Office Outlook

Manhattan. August 2011

Leasing wrap up
Midtown Manhattan Class A vacancy fell to 11.3 percent in August, marking the fifth straight month of declines. Despite what is typically the slowest leasing month of the year, there were four transactions in excess of 50,000 square feet completed. The largest new lease was signed by the American Society of Mechanical Engineers (ASME) at Two Park Avenue for 99,262 square feet. The largest renewal of the month was Rothstein Kass at 1350 Avenue of the Americas for 88,049 square feet. Class A average asking rents surpassed $69.00 for the first time since September 2009, finishing at $69.02 per square foot. Prices have risen by nearly 6.0 percent since the beginning of the year. Trophy rents also finished higher and are up by 11.5 percent since January. Since most trophy properties are located within the Plaza District submarket, rents there rose to $78.01 in August from $76.43 in July. (Continued on page 2.) Manhattan Class A asking rates
$100.00 $80.00 $60.00 $40.00 $20.00 $0.00 Midtown Midtown South Downtown Manhattan Aug-09 Aug-10 Aug-11

Capital markets snapshot

Manhattan Class A vacancy rates
Aug-09 Aug-10 Aug-11

15.0%

10.0%

5.0%

0.0% Midtown Midtown South Downtown Manhattan

The CMBS markets continued their spread widening over August. Spreads are now roughly 320 basis points compared to 200 at the beginning of July. Commercial property is closely linked to economic cycles and stagnating unemployment numbers and revised downward forecasts for GDP growth are without question impacting CMBS pricing. In addition, investors are concerned about European debt and negative news on that front is putting short-term pressure on spreads. The result will be lower new CMBS issuance in 2011 than anticipated in the beginning of the year. Wall Street banks are more hesitant to price new loans in the current environment as the turmoil in the markets has made it difficult to gauge profits in future bond sales. It is not expected that Wall Street banks will exit the business and in fact should return to normal lending levels once the volatility subsides. Partially offsetting the increase in spreads has been the decrease in Treasury rates. The 10-Year Treasury began July at 3.18% and ended August at 2.22%, a decrease of 96 basis points. (Continued on page 2.)

Office Outlook Manhattan August 2011 2

Leasing wrap up
(Continued from page 1.) Midtown South Manhattan After rising slightly in July, the overall vacancy rate for Midtown South was down in August, finishing at 6.8 percent. The tight vacancy rate keeps it among one of the lowest in the nation. Space here is highly sought after by creative and technology firms. August leases included deals by Buddy Media, which signed a 62,000-square-feet sublease at 155 Avenue of the Americas and SecondMarket Holdings for 50,000 square feet at 636 Avenue of the Americas. Average asking rents for both Class A and B space were off slightly in August to $48.21 per square foot and $41.75, respectively. Despite the decline pricing is higher in Midtown South than for comparable space in neighboring Downtown. Asking rents are likely to move higher over the course of the fourth quarter as demand here remains strong. Downtown Manhattan The Class A vacancy rate finished August at 9.2 percent, up slightly from 9.1 percent in July. Leases by Royal Bank of Canada at Three World Financial Center, Forex Capital Tradings sublease at 55 Water Street and International Business Times sublease at Seven Hanover Square helped to keep vacancy nearly stationary. While the market is currently at the higher end of equilibrium, large amounts of space are expected to come to market within the next year and will likely push vacancy into the double-digits. Class A rents finished at $41.92 per square foot in August, up from $41.72 in July. Pricing for Class A space Downtown has not changed much over the last 12 months. Rental rates in July 2010 were $41.16 per square foot and have fluctuated between that mark and their current level for much of the year. Average asking rents are likely to remain flat until the end of the year with increases in 2012 as higherquality space comes onto the market.

Capital markets snapshot

(Continued from page 1.) In the property sales market, July reported $12.5 billion in sales, in-line with the monthly average for the first five months of this year. June sales of $24.8 billion were an outlier and helped in large part by Blackstones $9.2 billion acquisition of the Centro retail portfolio which closed in June. For the year-to-date period ending July 2011, sales were $97.1 billion compared to $49.0 billion for the same period in 2010, an increase of 98.2%. Given the long lead-time in property transactions, the July numbers, for the most part, reflect deals that were negotiated 3060 days prior. Property sales have also been buoyed by the significant increase in the availability of inexpensive financing. Overall commercial/multifamily lending activity increased 107% year-over-year and 52% quarter-over-quarter. CMBS conduits loan volume increased 638% year-over-year and 210% quarter-overquarter. A decline in the availability of financing as a result of the capital markets turmoil will have a direct impact on property sales. Thus, it will be important to watch future property sales figures closely to see the impact of the recent volatility in the markets.

Office Outlook Manhattan August 2011 3

Submarket statistics Inventory Midtown Columbus Circle Grand Central Penn Plaza/Garment Plaza District Times Square Total Midtown South Chelsea Gramercy Park Greenwich Village Hudson Square Soho Total Downtown City Hall/Insurance Financial District World Trade Center Total Total Manhattan 7,653,938 33,587,105 20,610,726 61,851,769 243,472,624 5,003,734 6,705,649 1,382,200 1,715,528 144,000 14,951,111 15,486,693 33,528,615 11,276,594 79,156,962 27,220,880 166,669,744

Class A Vacancy rate 12.9% 14.4% 10.8% 10.8% 8.4% 11.3% 10.1% 0.8% 6.7% 17.0% 0.0% 6.3% 8.6% 12.3% 4.4% 9.2% 10.5% Asking rent $58.30 $59.32 $61.66 $78.04 $70.44 $69.02 $43.51 $36.90 $64.09 $53.00 $0.00 $48.21 $35.98 $41.22 $51.72 $41.92 $62.31 Inventory

Class B Vacancy Asking rate rent 9.8% 11.6% 14.3% 10.5% 8.5% 11.8% 5.0% 7.4% 7.9% 9.0% 6.0% 6.7% 8.0% 15.4% 16.3% 13.4% 10.8% $51.49 $46.89 $40.96 $53.31 $49.96 Inventory

Overall Vacancy rate 11.9% 13.0% 13.4% 10.8% 8.4% 11.5% 6.2% 5.4% 7.5% 10.8% 5.8% 6.6% 8.2% 13.0% 9.4% 10.7% 10.6% Asking rent $56.81 $53.97 $45.66 $73.97 $64.86 $60.53 $41.10 $41.26 $47.60 $46.87 $45.07 $43.31 $33.78 $39.30 $41.70 $39.16 $54.03

7,698,114 34,348,149 31,595,015 19,200,844 10,378,591 103,220,713 15,972,394 15,709,646 3,629,701 6,219,734 4,475,605 46,007,080 12,062,677 9,979,830 14,743,761 36,786,268 186,014,061

23,184,807 67,876,764 42,871,609 98,357,806 37,599,471

$46.02 269,890,457 $39.49 $41.47 $41.85 $43.65 $45.07 $41.75 $32.06 $34.04 $38.57 $35.88 20,976,128 22,415,295 5,011,901 7,935,262 4,619,605 60,958,191 19,716,615 43,566,935 35,354,487 98,638,037

$42.81 429,486,685

Closed leasing transactions Size (s.f.) 112,597 99,262 95,000 Tenant Royal Bank of Canada ASME CUNY Address Three World Financial Center Two Park Avenue 205 Hudson Street Submarket World Trade Center Grand Central Hudson Square Type Expansion New Lease New Lease

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