2Q 2008 Market Update - The Softening Begins…

Second Quarter 2008 Market Update

Tenant’s Viewpoint

We expect the market to continue to soften over the next 12-18 months as more space is placed on the market for sublease and landlords will be far less likely to recapture space. This competition will ultimately affect landlords as they struggle to keep tenants who are willing to relocate. For those tenants looking at renewal alternatives, this period of unrest could present a significant opportunity. Tenants should do their planning early to prepare them for opportunities as they arise.

Market Overview

The commercial real estate market is showing the initial signs of weakening as economic news remains negative. Landlords continue to maintain high asking rents, but we are beginning to see greater concessions and more negotiability in lease transactions. Significant amounts of sublease space are expected to be put on the market. In the Grand Central area alone, we can identify over 1,000,000 rentable square feet (”rsf”) which will come to market shortly. This large addition of inventory will have a ripple effect throughout the midtown market and beyond. Vacancy rates have increased slightly in all areas except Downtown class B which improved marginally.

Trends & Statistics

Midtown
Midtown Class A vacancy rates increased from 4.7% to 5.0% in the last quarter. Asking rents for class A remained relatively flat at $84.11/rsf. Midtown Class B vacancy increased slightly to 4.5%, with a slight reduction in asking rents to $53.17/rsf. Q1 net absorption was negative for both Class A (-505,027 s.f.) and Class B (-186,695 s.f.)

Midtown South (Class A & B)
Vacancy of combined Class A and B space increased for the first time to 4.4% with asking rents remaining relatively flat at $54.41/rsf. For the first time in a long period, net absorption in midtown south was negative (-115,025 s.f.)

Downtown
Class A vacancy increased from 4.7% to 5.9% with a slight reduction in asking rents from $52.94/rsf to $52.62/rsf. Negative Net absorption for the second quarter was relatively high at -663,753 s.f. Class B experienced a slight drop in vacancy from 10.1% to 10% and an increase in asking rents from $47.41/rsf to $48.36/rsf. Downtown Class B was the only submarket with positive absorption for the quarter (54,269 rsf.)

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