MANHATTAN OFFICE REPORT 3Q09

ECONOMY
BEAT ON THE STREET Economic conditions in the U.S. and Manhattan continued to deteriorate during the third ECONOMY There were subtle indications in the third quarter but at a slower pace than earlier in the year. The U.S. economy lost a total of 768,000 quarter that the market is beginning to stabilize. jobs in the quarter, down from 1.3 million in the second quarter. In New York City, job loss in Although year-to-date leasing was nearly 28% the office-using industries of financial services, professional business services and media he Manhattan office market continued to tighten during the first half of 2007, extending lower than a year ago, third quarter activity averaged 3,700 per month inthe second half ofroughlySteady employment growth jobs per strengths exhibited during July and August, 2006. half the 7,500 office-using contributed to significantly improved, accounting for almost month lost in the second quarter. space and rapidly escalating asking rents. of the nation. As of 44% of total leasing this year. Tenants positive absorption of available Job loss for the City remains below that August, New York had lost 6.4% of its office using jobs, compared to 7.6% for the U.S. as a previously reluctant to make long-term The Nevertheless, economy expanded at healthy pace during the first six months of the commitments have bcome more secure about whole.New York Citythe economy continuedato decline. The unemployment rate in New York the future of the business needs and are taking year, led by 10.3% in August, the first time in this cycle thatavailable through the end of May strong gains in office-using employment. Data it has been above the national City reached advantage of favorable opportunities in the show and the highest added nearly 16,800 jobs in industries that Historically, commercial average that the City has unemployment rate for the City since 1993.are key to the New York has market. " office market, with financial services continuing to lose jobs even after the national and 5,500 lagged at the bottom of each recession,and professional business services adding 7,400economy Joseph R.Harbert, Chief Operating Officer enters arespectively. This resulted in increased demand for office space in a market that was jobs, recovery. This history suggests that New York will continue to lose jobs into the first half of 2010, tightest it the total job loss is first quartermore moderate than in previous already the although had been since the likely to be of 2001. ECONOMIC INDICATORS downturns. The year began with 26.1 million square feet) available throughout Manhattan. By the end of June, available space had fallen2008 precipitously to 2010F National 2009F 20.8 a decline of 20.5%. This diminishing availability of space has been the story of the market; April 2007 was the only month in the past year GDP Growth 0.4% -2.6% 1.8% OVERVIEW that did not record a month-to-month decline of at least 122,000 square. As a result, Manhattans overall vacancy rate has tumbled to a six-year Manhattan rental rates continued to decline, with class A direct rents off $22.03 p er square foot CPI Growth 3.8% -0.5% 1.7% low, closing the mid-year at 5.3%. For the third consecutive quarter, the vacancy rate closed below equilibrium, defined as a vacancy rate range (psf) or 24.4%, year-over-year, and lower by more than $5.00 psf in the third quarter alone. Regional of 7.0% - 9.0%. Although direct and sublease average asking rents have both decreased significantly from the Unemployment 0.9% -2.2% -2.2% market peak, sublease space has been more heavily discounted. Overall sublease asking rents are OVERVIEW Employment 5.5% 8.9% 10.2% off 27.7% in the last twelve months, compared to direct space which is lower by 19.9%. Growth In this environment, it is no surprisethe most significantly at 33% year-over-year, the pace of that asking rates have skyrocketed. Up 36.2% from a year Although Midtown sublease rents fell ago, Manhattans overall total August and September. MARKET FORECAST decline was noticeably slower inaverage asking rent closed the first half of 2007 at another record-high: $59.17 per square foot. Thus far this year, rents have increased by an average of OVERALL VACANCY at 11.1% was up Total available spacesince January, breaking the the third quarter by during the second and third $1.44 each month in Manhattan increased in old record set back 2.4 million square feet (msf) from 7.4,% when the market peaked a year toquarters ofHowever, the subleaseof rental rate growth hasthis quarter due to absorption of In 43.6 msf. 2000. The rapid pace vacancy rate decreased extended throughout Manhattan. ago. Vacancy rates are expected to sublease space due butincreased leasing and the removal of a large block of sublease space from every submarket to one, overall rents have registered double-digit percentage increases increase until the 2nd half of 2010. the year ago. Chelsea, up 4.2%, to backfill. Sublease space accounts for 25.5% of all available market by a tenant using it was the only exception. a ASKING RENTS are down nearly 22% space, which has declined in four of the last five months. It is far lower as a percentage of from a year ago. Although pricing is On a cautionary was inhowever,recession. note, the last leasing activity throughout Manhattan was slower during the availability than it expected to decline for another 9 months, it first two quarters, partially attributable to both significantly higher rents and lack of available will not be as fast and as sharp as the past At 11.1%, the 11.8 leased year-to-date, 2007 activityits highest yearsin fivethrough Juneup more space. With Manhattan overall vacancy rate is at trails last level total years and is by 5.4%, three quarters. than three percentage points since20.0%. This2008. Increases in vacancypossibly beginning to with Midtown trailing by nearly the end of suggests that tenants are have begun to slow LEASING ACTIVITY While third quarter however,for there was nearly 5.0in response to landlordsin the thirdrents throughout the market. search as lower-priced space msf of leasing activity hiking up quarter, a level not seen leasing was up 50% from the previous since second quarter 2008. Ten blocks of space greater than 100,000 square feet (sf) were quarter, it was still 28% lower than a year removed from the market during the third quarter via lease or backfill, which partially offset the OUTLOOK ago. It is possible that 2009 leasing will be additional space thathas been available. Including renewals, twelve transactions this quarter were This years leasing became dominated by Manhattans leading industries. Financial services the slowest on record. greater than 100,000legal services firms four in the second quarter and eight in the two square firms (36.4%) and sf, compared with (11.7%) accounted for nearly one of every first quarter. . Ten of the twelve third quarter deals 100,000 sf and larger were in buildings locatedsigned feet leased from January through June. In April, Lehman Brothers Holdings, Inc. in OVERALL RENTAL VS. VACANCY RATES Midtown. Manhattans largest new lease in 2007, a 414,575-sf sublease at 1271 Avenue of the Americas. The frequency of transactions with taking rents starting at or above $125.00 Rental Rate Vacancy Rate FORECAST continued to climb: 18 such transactions year-to-date versus 21 signed in the four previous $75.00 14.0% Employment in New York City is projected to reach a bottom in mid-2010 with growth years combined. $70.00 resuming in the second half of the year. As a result, we project that the vacancy rate will peak in 12.0% $65.00 mid-2010. We estimate the peak vacancy rate will be in the 14% range. As vacancy continues to $60.00 10.0% rise it will place downward pressure on rents. Once the vacancy rate peaks, asking rents are $55.00 expected to bottom and remain flat in the second half of 2010 but we forecast that concessions $50.00 8.0% will diminish or the market starts to stabilize. $45.00 MANHATTAN OFFICE REPORT 3Q09
$40.00 $35.00 $30.00 2003 2004 2005 2006 2007 2008 3Q09

6.0% 4.0%

MARKET SUBMARKET STATISTICS

MARKET / SUBMARKET INVENTORY No. OF BLDGS OVERALL VACANCY RATE DIRECT VACANCY RATE YTD LEASING ACTIVITY UNDER CONSTRUCTION YTD CONSTRUCTION COMPLETIONS DIRECT WTD. AVG. CLASS A GROSS RENTAL RATE

Murray Hill Grand Central United Nations East Side Park Avenue Madison / Fifth 6 Ave / Rock Cntr Westside Penn Station Times Square South Lincoln Center Midtown Totals SoHo Greenwich/NoHo Madison/Union Square Hudson Sq./W. Village Chelsea Midtown South Totals City Hall World Financial Financial West Financial East Insurance Downtown Totals MANHATTAN TOTALS

14,197,421 43,642,472 2,909,648 19,346,325 21,043,271 24,563,727 39,934,358 26,340,942 14,753,835 30,180,329 3,557,826 240,470,154 3,943,428 4,804,918 31,106,879 10,504,986 14,436,858 64,797,069 14,828,704 15,785,956 5,533,915 36,391,872 15,116,526 87,656,973 392,924,196

81 137 17 64 31 121 69 76 46 146 15 803 45 38 223 40 80 426 56 13 15 58 46 188 1417

10.5% 12.6% 2.9% 15.8% 13.1% 16.0% 9.7% 15.0% 6.2% 10.9% 1.2% 12.0% 4.8% 5.0% 7.5% 20.2% 8.1% 9.4% 5.3% 12.0% 14.9% 10.6% 9.0% 9.9% 11.1%

8.8% 8.7% 2.6% 11.8% 7.2% 12.3% 7.1% 11.9% 4.1% 9.4% 1.1% 8.9% 3.6% 4.8% 5.1% 18.8% 6.0% 7.4% 4.4% 9.5% 12.4% 6.7% 7.4% 7.3% 8.3%

367,956 1,486,196 32,577 926,334 671,812 828,120 1,573,435 333,364 273,258 1,220,261 21,500 7,734,813 183,181 29,785 545,825 207,046 219,481 1,185,318 448,031 585,300 364,308 904,750 126,094 2,428,483 11,348,614

0 0 0 0 0 0 0 0 0 1,056,851 0 1,056,851 0 0 317,434 88,300 0 405,734 0 4,600,000 0 0 0 4,600,000 6,062,585

0 0 0 0 0 350,000 0 0 0 0 0 350,000 0 0 0 0 0 0 0 0 0 0 0 0 350,000

$55.29 $63.26 $46.52 $60.60 $81.08 $100.70 $73.71 $66.55 $59.88 $51.37 $50.00 $72.03 $0.00 $0.00 $49.69 $52.23 $47.71 $51.11 $0.00 $56.93 $41.07 $46.38 $43.65 $49.53 $68.27

Rental rates reflect $psf/year

MARKET HIGHLIGHTS
SIGNIFICANT 3Q09 NEW LEASE TRANSACTIONS
BUILDING SUBMARKET TENANT SQUARE FEET BLDG CLASS

40 Worth Street City Hall 51 West 52nd Street Sixth Avenue / Rockefeller Center 25 Broadway Financial West SIGNIFICANT 3Q09 SALE TRANSACTIONS
BUILDING SUBMARKET

GAP Orrick, Herrington & Sutcliffe LLP Claremont Preparatory School

BUYER

265,083 215,034 203,000

SQUARE FEET

C A B
PURCHASE PRICE

825 Eighth Westside Avenue/Worldwide Plaza 485 Lexington Avenue Grand Central *49.5% interest SIGNIFICANT 3Q09 CONSTRUCTION COMPLETETION
BUILDING SUBMARKET

WWP Office LLC c/o George Comfort & Sons Gilmore USA & Optibase

1,800,000 921,000

$590,333,250 $504,000,000*

MAJOR TENANT

SQUARE FEET

COMPLETION DATE

510 Madison Avenue Madison/Fifth SIGNIFICANT PROJECTS UNDER CONSTRUCTION

BUILDING SUBMARKET

N/A
MAJOR TENANT

350,000
SQUARE FEET

7/09
COMPLETION DATE

*1 World Trade Center 200 West Street 11 Times Square/640 Eighth Avenue

World Financial World Financial Times Square South

Vantone Industrial Co. Goldman Sachs N/A

2,600,000 2,000,000 1,056,851

2nd Qtr. 2013 1st Qtr. 2010 1st Qtr. 2010

* Formerly known as Freedom Tower

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*Market terms & definitions based on BOMA and NAIOP standards. This report contains information available to the public and has been relied upon by Cushman & Wakefield on the basis that it is accurate and complete. Cushman & Wakefield accepts no responsibility if this should prove not to be the case. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2009 Cushman & Wakefield, Inc. All rights reserved.