THE OFFICE MARKET REPORT

LEE NYC OFFICE 3Q 2018

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2 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC OFFICE Third Quarter METRICS | 2018 | New York Office Market

New York Office Metrics Inventory Under Net Leasing Availability Vacancy Direct Sublet Overall Market Measured Construction Absorption Volume Rate Rate Asking Rent Asking Rent Asking Rent (SF) (SF) (SF) | (YTD) (SF) | (YTD) Midtown 224,664,049 2,818,704 11.8% ↑ 7.7% ↓ 1,906,039 11,341,345 $82.06 $64.08 $79.53

Grand Central 72,008,497 1,732,955 10.8% ↓ 7.9% ↓ 1,384,718 3,761,617 $76.40 $61.35 $74.79

Midtown East 25,675,290 290,505 13.0% ↑ 6.6% ↑ (130,144) 1,519,133 $78.58 $59.01 $76.30

Midtown West 20,963,179 90,000 8.1% ↓ 4.8% ↓ (272) 520,542 $76.82 $63.01 $73.15

Plaza District 38,449,692 705,244 14.8% ↑ 11.5% ↑ 322,417 1,776,713 $112.87 $82.69 $110.66

Rockefeller 29,048,420 - 7.9% ↑ 5.1% ↓ 378,909 1,693,914 $83.23 $72.00 $82.60

Times Square 38,518,971 - 15.0% ↑ 7.5% ↓ (49,589) 2,069,426 $73.14 $58.77 $66.76

Midtown South 155,362,963 13,479,812 9.9% ↓ 6.1% − 1,990,851 9,749,326 $75.48 $60.23 $68.70

Chelsea 19,920,413 263,835 9.5% ↓ 6.3% ↓ 689,530 935,569 $65.32 $50.28 $60.39

Gramercy & Flatiron 31,527,675 73,323 7.6% ↓ 3.6% ↑ 245,150 2,373,702 $71.49 $65.19 $69.59

Hudson Square & 21,756,443 193,484 15.5% ↓ 8.7% ↑ 183,141 869,653 $85.47 $69.76 $82.50

Murray Hill 13,388,866 - 9.8% ↓ 6.7% ↑ (29,816) 620,862 $61.67 $55.24 $58.70

Penn Station & Garment 55,927,026 12,639,885 9.4% ↓ 6.2% ↓ 764,546 3,783,508 $59.33 $49.01 $56.36

SoHo & NoHo 12,842,540 309,285 8.9% ↓ 5.8% ↓ 138,300 1,166,032 $73.97 $60.45 $71.43

Downtown 107,510,856 19,412 13.1% − 10.0% ↓ 2,084,406 3,741,167 $62.91 $45.34 $61.29

City Hall & Insurance District 26,493,657 19,412 8.5% − 3.0% ↓ 491,525 379,033 $55.41 $44.25 $53.02

Financial District 43,487,310 - 13.4% ↑ 9.6% − 115,467 1,508,701 $61.43 $48.34 $58.76

World Trade Center 37,529,889 - 16.1% ↓ 15.4% ↓ 1,477,414 1,853,433 $63.51 $49.57 $63.14

Manhattan 487,537,868 16,317,928 11.5% ↓ 7.7% ↓ 5,981,296 24,831,838 $73.42 $62.31 $71.27

Arrows are indicative of quarterly changes.

3 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC ANALYSIS Third Quarter | 2018 | New York Office Market

Manhattan direct asking rents in the third quarter averaged out to $73.42, down Manhattan Asking Rent and Availability Rate $0.63 from the second quarter and $0.82 from a year ago. Leasing volume $78.00 12.0% continues to be strong with approximately 25 million square feet leased year-to- date, causing a decrease in both the available and vacant supply of office space $76.00 11.5% below 65th Street. The availability rate decreased slightly by 10 basis points to $74.00 11.5% (also the five-year average in Manhattan) from 11.6% over the quarter. With 11.0% net absorption positive for the third consecutive quarter, vacancy is at the lowest $72.00 it's been since 2009, when it was averaging 7.2%. Although still distant from $70.00 10.5% reaching such an annual average, the third quarter finished with a vacancy of 7.7%, and we forecast this to continue to remain the same or decrease end-of-year. $68.00 10.0% Nine of the twelve submarkets saw an availability rate decrease, with all six submarkets comprising Midtown South (with a quarterly decrease of 90 basis points 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 from 10.8% to 9.9%). Large blocks of space were signed by coworking giants Asking Rent Availability Rate 5Y Rate Avg. WeWork and Spaces spread across the Penn Station-Garment, Grand Central, Gramercy-Flatiron, Midtown West, Murray Hill, Chelsea, and Midtown East submarkets. Approximately five to six million square feet need to be Midtown Asking Rent and Availability leased in the next three months, to sustain the current availability rate of 11.5% or $88.00 12.5% have it slightly decrease. The expected delivery of by Related $86.00 Companies and 441 by Cove Property Group in the fourth quarter is 12.0% expected to add approximately 850,000 square feet onto the market. $84.00 11.5% There is currently 16.3 million square feet of office construction below 65th Street; $82.00 with 46 buildings in some planning or construction phase, we're looking at 29.1 11.0% $80.00 million square feet of future availability. 10.5% $78.00 TAMI giant GroupM Worldwide signed a 513,098 square foot deal at Silverstein $76.00 10.0% Properties recently delivered , taking an additional nine floors. The media company initially signed a lease in early 2016 for approximately 170,000 square feet, which increases their footprint to 684,593 square feet and bringing the 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 occupancy rate at the class A property to 43%. Additionally, Silicon Valley's LinkedIn Asking Rent Availability Rate 5Y Rate Avg. Corporation renewed and expanded their operations of approximately 313,000 square feet at the Building (350 ). FIRE tenants such as Evercore Partners and Bessemer Trust Company led Midtown in two of the top Midtown South Asking Rent and Availability three largest leases signed. Investment banking company, Evercore Partners signed $80.00 12.0% a 10-year renewal and expansion on 282,673 square feet at Plaza (55 10.0% East ), making it the largest lease signing by a FIRE tenant and the $75.00 largest lease signing in the Plaza District, in the third quarter. Bessemer Trust 8.0% Company signed a 15-year new lease at Rockefeller's 1271 Avenue of the Americas $70.00 6.0% for 239,000 square feet across seven floors, with a starting base rent in the low 4.0% $100s. $65.00 2.0% Nearby at 666 Fifth Avenue, Brookfield Asset Management purchased a 99-year $60.00 0.0% leasehold on a 1.45 million square foot office condominium from Kushner Companies for approximately $1.3 billion or $887 per square foot at a 4.9% capitilization rate. Brookfield paid up the entire lease through the 99 year term. 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 Additionally in the office investment sales market, Normandy Real Estate Partners in Asking Rent Availability Rate 5Y Rate Avg. joint venture with L&L Holding and JPMorgan Chase (on behalf of CalSTRS), are in the process of closing on the Terminal Stores (224 Twelfth Avenue) building for $900 million or $853 per square foot. Downtown Asking Rent and Availability $64.00 15.0% $63.00 $62.00 10.0% $61.00 ↓ ↓ ↓ $60.00 5.0% AVAILABILITY VACANCY ASKING RENTS $59.00 $58.00 0.0% ↓ ↑ ↑ DIRECT AVAILABILITY SUBLET AVAILABILITY SUBLET ASKING RENTS 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3

Asking Rent Availability Rate 5Y Rate Avg.

4 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC StartingSTARTING Base Rents BASE RENTS

Midtown Starting Base Rents $120.00

$100.00

$80.00

$60.00

$40.00

$20.00

$0.00 Midtown Grand Central Midtown East Midtown West Plaza District Rockefeller Times Square 2018 Q3 $76.15 $67.90 $68.39 $74.17 $98.91 $77.80 $59.32 2018 Q2 $76.77 $73.22 $71.00 $74.33 $95.71 $77.60 $67.46 2017 Q3 $72.26 $67.17 $63.36 $75.28 $81.14 $76.25 $66.73

Midtown South Starting Base Rents $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Midtown Gramercy- Hudson Sq.- Penn Station- Chelsea Murray Hill SoHo-NoHo South Flatiron Tribeca Garment 2018 Q3 $64.10 $54.86 $70.60 $62.60 $57.93 $58.56 $67.17 2018 Q2 $63.94 $61.84 $69.18 $73.13 $55.75 $57.17 $71.21 2017 Q3 $57.98 $57.77 $62.19 $70.30 $54.30 $54.88 $64.36

Downtown Starting Base Rents $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Downtown Hall-Insurance Dist. Financial District World Trade Center 2018 Q3 $54.00 $52.13 $55.09 $53.36 2018 Q2 $57.38 $58.06 $54.98 $58.89 2017 Q3 $51.31 $53.43 $48.93 $54.25

5 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC FreeFREE Months RENTS

Midtown Free Rent Average

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2018 Q3 2018 Q2 2017 Q3

Midtown South Free Rent Average

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6 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC MIDTOWNMidtown Asking Rents Availability Vacancy Net Absorption Leasing Activity Sublet Availability $82.06 11.8% 7.7% 1,433,681 3,408,938 4,616,336 ↑/Q ↓/Y ↑/Q ↑/Y ↓/Q ↓/Y ↑/Q ↑/Y ↓/Q ↑/Y ↑/Q ↑/Y

• Availability continues to remain high and is on par to reach 12% • Net absorption positively increased 174% quarter-to-quarter • Two of the top three largest deals signed by banking tenants • Leasing volume continues to stay strong • Vacancy lowest in five years • Asking rents grew at approximately 2% over the quarter. • Bessemer Trust fills out the top of 1271 Avenue of the Americas • Financial advisory giant with plans to relocate to

Midtown Asking Rent Trend Leasing Activity Trend $88.00 8,000 $86.00 $83.35

Average $84.00 6,000 $82.00 $80.00 4,000 $78.00 Thousands 2,000 $76.00

15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 -

Asking Rent Trend Average Leasing Activity 5Y Avg. 10Y Avg.

Vacancy Trend Availability Trend 9.0% 12.5%

8.5% 12.0% 8.4% Average 11.5% 8.0% 11.0% 11.6% Average 7.5% 10.5% 7.0% 10.0% 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3

Vacancy Rate 5Y Avg. Availability Rate 5Y Avg.

Potential Available Direct Space Delivery Forecast Net Absorption Five Year Trend 2,500 2,000 2,132 2,000 1,500 1,000 1,500 917 807 795 500 1,000 661 0 500 Thousands (500) 0 Thousands (SF) Thousands 1 - 3 4 - 6 7 - 9 10 - 12 13 - 15 (1,000) Mos. Mos. Mos. Mos. Mos. (1,500)

Top Notable Signed Leases Pfizer Evercore Partners Inc. 219 East 55 East 52nd Street 350,000 SF 282,673 SF Floors: 1 - 10 Floors: 20-21, 23, 35-38, 42-44 New 5 Year Lease New 15 Year Lease

7 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC MIDTOWNMidtown South SOUTH Asking Rents Availability Vacancy Net Absorption Leasing Activity Sublet Availability $75.48 9.9% 6.1% 367,932 2,747,322 3,646,487 ↓/Q ↑/Y ↓/Q ↓/Y ↔/Q ↓/Y ↓/Q ↓/Y ↓/Q ↓/Y ↓/Q ↓/Y • All six Midtown South submarkets availability decreases • Vacancy remained stagnant at 6.1% & continues to be lowest in years • Availability rate finally drops below 10%, where it's been at since 2016 • Midtown South asking rents have increased 12.4% year-over-year • Construction activity continues in five of the six submarkets (Murray Hill) • WeWork & Spaces continued to grow their presence across the market • TAMI industry continues leasing demand with LinkedIn renewing & expanding at

Midtown South Asking Rent Trend Leasing Activity Trend $80.00 8,000

$75.00 6,000 $69.44 $70.00 Average 4,000

$65.00 Thousands 2,000 $60.00

15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 -

Asking Rent Trend Average Leasing Activity 5Y Avg. 10Y Avg.

Vacancy Trend Availability Trend 8.0% 12.0% 7.5% 11.0% 7.0% 9.7% Average 6.5% Average 10.0% 6.5% 9.0% 6.0% 5.5% 8.0% 5.0% 7.0% 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3

Vacancy Rate 5Y Avg. Availability Rate 5Y Avg.

Potential Available Direct Space Delivery Forecast Net Absorption Five Year Trend

2,500 2,301 1,500 2,000 1,000

1,500 500 1,000 838 570 0

257 Thousands 500 172 (500) 0 Thousands (SF) Thousands (1,000) 1 - 3 4 - 6 7 - 9 10 - 12 13 - 15 Mos. Mos. Mos. Mos. Mos. (1,500)

Top Notable Signed Leases LinkedIn Corporation WeWork Companies, Inc. 350 Fifth Avenue 21 Penn Plaza 312,947 SF 229,009 SF Renewal & Expansion 20 Year New Lease

8 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC DOWNTOWNDowntown Asking Rents Availability Vacancy Net Absorption Leasing Activity Sublet Availability $62.91 13.1% 10.0% 565,180 900,791 2,396,943 ↓/Q ↓/Y ↔/Q ↑/Y ↓/Q ↑/Y ↓/Q ↑/Y ↓/Q ↓/Y ↑/Q ↑/Y • Largest lease of the quarter at 3 WTC with GroupM Worldwide for 513,098 SF • City Hall & Insurance District vacancy (3%) lowest of all NY submarkets • Positive net absorption for four consecutive quarters • Vacancy increased 5.3% Y/Y due to available supply in WTC area • Asking rents have been decreasing for two consecutive quarters • Availability would have been back at 2015 rates, if not for leasing at 3 WTC • WeWork talks fall apart for 200,000 SF space at 1 WTC • The London Stock Exchange relocates to

Downtown Asking Rent Trend Leasing Activity Trend $64.00 4,000 $62.44 $63.00 Average $62.00 3,000 $61.00 $60.00 2,000 $59.00 Thousands 1,000 $58.00

15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 -

Asking Rent Trend Average Leasing Activity 5Y Avg. 10Y Avg.

Vacancy Trend Availability Trend 15.0% 17.0% 13.0% 15.0% 13.3% Average 11.0% 13.0% 10.6% 9.0% Average 11.0% 7.0% 9.0% 5.0% 7.0% 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3

Vacancy Rate 5Y Avg. Availability Rate 5Y Avg.

Potential Available Direct Space Delivery Forecast Net Absorption Five Year Trend 2,000 4,000 1,528 1,500 3,000

2,000 1,000 1,000 379 399

500 Thousands 81 98 0 0 Thousands (SF) Thousands (1,000) 1 - 3 4 - 6 7 - 9 10 - 12 13 - 15 Mos. Mos. Mos. Mos. Mos. (2,000)

Top Notable Signed Leases GroupM Worldwide School Construction Authority 3 World Trade Center 110 William Street 513,098 SF 85,000 SF Floors: 11-12, 14-16, 28-31 Floors: 14-16 New Lease 15 Year New Lease

9 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC LEASESThird Quarter | 2018 | New York Office Market Notable Third Quarter Leases

Tenant Submarket Office Class $ SF Floors Type Years • Group M Worldwide World Trade Center 3 World Trade Center A Pvt. 513,098 11-12, 14-16, 28-31 New Pvt. • Pfizer Inc. Grand Central 219 East 42nd Street A Pvt. 350,000 1-10 New 5 • LinkedIn Corporation Penn Station-Garment 350 Fifth Pvt. 312,947 Pvt. Ren. & Exp. Pvt. • Evercore Partners Inc. Plaza District 55 East 52nd Street A Pvt. 282,673 20-21, 23, 35-38, 42-44 Ren. & Exp. 10 • Bessemer Trust Company Rockefeller 1271 Avenue of the Americas A $100s 239,000 42-48 New 15 • WeWork Companies, Inc. Penn Station-Garment 21 Penn Plaza B $80s 229,009 4-6, 9-10, 12, 14-17 New 20 • Spell Inc. Hudson Sq. | Tribeca 2 Gansevoort Street C Pvt. 181,550 Pvt. New Pvt. • Convene Grand Central 530 Fifth Avenue A Pvt. 116,055 7-10 New 5 • Spaces (IWG) Grand Central 405 A $60s 109,364 7-9 New 15 • Spaces (IWG) Gramercy | Flatiron 287 Park Avenue South B $70s 101,256 2-9 New 15 • ICBC (Ind. & Com. Bank of China) Times Square 1185 Avenue of the Americas A $70s 98,594 16-18, 42 New Pvt. • Spaces (IWG) Midtown West 787 Eleventh Pvt. 97,442 6-7 New Pvt. • WeWork Companies, Inc. Gramercy | Flatiron 35 East 21st Street B Pvt. 97,000 1-10 New 12 • KBRA Holdings, Inc. (Kroll Bond) Midtown East 805 A $50s 95,200 26-29 Sublease 8 • Carlyle Group, The (GMS Finance) Grand Central 1 A $100s 94,365 36-38 New 15 • Duff & Phelps Plaza District 55 East 52nd Street A $80s 90,975 15-17 New 16 • Golub Grand Central 200 Park Avenue A $80s 89,000 24-25 New 10 • School Construction Authority City Hall | Insurance 110 William Street A $50s 85,000 14-16 New 15 • WeWork Companies, Inc. Murray Hill 450-460 Park Avenue South B $60s 83,250 2-3, 6, 8, 10-12 New 15 • WeWork Companies, Inc. Chelsea 511 West 25th Street B $70s 80,463 2-9 New 15 • WeWork Companies, Inc. Times Square 1619 Broadway B Pvt. 76,144 5-7, 10-11 New 15 • London Stock Exchange PLC Financial District 28 Liberty Street A $70s 74,822 57-58 New 15 • Signature Bank Penn Station-Garment 1400 Broadway B $60s 71,788 6-7 New 16 • WeWork Companies, Inc. Midtown East 880 Third Avenue A $50s 69,659 5-6, 9-13 New 15 • Broadcast Music, Inc. World Trade Center 7 World Trade Center A $80s 61,390 30-31 New 16 • King & Spalding Times Square 1185 Avenue of the Americas A $60s 58,728 36-37 New 7.5 • Perkins Coie LLP Times Square 1155 Avenue of the Americas A $80s 57,971 20-23 New 15

$ (Price reflects the base rent) Leases confirmed to have been signed in prior quarters but recently announced are not included in this list. For office comp reports and comprehensive consultation on market knowledge and analytics, or more information on any of these transactions; please consult a Lee & Associates NYC broker.

2018 Year-to-Date Leasing Volume 4,000,000 3,500,000

3,000,000 2,500,000 2,000,000 1,500,000

Square Feet Feet Square Leased 1,000,000 500,000 0

10 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC CONSTRUCTION Third Quarter | 2018 | New York Office Market

Construction Pipeline Featuring the top fifteen projects either under construction, fully renovating and proposed.

50 Hudson Yards 66 Hudson Boulevard 2,900,000 SF 2,850,000 SF 2,800,000 SF 2,600,000 SF 2,500,000 SF Proposed Construction Begins 2019 Delivering 2022 Q4 Construction Begins 2019 Delivering 2019 Q2 Under Demolition Related Companies Tishman Speyer Silverstein Properties Related Companies JPMorgan Chase Hudson Yards Hudson Yards World Trade Center Hudson Yards Grand Central

One | Two 55 Hudson Yards 511 West 35th Street 2,216,609 SF | 1,950,140 SF 1,900,000 SF 1,732,955 SF 1,556,136 SF 950,000 SF Delivering 2019 Q4 | 2023 Construction Begins 2019 Delivering 2020 Q3 Delivering 2018 Q4 Construction Begins 2019 Brookfield Properties Moinian Group SL Green Realty Corp. Related Companies Spitzer Enterprises Hudson Yards Hudson Yards Grand Central Hudson Yards Hudson Yards

550 390 Ninth Ave (Farley Bldg) 441 Ninth Avenue 57 Eleventh Avenue (SuperPier) 850,000 SF 767,000 SF 705,244 SF 700,000 SF 263,835 SF Full Renovation for 2019 Delivering 2020 Q2 Delivering 2019 Delivery end of 2018 Delivering 2019 Q1 Olayan America Vornado & Related L&L Holding Company Cove Property Group RXR Realty | PANYNJ Plaza District Penn Station Plaza District Penn Station Chelsea

46 16.3M SF 10 29.1M SF Currently of Future Buildings in Under Buildings the Pipeline Construction Proposed Availability

11 MANHATTAN TREND TRACKER 3RD QUARTER 2018 LEE & ASSOCIATES NYC Henry Abramov Research Director [email protected] Carly Farkas Research Associate [email protected] James Wacht President [email protected]

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