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News release

NEW YORK, NY

Mind the Gap: Demand for New York Trophy Buildings Outpaces Market

Trophy buildings throughout Manhattan post below-market vacancy rates despite significant rent premiums, according to JLL’s 2015 Digital Skyline


NEW YORK, August 11, 2015 — There’s no space like trophy space. The premier office towers that make up New York’s skyline boast — by far — the most expensive office space to rent, garnering 21.0 percent more than non-trophy space, according to JLL’s 2015 Digital Skyline. Average trophy rates in Manhattan in the first quarter of 2015 were $80.54 per square foot compared with $66.74 per square foot in non-trophy buildings. Direct rents for trophy-quality properties in the Plaza District reached $107.00 per square foot in the first quarter, with Central Park-view options averaging $146.00 per square foot.

“New York continues to attract both capital and talent from around the world, and this trend shows no sign of tapering off,” said Tristan Ashby, vice president and director of research in New York. “And while in an active phase, construction of new office space in Manhattan is lengthy, expensive and ultimately limited by available sites."

Although some trophy-quality space will be returning to the market, new product in Manhattan's most in-demand locations remains limited, with some opportunities several years away. High-end space in Midtown, in particular, has become increasingly hard to find. The chasm in vacancy rates is considerable: trophy-quality buildings in Midtown posted a vacancy rate of 8.4 percent in the first quarter of 2015 while the overall vacancy rate for Midtown assets stood at 10.0 percent.

The rapid lease-up of Brookfield Place in Lower Manhattan resulted in a substantially reduced availability rate from the recent historical high of 26.1 percent in mid-2013. However, the introduction of new large blocks of available space at 28 Liberty Street and 300 Vesey Street pushed the vacancy from 15.4 percent at the end of 2014 to 17.6 percent in the first quarter of 2015.

Globalization of the New York City investment sales market
The New York investment sales market is on pace to reach or exceed the historical peak sales volume of $48.5 billion in 2007, with year-to-date sales of $28 billion. Pricing on a per-square-foot basis is up for all product types, including land, compared to the prior peak. Interestingly, actual deal size is lower than during the last peak, on a per square foot basis. This reflects fewer large properties available for sale, and diversification among investors, both in terms of geography and product type; capital has branched out from the traditional Midtown trophy criteria.

Global investment is increasing in New York. While far behind the foreign investment levels seen in other major gateway cities such as London and Hong Kong, investor participation in New York real estate investment is running at slightly above 40 percent year-to-date, a marked increase from historical levels in the 15 percent to 25 percent range. Deflation in the Eurozone, economic uncertainty in Russia and the slowing of economic growth in China contribute to more foreign capital sources seeking economic and political stability to target the United States. New York is the top choice for many of these investors. Foreign and institutional capital typically takes a longer term investment view, and New York is particularly attractive given its track record of real estate asset appreciation.

Traditionally, investors from across the globe have focused on trophy assets. However, over the past few years, only a limited number of these trophy assets was for sale. This dearth of offerings is anticipated to continue. “Nearly 75 percent of all Class A Manhattan buildings are owned by investors who are considered to be long-term owners,” said Scott Latham, vice chairman, with the New York Capital Markets Group. “As a result, investors have widened their investment scope and are actively pursuing Class B assets or properties in non-traditional investment submarkets.“

As tenants in the TAMI sector continue to experience the fastest growth, the fundamentals in the Class B segment of the market are dovetailing well with investor interest in these vintage buildings. “The average sale price per square foot for a Manhattan office building is now $975,” said Stephen Shapiro, executive vice president, with the New York Capital Markets Group. “Investors who have been unable to acquire Class A buildings have had great success in the Class B market as fundamentals have far outpaced their pro-forma numbers.”

About the Skyline Review
For the first time, investors and tenants alike can now access JLL’s Skyline Review via a digital platform. The fully interactive website will feature JLL’s proprietary market insights regarding office supply, demand, rents, leverage and investment into 47 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiples of markets. In addition, the site will offer videos and infographics. All information will also be accessible via mobile devices. Users can also directly access information about New York’s Skyline.

About JLL New York
JLL is a leader in the New York tri-state commercial real estate market, with more than 2,000 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting, and project and development services. In 2014, the New York tri-state team completed approximately 22.8 million square feet of lease transactions, arranged investment sales transactions valued at more than $5.4 billion, managed projects valued at $7.6 billion, and oversaw a property management, facilities management and agency leasing portfolio exceeding 163 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. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $56.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.