3Q16 NEW YORK CITY OFFICE MARKET OVERVIEW TABLE OF CONTENTS 3 Executive Summary 22 Manhattan Development Overview 23 Commercial Development Pipeline 4 Manhattan Office Market Overview 24 Commercial Development Horizon Map 25 Manhattan Development Overview 5 Leasing Activity by Market 26 Boutique Development Overview 6 Key Leasing Activity Metrics 7 Industries Driving Demand: Employment and Leasing Trends Industries Driving Demand: 3Q16 Leasing and Tenants in the Brooklyn and Long Island City 8 Market 27 Office Market Overview 9 Composition of Tech Leasing 28 Brooklyn Office Development Map 10 Manhattan Submarket Comparison 29 Brooklyn Office Development Overview 11 Asking Rent Trends 30 Brooklyn’s Changing Inventory 12 Taking and Net Effective Rent Trends 31 Brooklyn Market Trends 13 Taking Rent Corridor and Submarket Comparisons 32 Brooklyn Submarket Snapshot 14 Concessions Analysis: Work Amount 33 Asking Rent Comparison 15 Concessions Analysis: Free Rent 34 Long Island City Trends 16 Triple-Digit Taking Rent Assets 35 Long Island City Submarket Snapshot 17 Manhattan Top-Tier Trends 18 Midtown South Top-Tier Trends 19 Midtown Deal Composition 20 Midtown South Deal Composition 21 Downtown Deal Composition 2 EXECUTIVE SUMMARY Leasing A drop in relocation activity was balanced by an uptick in renewals, particularly among large deals in Midtown. Overall leasing activity in Midtown South fell below the prior Activity year and ten-year averages. Industry FIRE activity increased in the third quarter and TAMI activity declined for the third consecutive quarter, while the types of tech tenants that were active continued to Growth diversify from recent years. Asking and Asking rents continued to increase, though at a slower rate than the annual average during this market cycle. The slow-down was generally more pronounced in taking Taking Rents rents. Net Effective Net effective rental rates have flattened as landlords are giving more substantial Rents concession packages including an increased amount of work allowance. Premier Despite overall drops in rent growth, activity at the top end of the market remained on Space par with 2015 in Midtown, while dropping in Midtown South. New Approximately 29 million square feet of development projects are in the development pipeline in Manhattan. Of this total, 15 million square feet is scheduled for delivery by Supply 2020. Borough Brooklyn and Long Island City market conditions remained unchanged in the third quarter with rents holding steady, a slight drop in availability, and consistency in the Trends development pipeline. 3 3Q16 MANHATTAN OFFICE MARKET OVERVIEW LEASING ACTIVITY BY MARKET Key Renewals compensated for a dip in relocation activity, resulting in stable leasing for overall Takeaway Manhattan. Manhattan (MSF) Midtown (MSF) 35 21 30 18 27.7 MSF 25 15 14.9 MSF 20 12 15 9 10 6 5 3 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Relocations Renewals Average First 3 Quarters Velocity Relocations Renewals Average First 3 Quarters Velocity Midtown South (MSF) Downtown (MSF) 11 8 10 7 9 6 8 7.9 MSF 7 5 4.9 MSF 6 4 5 4 3 3 2 2 1 1 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Relocations Renewals Average First 3 Quarters Velocity Relocations Renewals Average First 3 Quarters Velocity Source: Newmark Grubb Knight Frank Research 5 KEY LEASING ACTIVITY METRICS 2015 versus 2016 Key Renewal activity is on the rise, while space is Takeaway sitting on the market longer compared to 2015. Renewals versus Relocations Average Time on Market for Space Available (Months) 30 20 Renewals Renewals & & Expansions 1Q-3Q Expansions 1Q-3Q 36% 43% 2015 2016 27.4 Relocations Relocations 64% 57% 10 20.9 0 2015 2016 YTD Source: Newmark Grubb Knight Frank Research 6 INDUSTRIES DRIVING DEMAND Key Employment growth has flattened in 2016. This translated to leasing for TAMI and Professional Takeaway Services while FIRE increased. Industries Driving Employment Leasing by Industry 650,000 50% 600,000 40% 44% 550,000 500,000 35% 30% 34% 450,000 30% 29% 27% 400,000 23% 20% 350,000 20% 20% 18% 17% 16% 300,000 10% 250,000 200,000 0% 2010 2011 2012 2013 2014 2015 2016 2013 2014 2015 2016 YTD Professional Services FIRE TAMI Professional Services FIRE TAMI Source: Newmark Grubb Knight Frank Research, New York State Department of Labor 7 INDUSTRIES DRIVING DEMAND Key TAMI leasing has declined in recent quarters, while leasing among FIRE tenants continued Takeaway with an increase in renewals. 3Q16 Leasing by Industry Tenants in the Market 100% Other 9% Other Other Nonprofits 15% 90% Other 16% 3% 24% TAMI 80% Nonprofits 26% TAMI 10% Retail & 27% 70% TAMI Apparel TAMI 13% 7% 24% 60% Prof Svcs 9% TOTAL SF Prof Svcs IN THE MARKET 50% 20% Prof Svcs 40% 20% Prof Svcs 20% 30% FIRE 52% FIRE FIRE 20% 41% FIRE 32% 32% 10% 0% Midtown Midtown South Downtown Source: Newmark Grubb Knight Frank Research 8 COMPOSITION OF TECH LEASING Key While overall tech and creative leasing dropped in 2016, the composition of tech industries active Takeaway in the market has shifted. 2014 2015 2016 Activity Highlights: Marketing dominated with 18% Activity Highlights: Digital media led leasing in Activity Highlights: Infotech surged in 2016, ahead of its of leasing in 2014, but dropped to 11% in 2015 and 2015 at 18%, up from 2014 and 2016. share in the prior two years and all other tech 3% in 2016. subindustries in 2016. Major Transactions Include: Major Transactions Include: Major Transactions Include: Google Sony Amazon Bloomberg AOL PayPal Salesforce Gilt Groupe Bleacher Report Twitter Buzzfeed Yelp Pandora TED Grovo Side Walk Labs 1% 1% 2% 2% 3% 3% 1% 5% 5% 6% 12% 7% 12% 12% 7% 13% 4% 5% 9% 18% 5% 1% 11% 32% 8% 23% 18% 1% 9% 14% 15% 5% 2% 3% 9% 7% 3% 2% 3% 1% Biotech Cloud Computing Digital Media E-Commerce Edtech Fintech Gaming Health Tech Infotech Marketing Search Engine Social Media Telecommunications Transportation Source: Newmark Grubb Knight Frank Research 9 MANHATTAN SUBMARKET COMPARISON Key Rental rate growth has begun to slow across Takeaway nearly all of Manhattan’s submarkets. Availability Average Asking Submarket Rent Growth Comparison Rate (%) Rent ($/SF) Manhattan 11.3% $ 76.74 8% Eastside 5% Midtown 11.9% $ 82.84 13% Far West Side 4% Eastside 9.9% $ 74.79 7% Far West Side 17.5% $ 85.19 Grand Central 4% 7% Grand Central 14.8% $ 78.13 Murray Hill 1% 8% Murray Hill 10.1% $ 61.75 Park Avenue 13% Park Avenue 12.7% $ 104.75 10% Penn Station 5% Penn Station 8.3% $ 64.93 9% Plaza District -8% Plaza District 13.3% $ 110.91 7% Sixth Ave/Rock Ctr. 13.2% $ 87.60 Sixth Ave/Rock Ctr. 0% 6% Times Square 10.0% $ 80.55 Times Square 0% Times Square South 10.4% $ 61.64 9% Times Square South 1% Westside 9.1% $ 70.28 9% Westside 2% Midtown South 8.0% $ 72.60 12% Chelsea 7.6% $ 66.23 Chelsea 7% 10% East Village 0.6% $ 48.00 East Village -1% Flatiron/Union Square 8.0% $ 71.22 9% Flatiron/Union Square 5% Hudson Square/Meatpacking 11.7% $ 84.02 15% Hudson Square/Meatpacking 1% Soho/Noho 5.2% $ 72.64 9% Soho/Noho 6% Downtown 12.3% $ 62.40 8% Downtown East 11% Downtown East 11.8% $ 57.70 8% Downtown West 12.7% $ 67.84 Downtown West 8% 8% Tribeca/City Hall 14.1% $ 65.43 Tribeca/City Hall 25% Growth Per Annum Since 2010 (%) Growth Past 12 Months (%) Source: Newmark Grubb Knight Frank Research 10 ASKING RENT TRENDS Average Asking Rent by Market ($/SF) Key Year-over-year asking rent growth pulled back from the 6-year average in Midtown and Midtown Takeaway South. Downtown pushed slightly ahead. Average Annual Change Change since Since Trough (2010) 2015 $95 MT 6.4% 3.9% $89.02 MTS 10.3% 3.7% $82.84 $85 DT 8.1% 9.7% $75 $72.60 $65 $62.40 $58.93 $57.02 $55 $45 $51.56 $40.33 $35 $39.09 $25 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 Midtown Midtown South Downtown Source: Newmark Grubb Knight Frank Research 11 TAKING AND NET EFFECTIVE RENT TRENDS Average net effective rents for direct deals with >5-year terms Key Taking rent growth has slowed with the exception of Midtown, while net effective rents Takeaway have flattened year-over-year. Base Taking Rent Trends NER Rent Trends $80 $80 $75 $76.03 $75 $70 $70 $67.19 $65 $65 $65.23 $60 $60 $60.24 $55 $55 $52.61 $50 $50 $45 $45 $42.65 $40 $40 $35 $35 $30 $30 2010 2011 2012 2013 2014 2015 2016 YTD 2010 2011 2012 2013 2014 2015 2016 YTD Midtown Midtown South Downtown Midtown Midtown South Downtown Average Annual Change Since Change Since 2015 Average Annual Change Since Change Since 2015 Trough (2009-2010) Trough (2009-2010) MT 6.1% 7.6% MT 5.1% 1.6% MTS 9.8% 1.0% MTS 8.4% 1.6% DT 7.2% 3.7% DT 4.9% 1.1% *Midtown 2016 YTD averages are impacted on a weighted basis by the Citadel deal at 425 Park. Including Source: Newmark Grubb Knight Frank Research that deal, the average taking rent is pushed to $79.40/SF and average NER is pushed to $67.96/SF. 12 TAKING RENT CORRIDOR AND SUBMARKET COMPARISONS Average taking rents for direct deals with >5-year terms Average Base Average Base Submarket Market Corridor Market Taking Rent ($/SF) Taking Rent ($/SF) Park Avenue* MT $124.56 Park Avenue* MT $107.91 Upper Fifth Avenue MT $93.36 Plaza District MT $89.23 (47th - 65th Streets) Hudson Square/ East 50s MT $78.54 MTS $84.65 Meatpacking Avenue of the MT $77.16 Far West Side MT $84.13 Americas West 50s MT $76.57 Sixth Ave/Rock Ctr.