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News release

NEW YORK, NY

New York Office Market Continues to Progress in 1st Quarter of 2014

Midtown South major factor as large deals remove significant availabilities; submarket’s rents reach all-time high


NEW YORK, April 7, 2014 — JLL found that New York’s office market continued to pick up in the first quarter of 2014, with leasing activity significantly increased compared to this point in 2013. Major deals in Manhattan have doubled in the past year, with the city recording 14 office leases of at least 100,000 square feet in 2014 compared with seven in 2013.

The healthy deal volume helped the city’s office market maintain a steady performance. Manhattan’s overall vacancy rate remained unchanged at 11.1 percent in the first quarter of 2014. The city’s Class A vacancy rate rose to 12.4 percent this quarter, an increase of 2.5 percent (or 0.3 percentage points) from 12.1 percent the previous quarter.

“Building owners are negotiating with multiple tenants for the same space,” said Peter Riguardi, president of JLL’s New York operations. “While this has been true in Midtown South for several quarters, it has now become more widespread. If this pattern continues, we can expect to see rents rise further in certain parts of Midtown.”

Rent increases at the top of the market and the removal of cheaper sublease space helped push up average asking rental rates in just about every building class and submarket in the city. Overall average asking rents in New York rose to $64.26 per square foot this quarter, an increase of 4.0 percent from $61.81 per square foot at year-end 2013. The city’s Class A rents grew to $70.72 per square foot in the first quarter of 2014, an increase of 2.7 percent from $68.83 per square foot the previous quarter.

Midtown South
Continued strong activity throughout Midtown South has halved the number of available large blocks of office space — those exceeding 100,000 square feet — in the past year. There were just five big blocks available as of the end of the first quarter of 2014, compared with 10 one year earlier.

Large transactions by creative and more traditional companies boosted both Midtown South and Manhattan’s overall leasing for the quarter. Credit Suisse Group AG signed the largest deal thus far this year in Midtown South, renewing 1.2 million square feet at 11 Madison Avenue. Other significant transactions included Twitter Inc.’s 144,000-square-foot lease at 249 West 17th Street and IBM’s 118,425-square-feet at 51 Astor Place for its Watson Group.

Midtown South’s overall vacancy rate fell to 7.0 percent this quarter, a decrease of 16.7 percent (or 1.4 percentage points) from 8.4 percent at year-end 2013. The submarket’s Class A vacancy rose to 6.9 percent in the first quarter of 2014, an increase of 13.1 percent (or 0.8 percentage points) from 6.1 percent the previous quarter.

Overall average asking rents in Midtown South reached an all-time high at $58.23 per square foot in the first quarter of the year, an increase of less than 1.0 percent from $57.88 per square foot at year-end 2013. The rate boost was driven by increased demand and the premium rents charged for the newly renovated space at 114 Fifth Avenue and 90 Fifth Avenue. The submarket's Class A rents remained nearly unchanged at $74.56 per square foot from $74.58 per square foot the previous quarter.

Midtown
Tenants in the creative industries — technology, fashion, advertising, business services and media — interested in Midtown space have focused on Class B buildings. This activity, along with the upgrade of several of the submarket’s lower quality buildings to Class A, have reduced the Midtown Class B vacancy rate to 9.7 percent in the first quarter of 2014—the lowest rate seen since 2008.

“The supply of value and sublease opportunities has steadily declined since the end of the recession, and that has driven office rents higher throughout Midtown,” said Tristan Ashby, director of research for JLL’s New York tri-state office. “Sublease space now represents 20.5 percent of the submarket’s available Class A market, down from 35.1 percent in 2009.”

The largest transaction completed in Midtown this quarter was signed by Mount Sinai Medical Center, which took 448,819 square feet at 150 East 42nd Street to combine its operations at the location. In addition, New York & Company signed for 178,342 square feet at 330 West 34th Street and Publicis Inc. completed a sublease with Direct Brands for 113,945 square feet at 1 Penn Plaza.

Midtown’s overall vacancy rate barely changed at 11.2 percent this quarter from 11.1 percent at year-end 2013. The submarket’s Class A vacancy grew to 12.1 percent in the first quarter of 2014, an increase of 3.4 percent (or 0.4 percentage points) from 11.7 percent the previous quarter largely due to the addition to the market of 817,000 square feet at 4 Times Square that will be vacated by Condé Nast.

With direct space and sublease options steadily decreasing, rents remained on the rise across Midtown this quarter. Overall average asking rental rates rose to $68.99 per square foot by the end of March, an increase of 2.0 percent from $67.65 per square foot at year-end 2013. The submarket’s Class A rents grew to $76.30 per square foot in the first quarter of 2014, an increase of 1.2 percent from $75.38 per square foot the previous quarter. This was the 15th consecutive quarter of rent increases for Midtown’s Class A product.

Downtown
Approximately one-third of all new leases Downtown in the first three months of 2014 were relocations. The legal services sector accounted for the greatest number of relocations, followed by high-tech and nonprofit tenants.

The largest transaction recorded in Lower Manhattan thus far this year was Macmillan Science and Education Group’s relocation to 176,121 square feet at 1 New York Plaza from several locations around the city. In addition, Allied World Insurance renewed and expanded to 143,297 square feet at 199 Water Street; Revlon signed a lease to relocate into 90,194 square feet at 1 New York Plaza from 237 Park Avenue; and The Institute of Culinary Education will relocate into 71,000 square feet at 225 Liberty Street from 50 West 23rd Street.

Downtown’s overall vacancy rate rose to 13.2 percent this quarter, an increase of 3.9 percent (or 0.5 percentage points) from 12.7 percent at year-end 2013. The increase was primarily driven by Thomson Reuters’ intent to vacate 447,829 square feet at 195 Broadway. The submarket’s Class A vacancy rate grew to 14.8 percent in the first quarter of 2014, an increase of 3.5 percent (or 0.5 percentage points) from 14.3 percent the previous quarter.

Overall average asking rental rates Downtown rose to $53.39 per square foot this quarter, an increase of 6.4 percent from $50.19 per square foot at year-end 2013. Lower Manhattan’s Class A rents grew to $57.10 per square foot in the first quarter of 2014, an increase of 4.3 percent from $54.77 per square foot the previous quarter.

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JLL is a leader in the New York tri-state commercial real estate market, with more than 1,600 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting, and project and development services. In 2012, the New York tri-state team completed approximately 23.8 million square feet in lease transactions, arranged capital markets transactions valued at $1.57 billion, managed projects valued at nearly $7.0 billion, and oversaw a property and facilities management portfolio of 102.1 million square feet and an agency leasing portfolio of 76.0 million square feet.

About JLL
JLL (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $4 billion, JLL operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management. For further information, visit www.jll.com.