Q1 2015 U.S. office market statistics, trends and outlook

Fundamentals tighten, furthering

shift in favor of landlords

United States Office Review Q1 2015

Despite slower activity in the first quarter, office markets across the U.S. are on the brink of a tipping point as evidenced by more expansionary leasing activity and consistently-increasing tour velocity. Landlords are responding by increasing rents aggressively, with first quarter rent growth posting the highest increase of the recovery so far, by a multiple of three.

Market fundamentals are tightening, shifting negotiating leverage

more broadly in landlords’ favor

2

Source: JLL Research

Leasing activity • Leasing activity overall inched ahead slightly from last quarter, but compared to more recent quarters remains

low. Conversely, expansionary activity is on the rise, which will ultimately result in greater net absorption than

recent years in which renewals and contractions were more common.

Absorption

• Absorption fell to a post-recession low of 6.3 million square feet in the first quarter, but the rapid acceleration of

expansionary leasing, especially among large-block occupiers, will likely result in a spike in absorption by the

end of the year. As more and more large tenants ink expansion deals, the time between lease signing and

physical absorption of space will grow as tenants need greater lead time to relocate.

Vacancy • A reduced level of quarterly absorption, combined with 9.4 million square feet of completions, kept vacancy

stable at 15.6 percent. Vacancy in particular ticked marginally upward in CBD properties, while suburban

markets saw decreases in total vacancy.

Rents

• Rents jumped by 3.1 percent across the country, with CBDs seeing a 6.1-percent bump in asking rents.

Landlords are becoming increasingly aggressive and confident, reducing tenant leverage in the process.

• The gap between CBD and suburban rents widened after narrowing somewhat in 2014 and now rests at

$16.21 per square foot. Similarly, Class A space commands a $5.13-per-square-foot premium.

Construction

• Construction activity has more than doubled over the course of the year as market conditions tighten and

reduced space options are pushing up asking rents. While 72.1 million square feet of space will come to the

market over the next two years, only 50.7 percent is available due to high preleasing rates. Further, new

construction is commanding a 22.8-percent premium in terms of asking rents.

Leasing activity

Leasing activity was relatively flat in Q1, but more tenants are

expanding rather than renewing

4

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Leas

ing

activ

ity (

s.f.)


Leasing activity inched ahead in Q1, but down from previous

quarters

5

258,547,529

246,521,385

228,764,145

275,274,581

282,356,988

234,094,033

249,187,644

236,140,690

54,915,752

0 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 300,000,000

2007

2008

2009

2010

2011

2012

2013

2014

YTD 2015

Leasing activity (s.f.)


Despite absorption losses of +1.0 MSF, NYC and DC comprised

20.0 percent of leasing activity in Q1

6

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

New

Yor

k

Was

hing

ton,

DC

Dal

las

Bos

ton

Chi

cago

Los

Ang

eles

Ora

nge

Cou

nty

San

Fra

ncis

co

Sea

ttle

New

Jer

sey

Den

ver

Atla

nta

Phi

lade

lphi

a

Sili

con

Val

ley

San

Die

go

Pho

enix

Aus

tin

Fai

rfie

ld C

ount

y

Oak

land

-Eas

t Bay

Hou

ston

Min

neap

olis

Det

roit

Por

tland

St.

Loui

s

Bal

timor

e

Pitt

sbur

gh

Cha

rlotte

Kan

sas

City

Tam

pa

Sac

ram

ento

Wes

tche

ster

Cou

nty

Mia

mi

Orla

ndo

Indi

anap

olis

Cle

vela

nd

Milw

auke

e

For

t Lau

derd

ale

Cin

cinn

ati

Wes

t Pal

m B

each

Ral

eigh

-Dur

ham

Jack

sonv

ille

Long

Isla

nd

Ham

pton

Roa

ds

San

Ant

onio

Ric

hmon

d

Sal

t Lak

e C

ity

Col

umbu

s

San

Fra

ncis

co P

enin

sula

Leas

ing

activ

ity (

s.f.)


11.9 MSF

7

25.2 MSF total square feet leased in Q1 in transactions

20,000 s.f. or larger

99 average term in months

56% / 7% / 33% of tenants are growing / shrinking / stable

42% / 56% urban / suburban breakdown

of Q1 volume

56% of leases larger than 20,000 square feet were expansionary


8

Urban Suburban Total metro

186,563

229,964

256,145

329,179

497,342

519,905

941,781

963,554

1,532,062

2,186,351

0 1,500,000 3,000,000

St. Louis

Portland

Boston

Seattle-Bellevue

Silicon Valley

Chicago

Houston

San Francisco

Washington, DC

New York

416,723

499,139

504,294

666,028

671,909

794,909

802,731

902,484

943,319

1,152,952

0 1,000,000 2,000,000

Suburban Maryland

Chicago

Dallas

Atlanta

Orange County

New Jersey

Boston

Sacramento

Oakland-East Bay

Northern Virginia

822,409

902,484

941,781

963,554

968,319

1,019,044

1,058,876

1,214,438

1,532,062

2,186,351

0 1,500,000 3,000,000

New Jersey

Sacramento

Houston

San Francisco

Oakland-East Bay

Chicago

Boston

Northern Virginia

Washington, DC

New York

East Coast markets dominated leasing activity with New York

remaining #1


9

Large leasing from new and established companies spread across

a diverse array of geographies

Seattle CBD Zillow: 155,000 s.f.

CBD (Portland) Moda Health: 176,000 s.f.

Airport Area(Orange County) Hyundai Capital: 178,000 s.f.

Westchase (Houston) Samsung Engineering: 160,000 s.f.

(Southeast) Minneapolis Wells Fargo: 190,000 s.f.

North (Chicago) Baxalta: 260,000 s.f.

Market Street West (Philadelphia) ISO Insurance: 392,000 s.f.

Grand Central (NYC) MetLife: 430,000 s.f.

East End (DC) Fannie Mae: 700,000 s.f.


Northwest (Atlanta) SITA: 156,000 s.f.

10

Unknown

Non-profit

Creative

Consumer-oriented

Professional and business services

Finance

Scientific & technical

0 3,000,000 6,000,000 9,000,000

Telecom/Mobile

Unknown

Government

Architecture, engineering,…

Manufacturing & distribution

Energy & utilities

Education

Other professional and business…

Association, non-profit, union

Retail & hospitality

Accounting, consulting, research,…

Real estate

Life sciences

Marketing, advertising,…

Media & entertainment

Aerospace, defense, transportation

Law firm

Healthcare

Technology

Banking, finance, insurance

0 2,000,000 4,000,000

Leasing activity within the scientific and technical industry cluster… …dominated by technology companies, led activity in the fourth quarter

Scientific and technical jobs maintain the lion’s share of large-

block leasing activity


11

158

71

58 60

30 38

16

0

20

40

60

80

100

120

140

160

180

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Num

ber

of tr

ansa

ctio

ns (s

.f.)

Leas

ing

activ

ity (

s.f.)

s.f. leased number of transactions

Volume highest over 100,000 square feet, but more transactions

among smaller tenants


12

252,776

3,235,040

3,871,638

13,004,919

0 10,000,000

C

Trophy

B

A

40.2%

32.7%

54.2%

60.8%

Class C

Trophy

Class B

Class A

0.0% 20.0% 40.0% 60.0% 80.0%

Total leasing activity >20,000 s.f. by building class % of tenants expanding in each building class

Quality remains top demand driver, but tenants in all classes are

expanding


13

56% of companies grew in Q1

11% of companies shrunk in

Q1

33% of companies were stable

in Q1

Technology

26.5% of companies


17.2% of companies

Healthcare

10.7% of companies


32.6% of companies

Technology

9.4% of companies

Government

9.1% of companies

Law firm

16.5% of companies

Aerospace, defense, trans.

14.4% of companies

Energy & utilities

12.9% of companies

Expansionary leases account for more than half of all large-block

activity


Absorption

Absorption as a % of inventory declined from previous quarters,

but still in-line with historical average

15

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2008 2009 2010 2011 2012 2013 2014 2015

Qua

rter

ly n

et a

bsor

ptio

n (a

s %

of i

nven

tory

)


15-year trailing annual average

Absorption volume expected to increase significantly by year-end

16

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

YT

D n

et a

bsor

ptio

n (a

s %

of i

nven

tory

)


15-year trailing

annual average

Class B and C space recorded its first quarter of absorption in

over a year, as tenants seek quality space

17

-10,000,000

-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000

2010 2011 2012 2013 2014 2015

Qua

rter

ly n

et a

bsor

ptio

n (s

.f.)

Class A (CBD) Class A (suburban)

Class B (CBD) Class B (suburban)

Class C (CBD) Class C (suburban)


Absorption in Class B over the past four quarters 60% of

absorption over the preceding five years

18


19,241,155

11,494,900

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2010-Q1 2014 Past four quarters

Cla

ss B

net

abs

orpt

ion

(s.f.

)

1,131,833 s.f. per quarter 2,873,725 s.f. per quarter

Losses incurred in Q1 expected to be offset by occupancy gains

later in the year

19

-2,000,000

-1,500,000

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000D

alla

sS

ilico

n V

alle

yA

ustin

Phi

lade

lphi

aD

etro

itR

alei

gh /

Dur

ham

Bos

ton

San

Fra

ncis

coM

inne

apol

isO

rland

oS

alt L

ake

City

Pho

enix

Oak

land

-Eas

t Bay

Atla

nta

Sac

ram

ento

Tam

pa B

ayC

inci

nnat

iP

ortla

ndP

ittsb

urgh

San

Ant

onio

Hou

ston

Bal

timor

eC

hica

goM

iam

iC

harlo

tteW

est P

alm

Bea

chR

ichm

ond

Long

Isla

ndS

t. Lo

uis

San

Fra

ncis

co P

enin

sula

Los

Ang

eles

Cle

vela

ndD

enve

rF

ort L

aude

rdal

eO

rang

e C

ount

yM

ilwau

kee

San

Die

goH

ampt

on R

oads

Kan

sas

City

Indi

anap

olis

Jack

sonv

ille

Wes

tche

ster

Cou

nty

Col

umbu

sF

airf

ield

Cou

nty

Sea

ttle

Was

hing

ton,

DC

New

Jer

sey

New

Yor

k

YT

D n

et a

bsor

ptio

n (s

.f.)


Nine markets posted occupancy losses totaling

3.7 million square feet

Central U.S. markets recorded highest occupancy gains in Q1,

supplanting East Coast for first time in a year

20

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014 2015

Sha

re o

f qua

rter

ly n

et a

bsor

ptio

n

East Coast Central West Coast


Tech markets regained absorption share as NYC and DC

occupancy declined

21


NYC and DC (*excludes Midtown South)

Tech markets (*includes Midtown South)

Energy markets

Sunbelt

All other markets

70.0%

29.7%

6.4%

2010

5.1%

33.5%

19.0%

18.4%

23.9%

2011

0.0%

37.5%

26.0%

29.1%

7.4%

2012

11.1%

21.6%

22.3%

18.6%

26.4%

2013

13.7%

23.1%

15.3%

20.1%

27.8%

2014

0.0%

37.0%

23.5%

12.9%

26.6%

YTD 2015

Energy losses severe, but not yet negative. Seattle expected to

erase losses with Amazon by year-end

22

1.2%

0.0% 0.1%

0.3%

0.5%

-0.3%

0.2%

1.7%

0.2% 0.3% 0.3%

1.1%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

YT

D n

et a

bsor

ptio

n (s

.f.)


Energy Tech Sunbelt

U.S. average

East Coast losses weighing heavily on region’s overall occupancy

gains

23


-10,000,000

-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2010 2011 2012 2013 2014 YTD 2015

Net

abs

orpt

ion

(s.f.

)

Atlanta South Florida Rest of the East Coast

Class B and C properties have accounted for only one-fifth of net

absorption over the past five years

24


Trophy and Class A

net absorption

147.5 m.s.f.

2010-YTD 2015

Class B and C net

absorption

29.6 m.s.f.

2010-YTD 2015

-4,000,000

-3,000,000

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

2010 2011 2012 2013 2014 2015

Net

abs

orpt

ion

(s.f.

)

Atlanta Chicago Los Angeles Miami Philadelphia Phoenix

Diversified markets’ occupancy gains already 30 percent of 2014

volume in Q1

25


Philadelphia tenants

expanded into 566,000 s.f.

in Q1

Class A occupancy gains made up for losses in Class B and C

26

133.5%

93.9%

74.5% 76.3%

295.2%

98.5%

82.0% 78.3%

45.2%

73.4% 63.5%

80.9%

57.3%

82.3% 66.9% 69.8%

115.2%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

350.0%

2011 2012 2013 2014 2015

Cla

ss A

sha

re o

f qua

rter

ly a

bsor

ptio

n


CBD Class A absorption significantly lower than recent quarters

as supply declines across the U.S.

27

166.2%

90.4% 88.8% 80.8%

100.0% 106.1%

74.8%

0.0%

88.1% 86.5%

49.6%

92.0%

48.8%

100.9%

66.4%

32.6%

19.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

2011 2012 2013 2014 2015

Cla

ss A

sha

re o

f qua

rter

ly a

bsor

ptio

n


Demand for creative space pushing occupancy gains above

national average % of inventory

28

4.9% 4.9%

3.8% 3.7% 3.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Boston(Mid-Cambridge)

San Francisco(South Financial District)

New York(Hudson Square)

San Francisco(Mid-Market)

San Francisco(Jackson Square)

YT

D C

lass

B n

et a

bsor

ptio

n (%

of i

nven

tory

)


U.S. average

Still, Class A continues to trump Class B according to most

indicators

29


115% of absorbed space in 2014

has been Class A

$11.28 per square foot difference

between Class A and B space…

45.8% premium charged for Class A space

versus Class B

-420bp difference between Class A and

Class B total vacancy

Vacancy

Due to lower quarterly absorption and 9.4 million square feet of

completions, vacancy stayed stable at 15.6 percent

31

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

2009 2010 2011 2012 2013 2014 2015

Tota

l vac

ancy

(%

)


Although more space is expected to come to the market, high

preleasing should allow for further drops in vacancy in 2015

32

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015

Tota

l vac

ancy

(%

)


Vacancy has ticked upward marginally in CBD Class A and B

properties, but downward in suburban markets

33

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

2010 2011 2012 2013 2014 2015

Tota

l vac

ancy

(%

)





Although office-using employment grew by 156,000 during Q1,

vacancy is flat

34

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

19.0%

26,000

26,500

27,000

27,500

28,000

28,500

29,000

29,500

30,000

30,500

31,000

2011 2012 2013 2014 2015

Tota

l vac

ancy

(%

)

Offi

ce-u

sing

em

ploy

men

t (th

ousa

nds)

Office-using employment (thousands) Total vacancy (%)


CBD vacancy just 70 basis points from historic low, while

suburban vacancy is 220 basis points away

35

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

19.0%

21.0%

23.0%

Tota

l vac

ancy

(%

)


After increasing in Q4, sublease vacancy dropped by nearly

500,000 s.f. even with increase in Houston by 3.5 m.s.f.

36

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

2009 2010 2011 2012 2013 2014 2015

Sub

leas

e sp

ace

(s.f.

)


Rents

Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Dallas

Austin, San Francisco

Atlanta, Fort Lauderdale, Indianapolis,

Raleigh-Durham, Richmond, Tampa

Columbus, Sacramento, West Palm Beach

Baltimore,

Washington, DC

Minneapolis

Charlotte, Fairfield County

Chicago, Cincinnati, Jacksonville,

Oakland-East Bay, San Diego

Denver, Miami, Phoenix, United States

Detroit, Hampton Roads, San Antonio, Westchester County

Kansas City, Orange County, Orlando, Salt Lake City

Boston

New York

Los Angeles, Pittsburgh, Portland, Seattle-Bellevue

Cleveland, Long Island, Milwaukee, Philadelphia, St. Louis

San Francisco Peninsula, Silicon Valley

New Jersey

Houston


Q1 2015 U.S. overall office clock

Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Baltimore, Kansas City

Atlanta, Midtown (New York), Raleigh-Durham, Tampa

Boston, Los Angeles, Pittsburgh

Charlotte, Stamford CBD

Chicago, Downtown (New York), Philadelphia,

Oakland CBD, Salt Lake City

Cincinnati, Cleveland

Columbus, Richmond,

St. Louis, White Plains CBD

Dallas, Greenwich CBD, Indianapolis, Jacksonville

Denver, Fort Lauderdale

Detroit, Milwaukee, Phoenix

Miami, Seattle CBD

Minneapolis

Austin, Midtown South (New York), San Francisco

Orlando, United States

Sacramento, Washington, DC, West Palm Beach

San Antonio, San Diego

Portland, San Jose CBD

Houston


Q1 2015 U.S. CBD office clock

Q1 2015 U.S. suburban office clock

Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Atlanta, Baltimore, Chicago, Fairfield County,

Fort Lauderdale, Hampton Roads (Peninsula) Miami,

Milwaukee, Oakland Suburbs, Orlando, Raleigh-Durham, Tampa

Cambridge, San Francisco

Boston, Minneapolis, Nassau County,

Phoenix, Salt Lake City

Charlotte, Philadelphia

Cincinnati, San Diego, United States, Westchester County

Cleveland, Columbus,

Hampton Roads (Southside), San Antonio

Dallas

Denver, East Bay Suburbs, Indianapolis

Detroit

Kansas City

Suffolk County

Los Angeles

Central New Jersey,

Northern New Jersey,

Washington, DC

Jacksonville, Orange County, Portland,

Seattle-Bellevue, St. Louis

Pittsburgh

Lehigh Valley, Northern

Delaware, Sacramento,

West Palm Beach

San Francisco Peninsula

Bellevue CBD, Richmond

Silicon Valley

Austin

Southern New Jersey

Houston


Tightening market conditions are giving landlords confidence:

asking rents spiked by 3.1 percent in Q1, highest this cycle

41

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2008 2009 2010 2011 2012 2013 2014 2015

Qua

rter

ly r

ent g

row

th (

%)


CBD Class A rents continue to jump at 4.2 percent year-on-year;

nearly all segments recording strong growth

42

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

2010 2011 2012 2013 2014 2015

Ave

rage

ask

ing

rent

s ($

p.s

.f.)





Since Q1 2010, CBD Class A rents have grown by more than

one-fifth; Suburban Class B barely increased in nominal terms

43

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2010 2011 2012 2013 2014 2015

Ave

rage

ask

ing

rent

s ($

p.s

.f.)





+21.0% CBD Class A

+10.8% Suburban Class C

+9.5% CBD Class C

+6.8% Suburban Class A

+5.8% CBD Class B

+0.9% Suburban Class B

6.1-percent bump in CBD asking rents highlights a combination

of high demand and minimal supply

44

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2011 2012 2013 2014 2015

Qua

rter

ly r

ent g

row

th (

%)

CBD rent growth Suburban rent growth


CBD average: 1.1%

Suburban average: 0.2%

After narrowing in 2014, the rent gap grew to new heights in Q1:

CBDs are now $16.21 (+66.1 percent) more expensive

45

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

2010 2011 2012 2013 2014 2015

Ave

rage

ask

ing

rent

($

p.s.

f)

CBD Suburbs


$11.36

$16.21

Like CBDs vs. suburbs, the Class A rent premium jumped in Q1

2015 to a cyclical high of $5.13 per square foot

46

$3.40 $3.49 $3.49

$3.53

$3.68

$3.81

$3.97 $3.99

$4.21 $4.26

$4.37 $4.38

$4.86

$4.71

$4.82 $4.76

$4.97 $4.92 $4.90

$4.81

$5.13

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

2010 2011 2012 2013 2014 2015

Cla

ss A

pre

miu

m (

$ p.

s.f.)


TI allowances are beginning to elevate due to new construction

providing higher concessions, but free month is declining

47

3.5

4.1

5.1

6.1 6.2

5.7

5.1 5.3

5.8 5.6

$23.00

$24.00

$25.00

$26.00

$27.00

$28.00

$29.00

$30.00

$31.00

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

TI a

llow

ance

($

p.s.

f.)

Fre

e m

onth

s of

ren

t

Free months of rent TI allowance ($ p.s.f.)


Construction

Construction volumes have nearly doubled over the course of the

year to 84.3 million square feet; expected to rise even more

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Und

er c

onst

ruct

ion

(s.f.

)

49


Market Under construction (s.f.) Share

Houston 12,833,724 15.2%

New York 7,206,342 8.6%

Dallas 7,177,086 8.5%

Seattle-Bellevue 6,901,827 8.2%

Boston 4,898,240 5.8%

Washington, DC 4,892,802 5.8%

Silicon Valley 4,811,393 5.7%

Phoenix 3,661,725 4.3%

Austin 3,473,083 4.1%

San Francisco 3,134,205 3.7%

Philadelphia 3,047,379 3.6%

Chicago 3,003,000 3.6%

Denver 2,340,203 2.8%

Los Angeles 2,069,739 2.5%

All other markets 9,383,541 17.5%

United States 84,204,307 100.0%

While Houston still leads the nation in development, other

markets have picked up the pace

Houston New York Dallas Seattle-Bellevue Boston

Washington, DC Silicon Valley Phoenix Austin San Francisco

Philadelphia Chicago Denver Los Angeles All other markets

50


Year-to-date, completions already total 40.1 percent of 2014’s

total deliveries, although 10.1 m.s.f. is still below average

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Com

plet

ions

(s.

f.)

51

10.1 m.s.f.


Average completions: 45.7 m.s.f.

The majority of current development – 72.1 million square feet –

will deliver in 2015 and 2016

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

2015 2016 2017 2018

Com

plet

ions

(s.

f.)

Speculative BTS

52


0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

2015 2016 2017 2018

Com

plet

ions

(s.

f.)

Available Pre-leased

53


Roughly 49.3 percent of the space under construction is

preleased, limiting options for tenants

The 12.8 million square feet of starts in Q1 is the second-highest

quarterly figure during the recovery so far

7,322,061

11,407,786

13,060,032

4,781,395

11,818,372

9,168,187

9,855,374

12,720,560 12,810,553

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2013 2014 2015

Sta

rts

(s.f.

)

54


Market Starts (s.f.) Share

Dallas 4,582,534 35.8%

Seattle-Bellevue 1,756,800 13.7%

Silicon Valley 1,280,406 10.0%

Charlotte 978,309 7.6%

New York 858,710 6.7%

Chicago 763,000 6.0%

Denver 535,000 4.2%

Cincinnati 485,000 3.8%

Phoenix 299,822 2.3%

Washington, DC 272,049 2.1%

San Francisco Peninsula 270,614 2.1%

Long Island 232,917 1.8%

Portland 221,827 1.7%

Fort Lauderdale 143,565 1.1%

New Jersey 130,000 1.0%

United States 12,810,553 100.0%

Toyota’s HQ campus, among other developments, pushes Dallas

to lead construction starts

Dallas Seattle Silicon Valley

Charlotte New York Chicago

Denver Cincinnati Phoenix

Washington, DC San Francisco Peninsula Long Island

Portland Fort Lauderdale New Jersey

55


Although spec construction is rising, numerous build-to-suit

developments broke ground in Q1 2015

56


181,000 s.f.

Seattle

1,787,000 s.f.

Dallas

365,000 s.f.

Cincinnati

320,000 s.f.

Philadelphia

66,000 s.f.

Los Angeles

250,000 s.f.

Charlotte

Market Starts (s.f.) Share

Trammell Crow 4,173,840 5.0%

Hines 4,126,715 4.9%

KDC 3,127,000 3.7%

Boston Properties 2,680,530 3.2%

Sunbelt Holdings 2,108,000 2.5%

Jay Paul 1,962,886 2.3%

Liberty 1,794,077 2.1%

Related 1,700,000 2.0%

Schnitzer West 1,391,000 1.7%

Irvine Company 1,338,230 1.6%

Touchstone 1,308,044 1.6%

O'Donnell 1,200,000 1.4%

Tishman Speyer 1,156,840 1.4%

Federal Realty 1,057,000 1.3%

All other companies 55,080,145 65.4%

United States 84,204,307 100.0%

Trammell Crow, Hines, KDC and Boston Properties are

developing roughly 16.8 percent of space under construction

Trammell Crow Hines KDC Boston Properties

Sunbelt Holdings Jay Paul Liberty Related

Schnitzer West Irvine Company Touchstone O'Donnell

Tishman Speyer Federal Realty All other companies

57


BTS-heavy markets such as Phoenix, Philadelphia and Dallas

lead preleasing rates

26.5%

28.4%

32.7%

38.3%

41.3%

45.2%

47.9%

50.7%

51.1%

52.2%

52.5%

59.4%

64.1%

64.6%

67.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

New York

Austin

Denver

Seattle-Bellevue

Los Angeles

Atlanta

Silicon Valley

Washington, DC

Houston

Boston

San Francisco

Dallas

Philadelphia

Chicago

Phoenix

Preleasing rate (%)

58


A numer of large developments continue to rise despite no

preleasing as market conditions improve

59

609 Main at Texas (Hines)

Houston

1,057,668 s.f.

390 Madison Avenue (L&L)

New York

858,710 s.f.

One SoHo Square (Rockpoint)

New York

768,000 s.f.

Moffett Gateway (Jay Paul)

Silicon Valley

600,864 s.f.

6 Houston Center (Crescent)

Houston

600,000 s.f.


Energy Center V (Trammell Crow)

Houston

505,000 s.f.

1775 Tysons Boulevard (Lerner)

Northern Virginia

476,913 s.f.

7 Bryant Park (Hines)

New York

473,672 s.f.

New construction is asking a significant premium, which will

boost market-level asking rents upon delivery

$44.13

$35.93

$24.65 $23.15

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

Under construction Class A Class B Class C

Dire

ct a

vera

ge a

skin

g re

nt (

$ p.

s.f.)

60


+22.8% +79.0% +90.6%

Properties in the Bay Area and Washington, DC are now asking

more than $80 per square foot

$80.00

$80.00

$80.00

$80.00

$82.00

$85.00

$86.25

$94.20

$102.00

$150.00

$159.00

$60 $80 $100 $120 $140 $160 $180

333 Brannan Street (San Francisco)

345 Brannan Street (San Francisco)

601 Massachusetts Avenue NW (Washington, DC)

600 Massachusetts Avenue NW (Washington, DC)

900 G Street NW (Washington, DC)

1000 F Street NW (Washington, DC)

900 16th Street NW (Washington, DC)

College Terrace (Silicon Valley)

Salesforce Tower (San Francisco)

2460 Sand Hill Road (SF Peninsula)

135 Hamilton Avenue (Silicon Valley)

Month 00, 2014 61

Source: JLL Research – data for many high-profile properties, such as 3 World Trade Center and 10 Hudson Yards in New York, is not available

With $36.5 billion of office transactions, nearly one-third of full-

year 2014 deal flow closed in first quarter

62

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Offi

ce in

vest

men

t sal

e vo

lum

es (b

illio

ns o

f $U

S)

Q1 Q2 Q3 Q4


Strong deal flow in Boston, NY and expanding pipeline in

Seattle, Chicago driving 43.1 percent growth in primary markets

63

11

7

14

11

7 9

13

6

17

12

19

10 8

37

18

7

26

18

14

11 9

8 8

4

0

5

10

15

20

25

30

35

40

Boston New York San Francisco Seattle-Bellevue Chicago Los Angeles Washington, DC Houston

Num

ber

of o

ffice

inve

stm

ent s

ales

2013 Q1 2014 Q1 2015 Q1


… with 6 of the 8 primary markets exceeding $1.0 billion

64

Resurgent New York saw first quarter deal flow triple over comparable 2014 levels

$6,320

$1,648 $1,538 $1,218 $1,118 $1,092

$755 $745 $734 $685 $639

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Tota

l sal

e vo

lum

es (

mill

ions

of $

US

, Q1

2015

)

Source: JLL Research Primary markets Secondary markets

Average deal size is up 73.0 percent in primary markets

65

As value appreciation continues, all primary markets seeing deal sizes increase with the exception of Boston—a trend driven by

expansion of value add suburban transactions

$-

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

New York Chicago Houston Washington,DC

San Francisco /Silicon Valley

Seattle-Bellevue

Los Angeles Boston

Ave

rage

dea

l siz

e (m

illio

ns o

f $U

S)

2014 Q1 2015 Q1


… While secondary market deals two-fifths the size

66

Other than strong Miami market, secondary market deal sizes growing at slower pace than primary counterparts

$-

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

Ave

rage

dea

l siz

e (m

illio

ns o

f $U

S)

Source: JLL Research Primary markets Secondary markets

Primary markets dominating CBD investment activity; non-CBD

volumes led by secondary markets

67

Most active CBD markets Most active Non-CBD markets

Of CBD volumes in Primary markets Of Non-CBD volumes in Secondary markets


$6,466

$1,631

$970 $723 $635

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Q1

offic

e in

vest

men

t sal

e vo

lum

e (m

illio

ns o

f $U

S)

$745 $621 $505 $299 $233

14.1%

62.2%

23.7%

Trophy Class A Class B

Resurgence in Trophy activity with one-third of comparable full-

year 2014 sales in first quarter

68

28.0%

45.2%

26.8%

Trophy Class A Class B


Strong New York activity fueling U.S. Trophy deal flow

69

Foreign buyers Ivanhoe Cambridge, Norges demonstrating strong appetite for NY product

$1,467

$2,460 $2,601

$2,175

$3,009

$1,247 $1,580

$3,190

$5,716

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1

Tro

phy

inve

stm

ent s

ale

volu

mes

(m

illio

ns o

f $U

S)


79.2% increase

Q-o-Q

101.9% increase

Q-o-Q

As East Coast CBD investment increases, Boston and West Coast

investment strategies diversifying further into the Suburbs

70

100%

81%

60% 66% 65%

50% 55%

25%

100% 99% 93% 90%

59% 55%

13% 12%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

New York Chicago Houston Washington, DC Boston Seattle-Bellevue San Francisco Los Angeles

CB

D in

vest

men

t sal

es (

as a

% o

f tot

al v

olum

es)

2014 2015 Q1


Westside

Palo Alto /

Santa Clara

Lake Union /

Belltown

Cambridge /

495 Mass

Pike

56.7%

43.3%

Primary markets Secondary markets

Secondary market activity continues to rise on a square footage

basis, accounting for 57.8 percent of 2015 activity year-to-date

71


2013

47.1% 52.9%


2014

42.2%

57.8%


2015 YTD

More than 30.0 million square feet of non-CBD deal flow drives

secondary market volumes in the first quarter

72

44% 40%

50% 57%

43%

69%

52% 45%

56%

27% 28%

27% 24%

27%

15%

17% 24%

16%

13% 17%

10% 7%

14%

9%

10% 14% 8%

16% 15% 13% 13% 17% 7%

21% 17% 21%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1

Primary CBD Primary Non-CBD Secondary CBD Secondary Non-CBD


While stable in the primary markets, composition of non-CBD

investments diversifying into Class B in secondary markets

73


76% 76% 72%

24% 24% 28%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 Q1

Class A Class B

75% 76%

55%

25% 24%

45%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 Q1

Class A Class B

Primary, non-CBD activity Secondary, non-CBD activity

With nearly $11.0b of deal flow, these submarkets drove 62.8 and

36.0 percent of primary and secondary activity, respectively

74


West Loop (Chicago)

$1.0 billion

Portland CBD

$0.2 billion

SE Suburban (Denver)

$0.3 billion

LoDo (Denver)

$0.3 billion

Buckhead (Atlanta)

$0.4 billion

RTP/RDU (Raleigh)

$0.7 billion

Airport Area (Phoenix)

$0.2 billion

Bellevue CBD

$0.5 billion

Westside (LA)

$0.5 billion

Capitol Hill (DC)

$0.5 billion

Times Square $3.2b

Plaza District $1.2b

Water Street Corridor $0.5b

Grand Central $0.5b

Houston CBD

$0.6 billion


Outlook

76


2015 outlook strongest in nearly a decade

Markets across the U.S. expect to see continued employment growth within office-using sectors

and corporate occupiers remain certain that expansionary activity is now necessary. As a result,

leasing activity is expected to increase in the coming quarter, likely nearing 60 million square feet

on average.

Large relocations and expansions, once occupied will likely push absorption above 2014’s total of 55

million square feet. Additionally, traditional industries are increasingly committing to expansion space

unlike in previous years, and that growth will impact a wider array of geographies.

As occupancy gains mount, overall vacancy will likely dip to 15.0 percent by year-end, but this

accelerating decline could be tempered if projects currently under construction don’t secure tenants

before delivery.

Rental rate growth will continue to accelerate, especially as Trophy and Class A spaces disappear in

advance of new supply coming online. Landlords anticipating significant growth in demand are

pushing rates ahead of other fundamentals, but economic expansion so far is padding the impact.

1.

2.

3.

4.

If cracks exist in the growing economy, they aren’t yet visible in the leasing, sales or development markets. In fact, growth, both economic, as well as real estate-centric, is shifting from tech-heavy markets and spilling over into secondary and tertiary markets, giving legs to a longer-term economic expansion despite a slowdown and correction in the energy markets.

COPYRIGHT © JONES LANG LASALLE IP, INC. 2015

John Sikaitis Managing Director – Office and Local Markets Research

+1 202 719 5839

[email protected]

Julia Georgules Associate Director – Office Research

+1 415 354 6908

[email protected]

Sean Coghlan Manager – Capital Markets Research

+1 215 988 5556

[email protected]

Phil Ryan Research Analyst – Office and Economy Research

+1 202 719 6295

[email protected]

>> Click to learn more, and see

market-by-market data

http://www.us.jll.com/united-states/en-us/research/office-outlook?utm_source=slideshare&utm_medium=social&utm_campaign=q12015officereview

Date post:	15-Jul-2015
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Q1 2015 U.S. office market statistics, trends and outlook

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