New York City’s Vacancy Increases to 7.6%

Net Absorption Positive 1,607,491 SF in the Quarter

The New York City Office market ended the fourth quar-
ter 2009 with a vacancy rate of 7.6%. The vacancy rate
was up over the previous quarter, with net absorption
totaling positive 1,607,491 square feet in the fourth quarter.
Vacant sublease space increased in the quarter, ending the quarter
at 7,269,203 square feet. Rental rates ended the fourth quarter
at $43.63, a decrease over the previous quarter. A total of two
buildings delivered to the market in the quarter totaling 2,040,902
square feet, with 9,031,930 square feet still under construction at
the end of the quarter.

Absorption

Net absorption for the overall New York City office market
was positive 1,607,491 square feet in the fourth quarter 2009.
That compares to positive 236,629 square feet in the third quarter
2009, negative (964,780) square feet in the second quarter 2009,
and negative (3,912,036) square feet in the first quarter 2009.
The main reason for these positive absorption numbers is the
delivery of two large buildings in the third and fourth quarters.
The 2,119,441 square foot Bank of America Tower delivered
during the third quarter while the 2 million square foot Goldman
Sachs headquarters building delivered during the fourth quarter.
Tenants moving out of large blocks of space in 2009
include: Ogilvy & Mather moving out of 534,154 square feet
at Worldwide Plaza; the Goldman Sachs Group Inc. moving out
of 498,546 square feet at Continental Center; and Sonnenschein,
Nath & Rosenthal moving out of 298,596 square feet at 1221
Avenue of the Americas.
Tenants moving into large blocks of space in 2009 include:
The Goldman Sachs Group, Inc. moving into 1,395,330 squarefeet
at 200 West Street; Ogilvy & Mather moving into 554,800
square feet at 636 11th Ave; and United Nations moving into
511,335 square feet at 380 Madison Ave.
The Class-A office market recorded net absorption of posi-
tive 1,681,414 square feet in the fourth quarter 2009, compared
to positive 977,218 square feet in the third quarter 2009, negative
(956,926) in the second quarter 2009, and negative (2,566,522)
in the first quarter 2009.
The Class-B office market recorded net absorption of posi-
tive 39,509 square feet in the fourth quarter 2009, compared to
negative (447,694) square feet in the third quarter 2009, negative
(283,956) in the second quarter 2009, and negative (898,452) in
the first quarter 2009.
The Class-C office market recorded net absorption of nega-
tive (113,432) square feet in the fourth quarter 2009 compared to
negative (292,895) square feet in the third quarter 2009, positive
276,102 in the second quarter 2009, and negative (447,062) in
the first quarter 2009.

Vacancy

The office vacancy rate in the New York City market area
increased to 7.6% at the end of the fourth quarter 2009. The
vacancy rate was 7.5% at the end of the third quarter 2009, 7.2%
at the end of the second quarter 2009, and 7.0% at the end of the
first quarter 2009.
Class-A projects reported a vacancy rate of 8.3% at the end
of the fourth quarter 2009, 8.3% at the end of the third quarter
2009, 7.9% at the end of the second quarter 2009, and 7.5% at
the end of the first quarter 2009.
Class-B projects reported a vacancy rate of 6.5% at the end of the
fourth quarter 2009, 6.5% at the end of the third quarter
2009, 6.2% at the end of the second quarter 2009, and 6.0% at
the end of the first quarter 2009.
Class-C projects reported a vacancy rate of 7.0% at the end
of the fourth quarter 2009, 6.8% at the end of third quarter 2009,
6.5% at the end of the second quarter 2009, and 6.9% at the end
of the first quarter 2009.

Largest Lease Signings

The largest lease signings occurring in 2009 included: the
approximately 585,000-square-foot lease signed by Paul Weiss
Rifkind Wharton & Garrison, LLP at the PainWebber Building
in the Midtown market; the 242,464-square-foot deal signed
by Wachtell, Lipton, Rosen & Katz at the CBS Building in the
Midtown market; and the 228,417-square-foot lease signed by
Polo Ralph Lauren Corporation at 650 Madison Avenue in the
Midtown market.

Sublease Vacancy

The amount of vacant sublease space in the New York City
market increased to 7,269,203 square feet by the end of the fourth
quarter 2009, from 6,943,716 square feet at the end of the third
quarter 2009. There was 7,021,929 square feet vacant at the end
of the second quarter 2009 and 6,652,568 square feet at the end
of the first quarter 2009.
New York City’s Class-A projects reported vacant sublease
space of 5,976,974 square feet at the end of fourth quarter 2009,
up from the 5,632,204 square feet reported at the end of the third
quarter 2009. There were 5,618,779 square feet of sublease space
vacant at the end of the second quarter 2009, and 5,268,703
square feet at the end of the first quarter 2009.
Class-B projects reported vacant sublease space of 1,081,226
square feet at the end of the fourth quarter 2009, down from
the 1,122,326 square feet reported at the end of the third quar-
ter 2009. At the end of the second quarter 2009 there were
1,207,935 square feet, and at the end of the first quarter 2009
there were 1,170,970 square feet vacant.
Class-C projects reported increased vacant sublease space
from the third quarter 2009 to the fourth quarter 2009. Sublease
vacancy went from 189,186 square feet to 211,003 square feet
during that time. There was 195,215 square feet at the end of the
second quarter 2009, and 212,895 square feet at the end of the
first quarter 2009.

Rental Rates

The average quoted asking rental rate for available office
space, all classes, was $43.63 per square foot per year at the end
of the fourth quarter 2009 in the New York City market area.
This represented a 11.5% decrease in quoted rental rates from
the end of the third quarter 2009, when rents were reported at
$49.32 per square foot.
The average quoted rate within the Class-A sector was
$50.85 at the end of the fourth quarter 2009, while Class-B rates
stood at $40.30, and Class-C rates at $35.26. At the end of the
third quarter 2009, Class-A rates were $60.18 per square foot,
Class-B rates were $43.04, and Class-C rates were $36.90.
The average quoted asking rental rate in New York City’s
CBD was $40.60 at the end of the fourth quarter 2009, and
$44.60 in the suburban markets. In the third quarter 2009, quot-
ed rates were $41.80 in the CBD and $51.47 in the suburbs.
Deliveries and Construction
During the fourth quarter 2009, two buildings totaling
2,040,902 square feet were completed in the New York City
market area. This compares to three buildings totaling 2,200,029
square feet that were completed in the third quarter 2009, two
buildings totaling 342,650 square feet completed in the second
quarter 2009, and nothing completed in the first quarter 2009.
There were 9,031,930 square feet of office space under con-
struction at the end of the fourth quarter 2009.
Some of the notable 2009 deliveries include: Bank of
America Tower, a 2,118,441-square-foot facility that delivered
in third quarter 2009, and Goldman Sachs Headquarters, a
2,000,000-square-foot building that delivered in fourth quarter
2009.
The largest projects underway at the end of fourth quarter
2009 were Freedom Tower, a 2,600,000-square-foot building
and World Trade Center - Tower Three, a 2,233,000-square-foot
facility.

Inventory

Total office inventory in the New York City market area
amounted to 529,637,440 square feet in 3,706 buildings as of
the end of the fourth quarter 2009. The Class-A office sector
consisted of 295,775,429 square feet in 461 projects. There were
1,432 Class-B buildings totaling 154,854,043 square feet, and the
Class-C sector consisted of 79,007,968 square feet in 1,813 build-
ings. Within the Office market there were 184 owner-occupied
buildings accounting for 8,830,726 square feet of office space.

Sales Activity

Tallying office building sales of 15,000 square feet or larger,
New York City office sales figures rose during the third quarter
2009 in terms of dollar volume compared to the second quarter
of 2009.
In the third quarter, four office transactions closed with
a total volume of $777,350,000. The four buildings totaled
2,801,895 square feet and the average price per square foot
equated to $277.44 per square foot. That compares to two trans-
actions totaling $282,600,000 in the second quarter 2009. The
total square footage in the second quarter was 627,438 square
feet for an average price per square foot of $450.40.
Total office building sales activity in 2009 was down com-
pared to 2008. In the first nine months of 2009, the market saw
11 office sales transactions with a total volume of $2,025,600,000.
The price per square foot averaged $366.23. In the same first nine
months of 2008, the market posted 55 transactions with a total
volume of $12,071,420,077. The price per square foot averaged
$793.71.
Cap rates have been higher in 2009, averaging 5.29% com-
pared to the same period in 2008 when they averaged 4.19%.
One of the largest transactions that has occurred within
the last four quarters in the New York City market is the sale of
Worldwide Plaza in New York. This 1,700,000-square-foot office
building sold for $605,000,000, or $355.88 per square foot. The
property sold on 7/22/2009, at a 6.28% cap rate.