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News release

NEW YORK, NY

Jones Lang LaSalle Sees Lackluster New York Office Market in 4th Quarter of 2012

Midtown South sees most active quarter of the year, posts rise in vacancy rates and rents; high-end space entering Lower Manhattan market fuels vacancy rate, rent boost


NEW YORK, January 8, 2013 — New York’s office market enjoyed a burst of activity in the final quarter of the year, but it was not enough to keep the city’s office market from experiencing an unremarkable end to the year. Although rents remained stable in the fourth quarter of 2012, vacancy rates increased and leasing activity was flat throughout Manhattan due, in part, to a lack of growth within the financial services industry and tenants looking to cut real estate costs.

The city’s overall vacancy rate rose to 11.2 percent in the fourth quarter of 2012, an increase of 5.7 percent (or 0.6 percentage points) from the overall vacancy rate of 10.6 percent the previous quarter. The Class A vacancy rate grew to 12.6 percent this quarter, an increase of 12.5 percent (or 1.4 percentage points) from the Class A vacancy rate of 11.2 percent in the third quarter of 2012. The Class B vacancy rate fell to 9.4 percent this quarter, a drop of 3.1 percent (or 0.3 percentage points) from the Class B vacancy rate of 9.7 percent in the third quarter of the year.

An increase in average asking rental rates for the city’s Class B product helped offset a slight decrease in rents for Class A office space. Class A rents fell to $66.18 per square foot in the fourth quarter of 2012, a drop of less than 1 percent from Class A rates of $66.25 per square foot the previous quarter. The city’s Class B rents grew to $47.15 per square foot this quarter, a boost of 2.5 percent from Class B rates of $46.00 per square foot in the third quarter of 2012.

“Despite a late boost in activity, it was a lackluster final quarter of the year for New York’s office market,” said Peter Riguardi, president of JLL’s New York tri-state office. “Throughout most of the year, vacancy rates moved higher, absorption turned negative and leasing activity was flat. We owe this to weakness in financial services employment, political uncertainty and space users seeking out greater space efficiencies. Still, there were significant transactions and pockets of strength in the fourth quarter. UBS signed the second largest deal of the year in Midtown, a renewal and expansion at 1285 Avenue of the Americas for 861,998 square feet, and plans to bring some employees back to Manhattan from its suburban headquarters.”

Midtown South
Midtown South saw Class B and overall vacancy rates rise in the final quarter of the year. The submarket’s overall vacancy rate rise to 7.2 percent in the fourth quarter of 2012, an increase of 2.9 percent (or 0.2 percentage points) from the overall vacancy rate of 7.0 percent the previous quarter. The Class A vacancy rate remained unchanged at 9.6 percent at year-end 2012. The submarket’s Class B vacancy rate increased to 6.5 percent this quarter, an increase of 4.8 percent (or .3 percentage points) from the Class B vacancy rate of 6.2 percent in the third quarter of the year.

Midtown South rents continued to rise higher this quarter, fueled by ongoing strong interest among space users in the submarket’s few remaining available spaces. Class A rents rose slightly to $70.15 per square foot in the fourth quarter of 2012, an increase of less than 1 percent from Class A rates of $69.74 per square foot the previous quarter. The submarket’s Class B rents grew to $49.45 per square foot this quarter, a boost of 4.4 percent from Class B rates of $47.37 per square foot in the third quarter of 2012.

“Midtown South had its most active quarter for large deals, recording seven deals of more than 50,000 square feet,” said Riguardi. “Despite the submarket’s reputation as a tech hub, nearly half of those deals were signed by companies that are not technology based. In fact, the top five deals of the year in Midtown South were signed by fashion, education, advertising and health-related companies, rather than technology firms.”

Midtown
Midtown presented a mixed picture at year-end 2012, recording an increase in Class A vacancy rates and a decrease in Class B vacancy rates. The submarket’s overall vacancy rate rose slightly to 11.7 percent in the fourth quarter of 2012, an increase of less than 1 percent (or 0.1 percentage points) from the overall vacancy rate of 11.6 percent the previous quarter. The Class A vacancy rate rose to 12.3 percent this quarter, an increase of 6.0 percent (or 0.7 percentage points) from the Class A vacancy rate of 11.6 percent in the third quarter of 2012. The submarket’s Class B vacancy rate fell to 10.9 percent this quarter, a drop of 5.2 percent (or 0.6 percentage points) from the Class B vacancy rate of 11.5 percent in the third quarter of the year.

“Although vacancy rates in Midtown finished higher for both the quarter and the year, Class A rents saw an increase of about 3 percent over 2011,” said Riguardi. “We’ve seen some evidence that net effective rents were flat or down as landlord concessions moved higher. In addition, trophy buildings in Midtown saw rents for the city’s premium spaces end down 5.5 percent for the year.”

Midtown posted a minor increase in average asking rental rates for all building classes in the fourth quarter of the year. Class A rents rose to $72.78 per square foot this quarter, an increase of less than 1 percent from Class A rates of $72.70 per square foot in the third quarter of 2012. Midtown’s Class B rents grew slightly to $50.14 per square foot this quarter, an increase of 2.2 percent from Class B rates of $49.05 per square foot in the third quarter of the year.

Downtown
Lower Manhattan posted a big jump in Class A and overall vacancy rates in the final quarter of the year. The overall vacancy rate rose to 12.4 percent in the fourth quarter of 2012, an increase of 22.8 percent (or 2.3 percentage points) from the overall vacancy rate of 10.1 percent the previous quarter. The Class A vacancy rate increased to 14.3 percent this quarter, a boost of 36.2 percent (or 3.8 percentage points) from the Class A vacancy rate of 10.5 percent in the third quarter of 2012. Downtown’s Class B vacancy rate fell to 9.1 percent this quarter, a drop of 3.2 percent (or 0.3 percentage points) from the Class B vacancy rate of 9.4 percent in the third quarter of the year.

“In Lower Manhattan, large blocks of high-quality space were delivered or returned to the market at locations like the World Trade Center and World Financial Center, which resulted in dramatic increases in both asking rents and vacancy rates for both the quarter and the year,” said Riguardi. “It’s important to note that the market was not significantly affected by Superstorm Sandy.”

For the second consecutive quarter, Lower Manhattan recorded the highest percentage gains in average asking rental rates for all office building classes in the fourth quarter of 2012. Class A rents expanded to $51.31 per square foot this quarter, a boost of 8.4 percent from Class A rates of $47.35 per square foot in third quarter of the year. Downtown’s Class B rents rose to $35.99 per square foot this quarter, an increase of 1.9 percent from Class B rates of $35.32 per square foot in the third quarter of 2012.

JLL is a leader in the New York tri-state commercial real estate market, with more than 1,750 of the most recognized industry experts offering brokerage, capital markets, facilities management, consulting, and project and development services. In 2011, the New York tri-state team completed approximately 15.9 million square feet in lease transactions, completed capital markets transactions valued at $1.57 billion, managed projects valued at more than $6.8 billion, oversaw a property and facilities management portfolio of 63.6 million square feet, and an agency leasing portfolio of 49.8 million square feet.

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 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 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 $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.