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News release

NEW YORK

New York Sees Leasing Activity Cool in 2016

Rents trend down to meet increased vacancy rates throughout Manhattan at year-end 2016


NEW YORK, January 13, 2017 — Political and economic uncertainty, combined with declining employment growth, led to the lowest volume of leasing activity New York has witnessed in seven years. Tenants signed for 28.14 million square feet in transactions in 2016, the smallest amount of office space leased in Manhattan since 24.37 million square feet in transactions were completed in 2009, according to JLL.

"Leasing activity should increase in the early part of 2017, as several large transactions are anticipated to close," said Tristan Ashby, Vice President and Director of New York. "Even with the greater volume expected early next year, vacancy rates could remain flat or increase further. Any boost in deal volume will likely be offset by additional blocks of newly delivered space and returned space being added to the inventory."

Manhattan's office market recorded rising vacancy rates in all property classes and submarkets in the fourth quarter of 2016. Overall vacancy rates rose to 10.4 percent this quarter, an increase of 4.0 percent (or 40 basis points) from 10.0 percent in the third quarter. Year over year, the city's overall vacancy rate grew 8.3 percent (or 80 basis points) from 9.6 percent. The Class A vacancy rate rose to 11.2 percent in the fourth quarter, an increase of 1.8 percent (or 20 basis points) from 11.0 percent the previous quarter. Year over year, Manhattan's Class A vacancy rate rose 8.7 percent (or 90 basis points) from 10.3 percent.

The falloff in leasing activity helped fuel a drop in average asking rental rates in all building classes and property types in the final quarter of the year. Overall average asking rents in Manhattan fell to $70.22 per square foot this quarter, a decrease of 1.4 percent from $71.25 per square foot in the third quarter. Year over year, the city's overall rates grew 2.2 percent from $68.73 per square foot. Class A average asking rents slipped to $77.04 per square foot in the fourth quarter, a decrease of 1.1 percent from $77.88 per square foot the previous quarter. Year over year, Manhattan's Class A rates rose 1.8 percent from $75.71 per square foot.

Midtown
Midtown posted the strongest fundamentals of New York's three office submarkets in the fourth quarter of 2016, recording a minimal drop in rents and the smallest increase in vacancy rates. Demand for newly constructed space was particularly strong in 2016, with more than 871,000 square feet leased at Hudson Yards and more than 200,000 square feet pre-leased at both 390 Madison Avenue and 425 Park Avenue. About 34 percent of the tenants relocating to Hudson Yards are coming from the east side submarkets of Grand Central and the Plaza District.

Five leases larger than 100,000 square feet were signed in Midtown during the final quarter of the year. Major League Baseball took 400,000 square feet at 1271 Avenue of the Americas in its relocation from 245 Park Avenue and the Chelsea Market; Hogan Lovells signed for 239,601 square feet at 390 Madison Avenue in its move from 875 Third Avenue; Point72 Asset Management LP signed for 176,366 square feet at 55 Hudson Yards; the National Basketball Association completed an early renewal of 175,000 square feet at 645 Fifth Avenue; and the National Hockey League took 160,000 square feet at 1 Manhattan West in its relocation from 1185 Avenue of the Americas.

Midtown's overall vacancy rate rose to 10.6 percent this quarter, an increase of 1.0 percent (or 10 basis points) from 10.5 percent in the third quarter of 2016. Year over year, the submarket's overall vacancy rate grew 7.1 percent (or 70 basis points) from 9.9 percent. The Class A vacancy rate rose to 11.8 percent in the fourth quarter of 2016, an increase of less than 1.0 percent (or 10 basis points) from 11.7 percent the previous quarter. Year over year, Midtown's Class A vacancy rate rose 13.5 percent (or 140 basis points) from 10.4 percent.

Overall average asking rents in Midtown fell slightly to $75.04 per square foot this quarter, a decrease of less than 1.0 percent from $75.71 per square foot in the third quarter. Year over year, the submarket's overall rates grew 2.5 percent from $73.19 per square foot. Class A average asking rents dropped to $81.22 per square foot in the fourth quarter of 2016, a decrease of less than 1.0 percent from $81.91 per square foot the previous quarter. Year over year, Midtown's Class A rates rose 1.2 percent from $80.24 per square foot.

Midtown South
With limited availabilities and above-market pricing, leasing activity in Midtown South has stabilized and was on par with the previous year. After a light summer, deal velocity accelerated with a number of major transactions announced in the submarket in the past three months. In the largest lease of the year, New York City Human Resources Administration renewed 264,358 square feet at 109 East 16th Street. After an extensive search in the market, ZocDoc Inc. decided to renew its 85,000 square feet of space at 568 Broadway. In addition, New York University subleased 67,500 square feet at 360 Park Avenue South and Pivotal Software Inc. committed to 43,677 square feet at 636 Avenue of the Americas.

Midtown South's overall vacancy rate rose to 7.5 percent this quarter, an increase of 7.1 percent (or 50 basis points) from 7.0 percent in the third quarter. Year over year, the submarket's overall vacancy rate rose 19.0 percent (or 120 basis points) from 6.3 percent. The Class A vacancy rate rose to 6.0 percent in the fourth quarter, an increase of 3.4 percent (or 20 basis points) from 5.8 percent the previous quarter. Year over year, Midtown South's Class A vacancy rate increased 7.1 percent (or 40 percentage points) from 5.6 percent.

Midtown South office buildings witnessed the largest drop in average asking rental rates in the final quarter of the year. Overall average asking rents in Midtown South fell to $69.12 per square foot this quarter, a decrease of 4.0 percent from $71.98 per square foot in the third quarter. Year over year, the submarket's overall rates grew 1.6 percent from $68.06 per square foot. Class A average asking rents in Midtown South dropped $80.32 per square foot in the fourth quarter of 2016, a decrease of 3.4 percent from $83.19 per square foot the previous quarter. Year over year, the submarket's Class A rates rose 2.4 percent from $78.41 per square foot.

Although Midtown South witnessed no new leases in excess of $100 per square foot in the final quarter of the year, the submarket posted six such leases signed this year in comparison with four in 2015. The record was set in 2014, when Midtown South recorded nine high-end transactions.

Downtown
Downtown posted the smallest amount of leasing activity of all the New York office submarkets in the final quarter of the year. The largest lease of the quarter was a 256,000-square-foot renewal signed by the New York State Department of Health at 90 Church Street in the Tribeca/City Hall submarket. Government tenants have been particularly active in Lower Manhattan as the area provides close access to City Hall and other government buildings, public transportation to the rest of the city and affordable Class A asking rents. While Lower Manhattan's absorption was negative in 2016, the submarket's fortunes should change in the first part of 2017, as a number of leases are expected to close.

Long-anticipated availabilities hit the market in the fourth quarter of 2016, pushing Downtown's overall vacancy rate up to 11.6 percent this quarter, an increase of 8.4 percent (or 90 basis points) from 10.7 percent in the third quarter. Year over year, the submarket's overall vacancy rate rose 4.5 percent (or 50 basis points) from 11.1 percent. The Class A vacancy rate grew to 11.8 percent in the fourth quarter, an increase of 5.4 percent (or 60 basis points) from 11.2 percent the previous quarter. Year over year, Downtown's Class A vacancy rate dropped 1.7 percent (or 20 basis points) from 12.0 percent.

Average asking rents in Lower Manhattan have remained relatively flat quarter-over-quarter and year-over-year, an indication that pricing may be leveling off after growing over 50 percent during the five-year period from 2011 to 2015.

Overall average asking rents in Lower Manhattan fell to $57.67 per square foot this quarter, a decrease of less than 1.0 percent from $58.04 per square foot in the third quarter. Year over year, the submarket's overall rates grew less than 1.0 percent from $57.60 per square foot. Class A average asking rents fell to $62.68 per square foot in the fourth quarter of 2016, a decrease of less than 1.0 percent from $62.78 per square foot the previous quarter. Year over year, Downtown's Class A rates rose less than 1.0 percent from $62.54 per square foot.  

JLL is a leader in the New York tri-state commercial real estate market, with more than 2,300 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting, and project and development services. In 2015, the New York tri-state team completed approximately 32.6 million square feet of lease transactions; arranged investment sales, notes, debt and equity transactions valued at more than $8.2 billion; managed projects valued at $7.8 billion; and oversaw a property management, facilities management and agency leasing portfolio exceeding 141 million square feet.

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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. JLL is a Fortune 500 company with, as of December 31, 2015, revenue of $6.0 billion and fee revenue of $5.2 billion, more than 280 corporate offices, operations in over 80 countries and a global workforce of more than 70,000. On behalf of its clients, the company provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. As of September 30, 2016, its investment management business, LaSalle Investment Management, has $59.7 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.