Property & Building : PRESENTATION-NYC office market

Manhattan

Office Perspectives

Prepared for 452 Fifth Avenue

Research

New York March 2024

jll.com

NYC office market: 5 Themes to know

Leasing activity in 2023 ends on a high note

• Leasing activity in Q4 totaled almost 7.4 million s.f., making it 2023's strongest quarter.
• This brings total leasing activity in 2023 to 23.1 million s.f.

Financial services and law firms drove more than half of leasing activity in 2023

• Financial services companies and law firms represented more than 52% of leasing volume.

Overall vacancy in Manhattan increased but availability remains stable.

• Overall vacancy increased by 50 basis points to 17.0%.
• The majority of this is due to the completion of PENN 2 and One Madison, totaling 3.2M s.f., although anticipated.

Source: JLL Research

2 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

Overall Manhattan direct asking rents continue to correct slowly

• Direct asking rents declined slightly by $0.84, or 1% since last quarter to $81.00 p.s.f.
• Downtown has seen the steepest correction in direct asking rents, decreasing by almost 11% since Q1 2020, from $69.08 to $61.65 p.s.f.
• Midtown rents however have stayed more resilient with direct rents at $86.67 p.s.f..

The development pipeline has narrowed significantly

• With most of the space under construction already leased or owner- occupied, the amount of available space in new construction will continue to fall to under 2.5M s.f. This is forcing demand into the best available space into existing, highly-improved buildings.

Top of market demand shows resiliency, as tenants continue the flight to quality

• 73% of leasing volume in 2023 took place in properties with a major amenity
• Select Midtown submarket Trophy and A properties see their lowest vacancy rates in history.

Manhattan submarket overview

.

Trophy, Class A & B	M I D T O W N	M I D T O W N S O U T H	D O W N T O W N	O V E R A L L
Inventory	293.3M s.f.	82.9M s.f.	97.5M s.f.	473.6M s.f.
Direct vacant	36.6M s.f.	11.4M s.f.	13.6M s.f.	58.2M s.f.
Sublease vacant	9.7M s.f.	3.5M s.f.	5.7M s.f.	18.9M s.f.
Current Vacancy	15.8%	18.0%	19.8%	17.0%
Direct Average	$86.67/s.f.	$85.37/s.f.	$61.65/s.f.	$81.00/s.f.
Asking Rent

Source: JLL Research

3 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

Leasing volume and inventory

Leasing volume in 2023 exceeded 2020 and 2021 but fell 15% below 2022 total leasing volume as uncertainty around interest rates and the economy generally weighed down on the market for most of the year.

	50M	1996-2001 Average Volume																								480M
			40.8 M s.f.				2004-2006 Average Volume
	45M									37.7 M s.f.							2010-2019 Average Volume
						Dot-com											35.0 M s.f.
																									460M
	40M						Correction
	35M											Financial															440M
Leasing volume (s.f.)	30M												Crisis
																												Inventory (s.f.)
25M																								COVID-19	27.1M		420M
20M																										23.1M
																										400M
	15M
	10M																												380M
	5M
	0																												360M
	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023

Source: JLL Research

4 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

New York City employment at an all-time high

The city's unemployment rate continues to trend down.

	4800											14.0%
							4.6 Million	12.3%			4.7 Million
										12.0%
(in '000s)	4600
											10.0%
Employed Population	4400											Unemployment Rate
8.0%								7.7%			8.0%
4200
	6.2%								5.4%		6.0%
4000		5.2%	4.7%						5.2%
Total			4.3%	4.3%	4.1%					4.0%
	3800											2.0%
	3600											0.0%
	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
					Total Employment		Unemployment Rate

Note: Numbers reflect unemployment rate and all non-farm employment numbers in January of each given year.

Source: JLL Research; New York State Department of Labor; U.S. Department of Labor 5 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

NYC firms are hiring, overwhelmingly for in-office jobs

In-office jobs dominate the share of job postings in the city, as firms continue to want employees in the office.

Number of job postings, remote and non-remote

Available Jobs

300000

per available worker

250000

Management

Biz & Financial Ops

200000

1.8

2.5

Jobs per

Jobs per

150000

unemployed

unemployed

worker (Dec 2023)

worker (Dec 2023)

100000

Computer & Math

Legal

50000

8.5

2.6

Jobs per

Jobs per

unemployed

unemployed

0

worker (Dec 2023)

worker (Dec 2023)

Mar-20

May-20

Jul-20

Sep-20

Nov-20

Mar-21

May-21

Jul-21

Sep-21

Nov-21

Mar-22

May-22

Jul-22

Sep-22

Nov-22

Mar-23

May-23

Jul-23

Sep-23

Nov-23

Jan-20

Jan-21

Jan-22

Jan-23

Jan-24

Remote

Non-Remote

Source: JLL Research; Lightcast; New York State Department of Labor 6 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

Leasing trends reflect the importance of amenities

Buildings with amenities attract more leasing activity and higher rents in general, with social and wellness amenities becoming more popular.

73%

of leasing activity in 2023

was within

amenitized properties

Top of Market leasing by amenity, pre- and post-COVID

70%
60%
50%		51.7%								53.3%
40%	40.3%		39.5%					48.9%
30%		33.1%	38.7%
20%	28.8%
10%							12.2%	17.3%
0%
	Conference Center	Tenant Lounge		Gym	Proximity to Transit	Outdoor Space
	+11.4%	+10.7	+5.6	+5.1	+4.4

Pre-COVID		Post-COVID

Note: Major amenities include a gym, conference center, tenant lounge, tenant-only outdoor space, restaurant, parking garage, event space.

Source: JLL Research

7 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

Tenant demand for amenitized buildings has resulted in:

Representative Amenities

Source: JLL Research

8 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

Historic Manhattan new construction

The wave of new construction, driven by Hudson Yards, mirrored the NYC pipeline (1960-1990); reduced supply anticipated over the next 5-10 years.

14M

Average Annual Delivery per Decade

1960-1989: 6.2M SF

12M

2000-2017: 1.9M SF

11.6M

10M

2018 -2023: 7.8M SF

(s.f.)

2024-2029: 1.7M SF

9.4M

8.3M

7.9M

Financial Crisis

development

8M

6.4M 6.3M

5.7M

6.1M

6M

5.3M

5.0M

4.9M

New

3.6M

4M

3.0M

3.2M

2.6M

2.6M

2.3M

2.9M

2.1M

2.1M

1.4M

1.8M

2M

1.2M

1.0M

0.7M

0.7M

0.7M

0

0

0

0.1M 0.3M

0.3M

0

60's

70's

80's 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Note: Delivered is a property that underwent full renovation or new construction that can be occupied; Under Renovation is an existing property that is undergoing a renovation that fully repositions the building in the market; Under Construction is a property that is currently in the process of being built from ground up; Planned On Hold is a property that is ready to be built on spec but currently can't do to various internal or external factors;

Proposed, Needs Anchor is a property that is ready to be built, but needs an anchor tenant before it can continue; Speculative is a property that is a proposed development that is either unlikely to be developed or is planned far into the future Source: JLL Research

9 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

1.8M

2029

DEVELOPMENT

PROJECTS ON HOLD

New development slows significantly - high construction costs/interest rates

Nearly 40M s.f. has been delivered in the past 5 years, but the pipeline of new supply over the next 5 years is expected to be around one-fifth this amount, as the cost to build continues to rise and projects are put on hold.

	14M
	12M					11.6M
	10M	9.4M								7M s.f.
(s.f.)	8.3M
			7.9M					over next 5 years
New development	8M
6M		6.1M
4M			3.6M
					2.9M	3.2M
	2M									1.0M
									0.7M
										0.3M
	0
	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028
			Delivered		Under Renovation	Under Construction		Planned On Hold

35.8M

TBD

40M

35M

30M

25M

20M

15M

10M

5M

0

Note: Delivered is a property that underwent full renovation or new construction that can be occupied; Under Renovation is an existing property that is undergoing a renovation that fully repositions the building in the market; Under Construction is a property that is currently in the process of being built from ground up; Planned On Hold is a property that is ready to be built on spec but currently can't do to various internal or external factors;

Proposed, Needs Anchor is a property that is ready to be built, but needs an anchor tenant before it can continue; Speculative is a property that is a proposed development that is either unlikely to be developed or is planned far into the future Source: JLL Research

10 | © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.