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News release

New York

Jones Lang LaSalle Report Shows Economic Downturn Continues to Impact Manhattan Trophy Rents

Firm projects trophy rents could decline to levels not seen since 2004-2005


NEW YORK, August 6, 2009 — Jones Lang LaSalle’s spring 2009 Skyline Review indicated that the economic downturn has continued to significantly impact average asking rental rates for Manhattan’s trophy-quality buildings. In the past six months, New York’s top-end office buildings have seen average asking rental rates drop 18.7 percent, falling to $83.66 per square foot in the spring 2009 Skyline Review, from $102.85 per square foot in the fall 2008 Skyline Review.
 
“We are forecasting that asking rents for Midtown Class A office buildings will decline by approximately 40 percent from peak to trough (of which 25 percent has already occurred),” said James Delmonte, vice president and director of research for Jones Lang LaSalle’s New York office. “Under this scenario, the Midtown trophy rent average could fall to the low $70s per square foot by 2010, and the Downtown trophy average could fall below $50. Both of these lows have already been reached in some properties, especially for sublease space. If that were to occur rents would be comparable to levels seen in 2004 and 2005, just prior to the most recent spike.”
 
While vacancy rates have risen throughout Manhattan every month for the past 15 months, average asking rents did not respond to the change in market conditions until late last fall. At the height of the market in the spring of 2008, space at the city’s most desired addresses reached an unprecedented rental rate of $123.00 per square foot. High-paying hedge funds and other top financial firms were the primary drivers behind the need for trophy space.

Since then, Midtown’s high-end buildings saw asking rents fall slightly more than 24 percent during the same time period, dropping to $88.88 per square foot from $117.46 per square foot. Downtown trophy buildings reported rent decreases of nearly 7 percent, slipping to $60.23 square foot from $64.54 per square foot. Despite weakened conditions, however, the top end of the market still commands a 16 percent premium over the broader market.

Overall Class A rents have dropped 15 percent in the past six months, falling to $70.63 per square foot in the spring 2009 Skyline Review from $83.10 per square foot in the fall 2008 Skyline Review. Midtown asking rents are now down by 20 percent compared to the peak levels achieved in May
2008. Net-effective rents, which are a closer indicator of market conditions, are off by nearly 40 percent from the top of the market. Tenants currently in the market are negotiating for longer periods of free rent and higher capital contributions.
 
“Longer-term, beyond 2011, the trophy market outlook is decidedly more positive,” said Delmonte. “New construction will nearly halt over the next five years, except for scaled-back work on the World Trade Center. In the early to mid-1990s, the last time new construction was severely limited, pent-up demand caused rents to spike in the latter part of the decade. From 1995 to 2000, Midtown trophy rents increased 130 percent.”
 
The Federal Reserve is predicting an end to the recession sometime in late 2009. For Manhattan, job losses are projected to continue through the first half of 2010. If asking rents lag the recovery, as they have in previous cycles, then New York will likely not see a significant appreciation in asking rents until late 2011.
 
Jones Lang LaSalle’s Skyline Review is an ongoing index of the performance of Manhattan’s trophy buildings: the high-profile, premium-location office properties that move the market. The company released the first Skyline Review in fall 2006.
 
About Jones Lang LaSalle
 
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2008 global revenue of $2.7 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.4 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with more than $41 billion of assets under management. For further information, please visit our Web site, www.joneslanglasalle.com.