Oficina Global 2011

Q2 2011 | OFFICE

Manhattan Office

Market Report

Another Upbeat Quarter for Manhattan statistics. Also, the 3.4 million square feet of net absorption represents a major increase from the modest 0.3 million square feet in the first quarter of 2011; a number that seemed at odds with the active pace of closed leasing transactions and the strength in asking rents.

Local factors offset global concerns

Amid the growing chorus of anxiety about slowing global and national growth rates and the fear that a productive solution to the issue of raising the U.S. debt limit might not be reached in time, activity in the Manhattan office market remained robust in the second quarter of 2011.

Rents also increased in the second quarter, with the overall Manhattan average asking rent up at an annual rate of 11.2 percent.

The average increased in the both the The overall availability rate for Manhattan Midtown North and Midtown South fell to 11.1 percent by the end of the second markets and slipped modestly in 2Q 2010 1Q 2011 2Q 2011 quarter from 11.7 percent at the end of the Downtown. At the district level, the pace 14% 12.7% This sizable net absorption of first quarter. of rent changes showed an efficient 11.7% 11.1% 12% space – 3.4 million square feet – was playing out of market forces. The districts 9.8% distributed across the three9.7%major with very large rent increases over the 9.1% 10% Manhattan markets.

This pervasive trend last few quarters tended to report 8% of positive absorption represents a change substantially slower rent growth in the 6% what was seen in recent previous from second quarter; while, the districts in the quarters when selected districts in the immediate vicinity of the ones with 4% 2.9% 2.0%rapid 1.9% rent growth reported an Midtown North and Midtown South previous 2% markets dominated the net absorption acceleration in asking rents.

New York City’s pivotal role in world economy overwhelms concerns about U.S. federal budget deficit and weak economic growth.

Leasing activity was again robust in the second quarter, reaching 6.9 million square feet; but the velocity was down from the pace in the first quarter of 2011 when it reached a very strong 8.2 million square feet, which was one of the strongest in recent history. The pace during first half of the second quarter seemed to be a continuation of the first quarter’s strong rate, but leasing velocity did slow in the latter half of the second quarter. The pattern of leasing in the second quarter could have been just the

0% Total

Direct

Sublease

Manhattan Rental Rates ($s/sf/year)

18%

16%

14%

12%

$50 $45

2% 0%

$45

12.5%

$55

8% 4%

14%

15.4%

10% 6%

2Q 2010

2Q 2010 2Q 2010 1Q 2011 1Q 2011 2Q 2011 2Q 2011 $60 14.1%

$47.86

$50.18

13.0% 12.5%

$51.59

Manhattan Availability Rates

12%

12.7%

11.7%

$48.06

$47.16 $47.74

$49.84

2Q 2011

11.1% 9.8% 9.7%

10%

$51.96 11.2% $50.69

1Q 2011

9.1%

8% 6% 4%

$40

2.4%

$35

1.6% 1.4%

2.9%

2%

2.0% 1.9%

0%

$30

Total

Total

Direct

2Q 2010

1Q 2011

Direct

www.colliers.com/newyork

Sublease Sublease

Total

2Q 2011

Direct

2Q 2010 $60

1Q 2011

Sublease

2Q 2011

Manhattan Office Leasing REport | Q2 2011

| New York

into negative territory or just continues to limp along.

MANHATTAN: LEASING ACTIVITY 12,000,000

Data as of July 31, 2011; Includes lease transactions of 5,000sf+

Square Feet

10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

result of the natural ebb and flow of the market. On the other hand, some market participants argued that the decline in the stock market and word that there are planned employment reductions in the financial sector caused this pause in leasing activity. With the stock market doing better as the quarter ended and if that trend continues, we would see a rebound in leasing by that logic.

Historically, leasing activity levels in the third quarter are slower as people attempt to enjoy the summer months.

However, our current read on the market is that new and existing space searches continue. Even though asking rents are up over the last year, rent levels remain well below the previous peak levels, motivating tenants to look for space and make a deal.

City’s economy Reports good numbers

Without doubt New York City’s economy continues to outperform the U.S. as a whole. The May 2011 unemployment rate – the latest available – for New York City was 8.6 percent, which was well below the national average of 9.1 percent for the same month. The average for the first five months of the year is 8.8 percent for New York City and 9.2 percent for the U.S. As noted in the past, during much of the 1970s, 1980s and 1990s New York City’s unemployment rate was more than two percentage points above the national average.

2Q 2011

1Q 2011

4Q 2010

3Q 2010

2Q 2010

1Q 2010

4Q 2009

3Q 2009

2Q 2009

1Q 2009

4Q 2008

3Q 2008

2Q 2008

1Q 2008

4Q 2007

3Q 2007

2Q 2007

1Q 2007

0

Restoration of business confidence and competitive rent levels sustain leasing activity.

In addition, the data show that the city has recovered about 50 percent of the jobs lost in the last recession, and actual employment is above the 2007, 2009, and 2010 levels. For the U.S. as a whole, employment growth appears to have stalled, and the nation has recovered less than 20 percent of the jobs lost in 2008 and 2009.

Consumer spending in the city and in New York State as a whole has also staged a good recovery, rising by 7 percent over the last year. In 2010, the number of tourists to New York City reached a new high at 48.7 million; spending by these tourists was close to the 2008 peak. Indications are that the upward trend in tourism continues. Even more significant, personal income tax withholding and payments surged during the first half of 2011. Personal income tax net collections are up over 20 percent year over year.

Going forward though, some caution about the economy is warranted. Even though New York City can outperform the U.S. as a whole, it will be impacted negatively if the national economy slips

2

midtown north stays on track

Midtown North reported a respectable amount of net absorption, with 800,000 square feet removed from the market in the second quarter. This is a major improvement from the amount absorbed in the first quarter of 2011, when it was slightly negative at -100,000 square feet. The overall availability rate declined to 12 percent from 12.3 percent in the first quarter of 2011 and from 12.6 percent one year ago.

The more difficult to measure total vacancy rate (the percentage of actual empty/ unoccupied space) reached 7 percent in the second quarter, which offers further confirmation that space alternatives are diminishing. However, it needs to be remembered that in 2008 the measured vacancy rate averaged 4.3 percent.

Employment and income growth fueled by new industries and global demand for business and personal services found in New York City.

The Plaza district in the Midtown North market recorded a particularly impressive amount of net absorption. Its availability rate fell to 11.2 percent from 11.7 percent in the first quarter. This reduction in availability equates to the net absorption of 400,000 square feet of space. Even at 11.2 percent, though, there is still 9.3 million square feet of available space in this district.

A few buildings in the Plaza district that had been carrying substantial amounts of available space for several years completed major leases in the second quarter that

8% 6% 3.6%

4%

2.8% 2.9%

2% 0%

Midtown North Availability Rate 2Q 2010 14% 12%

TotalRental Rate Trends Direct($s/sf/year) Midtown North

1Q 2011

2Q 2011

2Q2Q 2010 2010 12%

12.6% 12.3% 12.0%

10%

$75 $70

9.5% 9.1%

$65 8%

8%

9.4% 8.8% $61.64

3.6%

4%

$55

2.8% 2.9%

$50

9.0%

$5 $64.93 7.8% $55.44 $56.31 $56.45

4%

$40 0%

0% Total

Direct

Sublease

$4

$59.59

2.0%

$45 2%

2%

$4

8.2%

$63.24

$62.91

$60 6% $58.38

6%

2Q2Q 2011 2011

11.0%

10%

9.0%

1Q1Q 2011 2011

Sublease

$3

1.2% 1.0%

3

$2

$2 TotaTotal l

Dire ct Direct

SuSublease blease

2Q 2010 1Q 2011 2011 2Q 2010 1Q 2011 2011 removed space from the market.

For 2Q After four quarters where the availability major restoration of2Qits headquarters, example, 9 West 57th Street took 170,000 rate remained stuck between 13.8 percent particularly the Secretariat building, and $75 square feet off the market in the second and 13.9 percent, the $50Grand Central its organic growth. $70 quarter, as the result of the signing$64.93 of availability rate declined to$4513.3 percent by $63.24 $62.91 $39.76 $39.92 $65 leases with $61.64 several major private equity the end of the second quarter. In$39.28 this$39.70 $38.19 $40 $37.64 $37.07 $59.59 Market forces $34.56 begin $36.18to $58.38 Another favorite with the highcompanies. district, a number of leases were signed at $60 $56.45 $56.31 $55.44 end financial sector firms is the new and the massive 200 Park $35 Avenue building, drive rents in various $55 boutique-sized 510 Madison Avenue. dropping almost 150,000 $30 square feet from $50 Strong leasing in this building caused the markets. Additionally, the commitment Midtown North submarkets $25 $45 77,000 square feet to be removed from by Wells Fargo at 150 East 42nd Street closer to each other. the removed nearly 200,000 $20 square feet. Also $40 market. A deal signed by SAC Capital Total Direct Sublease Total Direct SubleStreet, ase was a major contributor to the reduction in on 42nd United Nations Women available space at 510 Madison. In addition, took nearly 100,000 square feet at 220 Rents in the Midtown North market pushed to the activity in those two building, Baker East 42nd. The United Nations has been higher again in the second quarter, up at Hostetler took over 100,000 square feet at very active in this market over the last an 8.2 percent annual rate. In the Plaza 630 Fifth Avenue. year, as it takes space to accommodate the district, Class A rents moved up another

UNITED STATES AND NEW YORK CITY UNEMPLOYMENT RATES

$3

8% 8%

6%

6% 3.6%

4%

0%

Total

Direct

2Q2Q 2010 2010 9.4%

8%

$50 $45

9.0%

8.8% $61.64

8.2%

$45

7.8% $64.93

$40

$59.59 $55.44 $56.31 $56.45

$35

4% 2.0%

2%

$40 0%

$30

1.2% 1.0%

$25 $20

TotTotal al

DirDirect ect

2Q 2010

1Q 2011

SSublease ublease

$30

While the rate of rent increase slowed in $25

the Plaza district, some of the other districts in Total the Midtown North market Direct played catch-up with Plaza district rent levels. For example, the average asking Class A rent in the Grand Central district jumped at a 19.2 percent annual rate in the second quarter. Even after that increase, though, the average asking Class A rent in the Plaza district is still 30 percent higher than the average in the Grand Central district, and over the last year the average asking rent in the Grand Central district is up by only 3.8 percent.

$20

In short, Midtown North property fundamentals did well in the second quarter and that was reflected in the pace of leasing activity during the first half of the year. In the first quarter of 2011, gross leasing activity in the Midtown North market was very robust, reaching 4.3 million square feet. However, there was no net absorption of space during that quarter. In the second quarter, the level of leasing activity was solid, but it was down by approximately 25 percent to 3.1 million square feet. As just noted, however, the overall supply/demand balance grew

15.4%

16% 14% 12% $37.07 10%

2011 2Q1Q 2010

14.1% 12.5%

$39.28 $39.70

$37.64

Sublease

2011 1Q2Q 2011

13.0% 12.5% $39.76 $39.92

2Q 2011

11.2% $34.56

8%

$36.18

$38.19

6% 4%

2.4%

2%

1.6% 1.4%

0% Total

2Q 2011

quarter, but the rate of increase in the second quarter was substantially slower $50 at a 3.7 percent annual rate than it was in $45 the first quarter$39.70 when it jumped at an $39.76 $39.92 $39.28 $40 $37.64For the last annual$37.07 rate of 27.3 percent. year, the average asking rent on Class A $35 space is up by 19.6 percent.

Direct

2Q 2010

2Q2Q 2011 2011 $50

$63.24

$62.91

$60 6% $58.38 $55

1Q1Q 2011 2011

Total

18%

$70 $65

Midtown South Rental Rate Trends ($s/sf/year)

Sublease

11.0%

10%

1.2% 1.0%

0%

Midtown South Availability Rate

$75

2.0%

2%

2%

12%

Colliers International

4%

2.8% 2.9%

Direct

Total

2Q 2010

Direct

Sublease Sublease

1Q 2011

2Q 2011

Unabated demand for space in Midtown South brings available space to frictional levels. $45 $40

$34.56

$36.18

$38.19

$35

$37.34 $37.22 $36.60

$38.21 $37.89

$37.34

$32.59 $31.78

$30.52

tighter with 800,000 square $30 feet of net availability fell to 5.4 percent from 6.8 absorption. It is probably too early to form percent, and available Class A space is $25 any major conclusions about these virtually nonexistent. shifts over the last two quarters, but a tentative thought might be to $20 look at the The technology and media sectors continue Sublease Total Direct Sublease cumulative figures for the first two to expand and demand more space. Even quarters to derive a better idea of this the fashion industry seems to have stabilized, feeding on the rapidly growing market’s intrinsic strength. global market. intense demand for space in midtown south Two years ago the availability rate in the Hudson Square district was close to 20 In the Midtown South market, net percent. This area has seen a dramatic absorption was one million square feet; improvement, with the rate down to 12.2 driving the availability rate down to 8.8 percent at the end of the second quarter. percent from 9.4 percent in the first This district has become a hub for quarter of 2011. Total availability peaked at publishing firms, and Penguin Young 11.6 percent in late 2009. At the end of the Reader Group took nearly 150,000 second quarter, only 12.2 percent of the square feet of space at 345 Hudson available space was in the sublet category, Street in the second quarter. Another which is comparable to the level in 2008. market with a dramatic improvement is the Penn Plaza district. It had an In a few of the Midtown South districts availability rate of 10.5 percent at the end tenants are beginning to see only a of the second quarter, which again is frictional level of space availability; excess down from over 15 percent only several space has virtually disappeared from the years ago. market. In the Chelsea district, for example, the availability rate is down to The overall vacancy rate in the Midtown 7.4 percent from 8.7 percent in the first South market fell to 4.8 percent in the quarter. Tommy Hilfinger U.S.A., for second quarter, putting it at the 2008 example, took nearly 50,000 square feet level. With all these measures showing a on 26th Street. For Gramercy Park the tight supply/demand balance for space,

4

6%

8%

4%

6% 2.0%

2%

4%

1.2% 1.0%

0%

50

45

40

35

30

Total Direct Downtown Availability Rate

18% 16%

2Q 2010 15.4%

14%

2Q1Q 2010 2011

14.1% 12.5%

12%

$39.28 $39.70

$37.07 10%

$37.64

0%

Sublease

1Q2Q 2011 2011

13.0% 12.5% $39.76 $39.92

8%

Total Rate Trends Direct Downtown Rental ($s/sf/year)

2Q 2011

14% $45

11.2% $34.56

$40 $36.18

$38.19 $35

6%

$30

4%

25

2%

20

0%

2.4%

Total

Total

Direct

2Q 2010

$40

$37.34 $37.22 $36.60

1.6% 1.4%

Direct

Sublease Sublease

1Q 2011

2Q 2011

one would expect to see a very large jump in the average asking rent during $45 the second quarter, which did not happen. $38.21 $37.89

$37.34

The average asking rent was up in the $35 second quarter by a relatively modest annual rate of 4.3 percent. With the $30 availability rate now so low in some of the $25 Midtown South’s districts, it may be that a selection bias is holding the average asking $20 rent down. The the more Total prebuilts and Direct sought after locations on the avenues are largely now leased and off the market. The average asking rent may reflect a set of space alternatives that usually lease for lower rents. As a result, the quarter to quarter changes in the average asking rent distort the actual trend in asking rents in specific buildings. Our own knowledge of this market indicates that there is still considerable upward pressure on rents in the competitive buildings in the Midtown South market.

Downtown market continued to attract firms outside the financial sector.

Leasing activity in the second quarter was nearly as active as in the first quarter of 2011. The media companies (both old and new) were especially active.

Colliers 2.4% International 1.6% 1.4%

2%

2Q 2010 12.7%

12%

11.7%

2Q 1Q 2010 2011

1Q 2Q 2011 2011

2Q 2011

11.1% 9.8% 9.7%

10%

$37.34 $37.22 $36.60

Sublease

$38.21 $37.89

$37.34

9.1%

8%

$32.59 $31.78

6% 4%

$25

2%

$20

0%

$30.52

2.9%

Total

Total

Direct

2Q 2010

2.0% 1.9%

Direct

Sublease Sublease

1Q 2011

2Q 2011

restrain the growth and range of activities of financial institutions, particularly the very largest companies, slows or even $55 $51.96 $51.59 these financial prevents institutions from$49.84 $50.69 $50.18 $48.06 $47.86 $50 $47.74 major crosscurrents expanding. For the Downtown market, $47.16 $32.59 $31.78 in the downtown market $45 this is an important question because the $30.52 financial sector still represents over one$40 The most dramatic turn around in quarter of its total occupancy. performance during the second $35quarter was in the Downtown market; where the Relative to the size of the market, the $30 availability rate went from 14.1 percent in Total Downtown market was the most Sublease active Direct Sublease the first quarter of 2011 to 12.5 percent during the second quarter. In addition to in the second quarter. Over half of this the two transactions mentioned above, decline was attributable to the Conde several insurance companies signed for Nast transaction at One World Trade substantial blocks of space. The Clinton Center. There were, additionally, other Foundation also agreed to take space in large transactions; Wilmer Hale’s deal at 77 Water Street.

7 World Trade Center, for example.

Going forward, however, it is far from The average asking rent declined from clear that the Downtown market can the level in the first quarter, and the fall hold this improvement. Nomura was across nearly all property classes Securities is moving to the Midtown and districts. The amount of the decline North market at 825 Eighth Avenue, was modest, about $0.62/sf, and again it leaving the World Financial Center in may be just statistical noise. However, Downtown. Also, it has become known the regulatory news about the financial that Merrill Lynch will renew for less institutions has turned more negative, than half of the space it now occupies in and concerns about the strength of the the World Financial Center. economic recovery are growing, so it is possible that landlords in this section of It is not unusual for financial companies the Manhattan property market that is so to move or adjust their occupancies in sensitive to the direction of the financial various locations. The question for the sector decided to become more Downtown market is whether the drive aggressive in attracting and closing by the various government regulators to deals with tenants.

Additionally fashion/personal care companies completed some major $60 deals, including Coty at the Empire State Building.

Colliers International NY LLC is the New York - New Jersey - Connecticut hub of the world’s third largest commercial real estate services organization. Our company is a leading provider of specialized realty services, including tenant advisory services, owner representation, corporate services, capital markets, retail, industrial, consulting, financial services, asset management and project management. With nearly 300 employees and offices in Manhattan, New Jersey and Connecticut, advised on more than $4.5 billion in sale, lease and capital markets transactions over the last 12 months. The firm manages more than 16 million square feet of prime commercial property in the tri-state region.

For more information, please visit the Colliers International web site at www.colliers.com.

Information contained herein has been obtained from sources that we deem reliable. We have no reason to doubt its accuracy, but we do not guarantee it. Some statements in this report are forward-looking statements or statements regarding future events, which involve risk and uncertainty, and there can be no assurance that the results described in such statements will be realized.

5

Manhattan Office Leasing REport | Q2 2011 UPDATE SUBMARKET COMPARISONS

| New York

2Q 10

3Q 10

4Q 10

1Q 11

2Q 11

Class A

13.4%

13.1%

12.9%

13.1%

Class B

8.3%

8.4%

8.5%

Class C

9.5%

9.6%

Class A

$59.86

Class B

Change:

Last Year

Last Qtr

12.9%

-0.5

-0.2

pp

7.7%

6.6%

-1.7

-1.1

pp

10.0%

10.4%

10.4%

0.9

0.0

pp

$60.22

$61.23

$63.35

$64.40

7.6%

1.7%

$43.18

$43.43

$43.50

$43.29

$43.16

-0.1%

-0.3%

Class C

$33.77

$33.32

$33.18

$31.69

$32.86

-2.7%

-3.7%

Leasing Activity (Qtr)

Total

3,807,092

4,136,354

4,567,407

4,282,712

3,117,523

-18.1%

-27.2%

Absorption (Qtr)

Total

1,923,779

495,326

321,806

(99,766)

768,020

60.1%

nm

MIDTOWN NORTH Availability Rate (%)

Asking Rental Rate

Class A

14.5%

13.3%

11.4%

9.6%

8.9%

-5.6

-0.7

Class B

10.3%

9.4%

8.9%

9.4%

8.7%

-1.6

-0.7 pp

Class C

10.0%

10.0%

9.4%

9.4%

9.0%

-1.0

-0.4

Class A

$43.84

$44.28

$44.93

$47.33

$47.90

9.3%

1.2%

Class B

$36.29

$37.93

$38.31

$39.70

$40.16

10.7%

1.2%

Class C

$31.13

$30.09

$30.48

$31.35

$31.84

2.3%

1.6%

Leasing Activity (Qtr)

Total

2,054,717

1,572,304

1,172,601

2,202,691

1,896,159

-7.7%

-13.9%

Absorption (Qtr)

Total

(20,879)

1,133,950

1,355,541

196,789

1,002,877

nm

nm

Class A

17.0%

15.7%

15.7%

15.2%

13.0%

-4.0

-2.2

pp

Class B

11.6%

10.9%

11.3%

11.2%

11.1%

-0.5

-0.1

pp

Class C

11.4%

11.5%

8.1%

12.7%

12.8%

1.4

0.1

pp

Class A

$38.57

$38.00

$37.97

$38.48

$37.67

-2.3%

-2.1%

Class B

$32.88

$32.98

$31.80

$33.74

$33.19

0.9%

-1.6%

Class C

$29.16

$34.54

$31.13

$31.73

$31.73

8.8%

0.0%

Leasing Activity (Qtr)

Total

1,486,791

1,026,990

542,353

1,668,376

1,863,156

25.3%

11.7%

Absorption (Qtr)

Total

(1,648,044)

1,240,372

3,592

165,171

1,663,894

nm

nm

Class A

14.4%

13.8%

13.5%

13.2%

12.5%

-1.9

-0.7

pp

Class B

10.1%

9.5%

9.3%

9.4%

8.7%

-1.4

-0.7

pp

Class C

10.1%

10.1%

9.3%

9.9%

9.4%

-0.7

-0.5

pp

Class A

$52.56

$52.28

$53.61

$55.65

$57.05

8.5%

2.5%

Class B

$36.40

$37.82

$37.62

$38.75

$38.89

6.8%

0.4%

Class C

$31.38

$30.89

$30.82

$31.76

$32.53

3.7%

2.4%

Leasing Activity (Qtr)

Total

7,348,600

6,735,648

6,282,361

8,153,779

6,944,421

-5.5%

-14.8%

Absorption (Qtr)

Total

254,856

1,680,939

262,194

3,434,791

nm

nm

Asking Rental Rate

pp

pp

Asking Rental Rate

Asking Rental Rate

pp: percentage points nm: not meaningful

2,869,648

Downtown Manhattan 1 Liberty Plaza New York, NY 10006 212.716.3500

Central New Jersey 100 Overlook Center Princeton, NJ 08540 609.269.1111 Connecticut 1055 Washington Boulevard Stamford, CT 06901 203.324.0800 Long Island Nassau County 1981 Marcus Avenue, E104 Lake Success, NY 11042 516.328.6500 Long Island Suffolk County 200 Thirteenth Avenue Ronkonkoma, NY11779 631.389.2900

MANHATTAN Availability Rate (%)

136 Madison Avenue New York, NY 10016 212.716.3500

Northern New Jersey 119 Cherry Hill Road Parsippany, NJ 07054 973.299.3000

DOWNTOWN Availability Rate (%)

Peter P. Kozel, Ph.D. Executive Managing Director / Chief Economist 212.716.3853 peter.kozel@colliers.com

Midtown Manhattan 380 Madison Avenue New York, NY 10017 212.716.3500

MIDTOWN SOUTH Availability Rate (%)

Mark A. Jaccom Chief Executive Officer 212.716.3737 mark.jaccom@colliers.com

Information contained herein has been obtained from sources that we deem reliable. We have no reason to doubt its accuracy, but we do not guarantee it. Some statements in this report are forward-looking statements or statements regarding future events, which involve risk and uncertainty, and there can be no assurance that the results described in such statements will be realized.

Accelerating success.