How the Private Sector Views Land/Buildings
February 2016
There are numerous factors that determine where a
business will relocate
• “One size fits all” does not apply here.
• Different key variables are important to different companies.
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Just because you build it, they will not necessarily come…
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What helps them decide to move to an area?
Labor Availability
Occupational Supply
Current labor supply
Prospective labor
supply
Labor competition
Unemployment rate
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•
•
•
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Labor quality
•
•
•
•
Knowledge skills
and abilities
Education
Proximity to
educational
institutions
Language skills
Labor Costs
Compensation, benefits,
taxes
Recruiting and training
Termination liability and
costs
•
•
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Area Attributes
•
•
•
•
•
•
Tax incentives
Location to end user
markets (drive time)
Zoning restrictions
Rental rates in market
Infrastructure
Etc. and more etc.
3
On Location…
Where is the market?
•
•
•
•
•
•
Varies a bit for asset class (industrial asset
class can be very large)
<30 minutes drive time, more often 10-15
minute drive time (or in metro 2-3 subway
stops)
Generally contiguous town/city
Wright-Pat market does not include Dayton
Knox market does not include Louisville
O’Hare (BRAC 95) area was right outside
O'Hare Airport and included Rosemont
(casinos)
Unless…the market is on the installation
4
What is the overall status of the U.S. market across asset
classes?
Multifamily
Peaking
market
Falling
market
Rising
market
Bottoming
market
Hotel, Industrial
CBD office
Suburban office
Retail
Source: JLL Research
5
Q4 2015 U.S. overall office clock
San Francisco Peninsula
Houston
Silicon Valley
Dallas, San Francisco
Austin, Fort Worth
Peaking
phase
Falling
phase
Rising
phase
Bottoming
phase
Denver, Minneapolis, Seattle-Bellevue
Los Angeles, San Diego
New York, Pittsburgh, Portland, Tampa
Boston
Atlanta, Jacksonville, Miami,
Orange County, Richmond, United States
Chicago, Phoenix
Charlotte, Fort Lauderdale, Kansas City
Oakland-East Bay, Orlando
Cleveland, Indianapolis, Raleigh-Durham, St. Louis
Cincinnati, Fairfield County, Hampton Roads, Milwaukee
Philadelphia
New Jersey,
Washington, DC
Baltimore, Detroit, San Antonio,
West Palm Beach, Westchester County
Columbus, Sacramento
Source: JLL Research
Tenant-favorable market
Neutral market
Landlord-favorable market
6
Hampton Roads
Market conditions
• Three major influences have shifted demand away from new construction in Hampton
Roads: the 33.3-percent premium for new construction over existing Class A rental
rates, the increased popularity of teleworking in Hampton Roads and the numerous,
but now less frequent, downsizes that occurred between 2009 and present.
Additionally, growing demand from call centers created the largest active requirements
in market, but focused solely on low-cost options with generous parking ratios. This
criteria made the conversion of aging shopping malls to call center operation facilities
an alternative to traditional office space.
• The inherent risks from a market tied to defense spending and poor rental rate growth
have been the most cited concerns to investors searching for yields in secondary and
tertiary markets. While multifamily and retail investment sales remained strong in
Hampton Roads, traditional office sales have struggled to gain ground.
Supply
14.5%
Total vacancy
287,858 s.f.
Under construction
Demand
Pricing
2011
2017
18,570,507 s.f.
Supply
-40.2%
Leasing activity 12-mo. % change
59,394 s.f.
YTD net absorption
-6.5%
12-month overall rent % change
$20.64 p.s.f.
Class A overall asking rent
Hampton Roads overall property clock
Outlook for tenants
• Downtown Norfolk has been the epicenter of redevelopment in the Hampton Roads
market. Most recently, 1 Commercial Place (Bank of America Center) was slated for
multifamily conversion while 2 Commercial Place, a circa-1978, 287,858-square-foot
office building, went under renovation and will absorb most tenants displaced by the
conversion. Once complete, the redevelopment will remove a circa-1968 office building
that has maintained an average vacancy rate of 52.0 percent (180,156 square feet)
since 2010.
• The latest delivery and with an asking rate of $26.00 per square foot, full service,
Convergence Center V (200 Bendix Road), also delivered 55.1 percent preleased last
quarter and is currently one of four Class A suburban space options larger than 20,000
square feet available for immediate occupancy.
2010
2016
12-month
forecast
Key market indicators
Peaking
market
Rising
market
2012
2018
2013
2019
Falling
market
Bottoming
market
2014
2020
Source: JLL Research
Tenant-favorable market
Neutral market
Landlord-favorable market
7
Silicon Valley
Market conditions
• Silicon Valley experienced yet another solid quarter of net absorption. Based on the
level of touring activity, more tenants are expected to land in 2016. There are at least
one million square feet of preleased, under construction space coming online in early
2016 to kick start the new year with positive occupancy gains.
• With several major tech tenants finally planting their flag in North San Jose, the region
will be well poised to be the next hot core submarket of the Valley. Given the steady
decline in newer space availability combined with the current preleasing trend; tenants
with future growth or relocation plans will consider targeting space options earlier to
avoid missed opportunities.
Supply
12.2%
Total vacancy
3,276,660 s.f.
Under construction
Demand
Pricing
2011
2017
68,545,489 s.f.
Supply
-16.5%
Leasing activity 12-mo. % change
2,891,738 s.f.
YTD net absorption
2.7%
12-month overall rent % change
$44.87 p.s.f.
Class A overall asking rent
Silicon Valley overall property clock
Outlook for tenants
• Although vacancy rates have yet to reach single digit levels, the market for tenants in
need of 100,000 square feet and larger has become much tighter when compared to
12 months ago. The aggressive expansion of large tech companies in core submarkets
continues to push leasing activity further along 101 through Santa Clara into North San
Jose.
• While there are still some Class A under construction options available, rents for new
development are rising in response to demand. For this reason, renovated secondgeneration space is becoming more attractive as it offers similar Class A finishes at
relatively less expensive rents. Several tenants with larger requirements have yet to
land. It is expected that North San Jose will capture some of this activity and help to
push overall vacancy levels closer to single-digit levels.
2010
2016
12-month
forecast
Key market indicators
Peaking
market
Rising
market
2012
2018
2013
2019
Falling
market
Bottoming
market
2014
2020
Source: JLL Research
Tenant-favorable market
Neutral market
Landlord-favorable market
8
Seattle-Bellevue
Market conditions
• For the third consecutive year, net absorption has surpassed 2.0 million square feet. In
Q4, 551,591 square feet of space was taken down, bringing the 2015 total to nearly 2.5
million square feet. Total vacancy in Seattle-Bellevue remains at 10.2 percent and is as
low as the market has seen in the last 10 years. Subsequently, average asking rents
are up 7.5 percent year-over-year and have hit a 10-year peak. Fourth quarter leasing
activity was driven primarily by technology tenants; however, Safeco’s deal at Safeco
Plaza was far and away the largest. Other tenants that signed major leases include
Intellectual Ventures, DocuSign, Salesforce and Juno Therapeutics.
• More than $4.4 billion in office investment transactions has occurred in Puget Sound
this year. This represents a 152.5 percent increase over all of 2014. The most active
submarkets for sales have been the Seattle CBD and Lake Union, with year-to-date
volumes of $1.3 billion and $849.9 million, respectively.
Supply
10.2%
Total vacancy
5,912,171 s.f.
Under construction
Demand
Pricing
2011
2017
91,830,292 s.f.
Supply
43.8%
Leasing activity 12-mo. % change
2,461,440 s.f.
YTD net absorption
7.5%
12-month overall rent % change
$38.99 p.s.f.
Class A overall asking rent
Seattle-Bellevue overall property clock
Outlook for tenants
• Seven major office projects delivered this year; totaling more than 2.2 million square
feet. This makes 2015 the most active year for development since prior to the
recession. The largest project, 929 Office Tower, is the first office building to be
delivered in downtown Bellevue since 2009. With more than 5.9 million square feet
scheduled to deliver in the next two years, construction activity will continue to
dominate the conversation.
• Tenants will have ample opportunity to acquire premier space and continue migrating
to and growing in Puget Sound as just 35.1 percent of the space is currently preleased.
Average asking rents for new construction space being marketed stand at $48.50 per
square foot, full service, and represent a 42.7 percent premium over the regional
average.
2010
2016
12-month
forecast
Key market indicators
Peaking
market
Rising
market
2012
2018
2013
2019
Falling
market
Bottoming
market
2014
2020
Source: JLL Research
Tenant-favorable market
Neutral market
Landlord-favorable market
9
Atlanta
Market conditions
• Declines in the metro unemployment rate, meaningful population increases, a growing
GDP and strong corporate cash positions all pointed to substantial increases in annual
demand for Atlanta office space. On the contrary, 2015 net absorption figures totaled
less than in 2014. Actual figures fell short of analysts’ projections of 3.0 million square
feet by about 400,000 square feet. Diversification trends also moved counter to
expectations as demand failed to broaden further into the Class B segment as one
would expect in a supply-constrained market with positive tenant demand.
• Increasingly active are deals smaller than 25,000 square feet, which make up the
bedrock of Atlanta’s office market demand. When compared to this time last year,
smaller deals are making up a larger percentage of total leasing activity. As this
smaller segment continues to expand, so too will overall net absorption.
Supply
17.5%
Total vacancy
885,000 s.f.
Under construction
Demand
Pricing
2011
2017
133,555,157 s.f.
Supply
12.2%
Leasing activity YTD % change
2,578,651 s.f.
YTD net absorption
10.2%
12-month overall rent % change
$25.94 p.s.f.
Class A overall asking rent
Atlanta overall property clock
Outlook for tenants
• Over the final months of 2015, landlords seemed to be less aggressive relative to
previous quarters. On the whole, average asking rates of large, contiguous blocks of
Class A space (those 50,000 square feet and larger) increased by only $1.13 per
square foot, much less than in previous quarters. Even more telling is how few blocks
actually increased in price over the same period: landlords of only eight blocks pushed
rates.
• Without a substantial anchor tenant to occupy 50.0 percent or more of a building,
lending for new construction is somewhat of an aberration at the moment. This offers
owners of Trophy assets some degree of protection against any threat of competition
from new supply.
2010
2016
12-month
forecast
Key market indicators
Peaking
market
Rising
market
2012
2018
2013
2019
Falling
market
Bottoming
market
2014
2020
Source: JLL Research
Tenant-favorable market
Neutral market
Landlord-favorable market
10
Marketing a location - Take a tour: The 2020 Tokyo
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