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ManhattanOffice Q4 2017

MARKETBEAT

EconomyThe New York City economy was fairly inconsistent in 2017 as total employment fell in the first quarter, increased in the second quarter, declined again in the third only to rise in the fourth. By November 2017, payroll employment in New York City was 53,200 jobs higher than at the end of 2016. Office-using employment increased by 18,600 jobs in 2017, led by growth in the financial services sector, which added 12,700 jobs in the first 11 months of the year and is on pace to record its strongest growth in more than a decade and possibly the best in more than 25 years. Professional and business services gained 11,700 jobs through November, while information services lost 5,800 jobs. Overall, the local economy remains on a solid footing heading into 2018.

Market OverviewManhattan office leasing increased sharply in 2017, outperforming 2016’s activity by 16.0% with 30.5 million square feet (msf) of new leases transacted, the second highest level in 17 years. Fourth quarter activity totaled 7.0 msf, 11.7% above the 6.3 msf quarterly historical average. More than 9.0 msf of renewals were transacted in 2017, bringing the 2017 leasing total to 39.6 msf—the second highest level in the last 15 years. Financial services was the primary driver of activity in 2017, accounting for 28.8% of new leasing activity greater than 10,000 sf, up from 21.9% in 2016. The leasing activity surge was fueled by an all-time high of 22 leases signed greater than 250,000 sf up from only 10 in 2016.

Sublease space increased by 1.5 msf since the end of 2016 but strong leasing and an 8.8% reduction of direct available space pushed Manhattan’s overall vacancy down by 40 basis points (bps) year-over-year to 8.9%, marking the first time in six quarters that vacancy fell below 9.0%. All three major markets posted single-digit Class A vacancy rates simultaneously for the first time since early 2009, with Downtown’s Class A vacancy ending 2017 at its lowest level in nearly five years. Healthy leasing brought 2017’s overall absorption to register positive 7.4 million square feet (msf), the second highest annual total on record, only behind the 10.9 msf absorbed in 2014.

MANHATTAN OFFICE

Overall Vacancy

Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE

Market Indicators (Overall, All Classes) Q4 16 Q4 17 12-Month

Forecast

Vacancy 9.3% 8.9%

Net Absorption (sf) 2.6M 7.4M

Under Construction (sf) 12.5M 13.3M

Average Asking Rent* $72.82 $72.25

Economic Indicators*

Q4 16 Q4 17 12-Month Forecast

New York City Employment 4.39M 4.44M

New York City Unemployment 4.9% 4.7%

U.S. Unemployment 4.7% 4.1%

*Rental rates reflect gross asking $psf/year

*Average of first two months of Q4 2017

$50

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0

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Net Absorption, SF Asking Rent, $ PSF

5%

7%

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11%

13%

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Historical Average = 9.5%

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ManhattanOffice Q4 2017

MARKETBEAT

Manhattan Leases 250,000+ SF2017 REACHES AN ALL-TIME HIGH

Manhattan Available Space Year-Over-Year Percent Change SUBLEASE SPACE CLIMBS AS DIRECT SPACE DECLINES IN ALL MARKETS

Outlook

• More than 5.7 msf of new construction is slated for delivery in 2018, the highest amount of office product to hit the Manhattan market since 1986

• With several large deals in the pipeline, the Manhattan office market is well-positioned for continued growth in 2018

• New construction will likely push vacancy higher while remaining within equilibrium

Midtown fourth quarter new leasing reached nearly 4.9 msf, bringing the 2017 total to a 23-year high of 19.7 msf. There were 27 new leases transacted exceeding 100,000 sf, totaling 6.5 msf—42.2% of which occurred in Penn Station’s Far West Side properties. Despite November’s delivery of 787 Eleventh Avenue, strong December leasing activity lowered Midtown’s overall vacancy rate by 10 bps this quarter to finish 2017 at 9.5%. Five of the nine Midtown submarkets registered a quarterly decline in vacancy with Penn Station down by 90 bps to 6.4%, a 320-bp decline from 2016. Available sublease space increased 24.4% since year-end 2016 to 4.1 msf, but dipped 2.2% since the second quarter. Sixth Avenue/Rock Center accounted for 42.8% of Midtown’s positive absorption, largely due to Bank of America leasing 470,451 sf at 1100 and 1114 Avenue of the Americas. Overall asking rents declined 0.9% during the quarter to $76.94 psf, partially due to leasing of higher-priced space and are down 1.8% since year-end 2016.

Midtown South leasing reached 5.0 msf in 2017, 2.1% above the 4.9 msf transacted in 2016. Overall vacancy dropped 40 bps during the quarter to 6.9%, primarily attributed to nine new leases signed between 25,000 to 100,000 sf. Healthy leasing combined with an absence of large block additions contributed to positive fourth quarter absorption in all five Midtown South submarkets, bringing 2017’s annual absorption to 705,931 sf. Midtown South overall asking rents fell 2.8% in 2017 to $68.87 psf, largely due to price reductions on more than 500,000 sf of space.

The Downtown office market’s leasing activity spiked in 2017, surpassing 2016’s activity by 63.6%. Overall absorption registered positive 2.1 msf—largely due to strong leasing in the World Trade and Financial East submarkets. Overall vacancy remained flat during the fourth quarter at 8.7% but dipped 150 bps from 10.2% in 2016, as the amount of direct available space on the market dropped 17.9% to 6.7 msf. Vacancy in four of the six Downtown submarkets declined at least 90 bps over the past year, with World Trade vacancy decreasing by 410 bps to 10.0%, triggered by five new lease transactions exceeding 100,000 sf that totaled 1.0 msf. Downtown Class A vacancy dipped to 9.5% in the fourth quarter, the first quarter since 2013 that vacancy fell below 10.0%. Higher-priced spaces leased during the fourth quarter pushed overall asking rents down 0.3% to $62.76 psf, but remain 0.7% higher than 2016.

-8.8% -5.5% -6.8%-17.9%

+31.2%+24.4%

+77.5%

+23.2%

-40.0%

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0.0%

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Manhattan Midtown Midtown South Downtown

Direct Sublease

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911

6

1214

10 10

1513

10

22

0

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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ManhattanOffice Q4 2017

MARKETBEAT

SUBMARKET INVENTORY (SF)

SUBLET VACANT

(SF)

DIRECT VACANT

(SF)

OVERALL VACANCY

RATE

CURRENT QTR OVERALL NET

ABSORPTION (SF)

YTD OVERALL NET ABSORPTION

(SF)

YTD LEASING ACTIVITY

(SF)

UNDER CNSTR

(SF)

OVERALL AVERAGE ASKING RENT

(ALL CLASSES)*

OVERALL AVERAGE ASKING RENT (CLASS A)*

East Side/UN 21,551,123 239,355 1,384,930 7.5% 134,166 -333,611 803,575 0 $73.40 $74.41

Grand Central 42,763,951 606,955 4,039,966 10.9% 32,479 683,445 3,194,320 2,576,630 $70.11 $73.57

Madison/Fifth 24,645,391 342,432 2,571,634 11.8% 174,921 -7,124 1,376,020 0 $99.15 $105.44

Murray Hill 14,232,299 295,552 727,036 7.2% -25,349 117,949 805,838 0 $58.61 $63.47

Park Avenue 21,279,326 661,375 1,745,929 11.3% -132,652 50,821 1,532,953 728,700 $90.55 $90.55

Penn Station 16,095,431 270,583 758,432 6.4% 172,770 837,361 3,852,600 6,181,327 $60.05 $66.91

Sixth Avenue/Rock Center 41,486,983 715,515 3,277,049 9.6% 852,698 1,980,892 3,272,459 0 $85.37 $86.68

Times Square South 30,209,473 591,372 2,319,908 9.6% -856 420,681 3,089,636 0 $59.88 $76.03

West Side 30,885,865 377,930 2,107,038 8.0% 289,782 874,986 1,791,528 0 $72.99 $77.52

MIDTOWN TOTALS 243,149,842 4,101,069 18,931,922 9.5% 1,497,959 4,625,400 19,718,929 9,486,657 $76.94 $83.57

Chelsea 15,320,867 389,072 788,033 7.7% 121,872 -9,413 986,679 808,396 $59.09 $88.70

Greenwich/NoHo 4,882,853 38,322 109,398 3.0% 120,435 68,614 251,194 0 $77.43 $115.00

Hudson Square/West Village 11,054,152 150,083 690,978 7.6% 87,847 249,010 938,176 272,342 $80.52 $88.70

Madison/Union Square 32,119,100 436,743 1,601,731 6.3% 199,887 486,500 2,575,812 0 $67.66 $78.74

SoHo 3,940,710 91,031 367,476 11.6% 21,213 -88,780 271,963 83,709 $73.62 N/A

MIDTOWN SOUTH TOTALS 67,317,682 1,105,251 3,557,616 6.9% 551,254 705,931 5,023,824 1,164,447 $68.87 $84.99

City Hall 7,690,533 1,284 426,038 5.6% 11,226 216,637 425,422 0 $53.29 $52.64

Financial East 34,276,501 232,703 2,561,278 8.2% 181,630 975,699 2,177,155 48,077 $56.91 $59.57

Financial West 5,986,809 81,482 867,734 15.9% -239,668 -252,534 472,038 0 $59.45 $51.31

Insurance 13,106,300 260,999 741,114 7.6% -26,292 231,399 812,255 110,661 $55.54 $58.81

TriBeCa 5,124,468 32,774 257,126 5.7% 0 -127,173 125,675 0 $87.72 $92.21

World Trade 22,331,586 364,881 1,858,239 10.0% 235,067 1,037,702 1,762,845 2,491,861  $64.43 $65.48

DOWNTOWN TOTALS 88,516,197 974,123 6,711,529 8.7% 161,963 2,081,730 5,775,390 2,650,549 $60.23 $62.76

MANHATTAN TOTALS 398,983,721 6,180,443 29,201,067 8.9% 2,211,176 7,413,061 30.518,143 13,301,653 $72.25 $79.05 *Rental rates reflect gross asking $psf/year

Key Lease Transactions Q4 2017

PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET

One Manhattan West 675,062 Ernst & Young (EY) New Lease Penn Station

787 Seventh Avenue 347,672 Sidley Austin Renewal* Sixth Avenue/Rock Center

1100 Avenue of the Americas 343,026 Bank of America New Lease Sixth Avenue/Rock Center

*Renewals not included in leasing statistics

Key Sales Transactions Q4 2017

PROPERTY SF SELLER / BUYER PRICE / $PSF SUBMARKET

One Worldwide Plaza* 2,055,583 New York REIT/ RXR Realty and SL Green Realty Corp $840.1M/$839 West Side

1515 Broadway 1,750,000 SL Green Realty Corp/ Allianz Real Estate of America $585.0M/$1,114 West Side

1440 Broadway 747,576 NY REIT/CIM Group $520.0M/$696 Times Square South

*48.7% interest

Completed Construction Q4 2017

PROPERTY BUILDING OFFICE RSF OWNER/DEVELOPER MAJOR TENANT SUBMARKET

787 Eleventh Avenue 241,064 Pershing Square Capital Management Georgetown Company Pershing Square Capital Management West Side

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ManhattanOffice Q4 2017

MARKETBEAT

About Cushman & WakefieldCushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 60 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.

Copyright © 2018 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

OFFICE SUBMARKETS MANHATTAN

For more information, contact:

Richard Persichetti Regional Research Director Tri-State and NortheastTel: +1 212 954 0917richard.persichetti@cushwake.com

Lori AlbertResearch DirectorTel: +1 212 841 7876lori.albert@cushwake.com Cushman & Wakefield1290 Avenue of the AmericasNew York, NY 10104cushmanwakefield.com

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