November 5, 2012

THE EFFECTIVE RENT REPORT Manhattan Office Market 2012 Q3 Manhattan

Class A Effective Rents* Drop 7.10% in Q3; Overall Effective Rents Increase by 1.23%
Pre-election jitters combined with economic uncertainty resulted in a meaningful 7.1 percent decrease in Class A effective rents in the third quarter of 2012. The average Class A effective rent in Manhattan was $58.42 in Q3. This number represents a 2.5 percent increase over the average 2011 Class A rents in Manhattan, but is a significant drop from Q2 Average effective rents of $62.88 per square foot. However, as has been seen throughout the past year, the Technology, Media, and Advertising sector bolstered the Manhattan market with continued effective rent increases in Midtown South and an overall increase in Class B taking rents of 6.83 percent, to an average of $40.12 per square foot. On the whole, the Manhattan office market experienced another quarter of growth with effective rent increasing by an average of 1.23 percent quarter over quarter, reaching $49.64 per square foot.
Manhattan Office Effective Rent Trend $/SF
65 60 55
Midtown South Office Effective Rent, Free Months and TI Rent/SF
60 50 40 30 20 10 0
2011Q4 2012Q1 2012Q2 2012Q3

Midtown South Sees another Quarter of Increases in Rents, Decreases in Concessions

Since Q2 the average effective rent in Midtown South increased 6.68% to $47.98 PSF. This is the sixth consecutive quarter of growth in effective rent for the Midtown South, a market driven by rapidly growing tenants in Technology, Media and Advertising. Additionally, the average free rent concession package decreased from four months to three in the past year, and tenant improvement allowances decreased from the high teens per square foot to the low teens in the last three quarters. The combination of escalating rents and decreasing concessions signals that landlords are in an increasingly strong position when negotiating rents with tenants. As has been seen throughout the past year, Midtown South showed the strongest market growth in the third quarter.

Month
10 9 8 7
6

50 45
40 35 30 25

5 4 3 2 1 0

Class A

Class B

Overall

freeMonths

effectiveRate

ti

Midtown: Effective Rents Drop 4.25%; TI and Free Months both increase
In Q3 the Midtown market softened as average effective rent decreased 4.25 percent quarter over quarter to $54.98 per square foot. Landlord concessions also increased. Tenant improvement allowances increased from $20.86 PSF to $25.13 PSF and free rent increased to an average of 4.63 months. These changes mostly affected Class A office buildings, which saw the spread between asking rent and effective rent increase by $2.00 PSF.

The Spread between Asking Rents and Effective Rents Increases in Midtown, Decreases in Midtown South
While the average asking rent in Midtown only dropped slightly to $65.71 PSF, effective rents dropped significantly to $54.98 PSF. As a result the spread between asking rents and effective rents in this submarket increased by $2.40 PSF in Q3 and reached $10.72 PSF. On the other hand, Midtown South favored landlords as the spread between asking and effective rents decreased by $1.78 PSF in Q3 and reached $3.20 PSF. The asking to affective-rent spread in the Downtown market also decreased slightly while overall Manhattan spreads were flat.

Midtown Office Effective Rent, Free Months and TI Rent/SF

70 60 50 40 30 20 10 0 2011Q4 2012Q1 2012Q2 2012Q3

Spread between effective and asking rent

Month
10 9 8 7 6 5 4
3

12 12 10 10 8 6 4 2 0 8 6 4 2 0 Manhattan Overall Manhattan Overall Downtown Downtown 2012Q2 Midtown Midtown 2012Q3 Midtown South Midtown South

$/SF $/SF

2 1 0

freeMonths

effectiveRate

ti

* Effective Rent takes into consideration the rent paid for

every year of the lease, as well as landlord concessions such as free months and tenant improvement allowance.

THE EFFECTIVE RENT REPORT: Manhattan Office Market 2012 Q3 was produced by CompStak, Inc. and Wei-Chen Yu, a graduate student at the New York University Schack Institute of Real Estate. For comments or questions, please contact Danny Shachar Danny@CompStak.com or Wei Chen Yu wcy215@nyu.edu

2012 Manhattan Office Market Quick Facts Effective Submarket Quarter TI Rate Q1 46.83 17.40 Overall Q2 49.03 19.05 Q3 49.64 22.53 Q1 51.10 15.54 Midtown Q2 57.42 20.86 Q3 54.98 25.14 Q1 39.00 16.94 Midtown Q2 44.97 14.86 South Q3 47.98 11.87 Q1 33.39 29.26 Downtown Q2 32.26 18.58 Q3 34.04 22.09

Free Months 3.57 3.72 4.44 3.31 3.67 4.64 3.73 3.09 3.07 4.76 4.43 4.95

Term
(Month)

88 90 96 84 90 97 88 82 90 111 98 99

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