RESEARCH

1Q13

Manhattan Office Market

STRONG MOMENTUM PROVING SOMEWHAT ELUSIVE
After recording some improvement over the last half of 2012, Manhattan did a 180 with the overall vacancy rate closing the first quarter of 2013 up 20 basis points to 12.9%. It has remained in double digits since the fourth quarter of 2008, or just over four years, though it is still below the (recent) recession high figure of 14.0%. In addition, it is 110 basis points above the 10-year quarterly average of 11.8%. Needless to say, net absorption was in the red for the first quarter at negative 547,983 square feet, which is actually the first decline since the second quarter of 2010. Sublet availability was higher in the first quarter by just over 300,000 square feet, though at 10.8 million square feet, it is down significantly from the 17 million square feet recorded during the recession. Direct availability, however, has really proven to be quite stubborn. At just under 46 million square feet, it is near its recent high. In fact, one would have to go back to 1996 to see figures substantially higher. The Manhattan overall average asking rent wrapped up the first quarter at $52.92/sf, sliding 2.8% from the fourth quarter figure of $54.43/sf. That said, it is still 10.5% above the 10-year quarterly average of $47.89/sf.

Asking Rent and Availability

$70.00 $60.00 $50.00 $40.00 $30.00 $20.00 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 Average Asking Rent (Price/SF) Availability (%) 17.5% 14.0% 10.5% 7.0% 3.5% 0.0%

Absorption
6,000,000 3,000,000 0 -3,000,000 -6,000,000 -9,000,000 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13

Net Absorption (SF)

Key Indicators
Total Inventory (SF) 1Q13 Asking Rent (Price/SF) Availability Rate (%) Under Construction (SF) Net Absorption (SF) Deliveries (SF) $52.92 12.9% 11,004,624 1Q13 -547,983 0 4Q12 $54.43 12.7% 10,434,780 4Q12 860,041 0 439,565,565 1Q12 $52.78 12.9% 10,434,780 YTD13 -547,983 0

1Q13

Midtown Office market

Midtown Manhattan, due in large part to its continued dependence on financial services, saw its overall availability rate climb 40 basis points in the first quarter to 13.5%. This is the steepest rise since the first quarter of 2012 and the highest quarterly availability rate since the 13.8% recorded in the third quarter of 2010. Four out of the six Midtown submarkets saw their availability rates jump. The biggest by far was Grand Central which rocketed 150 basis points to 16.2%; six buildings saw a climb of at least 50,000 square feet in new availability in the last 90 days. The overall average asking rent pulled back to $62.33/sf, down 4.9% in the first quarter, marking its lowest point since the fourth quarter of 2011. With availability elevated and pricing wobbly, there could be greater opportunity for non-financial services tenants (such as media and tech firms) to ease their way into Midtown quarters, that is, if they can pry themselves away from Midtown South.

Asking Rent and Availability

$90.00 $75.00 $60.00 $45.00 $30.00 $15.00 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Availability (%) 1Q12 1Q13 Average Asking Rent (Price/SF) 17.5% 14.0% 10.5% 7.0% 3.5% 0.0%

Absorption
4,000,000 2,000,000 0 -2,000,000 -4,000,000 -6,000,000 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13

Net Absorption (SF)

Key Indicators
Total Inventory (SF) 1Q13 Asking Rent (Price/SF) Availability Rate (%) Under Construction (SF) Net Absorption (SF) Deliveries (SF) $62.33 13.5% 1,769,150 1Q13 -736,453 0 4Q12 $65.38 13.1% 1,769,150 4Q12 595,470 0 209,583,830 1Q12 $65.42 13.2% 1,769,150 YTD13 -736,453 0

1Q13

Midtown South Office market

Midtown South found itself in what is a recent anomalyrising availability. The figure jumped 20 basis points in the first quarter to close at 9.9%. Though direct availability was lower, sublet availability grew by nearly 250,000 square feet, which more than made up for that improvement. The focus of the increase was on two submarkets Flatiron/Union Square, which saw a rise of 156,000 square feet (within several different properties), and Hudson Square, which coincidentally also saw a rise of 156,000 square feet (primarily 395 Hudson Street). Thankfully, Chelsea and Times Square South recorded improved sublet availability figures. The overall average asking rent managed to eke out a small increase in the first quarter, climbing $.02 to $44.91/sf, its highest mark since the third quarter of 2008. Delivering in the second quarter will be 51 Astor Place, a 400,000-square-foot, Class A building in the Village submarket. Currently 100% available, the building will have LEED Gold certification. The asking rent, which will top anything in Midtown South, will certainly skew the average figure much higher until the space is leased.

Asking Rent and Availability

$55.00 $47.00 $39.00 $31.00 $23.00 $15.00 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Availability (%) 1Q12 1Q13 Average Asking Rent (Price/SF) 17.5% 14.0% 10.5% 7.0% 3.5% 0.0%

Absorption
3,000,000 1,500,000 0 -1,500,000 -3,000,000 -4,500,000 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13

Net Absorption (SF)

Key Indicators
Total Inventory (SF) 1Q13 Asking Rent (Price/SF) Availability Rate (%) Under Construction (SF) Net Absorption (SF) Deliveries (SF) $44.91 9.9% 969,844 1Q13 -56,510 0 4Q12 $44.89 9.7% 400,000 4Q12 -119,936 0 136,776,777 1Q12 $39.84 10.0% 400,000 YTD13 -56,510 0

1Q13

Downtown Office market

Downtown closed the quarter where it began with an availability rate at 15.9%. Not all conditions were identical, of course; a drop in direct availability was counter-balanced with a rise in sublet availability. The largest blocks currently on the market remain in the World Trade Center submarket. At Brookfield Place (formerly World Financial Center), there is just under 3.1 million square feet of direct availability, while at the two towers under construction at the World Trade Center (WTC), approximately 1.8 million square feet is available. The WTC space has yet to be included in our official numbers as it is not complete; if added, the availability rate would rise to 16.8%. On the flip side, removing the availability at Brookfield Place would sharply drop the rate to 12.6%. At a time when many buildings are being remeasured and actually growing in size, one building, 85 Broad Street, actually shrank. Its rentable building area (RBA) dropped from 1.19 million square feet to 975,000 square feet over the course of the first quarter. The overall average asking rent Downtown eased to $42.21/sf in the first quarter, down from $42.77/sf at year-end, though it has been within a $2.00/sf range since the second quarter of 2011.

Asking Rent and Availability

$55.00 $47.00 $39.00 $31.00 $23.00 $15.00 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Availability (%) 1Q12 1Q13 Average Asking Rent (Price/SF) 20.0% 16.0% 12.0% 8.0% 4.0% 0.0%

Absorption
2,000,000 1,000,000 0 -1,000,000 -2,000,000 -3,000,000 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13

Net Absorption (SF)

Key Indicators
Total Inventory (SF) 1Q13 Asking Rent (Price/SF) Availability Rate (%) Under Construction (SF) Net Absorption (SF) Deliveries (SF) $42.21 15.9% 8,265,630 1Q13 244,980 0 4Q12 $42.77 15.9% 8,265,630 4Q12 384,507 0 93,204,958 1Q12 $41.72 16.4% 8,265,630 YTD13 244,980 0

1Q13

Manhattan Office market

Leasing Activity
Square Feet, millions 15.0 12.0 9.0 6.0 3.0 0.0 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 Leasing Activity (SF) 1Q09 1Q10 1Q11 1Q12 1Q13

Construction and Deliveries

Square Feet, millions 12.0 9.6 7.2 4.8 2.4 0.0 2002 2003 2004 Deliveries 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Under Construction Projected Deliveries

Select Lease Transactions

Tenant Sony Macys HarperCollins Liberty Mutual WeWork Address 550 Madison Ave 11 Penn Plaza 195 Broadway 55 Water St 222 Broadway Submarket Upper Fifth/Plaza Penn Station City Hall Financial City Hall Square Feet 798,000 646,000 180,000 130,000 121,000

Select Sales Transactions

Address 550 Madison Ave 346 Broadway 350 Madison Ave 1619 Broadway 9 E 38th St Submarket Upper Fifth/Plaza City Hall Grand Central Westside Grand Central Square Feet 855,000 418,991 393,687 169,230 93,744 Sale Price $1,100,000,000 $160,000,000 $261,500,000 $185,000,000 $29,000,000 Price/SF $1,287 $382 $664 $1,093 $309

1Q13

Manhattan Office market

Submarket Statistics
Total Inventory (SF) Midtown Eastside Grand Central Park Ave Sixth Ave/Rock Ctr Upper Fifth/Plaza Westside/Times Sq Midtown South Chelsea Flatiron/Union Sq Times Square South Hudson Sq Lower Sixth Ave Park Ave South Penn Station SoHo/NoHo Village Downtown City Hall/Insurance Financial WTC Manhattan 209,583,830 22,084,218 53,556,350 23,663,730 43,579,602 27,391,788 39,308,142 136,776,777 8,125,015 16,001,673 35,218,145 10,667,440 3,740,013 21,586,723 31,990,445 5,897,983 3,549,340 93,204,958 24,462,187 56,161,144 12,581,627 439,565,565 Under Total Qtr YTD Construction Availability Absorption Absorption (SF) Rate (SF) (SF) 1,769,150 0 0 0 717,000 0 1,052,150 969,844 0 0 0 0 106,844 421,000 0 42,000 400,000 8,265,630 0 0 8,265,630 11,004,624 13.5% 10.5% 16.2% 12.5% 14.9% 16.0% 9.0% 9.9% 6.9% 9.1% 11.2% 9.8% 7.2% 9.9% 9.8% 9.9% 10.3% 15.9% 9.4% 16.5% 26.0% 12.9% -736,453 -324,533 -664,414 -133,462 60,957 -45,088 370,087 -56,510 -61,078 -271,570 102,352 -199,640 -12,818 -95,157 439,990 -17,692 59,103 244,980 -105,013 82,422 267,571 -547,983 -736,453 -324,533 -664,414 -133,462 60,957 -45,088 370,087 -56,510 -61,078 -271,570 102,352 -199,640 -12,818 -95,157 439,990 -17,692 59,103 244,980 -105,013 82,422 267,571 -547,983 Direct Sublet Total Asking Rent Asking Rent Asking Rent (Price/SF) (Price/SF) (Price/SF) $63.72 $60.30 $58.55 $70.85 $69.84 $67.11 $59.87 $46.80 $48.00 $54.41 $41.50 $50.12 $50.85 $47.66 $44.95 $54.05 $58.53 $42.95 $37.04 $37.28 $61.00 $53.74 $57.75 $44.68 $82.20 $66.63 $46.00 $50.00 $41.47 $35.95 $39.00 $33.00 $32.44 NA $39.14 $43.59 $33.49 NA NA $37.07 $44.36 $34.81 NA $49.44 $62.33 $59.78 $59.85 $70.72 $62.65 $66.51 $59.79 $44.91 $45.34 $54.16 $40.99 $50.12 $40.92 $47.22 $44.66 $54.05 $58.53 $42.21 $37.15 $37.19 $61.00 $52.92

www.newmarkkf.com

Economic Conditions
According to the New York City Comptrollers Office, total job growth was up 1.3%, or 48,300 positions, in the 12 months ending in February 2013. The private sector performed slightly better, up 1.5%, or 50,300 positions. Professional & business services saw the most dramatic increase, up 4.5% over the past year, thanks in large part to the burgeoning tech and new media fields. In other office sectors, the news was not so rosy with information (non-internet publishing, motion pictures) down 2.7% while financial activities declined 1.3%. Locally, there remains a disconnect between job growth and the unemployment rate. The NYSDL reported that the unemployment rate for New York City at the end of February 2013 was 9.1%, down 30 basis points from a year ago but still steep considering local job growth. Theories abound regarding the disparity, though one of the leading suppositions is that there is a much smaller (and error prone) sample size for the unemployment rate. It is very likely that the job growth figures are more accurate.

Employment By Industry
New York City, February 2013 1.9% 3.0% 4.4% 4.5% 4.7% 15.7% 9.3%

Manufacturing Construction Information Other Services Education Leisure/Hospitality Financial Activities 11.1% Government Trade/Transportation/Utilities

16.3%

15.2% 14.0%

Health Business & Professional Services

Source: New York City Comptrollers Office

Unemployment Rate
Seasonally Adjusted 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% Feb-08

Payroll Employment
Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Feb-08

Feb-09

Feb-10

Feb-11

Feb-12 New York City

Feb-13

Feb-09

Feb-10

Feb-11

Feb-12 New York City

Feb-13

United States

United States

Source: U.S. Bureau of Labor Statistics, New York State Department of Labor

Source: U.S. Bureau of Labor Statistics, New York State Department of Labor

Consumer Price Index (CPI)

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Feb-08

Employment Growth by Industry

New York City, February 2013, 12-Month % Change, Not Seasonally Adjusted Total Manufacturing Construction Trade/Transportation/Utilities Information Financial Activities Prof & Bus Services Education/Health Leisure/Hospitality Other Services

Feb-09 United States

Feb-10

Feb-11

Feb-12

Feb-13

Government -6.0% Source: New York City Comptrollers Office -3.0% 0.0% 3.0% 6.0%

New York-Northern NJ-Long Island

Source: U.S. Bureau of Labor Statistics

RESEARCH
New York City HEADQUARTERS 125 Park Avenue New York, NY 10017 212.372.2000 Robert Sammons Head of Research 212.372.2099 rsammons@ngkf.com Ronnie Wagner Director, Research Peter Hur Senior Research Analyst David Chase Research Analyst Dan Appel Research Analyst James Rorty GIS Analyst Glossary of Terms Absorption A measure of the change in occupied space Availability Space marketed for lease regardless of when the space will be available or whether the space is vacant or occupied Deliveries The total RBA of properties added to the inventory once construction has been completed Direct Space Available space offered for lease by the building owner, landlord, or owner representative Leasing Activity The volume of leases signed including new leases, direct and sublet leases, extensions and renewals, and leases signed in proposed or under construction buildings Occupancy Any space physically occupied by a tenant, regardless of lease status of the space Rentable Building Area (RBA) A measurement of the total square feet in a building including the tenant and common areas such as the lobby and hallways Sublet Space Available space offered for lease by a building tenant seeking a subtenant to fulfill the remaining lease obligation Under Construction Buildings under construction are defined by the time the foundation is poured through the time the building is certified for occupancy Vacancy Space not physically occupied by a tenant, regardless of the lease status or availability of the space Weighted Average Rent The asking dollar amount for the use of available space, weighted by size--the average does not include negotiable or unpublished rates and is reported as full service including operating costs

Office inventory includes all multi-tenant and single tenant buildings at least 20,000 square feet in total rentable building area. Owner occupied buildings are not included in the inventory.

Newmark Grubb Knight Frank Research Reports are also available at www.newmarkkf.com/research.
By using any report or information provided by Newmark Grubb Knight Frank (Newmark), the recipient hereby acknowledges and agrees that: (a) Newmark makes no express or implied representations or warranties with respect to the information and guarantees no particular outcome or result; (b) Newmark does not provide legal advice and does not represent or guarantee that any particular course of conduct, strategy, or action suggested by it conforms to any applicable law or regulation; (c) While Newmark has used its commercially diligent efforts to verify any underlying assumptions used in the report, some assumptions may not transpire and unforeseen events and circumstances may arise which may affect any such projections; (d) Although all information furnished in the report are from sources Newmark deems as reliable, such information has not been verified and no express representation is made nor is any to be implied as to the accuracy thereof and it is submitted subject to errors, omissions, change of price, rental or other conditions; (e) All proprietary information, which may include ideas, concepts, frameworks, know-how, methodologies, analytical approaches, databases, business insights, products, software, and descriptions thereof developed by Newmark shall be the property of Newmark; the ownership of the report does not include any rights of electronic data processing files, programs or models completed for research, unless specifically agreed to in writing by Newmark; (f) Such report shall be used for the sole purpose for which it is prepared and no other parties shall be deemed third party beneficiaries of such report; and (g) Any report may not be published, resold, distributed or communicated to the public without the prior written consent of Newmark. Newmark and Knight Frank are trademarks of their respective owners.