 55th Street (Columbus Circle) The law firm relocated to the newly constructed tower last year. The 180,000-square-foot office represented a roughly 25% decreased footprint from the 240,000-square-foot space previously occupied at 1290 Sixth Avenue. The new office was designed to include larger conference rooms with smaller common areas; and meeting spaces interspersed throughout the office to promote collaboration. Weil Gotshal & Manges / GM Building, 767 Fifth Avenue (Plaza) The law firm renewed their lease last year, opting to reduce their footprint by about 100,000 square feet. The firm plans to gut-renovate the 388,492-square-foot space, and reconfigure the layout to accommodate more attorneys. Partners offices will reportedly be reduced, with glass walls added to create a more open feel. Paul Hastings / MetLife Building, 200 Park Avenue (Grand Central) The law firm will relocate to a diminished 180,000-square-foot space early next year; downsizing from about 240,000 square feet at East 55th Street. The design of the new space will include work areas for first- and 2nd-year associates that are somewhere between a desk and a cubicle called end zones, something that is currently exclusive to Paul Hastings. The concept will allow for a heightened density of associates within a more efficient and collaborative environment. P8 P.8

9 Leasing Activity Large Vacancy on the Horizon Citadel / 601 Lexington Avenue (Plaza) The hedge fund will be vacating roughly 120,000 square feet, having committed to lease 200,000 square feet as anchor tenant at nearby 425 Park Avenue (Plaza) which is currently under construction and expected to deliver in DKNY / West 40th Street (Penn Plaza/Garment) The fashion brand will be vacating roughly 135,000 square feet in 2016 as a result of a relocation deal recently announced. The company which is undergoing financial setbacks will be downsizing to an 85,000-squarefoot space at 285 Madison Avenue (Grand Central). Associated Press (AP) / 450 West 33rd Street (Penn Plaza) The news agency will be vacating about 291,000 square feet in early The company s current lease at the Brookfield Office Properties tower expires sometime in 2019, but a deal was negotiated that will allow AP to move sooner to a downsized 172,000-square-foot space at 1 Brookfield Place, 200 Liberty Street, which is also owned by Brookfield. Vantone Industrial / One World Trade Center (World Trade Center) The Beijing-based company s China Center that was reportedly the first private-sector tenant to sign a lease at the tower continues to seek a significantly reduced presence of its 2009 commitment for roughly 200,000 square feet spanning floors at the tower. Last May brought news of negotiations to halve their space commitment for the center intended to offer offices, conference and dining space for social, business and cultural leaders from China and the U.S. to gather. More recently, the company has requested a downsize that would limit their presence to single-floor space totaling 31,344 square feet, the vision for the China Center revised due to China s currently faltering economy. The Port Authority of New York & New Jersey (PANYNJ) and the Durst Organization agreed in September to accommodate Vantone s shrunken presence on the 89th floor where at least the company will be paying a higher rent then they would be have paid for the originally leased floors on a lower level. This is the second instance of downsizing by a tenant this year at the tower, advertising firm KiDS Creative reduced their original commitment for 34,775 square feet on the entire 87th floor to a mere 2,400 square foot space. Large Blocks of Space that became Vacant in the 3rd Quarter 1133 Sixth Avenue (Midtown/Times Square) 236,519 square feet spread across entire floors 2-4 and 7-11 plus a portion of the 6th floor which was vacated by the Internal Revenue Service (IRS). The National Basketball Association (NBA) leased 47,234 square feet spread across the entire 5th and a portion of the the 6th floor of the total 285,872 square feet that the government revenue service agency had occupied. 405 Lexington Avenue (Midtown/Grand Central) 145,000 square feet spread across entire floors 7-10 was vacated by law firm Troutman Sanders upon relocation to a downsized 87,126-square-foot office at 875 Third Avenue (Plaza) 161 Sixth Avenue (Midtown South/Hudson Square) 145,910 square feet spanning entire floors 2-3 and 9-11 was reintroduced to the market after undergoing a renovation that included the combining of the tower with adjacent 233 Spring Street wia a shared core which houses new elevators, HVAC, lobby, restrooms and mechanicals. The 2-building portfolio was acquired in 2012 by Steller Management and Imperium Capital. 125 West 25th Street (Midtown South/Chelsea) 138,000 square feet was reintroduced to the market. The space that spreads across the entire 11-story building was taken off the market for renovations following the 2013 foreclosure acquisition by Normandy Real Estate. P9 P.9

10 Leasing Activity (cont d) Notable Move-ins During the 3rd Quarter 1411 Broadway (Midtown/Penn Plaza) 127,451 square feet total. - 25,261 square feet on the 30th floor by Italian sportswear designer Fila USA, having relocated from about 19,343 square feet at 41 Madison Avenue (Flatiron) as a result of the 10-year lease deal announced in February; - 57,280 square feet spread across the entire 2nd floor and a portion of the 3rd floor by clothing manufacturer, merchandiser, and marketer Basic Resources, having relocated from 31 West 34th Street (Penn Plaza) as a result of the sublease deal announced in June; - 45,000 square feet spread across the entire 4th floor by clothing retailer Authentic Brands upon relocating from the Manhattan Mall, West 33rd Street (Penn Plaza) as a result of the sublease deal announced in June. Both sublease move-ins totaling 102,280 square feet was space previously occupied by clothing company Nine West who decided to downsize their footprint at the tower, still retaining roughly 400,000 square feet. Sublease term extends through January 1, Park Avenue (Midtown/Grand Central) 72,750 square feet total. - 48,500 square feet spread across entire floors by law firm Fox Rothschild LLP, having relocated from a smaller office at 100 Park Avenue (Grand Central) as a result of the 15-year lease deal announced in March; - 24,250 square feet on the 10th floor by IT company Hitachi Data Systems upon relocating from 90 Park Avenue (Grand Central) as a result of the 11-year lease deal announced in February. One Worldwide Plaza, 825 Eighth Avenue (Midtown/Times Square) 101,621 square feet total. - 68,432 square feet spread across entire floors by public relations firm Rubenstein Associates as a result of the lease deal announced in April; - 33,189 square feet on the 29th floor by annual award program CLIO Awards in a lease deal that reportedly runs through July 31, Park Avenue South (Midtown South/Flatiron-Gramercy Park) 189,507 square feet spanning entire floors by social web content provider BuzzFeed upon relocating from a 57,691-square-foot subleased space at 200 Fifth Avenue (Flatiron) as a result of the lease deal announced in December. 85 Broad Street (Downtown/FiDi) 234,879 square feet spread across entire floors and by co-working space provider WeWork as a result of the lease deal announced in February. 1 New York Plaza (Downtown/FiDi) 124,605 square feet total. - 68,323 square feet spread across the entire 15th floor by Medicare- and Medicaid-managed plan provider WellCare Health Plans, having relocated from 32,564 square feet at 110 Fifth Avenue (Flatiron) as a result of the lease deal announced last October; - 68,323 square feet spread across the entire 16th floor by financial firm Morgan Stanley Smith Barney as a result of the expansion deal the runs to September P.10

11 Submarket ReCap: Midtown Garment District BID - Fall 2014 Statistics Snapshot Transportation: 16 Subway Lines 55 Bus Routes Regional Transit - Long Island Railroad, Amtrak, PATH, NJ Transit - Metro North Railroad, Grand Central Terminal - Port Authority of NY & NJ Bus Terminal, Midtown Class A and B Vacancy 7.75% Rental Rate $64.34 per sq. ft. Net Absorption 59,985 sq. ft. Demographics: 106,651 Employees 6,840 Companies 7,000 Residents $80,974 Median household income Commercial Real Estate: 2 Million + square feet of retail space spread across 815 locations 35 Million + square feet of office and loft-style space Amenities: 6,334 Hotel keys spread across 28 hotels plus 5 more in different stages of planning and development Sources: P.11

12 Submarket ReCap: Midtown (cont d) Lease Deals to Watch For Boston Consulting Group (BCG) / 10 Hudson Yards aka 501 West 30th Street (Hudson Yards) The Boston, MA-based global consulting firm is reportedly considering a 175,000-square-foot space at the 1.7 million-squarefoot tower that is currently under construction on the Far West Side. BCG is currently headquartered in a roughly 107,000-square-foot office at 430 Park Avenue (Plaza) where they have been a tenant since 2002; and another 50,342 square feet they are reportedly subleasing from Credit Suisse that runs to mid The company will be joining anchor tenant Coach in a 740,000-square-foot condo interest acquired in 2013 as well as SAP America, L Oreal and VaynerMedia. If the deal moves forward the tower will be near full occupancy, paving the way for a potential partial sale that would allow developers Related Companies and Oxford Properties Group to capitalize on the value they created and provide cash to help finance further construction at the multi-building project. Other tenants that are exploring options on the Far West Side including the multi-building complex that is being developed by Related Companies, Oxford Properties Group; as well as Mitsui Fudosan America at 55 Hudson Yards. Discovery Communications The Silver Spring, MD-based global mass media and entertainment company currently occupying over 165,000 square feet as anchor tenant at 850 Third Avenue (Plaza) which was introduced to the market earlier this year by San Francisco, CA-based Shorenstein Properties. 10 Hudson Yards Milbank Tweed Hadley & McCloy LLP - The global law firm is currently headquartered in over 300,000 square feet that runs through 2018 at Lower Manhattan s 28 Liberty Street (formerly 1 Chase Manhattan Plaza), and exploring options that include a possible relocation to 55 Hudson Yards which is currently under construction and expected to deliver in Major League Baseball The baseball organization reportedly has a studio requirement, prompting the consideration of a westerly consolidation into 200,000 square feet at 55 Hudson Yards. MLB is currently headquartered since 1998 at 245 Park Avenue (Grand Central) in over 200,000 square feet. Salesforce / 3 Bryant Park aka 1095 Sixth Avenue (Penn Plaza/Garment) The software and cloud computing company is rumored to be considering to take 200,000 square feet of the 355,924 square feet that insurance company Metlife introduced to the market as a sublease back in June. If the deal moves forward, it would include prominent building signage that would replace the current MetLife sign as the insurance company prepares to relocate to their namesake building at 200 Park Avenue (Grand Central). Salesforce currently has 2-Manhattan locations 74,349 square feet at 685 Third Avenue (Grand Central) leased in 2012 through a 10-year deal; and 30,000 square feet at 1550 Sixth Avenue leased in 2014 through a 5-year deal. Whether or not a consolidation of offices is intended has yet to be verified. The potential deal represents a shift east from earlier reports that the company was exploring sites in the Hudson Yards. P.12

13 Submarket ReCap: Midtown (cont d) Lease Deal Highlights - 3rd Quarter 2015 Citadel / 425 Park Avenue (Plaza) The hedge fund will be leasing 200,000 square feet as an anchor tenant at the 47-story, 670,000-square-foot tower being developed by L&L Holding Co. that broke ground in June. The announcement brings a new record-breaking sum, Citadel reportedly agreeing to pay $300 per square foot for the penthouse space which is about 50% higher than the close to $200 per square foot figure that is expected to be asked at nearby 432 Park Avenue which is also under construction. Initial rumors of a possible deal by the Chicago-IL-based firm were initially reported in June, following a recently signed short-term renewal for the company s 120,000-square-foot office at 601 Lexington Avenue (Plaza). Rents at this level had previously been exclusive to buildings such as 9 West 57th Street, the GM Building at 767 Fifth Avenue, and 667 Madison Avenue. However a growing list of properties are hoping to join the roster including Midtown buildings such as the Time Warner Center at 60 Columbus Circle; Park Avenue Tower at 65 East 55th Street, where ownership is planning to invest over $10 million in renovations to the property s lobby and exterior courtyards to create a more lounge-like, high-end hotel feel; the planned One Vanderbilt at 51 East 42nd Street; as well as 860 Washington Street that is under construction in Midtown South s Chelsea neighborhood. The tower being built on speculation will not only be the first new office construction along famed Park Avenue in over 40-years, but it will also claim the title as the city s first development to receive WELL Building Standard certification. In addition, the building will boast a 2-level lobby with 45-foot ceilings, ventilation that filters 95% of the outside air, floor-to-ceiling windows allowing up to 60% more light than conventional panes, a community space on the 26th floor with distinctive triangle-shaped windows, and a private parking garage with a lounge area for tenants chauffeurs and limousines. A 14,000-square-foot high-end eatery will be an additional amenity to be operated by chef Daniel Humm and restaurateur Will Guidara, known for the Michelin-starred restaurant Eleven Madison at 11 Madison Avenue in the Flatiron. LinkedIn / Empire State Building, 350 Fifth Avenue (Penn Plaza) The social media company is expanding its presence at the iconic tower, signing a lease for about 120,000 square feet spread across the entire 3rd and 26th floors at a reported asking rent in the low to mid-$60s range. Currently occupying 4-entire floors totaling 135,000 square feet plus additional space on other partial floors the recent deal will increase the company s footprint to roughly 280,000 square feet. The large block deal was made possible in part by global fashion/manufacturing firm Li & Fung vacating the 3rd floor space it currently occupied under a sublease that was nearing expiration. J. Walter Thompson / 237 Park Avenue (Grand Central) The marketing and communications firm owned by London-based WPP renewed their lease in June of their 270,000-square-foot office that spreads across entire floors 2-5 and a portion of the 6th floor. The signing will see the firm extend its stay at the tower for another 10-years at an initial base rent of $69 per square-foot for the first 5-years; escalating to $74 per square foot beginning the 6th year. The renewal deal includes an option to return 80,000 square feet to the landlord anytime within the next 2-years; $35 per square foot in tenant improvements, and a rent concession of 5-months. The company has been a tenant in the building since its construction was completed in DKNY / 285 Madison Avenue (Grand Central) The fashion brand will be relocating to an 85,000-square-foot office in 2016 upon expiration of the struggling company s lease at West 40th Street (Penn Plaza/Garment). Details of the deal were not released, but the company will be downsizing from their roughly 135,000-square-foot headquarters. Currently the anchor tenant at the 160,000-square-foot tower on 40th Street, it is not clear if the building s recent change of ownership prompted DKNY s decision to relocate instead of downsizing at the longtime location. National Basketball Association (NBA) / 1133 Sixth Avenue (Times Square) The basketball players union will be relocating to a 47,234-square-foot facility next Spring due to the impending sale of their current location at 310 Lenox Avenue (Harlem). Upon completion of the new facility, the NBA will vacate its current 11,000-square-foot space. Spread across a portion of the 6th floor and the entire 5th floor which boasts up to 24-foot ceilings in parts, the space will include a practice court, locker room, lounge and training facility; and offer player programs and agent seminars. The NBA is reportedly in contract to sell its 25,000-square-foot building to an undisclosed buyer for about $21 million ($840 per square foot), a figure that is nearly 6-times the approximately $3.4 million ($136 per square foot) the NBA paid in Sources: P.13

14 Submarket ReCap: Midtown South Flatiron 23rd Street Partnership BID - Fall 2014 Statistics Transportation: 5 Main thoroughfares - 23rd Street, Broadway, 5th Avenue, 6th Avenue, Park Avenue South 6 Subway lines, 9 bus lines, PATH, 13 CitiBike docking stations Proximity to Penn Station and Grand Central Terminal Demographics: 240,036 Residential population $9 Billion Annual spending $90,246 Median household income 645,600 Daytime workers Midtown South Class A and B Vacancy 4.94% Rental Rate $72.44 per sq. ft. Net Absorption 309,969 sq. ft. Commercial Real Estate: 200+ Commercial office buildings 22.1 Million square feet of rentable building area 550+ Ground floor retail businesses comprised of 28% national tenants and 72% locally-owned independent businesses Amenities: 200 Restaurants, bars, and quick & casual food establishments 36 Fitness boutiques 1,228 Hotel keys recently increased by the May opening of the 273-key New York EDITION hotel at 5 Madison Avenue. Acquired for $165 million, the landmark Clock Tower building underwent extensive renovation. Further hotel expansion is anticipated from yet to be realized projects in different stages of planning and development including an 18-story, 25,000-square-foot project at 17 West 24th Street that is expected to add 18-keys; and a 460-key Virgin-branded hotel at Broadway will be making its New York City debut. The planned 38-story, 400,000-square-foot mixed-use development will also add 80,000 square feet of new retail space. 1Q/2Q 2015 Activity Highlights: Leasing activity by co-working and incubator space providers continued to grow resulting in notable lease signings by The Yard in a 15-year deal for 33,000 square feet at 246 Fifth Avenue; and in early 3Q 2015 British bank Barclays launched Rise New York at the Castro Building, 43 West 23rd Street as an incubator space to pioneer the future of financial technology. P.14

15 Submarket ReCap: Midtown South (cont d) Union Square Partnership Annual Report 2015 Top Industry Sectors by Number of Firms* Sector # of Businesses # of Employees Prof., Scientific & Tech Services 1,514 27,351 Retail 1,393 16,299 Accommodation & Food Services ,144 Information ,250 Union Square Statistic Snapshot: 74,897 Total population $108,021 Median household income 892 Retail, restaurant and services businesses 14.9 Million square feet of office inventory 9,787 Total businesses Real Estate, Rental & Leasing 612 5,351 Healthcare & Social Assistance ,433 Finance & Insurance 310 4,240 *Categories based on NAICS Codes (1/2 mile) Top Office Lease Transactions Company Address Sq. Ftge. Sector Buzzfeed 225 Park Avenue South 194,000 TAMI Gawker Media 114 Fifth Avenue 58,900 TAMI First Look Media 114 Fifth Avenue 58,206 Non-profit Capital One 114 Fifth Avenue 40,000 FIRE AKQA 114 Fifth Avenue 40,000 TAMI Adobe Systems Inc Fifth Avenue 30,644 TAMI Centro Inc. 841 Broadway 26,235 TAMI Peak Performance 90 Fifth Avenue 25,204 Fitness Compass (expansion to 50,000 SF) 90 Fifth Avenue 25,000 FIRE Global Strategy Group 215 Park Avenue South 21,974 PR Hulu 79 Fifth Avenue 20,000 TAMI LippeTaylor 215 Park Avenue South 16,612 PR Capital One Broadway 15,000 FIRE Knewton (expansion to 31,000 SF) Fifth Avenue 14,700 TAMI Chimera Securities 27 Union Square West 11,652 FIRE DropBox 33 West 19th Street 11,000 TAMI The New Republic 1 Union Square West 7,100 Publisher Sources: P.15

16 Submarket ReCap: Midtown South (cont d) New to Market 281 Park Avenue South (Flatiron) RFR Realty intends to market the landmarked 6-story, 40,000-square-foot building towards singletenant users at an asking rent of $125 per square foot for the entire building. Approvals to alter the storefronts and expand retail to the 2nd floor, creating up to approximately 20,000 square feet of possible retail use, were received from the Landmark Preservation Commission in March. In addition, a new lobby entrance will be created on East 22nd Street. The building s interior features vaulted 20-foot ceiling heights, stained-glass detailing, and mullioned arched and gabled windows. The late-19th century building will be delivered white boxed with baseline flooring and temporary lighting by the end of the year. The landlord acquired the building earlier this year for $50 million ($1,250 per square foot) from the Federation of Protestant Welfare Agencies. The non-profit had owned the building for about 51-years, relocating to a 17,786-square-foot office condominium at 40 Broad Street (FiDi) which they acquired for $8.5 million ($478 per square foot) last year. Lease Deal Highlights - 3rd Quarter 2015 One Kings Lane / 315 Hudson Street (Hudson Square) The online home goods retailer signed a 51,576-square-foot relocation deal at a reported asking rent in the mid-$70s. The company will be expanding from roughly 28,139 square feet upon relocation from their current location just a few blocks south at 205 Hudson Street (Hudson Square). FanDuel / 300 Park Avenue South (Flatiron) The fantasy sports platform startup will be relocating to an expanded 41,000-square-foot office spread across entire floors according to the deal announced in September. The building s rooftop will be renovated by the landlord to create a private space for screening films and sporting events. Asking rents at the building reportedly average $80 per square foot. As a result of the deal, FanDuel will be vacating 9,000 square feet at 19 Union Square West. William Morris Endeavor Entertainment / 11 Madison Avenue (Flatiron) The talent agency signed an expansion deal for 33,000 square feet, increasing the company s footprint at the tower to just under 100,000 square feet. The deal was announced just weeks prior to SL Green closing on the acquisition of the over 2.34 million-square-foot tower. Nestlé Skin Health / 430 East 29th Street (Kips Bay) The Nestlé subsidiary leased 30,400 square feet spread across an entire floor at the Alexandria Center for Life s West Tower in a 16-year deal. The new facility is one of 10-global facilities that the company plans to open. IMG Worldwide / 304 Park Avenue South (Flatiron) The sports, media and talent agency will be expanding onto the entire 11th floor at the tower in a 22,500-square-foot expansion deal that will increase the company s footprint to 96,000 square feet. The 2nd expansion in 2-years, asking rent for the new space was reportedly $72 per square foot. Elite Daily / 53 West 23rd Street (Chelsea) The online news platform will be consolidating (2) Manhattan locations upon relocating to their new 22,255-square-foot office spread across the entire 12th floor. The sublease that runs through April 2021 was formerly occupied by Tremor Video who relocated to 1501 Broadway. The 3.5-year old company was acquired by DMG Media in January and will be vacating about 7,000 square feet at 333 Park Avenue South and 42 Green Street as a result of the signing announced in July. Teknion LLC / Sixth Avenue (Chelsea) The designer of high-end workplace products renewed their lease for 21,981 square feet spread across the entire 2nd floor. The 10-year deal was secured at a reported asking rent of $90 per square foot. P.16

17 Submarket ReCap: Downtown Lower Manhattan s East Side Comes into Its Own While Lower Manhattan s West Side has almost monopolized the headlines of late with news of ongoing activity and mega-lease deals, the neighborhood s East Side has remained in the shadows. Revitalization since enduring severe damage as a result of Hurricane Sandy in 2012 has delivered: Downtown Class A and B Vacancy 10.25% Rental Rate $55.08 per sq. ft. Water Esplanade The new city-built walkway beneath the FDR drive transformed the 2-mile stretch between the Battery and Montgomery Street that runs along the East River, into a beautifully designed and landscaped esplanade. Net Absorption 359,831 sq. ft. Pier 15 The once neglected 50,000-square-foot pier that sits off South Street between Fletcher Street and Maiden Lane was transformed by the city into a multi-level public pier offering greenery and beautiful views of the East River. Industry Kitchen The new 5,000-square-foot indoor/outdoor eatery and bar that sits along the East River esplanade at 70 South Street opened this spring. Commercial buildings along Water Street have seen a significant surge in leasing activity since 2012, substantiating the strength of the East Side corridor, which similar to the West Side is attracting a more blended mix of industries. Address Company Sq. Ftge. Industry Year One Seaport Plaza, 199 Water Street Allied World Insurance 143,297 Insurance 2014 Howard Hughes Corporation 36,985 Real Estate 2014 BCG Partners 79,900 Finance 2014 The BCG signing brought the building up to 100% occupancy 55 Water Street Sandbox Studio 67,706 Media 2015 Hugo Boss 68,793 Fashion 2014 NYC Health & Hospitals Corp. 220,000 Health 2013 Liberty Mutual 120,000 Insurance New York Plaza, 1 Water Street OSP Group 157,210 E-commerce 2015 WellCare Health Plans 68,232 Health 2014 Macmillan Science & Education 176,211 Publishing 2014 Revlon 91,194 Beauty 2014 P.17

18 Submarket ReCap: Downtown (cont d) Lower Manhattan s East Side (cont d) Activity on the horizon includes: 55 Water Street - Financial data provider McGraw-Hill Financial Inc. received approvals from its board to relocate from their namesake building at 1221 Sixth Avenue to 55 Water Street, joining the company s Standard & Poor s (S&P) division that is already headquartered at the tower. The shift of about 250 employees from Midtown that began about 1-year ago is expected to be completed by August 1st. At this time it is unclear if new space had been secured or if a consolidation into space currently occupied by S&P is intended. A buy-out of their Midtown lease was negotiated, paying $60 million for the early termination that stretched to 2020, ending their 43-year stay on 6th Avenue at the Rockefeller Group tower Maiden Lane The 2-part condo-hotel project being developed by Fortis Property Group will add a 74-unit, 140,000-square-foot residential building; and a 271-key, 110,000-square-foot hotel to the area. The waterfront project is expected to be completed in Battery Maritime Project The boutique 67-key hotel is currently under construction atop the 1909 landmark structure. The project is being developed by Dermot Company and recently joined London-based Forum Partners. In addition, it will offer a rooftop bar and restaurant by Nammos by the Sea, renowned as one of the most famous beach restaurants in Europe located on the waterfront in Mykonos, Greece. 110 Wall Street The severely hurricane damaged 300,000-square-foot building was totally leased by coworking space provider WeWork who will be fully renovating the building. In addition, a block of small residential units and community facilities will be constructed on the top of the building, utilizing additional air rights previously acquired by landlord Rudin Management Maiden Lane - Rendering 32 Old Slip The 1,132,340-square-foot building was recently acquired by RXR Realty who is planning to revitalize the property and reposition the tower from its current corporate image to a more creative, tech-friendly aesthetic Sources: P.18

19 Submarket ReCap: Downtown (cont d) Lease Deals to Watch For Alexander Wang / 115 Broadway aka 2 Trinity Centre (World Trade Center) The fashion designer is currently in negotiations for about 75,000 square feet. A deal would include the building s penthouse floor which features interior ornamentation, original wood-paneled walls, tall ceilings, and stained glass. If the deal moves forward, it has not been verified if the designer will retain, or relocate from their current 22,632-square-foot office located at Broadway (City Hall) in a lease the expires in Lease Deal Highlights - 3rd Quarter 2015 Moody s / 1 World Trade Center (World Trade Center) The credit rating provider will be expanding its presence in Lower Manhattan, signing a lease for 76,001 square feet spread across the entire 56th and 57th floors at a reported asking rent of $69 per square foot. Currently headquartered next door at 7 World Trade Center in about 680,000 square feet spread across 15-floors, the company was unable to further expand at the tower since it is currently 100% occupied, prompting Moody s to seek alternative locations. Moody s has been headquartered in the neighborhood for over 100-years, having relocated to the World Trade Center from 99 Church Street (City Hall) as a result of a 20-year signing in The expansion deal is significant for One World Trade Center as it marks the first sizable deal for the tower by a financial-services firm; and brings the tower s occupancy to about 66%. KCG Holdings Inc. / NYMEX Building, 1 North End Avenue aka 300 Vesey Street (World Trade Center) The Jersey City, NJ-based brokerage and automated trading firm will be relocating to Manhattan as a result of the announced 169,000-square-foot lease at the NY Mercantile Exchange. The move will result in a downsizing from the company s current 260,000-square-foot office at 545 Washington Boulevard in Jersey City. Details of the 15-year deal were not released, but asking rents at the building are reportedly in the $70s per square foot. Brookfield Office Properties had acquired the 560,000-square-foot building from NYMEX operator CME Group in According to reports at the time of acquisition, the sale/leaseback deal would see the Chicago-based trader remain in 449,000 square feet for 2-years; subsequently downsizing to 220,000 square feet on the building s lower floors for another 13-years. Associated Press (AP) / 1 Brookfield Place, 200 Liberty Street (World Trade Center) The news agency will be heading south as a result of the announced deal for 172,000 square feet. AP is reportedly planning to relocate in early 2017, downsizing from their current 291,000-square-foot office at 450 West 33rd Street which is also owned by Brookfield Property Partners. The decision to relocate from their home of 11-years was in part due to what became an oversized space for the company s current staff size; and the anticipated significant rise in rent in 2019 when their current lease expires, triggered in part by the major remaking of the Hudson Yards area that is currently being transformed from a primarily industrial neighborhood to high-end office and residential space. Sources: P.19

20 Sale Activity India s Interest in New York Real Estate Grows Some sources anticipate that efforts to overcome decades of poverty and economic stagnation in India will result in an increase in Indian capital investment in the New York City over the next 5 to 10-years. While India s fellow BRIC 1 countries Brazil, Russia and China have become significant investors in Manhattan s real estate market, India has remained on the sidelines. To date, commercial investment by India in the city has been minimal despite some notable deals including: Sahara India Pariwar s acquisition of a 75% stake in the Plaza Hotel in 2012 for reportedly $430 million; Thousands Quarter-over-Quarter Sale Statistics Downtown 2,000 1,500 1, TTL Sq. Ftge. WTD Price PSF $750 $600 $450 $300 $150 Dilip Shanghvi, founder of global pharmaceutical company Sun Pharma, reportedly invested $40 million into the planned 128-unit residential condominium project at 125 Greenwich Street (World Trade Center) being co-developed by Michael Shvo and Bizzi & Partners. Traditionally, the country s minority of residents with a net-worth greater than $30 million have only put about 10% of their investments abroad, compared to the 20-40% of most other countries. India s rate of economic growth has in part accounted for the trend, offering numerous domestic investment opportunities with a return on investment rate more attractive than Manhattan s current cap rates. In addition, government restrictions cap investment abroad at $250,000 per year. London which offers a market that is closer in proximity and has a large Indian population, currently serves as India s primary overseas investment market. However London s escalating housing prices have begun to prompt a shifting interest in New York City s real estate market that now appears to offer higher returns on investment than London. It is anticipated that as India begins to cross the city s borders, the firstwave of investors will be residential buyers. Thousands Thousands 0 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Midtown South 3,500 3,000 2,500 2,000 1,500 1, Midtown 6,000 5,000 4,000 3,000 2,000 1,000 0 TTL Sq. Ftge. WTD Price PSF 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 TTL Sq. Ftge. WTD Price PSF 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 $0 $1,250 $1,000 $750 $500 $250 $0 $1,500 $1,250 $1,000 $750 $500 $250 $0 1 BRIC - In economics, BRIC is a grouping acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development Data reflects a sample of sold buildings over 100,000-square-feet P2 P.20