Office Outlook New York Q1 2015 Returned blocks combined with slower leasing activity to drive vacancy higher number of available blocks of space most of which had been anticipated by the market were added during the first quarter that offset positive absorption elsewhere. Manhattan Class vacancy rose to 11.0 percent from 10.5 percent last quarter. Many non-financial services tenants advertising, fashion and new media while buoyed by the expanding economy, have preferred to locate outside the Class, core Midtown market. The New York City investment sales market saw a record pace for number of transactions and total dollars invested in the first quarter of 2015, with 153 transactions totaling more than $15 billion of investments completed.
JLL Office Outlook New York Q1 2015 2 New York overview Despite moderate leasing activity and sustained job growth, Manhattan vacancy increased in the first quarter as a number of large blocks came to market. Manhattan Class vacancy rose to 11.0 percent from 10.5 percent last quarter, and absorption was negative for the first time since the first quarter of 2014. While Midtown South and Downtown outperformed in early 2014 and for much of the year Midtown took the lead in the first quarter with several large leases by financial services companies. The so-called FIRE industries (financial services, insurance and real estate) saw major Midtown commitments from MetLife, Fiduciary Trust, Fortress and ank of merica. sking rents were higher for the quarter, with Manhattan Class rents rising to $73.90 per square foot from $71.68 per square foot. Concessions remained elevated, however. New York City private-sector employment rose a robust 2.9 percent, year-over-year, through the first quarter. New jobs in the creative sectors including tech, media and advertising as well as retail, education and healthcare fueled most of this growth, but recent, albeit modest gains in the financial services industry also contributed. The financial services profile in Manhattan, however, is changing as the traditional banking industry has lessened its dependence on the securities segment, including trading and investment banking. To maintain profits amid stricter capital regulations, Wall Street has cut securities employment by 20 percent since 2007. That said, the financial services industry remains the largest office-space user in Manhattan, occupying nearly one-third of top-tier space, and even slight shifts in the sector s demand can significantly impact overall activity. Mid-size financial services firms Fintech (financial services technology) and compliance, in particular have shown job growth. Traditional large banks have re-entered the market to plan for future needs. number of available blocks of space all of which the market anticipated were added during the first quarter that offset positive absorption elsewhere. In the Penn Plaza submarket, available space at 7 ryant Park and 10 Hudson Yards, both currently under construction, drove Class vacancy higher for the submarket. In the Plaza District, Time Inc. made 554,524 square feet of sublease space available at 1271 venue of the mericas in preparation for its eventual move to rookfield Place in 2018. RXR returned 609,056 square feet to the market at 75 Rockefeller Plaza, which is undergoing extensive renovation. In Downtown, newly marketed blocks at 28 Liberty Street and 300 Vesey Street drove Class and Trophy vacancy and asking rent averages higher. Midtown Class vacancy increased to 10.9 percent from 10.7 percent last quarter, mostly as a result of the new blocks added. Midtown Class asking rents also moved higher to $78.42 per square foot from $77.11 per square foot at the end of the fourth quarter. Leasing activity, especially among large tenants, was brisk. Eight large-block leases those totaling 100,000 square feet or greater were signed in the first quarter, compared to only five at this time last year. ll but three were located on the East Side, reversing at least temporarily what had been a trend of westward migration. In another shift, FIRE industries accounted for 11 of the top 20 Midtown leases in the first quarter, compared to only five of the top 20 in all of 2014. Publicis Groupe, part of the TMI sector, however, signed the largest lease of the quarter: 506,009 square feet at 1675 roadway. In the second-largest lease of
JLL Office Outlook New York Q1 2015 3 the quarter, MetLife expanded to approximately 550,000 square feet at its namesake tower at 200 Park venue. The expansion was driven by a consolidation from its other New York locations, including 1095 venue of the mericas, 277 Park venue and One MetLife Plaza in Long Island City. fter a record year, activity in Midtown South slowed in the first quarter. s one of the tightest markets in the country, with an overall vacancy of 6.1 percent, some of the slowdown could be more a function of supply than demand. Only one lease was reported in excess of 100,000 square feet a sublease compared to four in the first quarter of 2014. In the largest lease of the quarter, WebMD signed a 152,670-square-foot sublease at 395 Hudson Street. Facebook expanded by 79,998 square feet at 770 roadway in Greenwich Village for rents reportedly starting at more than $100 per square foot. t $79.97 per square foot, the Midtown South Class asking rent average was higher than Midtown. Year-over-year, Class rents have grown 7.2 percent as higher-priced buildings in Hudson Square and SoHo were added to Class inventory. Class rents, however, increased at a slightly slower clip at 560 basis points to $55.18 per square foot, year-over-year. ctivity also slowed in the first quarter for the Downtown office market. Combined with the addition of the blocks at 28 Liberty Street and 300 Vesey Street, weak leasing velocity, especially among larger tenants, allowed for a 1.9 percentage point increase in Downtown Class vacancy to 13.5 percent. The Class asking rent index also moved higher to $61.33 per square foot, an increase of $2.72 per square foot from December to March. WeWork signed the only large Downtown lease of the quarter when the growing shared office space provider committed to 234,879 square feet at 85 road Street. number of high-profile leases are expected to close by midyear and year-end. Many of these will be migrations to the West Side or Downtown, reinforcing a recent trend. Many non-financial services tenants advertising, fashion and new media while buoyed by the expanding economy, have preferred to locate outside the Class, core Midtown market. Others, including more traditional tenants in legal and financial services, are choosing to take advantage of space efficiencies and lower costs. This leasing, however, will be balanced by further large block additions to the market over the summer. Manhattan-wide, even with strong activity, absorption and vacancy could end the year flat. sking rents, however, are likely to trend higher as sublease space, low by historical standards at 1.8 percent, has given landlords more confidence to raise rents in select submarkets. While job growth projections remain aggressive, the last cycle proved that employment numbers often lag both economic events and the real estate market. Other indices, like the stock market, interest rates, business confidence, and even crime rates and other quality-of-life metrics, have proven to be better leading indicators for the New York office market. While all these are currently trending positive, some have flattened, raising near-term uncertainty. The presidential election in 2016 could create more doubt the two previous election years, 2008 and 2012, both saw negative absorption. Longer-term, New York City continues to attract both capital and talent from around the world and this shows no sign of tapering yet construction of new office space in Manhattan, currently in an active phase, is lengthy, expensive and ultimately limited by available sites. Tristan shby Vice President, Research Director
JLL Office Outlook New York Q1 2015 4 Capital Markets overview The first quarter of 2015 for the New York City investment sales market saw a record pace for number of transactions and total dollars invested, with 153 transactions totaling more than $15 billion of investments. Incorporating deals under contract, the quarter s results reached 201 deals with $26.5 billion of activity. s a comparison, the first quarter of 2014 witnessed 104 closed deals totaling $6 billion, and in all of 2014 there were 442 deals and $39.8 billion of activity. The residential segment of the market continues to lead the way, capitalizing on unabated demand for New York City housing. The multifamily market accounted for 37.0 percent of all transactions, with an average sales price per unit of $850,000 or $800 per square foot. The most active segment of the multifamily investment market continued to be Midtown South, where there is a marked shortage of housing to satisfy the demand driven by nearby TMI tenants, and Uptown, where investors are finding better risk-adjusted returns in Washington Heights and Harlem. Demonstrating the continued strength in the residential condominium market, the average price of land throughout Manhattan rose to nearly $690 per square foot, up 25.0 percent from mid-2014 to the highest level in history. Land prices have seen nearly the same percentage increase in prime rooklyn and Queens markets, driving prices to record levels in the boroughs as well. Investors continued to seek burgeoning markets in underdeveloped parts of New York City, with areas in the ronx and eastern Queens beginning to attract attention. The office segment of the market accounted for 14.0 percent of transactions, but 40.0 percent of investment sales dollars, with an average of $1,050 per square foot across all classes and $1,550 per square foot for Midtown Class buildings (both closed and under contract). Weighted average Midtown Class cap rates totaled 3.3 percent, nearing parity with global gateway cities as the low-return environment continues to permeate through the market. The national economy continued to grow at a steady pace as unemployment dropped to 5.5 percent during the quarter, its lowest level in seven years. Personal spending continued to edge up as the big drop in gasoline prices put more money in consumers pockets. Severe winter weather kept shoppers away from malls and auto dealerships in both January and February. While the weather-related weakness is expected to dampen overall economic growth during the January-March quarter (forecasting a 1.5 percent increase), many economists anticipate growth of more than 3.0 percent for the balance of the year. The strengthening dollar started the year at an exchange rate of $1.21 and neared parity with the Euro in mid-march, but has since pulled back and is now at $1.08. The Federal Reserve could likely begin to gradually raise interest rates in June or September, as the economy continues to recover from the previous recession. The 10-year Treasury closed the quarter at 1.94 percent, 18 basis points lower than the beginning of the quarter. Scott Latham Vice Chairman Jon Caplan Vice Chairman Yoron Cohen Vice Chairman Richard axter Vice Chairman
JLL Office Outlook New York Q1 2015 5 New York property clock Midtown South Peaking market Falling market Rising market Stabilizing market Midtown Downtown Clock description This diagram illustrates JLL s estimate of the location of each prime office market within its individual rental cycle at the end of the quarter. Markets can move around the clock at different speeds and directions. The diagram is a convenient method of comparing the relative position of markets in their rental cycle. The position is not necessarily representative of investment or development market prospects. The position refers to prime face rental values. Q1 2015 positions Midtown South Interest in Midtown South remains high, as tenants in the creative sector continue to view a real estate footprint in the market as a competitive advantage. Though several new developments slated for delivery by the end of this year could provide near-term relief to supply constraints, these projects are small in size and priced at the top of the market. Few opportunities, paired with elevated rents, could result in even cooler leasing velocity as tenants consider more affordable options elsewhere in Manhattan. Midtown n improving outlook for the financial services sector could have a direct impact on the Midtown office market and future leasing activity if employment gains continue. Longer-term, large blocks coming to market, both returning space and new construction, will temper absorption and rent gains. With a vacancy rate consistently above 11.0 percent, the potential for a near-term rent spike is low. The exception could be well-placed, top-tier Trophy-quality buildings in areas where demand remains strong and opportunities are limited. Downtown While not on the scale of 2013 and 2014, when Time Inc., GroupM, Hudson s ay and NY Mellon signed transformative leases, momentum has been strong and diversified enough to ignite new optimism for the Downtown market. Tempering this positive outlook are concerns that demand, while robust, does not justify the rapid escalations in asking rents observed in recent months and which show no sign of waning.
JLL Office Outlook New York Q1 2015 6 New York market definitions The New York City market is comprised of three major submarkets: Downtown, Midtown and Midtown South Manhattan. These markets are further divided into four, five and five submarkets, respectively. Downtown submarkets: Tribeca/City Hall, World Trade Center, Financial District, Water Street Corridor Midtown submarkets: Columbus Circle, Plaza District, Grand Central, Times Square, Penn Plaza/Garment District Midtown South submarkets: Chelsea, Hudson Square, Gramercy Park, SoHo, Greenwich Village
JLL Office Outlook New York Q1 2015 7 New York space statistics Current inventory (s.f.) Under construction (s.f.) YTD completion (s.f.) Overall net absorption (s.f.) YTD overall net absorption (s.f.) YTD overall net absorption (% of inventory) Overall vacancy Overall asking rent (gross $ p.s.f.) Downtown Financial District 38,888,338 0 0-877,060-877,060-2.3% 12.9% $51.18 Tribeca/City Hall 17,704,327 0 0-538,302-538,302-3.0% 8.0% $50.18 Water Street Corridor 23,371,590 0 0 75,894 75,894 0.3% 12.9% $48.88 World Trade Center 17,960,067 2,861,402 0-305,127-305,127-1.7% 15.6% $75.90 Downtown market totals 97,924,322 2,861,402 0-1,644,595-1,644,595-1.7% 12.5% $56.25 Midtown Columbus Circle 25,364,551 0 0 79,191 79,191 0.3% 9.6% $68.71 Grand Central 71,617,501 858,710 0 299,143 299,143 0.4% 10.1% $62.09 Penn Plaza / Garment District 45,880,842 2,173,672 0 85,081 85,081 0.2% 9.5% $60.35 Plaza District 102,377,224 0 0-565,245-565,245-0.6% 9.5% $84.63 Times Square 39,886,506 0 0-528,353-528,353-1.3% 11.5% $72.86 Midtown market totals 285,126,624 3,032,382 0-630,183-630,183-0.2% 10.0% $71.60 Midtown South Chelsea 21,618,747 412,558 0-85,856-85,856-0.4% 6.2% $58.94 Gramercy Park 21,855,176 0 0 312,497 312,497 1.4% 6.8% $68.22 Greenwich Village 5,846,306 0 0 146,727 146,727 2.5% 3.3% $62.74 Hudson Square 9,590,863 882,000 0 375,658 375,658 3.9% 6.3% $74.99 SoHo 4,811,971 18,000 0-88,354-88,354-1.8% 5.3% $61.78 Midtown South market totals 63,723,063 1,312,558 0 660,672 660,672 1.0% 6.1% $65.39 Market totals 446,774,009 7,206,342 0-1,614,106-1,614,106-0.4% 10.0% $66.74
New York Downtown JLL Office Outlook New York Q1 2015 8
JLL Office Outlook New York Q1 2015 9 New York Downtown boundaries Tribeca/City Hall South of Canal Street, west of the East River and Pearl Street, north of nn Street and east of West Street. Financial District South of nn Street, west of Pearl Street, east of the Hudson River, south of lbany Street and east of Trinity Street. World Trade Center South of Vesey Street, but inclusive of 7 World Trade Center, west of Trinity Place, north of lbany Street and east of the Hudson River. Water Street Corridor South of the rooklyn ridge, west of the East River and east of Pearl Street.
JLL Office Outlook New York Q1 2015 10 Downtown Quarter in review Muted leasing activity, compared with the flurry of large leases recorded in 2014, combined with new Trophy-quality availabilities to drive top-end Downtown vacancy and asking rents higher to begin the year. Nearly one million square feet of space formerly occupied by JPMorgan Chase and 319,644 square feet of space formerly occupied by NYMEX became available at 28 Liberty Street and 300 Vesey Street (rookfield Place), respectively, in the first quarter. The Class vacancy rate increased by 1.9 percentage points quarter-over-quarter to 13.5 percent, though it would have declined by 0.3 percentage points if not for the two aforementioned large block additions. Class rents skyrocketed to a new record high of $61.33 per square foot, which represented a 4.6 percent increase quarter-over-quarter and a 12.0 percent increase year-over-year. Removing the high-priced spaces at 28 Liberty Street and 300 Vesey Street would have resulted in a more modest 2.0 percent pricing increase from December to March. WeWork signed the only large Downtown lease of the quarter when the growing co-working space provider came to terms on a 234,879- square-foot space at 85 road Street. This transaction was the latest prominent example of how second-generation former financial services space has been repurposed in the Downtown market: 85 road Street previously served as Goldman Sachs headquarters. The secondlargest first quarter lease was a relocation from Midtown Namely Inc. leased 41,982 square feet at 195 roadway, a landmarked building that also made headlines when it landed a retail commitment by the world-famous Nobu restaurant. Sharp moves in Downtown s Class metrics in the first quarter of 2015 were largely due to the reclassification of several pre-war properties from Class to Class and the reintroduction of 375 Pearl Street to the inventory. s a result, the Class inventory increased by approximately 5.4 million square feet from 2014 to 2015, though continued conversion activity, namely the former NY Mellon headquarters at 1 Wall Street, pushed the total Downtown market stock downward. 375 Pearl Street, which had been marketed as a data center for several years, added a 713,962-square-foot block of available space to the market. This largely contributed to the 2.1 percentage point move in Class vacancy to 11.0 percent in the first quarter. Rents increased by 9.1 percent to $46.81 per square foot from December to March the highest posted since the market peak in the second quarter of 2008. Thirteen properties increased and none decreased their direct available asking rents in the first quarter, an indicator that landlords have been particularly bullish in this sector as tenants continued to get priced out of Midtown and Midtown South. Submarket boundaries map Key market indicators Q1 2015 Stock Overall net absorption 97,924,322 s.f. -1,644,595 s.f. Overall vacancy rate 12.5% verage asking rent Under construction $56.25 p.s.f. 2,861,402 s.f. Market outlook Several high-profile tenants from a range of industries are expected to close major leases by midyear, causing lower vacancy in the coming months. More large blocks, however, are also expected to impact the vacancy by year-end, including the former New York Stock Exchangeoccupied 20 road Street. While not on the scale of 2013 and 2014, when Time Inc., GroupM, Hudson s ay and NY Mellon signed transformative leases, momentum has been strong and diversified enough to ignite new optimism for the Downtown market. Tempering this positive outlook are concerns that demand, while robust, does not justify the rapid escalations in asking rents observed in recent months and which show no sign of waning.
JLL Office Outlook New York Q1 2015 11 Downtown verage rental rates (Class vs. Class ) Overall new deliveries / overall net absorption / overall vacancy rates $ p.s.f. $65 $60 $55 $50 $45 $40 $35 $30 $25 Class rental rate Class rental rate 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 s.f. in millions 4.5 3.0 1.5 0.0-1.5-3.0-4.5 New deliveries YTD Vacancy Class YTD Net absorption YTD Vacancy Class YTD 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 18% 16% 14% 12% 10% 8% 6% 4% Significant lease transactions WeWork 85 road Street Namely, Inc. 195 roadway D.F. King 48 Wall Street Samuel. Ramirez & Co. 61 roadway 234,879 s.f. 41,982 s.f. 25,650 s.f. 24,000 s.f. Large availabilities 4 World Trade Center Class 873,771 s.f. 180 Maiden Lane Class 745,993 s.f. 375 Pearl Street Class 713,962 s.f. 28 Liberty Street Class 579,880 s.f. Recent sales transactions 180 Maiden Lane 1,078,751 s.f. 123 William Street 545,000 s.f. Class $436 p.s.f. Class $464 p.s.f.
New York Midtown JLL Office Outlook New York Q1 2015 12
JLL Office Outlook New York Q1 2015 13 New York Midtown boundaries Columbus Circle South of West 66 th Street, west of Central Park West and venue of the mericas, north of West 50 th Street, east of the Hudson River. Plaza District South of East 65 th Street, west of the East River, north of 47 th Street, east of Sixth venue. Grand Central South of East 47 th Street, north of East 30 th Street, east of Fifth venue. Times Square South of West 50 th Street, west of Sixth venue, north of West 40 th Street, east of the Hudson River. Penn Plaza / Garment South of 40 th Street, west of Fifth venue, north of 30 th Street, east of the Hudson River.
JLL Office Outlook New York Q1 2015 14 Midtown Quarter in review Vacancy rose in Midtown in the first quarter despite strong leasing activity, particularly in financial services, as large blocks were added to the market most of which had been anticipated. In the Plaza District, media company Time Inc. placed 554,524 square feet of sublease space on the market at 1271 venue of the mericas, prior to its eventual move to rookfield Place in 2018. RXR Realty placed 609,056 square feet on the market at the under-renovation 75 Rockefeller Plaza. New product at 7 ryant Park and 10 Hudson Yards, slated for completion this year, will bring the first new inventory to the Penn Plaza/Garment District submarket in over two decades. The overall vacancy increased to 10.0 percent from 9.7 percent at year-end. s a result of the new product in the Penn Plaza/Garment District, the submarket s Class average rent index rose 36.0 percent to $73.77 per square foot in the first quarter and the Class vacancy rate increased to 10.8 percent from 7.6 percent at year-end. The submarket is typically the most affordable in Midtown due to its high concentration of pre-war and Class buildings. s of the end of March, the Penn Plaza/Garment District was a 15.7 percent discount to the overall Midtown average, a significant drop from the 25.9 percent discount recorded at year-end 2014. The remainder of the Midtown Class market experienced more modest rent growth, increasing only 1.7 percent year-to-date to $78.42 per square foot. Year-over-year, the average Midtown Class asking rent is up 2.8 percent. Eight large-block leases, those totaling 100,000 square feet or greater, were signed during the first quarter in Midtown compared to only five in the same period of last year. ll but three were located on the East Side, reversing at least temporarily what had been a trend of westward migration. The increase in East Side activity is the result of leases by large financial services tenants, which have historically been attracted to the more established submarkets of Grand Central and the Plaza District. The FIRE (financial services, insurance and real estate) sector accounted for 11 of the top 20 Midtown leases in the first quarter compared to only five of the top 20 in all of 2014. However, Publicis Groupe, part of the TMI (technology, advertising, media and information) sector, signed the largest lease of the quarter at 1675 roadway for 506,009 square feet. In the second largest lease of the quarter, MetLife expanded within its namesake tower at 200 Park venue. The expansion was driven by consolidation from other New York locations including 1095 venue of the mericas, 277 Park venue and One MetLife Plaza in Long Island City. PJT Partners will considerably enlarge its New York footprint when it moves to just under 100,000 square feet at 280 Park venue from only 13,000 square feet at 40 West 57th Street. The lease highlights the increasing demand from midsize financial firms. Market outlook The large block leasing momentum experienced during the first quarter in Midtown will continue as a few leases are expected to close in the coming weeks. n improving outlook for the financial services sector could have a direct impact on the Midtown office market and future leasing activity if employment gains continue. Interest among major Submarket boundaries map Key market indicators Q1 2015 Stock Overall net absorption 285,126,624 s.f. -630,183 s.f. Overall vacancy rate 10.0% verage asking rent Under construction $71.60 p.s.f. 3,032,382 s.f. tenants from a range of industries remains strong at Hudson Yards, the massive mixed-use development zone on Midtown s West Side. Significant commitments are expected by year-end. Longer-term, large blocks coming to market, both returning space and new construction, will temper absorption and rent gains. The past cycle, where Class space flooded the market, notably on venue of the mericas, has however shown that demand for prime Midtown product is resilient and that space can be leased more quickly than many had expected. ut with a Class vacancy rate consistently above 10.0 percent, the potential for a nearterm rent spike is low. The exception could be well-placed, top-tier Trophy-quality buildings in areas where demand remains strong and opportunities are limited.
JLL Office Outlook New York Q1 2015 15 Midtown verage rental rates (Class vs. Class ) Overall new deliveries / overall net absorption / overall vacancy rates $ p.s.f. $100 $90 $80 $70 $60 Class rental rate Class rental rate s.f. in millions 8.0 4.0 New deliveries YTD Vacancy Class YTD Net absorption YTD Vacancy Class YTD 16% 12% $50 $40 $30 $20 $10 $0 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 0.0-4.0-8.0-12.0 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 8% 4% 0% Significant lease transactions Publicis Groupe 1675 roadway MetLife 200 Park venue loomberg LP 919 Third venue Fortress Investment Group 1345 venue of the mericas Markit 5 Manhattan West 506,009 s.f. 443,107 s.f. 254,556 s.f. 200,030 s.f. 140,000 s.f. Large availabilities 4 Times Square Class 817,252 s.f. 75 Rockefeller Plaza Class 565,877 s.f. 285 Madison venue Class 445,135 s.f. 1633 roadway Class 415,467 s.f. Recent sales transactions 1095 venue of the mericas 1,036,534 s.f. 11 Times Square (45% interest) 1,016,406 s.f. Class $2,122 p.s.f. Class $1,377 p.s.f.
New York Midtown South JLL Office Outlook New York Q1 2015 16
JLL Office Outlook New York Q1 2015 17 New York Midtown South boundaries Chelsea South of 29 th Street, west of Fifth venue, north of 14 th Street and east of the Hudson River. Hudson Square South of 14 th Street, west of venue of the mericas, north of Canal Street and east of the Hudson River. Gramercy Park South of 29 th Street, west of the East River, north of 14 th Street and east of Fifth venue. SoHo South of Houston Street, west of the East River, north of Canal Street, and east of venue of the mericas. Greenwich Village North of Houston Street, south of 14 th Street, west of the East River and east of Sixth venue.
JLL Office Outlook New York Q1 2015 18 Midtown South Quarter in review The Midtown South office market continued to strengthen in the first quarter of 2015 as creative tenants dominated leasing activity, drove vacancy lower and further pressured asking rents to new highs. Limitations on locations for that demand continued, especially for bigger tenants, however, as the number of large blocks available in the market those exceeding 100,000 square feet stood at just eight as of the end of the quarter. sking rents reflected the market s tight situation: at $65.39 per square foot, the overall asking rent reached a new peak after increasing 7.6 percent from year-end 2014. Submarket boundaries map Leasing volume for the first quarter of 2015 was light in comparison to the same period of 2014. In fact, this year s velocity reached just 37.1 percent of last year s first quarter total. Only one lease exceeding 100,000 square feet was signed compared to four in the first quarter of 2014. In the largest transaction thus far this year, WebMD subleased 152,670 square feet at 395 Hudson Street. WebMD will move from 111 Eighth venue, where building-owner Google has been vacating tenants to accommodate its own rapid expansion. Subleases drove leasing velocity, accounting for 52.9 percent of the total square feet leased, compared to 2.1 percent in the first quarter of last year. TMI (technology, advertising, media and information) tenants continued to squeeze out other industries in Midtown South, accounting for 46.9 percent of total square feet leased in 2015 compared to 35.4 percent in first quarter 2014. Contrastingly, FIRE (financial services, insurance, real estate) tenants market share shrunk from 42.9 percent in the first quarter of 2014 to zero this quarter. Only one large availability was added to Midtown South this quarter: 181,950 square feet came on the market at 50 West 23rd Street. Several new office development projects along the High Line in the Meatpacking District that are slated for delivery later this year and in 2016 were also added to Midtown South s Class inventory, including the introduction of 88,588 square feet at 860 Washington Street and 130,628 square feet at 125 West 25th Street. Despite these new additions and the upgrading of several buildings to Class from Class over the course of the first quarter, Class vacancy dropped 11.6 percent year-over-year to 6.1 percent. Facebook s 79,998-square-foot expansion at 770 roadway in Greenwich Village strongly contributed to this result. Overall vacancy in Midtown South tightened to 6.1 percent from 6.9 percent at the end of 2014. Moreover, net absorption for the quarter was positive, at 660,672 square feet, as three out of five submarkets posted positive absorption. s the market continued to compress, owners escalated Class asking rents to new records. t $79.97 per square foot, the Midtown South Class rental average is the most expensive in Manhattan. Year-over-year, Class rents grew 7.2 percent as higher-priced buildings in Hudson Square and SoHo were added to Class inventory. Class rents increased 560 basis points to $55.18 per square foot, year-over-year. Key market indicators Q1 2015 Stock Overall net absorption 63,723,063 s.f. 660,672 s.f. Overall vacancy rate 6.1% verage asking rent Under construction $65.39 p.s.f. 1,300,234 s.f. Market outlook Interest in Midtown South remains high, as tenants in the creative sector continue to view a real estate footprint in the market as a competitive advantage. The market remains on course to further tighten its overall availability, limiting options. Though several new developments slated for delivery by the end of this year could provide near-term relief to supply constraints, these projects are small in size and priced at the top of the market. Few opportunities, paired with elevated rents, could result in even cooler leasing velocity as tenants consider more affordable options elsewhere in Manhattan.
JLL Office Outlook New York Q1 2015 19 Midtown South verage rental rates (Class vs. Class ) Overall new deliveries / overall net absorption / overall vacancy rates $ p.s.f. $90 $80 $70 $60 Class rental rate Class rental rate s.f. in millions 1.0 0.5 0.0 New deliveries YTD Vacancy Class YTD Net absorption YTD Vacancy Class YTD 12% 10% 8% $50 $40 $30-0.5-1.0 6% 4% 2% $20 2008 2009 2010 2011 2012 2013 2014 Q1 2015-1.5 2008 2009 2010 2011 2012 2013 2014 Q1 2015 0% Significant lease transactions WebMD 395 Hudson Street Facebook 770 roadway TED Conferences 330 Hudson Street Criteo 387 Park venue South 152,670 s.f. 79,998 s.f. 47,436 s.f. 40,238 s.f. Large availabilities 225 Park venue South Class 134,774 s.f. 233 Spring Street Class 132,191 s.f. 50 West 23 rd Street Class 123,625 s.f. 125 West 25 th Street Class 122,800 s.f. Recent sales transactions 837 Washington Street 63,131 s.f. 623 roadway 37,869 s.f. Class $3,010 p.s.f. Class $1,479 p.s.f.
JLL Office Outlook New York Q1 2015 ppendix New York appendix Statistics Contiguous space New construction and map Glossary
JLL New York Office Outlook Q1 2015 ppendix Class Inventory (s.f.) Total net absorption (s.f.) YTD total net absorption (s.f.) YTD total net Direct vacancy absorption (% (%) of stock) Total vacancy (%) verage asking rent ($ p.s.f.) YTD completions (s.f.) Under construction (s.f.) Financial District Totals 38,888,338-877,060-877,060-2.3% 11.8% 12.9% $51.18 0 0 Tribeca/City Hall Totals 17,704,327-538,302-538,302-3.0% 7.6% 8.0% $50.18 0 0 Water Street Corridor Totals 23,371,590 75,894 75,894 0.3% 9.4% 12.9% $48.88 0 0 World Trade Center Totals 17,960,067-305,127-305,127-1.7% 15.3% 15.6% $75.90 0 2,861,402 Downtown Totals 97,924,322-1,644,595-1,644,595-1.7% 11.1% 12.5% $56.25 0 2,861,402 Columbus Circle Totals 25,364,551 79,191 79,191 0.3% 8.2% 9.6% $68.71 0 0 Grand Central Totals 71,617,501 299,143 299,143 0.4% 8.6% 10.1% $62.09 0 858,710 Penn Plaza/Garment Totals 45,880,842 85,081 85,081 0.2% 7.2% 9.5% $60.35 0 2,173,672 Plaza District Totals 102,377,224-565,245-565,245-0.6% 7.1% 9.5% $84.63 0 0 Times Square Totals 39,886,506-528,353-528,353-1.3% 9.1% 11.5% $72.86 0 0 Midtown Totals 285,126,624-630,183-630,183-0.2% 7.9% 10.0% $71.60 0 3,032,382 Chelsea Totals 21,618,747-85,856-85,856-0.4% 5.1% 6.2% $58.94 0 412,558 Gramercy Park Totals 21,855,176 312,497 312,497 1.4% 6.1% 6.8% $68.22 0 0 Greenwich Village Totals 5,846,306 146,727 146,727 2.5% 2.9% 3.3% $62.74 0 0 Hudson Square Totals 9,590,863 375,658 375,658 3.9% 5.4% 6.3% $74.99 0 882,000 SoHo Totals 4,811,971-88,354-88,354-1.8% 3.3% 5.3% $61.78 0 18,000 Midtown South Totals 63,723,063 660,672 660,672 1.0% 5.2% 6.1% $65.39 0 1,312,558 New York City Totals 446,774,009-1,614,106-1,614,106-0.4% 8.2% 10.0% $66.74 0 7,206,342 Financial District 14,244,606-1,014,259-1,014,259-7.1% 13.7% 14.3% $59.31 0 0 Tribeca/City Hall 4,355,865 0 0 0.0% 0.8% 0.8% $59.00 0 0 Water Street Corridor 21,336,304 65,139 65,139 0.3% 10.1% 13.9% $48.95 0 0 World Trade Center 17,960,067-305,127-305,127-1.7% 15.3% 15.6% $75.90 0 2,861,402 Downtown 57,896,842-1,254,247-1,254,247-2.2% 11.9% 13.5% $61.33 0 2,861,402 Columbus Circle 17,319,246 110,567 110,567 0.6% 9.7% 11.1% $73.59 0 0 Grand Central 37,158,542 234,327 234,327 0.6% 10.6% 12.2% $66.37 0 858,710 Penn Plaza/Garment 17,512,646 282,329 282,329 1.6% 7.4% 10.8% $73.77 0 2,173,672 Plaza District 84,877,266-599,146-599,146-0.7% 7.6% 10.2% $87.59 0 0 Times Square 31,593,973-171,327-171,327-0.5% 9.2% 11.1% $77.43 0 0 Midtown 188,461,673-143,250-143,250-0.1% 8.6% 10.9% $78.42 0 3,032,382 Chelsea 8,620,544 69,846 69,846 0.8% 3.6% 4.3% $76.28 0 412,558 Gramercy Park 10,681,791 359,454 359,454 3.4% 7.7% 8.1% $75.98 0 0 Greenwich Village 1,915,423 112,709 112,709 5.9% 0.3% 1.2% $59.12 0 0 Hudson Square 3,884,577 159,661 159,661 4.1% 6.1% 6.7% $105.27 0 882,000 SoHo 891,959-29,707-29,707-3.3% 7.5% 9.7% $69.12 0 18,000 Midtown South 25,994,294 671,963 671,963 2.6% 5.5% 6.1% $79.97 0 1,312,558 New York City 272,352,809-725,534-725,534-0.3% 9.0% 11.0% $73.90 0 7,206,342 Financial District 24,643,732 137,199 137,199 0.6% 10.7% 12.0% $45.36 0 0 Tribeca/City Hall 13,348,462-538,302-538,302-4.0% 9.8% 10.3% $49.94 0 0 Water Street Corridor 2,035,286 10,755 10,755 0.5% 2.3% 2.4% $44.62 0 0 World Trade Center 0 0 0 0.0% 0.0% 0.0% $0.00 0 0 Downtown 40,027,480-390,348-390,348-1.0% 10.0% 11.0% $46.81 0 0 Columbus Circle 8,045,305-31,376-31,376-0.4% 5.0% 6.3% $47.89 0 0 Grand Central 34,458,959 64,816 64,816 0.2% 6.4% 7.9% $54.98 0 0 Penn Plaza/Garment 28,368,196-197,248-197,248-0.7% 7.0% 8.7% $49.99 0 0 Plaza District 17,499,958 33,901 33,901 0.2% 4.8% 6.2% $57.36 0 0 Times Square 8,292,533-357,026-357,026-4.3% 8.9% 13.0% $57.65 0 0 Midtown 96,664,951-486,933-486,933-0.5% 6.4% 8.1% $53.56 0 0 Chelsea 12,998,203-155,702-155,702-1.2% 6.2% 7.6% $52.13 0 0 Gramercy Park 11,173,385-46,957-46,957-0.4% 4.6% 5.5% $57.30 0 0 Greenwich Village 3,930,883 34,018 34,018 0.9% 4.3% 4.3% $63.24 0 0 Hudson Square 5,706,286 215,997 215,997 3.8% 4.9% 6.1% $54.28 0 0 SoHo 3,920,012-58,647-58,647-1.5% 2.4% 4.3% $58.65 0 0 Midtown South 37,728,769-11,291-11,291 0.0% 4.9% 6.1% $55.18 0 0 New York City 174,421,200-888,572-888,572-0.5% 6.9% 8.3% $51.77 0 0
JLL Office Outlook New York Q1 2015 ppendix Midtown buildings with large contiguous blocks of space 47 locks 9,182,656 s.f. 4 Times Square 817,252 s.f. 75 Rockefeller Plaza 565,877 s.f. 285 Madison venue 445,135 s.f. 1633 roadway 415,467 s.f. 1271 venue of the mericas 303,142 s.f. 10 Hudson Yards 294,714 s.f. 55 West 46 th Street 290,866 s.f. 1133 venue of the mericas 285,872 s.f. 9 West 57 th Street 247,500 s.f. 237 Park venue 230,566 s.f. 1633 roadway 212,122 s.f. 1501 roadway 203,245 s.f. 1601-1611 roadway 196,522 s.f. 335 Madison venue 190,824 s.f. 1675 roadway 181,114 s.f. One Park venue 177,267 s.f. 622 Third venue 171,932 s.f. 300 Park venue 170,195 s.f. 1700 roadway 166,487 s.f. 11 Times Square 163,305 s.f. 280 Park venue 162,329 s.f. 1333 roadway 162,005 s.f. 1271 venue of the mericas 155,514 s.f. 919 Third venue 152,935 s.f. 405 Lexington venue 145,813 s.f. 450 West 33 rd Street 139,332 s.f. 250 West 55 th Street 133,025 s.f. 1411 roadway 132,543 s.f. 1211 venue of the mericas 127,672 s.f. 1440 roadway 127,525 s.f. 855 venue of the mericas 122,500 s.f. 114 West 47 th Street 121,918 s.f. 237 Park venue 121,812 s.f. 463 Seventh venue 120,801 s.f. 350 Park venue 118,984 s.f. 299 Park venue 117,996 s.f. 1185 venue of the mericas 117,112 s.f. 685 Third venue 115,681 s.f. 885 Second venue 115,485 s.f. 31 West 52 nd Street 115,230 s.f. 10 East 53 rd Street 109,609 s.f. 1251 venue of the mericas 106,500 s.f. 112 West 34 th Street 103,965 s.f. 530 Fifth venue 101,942 s.f. 335 Madison venue 101,635 s.f. 1301 venue of the mericas 180,689 s.f. 9 West 57 th Street 122,700 s.f. Contiguous blocks greater than 100,000 square feet
JLL Office Outlook New York Q1 2015 ppendix Midtown South buildings with large contiguous blocks of space 8 locks: 959,140 s.f. 225 Park venue South 134,774 s.f. 233 Spring Street 132,191 s.f. 50 West 23 rd Street 123,625 s.f. 125 West 25 th Street 122,800 s.f. 75 Varick Street 121,240 s.f. 860 Washington Street 114,000 s.f. 75 Varick Street 110,510 s.f. 261-271 Eleventh venue 100,000 s.f. Contiguous blocks greater than 100,000 square feet
JLL Office Outlook New York Q1 2015 ppendix Downtown buildings with large contiguous blocks of space 23 locks: 6,668,511 s.f. 4 World Trade Center 873,771 s.f. 180 Maiden Lane 745,993 s.f. 375 Pearl Street 713,962 s.f. 28 Liberty Street 579,880 s.f. 1 World Trade Center 574,801 s.f. 195 roadway 415,127 s.f. 300 Vesey Street 319,644 s.f. 1 State Street 269,861 s.f. 1 Liberty Plaza 263,509 s.f. 1 World Trade Center 191,608 s.f. 115 roadway 183,140 s.f. 140 roadway 159,755 s.f. 1 Liberty Plaza 156,230 s.f. 1 World Trade Center 149,334 s.f. 28 Liberty Street 139,972 s.f. Contiguous blocks greater than 100,000 square feet 28 Liberty Street 138,984 s.f. 17 attery Place North 121,189 s.f. 60 Hudson Street 120,000 s.f. 85 road Street 115,221 s.f. 85 road Street 112,789 s.f. 233 roadway 112,392 s.f. 120 roadway 107,282 s.f. 1 New York Plaza 104,067 s.f.
JLL Office Outlook New York Q1 2015 ppendix Market CD under construction Market/building Class Developer/owner R Pre-leased Major tenants signed Net rent Delivery date CD Downtown Three World Trade Center Trophy Silverstein Properties 2,861,402 s.f. 18.0% GroupM N/ 2018 Midtown 10 Hudson Yards Trophy Related Companies 1,700,000 s.f. 77.5% Coach, L Oreal, SP N/ 2016 390 Madison venue L&L Holding Company 858,710 s.f. 0.0% N/ N/ 2016 7 ryant Park Trophy Hines 473,672 s.f. 40.0% ank of China N/ 2015 Midtown South One SoHo Square Rockpoint Group 768,000 s.f. 0.0% N/ N/ 2016 510 West 22 nd Street lbanese Organization 175,000 s.f. 0.0% N/ N/ TD 125 West 25 th Street Waterbridge Capital 138,000 s.f. 0.0% N/ N/ 2015 860 Washington Street Romanoff Equities 114,000 s.f. 0.0% N/ N/ 2015 430 West 15 th Street tlas Capital Group 99,558 s.f. 100.0% Palantir Technologies N/ 2015 135 owery First merican International ank 18,000 s.f. 0.0% N/ N/ 2015 CD totals 7,206,342 s.f. 34.5%
JLL Office Outlook New York Q1 2015 ppendix Manhattan CD select sales Midtown South 837 Washington Street Midtown 1095 venue of the mericas Class Class R 63,131 s.f. R 1,036,534 s.f. uyer TI-CREF uyer Ivanhoe Cambridge Seller Thor Equities/Taconic Investment Partners Seller lackstone Price per s.f. $3,010 Date sold March 2015 Price per s.f. $2,122 Date sold January 2015 Midtown South 180 Maiden Lane Midtown 11 Times Square (45% interest) Class Class R 1,078,751 s.f. R 1,016,406 s.f. uyer Murray Hill/Clarion Partners Seller SL Green/The Moinian Group Price per s.f. $436 Date sold January 2015 uyer Norges ank Seller SJP Properties/Prudential Price per s.f. $1,377 Date sold February 2015
Glossary JLL Office Outlook New York Q1 2015 ppendix
JLL Office Outlook New York Q1 2015 ppendix Common real estate terms ctive requirements: Tenants actively seeking space in the market verage asking rent: Quoted at a gross price exclusive of tenant electricity based on a weighted average of available space vailable space: Existing space that is being actively marketed for immediate or future occupancy, including both direct and sublease space uild-out: The cost of configuring and finishing new space in accordance with a tenant s specifications uild to suit: method of leasing property whereby the landlord builds a new building in accordance with a tenant s specifications Capital improvement: ny major physical development or redevelopment to a property that extends the life of the property. Examples include upgrading the elevators, replacement of the roof and renovations of the lobby Class: uilding classification system broken down by Trophy, Class, and C buildings. Location, building amenities, mechanical / HVC systems, age of building and tenant roster are some of the components that determine an office building's class Concessions: Cash expended by the landlord in the form of rent abatement, build-out allowance or other payments to induce the tenant to sign a lease. The level of concessions fluctuates with supply and demand conditions in the market and is up for negotiation in a similar fashion to rental rates Contiguous space: djoining office space Delivered buildings: uildings that have completed construction and are ready for tenant build-out. May or may not yet have a Certificate of Occupancy Direct rent: Rents quoted directly from the landlord on vacant space Effective rent: The rental rate actually achieved by the landlord or tenant after deducting the value of concessions from the base rental rate paid; usually expressed as an average rate over the term of the lease Face rental rate: The asking or nominal rental rate published by the landlord Gross leases: The quoted rents include tax and operating costs (property taxes, insurance and maintenance expenses) Hard cost: The cost of actually constructing property improvements Indirect (soft) costs: Development costs other than material and labor costs, which are directly related to the construction of improvements, including administrative and office expenses, commissions, architectural, engineering and financing costs Lease: legally binding agreement whereby the owner of real property (i.e., landlord) gives the right of possession to another (i.e., tenant) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent) Leased space: Existing space under contract, regardless of if it is occupied; also includes subleased space NNN leases: The quoted rents do not include tax and operating costs (property taxes, insurance and maintenance expenses) Net absorption: Net change in occupied space between two dates measured as square footage. (i.e. a measure of the total square feet leased over a period of time taking into consideration office space vacated in the same area during the same period) Occupied space: Total supply minus available space Operating expense: The actual costs associated with operating a property, including maintenance, repairs, management, utilities, taxes and insurance Preleased space: Space that has been leased prior to construction completion date or Certificate of Occupancy date
JLL Office Outlook New York Q1 2015 ppendix Proposed construction: uildings are proposed when permits are in place, site is being actively marketed but significant base building has not yet commenced. Proposed asking rents are not included in market calculations Shell space: The interior condition of the tenant's usable square footage when it is without improvements or finishes. Shell construction typically denotes the floor, windows, walls and roof of an enclosed premises and may include some HVC, electrical or plumbing improvements but not demising walls or interior space partitioning Sublease space: Leased space that is being actively marketed by the tenant under contract to another party Tenant at will: One who holds possession of premises by permission of the owner or landlord, but without agreement for a fixed term Tenant improvement allowance (TI): Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling, and may be paid for by the landlord, the tenant, or shared Total supply: The entire area of an office building comprised of both usable space and an allocated portion of the common area Turn key project: project in which the developer is responsible for the total completion of a building (including interior design and construction) or demised premises to the customized requirements of a future owner or tenant Under construction: uildings are under construction when significant work is underway from ground up development (i.e. steel is going up) Under renovation / rehab: uildings are under renovation / rehab when significant base building renovation is underway Vacant space: Direct existing space being actively marketed for immediate occupancy as of the survey date, not including sublease space
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