Office Outlook
United States | Q1 2016
U.S. office
markets
remain
stable amidst
market jitters
WHAT’S
INSIDE:
Outlooks leading into the new year
called for further expansion across U.S.
office markets. However, stock market
tumbles driven by a weakening China
and depleted oil prices shifted
sentiment from that of a growth
perspective to one of increased caution.
Despite this, economic and real estate
fundamentals remain primarily landlordfavorable through the remainder
of 2016.
JLL | United States | Office Outlook | Q1 2016
2
TABLE OF
CONTENTS
5 office market trends
United States office market
United States office clock
United States economy
United States investment sales
Local U.S. office markets
Atlanta
Austin
Baltimore
Boston
Charlotte
Chicago (CBD)
Chicago (Suburban)
Cincinnati
Cleveland
Columbus
Dallas
Denver
Detroit
East Bay
Fairfield County
Fort Lauderdale
Hampton Roads
Houston
Indianapolis
Jacksonville
Long Island
Los Angeles
Miami
Milwaukee
Minneapolis
4
5
8
10
12
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
Nashville
New Jersey
New York
Northern Virginia
Oakland
Orange County
Orlando
Philadelphia (CBD)
Philadelphia (Suburban)
Phoenix
Pittsburgh
Portland
Raleigh-Durham
Richmond
Sacramento
Salt Lake City
San Antonio
San Diego
San Francisco (CBD)
San Francisco (Mid-Peninsula)
Seattle-Bellevue
Silicon Valley
St. Louis
Suburban Maryland
Tampa
Washington, DC
Washington, DC Metro
West Palm Beach
Westchester County
Appendix
Contacts
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
80
JLL | United States | Office Outlook | Q1 2016
3
5 KEY TRENDS TO WATCH IN 2016
Oil pricing declines and global economic uncertainty set off a stock market decline early in the new year that shifted the economic outlook from one of
heightened optimism and perceived stability to one in which a near-term recession was imminent. As a result, momentum in the office market slowed
moderately as occupiers more carefully considered expansionary plans while waiting for a clearer economic outlook, but market fundamentals overall
proved steady with supply and demand moving in lockstep.
1.
At 143.8 million, employment is at its highest level ever recorded and sustained job
growth over the last several years has consistently driven occupancy growth that’s
expected to continue into 2017.
2.
Though more employees may be heading into the office, the U.S. development pipeline
of 96.8 million square feet remains below the previous two peaks in 2000 and 2008, at
139 million and 108 million square feet, respectively. As a result, most markets will be
well positioned from a supply perspective once leasing momentum begins to slow in
2017 and 2018.
3.
Leasing activity remains dominated by both technology and financial services
companies, which have been driving growth in markets across the country, but volume
in the first quarter came in at its lowest level (50 m.s.f.) since the recession as concerns
over the economy’s stability grew. With fears of a recession now diminished, leasing
activity should begin to increase over the course of the year.
4.
Despite lower leasing volume, low vacancy and limited new deliveries kept the overall
leasing environment highly competitive in the country’s most in-demand markets. As a
result, rental rates increased at the highest rate thus far in the cycle with a 3.2 percent
increase. In secondary and tertiary markets where development is limited or nonexistent
and demand stable, rents will continue to post above-average increases.
5.
Strengthening fundamentals in secondary markets, combined with a decline in
investment opportunities and high barriers to entry in primary markets has resulted in
an increased focus on secondary markets with high occupancy growth. But signs of
softening in select secondary markets may keep investors focused only on the
highest performing.
◄ Table of contents
OUTLOOK
Looking ahead, the
remainder of 2016 will
remain largely landlordfavorable as
expansionary leases
begin to take
occupancy across the
United States, but
conditions will begin to
shift in 2017 as markets
work to absorb the
more than 80 million
square feet of new
supply that will deliver
over the next two years.
Additionally, as markets
move nearer to their
inflection points in
terms of rental rates
and market growth,
2017 will start to see
some cooling as
markets stabilize—
especially in primary
markets that performed
highly earlier in the
expansion.
JLL | United States | Office Outlook | Q1 2016
4
UNITED STATES
OFFICE MARKET
Over the past year-and-a-half, tenants leasing 20,000 square feet or
more have done so with expansionary plans in mind. Since the third
quarter of 2014, 48.7 percent of all leases signed represented occupancy
growth as companies moved to accommodate record-level employment
and changing workplace preferences. Over that same period, the volume
of companies downsizing has remained a minimal portion of leasing
activity, averaging just 8.0 percent. Though leasing activity remained
largely expansionary during the first quarter, increased fear of a nearterm recession spooked many tenants, and as a result, plans for
expansion were put on hold. From the fourth quarter of 2015 to the first
quarter this year, the share of expansionary leasing declined from 52.0 to
40.0 percent, respectively.
Though leasing activity remained largely
expansionary during the first quarter, increased fear
of a near-term recession spooked many tenants, and
as a result, plans for expansion were put on hold.
At the sector level, retail and hospitality leasing activity across the
country was entirely (100 percent) expansionary, while life sciences
(85.8 percent) and food and beverage (83.1 percent) closely followed in
the first quarter. However, overall leasing activity remained dominated by
technology and financial services firms, with large lease transactions
including Kronos’ 370,000-square-foot relocation in Boston’s suburbs
and Putnam Investments’ 252,000-square-foot relocation in its CBD.
Meanwhile, Allied Solutions signed an expansionary lease for 110,000
square feet in Indianapolis’ North Meridian/Carmel suburb and Uber
continued its Bay Area expansion with a 93,000-square-foot lease in San
Francisco’s Mid-Market. Though concern over a nonexistent IPO market
looms over the technology industry, it did not prevent publicly traded
companies like Facebook, LinkedIn, Microsoft and Oracle from moving
forward with expansion plans on a combined 275,000 square feet of
leased space.
Most telling of the current office market trends, however, is the continued
expansion of shared office space. During the first quarter, WeWork
signed 10 new leases—each representing expansion—in markets such
as Orange County, Philadelphia and Silicon Valley for a total of 715,000
square feet. Additionally, Regus signed six leases amounting to nearly
150,000 square feet during the quarter, three of which were
expansionary. Other, smaller players, such as Make Offices and Centrl
Office, also signed on for new office space in Washington, DC, and
Portland, respectively.
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A slowdown in expansionary leasing due to limited options for
growth became pronounced in Q1
70.0%
Share of activity (%)
Expansionary leasing activity slows, but tenants still keen on
moving within markets
60.0%
53.8%
Stable
50.0%
40.0%
Growing
40.0%
30.0%
20.0%
6.2%
Shrinking
10.0%
0.0%
Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
Source: JLL Research
Where occupier demand is highest, so, too, are occupancy gains
Typical of this cycle, occupancy growth in the first quarter shrank
considerably from the fourth quarter, coming in at 7.7 million square feet
versus the 18.7 million square feet of occupancy growth at year-end 2015.
Desirable talent hubs and urban markets captured the largest share of
gains, led by Chicago’s 1.7 million square feet of net absorption as
companies, such as Kraft Heinz, moved back into the CBD from the
suburbs. Technology hotbeds from both a business and talent perspective
continued to drive the Seattle-Bellevue and Silicon Valley markets, which
posted 839,000 square feet and 825,000 square feet of new absorption,
respectively, with Google expanding into an 180,000-square-foot build-tosuit in Seattle’s Kirkland submarket, while also occupying 315,000 square
feet in the last building at Moffett Place in Sunnyvale. Rounding out the top
five were Austin and Philadelphia, where absorption gains came in at
775,000 and 604,000 square feet, respectively.
Several large, planned vacancies hit the market in New York during the
quarter at 390 Madison Avenue, 485 Lexington Avenue and 5 Manhattan
West, contributing to 1.6 million square feet in occupancy losses, while in
New Jersey the Route 24, Bergen North and Princeton Area submarkets
contributed to more than 562,000 square feet of negative net absorption.
As one of the first markets to soften in this cycle, Houston has yet to
register the impact of the oil and energy sector’s decline through its
market statistics. Currently, the market has roughly 9 million square feet
of sublease availability on the market, but none of it has translated into
occupancy losses yet. In fact, Houston recorded modest gains of
227,000 square feet net absorption during the quarter, as potential large
blocks of sublease vacancy continue to wait in the wings.
JLL | United States | Office Outlook | Q1 2016
5
Sublease vacancy across the United States maintained its downward
trend in the first quarter at just 1.0 percent of the total U.S. inventory.
Despite Houston’s looming impact and New Jersey and Westchester
County’s elevated share of sublease vacancy resulting, in part, from
corporate relocations into other markets, no real signs of softening exists
within the greater U.S. office market. In markets where small upticks
were recorded, the impact was met by overall vacancy declines. This
was true in Austin, Orange County and San Diego, where overall
vacancy is below average at 11.1, 11.8 and 13.5, respectively.
Additionally, with most occupiers conservatively expanding during the
course of this cycle, the impact of a future slowdown or contraction may
be minimized by more efficient space use.
Despite dropping sharply compared to a heavy-hitting Q4,
YTD 2016 totals higher than 2015
20,000,000
10,000,000
5,000,000
0
-5,000,000
2010
2011
2012
2013
2014
2015
2016
Source: JLL Research
In more recent quarters, sublease vacancy increases in primary markets
like Boston, Chicago and San Francisco have been the result, in part, of
companies readying for relocation and expansion into new space.
Moving further into the development cycle, sublease vacancy may begin
to increase as the nearly 100 million square feet under construction
delivers to markets through 2019 and economic momentum begins to
slow job growth and real estate expansion.
Even as sublease vacancy rises in Houston and begins to rise in
the Bay Area, it fell in Q1 on aggregate
Compressed vacancy rates push rental rates
Supply constraints persisted across the country as demand for both
quality and location remain high on the list of must-haves for occupiers.
Across CBDs, 11 markets posted vacancy rates below 10.0 percent and
below the CBD average vacancy rate of 12.1 percent. Compared to the
suburbs, which came in at a 16.3 percent vacancy rate, six suburban
markets reported single-digit vacancy rates—each benefitting from
proximity to dynamic, urban CBDs that have captured occupier demand
accordingly over the course of this cycle.
100,000,000
Sublease vacancy (s.f.)
Quarterly net absorption (s.f.)
15,000,000
90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
Across CBDs, 11 markets posted vacancy rates
below 10.0 percent and below the CBD average
vacancy rate of 12.1 percent.
CBD
Oakland
Portland Central City
Austin
New York
(Midtown South)
Raleigh-Durham
Seattle (Downtown)
San Francisco
Charlotte
Philadelphia CBD
Salt Lake City
Boston
Oakland
◄ Table of contents
Total
vacancy
rate
Suburb
Total
vacancy
rate
5.1%
6.5%
6.7%
Nashville
Salt Lake City
Boston (Cambridge)
4.5%
5.4%
6.7%
6.9%
Portland-Eastside
7.2%
7.6%
7.7%
8.5%
8.5%
8.6%
9.2%
9.6%
5.1%
San Francisco
Seattle (Eastside)
Portland-Vancouver
7.5%
9.3%
9.3%
30,000,000
2009
2010
2011
2012
2013
2014
2015
2016
Source: JLL Research
New supply outpaces occupancy growth, but not for long
During the first quarter, total U.S. development volume increased by 9.7
million square feet—a 31.8 percent quarter-over-quarter increase in
construction starts—to bring the total development pipeline to 96.8
million square feet. This marks the highest level of development thus far
in the cycle as consistent expansionary activity has encouraged
developers to break ground where supply constraints persist. New
groundbreakings were driven by Dallas (2 million square feet), Silicon
Valley (1.6 million square feet) and Orange County (1.1 million square
feet), with projects that include Liberty Mutual’s 1.1-million-square-foot
build-to-suit in West Plano; Menlo’s two-building, 555,000-square-foot
development at 3333 Scott Boulevard in Santa Clara; and Trammell
Crow’s 537,220-square-foot spec development, The Boardwalk, in Irvine.
JLL | United States | Office Outlook | Q1 2016
6
Despite improved fundamentals in most U.S. office markets, however,
many secondary and tertiary markets await minimal new supply, and
where development is under way, high preleasing rates have reduced
the supply relief tenants would like to see. Primary markets, which
compose 44.8 percent of the total office market, also contribute the
largest share of developments to the total pipeline with 53.8 million
square feet. Conversely, among the 24 tertiary markets that JLL tracks,
only 11.3 million square feet (or 1.4 percent of total inventory) is currently
under construction. Additionally, eight markets, including Jacksonville,
Tampa and West Palm Beach, remain without any projects in
the pipeline.
Primary markets, which compose 44.8 percent of the
total office market, also contribute the largest share
of developments to the total pipeline with 53.8
million square feet.
During the quarter, new deliveries of 10.6 million square feet outpaced
the rate of occupancy growth by 38.7 percent. This was especially true in
Dallas, Houston, Philadelphia and Silicon Valley, where a combined total
of 5.4 million square feet in new supply was met by 1.8 million square
feet of net absorption. For 2016 deliveries in total, however, occupancy
growth is expected to outpace new supply, with 56.1 percent of the
pipeline already preleased.
As the development cycle nears its peak in 2016, deliveries will
diminish slowly through 2019
Completions (s.f.)
50,000,000
Speculative (preleased)
Speculative (available)
BTS
40,000,000
30,000,000
20,000,000
10,000,000
0
2016
2017
2018
2019
Source: JLL Research
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
7
UNITED STATES
OFFICE CLOCK
The JLL office clock demonstrates where each market sits within its real
estate cycle. Markets generally move clockwise around the clock.
Geographies on the left side of the clock are generally landlord-favorable,
while markets on the right side of the clock are typically tenant-favorable.
As of the first quarter, the vast majority of markets are firmly positioned
on the left side of the clock.
As the national office market kicked into high gear in 2015 as a result of a
generally uplifted economy, leasing activity that translated into
occupancy growth resulted in a swift tightening of fundamentals. A yearover-year drop of 80 basis points, combined with 44.4 million square feet
of new, top-quality space, has helped to push rents up by 8.7 percent
during the same period, with growth now seen across asset classes and
markets. During the first quarter alone, new space was partially
responsible for the 3.2 percent spike in rents seen across the 50 markets
that JLL tracks, even though total vacancy rose by 10 basis points.
At the market level, geographies near or within the peaking phase of the
cycle continued to register accelerated rent growth during the first
quarter. Space constraints driven by high-growth industries pushed
vacancy rates downward in Silicon Valley, Oakland–East Bay, Nashville,
San Francisco and Austin as rents increased by 15.8, 9.7, 6.7, 4.8 and
4.5 percent, respectively, compounded by minimal completions with high
preleasing rates.
Similarly, secondary markets have recorded gains, albeit slightly slower
than peaking powerhouses. In the Carolinas, annualized rent growth in
Charlotte and Raleigh-Durham totals 2.0 and 5.6 percent, respectively.
Atlanta, Miami and Phoenix posted quarterly increases of 2.0, 1.4 and
1.1 percent, respectively, and the recent boost in tenant activity and
residual supply from the previous cycle mean equilibrium is just now
being reached. As a result, significant relief for tenants in Class A and
amenitized submarkets is years away. Further, with capital flows into
these markets accelerating, rents will rise accordingly to meet pro forma
expectations. Secondary markets are witnessing near-peak pricing as
this movement intensifies, and in some cases new high-water marks
have been set.
Rent growth continues to be highly variable at the class level. Quarterly
growth in CBD Class A submarkets continues to exceed the national
average by 30 basis points, but this gap in lower than in earlier quarters.
With a readily available supply of large, Class A blocks in the suburbs
depleting, landlord confidence in that sector has risen appreciably.
Asking rents in this segment increased by 1.9 percent over the quarter
and 5.5 percent over the year. The spillover into Class B space has also
been notable as well, with a 6.3 percent annual jump in rents.
Additionally, submarkets with a large supply of creative space or in
mixed-use, amenitized settings consistently outperform. Seattle’s Lake
Union registered a 14.1 percent year-over-year increase for Class B
space, while overall rents in New York’s SoHo rose by 24.7 percent over
the same time period to $77.04 per square foot, one of the highest
figures in the country. Even in slower-growth markets such as
Philadelphia, Market Street East rents have climbed by 12.5 percent and
overall asking rents in River West in Chicago are up 11.0 percent with
new supply and renovations hitting the market.
Over the course of 2016, rental rate increases will continue but may slow
as markets in the peaking phase of the cycle reach an inflection point
while welcoming new supply across markets. In the longer term, the
eventual cooldown of the labor market and further economic uncertainty
globally will likely signal a slowdown in leasing dynamics starting in 2017
and moving into 2018.
San Francisco Peninsula
Denver, Silicon Valley
Dallas
San Francisco
Austin, Nashville
Los Angeles, San Diego, Seattle-Bellevue
Minneapolis
Atlanta, New York, Portland, Tampa
Boston, United States
Jacksonville, Miami, Orange County
Phoenix
Chicago, Indianapolis, Richmond
Charlotte, Fort Lauderdale, Milwaukee, Oakland–East Bay, Orlando, Salt Lake City
Cleveland, Raleigh-Durham, Sacramento, St. Louis
Cincinnati, Fairfield County
Hampton Roads, Long Island, San Antonio
Philadelphia, Pittsburgh, Westchester County
Baltimore, Detroit, Hartford, West Palm Beach
Columbus
◄ Table of contents
Houston
Peaking
phase
Falling
phase
Rising
phase
Bottoming
phase
New Jersey,
Washington, DC
JLL | United States | Office Outlook | Q1 2016
8
UNITED STATES
CBD OFFICE CLOCK
Denver
Midtown South (New York), Nashville
San Francisco, San Jose CBD
Austin, Tampa
Minneapolis, Seattle
Dallas, Downtown (New York), Los Angeles
Atlanta, Fort Lauderdale, Portland
Boston, Miami, San Diego, United States
Midtown (New York)
Chicago, Jacksonville
Charlotte, Oakland CBD, Orlando, Philadelphia
Milwaukee, Raleigh-Durham, Sacramento
Salt Lake City
Cleveland, Indianapolis
Fairfield County, Pittsburgh
Cincinnati, Phoenix, San Antonio, West Palm Beach
Detroit, Hartford, Washington, DC, White Plains
Columbus, St. Louis
Houston
Peaking
phase
Falling
phase
Rising
phase
Bottoming
phase
Baltimore, Richmond
UNITED STATES
SUBURBAN OFFICE CLOCK
Silicon Valley
Dallas
San Francisco Peninsula
Denver
San Francisco
Bellevue, Cambridge
Austin, Richmond
Houston
Peaking
phase
Falling
phase
Rising
phase
Bottoming
phase
Los Angeles, Nashville, San Diego, Seattle-Bellevue
Indianapolis
Atlanta, Jacksonville, Portland, Tampa
Boston, Orange County, Seattle, St. Louis, United States
Miami, Phoenix
Minneapolis, Salt Lake City
Baltimore
Charlotte, Chicago, Cleveland, Milwaukee,
Oakland–East Bay, Westchester County
Cincinnati, Fairfield County
Fort Lauderdale, Hampton Roads, Orlando, Long Island,
Raleigh-Durham, Philadelphia, Sacramento, San Antonio
Detroit, Pittsburgh
Central NJ, Columbus, Hartford, Northern DE, West Palm Beach
◄ Table of contents
Southern NJ
Washington, DC
Lehigh Valley,
Northern NJ
JLL | United States | Office Outlook | Q1 2016
9
UNITED STATES
ECONOMY
For the office market, global and domestic economic activity will show its
impact gradually over the next few quarters, segmented by geography
and industry. In addition to the roughly one-year lag between economic
indicators and market movement, the wide variance among markets in
terms of position within the cycle will become increasingly apparent.
However, employment growth exceeding 200,000 jobs per month and the
need for companies to accommodate growing workforces will keep
market momentum positive, aided by the impending completion of 47
million square feet of space throughout 2016, with more deliveries
expected in 2017 and 2018.
GDP growth consistent, but components beginning to wobble as
vulnerability increases
A strengthening dollar may exacerbate the increasing trade deficit
as exports become more expensive
Real imports and exports of goods and
services ($ billions)
Real imports
Real exports
$0
$2,000.0
-$100
$1,000.0
-$200
$0.0
-$300
-$1,000.0
-$400
-$2,000.0
-$500
-$3,000.0
-$600
2011
2012
2013
2014
2015
Source: JLL Research, Bureau of Economic Analysis
Revised estimates showed GDP growing by 1.4 percent at seasonally
adjusted annual rates during the fourth quarter, led by personal
consumption expenditures (+2.4 percent), in particular durable goods
◄ Table of contents
A strengthening dollar has also begun to take its toll on net exports,
which have gradually trended downward over the course of the cycle.
Although the fourth quarter posted a small bump up in the trade deficit of
$514.3 billion, this was largely due to a decline in year-over-year
volumes of both imports and exports. As emerging markets continue to
falter, markets with exposure to international trade and logistics may see
a slowdown; any pullback in this sector would have knock-on effects on
the rest of the labor market, as it represents nearly one-fifth of jobs and
even higher shares in hubs such as Los Angeles, Dallas and Chicago.
Job market resilient, but how much longer can gains last?
Wage growth is gaining traction across industries, with
particularly strong increases in information and finance
3.5%
2.9%
2.7%
2.6%
2.4%
2.2%
2.0%
1.8%
1.4%
1.1%
Real net exports
$3,000.0
2010
and services. Over the year, real GDP is up 3.1 percent, slower than the
3.9 percent expansion in 2014 but still well above nearly all peer
economies. This slowdown is attributable to a number of gradual shifts
during the second half of 2015, notably a flatlining of private domestic
investment, which has yet to move above $3.0 trillion for three
consecutive quarters as a number of nonresidential components slowed
or even contracted moderately. The slump in business investment
correlates with another quarter of declining corporate profits, which at
$1.9 trillion are 11.5 percent below Q4 2014.
12-month % change
The global economic picture has become increasingly mixed of late, with
political issues in emerging and resource-rich countries muting growth
from previously strong sources of capital and continued uncertainty
surrounding the Eurozone crisis and further stimulus from the ECB.
Additionally, questions persist about how much longer the domestic labor
market and general economy can continue to grow at a steady clip.
Despite this, the U.S. economy remains largely stable, adding jobs at a
markedly consistent rate along with solid personal consumption
expenditures driving GDP growth. Other indicators, such as consumer
confidence and corporate profits, continue to wobble, but general
sentiment remains upbeat over the near term.
Source: JLL Research, Bureau of Labor Statistics
Even as the global economy remains up in the air, the U.S. labor market
continues to display solid momentum, adding 628,000 jobs so far in
2016, a significant jump from the 570,000 added during the first three
months of 2015. Throughout the cycle, year-over-year growth has been
remarkably consistent, hovering between 1.9 and 2.1 percent for 24
consecutive months and showing little sign of slowing. As a testament to
the sustained growth this cycle, the current level of employment (143.8
million) is the highest ever recorded and 5.3 million jobs higher than the
previous peak in January 2008.
JLL | United States | Office Outlook | Q1 2016
10
600
1-month net change (thousands)
Federal funds rate (%)
400
6.0%
5.0%
200
4.0%
0
-200
3.0%
-400
2.0%
-600
Federal funds rate (%)
Like GDP, employment gains have become increasingly mixed at the
subsector level. A combination of strength earlier in the recovery, talent
shortages and diversification of growth have all impacted the office-using
industries in recent months; over the past year, they have been
responsible for 656,000 new jobs, or just 23.4 percent of total gains. In
comparison, the office-using sector represented more than one-quarter
of jobs created in 2014 and close to 30 percent in certain months earlier
in the recovery. Compensating for this moderate pause has been an
upswing in construction, leisure and other services, all of which benefit
from a general uplift in economic momentum and hit their strides slightly
later into the cycle.
Sustained employment growth may lead to another interest rate
hike, but Fed action remains uncertain
1-month net change (thousands)
As a testament to the sustained growth this cycle,
the current level of employment (143.8 million) is the
highest ever recorded and 5.3 million jobs higher
than the previous peak in January 2008.
1.0%
-800
-1,000
0.0%
Source: JLL Research, Bureau of Economic Analysis
Many high-growth markets are still holding steady, but annual
gains are becoming more difficult to sustain
Austin
San Francisco
Nashville
Dallas
Atlanta
2.9%
Miami
2.7%
Denver
4.3%
4.2%
4.4%
4.0%
3.8%
3.6%
4.1%
3.5%
4.3%
3.6%
4.6%
2.6%
Charlotte
4.5%
2.2%
12-month % change
2014–2015
2015–2016
Source: JLL Research, Bureau of Labor Statistics – markets ranked in terms of
2015–2016 job growth
Similarly, a number of high-growth geographies have registered a
slowdown in annual employment growth as previous rates of increase
have become difficult to sustain. That being said, these markets continue
to be economic powerhouses: Dallas and Atlanta, for instance, have
added a combined 189,300 jobs over the past 12months at a rate of
more than 3.0 percent. Professional services growth has seen a slight
slowdown in these geographies as well, but it is at full-throttle in
Nashville (+9.2 percent), San Francisco (+7.3 percent), Raleigh-Durham
(+6.7 percent), Silicon Valley (+6.4 percent) and Austin (+4.2 percent).
2016 exceeding 2015 and capping more than 60 consecutive months of
net gains, the labor market logically suggests room for incremental
tightening. Other metrics show a similar slow-but-steady recovery: home
prices have gradually improved over the course of 2015 and into
January 2016 (+10.4 percent year-over-year), initial unemployment
claims remain around 250,000 per week—their lowest level since 2007—
and job openings and quits are both trending upward as employee
confidence increases. Tightening will also need to take place before the
overall economy reaches its cyclical peak, and while there is still slack in
the labor market and runway for further consumer spending as wages
rise faster than inflation, just how much more room is left will depend
on a wide range of domestic and international economic and
geopolitical factors.
Overall, the strength of the U.S. economy in contrast to murky waters
globally will benefit the office market over the next four to six quarters.
Unlike the previous cycle, in which the office market led the economy as
a whole, the more cautious approach on the part of both investors and
occupiers has enabled the market to respond better to fluctuations as it
now follows macroeconomic and demographic trends. Optimism on the
part of occupiers to increase headcounts will further chip away at a
dwindling number of large blocks, while the lack of significant
overbuilding in aggregate will ease the softening expected beginning in
late 2016 and early 2017, even as job creation continues unabated.
When will the Federal Reserve raise interest rates?
In December, the Federal Reserve took a critical step and raised the
federal funds rate by a quarter-point, the first time in almost 10 years.
Since then, it has kept the rate steady pending subsequent releases of
labor, output and other macroeconomic data. With a three-month start to
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
11
UNITED STATES
INVESTMENT SALES
First quarter pullback in capital markets activity after five
consecutive years of growth
Despite softened growth, occupancy markets remain strong and
disjointed from recent capital markets slowdown
First quarter 2016 volumes increased a modest 1.0 percent year-overyear after five consecutive years of strong increases in office capital
markets activity. Despite this increase, $35.4 billion of investment sales
still comprises the second most active quarter of the last five years, a
function broadly of 2015 deal closings. Current volatility in the macro
economy, caution over pricing levels and scarcity of assets on the
market drove declines in most primary markets. Chicago, following a
very strong year in 2015 and the first acquisition of an office asset priced
at over $1.0 billion, saw volumes decrease to $472.6 million. Silicon
Valley also recorded a sharp decline after 2015 sales volume reached
$3.1 billion and per-square-foot pricing of $1,300, while first quarter 2016
volumes in Silicon Valley dropped to $147.0 million. Instability in energy
markets is further suppressing capital markets activity in Houston, with
less than $100.0 million of transactions year-to-date in 2016. While
primary market activity overall is down quarter-over-quarter, Boston and
Los Angeles posted strong first quarters with $2.5 billion and $1.8 billion
of transactions, respectively. Los Angeles activity was boosted by the
Westside portfolio acquisition, totaling 1.7 million square feet, by Douglas
Emmett Realty and Qatar Investment Authority for $1.3 billion, while in
Boston, Blackstone’s acquisition of BioMed Realty Trust, 21.0 percent of
asset square footage in Cambridge, elevated overall sales volume. In
secondary markets, however, investment activity remains strong,
reaching peak levels relative to primary markets in the first quarter, with
two markets recording transaction volumes over $1.0 billion. As we move
further into 2016, flat growth to moderate declines in activity are
projected as a result of these dynamics.
Despite the slowdown in investment sales, office leasing fundamentals
remain strong, with rents increasing across the United States by 3.2
percent. At 7.7 million square feet of absorption, take-up has slowed
from the latter part of 2015, although the lack of expansionary activity is
likely due to supply constraints in single-digit occupancy markets. The
first quarter saw a realized divergence in occupancy and capital markets
fundamentals, especially in the primary markets. Overall primary
markets saw a positive absorption reading, indicating that strong leasing
fundamentals are catching up to the capital markets, which drove pricing
in the early stages of the cycle. As an example, Chicago, the primary
market with the largest decrease in investment sales, recorded the
largest quarterly absorption figure of any market in the U.S. with 1.7
million square feet. Seattle came in after Chicago in terms of absorption
and posted investment volumes slightly higher than average, although
below the high levels recorded at earlier points in the cycle.
Office investment sale volumes
(billions of $US)
$250.0
Q1
Q2
Q3
Q4
$200.0
$150.0
$100.0
$50.0
$0.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
◄ Table of contents
Occupational markets remain strong yet disjointed from
investment sales activity in Q1, notably in primary markets
7,000
Q1 2016 highest absorption markets
(thousands of s.f.)
Following five consecutive years of strong growth, office
transaction volumes increase by 1.0 percent year-on-year
On the other hand, leasing and capital markets fundamentals continue to
move in tandem in the secondary markets. Austin, however, the highest
secondary market for absorption, posted a moderate decrease in volume
quarter-over-quarter. Other secondary markets leading in absorption for
the quarter—Philadelphia, San Diego and Phoenix—are continuing to
see upward trending investment volume. Across the U.S. this cycle,
strong capital markets activity outperformed occupier markets, which had
been slower to recover after the downturn. In early 2016, this
outperformance has reversed, driving disjointed indicators across most
markets—reflective of an underlying improvement in income
fundamentals across more markets.
Chicago
Silicon Valley
Philadelphia
6,000
5,000
Seattle
Austin
Los Angeles
4,000
3,000
2,000
1,000
0
-1,000
2013
2014
2015
2016
Source: JLL Research
JLL | United States | Office Outlook | Q1 2016
12
2014 Q1
Source: JLL Research (Assets larger than 50,000 s.f.)
2015 Q1
2016 Q1
Stable
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
Compressing
2013 Q1
◄ Table of contents
2003
Primary
Secondary
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Cap rates continue to compress with nearly 94.0 percent of
markets seeing compressing or stabilizing yields
2000
Primary market investment volumes
(millions of $US)
Secondary markets have strongest first quarter in three years, as
primary markets in aggregate decline
Secondary markets are seeing a dichotomous trend as two clusters
emerge: one leading national cap rate compression and the other
showing signs of slowing. The secondary markets driving compression—
Nashville, Minneapolis, Salt Lake City, Phoenix and Charlotte—have
each recorded over 60 basis points of downward movement in the past
12 months. These markets are emerging as destinations for diversifying
capital and, as a result, are seeing cap rates compress as the risks
associated with smaller secondary markets recede. Meanwhile, select
leading secondary markets are beginning to move in the opposite
direction, indicating a moderation of investor confidence. RaleighDurham, Tampa and St. Louis cap rates are softening, with Dallas
stabilizing. In 2016, cap rate compression will continue across most
markets, though at modest levels, with perceived fully priced secondary
markets beginning to show signs of stabilization or softening.
2002
Outside of the large portfolio acquisitions in the secondary markets,
increased activity was concentrated in urban submarkets. In particular,
Philadelphia, Atlanta, New Jersey and Oakland boosted secondary
market activity with urban volumes increasing in aggregate by 165.6
percent year-over-year. Though secondary markets are recording
stronger investment volume growth than primary markets, there is not a
comparable level of institutional activity. Institutional acquisitions
decreased, while purchases by private equity groups increased. The
largest acquisition by this investor group was 70 & 90 Hudson Street in
Jersey City in the Northern New Jersey market, which was acquired for
$299.0 million by Spear Street Capital. The most active buyer in the
secondary office market this quarter was Shorenstein, who purchased a
Trophy asset in Pittsburgh and Class A assets in Philadelphia and
Atlanta for a total of $566.2 million. While the primary markets are seeing
activity decline, the diversification into secondary markets remains
strongly evidenced, leading these markets to drive U.S. investment sale
growth. This will continue through the year. However, despite resurgent
economic and property market fundamentals in select small and
midsized markets such as Austin, San Diego and Phoenix, institutional
capital remains disciplined and selective.
Nationally, cap rates remain in compression mode, declining 30 basis
points in the past 12months from 4.8 to 4.5 percent. At this level, national
cap rates are below the prior peak of 4.8 percent, leading investor
concerns over current pricing. Across the primary markets, all have
recorded compression in the last 12 months by 39 basis points in
aggregate. Of these, while New York and Chicago cap rates remain flat,
West Coast markets Seattle, Silicon Valley and San Francisco continue
to see strong cap rate compression, having decreased over 30 basis
points over the last 12 months. However, cap rates in three primary
markets—Houston, Boston and Los Angeles—have not yet surpassed
their respective prior peaks. While Houston is unlikely to see further
compression due to the slowdown in energy markets, strong property
market fundamentals and resilient investor demand in Boston and Los
Angeles are expected to drive continued compression, notably in highbarrier-to-entry submarkets.
2001
In the first quarter of 2016, 37.0 percent of total transaction volumes
flowed into secondary markets, totaling $7.6 billion. Quarter-over-quarter,
primary markets accounted for the overall moderation in volume growth,
while secondary markets recorded a modest increase. In secondary
markets in particular, this was boosted by large portfolio and entity-level
acquisitions. In the largest transaction of the quarter, Blackstone
acquired BioMed Realty Trust, taking over their life sciences–centric
office and lab portfolio for $4.8 billion, boosting activity in San Diego as
well as some of the primary markets, such as Boston’s Cambridge
submarket, the San Francisco Peninsula and Seattle. In another
noteworthy secondary market portfolio, Och-Ziff Capital Management
purchased 58 properties of suburban product from Brandywine Realty
Trust for $398.1 million, totaling 3.9 million square feet, located along the
Northeast Corridor from New Jersey to Virginia.
Momentum in yield compression continues, though divergence
appears, with select secondary markets beginning to show signs
of slowing
Annual cap rate fluctuations
Secondary market activity increase driven by large portfolio
acquisitions and urban submarkets
Softening
Source: JLL Research, NCREIF; Includes 32 major office markets; Stable defined
as markets seeing fluctuations within 10 basis points year-over-year.
JLL | United States | Office Outlook | Q1 2016
13
As foreign activity declines in the first quarter, European overtake
Asian groups as most active source
Nationally, cap rates remain in compression mode,
declining 30 basis points in the past twelve months
from 4.8 to 4.5 percent
Foreign activity made up 12.1 percent of total volume in the first quarter,
totaling $2.6 billion—a decrease of 20.5 percent year-over-year and
slightly below established current cycle norms on a percentage basis in
recent years. A factor in this decline statistically is the decline in primary
market activity, where this capital remains focused with selective
diversification into secondary markets. Foreign investment into the office
sector reached a peak in 2015 of $22.0 billion, equating to 20.9 percent
of total volume. In 2015, groups from Canada and China were the most
aggressive in purchasing U.S. office real estate, accounting for 40.9
percent of total acquisitions. In the first quarter of 2016, the foreign buyer
pool has shifted, with groups from Germany accounting for 37.0 percent
of the total. This was driven by Deutsche Bank and Jamestown, who
acquired assets in New York, Silicon Valley and Seattle. New inbound
entrants to the market decreased other than smaller groups from the
United Kingdom and Canada, who were active in Chicago, Atlanta and
New York. In 2016, it is likely that further increases in inbound capital
from European groups, including Germany, will be evident given ongoing
economic and political concerns with resilient capital from Asia as well.
Germany dominates as top origin of inbound capital, surpassing active Asian and Canadian capital from prior two years
MOST ACTIVE FOREIGN INVESTORS
16.4%
9.0%
24.0%
13.5%
18.5%
5.6%
2014
2%
6%
9.5%
35.1%
2015
10%
12%
Q1
2016
37%
21.9%
15.3%
Norway
Germany
Canada
Singapore
15.5%
15.8%
22%
Canada
China
Germany
Qatar
Germany
South Korea
South Korea
Canada
Hong Kong
All others
China
United Kingdom
Source: JLL Research (Assets larger than 50,000 s.f.)
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
14
LOCAL
MARKETS
Looking ahead, the remainder of 2016 will
remain largely landlord-favorable as
expansionary leases begin to take occupancy
across the United States, but conditions will
begin to shift in 2017 as markets work to
absorb the more than 80 million square feet
of new supply that will deliver over the next
two years. Additionally, as markets move
nearer to their inflection points in terms of
rental rates and market growth, 2017 will start
to see some cooling as markets stabilize—
especially in primary markets that performed
highly earlier in the expansion.
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
15
ATLANTA
- Ryan Harchar
Senior Research Analyst,
Atlanta
Occupiers & investors pivot to alternative segments
Landlord-favorability forces occupiers to diversify, Class B benefits
The first quarter of 2016 offered more evidence of strong market conditions in the
Southeast’s capital. Driven by positive demand with limited supply, occupiers
have resorted to diversifying both in terms of geography and the quality of
product they are seeking. This compromise has led to dramatic improvements in
Class B fundamentals. Landlords have noticed, increasing asking rates of large
available blocks of space. Brokers point to increased tour volume and a gradual
decline in competing large blocks. Expect the trend to continue as tenants justify
expansion and others relocate to metro Atlanta office buildings.
Landlords increase rates of large Class B blocks
Office fundamentals offer a window for value creation
Value add investors have found opportunity to buy low in metro submarkets,
exhibiting both rising rental rates and pronounced spreads between the Class A
and B segments. Through repositioning, renovation, and addressing deferred
maintenance, investors are beginning to acquire well located A- and B+ assets at
a low basis and benefit from rate appreciation. Buckhead, Northwest, and
Central Perimeter indicate the most extreme delta between the two class
segments. Although, many of the well-located opportunities have been spoken
for in recent quarters. Buyers are now moving beyond these submarkets in
search of greater yield.
Asking rate delta points to opportunity for investors
Leasing activity continues to broaden
Absorption was brisk over the quarter, which led to a 30 bps decline in overall
vacancy rates, a trend observed for 19 consecutive quarters. This has allowed
leasing activity to broaden. Several deals were signed to Class B buildings over
the first months of 2016. Well represented was the healthcare industry, including
IMS Health for 22,700 square feet in Buckhead and Endochoice for 16,000
square in North Fulton. A stand-out trend was the majority of transactions
occurring in the northern arc submarkets, suggesting occupiers are seeking
value-oriented options outside the city’s core submarkets.
Recent Class B leasing occurred in the northern arc
Asking Rate
$19.00
Block Count
$18.00
$17.00
$16.00
Source: JLL Research
$2.68
$6.22 psf:
$4.01
Average difference between
$5.12
Class A&B asking rates by
$5.31
submarket
$6.22
$6.70
$7.05
$7.89
$11.04
South Atlanta
Downtown
Northlake
Northeast
North Fulton
Midtown
Central Perimeter
Northwest
Buckhead
Source: JLL Research
Northwest North Fulton Northeast
MACTEC
NORTH
POINT
RESOURCES
WIPRO
ECOLAB
DELTA
thyssenkrupp
68%
Over last
6 months
Source: JLL Research
133,507,824
325,436
$22.98
2,602,297
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
17.2%
325,436
10.9%
44.6%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
50
45
40
35
30
25
20
JLL | United States | Office Outlook | Q1 2016
16
AUSTIN
- Travis Rogers
Research Analyst,
Austin
Supply allows investors the freedom to be choosy
Large portfolios coming to market allow for investors to be choosy
Traditionally, investors looking to acquire office product in Austin have had
relatively few investment opportunities and faced fierce bidding competition. A
few large portfolio owners are now bringing their properties to market, creating
an array of investment options. While buyers still face intense competition, this
increase in overall investment opportunities allows buyers to be more discerning
in their next acquisition. There are currently over 3.2 million square feet,
representing 6.5 percent of inventory, up for grabs in the Austin market.
Investment opportunities by submarket
4%
4%
9%
3,200,000 s.f.
On the market
53%
2,257
30%
NW
New construction preleasing gaining momentum at delivery
Four properties, representing over 340,000 square feet, delivered in Q1 2016
across three submarkets. The largest deliveries include Research Park Plaza V
(173,000 square feet) and Domain 1 (125,000 square feet). Collectively, these
two properties delivered 38.9 percent leased with a rumored 100,000 square feet
at leases. The majority of leasing activity occurred within a few months of each
delivery, representing a recent trend with speculative developments across all
submarkets. The most anticipated deliveries during Q2 2016 are 5th & Colorado
(180,000 square feet - CBD), The Arnold (95,000 square feet - East), Domain 5
(75,000 square feet - NW) and The Lakes at Techridge (40,000 square feet - NE).
Collectively, these properties are over 60 percent preleased.
Think base rent is driving rent growth? Think again
Citywide Class A rents experienced a surge of growth during the first quarter.
Contributions to this growth stem from both base rent and operating expenses.
Year-over-year, Class A operating expenses downtown increased an average of
$2.13 per square foot (12.9 percent) while the suburban market experienced a
more subtle increase of $0.69 per square foot (5.5 percent). The real estate tax
portion of operating expenses is the main contributor to the increase. As
properties trade, their value is reassessed by the local taxing authority to reflect
the trade value. When properties trade higher than their assessed value, real
estate taxes increase to reflect a higher property valuation.
CBD
FNW
C
SW
Citywide projected construction deliveries and preleasing
Preleasing
69%
57%
40%
Future deliveries
59%
70%
77%
36%
39%
Available Space (s.f.)
1,000,000
Leased Space (s.f.)
750,000
500,000
250,000
0
Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q3 17
Class A rental rate increase Y-O-Y (Base Rent vs OpEx)
$60
$40
$20
CBD
Base
5.5%
OpEx
$18.61
$16.48
$30.18
Suburbs
12.9%
9.2%
$12.56
$13.25
4.6%
$32.97
2,257
$21.75
$22.75
Q1 2016
Q1 2015
Q1 2016
$0
Q1 2015
49,439,503
774,140
$33.72
2,137,233
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
11.1%
774,140
6.2%
48.9%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
17
BALTIMORE
- Patrick Latimer
Research Manager,
Baltimore
Economic indicators mixed on slow absorption
Leasing activity down, but tenant-in-the-market activity steady
Outside of a handful of major renewals, signed leasing activity in the first quarter
of the year was tepid, falling short of 2015 by 19.1 percent. Tenants searching
the market, however, remained active with over 2.2 million square feet of
requirements, which is up 11.3 percent compared to the previous quarter. The
largest new deal of the quarter landed in the CBD at 1 South Street, where
MECU relocated within the submarket to 55,101 square feet of Class A space.
Education & healthcare along with engineering and architecture firms comprised
the bulk of demand in the pipeline.
Office employment trends (12-month change)
Thousands jobs
Employment drivers mixed at the beginning of 2016
Office-occupying segments of the Baltimore economy grew by a net 4,300 jobs
year-over-year, but performance across sectors was mixed. Professional &
business services (PBS) led in gains by a wide margin, helping to offset a
shrinking government sector. Losses in government were split evenly between
local and state, while federal government employment stood unchanged from the
prior year. Financial activities and information both started the year with neutral
growth. Growth in PBS, which totaled the largest annual gains made since 2013,
should help drive net absorption in the office market in the coming quarters.
Professional & Business Services
Information
Government
Financial Activities
15.0
5.0
-5.0
2011
2012
Source: JLL Research
2013
2014
2015
2016
Healthy level of tenants in the market
Active requirements
110
S.f. of active requirements
2,247,512
S.f. of average requirement
20,432
11
Source: JLL Research
Large Class A vacant blocks
# of blocks
Existing Class A vacant blocks limited across metro area
Limited new construction over the past three years combined with an ongoing
flight to quality by tenants has left few vacant Class A blocks across the market.
Vacancy for Class A space dipped to 10.0 percent, which is over a 10-year low
for Baltimore. As a result, build-to-suit activity has increased and developers
have moved forward on speculative development, most notably St. John
Properties in Maple Lawn. Several large Class A blocks will hit the market in the
coming year, however, with the largest being 152,833 square feet at 750 E Pratt
Street, where Exelon will be vacating as they move to Harbor Point.
15
Baltimore City
10
10
5
0
Suburbs
6
4
2,257
25,000 - 50,000 s.f.
Source: JLL Research
2
50,000 - 100,000 s.f.
> 100,000 s.f.
71,152,035
29,742
$22.99
1,437,452
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
12.8%
29,742
1.7%
61.8%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
18
BOSTON
- Lisa Strope
Research Manager,
New England
The first quarter sets a positive tone for the year
Tenant demand stays its course
Greater Boston experienced yet another solid quarter of net absorption.
Strong touring activity across the market combined with the buzz from GE’s
announcement in January that it will be bringing its headquarters and 800
new jobs to the Seaport District helped to kick start the year’s positive
occupancy gains. With nearly 50.0 percent of the 5.8 million-square-feet of
projects under construction preleased and vacancy rates near historic lows,
tenants with future growth or relocation plans may be challenged by limited
availabilities for value options.
Net absorption continues its positive run
New deliveries in well-located Suburban markets drive Class A rents
Suburban Class A rents surged in the first quarter of 2016 due in large part
to activity in the 128/Mass Pike market. Class A rents in Boston’s most
active submarket are nearing $40 per square foot and grew 5.1 percent in
the first quarter alone. Much of this growth can be attributed to the increase
in high quality space on the market from new deliveries such as the Atrium
Center, a 287,200-square-foot speculative development at 300 Boylston
street in Chestnut Hill. Further rent growth is expected as 3.5 million square
feet of new supply in Suburban markets is expected to deliver in the next two
years. With 53.0 percent of this space pre-leased, nearly 1.9 million square
feet may deliver vacant and at above average market rents. But strong
demand for highly amenitized suburban projects and continued tightening
across Boston’s suburban submarkets, leaves little concern for over supply.
2011
Source: JLL Research
VC money continues to flow into the Boston area
In 2015, Boston ranked as the third most popular destination for venture
capital investment, after San Francisco and New York. The booming biotech
sector took over 40.0 percent of the area’s largest VC deals and is the heart
of the region’s startup culture. But Boston’s computer technology sector is
also attracting VC investors, particularly in the cybersecurity area. Recent
funding deals included Digital Guardian, Cybereason and Bit9. With 44
Massachusetts companies on CB Insights’ 2016 IPO Pipeline, the coming
year is set to continue the market momentum.
1,500,000
1,000,000
500,000
0
-500,000
2012
2013
2014
2015
Q1 2016
Suburban Class A rents on the rise (year over year growth)
20%
Suburbs Class A
Suburbs Class B
10%
0%
2011
2012
2013
2014
2015
Q1 2016
-10%
Source: JLL Research
Boston area attracting more VC dollars
Funding
2500
350
Deals
250
2,257
500
2011 Q4
2012 Q4
Source: JLL Research, CB Insights
2013 Q4
2014 Q4
150
2015 Q4
165,505,659
259,388
$33.77
5,715,195
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
13.9%
259,388
6.0%
49.2%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
19
CHARLOTTE
- Patrick Byrnes
Research Analyst,
Charlotte
Low vacancy helps asking rates increase
CBD dominates new development
Currently there is just under two million square feet of development underway in
the market, with the majority taking place in the CBD. Headlining the new
construction are projects at 300 South Tryon Street and 615 South College
Street. Spectrum Properties is developing the 638,459-square-foot building at
300 South Tryon Street and anchor tenant Babson Capital will occupy over
200,000 square feet upon completion. Portman Holdings is behind the
project at 615 South College Street, the property will total 381,263 square feet
at completion.
Rental rates stay rising
With the current average asking rate sitting at $23.13 per square foot, jumping
0.10 cents from last quarter, it comes as no surprise that ground breakings are
occurring. Developers recognize the demand for readily available space and are
helping with supply. For the first time, suburban market’s rental rates are being
advertised above the $30.00-per-square-foot threshold. With new developments
showing strong signs of preleasing, look for rents to continue to rise in the
forseeable future.
Vacancy reaching historic lows
The market’s direct vacancy rate has dipped to a new historic low, reaching 11.0
percent for the first time in 10 years. Since 2013, where the vacancy rate
reached 17.4 percent, the rate has been on a slide. Direct vacancy has dropped
by 6.4 percentage points since then to the current rate of 11.0 percent. With
tenants competing to secure the best available space in the market, it is likely
that vacancy will continue to tighten moving forward.
Under Construction
5,000,000.00
4,000,000.00
3,000,000.00
2,000,000.00
1,000,000.00
0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: JLL Research
Asking rates continue to push
$25.00
$23.00
$21.00
$19.00
$17.00
$15.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1
2016
Source: JLL Research
Direct vacancy
20.0%
15.0%
17.9%17.0%16.9%17.4%
15.5%
14.3%
10.0% 14.7%13.8%
12.7%
12.0%
11.0%
5.0%
0.0%
2,257
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1
2016
Source: JLL Research
47,047,960
349,090
$23.13
1,987,222
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rate
Total under construction (s.f.)
11.6%
349,090
5.6%
55.3%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
20
CHICAGO (CBD)
- Hailey Harrington
Research Analyst,
Chicago CBD
Strong 2015, felt in 2016
Quarter in review
Strong leasing activity in 2015 continued into the first quarter of 2016.
Interestingly, much of the recent activity was concentrated in submarkets that
typically see fewer large deals. Historically a quiet submarket, the East Loop has
surprised some office market observers this year, posting a record low Class A
vacancy rate and the largest positive net absorption of any submarket, due to
move-ins from Kraft Heinz, Zeno Group, and JLL’s HQ expansion, among others.
This recent office activity in the East Loop is just one part of the overall energy in
the area. With several hotels under development between Millennium Park and
the Chicago River, and retail migrating south along Michigan Avenue, the East
Loop appears poised for a strong resurgence in tenant and investor demand.
Elsewhere in the CBD, many tenants have begun preleasing shadow space that
will be available in high-quality assets at below market rents. This trend will likely
continue as tenants expand their footprints to accommodate growth and large
tenant lease expirations begin rolling in the next few years. Note that sublease
availabilities increased to over three million square feet, a near record high.
West of the Loop, Fulton Market continues its streak as the submarket with the
most initial tenant interest, despite rising rents that now match those of more
established areas..
East Loop’s historical Class A net absorption
282,536
181,877
24,851
3,072
2013
Source: JLL Research
2014
2015
Q1 2016
Total vacancy rate
$35.3
$35.0
Central East
Loop Loop
$39.0
$33.8
West
Loop
Fulton
Market
Source: JLL Research
$39.9
$27.9
Far
West
Loop
River
North
$32.1
$37.2
$25.2
River
N
South
West Michigan Loop
Ave
Outlook
While investment sales activity has slowed in 2016, several high-profile
Under Construction concentrated in the traditional CBD
properties are now available for sale, including 1K Fulton and the still-unfinished
150 N Riverside. The demand and pricing for these assets will be important
431,000
indicators of the state of the Chicago capital markets. Additionally, the
CBD
development pipeline remains strong, with several boutique projects planned in
Fulton Market, and a few Class A towers that could break ground if they are able
to secure just a few more large tenant commitments. As new projects move
Kennedy West
forward, the Class A towers along Wacker Drive will be the assets to watch, either
3,127,164
for rising vacancy or quick backfill. Their occupancy will reflect the overall strength
of the Chicago leasing market.
Source: JLL Research
138,715,835
1,224,960
$36.90
3,558,164
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
11.5%
1,224,960
3.8%
55.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
21
CHICAGO (SUBURBAN)
- Christian Beaudoin
Senior Vice President, Research
Central Region
Strong leasing demand, yet large blocks remain
Quarter in review
Despite continued concern that today’s employees prefer urban offices, the real
estate market in the Chicago suburbs kicked off the year with a sequence of
tenants recommitting to the suburbs. The largest of these transactions was AIM
Specialty Health signing a renewal at 540 Lake Cook Road for 94,000 square feet.
Also recommitting to the suburbs this quarter was Houghton Mifflin Hartcourt,
which renewed its lease at 909 Davis Street in Evanston for almost 60,000
square feet.
Total net absorption (s.f.)
1,643,439
-242,577
Outlook
While leasing activity is strong, the suburban vacancy rate will continue to battle
against an abundance of available large blocks of space. With a series of large
blocks scheduled to become available throughout 2016, the suburbs will continue
to rely on tenants like Donlen, HSBC, Verizon, Lundbeck and McShane who all
have moves already planned for 2016. And with tenants such as Paylocity, Conifer
Health Solutions, Northwestern Medicine and Bosch out in the market Class A
large blocks will be in demand.
436,164
-107,998
-283,123
-1,018,749
-2,165,869
2007
Notably, a significant portion of the leasing activity this quarter (40.8 percent of
leases over 10,000 square feet), were signed by medical and healthcare tenants.
Besides AIM Specialty Health, tenants including Millennium Medical, IKS Health,
Advocate Healthcare and Lundbeck completed large transactions.
1,277,749
153,085
394,775
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total vacancy rate
22.8%
20.0%
24.8% 25.0% 24.5% 24.6% 24.3%
22.6%
20.7%
18.5% 18.9%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Direct average asking rent ($ p.s.f.)
After several years with no new speculative development in the suburbs it was
announced that the Alter Group will be moving forward with Phase 4 of Corridors
$24.10
North in Downers Grove. This announcement of spec development in the Eastern
$23.74
$23.49
East-West Corridor strongly reflects the trend of the submarkets immediately
$23.08 $23.08
$22.61
surrounding Chicago outperforming the suburbs which are further from the core.
With the lowest vacancy rates and highest rents, the submarkets of the Eastern
East-West Corridor and North Cook County are likely to continue to attract tenants
at the expense of the farther-out submarkets.
$23.12
$23.60 $23.43 $23.40
$22.91
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
18.9%
Total vacancy
436,164
YTD net absorption (s.f.)
436,164
Q1 2016 net absorption (s.f.)
◄ Table of contents
753,000
13.0%
Total under construction (s.f.)
12-month rent growth
100.0%
Total preleased
JLL | United States | Office Outlook | Q1 2016
22
CINCINNATI
- Ross Bratcher
Research Analyst,
Great Lakes
Large block leasing remains hot into 2016
Large block leasing builds on Q4, posts strong first quarter
Large block leasing activity built on the momentum of the fourth quarter of 2015
with eight leases signed over 20,000 square feet. Large block leasing was most
active in the northern suburban markets, while leases were also signed in the
CBD, CBD peripheral, and Northern Kentucky submarkets. This further solidified
the strength of the Cincinnati office market as large block leasing activity was
focused in the Midtown and Kenwood submarkets in fourth quarter of 2015.
Large block leases were signed in both Class A and B product over the last two
quarters, showing positive tenant demand for both classes across the market.
Office investment continues hot streak in the first quarter
The Cincinnati office market has seen significant sales activity since the start of
2015. The trend continued in the first quarter as Landings I&II and McAuley
Place traded for a combined total of $87.4 million. The flow of capital into the
office market has been driven by out of town investment in the form of private
capital groups and equity funds looking to the Cincinnati market to broaden their
portfolios into secondary markets and generate a return from Cincinnati’s recent
momentum. The major players in the market span from New York to California,
further solidifying Cincinnati as a national destination for firms looking to invest in
secondary markets.
Downtown office conversion momentum continues
The Central Business District has seen multiple conversions of Class B office
space over the last 18 months and the first quarter proved to be no different.
Both the Textile Building and the Hartford Building traded with the intent to
repurpose the properties into mixed-use and residential, respectively. This trend
has gained steam due to increased residential and hospitality demand in the
market, as well as a lagging Class B office market in the CBD. Other notable
projects include Fourth & Walnut Centre, which will be converted into a mixeduse complex that will include up to three hotels, and 309 Vine, which will be
repurposed for residential units.
Large block leasing activity surges in Q1
80,000
Leased s.f.
60,000
40,000
20,000
Veritiv
United
Mercy Health
Health Care
Business
Backer
Quotient
Technology
The Potter
Law Firm
Out of town office investment since Jan 1, 2015
$120
Total acquisition cost (millions)
Number of transactions
$100
8
6
$80
4
$60
2
$40
$20
0
Smith/ Hallemann
Van Trust
GriffinGriffin
Smith/Hallemann
Capital
Partners
Carter Validus
Rubenstein
Partners
Apollo Global
Rubenstein
VanReal
TrustEstate
Carter
Apollo
Partners
Partners
Real Estate
Capital
Validus
Global
Notable Downtown conversion projects
Property
Owner
Bldg s.f
Fourth & Walnut Centre Hudson Holdings
375,000
309 Vine
Village Green Cos.
300,000
Textile Building
Hudson Holdings
213,000
Hartford Building
Vulcan Property Management
64,000
Source: JLL Research
34,582,680
285,382
$19.25
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
200,000
2,257
Total under construction (s.f.)
17.4%
285,382
0.7%
28.5%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
Graydon
Head
JLL | United States | Office Outlook | Q1 2016
23
CLEVELAND
- Andrew Batson
Research Manager,
Great Lakes
Market continues to strengthen, forecast is positive
Public investment induces private investments near Public Square
The economic theory that public investments in infrastructure will generate
increased levels of private investment is proving true once again in the heart of
downtown Cleveland. The $50.0 million overhaul of Public Square in the core of
downtown Cleveland is fast approaching a June 2016 completion date. The 10acre transformational project has caught the interest of real estate investors, who
have been active in acquiring property adjacent to the square. A handful of
properties have transferred in the last two years with a combined value of $194.5
million. However, the Key Center complex, which is currently listed for sale and
includes 1.3 million square feet of office space and a 400-room Marriott, could
trade for more than all of the recent sales combined—as much as $285.0 million.
Residential demand has a positive impact on the downtown office market
Residential demand in downtown Cleveland has increased significantly over the
last 15 years and this has had a positive impact on the office market. The
increase in demand has been driven predominately by the millennial generation
and a desire to live, work, play in the urban core. The downtown population now
stands at 14,000, representing a 79.0 percent increase since 2000. The increase
in demand has required a significant amount of new supply. While a portion of
this added supply has been ground-up construction, the majority has been the
product of residential conversions of underutilized and functionally obsolete
office buildings. In total, more than 3.3 million square feet of office product has
been repurposed into residential, leading to a tightening of the office market.
The suburban submarkets quietly regain their footing
With so much excitement and focus on downtown Cleveland and its high profile
wins in recent quarters it’s easy to understand how the suburban submarkets
could be overlooked. However, once considered down-and-out by many, the
suburbs have quietly regained their footing. This is particularly true in the
Rockside Corridor, Cleveland’s largest suburban submarket. Rockside has
retained several key tenants and attracted a few new ones in recent quarters.
Those tenants include Farmers, Honeywell, Vox Mobile and Chart Industries.
While the average asking rate in the submarket has remained fairly flat over the
last six years, the vacancy rate has recorded a substantial reduction.
Recent sales comps near Public Square
Address
Use
Size
Sales price
100 Public Square
Office
815,000 s.f.
$79.0M
230 W Huron
Retail
577,000 s.f.
$56.5M
1600 W 2nd Street
Office
321,000 s.f.
$34.5M
24 Public Square
Hotel
491 rooms
$20.5M
75 Public Square
Office
150,000 s.f.
Source: JLL Research, Real Capital Analytics
$4.0 M
Office product taken offline for residential conversion (m.s.f.)
1.2
0.8
0.4
0.0
2012
Source: JLL Research
2013
2014
2015
Rockside Corridor office market fundamentals
Average asking rent
Total vacancy
$20
35%
$19
25%
2,257
$18
15%
2010 2011
Source: JLL Research
2012
2013
2014
2015
YTD
2016
28,121,038
95,963
$19.07
47,000
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
19.3%
95,963
0.3%
33.3%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
24
COLUMBUS
- Ross Bratcher
Research Analyst,
Great Lakes
Suburban submarkets deliver strong start to year
Large absorption gains recorded across every submarket cluster
Strong demand for suburban office space spanning the entire market led to a
huge first quarter for the Columbus market. Alliance Data, which leased 86,000
square feet at its new office campus in Easton, topped the market in the first
quarter. XPO Logistics signed a 63,000-square-foot lease for former Verizon
Wireless space in Dublin leading to 40,914 square feet of positive absorption in
the submarket for the first quarter. The Polaris submarket recorded just over
40,000 square feet of positive absorption thanks to several leases ranging from
7,000 to 12,000 square feet. Capitol Square recorded over 41,000 square feet of
positive net absorption, showing strength in the CBD.
Absorption breakdown by submarket cluster (s.f.)
Investors look to Class B product for higher returns
Investors have turned to secondary markets for office investment as returns in
primary markets continue to shrink. Investors looking to secondary markets such
as Columbus are in search of value-add plays, often acquiring Class B assets
with vacancy in the building. Through the improvement of common area facilities
and aggressive tenant improvement packages, investors are able to make the
properties more enticing for tenants. This trend can be seen with Lone Star
Fund’s acquisition of Metro IV and V in the Dublin submarket. The Worthington
submarket also saw a significant Class B trade with the sale of Three
Crosswoods Center.
Notable first quarter office sales
Class B product continues to lag Class A
The first quarter of 2016 showed a continued trend of Class A space
outperforming Class B product in the Columbus market. The Class A vacancy
rate was positively impacted by large users signing leases in the first quarter, of
which six of the seven largest executed leases were for Class A space. Due to
high rates of Class A absorption over the last six quarters, the market has shifted
in favor of landlords due to a lack of quality space. Developers are responding to
the continued tenant demand with multiple new projects in the pipeline. As the
new projects are completed in late 2016 and early 2017, the vacancy rate is
projected to increase slightly while tenants fill the newly delivered space.
46,544
CBD
50,177
Northeast
Northeast
42,245
72,540
Northwest
Source: JLL Research
Property
Buyer
Price ($M)
Bldg s.f.
Metro Center IV & V
Lone Star Funds
$16.3
320,414
2405 Columbus St
Physicians Realty Trust
$12.8
73,465
Three Crosswoods Center
Hudson Holdings
$7.5
117,309
Crosswoods Tech Center-B
RCS Crosswoods
$3.6
77,890
Source: JLL Research
Vacancy Trends
Class A
22.0%
Class B
18.0%
14.0%
10.0%
6.0%
2011
Source: JLL Research
2012
2,257
2013
2014
2015
Q1 2016
30,482,513
211,506
$17.51
580,692
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
13.1%
211,506
0.2%
25%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
25
DALLAS
- Walter Bialas
Vice President, Research,
Dallas
Absorption pace pauses, construction remains high
Vacancy beginning to rise as new construction outpaces absorption
Corporate relocation and consolidation continues to be driving office demand.
Two examples include McKesson’s recent purchase a 500,000-square-foot
complex in Las Colinas to consolidate and expand in the region, while Spire
Realty Capital will be relocating their corporate headquarters from Arizona to
Uptown in mid-2016. In the first quarter of 2016, new speculative construction
outpaced net absorption, moving total vacancy up slightly to 19.1 percent. While
drifting upward, vacancy remains near the region’s historic low, as well as for
many submarkets. We expect vacancy to increase slightly through 2016, and the
slow pace of first quarter absorption seems to be more related to the market
taking a pause after 2015’s a very robust pace.
Rate pressure remains in place
Despite the vacancy increase, rent pressure remains in effect for all submarkets.
Year-over-year, direct asking rates increased for Class A and B space by 7.4
percent. Rent increases ranged from 1.0 percent in Preston Center to 18.0
percent for North Central Expressway, as tenants look for rent relief from higher
rent areas like Preston and Uptown. Brokers commonly report sticker shock as
some tenants are seeing renewal rates 25.0 to 40.0 percent above their existing
leases. We expect new Class A construction to put upward pressure on rates as
space is delivered, which is also putting upward pressure on Class B properties.
There is also a move to convert typically quoted “plus-electric” rates to triple net
in an effort to maximize NOI and limit expense exposure.
Construction pipeline is large, strong absorption needed to keep pace
While the construction pipeline is above the historic average, more than half is
made of a handful of very large built-to-suits (most of which will deliver in 2017
and early 2018). In the first quarter, over one million square feet was delivered
(half built-to-suit, half spec). During 2016, another 3.6 million square feet is
scheduled for completion. Of that pipeline, two million square feet is not builtto-suit or preleased. Recently signed deals point to higher net absorption later in
the year, but we expect vacancy to inch up in 2016 due to the high volume of
spec construction.
UC pipeline large, large portion is built-to-suits
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
Source: JLL Research
Class A & B rental rates by submarket p.s.f.
$36
$31
$26
$21
$16
Source: JLL Research
Majority of spec construction scheduled for 2016
2.5 million s.f.
(vacant spec will
be delivered in 2016)
2,257
Source: JLL Research
162,502,918
164,935
$24.79
8,307,051
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
19.1%
164,935
7.4%
66%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
26
DENVER
- Amanda Seyfried
Senior Research Analyst,
Denver
Economy remains strong through slow first quarter
Metro Denver boasts the lowest unemployment in the nation
Denver has among the nation’s most diverse sector compositions, helping drive
its economic expansion to a level bested by very few other metros. Further,
consistent in-migration has provided companies a large pool from which to
choose. Hiring has followed: up 15.2 percent in the past five years, local officeusing job growth has outpaced the U.S. and hit a record high in August 2014. In
January 2016, Denver had the lowest unemployment of 51 metros with
populations of one million or more, clocking in at 3.0 percent. Unemployment
has been declining since 2012, and swiftly so since 2014. Decreases will likely
not continue at this pace, but will continue to decline at a flatter rate.
Large tenant subleases and move-outs contribute to negative absorption
Negative net absorption in the first quarter can largely be attributed to sublease
space becoming vacant. Specifically, Newfield Exploration and WPX Energy’s
subleases at 1001 17th Street in West CBD contributed to over 240,000 square
feet of the total 349,535 square feet of occupancy losses during the quarter. In
the Southeast Suburban, CoBank fully vacated 225,000 square feet at its old
headquarters at 5500 S Quebec Street for its shiny new build-to-suit space at
6340 S Fiddlers Green Circle, which was largely occupied in Q4 2015. Tenants
including WeWork and Comcast will occupy large blocks of space in the coming
quarters, which will help to dig absorption out of the red.
Non-vacant availabilities on the rise
With negative net absorption, the first quarter ended with a rise in vacancy at
12.6 percent direct and 13.7 percent total vacancy, including subleases. These
numbers are a far cry from the 18.0+ percent total vacancy numbers seen in the
midst of the recession, however availability in both vacant and non-vacant
spaces is increasing rapidly throughout the market. In the CBD, total availability
exceeds 19.0 percent including the large number of oil and gas subleases
currently available. In Southeast Suburban, total availability north of Belleview
Avenue is currently 33.6 percent, because of large blocks recently placed on the
market. These numbers are expected to remain consistent in the coming
quarters, with a few spaces being absorbed due to recent leasing activity.
Year-over-year change in unemployment (percentage points)
2.1%
2.0%
0.4%
0.2%
-0.5% -0.7%
-0.8%
-1.7% -1.6% -1.5%
2007 2008 2009 2010 2011 2012 2013
Source: JLL Research, Bureau of Labor Statistics
2014
2015
2016
Total net absorption as a percent of inventory
2.0%
1.0%
0.5%
1.6% 1.7% 1.8%
1.4%
1.5%
0.4%
0.1% 0.0%
0.5%
0.0%
-0.3%
-0.1%
-0.5%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: JLL Research
Increase in available office space including occupied space
18.0% +
2,257
Overall market availability including
non-vacant spaces
Source: JLL Research
107,645,722
-349,535
$26.19
2,965,842
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
13.7%
-349,535
9.3%
23.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
27
DETROIT
- Aaron Moore
Research Analyst,
Great Lakes
The gap between CBD and suburbs is narrowing
Detroit, a bright spot in a slowing sector
Nationally the real estate market feels like it’s moving into precarious times.
Volatility in financial markets is hurting real estate demand. Rates of return are
falling and lenders are getting stingier when it comes to funding risky U.S. real
estate developments, putting pressure on landlords in need of fresh funding to
keep their projects afloat. However, Detroit is feeling like a bright spot. This can
be attributed to the commitment of a few to make sure Detroit never slips back to
pre-bankruptcy conditions. While conventional lending is still hard to come by,
unconventional lenders and the myriad sources of credit and incentives are still
making Detroit development an attractive option.
Positive trends continue in Detroit’s urban submarkets
Detroit has a bit of a conundrum, so to speak. With one entity controlling the
majority of the urban office market the question remains, what impact will one
voice and vision have on the overall market? As it stands the trends remain
positive. Absorption for the quarter in the urban submarket was 80,184 square
feet, vacancy stood at 13.7 percent with no change quarter-over-quarter;
however it decreased 2.7 percentage points year-over-year. Rents year-overyear showed a 2.7 percent uptick. Furthermore, Class A supply remains
constrained, but should loosen up as more office properties undergo upgrades
and renovations.
Suburban submarkets are reinventing themselves
Not long ago, Detroit’s suburban office markets were on edge, fearing a mass
exodus of companies moving from the suburbs to the urban core. However,
millennial buyers, strapped by student debt, stagnant wages, and tighter credit,
are having a more difficult time renting or buying housing in the urban cores. As
the largest generation in history matures and forms families, economics suggest
that developers will pursue cost-effective opportunities to house them in
transformed suburbs. This may explain why Detroit’s suburban office vacancy
rate decreased 5.7 percentage points year-over-year. Class A suburban office
remains competitive as rents continue their upward trend ending the quarter at
$23.90, an increase of 2.5 percent year-over-year.
Historical Detroit vacancy rates
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
2013
Source: JLL Research
2014
2015
YTD 2016
CBD absorption and rents
Total Absorption
$21.00
Rents
240,000
$20.50
180,000
$20.00
120,000
$19.50
60,000
$19.00
0
Q1 2015 Q2 2015
Source: JLL Research
Q3 2015
Q4 2015 YTD 2016
Suburban Class A rents and vacancies
Rents
15.00%
Vacancy
$24.00
12.00%
$22.00
2,257
2014
9.00%
2013
$20.00
2015
2016
Source: JLL Research
61,651,347
-62,018
$18.35
401,334
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
19.4%
-62,018
-.3%
93.8%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
28
EAST BAY
- Katherine Billingsley
Research Analyst,
Oakland - East Bay
680 poised for a steady climb through 2016
East Bay’s labor force relevant to changing workplace trends
Workplace trends are evolving in some offices from high cube partitions to open-space
floorplans. Some companies view this as a tool to capture and retain new talent, and the
East Bay is a hub for a viable and educated workforce. Evolving workplace trends are not
specific to startups and tech companies, some traditional and corporate companies are
gradually catching on as well. Workplace dynamics are changing to accommodate and
attract more employees, increasing the need for parking, translating into a strong demand
for locations near transit. In the last five years, BART ridership has increased 30.8
percent in the East Bay. There is nearly 400,000 square feet of tenant demand targeting
transit markets; however, vacancy rates in these markets such as Downtown Walnut
Creek (WC) and Pleasant Hill-BART are down to single digits (9.5 percent and 8.8
percent, respectively).
Location, location, location
In secondary markets along the 680, tenants are challenged to find space that will
accommodate the needs of their employees. Companies view their location as a competitive
advantage and are targeting offices with walkable amenities and access to transit. As a
result, rental rates in core markets such as Downtown Walnut Creek have grown 8.3
percent y-o-y, while Pleasant Hill-BART rents grew by 14.0 percent y-o-y. Despite the
sticker shock from increased rents in recent years, some tenants are negotiating renewals in
lieu of relocating to more affordable markets or commodity space in order to keep their
employees close to nearby amenities. Rent-sensitive and expanding companies are shifting
demand toward markets such as Concord or the Tri-Valley where large blocks remain
available. In the Tri-Valley, where BART is not an option, major office campuses have been
providing free transportation to and from BART for employees. Developers are making
efforts to lure tenants by providing city-like elements on campus grounds, creating a quasiurban lifestyle.
Positive outlook for the remainder of 2016
Notable leases this quarter include large user deals like Cisco Systems and Trumark
Commercial, who leased space in Pleasanton and San Ramon, respectively. The Tri-Valley
continues to attract tenants with its greater supply of large blocks; this is a key point of
differentiation in the southern end of the corridor. In the North 680, tenants continue to look
into quality options that are on par with Trophy assets in other major Bay Area markets. With
rent showing steady increases since last year, landlords remain optimistic and will continue
to push rental rates amidst strong demand and large user activity. Additionally, investment
activity is expected to accelerate moving into 2016 as major building projects come to the
market in the next three to six months. Stabilized occupancies provide growth opportunities
for investors and signify a positive outlook in East Bay for the remainder of 2016.
Tenants target transit markets
Of the 615,500 square feet of
tenant demand along the 680
Corridor, 60.0 percent are
targeting submarkets with a BART
station.
60%
Source: JLL Research, tenant demand as of March 2016
Year-over-year rent growth strong in core submarkets
20.0%
14.0%
15.0%
8.3%
10.0%
4.7%
4.4%
Pleasanton
San Ramon
5.0%
0.0%
PH-BART
Downtown WC
Source: JLL Research, Q1 y-o-y figures
Average direct asking rent along the 680 Corridor ($/psf)
PH-BART
$42.12
Downtown WC
$40.68
Dublin
$32.40
Pleasanton
$31.44
San Ramon
2,257
Pleasant Hill
Concord
$30.00
$29.64
$28.08
$22.80
Livermore
Source: JLL Research
27,725,116
56,533
$30.84
0
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
13.3%
56,533
5.8%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
29
FAIRFIELD COUNTY
- Dayna McConnell
Research Analyst,
Fairfield County
Pockets of promise despite looming setbacks
Demand for office space remains high in Greenwich
Increased leasing activity in both the CBD and non-CBD contributed to a 2.2
percent rise in absorption. Landlords of Class A buildings in the CBD are taking
advantage of the high demand and decreased availability; asking rents have
climbed as high as $100.00 per square foot in some buildings, a rate which
hasn’t been seen since before the recession. As vacant space is absorbed in
Greenwich, upward pressure may be placed on the Stamford office market, likely
resulting in higher asking rents in Stamford’s Class A buildings.
Vacancy rate declining in Greenwich CBD
25.0%
18.1%
20.0%
20.5% 19.1%
17.3% 17.6% 17.6% 16.2% 16.0%
15.0%
10.0%
5.0%
0.0%
Stamford CBD starts off slow as Stamford South activity increases
Leasing activity in Stamford’s CBD was weak in the first quarter of 2016, while
activity in Stamford South continued to gain even more momentum. Bridgewater
& Castleton Commodities penned two of the largest leases, accounting for
132,000 square feet of positive absorption in Class A space at BLT’s Harbor
Point. Despite a lackluster first quarter in the CBD, overall vacancy rates in the
first quarter in Fairfield County were 32.1 percent, rising only slightly from 31.9
percent at the end of 2015.
Longtime businesses say goodbye to Connecticut
Fairfield County’s commercial real estate outlook is hazy for the year ahead as
large tenants depart the market. In the first week of January, GE formally
announced plans to relocate their corporate headquarters in Fairfield to Boston,
MA, in effect leaving upward of 382,000 square feet of suburban office space
vacant. RBS and UBS have downsized, leaving large blocks of vacant space.
Beyond these finalized deals are questions involving Starwood Hotels and
Charter Communications, rumored to be relocating out of Connecticut
following mergers.
There may be some light at the end of the tunnel; law firms and financial tenants
continued to renew or lease new space in Stamford’s CBD. Additionally, the
healthcare sector is growing with hospitals needing space for ambulatory care
centers. This drives demand for space; owners struggling to find tenants may
benefit from repositioning an office building to meet the developing needs of
medical users.
2009 2010
Source: JLL Research
2011
2012
2013
2014
2015 Q1 2016
Stamford South sees increased activity, follows trend in 2015
132,000 s.f.
Positive absorption in Stamford South during Q1
Source: JLL Research
Q1 Stamford leasing activity by industry
9%
25%
7%
7%
9%
17%
11%
15%
Source: JLL Research
2,257
Financial/Banking
Aviation
Law Firms
Healthcare
Business Services
Accounting
Tech
Other
48,491,420
402,225
$31.90
0
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
24.4%
402,225
1.3%
0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
30
FORT LAUDERDALE
- Marc Miller
Research Manager,
Florida
Downtown leads the way as vacancy declines
A number of properties trade as investment in Broward County continues
Activity started early this quarter as Tower 101 (along with 101 Centre) sold for
$56.3 million ($245 p.s.f.) when Ivy Equites purchased the property from Banyan
Street Capital. This mark the first major downtown building sale since New River
Center traded in December 2014. Also notable, the Weston Pointe properties
(buildings I, II, III, and IV) traded in Southwest Broward when New York Life
picked up the buildings from Duke Realty. In addition to the most recent sales,
Duke Realty has sold 12 other office properties (in the Western Broward
suburban markets) since the start of 2014, reducing their market share in the
area. Currently, their notable office ownership consists of the new Pembroke
Pointe project (the first building of the project was recently delivered), just off
Pines Boulevard and I-75 in Southwest Broward.
The majority of leases signed in Cypress Creek are tenants staying in place
Among actively tracked transactions, less than 40.0 percent of all leasing activity
since mid-2014 in Cypress Creek has been from new-to-market tenants.
Comparatively, 55.0 percent of leasing activity has come from tenants signing
renewals or expanding at current properties. In addition, the average tenant size
in Cypress Creek is just over 3,000 square feet, making spec suites a viable
option for landlords trying to lease up space. Many smaller tenants (under 3,000
square feet) look for space that is turn-key and is ready to occupy faster than the
more traditional larger tenants.
Downtown Class A vacancy continues to decline
40.0%
Las Olas
Off Las Olas
20.0%
Source: JLL Research
A number of trades shift ownership market share
Name
Buyer
Seller
Price
Tower 101 & 101 Centre
Ivy Realty
Banyan Street Capital
$56.3M
Weston Pointe I
New York Life
Duke Realty
$28.9M
Weston Pointe II
New York Life
Duke Realty
$28.7M
Weston Pointe III
New York Life
Duke Realty
$28.7M
Weston Pointe IV
Source: JLL Research
New York Life
Duke Realty
$28.4M
Cypress Creek leasing activity shows strong tendency for
tenants to stay in place
New-to-market
22%
36%
2,257
33%
9%
Lateral relocation
Renewal
Expansion
22,984,000
48,000
$28.17
95,100
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
16.0%
48,000
2.4%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0.0%
2000
Downtown, led by the trophy assets, had a strong start to 2016
Vacancy among Downtown Trophy assets declined for the fifth straight quarter
as it reached 6.1 percent – the lowest point since the delivery of Bank of America
Plaza in 2002. Thi quarter’s 50 basis point decline was driven by the move-in of
Goldstein, Schechter, & Koch (CPA), which occupied 15,000 square feet in
SunTrust Center. In addition, the Class A properties off Las Olas saw quarterover-quarter decline in vacancy as a number of tenants occupied space,
propelling positive absorption. Further, the current vacancy spread between Las
Olas Trophy assets and those off Las Olas is 250 basis points below the five
year average with an 11.8 percent differential (current Las Olas total vacancy is
6.1 percent and Off Las Olas vacancy is 19.1 percent).
JLL | United States | Office Outlook | Q1 2016
31
HAMPTON ROADS
- Geoff Thomas
Senior Research Manager,
Richmond
Large block leasing activity gaining momentum
Total new jobs announced (all industries)
Jobs in Thousands
Economic development wins begin upward trajectory
The Hampton Roads market transitioned into 2016 with major wins for the local
economy. The largest attainment, ADP, will be opening a regional service center
in Downtown Norfolk and move into 287,000 square feet at 2 Commercial Place
(currently under renovation) by 2017. The move will expand Downtown Norfolk’s
tenant tapestry, but raises questions around whether this submarket can
accommodate the increased parking and housing demand from 1,800 new
positions. Without the addition of any new parking structures, the relatively
recent implementation of light rail in 2011 (The Tide) and new multifamily
developments surrounding the CBD will be tested by this immediate influx of
personnel Downtown.
6.0
5.0
4.0
4.9
3.9
3.5 3.3
2.9
3.0
2.4
3.5
3.1
2.4 2.4
1.8 1.9
2.0
1.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Virginia Economic Development Partnership
Blocks of available space over 50,000 square feet
Some large requirements opting for non-traditional office buildings
Space constraints in both the Class A and Class B office inventory guided some
larger requirements to older retail centers. The most recent example is
Movement Mortgage’s executed lease at the Military Circle Mall in the Central
Norfolk submarket. A former 209,109-square-foot anchor space will be converted
to office with Movement Mortgage initially taking on 75,000 square feet as the
first tenant for their expanded operations center. Aside from the lack of large
blocks, drivers for this non-traditional space have been low space costs and
higher parking ratios that have allowed users to maximize space efficiencies.
Modest leasing momentum pushed several loans into troubled status
CMBS loans that originated during the height of the recession were nearing
maturity, leaving some landlords that were unable to capture a portion of limited
tenant demand in imminent default. 500 E Main Street in Downtown Norfolk was
purchased by NPV Direct Invest in 2007, and was unable to secure additional
tenants over the past two years. The 228,730-square-foot tower was 68.0
percent leased at the time of default and was scheduled for auction next quarter.
Despite the recent partnership between Rosemont Realty and Gemini
Investments, 300 E Main Street entered troubled status after losing several key
tenants, most notable were USI Insurance and MMM Design.
Class A
3
Class B
1
1
Peninsula
Southside
Source: JLL Research
Total office inventory with troubled CMBS loans
1,457,724
2,257
Square
feet
Source: JLL Research
18,612,715
311
$18.47
287,858
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
14.3%
311
0.1%
100%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
32
HOUSTON
- Eli Gilbert
Vice President, Research,
Houston
2016 begins with continued market downturn
Building sales activity reflects a concerned market
A combination of oil price concerns and job losses continue to cause pullbacks in
the market, and the effects were seen peripherally in office sales activity. While the
number of buildings trading hands remained the same as the prior quarter, there
was a marked shift in size and class toward smaller Class B trades. The lack of
Class A asset transactions is reflective of a market in flux, with buildings owners
largely taking a cautious approach to putting Class A or Trophy assets on the
market. As these buildings, for the most part, have solid tenant bases and limited
roll, building owners are content to sit on the sidelines and wait out the market
uncertainty as opposed to putting an asset on the market and not finding the
demand and transaction terms to their liking.
Market and tenants cautious as “Trough” questions remain
West Texas Intermediate oil, a benchmark for American oil production, rebounded
over the prior 90 days, holding near $40/bbl during the quarter. While this
represents an increase over year-end 2015, the impact has yet to be felt in the
market. Leasing activity overall remained sub 2.0 million square feet during the
quarter, with only 11 leases greater than 20,000 square feet executed and minimal
activity among tenants new to the market. 9.1 million square feet of tenants in the
market await the answer to the question of has the Houston market reached it’s
trough? Once answered, Houston may see companies begin to re-enter the market
to take advantage of the tenant-favorable status it holds in 2016 and 2017.
Sublease space arriving to market over prior 15 months
Mar. 2016
Jan. 2016
Nov. 2015
Sep. 2015
Jul. 2015
May. 2015
Source: JLL Research
Mar. 2015
2,000,000
1,500,000
1,000,000
500,000
0
Jan. 2015
New large blocks of sublease space arrive and add pressure to market
2016 continues at a record pace in terms of sublease space in Houston’s office
market, with companies such as Shell, BHP Billiton and Technip adding 100,000
square feet or more to the market during the first quarter. These additions give
Houston a record 9.4 million square feet of sublease options, while continued
downsizing and M&A by energy firms in 2016 are expected to add additional space
to market to push the total to close to 10 million square feet by year-end.
Additionally, a decrease in both direct and sublease leasing velocity has total
available space within the market to an all time high of 24.0 percent of stock. The
combination of these factors, along with 2.7 million square feet of still to be leased
new deliveries will push market vacancy to near 20.0 percent by the end of 2016
and mark the beginning of a challenging year for Houston’s office market.
3 total building sales occurred in Q1 2016
Only Class B activity occurred in Q1 2016 totaling
$76.8 million
Source: JLL Research
Tenants remain cautious and waiting for bottom of market
S.F. of tenant requirement in the market in preliminary or hold stages
4,173,300 s.f.
2,257
Source: JLL Research
162,600,425
227,138
$29.69
5,723,178
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
17.7%
227,138
0.5%
52.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
33
INDIANAPOLIS
- Mike Cagna
Senior Research Analyst,
Indianapolis
Indianapolis office market off to a good start in 2016
Several large transactions kick off the new year
The Indianapolis office market has started 2016 off with a bang as there have
already been five leases signed in just the first three months of the year in
excess of 40,000 square feet. By way of comparison, there were only seven
such deals signed all of last year. There are an additional two or three significant
lease transactions that may close later this year. One of which has the potential
to be the single biggest lease transaction closed in Indianapolis since RollsRoyce North America signed on to lease Faris I and II in downtown Indianapolis
in 2011.
Construction activity heating up
Several office projects are currently under construction in Indianapolis with
several more scheduled to break ground soon. 580 E Carmel Drive was
delivered this quarter with approximately 7,300 square feet pre-leased to the
Garg Group. 22,000 square feet remains available for lease. By year’s end
Lakeside Green Business Center, River North at Keystone and the Marietta on
Mass will come online adding more than 140,000 square feet of Class A space to
the market. In addition, deals were recently signed by Allied Solutions, Stanley
Security Solutions, Braden Business Systems and Blue Horseshoe to anchor
soon to be developed office projects totaling an additional 294,600 square feet.
Investment activity centers on downtown Indianapolis
Seven office investment transactions closed during the first quarter, five of which
involved properties located in the CBD. Two of the properties were purchased by
hotel operators and will be converted from Class B office space into hotels in the
not too distant future. This mimics a trend being seen across the country where
office buildings are being scooped up and redeveloped into multi-family or
hospitality. Other examples of this trend can be seen around downtown
Indianapolis as the Brougher Building was purchased last year for conversion
into multi-family. Meanwhile, the Consolidated building and Illinois building are
both currently being redeveloped into hotels. The non-CBD properties that traded
were Glendale Tower (Midtown) and Merchants Pointe (North Meridian/Carmel).
Top leases signed this quarter
Tenant
Size (s.f.)
Allied Solutions
Location
109,600 Midtown Carmel
Stanley Security Solutions
80,000 Fishers Pointe
Sallie Mae
75,558 Three Woodfield
Republic Services
68,000 Two Concourse
NextGear Capital, Inc.
44,479 City Center @ Penn
Breakdown of current office development pipeline
31.4%
S.f. available
S.f. pre-leased
68.6%
Source: JLL Research
CBD office investment activity this quarter
Location
Size (s.f.) Buyer
Lockerbie Portfolio
179,870 Gershman Partners / Citimark
210 S Meridian Street
88,564 Choice Hotels
One North Pennsylvania
82,565 NAYA USA Investment & Management
One Jackson Square
60,000 OP McCrea Indianapolis, LLC.
IBJ Building
57,625 Drury Hotels
31,569,882
-1,501
$19.00
301,050
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
15.6%
-1,501
0.2%
29,200
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
YTD completions (s.f.)
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
34
JACKSONVILLE
- Drew Gilligan
Senior Research Analyst,
Central Florida
Slow first quarter not a cause for concern
Choppy leasing activity year-over-year
From 2010-2014 the Jacksonville office market recorded an average of 1.5
million square feet of leasing activity. In 2015 leasing activity totaled more than
2.5 million square feet, a 40 percent increase from the market average. A
number of large groups already in the market signed leases, explaining the large
jump. However, to start the year, leasing activity is down 35.0 percent compared
to average first quarter activity over the past five years, but this is likely an
abnormal quarter as the next few are expected to be in line with annual averages
as multiple large tenants are touring the market.
Annual leasing activity
1,800,000
1,500,000
1,200,000
900,000
600,000
300,000
0
2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: JLL Research
Little movement in rent growth, not a sign for worry
Class A product is currently experiencing an all-time high in asking rates despite
minimal growth in rates over the previous 24 months. Historically, rates have
fluctuated between $17.00 - $20.50 per square foot, indicating that the slow
growth is in line with historical trends. As the Jacksonville market continues to
make national headlines as a growing financial services hub with appealing
business incentives, landlords will likely push rents in 2016, particularly because
few large blocks remain in the Butler Boulevard and CBD submarkets–further
solidifying leverage for landlords.
Historical Class A asking rates
$23.00
$21.00
$19.95
$20.73
$21.16
$19.86
$19.61 $19.41 $19.67
$20.09
$20.53 $20.88
$21.26
$19.00
$17.00
$15.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: JLL Research
Vacancy remains low in all submarkets
Vacancy is at an all-time low for the CBD submarket at 14.6 percent. In addition,
the Butler Boulevard submarket recently experienced its lowest vacancy rate two
quarters ago before two negative quarters of absorption. Over the past four years,
tenants have occupied more than 1.1 million square feet, dropping overall
vacancy to 15.7 percent, and even lower in Class A product (11.4 percent).
Butler Boulevard remains the strongest submarket in Jacksonville with vacancy
fluctuating between 10.0 to 12.0 percent for Class A space, and the CBD is
gaining ground quickly with a declining vacancy rate.
Total vacancy by submarket
Butler Boulevard
14.5%
Jax CBD
14.6%
Southside
30.6%
2,257
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%
Source: JLL Research
21,627,558
8,277
$19.26
0
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
15.7%
8,277
5.4%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
35
LONG ISLAND
- Sarah Bouzarouata
Research Analyst,
Long Island
Class A demand boosts rents, pulls down vacancy
Nassau County houses lowest unemployment rate in the state
Long Island unemployment rate by county
Nassau County’s unemployment rate fell 70 basis points from January 2015 to
January 2016, giving it the lowest unemployment rate in the state. Suffolk County’s
Jan. 2015
unemployment rate also decreased, lowering the Long Island unemployment rate to
4.5 percent. Despite yearly employment gains, the Long Island office market
maintained a slow pace of growth due to its continual struggle in attracting a
younger workforce and retaining jobs. The slow market along with election-related
Jan. 2016
uncertainty led to a spike in properties up for sale as investors sought opportunities
Nassau County Suffolk County
in other markets. Among these were 1981 and 1983 Marcus Avenue in Lake
Source: NYS Department of Labor, JLL Research
Success, as well as 900 and 990 Stewart Avenue in Garden City.
4.9%
5.6%
4.2%
4.8%
Limited large Class A blocks of space maintains upward pressures on rents
Class A direct asking rental rate and vacancy trends (p.s.f.)
Increased tenant demand for Class A office space could lead to an off-balance
Class A asking rent
Overall vacancy
20.0%
between supply and demand in the upcoming years, as the market sees a slowdown $30.50
in speculative development. The Class A vacancy rate fell substantially to 13.1
percent, a decrease of 170 basis points from year-end 2015. Among the recently
$30.00
15.0%
completed transactions was Aon’s 60,000-square-foot lease at 900 Stewart Avenue
in Garden City, while Abrams Fensterman absorbed 36,000 square feet at 3 Dakota
Drive in Lake Success. The tightening Class A office market will maintain upward
$29.50
10.0%
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
pressures on asking rents. Class A asking direct rents climbed to $30.08 per square
Source: JLL Research
foot, an increase of $0.29 from the end of 2015.
Class A net absorption by submarket (s.f.)
Western Nassau submarket outperforms in Class A net absorption
The Western Nassau submarket posted 263,442 square feet of positive net
Western Nassau
absorption, which accounted for more than one-half of the nearly 306,000 square
Western Suffolk
Eastern Nassau
feet absorbed in the Long Island Class A market. Northwell Health was the largest
Southern Nassau
driver of this absorption through its occupancy of more than 50,000 square feet at
Eastern Suffolk
330 South Service Road in Melville, 22,000 square feet at 226 Middle Country Road
Central Suffolk
in Smithtown, and its plans to expand beyond the 440,000 square feet occupied at
Central Nassau
2,257
1111 Marcus Avenue in Lake Success. Central Nassau was the only submarket in
-50,000
50,000
150,000
250,000
Nassau County to post negative absorption. This was mostly due to the closing of
Source: JLL Research
JPMorgan Chase’s offices at 900 Stewart Avenue in Garden City at year-end 2015.
350,000
42,253,140
309,871
$26.22
338,885
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent (p.s.f.)
Total under construction (s.f.)
15.5%
309,871
-1.5%
68.7%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
36
LOS ANGELES
- Henry Gjestrum
Senior Research Analyst,
Los Angeles
Creative industries account for majority of demand
Large consolidation paves way for higher rents
Douglas Emmett, along with QIA (Qatar Investment Authority), an 80 percent
partner, purchased the four-building EOP/Blackstone-Westwood portfolio. The
estimated purchase price was $1.3 billion with a 3.7 percent cap rate. The buyer,
Douglas Emmett, already owned two properties, previously representing 15.0
percent of the market in Westwood. With the four-building addition, they now
control 78.0 percent of the Class A office stock along Wilshire Boulevard. The
combined portfolio has 12.9 percent vacancy and an average gross asking rental
rate of $4.55 p.s.f. With control of so much stock, it would be plausible that
ownership would continue to push rates.
El Segundo gets creative and tenants respond favorably
Creative office properties and build-outs have resonated with a wide range of
users throughout Los Angeles. As this trend expands both geographically and
across industry sectors, more and more office micro-markets are joining in the
trend. El Segundo, which lies just south of Playa Vista has been slowly adding
creative square footage to its office base. There is currently 2.3 million square
feet of existing creative product in the market and an additional 1.2 to 1.6 million
square feet of conversions either under way or in the planning phases. Since
2014, and despite commanding an 18.8 percent rental rate premium over
traditional Class A El Segundo office product, the market has seen consistent
positive net absorption.
Media and entertainment drive leasing activity
The media and entertainment sectors accounted for over a third of all leasing
activity during the first quarter. Large entertainment transactions included
distributer and producer Netflix signing a 123,300 square foot lease in Hollywood
while talent agency International Creative Management (ICM) signed for 108,300
square feet in Century City. A series of box office hits has bolstered the
entertainment industry. The expansion and extension of the California Film &
Television Tax Credit Program will help underpin future growth in the
entertainment industry by significantly curtailing runaway productions.
Westwood purchase brings major ownership concentration
9%
13%
Center West
Douglas Emmett, Inc.
Tishman Speyer
78%
Source: JLL Research, *Set excludes Irvine Co. owned Westwood Gateway
El Segundo creative set sees consistent positive absorption
678,236 sf
300,000
200,000
100,000
0
-100,000
-200,000
-300,000
-400,000
Apollo at
Rosecrans
comes online
2014
2011
2012
2013
2014
Q1 2016
Media and entertainment drove leasing activity
5%
33%
5%
12%
13%
17%
2,257
Media & entertainment
Banking, finance, insurance
Healthcare
Law firm
Consulting
Other
techology
Aerospace and defence
Non-profit
Education
188,741,769
432,114
$36.60
2,309,645
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
15.0%
432,114
8.5%
29.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
37
MIAMI
- Tim Powers
Research Analyst,
Miami
Confidence abides as demand returns to historical norms
CBD, count (R)
CBD, median size (L)
number
180
160
140
120
100
80
60
40
Suburbs, count (R)
Suburbs, median size (L)
2,900
2,400
1,900
1,400
1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
Source: JLL Research
Demand more in line with historical norms than recent past
transaction size, s.f.
23,000
CBD, standard deviation
Suburbs, standard deviation
18,000
13,000
8,000
3,000
1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
Source: JLL Research
Rate adjustment volume slows, but rate rise trend continues
Rate changes*, count (R)
$ p.s.f.
Weighted average rate change* (L)
2.5
number
500
1.5
400
0.5
300
200
-0.5
100
-1.5
0
1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
2,257
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
Confidence considerations
Despite some quavering in suburban submarkets, county-wide confidence
remains bifurcated into the buoyant and the patient; total weighted average direct
asking rates rose 1.5 percent quarter-on-quarter (up 5.7 percent year-on-year),
and average rate changes to pre-existing availabilities accelerated to 1.7 percent
from 2015’s quarterly average of 1.5 percent. A large contingent of landlords
have seemingly paused to assess the market, however, as first quarter rate
changes to spaces listed longer than three months slowed to 228 in number,
down from an average count of 375 in 2015 and below the 2011-2015 five-year
quarterly average of 315 rate changes.
square feet
3,400
1Q11
Bread-and-butter demand back at the forefront
On an average basis, the execution of a large number of outlier/outsized lease
transactions skewed the 2015 demand distribution. Q1 2016 saw the market
return to normalized transaction levels, as exhibited by the the quarter’s low
standard deviation of transaction sizes. This deviation shrank in the CBD to just
4,300 square feet (the smallest single-quarter standard deviation since Q1 2014,
versus 2015’s average standard deviation of 12,100 square feet) due in part to
100,000+ square foot leases signed by Citibank, Akerman, and Stearns Weaver.
This increased gravitation toward the mean was also witnessed in the suburbs,
where the standard deviation of transaction sizes shrank to 3,200 square feet
compared to last year’s average of 7,400 square feet, indicating absorption
levels in the forthcoming quarters similar to those of 2013 and 2014.
Miami-Dade transaction activity 2011 - Present
1Q11
Suburban transaction volume easing, but CBD bucks the trend
The pace of total office leasing activity across Miami-Dade slowed moderately to
begin the year, as roughly 175 transactions of a median 2,000 square feet were
signed throughout the County during Q1 2016 (versus a 2015 quarterly average
of 220 transactions with a median size of 2,000 square feet). This easing follows
185 transactions last quarter – a relaxed pace itself versus historical norms –
albeit, of a slightly higher median deal size of 2,300 square feet (comparatively,
quarterly leasing activity between 2011 and 2015 averaged 210 transactions of a
median 2,100 square feet). This trend was largely attributable to the seven
suburban submarkets, where transaction activity slowed to 110 transactions of a
median 1,800 square feet (in contrast with 2011-2015's quarterly average 140
deals of a median 2,000 square feet). Miami's CBD, however, bucked the trend:
Brickell and Downtown Miami executed 70 transactions of a median 2,600
square feet in the first quarter (on pace with both the 2015 quarterly average 70
deals of a median 2,200 square feet and the 2011-2015 five-year quarterly
average 70 deals of a median 2,300 square feet).
* Changes to spaces listed for longer than three months
Source: JLL Research
37,055,065
-146,350
$35.48
694,676
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
13.3%
-146,350
5.7%
11.4%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
38
MILWAUKEE
- Kyle Koller
Research Analyst,
Milwaukee
Actions in line with expectations
Key metrics expected to rise over 2016 for non-manufacturing industries
According to the Metro Milwaukee Association of Commerce 2016 Business
Outlook Survey, in which 114 Milwaukee area firms are surveyed, sales, capital
expenditures, and employment are expected to rise compared to 2015. In fact,
79.0 percent of respondents expect an increase in sales over 2016, and more
than half expect employment to rise. Confirmation came in the form of those who
outgrew their space beginning to move into Milwaukee’s newly constructed office
tower, 833 East. The tower was over 60.0 percent preleased before opening its
doors, with a majority of new tenants moving from only a few blocks away.
2016 Business outlook survey forecast predicts growth
Sales
4%
Capital Expenditures
17%
41%
43%
79%
9%
16%
Rise Decline No Change
Max contiguous space by region
< 5K
150
5-10K
10-25K
25-50K
50
0
50-100K
>100K
105
100
Full
78
45 55
20
16 25 15 8
3 1
Source: JLL Research
Strong downtown absorption may be paid for next quarter
As the delivery of 833 East falls on the cusp of the second quarter, its new
tenants have yet to fully vacate their old spaces. It will not be until next quarter
when a majority of the tenants moving in (including large users such as Irgens,
KPMG, Jason Inc., and Colliers) see their former space hit the market. Any
space that does not have new tenants in line will be taking a hit to occupancy
levels, and as home to the moving firms, the Downtown East and Downtown
West submarkets will feel the largest impact.
39%
52%
Source: JLL Research, MMAC
First quarter sees positive absorption but large blocks remain
Apart from negative absorption in the suburbs, largely within Class B inventory in
Brookfield, most submarkets saw positive quarterly absorption to start the year.
Still, there remains a great supply of large blocks of space, especially in
suburban submarkets. Tenants looking to occupy more than 50,000 square feet
have multiple options at Park Place or on Executive Drive in Brookfield. Looking
downtown, large blocks of space remain at 833 East or 330 Kilbourn as the
FBI vacates.
Employment
14 6 2
CBD
Suburban
Total net absorption (s.f.) by class
250,000
200,000
150,000
100,000
50,000
0
-50,000
-100,000
Source: JLL Research
CBD
Suburban
2,257
A
B
C
27,567,279
259,208
$19.03
148,924
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
18.5%
259,208
4.9%
49.5%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
39
MINNEAPOLIS
- Carolyn Bates
Senior Research Analyst,
Minneapolis
Old tenants move to brand new buildings & vice versa
BTS developments loosen up Northeast and Minneapolis CBD inventory
In the last two quarters, 1.3 million square feet of build-to-suit (BTS) office space
has been delivered, including the 1.1 million-square-foot Downtown East Wells
Fargo towers in the first quarter and the 240,000-square-foot Be the Match
headquarters in the fourth quarter. Both employers previously had multiple leases
in a variety of multi-tenant office buildings. As such, Northeast experienced large
negative absorption last quarter when Be the Match’s employees relocated to its
new HQ in the North Loop. Throughout early 2016, the Minneapolis CBD will see
the same trend as Wells Fargo’s employees begin to vacate its current space and
aggregate in the new owner-occupied digs in Downtown East. Despite some initial
increases in vacancy rates, these migrations will open up much-needed
contiguous blocks for tenants in the market, the largest being 455,000 square feet
at Northstar West.
Legal services are creating ripples, soon waves, in vacancy rates
The trend of law firms choosing to right-size in order to save money on real estate
costs is creating churn in the Minneapolis CBD. Nearly 15,500 square feet of
contiguous space opened up at IDS Center this quarter when law firm Wagner
Falconer & Judd relocated to the Fifth Street Towers. Likewise, Lindquist &
Vennum will relocate and downsize to 80,000 square feet by the end of 2016,
eventually leaving120,000 square feet of vacant space on floors 40-44 of the IDS
Center. This is a rare availability, considering that among Minneapolis CBD
Skyline buildings, vacancy on the 30th floor and above has dropped from 10.0 to
8.0 percent year-over-year.
2015-2016 YTD delivered office product, square feet
2,000,000
Completed
1,500,000
1,000,000
1,340,000
500,000
464,560
-
203,736
212,000
Speculative
BTS
Minneapolis CBD Skyline vacancy, 30th floor and above
11.7%
Projected Q3 2017
vacancy
8.9%
Q1 2016 vacancy
Average age of buildings in Q1 sales transactions (years)
150
Class B repurposed office buildings are driving CBD office sales
As vacancy diminishes and rental rates continue to rise, developers are getting
creative in regards to office building investments. In the first quarter, all office
sales in the Minneapolis CBD were for historic structures, including the Internet
Exchange and The Washington, a former adult store now being converted into
first-floor retail and 46,000 square feet of multi-tenant office on the upper floors.
Out-of-state investors like Chicago-based R2 Companies are increasingly
choosing to rehab historic Class B buildings for creative office space due to their
unique architectural detail and relative affordability.
Under Construction
119
100
50
45
34
31
31
18
17
0
2,257
Source: JLL Research, RCA
69,094,277
183,049
$25.31
464,236
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
14.9%
183,049
1.8%
56.5%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
40
NASHVILLE
- Hensley Loeb
Research Analyst,
Nashville
Job growth + construction activity next to none
Job growth that surpasses all U.S. counties illuminates office demand
Nashville’s Williamson County, home to the submarkets with the consistently lowest vacancy
rates, witnessed a 6.5 percent increase in job growth in 2015, outstripping the largest counties
in the country, which averaged an increase of 1.9 percent in employment growth. The sector
with the largest employment increase in Williamson County occurred in professional and
business services, which bodes well for office leasing. Davidson County and Rutherford
County were also above the national average respectively increasing employment by 3.3 and
3.9 percent, respectively. According to the Tennessean, new business filings increased by 7.2
percent, marking it the 17th consecutive quarter for business growth. As employment growth
continues in Nashville, new office options become few and far between. The overall market
vacancy rate at the end of Q1 2016 is 6.3 percent, down from last quarter’s 6.7 percent. As
expansions, relocations and subsequent job growth continue leasing activity will continue to
rise, so long as office space can accommodate the stunning growth trends.
Nashville to grow more than any other office market in the country
With 3,371,446 square feet of office under construction, Nashville has the most construction
underway in the United States as a percentage of its inventory. For the six U.S. markets with
inventories between 30 to 40 million square feet, the average construction as a percentage of
inventory is roughly 2.5 percent. Nearly a dozen other markets also have greater than 3
million square feet under construction; however, Nashville’s projects represents 10 percent of
its inventory, positioning Nashville to grow more than any other office market in the country.
Two buildings delivered this quarter: 35 Music Square East (95,000 square feet) and Mallory
Park Phase I (39,333 of 87,101 square feet complete). 35 MSE came to market 81.5 percent
leased upon delivery and Mallory Park Phase I was 100 percent leased upon delivery. The
17,911 square feet remaining from these deliveries will not add sufficient relief for demand.
Spec development signals positive market outlook
Nashville has not traditionally been a market to build speculative buildings. Historically,
projects have required preleasing before construction begins; however, Nashville’s
construction trends are changing. 7 of 16 projects are speculative developments in Nashville.
This upward trend in speculative development can be attributed to developers’ positive outlook
on the market. Economic expansion is lending itself towards increased rental rates and a
vacancy that is nearing a cyclical low. Rental growth has continued at 5.0 percent over the
past 12 months. Rent landed at $21.68 this quarter, and even more appealing to landlords,
the rental rate average for new product is $33.88. The increasingly less vacant market has
created a sufficient supply-demand imbalance. With only 1,271,035 of the 3,371,446 square
feet under construction available for deliveries through 2018, speculative developments are
coming online to meet market demand.
Booming business and subsequent job growth drive leasing
200
15.0%
150
10.0%
100
5.0%
50
0
0.0%
2010
2011
2012
2013
2014
2015 Q1 2016
New Business Filings
Office Vacancy Rate
Unemployment Rate
Source: JLL Research and the Bureau of Labor Statistics
Office market construction represents 19.7 percent of total
152
92
Construction projects
underway, planned
and proposed
Multifamily
34
30
Hospitality
Office
Source: JLL Research and The Nashville Business Journal
Composition of construction type: BTS, preleased and spec
Nashville has not traditionally been
a market to build spec buildings, but
market confidence is changing
construction habits. 7 of 16 projects
are spec.
25.0%
43.8%
31.3%
Build-to-suit
Preleased
Speculative
Source: JLL Research
33,732,255
206,416
$21.68
3,371,446
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
6.3%
206,416
5.0%
62.3%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
41
NEW JERSEY
- Steve Jenco
Vice President, Research,
New Jersey
Vacancy rate ticks upward as leasing volume slows
Leasing velocity trails off in early 2016
After averaging more than 3.0 million square feet of leasing transactions per
quarter during 2015, leasing activity in the Northern and Central New Jersey
office market hit the brakes in early 2016. Approximately 2.0 million square feet
of leases were signed during the first quarter, which represented the lowest
volume in over three years. More than 65.0 percent of leases involved Class A
buildings. Demand for Class A space was a recurring theme over the past year.
Diminished leasing velocity combined with additional vacancies in the Class B
office market pushed the Northern and Central New Jersey overall vacancy rate
10 basis points higher from year-end 2015 to 24.7 percent in early 2016.
Northern and Central New Jersey office leasing activity (s.f.)
Hudson Waterfront attracting diversified mix of business sectors
After posting 164,180 square feet of negative net absorption during the fourth
quarter, a rebound in demand for Class A space led to nearly 199,500 square
feet of absorption in the Hudson Waterfront three months later. This represented
the largest volume of absorption in the Northern and Central New Jersey Class A
office market. While financial services firms initially populated the Waterfront,
other sectors continued to establish footprints in this strategically located market.
Among these companies was e-commerce startup Jet.com, which recently
doubled its headquarters to 80,000 square feet, while Newell Brands leased
nearly 100,000 square feet at Waterfront Corporate Center III in Hoboken.
Hudson Waterfront Class A net absorption trends (s.f.)
Mass transit-centric submarkets on the radar screen for office tenants
New Jersey’s transit hub markets are characterized as areas housing a
significant number of office properties in proximity to a commuter rail station.
Among these markets are Hoboken/Jersey City, Metropark, Morristown, Newark,
New Brunswick and Summit. Persistent demand, combined with the lack of
speculative construction, have kept their vacancy rates in the teens for the past
several years. This was in contrast to the state’s suburban vacancy rate, which
had stubbornly remained below 30.0 percent. The state’s transit hubs will remain
active in the coming year as companies pursue space options located in
amenity-rich areas offering access to mass transportation.
Transit-centric vs suburban NJ vacancy rate trends
4,000,000
3,000,000
3,240,291
3,321,269
3,225,765
2,000,000
1,977,903
1,000,000
0
Q2 2015
Source: JLL Research
Q3 2015
Q4 2015
Q1 2016
300,000
200,000
100,000
228,371
203,812
199,454
0
-100,000
-164,181
-200,000
Q2 2015
Source: JLL Research
30.0%
Q3 2015
Q4 2015
Transit Hub Markets
Q1 2016
Suburban NJ
25.0%
20.0%
15.0%
2,257
10.0%
2012
Source: JLL Research
2013
2014
2015
Q1 2016
158,786,477
-562,303
$25.26
440,445
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
24.7%
-562,303
-1.5%
100%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
42
NEW YORK
- Tristan Ashby
Vice President, Research,
New York City
Vacancy moves higher amid moderate activity
Midtown asking rents increase despite rise in vacancy
In the face of rising vacancy, some landlords have begun reducing rents in
Midtown. New construction and existing space returning to the market in top-tier
buildings like 390 Madison Avenue and 250 West 55th Street, however,
outweighed the reductions. The Midtown Class A average asking rent recorded a
1.0 percent increase to $81.09 per square foot in the first quarter despite a dip in
February. The Midtown overall average asking rent recorded greater gains—
2.4 percent year-to-date to $74.98 per square foot—as demand for Class B
space has tightened vacancy.
Midtown Class A asking rent
Renewals are back
Year-to-date, renewals have accounted for half of the top 20 leases in Manhattan.
In contrast, relocations made up the majority of leasing activity in the first quarter
of last year with only five renewals in the top 20 leases. McGraw Hill Financial
signed the largest lease of the quarter, a renewal of its 900,027-square-foot
space at 55 Water Street. Other large renewal activity so far this year included
DLA Piper’s renewal of 199,140 square feet at 1251 Avenue of the Americas,
Omnicom Group’s renewal of 167,003 square feet at 220 East 42nd Street and
UBS’ renewal of 120,000 square feet at 299 Park Avenue.
Top 20 Manhattan leases by type
TAMI continues to dominate Midtown South leasing
While there have been concerns about weakness in the tech sector—a potential
pullback in venture capital and talk of a correction—the TAMI sector (technology,
advertising, media and information) remained strong in Midtown South,
accounting for 89.2 percent of first quarter leasing activity. NY1 News, Facebook,
and the marketing arm of Anheuser-Busch InBev signed high-profile leases to
begin the year, indicating that creative tenants continue to view a Midtown South
location as a competitive advantage in attracting and retaining talent despite
paying record high rental rates.
Midtown South leasing activity by industry
$82
$81.09
$81
$80.59
$80.24
$81
$80.00
$80
$80
$79
Dec-15
Source: JLL Research
3
1
Jan-16
Feb-16
Renewal
5
Q1
2015
Mar-16
3
New
Sublease
6
1
Q1
2016
10
Expansion
11
Source: JLL Research
10.8%
TAMI
Other
89.2%
2,257
Source: JLL Research
449,872,906
-1,580,918
$72.57
14,353,410
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
10.0%
-1,580,918
4.6%
47.2%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
43
NORTHERN VIRGINIA
- Robert Sapunor
Research Analyst,
Northern Virginia
Tenant migration shifts in Northern Virginia’s favor
Northern Virginia capturing inbound tenant demand from DC
As market conditions have tightened in the District of Columbia and the value
proposition of suburban locations has become increasingly enticing, many
tenants have expanded the geographic scope of their search areas. Multiple
nonprofits and associations have looked across the river into the RosslynBallston Corridor and Crystal City. This quarter, Chemonics International moved
from the CBD into 53,929 square feet at 251 18th Street S and GW Medical
Faculty Associates moved from the CBD into 48,900 square feet at 3811 N
Fairfax Drive. The opening of the Silver Line has also enticed tenants to tour
sites further west, with some groups in the Rosslyn-Ballston Corridor now
considering Tysons.
NoVa regaining its foothold in tenant migration (2015-16)
From Suburban Maryland
From Northern Virginia
200,000
From Washington DC
100,000
0
Tenant migration to Northern
Virginia
Tenant migration to Washington
DC
Downsizings and moves hurt Fairfax Center and Herndon
Absorption flat due to large contractor downsizing
Northern Virginia posted positive net absorption for the fourth consecutive
quarter, but the growth was limited by a handful of big government contractor
move-outs. Booz Allen Hamilton vacated 396,490 square feet at 13200
Woodland Park Drive in Herndon and TASC vacated 79,067 square feet at 4805
Stonecroft Boulevard in Route 28 South. However, the majority of tenants in
Northern Virginia are beginning to expand, including Unicom, Washington Gas
and MakeOffices this quarter. Two large relocations out of Fairfax Center also
involved contractions as CSRA moved to Route 28 South and Fairfax County
Public Schools moved to Merrifield.
1,000,000
500,000
0
-500,000
-1,000,000
Toll
Road
Fairfax
RB Merrifield Crystal Tysons Route 28
Center Corridor
City
South
State and local incentives (per job) for major NoVa employers
Incentives battle heats up
Arlington County awarded $1 million in incentives (matched by the
Commonwealth of Virginia) to retain Opower. It is the first time the county has
given money to attract or retain a tenant. Arlington County’s Manager also
proposed setting aside $1.5 million to attract tech companies between 5,000 and
20,000 square feet. There are two bills working their way through the Virginia
legislature that would raise incentives to between $25 and $32 million. The fight
to attract companies across the region (as well as local jurisdictions within each
state) will continue to escalate with each large tenant that hits the market.
$60,000
$40,000
$20,000
$0
Source: JLL Research, Washington Post, WBJ, YesVirginia.org
148,109,769
34,617
$32.86
4,128,723
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
20.0%
34,617
-1.1%
77.9%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
44
OAKLAND
- Katherine Billingsley
Research Analyst,
Oakland - East Bay
Destination: Oakland
Economy boosts office market; asking rates skyrocket
Leasing activity was brisk in the first quarter of 2016. Available full floors were
quickly leased, as Geosyntec and Marqueta took full floors at 1111 Broadway
and 180 Grand, respectively. In Alameda, Cost Plus and American Cancer
Society leased over 100,000 square feet of office space at Marina Village and
total leasing activity for the Oakland metro this quarter was north of 270,000
square feet. Demand for quality office space in the CBD has been particularly
high; as a result rents for Class A buildings have reached $51.00 per square foot,
a 33.6 percent increase since last year and on an upward trend. This is the
strongest y-o-y rent growth in CBD history.
CBD Class A rents surpass $50
$60.00
$51.00
$50.00
$38.16
$40.00
$30.00
$27.24 $29.04
$33.48 $31.92 $31.56 $31.57 $31.75 $32.00 $33.48
$20.00
$10.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: JLL Research, Q1 average asking rents
Scarcity plays big role in Oakland
Rent differentials continue to be a major driver for east bound relocation, and
Outsized demand for a shrinking supply of space
tenant demand remains steady. However, rising occupancy creates scarce
availability, and the vacancy rate in the CBD is down to 5.1 percent. This is
2,000,000
spurring rent growth and sparking greater interest for space in non-CBD
1489499
1,500,000
submarkets. There is over 2.0 million square feet of active requirements
targeting Oakland metro, 75.0 percent of which is focused on the CBD alone.
1,000,000
744105
Tenant makeup is a diverse mix of industries. While demand across a variety of
500,000
industries is driving the East Bay market, non-profits and professional services
dominate peripheral market demand as they continue to be priced out of markets
0
across the Bay Bridge.
Active CBD requirements
Current Available Space
Is this a big year for Oakland development?
Demographic trends favor the cities east of San Francisco. The majority of the
Bay Area workforce lives in Alameda and Contra Costa Counties, and the
growing cost and shrinking availability of housing is pushing stronger population
growth east, prompting developers to plan new projects. On the other hand,
current rental rates have not reached levels required to support new office
development. Developers are waiting for another Uber-like tenant to hit the
market. Kaiser Center and 2000 Franklin are notable transactions this quarter,
with additional buildings in line to come to the market this year. The East Bay
story continues to evolve - Oakland has become a destination rather than a side
trip for Bay Area tenants.
Source: JLL Research
Q1 2016 Sales activity by building class ( > 10,000 s.f.)
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$0
$224,325,000
$197,000,000
2,257
A
$27,325,000
B
Grand Total
Source: JLL Research
24,417,059
49,097
$48.12
0
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
CBD direct average asking rent
Total under construction (s.f.)
11.6%
49,097
35.0%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
45
ORANGE COUNTY
- Jared Dienstag
Senior Research Analyst,
Orange County
New building deliveries push rental rates up
Asking rental rates rise
The Orange County office market began in 2016 the same way it ended the
previous year; by increasing rental rates. Although monthly average asking rents
have risen 32.4 percent since the end of 2012 to $2.58 per square foot, full
service gross, this remains below the 2007 peak rate of $2.74 per square foot,
full service gross, leaving room for further growth. Not only are average asking
rents feeling upward pressure from higher rates of existing space, but they are
also being lifted by new buildings recently delivered to the market, including 200
Spectrum Center, The Source Tower in Buena Park and the newly renovated
buildings of Avalon in Newport Beach, Intersect in Irvine and 33.7 North in Tustin.
Driven by occupancy gains and the completion of new and renovated buildings,
rents are projected to continue on this path throughout 2016.
Medical technology industry expands
Growth of the local medical sector continues to have a positive impact on Orange
County’s economy and commercial real estate market. Specifically, the local
medical technology field has been experiencing high growth, made evident by the
strong venture capital funding in the industry. According to PwC Moneytree, 2015
venture capital funding totaled $366.2 million, increasing in volume each quarter
of the year. Top companies that received funding include Alphaeon ($107.1
million), Axonics Modulation Technologies ($55.8 million) and Reshape Medical
($38.0 million). As firms expand their operations, real estate footprints
subsequently grow as well, thus benefitting market fundamentals.
Airport Area leads the market to positive net absorption
The Airport Area submarket recorded occupancy gains of 194,868 square feet
during the first quarter, which accounted for nearly 85.0 percent of Orange
County’s net absorption total. Four of the five submarkets experienced positive
net absorption with the exception of Central County. Despite the positive
demand, the direct vacancy rate for the overall market increased 20 basis points
to 11.2 percent from the previous quarter; however, this was only due to the
delivery of 574,252 square feet of new space to the market.
Class B rental rate appreciation year-over-year
South County
15.3%
Airport Area
11.5%
Central County
9.4%
North County
8.0%
West County
3.1%
Source: JLL Research
Expected office deliveries (SF)
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
1,065,424
1,100,000
750,000
574,252
2016
Source: JLL Research
2017
2018
2019
Class A Vacancy
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2,257
9.8%
0.0%
5.0%
Source: JLL Research
10.0%
12.6%
12.0%
14.3%
14.9%
17.1%
18.4%
19.4%
17.1%
14.5%
15.0%
20.0%
25.0%
95,731,037
229,551
$31.00
1,065,424
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
11.8%
229,551
11.3%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
46
ORLANDO
- Valerie Mnayarji
Research Analyst,
Central Florida
Orlando’s record job growth provides positive economic outlook
Job growth represents a record 11-year high, supporting decreasing
vacancy rates
According to the most recent employment figures, the Orlando MSA added
52,200 jobs in 2015, increasing employment by 20.0 percent year-over-year and
making this yearly employment gain the highest amount since 2004. Employment
growth in the market equated to about 150 jobs added per day. Within the
industries directly supporting office demand, the professional and business
services industry represented one of the largest employment gains at 8.6 percent
year-over-year, helping propel overall occupancy 170 basis points to 85.2
percent. This is driven by a recent increase in employment service firms
facilitating local office expansions in technology, healthcare and legal sectors,
directly impacting office demand and particularly in the CBD and Lake Mary.
Industry sector job loss/gain (12-month change)
Leisure and Hospitality
Trade, Transportation, and Utilities
Professional and Business Services
Education and Health Services
Financial Activities
Construction
Total Government
Other Services
Manufacturing
Information -600
-2,000
15,900
6,400
400
8,200
1,600
2,100
2,900
2,000
Source: JLL Research, Florida DEO
6,000
10,000
Number of Jobs
14,000
18,000
Growing theme park attendance supports local occupancy
Magic Kingdom
Animal Kingdom
Universal Studios
Celebration and Tourist Corridor occupancy
Epcot
Hollywood Studios
Islands of Adventure
85.0%
100.0
Millions of visitors
Theme park expansions provide leasing opportunities to local submarkets
Given the record breaking number of visitors to Orlando’s Tourist Corridor last
year (over 62.5 million people) nearly every major theme park has announced
expansion plans and hotel developments, thus increasing demand for office. Most
notably, Disney’s planned Star Wars attraction, when completed, will be Disney’s
largest “themed-land” expansion in history. With theme park expansions
underway, Universal and Disney on-site office spaces are being redeveloped to
make room for additional amusement-related uses, resulting in spill-over tenant
demand for neighboring Southwest and Celebration submarkets. Last year, over
200,000 square feet of space renewed by tourism related tenants, and continued
demand from theme park operations will continue given expansionary plans.
Suburban tenant activity is outpacing CBD demand
Suburban submarket demand in both leasing and absorption are outpacing the
CBD. While the volume of tenants touring suburban submarkets only increased
marginally quarter-over-quarter, tenant requirements increased by 8.0 percent
over the same time period to about 1.7 million square feet. This is compared to
requirements in the CBD, which declined by nearly 13.7 percent to 500,000
square feet. Tenant demand shifting to suburban submarkets is evinced by
absorption gains in these areas, which increased by over 100,000 square feet
and represented 0.7 percent of total stock, a larger absorption figure than the
CBD which only accounted for 0.5 percent of total stock. The competitive
advantage of the suburban submarkets derives from the high parking ratios, as
well as lower rental rates for comparative, Class A spaces.
10,000
8,600
80.0%
50.0
75.0%
70.0%
0.0
2009
2010
2011
2012
2013
2014
Source: JLL Research, Themed Entertainment Association
Large block tenant activity in suburban submarkets
Tenant
Location
Axium Healthcare Pharmacy Lake Mary
Square
feet
Deal type
157,000 Lease/purchase
Asurion
Southwest
72,000 New
CDM Smith
Maitland
65,000 Relocation
NBC Universal
Southwest
47,800 Relocation within
29,242,500
213,700
$20.92
271,000
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
14.9%
85.2%
2.3%
39.8%
Total vacancy
Occupancy percent
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
47
PHILADELPHIA (CBD)
- Clint Randall
Research Analyst,
Philadelphia
Creative renovation and new construction surging
as jobs grow and tenant activity remains strong
Market East asking rents drive strong year-over-year growth across CBD
Overall rental rate increases year over year
Class B product is undergoing dramatic repositioning and bringing rates up quickly
CBD Overall
5.5%
with them across the submarket. Thylan hopes to repeat its success at the Biddle
Building (now fully occupied) at the adjacent Bailey Building (50,000 square feet),
Navy Yard
3.8%
while Brickstone Realty is marketing several boutique buildings between 11th and
Market East
Broad, including the Hale, Steele, and Shwartz. On the east side of the submarket,
University City
the forthcoming vacancy at Dow creates a large block in a landmark building, while
-4.1%
the nearby Public Ledger and Independence Collection properties are in the early
Market West
4.2%
stages of major upgrades. With so many buildings renovating to a Class A and
Source: JLL Research
creative standard, asking rates are pushing into the $30 range east of Broad for
the first time, with some of the highest rates in former B space.
Total Vacancy
Total percentage vacancy by space type
Is creative space the new trophy?
15.0%
The vacancy rate among trophy towers (4.3 percent) is half the overall CBD
average. The next tightest segment is the creative property set, which saw
9.5%
8.3%
10.0%
vacancy below 3.0 percent last year and is now seeing 8.3 percent total vacancy
as owners race to renovate older and quirkier product to a non-traditional standard.
4.3%
5.0%
Boutique buildings and flexible floor plates are compelling options for small and
growth-oriented companies. With more than half of known tenants in the market
0.0%
requiring 10,000 square feet or less, and a growing number of companies
Trophy
Creative
A
Source: JLL Research
relocating from the suburbs, it’s not surprising unique space is gaining traction.
12.5%
10.2%
B
Square feet
Construction pipeline continues to evolve with Schuylkill Yards unveiling
Speculative office proposals and construction by submarket
Drexel and Brandywine Realty Trust revealed a new name and more articulated
1,200,000
vision for their gateway to University City. The mega-project’s first phase –
Under construction
Proposed
1,000,000
including a new park, renovated Bulletin Building, and 700,000-square-foot tower –
800,000
will move forward over the next 12-24 months. Office construction is likely to pick
600,000
up significantly in the coming months with 3675 Market, 2400 Market, and One
400,000
Franklin all preparing to break ground. The CBD’s ability to grow net new demand
200,000
2,257
(between new-to-market tenants, suburban relocations, and organic expansions)
0
University City Market East Market West Navy Yard
will be critical to monitor as speculative development increases. The city’s 2.4
Source: JLL Research
percent job growth above its pre-recessionary peak is cause for optimism.
44,135,010
54,390
$28.56
2,447,264
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
8.6%
96,146
5.5%
85.2%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
48
PHILADELPHIA (SUBURBAN)
-Lauren Gilchrist
Vice President, Research,
Philadelphia
Fundamentals continue to improve in PA Suburbs
Quarter-over-quarter core suburban submarket rent growth
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1.3%
1.9%
1.5%
0.1%
Plymouth
Conshohocken
Meeting / Blue
Bell
Radnor
King of Prussia / Malvern / Exton
Wayne
Source: JLL Research
2013
2014
$400,000,000
2015
$343,900,000
$261,800,000
$300,000,000
$200,000,000
10.9%
14.0%
2012
12.5%
20.0%
12.0%
Direct Class A vacancy
Direct Class A vacancy reaches lowest level in four years
While leasing activity for Q1 was relatively slow in the Pennsylvania suburbs at
15.0%
just 700,000 square feet, several large move-ins contributing to more than 383,000
square feet of positive net absorption brought the overall vacancy rate to less than 10.0%
11.0 percent for direct Class A space. Highlights include Incyte Pharmaceuticals’
occupancy of 48,000 square feet at 200 Endo Boulevard and SEI occupying
5.0%
45,500 square feet at 52 E Swedesford Road. With several known absorption
2011
events on the horizon for the duration of 2016, select suburban submarkets should Source: JLL Research
continue to experience declining vacancy rates and ongoing tightening throughout
the year.
Sales volumes
Q1 2016 sales volumes surpass every quarter of 2015
2016 got off to a strong start for office sales in the Pennsylvania suburbs. Nearly
1.5 million square feet traded hands, not including assets that were part of
Brandywine’s 58 building, $389 million suburban office portfolio sale to Och Ziff
Capital Management. Saint Gobain’s headquarters and 300 Four Falls Corporate
Center both traded in excess of $300 per square foot, at $382 and $330,
respectively, setting the bar for the upper end of the market for well-located, high
quality suburban assets.
1.5%
13.1%
Core suburban submarkets post strong quarter-over-quarter Class A
rent growth
The Pennsylvania suburbs’ core submarkets all experienced quarter-over-quarter
Class A rent growth, with Malvern/Exton leading the way with a 2.0 percent
increase over Q4 2015. Comparison to the Central Business District, which has
experienced significant market tightening over the past few years, puts these
rental rate increases into current context. While asking rental rates at Trophy
buildings in the CBD remained virtually unchanged quarter-over-quarter at $34.97
per square foot, and non-Trophy Class A averaged $29.00 per square foot, most
core suburban submarkets averaged $30.00 per square foot or more in Class A
asking rates, with Radnor and Conshohocken exceeding Trophy asking rates at
$39.41 and $35.11 per square foot, respectively.
$120,700,000
$100,000,000
$160,000,000
$76,800,000
2,257
$0
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Source: JLL Research
52,962,909
383,527
$25.02
347,064
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
14.8%
383,527
1.0%
0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
49
PHOENIX
- Kiana Cox
Senior Research Analyst,
Phoenix
Strong market fundamentals as 2016 begins
Steady absorption with continued Phoenix growth
The Phoenix metro area office market picked up where it left off at the end of last
year. Built on a stable economic foundation of strong job growth and calculated
construction, new office space is being absorbed almost as fast as it is being
delivered. In the first quarter of 2016, 423,748 square feet of office space was
absorbed in Phoenix, a 48.5 percent increase from one year prior. The total
vacancy rate in the Valley has decreased 720 basis points from a peak of 28.1
percent in the second quarter of 2011 to a low 20.9 percent at the end of the first
quarter this year. Overall vacancy is expected to decline further in 2016 as officeusing employers continue to expand and relocate to the Valley.
Construction continues as developers assess market
In the first quarter of 2016, 450,000 square feet of vacant speculative office
space was delivered in Metro Phoenix, a 57.0 percent decline from just over 1.0
million square feet of speculative space completed in the previous quarter. The
total vacancy rate remained unchanged at 20.9 percent, with nearly 424,000
square feet of total absorption reducing the impact of new vacant space added to
the market. More than 2.2 million square feet of office space (including 439,530
square feet of speculative space) is currently under construction in Greater
Phoenix with 80 percent of it preleased.
Deliveries
Absorption
Vacancy
2,500,000
30%
25%
1,500,000
20%
500,000
-500,000
15%
2010
2011
2012
2013
2014
2015
Source: JLL Research
YTD
2016
Metro Phoenix speculative deliveries per quarter
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
Available
Q1 2015
Q2 2015
Source: JLL Research
Leased
Q3 2015
Q4 2015
Q1 2016
Office employment trends (12-month change)
Professional & Business Services
Government
Information
Financial Activities
40.0
in thousands
Office employment sectors driving Phoenix forward
Phoenix has experienced a much more diverse recovery during this economic
growth cycle, steadily adding a healthy balance of jobs in contrast to previous
cycles when the Valley would be flooded with construction employment. Officeusing employment sectors continue to experience strong growth over the past
year, recording an annualized net gain of 23,500 jobs (3.1 percent) across the
MSA. Office employment gains are translating into greater absorption of office
space in some of the Valley’s premier submarkets. Year-over-year employment
gains were led by the professional & business services, adding 16,100 jobs (5.1
percent) and financial activities gaining 8,600 jobs (5.3 percent).
Net new supply, net absorption and total vacancy
3,500,000
20.0
0.0
2,257
-20.0
2011
Source: JLL Research
2012
2013
2014
2015
2016
82,688,661
423,748
$23.75
2,217,644
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
20.9%
423,748
$27.59
80.0%
Total vacancy
YTD net absorption (s.f.)
Class A average asking rent
Under construction preleased
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JLL | United States | Office Outlook | Q1 2016
50
PITTSBURGH
- Andrew Batson
Research Manager,
Great Lakes
Market performance remains solid, investors notice
Attractive returns drive investment activity
The development pipeline remains full, driven by tenant demand
In the first quarter nearly 400,000 square feet of for-lease office space was
delivered in the Pittsburgh market. In addition to that, another 672,000 square
feet remains in the development pipeline and is scheduled for completion over
the next four quarters. Among secondary markets in the Great Lakes region,
construction levels have been among the highest in Pittsburgh, driven by robust
tenant demand. Two notable projects delivered in the first quarter, including the
128,000-square-foot Tower Two-Sixty development in the CBD submarket and
the 209,000-square-foot Bakery Square 2.0 project in the Oakland/East End
submarket. Preleasing at the two projects exceeded 60.0 percent.
Office demand keeps pace with new supply
Southpointe softens further as commodities remain in turmoil
The prolonged downturn in the oil and gas industry continues to have an adverse
effect on the Southpointe submarket. Nearly all of the energy companies with
operations in the region have located their corporate offices in Southpointe, and
while Class A vacancy in this submarket stood below 5.0 percent less than two
years ago, market conditions have softened dramatically in recent quarters in
tandem with falling commodity prices. Vacancy in the submarket has increased
10.6 percentage points within the last year while the average asking rate
decreased by $1.39 per square foot. However, the deteriorating submarket
conditions are most evident when analyzing the space available for sublease,
which has more than tripled over the last 12 months.
Total sales volume
Total sales volume ($M)
$800
Average sales price ($ p.s.f.)
$150
$600
$100
$400
$50
$200
$0
$0
2007
2009
2011
Source: JLL Research, Real Capital Analytics
Office deliveries (s.f.)
2013
2015
Total net absorption (s.f.)
1,000,000
750,000
500,000
250,000
2010
Source: JLL Research
2011
2012
2013
2014
2015
Q1 2016
Sublease space on the market in Southpointe (s.f.)
150,000
Class A
Class B
Total
100,000
50,000
2,257
0
2010
2011
Source: JLL Research
2012
2013
2014
2015
Q1 2016
50,677,398
28,632
$23.06
592,000
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
16.4%
28,632
3.0%
68.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
Average sales price
Shorenstein’s acquisition is the latest in a string of high-profile trades
With primary markets oversold during the current cycle, investors have turned to
secondary markets for opportunities with attractive returns. Investors have been
particularly active in Pittsburgh, thanks to the diversified economy and solid
office market fundamentals. Shorenstein’s recent acquisition of the 1.0 millionsquare-foot One Oxford Center in downtown Pittsburgh for $148.8 million was
just the latest in a string of high-profile trades. Prior transactions include Faros
Properties’ $67.5 million acquisition of Allegheny Center, M&J Wilkow’s $38.4
million acquisition of the Penn Center East development and The Davis
Companies’ 14.0 million acquisition of the Union Trust Building.
JLL | United States | Office Outlook | Q1 2016
51
PORTLAND
- Tim Harrison
Research Analyst,
Portland
Boomtown, USA
10.0%
5.0%
0.0%
Source: JLL Research
CBD asking rents and absorption
CBD Absorption
$32
$30
$28
$26
$24
$22
$20
CBD Rents
1,900
900
-100
Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016
Source: JLL Research
Hundreds
Skyline buildings getting makeover
The Portland Skyline is defined as buildings that have a significant impact due to
their size, quality of space or iconic status. The skyline set includes 15 existing
assets and one being delivered this year. The buildings were built between 1972
and 2016, but not all Skyline buildings are performing at the same level. Vacancy
in the Skyline set ranges from below 2 percent to greater than 22 percent and
asking rents range from $28 to almost $42 full service. Their performance
depends greatly on how well the properties have aged and if their amenity set
has kept pace with tenant demand. Plans are underway for lobby renovations
and building repositions for several older Skyline properties as owners seek to
keep their buildings relevant and competitive.
Portland metro area unemployment rate
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Economy firing on all cylinders
The area’s economy is standing tall. In February, Bloomberg released a report
declaring Oregon the best-performing economy in the US as measured by a
variety of business, financial and industrial factors. Bloomberg’s Economic
Evaluation of States reviews employment performance, home prices and
personal income, among other measures, and determined that Oregon’s
economy was the most improved in 2015. With the current metro area
unemployment sitting at 4.3 percent, its lowest level since early 2000, and job
growth for 2015 among the strongest of all major metro areas in the country, it is
no wonder that Portland’s population has been growing seven times faster than
the US average. All factors driving the area’s office market performance.
-1,100
Demand from tenants in the market
Tenant demand surges, concentrated in CBD and tech
March saw demand from tenants in the market surge to record levels. JLL is
tracking almost 4 million square feet of tenants in the market, a level 11.0
percent higher than any previous month on record. 32.0 percent of this demand
can be attributed to tech/information services tenants and 13.0 percent of this
demand is coming from professional and business services tenants. In terms of
tenants’ geographical preferences, 60.0 percent of the demand is coming from
tenants looking for space in the CBD, that number grows to 66.0 percent for
tenants seeking options in the close in urban areas.
3,919,525 s.f.
2,257
Demand from tenants in the market
Source: JLL Research
58,709,017
178,251
$25.12
1,607,791
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
8.3%
659,639
8.7%
57.4%
Total vacancy
Avg. Annual net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
52
RALEIGH-DURHAM
- Ashley Lewis
Senior Research Analyst
Raleigh-Durham
New year firing off with new construction
Breaking ground in first quarter
2016 started off with four speculative construction starts in Raleigh-Durham. The
new developments were spread across the entire market, including Orange
County, West Raleigh and both central business districts. With over 1.5 million
square feet under construction, developers are finally catching up with tenant
demand. Although the first quarter’s total net absorption is at a two-year quarterly
low, it is simply an indicator that the market is tight until these new projects
deliver. Preleased at an average of 43.0 percent, new product continues to drive
up the market’s average asking rate with these developments in particular asking
up to $35.00 per square foot. With four new cranes in the sky this quarter, the
market expects to see three new office deliveries this year.
Construction finally catching up with demand?
The Dillon
Preleased s.f.
Forty540
Total s.f.
One City Center
Carolina Square
0
Source: JLL Research
50,000 100,000 150,000 200,000 250,000 300,000
s.f.
Downtown Durham availabilities bleak
While Downtown Raleigh’s vacancy up-ticked slightly this quarter, Downtown
Durham has hit an all-time vacancy low. With 384,000 square feet under
renovation at The Chesterfield and 150,000 square feet under construction at
One City Center, both properties are already pre-leased at an average of 54.1
percent. Tenants may see slight relief when some of this new inventory delivers
later in the year but not for long due to a dry pipeline for the submarket. Total
direct vacancy for the submarket is sitting at 2.4 percent and Class A vacancy
under 2.0 percent with few sublease vacancies to speak of. The most notable
expansion is Duke University who signed leases to expand its footprint
downtown at both new buildings.
Downtown Durham hits historic vacancy rates
Prominent Raleigh-Durham buildings hit the market
Coming off the highest year in office sales volume in eight years, two high profile
offers hit the market first quarter. The first offer brought on March 2nd consists of
five prominent buildings at Imperial Center in Durham. Combined, they make up
a total rentable square footage of 367,717 and are 98 percent occupied. The
second offer brought Quintiles Plaza to market by Easdil Secured. This highprofile asset sits right on Interstate 40 at Imperial Center. It is fully occupied for
another 10 years by Quintiles’ corporate headquarters. Both offers expect
numerous looks from national and international investors.
High sales volume expected to continue
Inventory
2,000,000
1,900,000
1,800,000
1,700,000
1,600,000
1,500,000
s.f. 2010 2011 2012
Source: JLL Research
6
buildings
Class A vacancy Rate
20.0%
15.0%
10.0%
5.0%
0.0%
2013
2014
2015
627,248
99%
Q1
2016
square feet
2,257
averaging
occupied
Source: JLL Research
44,363,957
-55,594
$20.82
1,667,451
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
11.9%
-55,594
0.9%
43.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
53
RICHMOND
- Geoff Thomas
Senior Research Manager,
Richmond
Downtown continues to refresh its aging inventory
Downtown remains a tenant’s market as another Trophy tower rises
The timing of James Center’s anchor tenant, McGuireWoods, relocation to a new
Trophy tower and the maturity of their 10-year CMBS loan this year proved
fateful. The ownership of three Class A towers transferred to the special servicer,
LNR Partners, with only 31.1 percent of the 244,000 square feet vacated leased.
Now a second Trophy tower is set to deliver by the end of 2017, this time luring a
Class B tower’s anchor tenant, SunTrust Bank. The move will place over
200,000 square feet on the market at 919 E Main Street and question near-term
fundamentals for this class segment.
Historical CBD availability rates
Class A
Class B
31%
20%
19%
10%
2010
15%
10%
2011
19%
2012
21% 21%
19% 20%
2013
2014
16% 18%
21%
2015
2016
Source: JLL Research
Richmond’s largest employers consolidating and shifting footprints
The second arm of SunTrust’s real estate reorganization will possibly shift
operations to the Innsbrook submarket’s last vacant building, Westmark One,
totaling 227,000 square feet. SunTrust currently leases a total of 158,360 square
feet between two suburban locations and owns two other operation centers in
Manchester and the Parham East submarket totaling over 607,157 square feet.
However, it is unclear how many of their personnel or current suburban office
footprint will be repositioned. The move will overlap Capital One’s consolidation
of their leased offices to their West Creek campus (owner-occupied) later this
year, vacating 135,375 square feet at Liberty Plaza II by the third quarter.
Creative office development increases in the urban submarkets
Manchester and Scotts Addition have been the hotbed of activity over the past
four quarters with three projects currently under construction or breaking ground
this year. In Scotts Addition, the Sauer Office Building is currently under
construction with the entire project available for lease—17,000 square feet in
total. In addition, Spy Rock’s The Symbol was completing the demolition phase
of 1800 Highpoint Avenue and should start construction on the 40.0 percent
preleased, 60,000-square foot office/retail development next quarter.
Manchester’s City Lofts project also locked in its second tenant, AuthX, for the
small office phase of the mixed-use development that delivered this quarter.
SunTrust’s footprint in Richmond
Downtown
Suburban
714,386
339,517
513,000
Current
535,657
Future
Source: JLL Research
Creative office developments to deliver or commence in 2016
90,500
2,257
Square feet
Source: JLL Research
25,116,317
-16,121
$18.84
17,000
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
14.3%
-16,121
5.3%
0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
54
SACRAMENTO
- John Sheaffer
Senior Research Analyst,
Sacramento
Rising market tide lifting all boats in 2016
Government agencies and healthcare groups drive office growth
The unemployment rate in the Sacramento region dipped to 5.4 percent in
February 2016, falling to a new post-recession low. Nearly 50.0 percent of
payroll gains during the past 12 months are attributed to the region’s two major
economic engines, the government and healthcare-related groups, which have
helped tip the scales in their respective submarkets with significant expansions.
The State led employment growth among government agencies, adding 1,600
jobs and nearly every healthcare group in the area is aggressively exploring
footprint expansion options. The 2016-2017 Governor’s budget and the
healthcare sector’s long-term longevity indicate healthy and sustained office
demand over the next 12 months.
Region adds 23,300 jobs over past 12 months
Healthcare and Social Assistance
State gov't
31%
54%
Local gov't
Federal gov't
7%
6%
Other
2% Source: JLL Research
Expect CBD rental rates to continue their climb in 2016
Highway 50 Corridor, the last large block frontier
Asking rents continue to climb among all submarkets, due in part to the dwindling
supply of options for large users. A disproportionate share of available blocks
greater than 15,000 square feet remain along the Highway 50 Corridor, where
over 71.0 percent of available space qualifies as large block. As a result, the
submarket has posted major absorption swings recently and is the last
battleground for large users seeking multiple, contiguous options. Rent growth
along the Highway 50 Corridor is expected to accelerate in 2016, as competition
for space ramps up.
Class A asking rent
$2.90
$2.87
Class A taking rent
$2.80
$2.80
$2.70
$2.60
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
Source: JLL Research
Highway 50 Corridor absorption swings
s.f.
CBD rents poised to accelerate in 2016
The CBD submarket, as did every other submarket in the region, posted
significant positive annual rent growth at the onset of 2016. State agency
expansions and tenant in-migration from neighboring submarkets have
compressed the vacancy rate to the lowest figure since 2007, falling to 13.0
percent, and limited space has given landlords more negotiating leverage, in
addition to selling the prospect of a revitalized urban core experience. The
average Class A taking rent outpaced the average asking rent in the first quarter
of 2016, signaling rent growth momentum observed downtown in 2015 shows no
sign of slowing in 2016 and will likely increase in velocity with no deliveries in
near sight.
200,000
100,000
59,589
47,874
Q1 2015
2,257
Q2 2015
155,437
133,447
Q3 2015
Q4 2015
0
-100,000
-200,000
(110,594)
Q1 2016
Source: JLL Research
43,791,678
260,541
$22.92
0
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
15.4%
260,541
2.6%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
55
SALT LAKE CITY
- Christian Forbes
Research Analyst,
Salt Lake City
Office-using industries propel widespread gains
Jobs market continues to fire on all cylinders
Salt Lake City (SLC) payroll growth is white-hot, rising nearly twice as fast the
national average over the last 12 months. Leading the way has been a steady,
substantial expansion in the white-collar jobs market—especially prevalent in the
high-tech and financial services sectors. These industries continue to reap the
benefits of a growing population, a well-educated workforce, and low business
costs; consequently, SLC has been gaining jobs and seeing marked expansions
and new entries by tech and financial firms alike. The metro is poised to continue
attracting those companies opting for a lower cost environment or those priced
out of more expensive areas like New York City and Silicon Valley.
Tech + Finance: projected growth in SLC outpaces U.S.
Statistical gap between CBD and Suburban narrowing
During the last several quarters, SLC has routinely placed among the nation’s
lowest vacancy rate markets. In turn, it has been increasingly targeted by
developers searching for opportunity throughout the entire market, but
particularly so in suburban markets like Utah County and Draper. Over the last
15 months, the vacancy spread between Downtown properties and their
suburban counterparts has narrowed, as has the asking rent premium between
the geographies. Total vacancy rates and direct asking rents are at their closest
in the last five years; SLC’s suburbs are clearly high in demand.
CBD compared to Suburban markets—gap between the two
SLC financial services
SLC high-tech
Annual growth
4.0%
U.S. financial services
U.S. high-tech
3.0%
2.0%
1.0%
0.0%
Basis points
2016
Source: JLL Research, Moody's
2017
2018
2019
750
20.0%
600
15.0%
450
10.0%
300
5.0%
150
0
0.0%
2012
2013
2014
2015
Vacancy rate
Source: JLL Research
YTD
Asking rent
Red-hot construction pipeline thanks to strong user demand
Million square feet
Will 2016 new construction deliveries meet and surpass tenant demand?
Following two straight years of strong positive absorption—including a 2015 that
broke 1.0 million square feet of tenant demand—net absorption for January
through March sits at a two-and-a-half-year quarterly low. Still, this is more a
sign of just how tight the market remains rather than a slackening in user
demand. In fact, record levels of new construction are illustrative of a market in
which developers have struggled to build quickly enough. For the year ahead,
2.8 million square feet of new product is set to deliver—a figure that, if met,
would significantly best the previous ten-year record (set in 2007). Nearly half
(49.4 percent) is being built speculatively. Users should see some measure of
relief when this new, spec inventory is delivered, but nearly one-third of it already
spoken for.
5.0%
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2010
Source: JLL Research
2.8
Historical completions
2,257
2011
2012
2013
2014
2015
2016
45,865,424
15,110
$20.66
2,765,312
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
6.5%
15,110
3.5%
60.6%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
56
SAN ANTONIO
- Travis Rogers
Research Analyst,
Austin
Build-to-suit activity remains strong
Northwest and North Central dominate with new product
Ridgewood Plaza delivered Far North Central during the first quarter. Of the
147,000 square feet available, 26.5 percent of the building was preleased by
EOG. There are four other properties currently under construction. These
properties are Vista Corporate Center (150,735 square feet), Security Service
FCU (270,000 square feet), 1900 NW Loop 410 (57,000 square feet) and
Huntington Center (52,000 square feet). Both Security Service FCU and 1900
NW Loop 410 are build-to-suits, 100 percent preleased to Security Service FCU
and The Bank of San Antonio, respectively. Collectively, there is approximately
530,000 square feet under construction with 61.7 percent preleased.
Square feet under construction by class and submarket
10%
529,735 s.f.
under construction
North Central
Northwest
90%
Average asking rent by submarket and class
One submarket experiences rent growth above the rest
The Far North Central submarket recorded significant rental rate growth quarterover-quarter. Not only did the Far North Central submarket experience the
highest rent growth at 6.3 percent, it also has the lowest spread between Class A
and B rental rates. Overall, San Antonio marketed rents have increased
approximately 2.4 percent year-over-year. Looking at the market as a whole,
spreads are the lowest in northern San Antonio and highest in the south or
downtown. This is a result of newer and/or higher quality Class B office product
in a booming northern corridor.
Most submarkets experience a slight increase in vacancy
San Antonio’s total vacancy rate experienced a slight uptick quarter-over-quarter.
The market generally bounces between 14.5 and 15.9 percent vacancy. With
over two million square feet of new construction delivered between 2014 and
2015, tenants are moving between projects. While preleasing for new
construction is high, the majority of the leasing activity comes from build-to-suit
projects. As speculative developments, such as Ridgewood Plaza, deliver
vacancy will temporarily increase in advance of tenants taking occupancy of their
new space.
$30
$20
$30.05
$26.48 $26.23
$26.38
$25.77
$22.09
$20.22
$19.05
$18.00
$25.87
$23.30
$10
$0
CBD
Far North
Central
North
Central
Northeast Northwest
South
Class A
Class B
Total vacancy by submarket
South
20.9%
Northwest
16.5%
Northeast
9.6%
North Central
12.6%
2,257
Far North Central
17.3%
CBD
21.7%
26,513,851
395,164
$23.09
529,735
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
15.7%
395,164
2.4%
61.7%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
57
SAN DIEGO
- Josh Brant
Senior Research Analyst,
San Diego
Developers remain bullish on spec construction
Pipeline of offices under construction
Bosa Development is most active investor in Downtown offices
Bosa Development is best known for its residential condo development projects,
in Downtown San Diego. However, in the past 18 months Bosa has acquired
three separate offices in Downtown, investing a total of $83.8 million dollars. The
three acquisitions are more than any other investor in Downtown during that time
frame. The largest and most recent of these transactions was the 232,900square-foot office at 530 B St., for $53.3 million. Bosa’s office portfolio Downtown
previously consisted of only the Paladion building. Additionally, over the past six
months, Bosa has invested $79.1 million in six other Downtown land-banking
transactions for future residential projects.
Bosa’s 18-month total investment in Downtown offices
The Irvine Company single-handedly suppressed Q1 Class A rent growth
Countywide Class A asking rents were effectively flat quarter-over-quarter.
However, UTC was the only major submarket in the county to record quarterover-quarter declines in asking rental rates with a 3.0 percent decrease versus
the fourth quarter. The Irvine Company owns 60 percent of the Class A offices in
UTC. During the first quarter, The Irvine Company’s asking rents in UTC were
cumulatively marked down 5.3 percent, driving the overall Class A rent decrease
in the submarket. The Irvine Company also reduced its asking rate on a few
availabilities in Downtown as well.
Quarter-over-quarter Class A asking rental rate change
s.f.
San Diego’s office construction pipeline is now 100 percent speculative
For the first time in five years, the pipeline of offices under construction is entirely
comprised of speculative projects. Most of the projects under construction are in
the county core areas of Del Mar Heights, Sorrento Mesa and UTC/Eastgate.
The exception is Regent Properties’ 230,000-square-foot Atlas renovation project
in Carlsbad. The current offices under construction have not preleased any of
their available space yet. 2015 saw the most speculative office projects deliver of
the past five years, and 2015 recorded the least amount of positive net
absorption of the past five years. We anticipate the offices currently under
construction to act as a headwind against occupancy growth as they deliver.
2,000,000
Build-To-Suit
Speculative
1,500,000
1,000,000
500,000
0
2011
Source: JLL Research
2012
2013
2014
2015
2016
$83.8 million
Source: JLL Research
Carlsbad
Rancho Bernardo
Del Mar Heights
Sorrento Mesa
UTC -3.0%
Kearny Mesa
Mission Valley
Downtown
0.0%
1.4%
2.7%
0.0%
2.3%
2.3%
2,257
0.0%
-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
Source: JLL Research
79,312,880
442,206
$30.00
451,841
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
13.5%
442,206
2.5%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
58
SAN FRANCISCO
- Jack Nelson
Research Analyst,
San Francisco
Tenants taking a harder look at total costs
Major move-ins drive absorption
Despite growing concerns regarding the stock market and VC funding in early
Q1 2016, San Francisco saw continued net absorption gains totaling more than
150,000 square feet. Activity was driven primarily by two major move-ins with
Salesforce moving into a portion of their new space at 350 Mission Street and
LinkedIn at 222 2nd Street. Dropbox is scheduled to move into their new
headquarters at 333 and 345 Brannan Street in Q2 2016 further driving
absorption into 2016. Large expansionary lease deals from WeWork (73,348
square feet), Quantcast (94,889 square feet), and Twilio (91,823 square feet) will
further contribute to absorption figures into 2016, driving down vacancy and
limiting large block availabilities.
LinkedIn and Salesforce headquarter moves boost
absorption
Sublease space, a growing secondary market
Sublease availabilities continue to grow into 2016, with more than 2.3 million
square feet now on the market, up 14.0 percent since Q4 2015. However,
demand for sublease space is strong: 5 of the top 8 sublease spaces have
pending leases which would cut availabilities by 670,000 square feet when the
transactions complete. Tech firms represent the majority of demand in San
Francisco at more than 40.0 percent. With a slowdown in VC funding and more
firms focusing on the bottom line, the demand for plug-and-play space is robust.
As the cost of construction has risen 47.0 percent in the past five years, second
generation space requiring large capital expenditures has become a less
attractive option.
Tech subleases on the market for shortest period of time
Pre-leasing activity on new construction up from Q4 2015
Several large pre-leasing deals transacted in Q1 2016, totaling more than
200,000 square feet. With asking rates for new construction well above market
averages, attracting tenants is a balance between design features catered to the
modern workplace, added amenities, and competitive concession packages.
There is currently 2.9 million square feet of space set to deliver over the next two
years, providing more opportunities for pre-leasing. Tenants will have options,
but at a premium.
235,000
Square feet absorbed by Salesforce and LinkedIn
Source: JLL Research
Months
6.0
4.0
3 months
2.0
0.0
Technolgy
Legal
Financial
Services
Professional
Services
Industry
Source: JLL Research
New construction opportunities still available
37.0%
2,257
63.0%
Pre-leased
Available
Source: JLL Research
75,553,912
153,135
$72.04
4,669,927
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
8.2%
153,135
10.6%
37%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
59
SAN FRANCISCO MID-PENINSULA
- Eduardo Romero
Research Analyst,
Silicon Valley
Funding crunch looms, tech giants gobble up space
Jittered investors mull tech valuations, but Peninsula companies resilient
There are growing concerns that a VC funding crunch could jeopardize the
growth of young tech startups, triggering an abrupt release of office space.
However, the impact would be very limited in the Mid-Peninsula for two reasons.
First, the highest concentrations of young tech startups in the region are found in
downtown micro-markets where they occupy 45.0 percent of leased office space.
These areas represent only 15.0 percent of the Mid-Peninsula’s total inventory; a
steep decline in venture capital funding would have a limited impact on the
overall market. Second, downtown micro-markets have historically backfilled
vacant space quickly as vacancy rates have been below 10.0 percent for the
past 15 quarters. The array of tenants in the Mid-Peninsula will likely insulate the
market from severe disruptions caused by a pullback in venture capital funding.
Google ramped up its Mid-Peninsula presence in past 2 years
1.9 m.s.f.
of office space to be recently acquired by Google
Source: JLL Research
Young tech companies cluster in downtown micro-markets
Technology giants sprawl in the Mid-Peninsula
Google and Facebook have gobbled up a combined 5.7 million square feet of
office and R&D space within the past two years and are expected to continue
expanding. However, a considerable amount of this is currently occupied by
many legacy tenants. There are at least 1.2 million square feet of potential future
demand that could be created as tenants are likely to become uprooted in the
market. It is uncertain as to what Google and Facebook plan to do with the space
they now control, but their rapid expansion will generate additional future
demand for space in the Mid-Peninsula over the course of the next 12 to
18 months.
In Q1 2016, 45% of leased office
space in the Mid-Peninsula
downtown micro-markets was
occupied by tech companies
founded in the last 6 years.
45%
Source: JLL Research
Vacant large blocks of space in short supply
30
Class A
# of blocks
New proposed development meets bullish sentiment on the market
Amid strong rent growth and high demand for Class A space, developers
continue to bring to market development proposals in core submarkets like
Redwood City and San Mateo. With more than 1.2 million square feet currently
under construction, developers still believe future demand will not be satiated
with current supply levels. For instance, large blocks of space are still in short
supply in the Mid-Peninsula, with only four buildings offering contiguous spaces
greater than 100,000 square feet. Such options are specially appealing to large
Silicon Valley tenants who cannot find similar options in core submarkets or are
unwilling to pay high rent premiums.
Class B
20
1
10
0
3
2,257
50,000 - 100,000 s.f. 100,000 - 200,000 s.f.
7
1
> 200,000 s.f.
Source: JLL Research
27,335,762
121,596
$56.41
1,271,229
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
12.7%
121,596
15.8%
33.3%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
60
SEATTLE-BELLEVUE
- Alex Muir
Research Manager,
Seattle-Bellevue
Strong demand pushes vacancy to 15-year low
Development activity continues on its upward momentum
Google’s new 180,000-square-foot campus in Kirkland and Fairview Research
Center II, a 140,000-square-foot state of the art laboratory and office building in
Lake Union, were delivered in the first quarter. With another 2.9 million square
feet scheduled to deliver this year, 2016 is poised to surpass 2015 as the most
active year for office development since prior to the recession. Declining vacancy
and strong tenant demand have lessened the concern of overbuilding in the
market, but with nearly 6.8 million square feet of product currently under
construction, the development pipeline will continue to be a major topic of
discussion. Preleasing rates of new construction space currently stands at 38.4
percent and average asking rents are being marketed at $48.55 per square foot,
full service, representing a 39.6 percent premium over the regional average.
Sales volume exceeded $1.0 billion despite a lack of CBD transactions in
the first quarter
In the first quarter alone, more than $1.2 billion in office investment transactions
occurred in the Puget Sound region. Interestingly, the high volume of sales
occurred without any CBD buildings trading. 62.5 percent of the buildings sold
this quarter are in suburban submarkets such as Kent Valley and Redmond.
Following on last year’s strong performance, Lake Union far surpasses other
submarkets with year-to-date sales volume of $499.4 million. The largest
transaction in Q1 was the sale of West 8th, a 28-story Trophy office tower built in
2009, for $370.0 million to Deutsche Asset & Wealth Management. The skyline
asset fetched an impressive $716 per square foot.
Market vacancy hits its lowest level since 2001
838,562 square feet of space was taken down in the first quarter. Total vacancy
in the Seattle-Bellevue area currently stands at 9.1 percent, which is the lowest it
has been since the dot-com bubble in the early 2000s. Subsequently, average
asking rents are up 8.3 percent year-over-year to it’s current rate of $34.77. First
quarter leasing activity was driven primarily by technology tenants, with the
286,000-square-foot deal at Urban Union being the largest. Other tenants
that signed major leases include Saltchuk, Moss Adams, The Everett Clinic,
and Qualtrics.
Square feet of office product delivered
3,000,000
2,251,966
2,000,000
1,000,000
128,904
283,545
462,312
480,000
2011
2012
2013
2014
320,000
0
2015
YTD 2016
Source: JLL Research
Sales volume by submarket ($mil)
$499.4
Lake Union
Queen Anne
I-90 Corridor
Kent Valley
Redmond
Federal Way
Suburban Bellevue
Source: JLL Research
$40.4
$29.1
$26.5
$25.6
$22.8
$18.3
$0
$200
$400
Millions
Vacancy in single digits on both sides of the lake
Downtown Seattle
7.7%
2,257
Eastside
9.3%
Source: JLL Research
92,656,684
838,562
$34.77
6,755,651
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
9.1%
838,562
8.3%
38.4%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
61
SILICON VALLEY
- Christan Basconcillo
Research Manager,
Silicon Valley
Tech giants and redevelopment prop demand
Net absorption fueled by pre-leased new construction
Silicon Valley recorded a significant volume of occupancy gains during the quarter.
However, much of the growth was driven by large corporate tech companies
occupying pre-leased new development. This trend will continue to keep the Valley’s
growth on an upward swing this year; there is still 1.7 million square feet of office
space under construction that will eventually be occupied over the next 18 months.
Despite the growing concerns over the stock market, future move-ins represent
established viable tech tenants that have enough capital to weather a volatile
business climate. Even if the economy shifts from bull to bear, market trends will
slowly taper off and cool instead rather than experience a dot-com era crash.
Valley continues to see consistent occupancy gains
Demand volume pushed by redevelopment and cost of Class A
Vacancy rose slightly from last quarter, caused by the addition of approximately 1.0
million square feet of completed, but vacant, Class A office product. However, office
demand has been high enough to ease some landlord worries. Full floor tenants in
the market continue to carve away at big block availability. Additionally,
redevelopment projects like Santa Clara Square are uprooting tenants in the market.
However, rising rents for brand new space is becoming a deterrent for companies
more concerned with costs. For this reason, North San Jose and Downtown San
Jose are gaining more momentum—availability and rents are still relatively tenantfavorable. With demand volume still high, vacancy will maintain a steady decline,
albeit slowing in pace compared to 12 months prior.
Class A vacancy edges up slightly due to new product
1,500,000
500,000
-500,000
Q4 10 Q3 11 Q2 12 Q1 13 Q4 13 Q3 14 Q2 15 Q1 16
Source: JLL Research
40.0%
30.0%
20.0%
10.0% 19.4%
24.7%
30.7% 28.6%
27.1%
17.2% 16.1%
0.0%
13.9% 11.9% 12.2%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Q1
2016
Source: JLL Research
Valley still attracting VC funding, but velocity slowing
VC’s shift capital to later stage companies, slowdown on the horizon?
Though the funding spigot has yet shut off, investors are beginning to focus more
attention toward established, late-stage startups. The slashing of unicorn valuations
combined with a very thin IPO pipeline is expected to cool VC funding over the next
12 months. From a real estate perspective, the Valley will see fewer high-flying tech
startups overcommitting to prime Class A space. As stock market volatility is causing
some pull-back among investors, heavily funded tech companies that aggressively
expanded could begin to release sublease space, signaling a potential slowdown in
market trends.
$3,000.0
Funding volume ($M)
$2,000.0
$1,000.0
$0.0
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
12 12 13 13 13 13 14 14 14 14 15 15 15 15
Source: JLL Research, PwCMoneytree
69,004,122
824,960
$49.04
3,483,727
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
12.3%
824,960
15.7%
47.8%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
62
ST. LOUIS
- Blaise Tomazic
Senior Research Manager,
St. Louis
Leasing activity signals future gains
Office employment growth bounces back
Employment in the office occupying sectors maintained a steady annual growth
rate of 1.0 percent over the past 12 months, doubling the previous year. Several
companies have announced plans to increase head counts including: Bunge,
Thomson Reuters, and Moneta Group. Unfortunately, some tenants have also
announced plans to leave the market. Hardee’s (CBD) is relocating its corporate
office to Nashville in 2017. Similarly, AEP (West County), which was acquired
last year by, American Commercial Lines, will be moving to Louisville. Both
tenants will leave behind space in excess of 40,000 square feet.
Annual change in employment (in thousands)
15
Financial Activities
Information
Professional and Business Services
Government
10
5
0
(5)
2013
2014
2015
2016
Source: JLL Research, BLS
Activity focused to the west
More than half of the leasing activity in the first quarter was done in West County,
further sustaining the trend of tenants looking toward the suburbs. The spread
between Class A and B buildings widened further this quarter. Vacancy for Class
A buildings is now 460 basis points lower. Activity is no different, almost 65.0
percent of leases this quarter were in Class A buildings. The gap in asking rates
between classes is now over $6.00 per square foot. As a result, the available
space in Class B buildings is lowering rental rates across the market.
Leasing activity by submarket (leases over 10,000 s.f.)
CBD
22.22%
Clayton
Northwest County
5.56%
55.56%
11.11%
St. Charles County
5.56%
West County
Source: JLL Research
Quarterly absorption since 2014
s.f.
Market takes a pause
After a banner year in 2015, the market took a breath in the first quarter posting
negative absorption for only the second time since 2014. In a reversal of
recent trends, losses were led by the suburban markets, which absorbed over
700,000 square feet last year. The CBD offset some of the losses, gaining
42,000 square feet. The losses are not expected to continue. More than 250,000
square feet of expansions were signed this quarter, with most commencing in the
next six months.
Absorption
300,000
225,000
150,000
75,000
0
-75,000
-150,000
2,257
2014
Source: JLL Research
2015
2016
42,125,546
-74,190
$19.05
125,000
Total inventory (s.f.)
Q1 2015 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
14.9%
-74,190
-3.9%
60.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
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JLL | United States | Office Outlook | Q1 2016
63
SUBURBAN MARYLAND
- Sara Hines
Senior Research Analyst,
Suburban Maryland
Large tenants drive leasing activity
Absorption trends positive in the first quarter
After years of large-scale tenant consolidations, the Montgomery County office
market experienced modest occupancy growth in the first quarter of 2016.
SunEdison moved into 16,051 square feet at 7550 Wisconsin Avenue. Toole
Design moved into 37,758 square feet at 8484 Georgia Avenue in Silver Spring.
Another large move-in was the Montgomery County government, which leased
101,200 square feet at 1401 Rockville Pike. The Class A sector experienced a
significant amount of growth, recording 272,829 square feet of positive net
absorption in Montgomery County. Prince George’s County’s office market has
never fully recovered from the consolidations that occurred in the mid-2000s and
continues to show signs of softness as National Center for Health Statistics gave
back 49,634 square feet at 3311 Toledo Road.
Technology and life science sectors experience growth
The federal government remains a dominant industry sector in Suburban
Maryland, however, all of the federal leases signed in the first quarter were
renewals and contributed no net new growth to the market. The tenant base
showed signs of diversifying beyond its government and contractor focus, as
technology and life science companies expanded. Education technology
company 2U signed the largest lease of the first quarter and a new life science
start-up, Nextcure, expanded by 25,000 square feet in Prince George’s County.
Nextcure was launched in 2015 and the company raised $67.0 million in series A
financing in the first quarter of 2016.
Large block leasing activity (leases over 20,000 s.f.)
Square feet
1,000,000
500,000
0
Q1 2015
Source: JLL Research
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Absorption levels by county (s.f.)
300,000
264,307
200,000
Square feet
Leasing activity continues to build
Large-block leasing activity in Suburban Maryland increased 77.7 percent from
last quarter. This increase was largely due to a few large leases. 2U signed a
252,952-square-foot lease at 7900 Harkins Road. The U.S. Food and Drug
Administration renewed at 7500 Standish Place for 113,730 square feet. DAI, a
consulting firm, decided to renew at 7600 Wisconsin Avenue for 50,000 square
feet and gave back approximately 20,000 square feet. Along with an increase in
leasing activity there was a slight uptick on length of deals compared to a year
ago. The average lease term in the first quarter was 102 months.
100,000
25,035
0
-100,000
Frederick County
Source: JLL Research
Montgomery County
-58,449
Prince George's
County
Leasing activity by industry sector (leases over 20,000 s.f.)
3%
5%
7%
40%
14%
2,257
24%
Source: JLL Research
Technology
Government
Accounting consulting research strategy
Nonprofit
Law firm
Engineering
Life sciences
Real estate
66,044,257
230,893
$26.76
183,888
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
20.0%
230,893
-0.1 %
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
64
TAMPA
- Drew Gilligan
Senior Research Analyst,
Central Florida
Tampa Bay in line for a strong 2016
Three industries dominate space requirements in the market
Groups in the professional and business services, financial services and
scientific industries account for 81.5 percent of current space requirements in
Tampa Bay, totaling 1.3 million square feet. There are currently no buildings
under construction and only 20 Class A spaces greater than 30,000 square feet
available in all of Tampa Bay. Of the 1.3 million square feet in requirements, 80
percent of that total is seeking space in Hillsborough County, which only has 16
spaces larger than 30,000 square feet. Something has to give as current
availabilities can’t support the demand, which could lead to build-to-suit
developments or office buildings with a portion pre-leased.
Highest demand for STEM jobs in the state
As tracked by Florida Department of Economic Opportunity, Florida has over
80,000 STEM jobs currently available, which is in line with numbers from a year
ago. Health care, professional and business services, and finance and insurance
are the industries seeking the most talent in terms of available positions.
Hillsborough County ranks first in available jobs of any county in the state with
over 10,000 postings, while Pinellas ranks seventh with 4,500 postings. This
alludes to sustained growth in the local economy through 2016 and a strong
indicator for continued strength in the office market.
Asking rates continue to climb
Overall Tampa Bay Class A asking rates have risen $1.16 per square foot (4.4
percent) in the past 12 months and $1.93 per square foot (7.4 percent) in the
past 24 months. The increase in price is even more prevalent in the Tampa CBD
and Westshore submarkets. While rents in the Tampa CBD have increased only
3.3 percent, which is still strong, landlords have pushed rents on average $2.66
per square foot (9.8 percent) over the previous 24 months. The Westshore and I75/I-4 Corridor submarkets have experienced something similar, with both
submarkets experiencing over 8.0 percent rent increases for Class A space.
Leverage continues to remain with landlords, but some tenants are balking at
some of the asking rates for high quality spaces, explaining the slowdown in rent
growth from last quarter.
Tenants in the market by industry
5.6%
6.2%
6.2%
Professional and business services
Financial services
Scientific and technical
Logistics and distribution
Healthcare and Life Sciences
Creative
Retail
31.8%
22.3%
27.4%
Source: JLL Research
Counties with most STEM job availabilities
12,000 10,338
7,000
2,000
-3,000
Source: JLL Research, FDEO
Historical Class A asking rates
$27.00
$26.14
$26.00
$25.05
$25.00
$24.00
$24.47
$24.98
$23.96
$23.38
$23.76
$23.49 $23.59
$24.21
$23.00
2,257
$22.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: JLL Research, BLS
34,348,959
170,908
$23.18
0
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
14.6%
170,908
1.4%
0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
65
WASHINGTON, DC
- Carl Caputo
Senior Research Analyst,
Washington, DC
Large vacancies hit, but may soon be backfilled
Law firm rightsizings and consolidations continue to impact the core
During the first quarter, Miller & Chevalier relocated to the newly delivered 900
16th Street, NW from Metropolitan Square, leaving behind 133,000 square feet of
vacant space and rightsizing its footprint by 28 percent. In a similar vein, Cleary
Gottlieb signed a lease to relocate its office to a new development at 2112
Pennsylvania Avenue, NW, and will rightsize by 20 percent when it moves in
2018. While a majority of law firms in Washington, DC have rightsized in the
current cycle and a very limited number of large firms have upcoming lease
expirations, several firms have put large sublet blocks on the market and
continue to look for ways to achieve greater efficiency.
Long-term sublet options hit the market as firms rightsize
Emerging sectors continue to generate occupancy gains
Continued growth from coworking providers, tech companies and quasigovernment institutions helped offset limited demand from the legal and federal
sectors and generate occupancy gains. During the first quarter alone, creative
coworking providers such as WeWork, MakeOffices and Spaces leased 230,000
square feet, doubling the total space leased by the sector in all of 2016.
Additional expansions in the market came from the International Monetary Fund,
which leased 36,000 square feet at 1899 Pennsylvania Avenue, NW and
FiscalNote, which grew 12,000 square feet in its move to 1 Thomas Circle, NW.
Creative coworking providers showing tremendous growth
Activity is slowly flowing into the Class A+ segment
Over the past 36 months, limited deliveries and elevated demand for top-quality
space, primarily from government affairs groups and law firms, has caused a
tightening in the Trophy segment of the market, while the repositioning of Class
B space and growing demand from tech, nonprofits and creative users has
reduced options priced below $50 full-service. The tightening from the top-down
and bottom-up has left the Class A+ segment, space typically priced in the
$65-$75 full-service range, with an elevated number of options. However, over
the past 12 months, activity has started to flow into this segment as tenants
such as CACI and Universal Services Administrative Company signed deals
for more than 75,000 square feet at 1099 14th Street, NW and One Metro
Center, respectively.
Law firm sublet block > 20,000 s.f.
1001 Pennsylvania Ave NW
401 9th St NW
150,000
100,000
50,000
0
2020
2021
2022
2023
2024
Term through
Source: JLL Research
2025
2026
300,000
200,000
100,000
0
2013
Source: JLL Research
2014
2015
Q1 2016
Options > 20,000 s.f. in $65-$74 FS range remain abundant
$35-$44 FS
9
14
12
$45-$54 FS
$55-$64 FS
$65-$74 FS
27
19
2,257
$75+ FS
Source: JLL Research
115,670,408
-173,290
$54.77
2,173,626
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
12.3%
-173,290
4.0%
32.1%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
66
WASHINGTON, DC (Metro)
- Scott Homa
Senior Vice President, Research,
Washington, DC
Diversification of tenant base continues
Tech offsets stagnant federal government and legal services sectors
Regional employment growth remained near cyclical highs during the first
quarter of 2016, with 68,800 jobs added year-over-year overall. Over half of all
regional job growth (58.6 percent) was concentrated within the technology
sector, while the federal government and the financial and legal services
industries remained largely stalled in terms of new job creation. Leasing activity
mirrored these employment trends, with first quarter transactions by tech firms
2U, Opower and Intelligent Automation among the largest in the region.
Meanwhile, several law firms added sublease blocks to the market, and space
compression among federal agencies and law firms negated a large portion of
growth by other industry types.
Tech industry driving regional employment growth
Technology
40.3
Federal government
2.8
Financial services
1.6
Legal services
0.5
0.0
Jobs added year-over-year (in thousands)
10.0
20.0
30.0
40.0
50.0
Large-block leasing activity picks up in off-core locations
Suburban Maryland and Northern Virginia claim a growing share of activity
The suburbs accounted for 69.5 percent of regional leasing activity in Q1 2016,
up substantially from a 52.9 percent share in 2015. Although tech firms,
government contractors and healthcare groups were active in Northern Virginia
and Suburban Maryland, the District of Columbia experienced an unusually slow
period of activity, partially a result of limited law firm lease expirations and
continued financial pressure within that sector.
Suburbs lead regional net absorption
Northern Virginia and Suburban Maryland registered significant occupancy
growth in Q1 2016, driven by expansions of several tenants, including Unicom,
Washington Gas, MakeOffices and 2U. In Route 28 South, Unicom took
occupancy of the remaining vacant space at 15000 and 15010 Conference
Center Drive, moving its regional headquarters for 40 divisions to the buildings
and contributing to 459,000 square feet of positive net absorption. In Suburban
Maryland, education tech company 2U signed a 252,952-square-foot lease at
7900 Harkins Road, nearly tripling its current footprint. Lobbying activity
remained a bright spot in downtown DC, as nine of the past 10 government
affairs lease transactions represented growth.
Northern Virginia
31%
41%
Suburban Maryland
District of Columbia
28%
Suburban markets drive occupancy gains
Route 28 South
Tysons
Crystal City
CBD
Merrifield
RB Corridor
Rockville Pike
Bethesda CBD
528,770
209,726
107,931
99,574
86,166
78,113
71,307
63,909
-
YTD net absorption
100,000 200,000 300,000 400,000 500,000 600,000
329,824,434
92,220
$36.93
6,486,237
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
17.3%
92,220
2.2%
60.3%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
67
WEST PALM BEACH
- Ilyssa Shacter
Research Analyst,
Fort Lauderdale
Investment in new development may diversify in the coming year.
Suburban West Palm Beach market fundamentals strengthen
Market fundamentals in Suburban West Palm Beach have improved over the
previous 18 months, as Class A rents (NNN) increased 7.7 percent to $18.10 per
square foot and vacancy decreased 490 basis points to 14.4 percent – the lowest
point since late 2006. Propelling these trends were a number of leases signed in
late 2015 which commenced during the first quarter. Notably, Gallagher Benefit
Solutions moved into 8,300 square feet in Emerald View (2056 Vista Parkway)
and Travelers Insurance leased 2,600 square feet in Northpoint Corporate
Center (701 Northpoint Parkway).
Vacancy in Suburban WPB reaches nine year low
$25.00
Asking rate (NNN)
$15.00
$10.00
$5.00
$0.00
2006
Strong start for 2016 – Investment in West Palm Beach continues
Since the start of 2014 there have been 20 trades in the Core CBD and
Suburban West Palm Beach submarkets combined. Specifically, half of the
Downtown Class A buildings have traded over that period. Most recently,
Northbridge Tower sold late in the first quarter as Crocker Partners and
Greenfield Partners purchased the property from Gaedeke Group for $68.2
million ($145 per square foot). In addition, The Fourm, an office complex
comprising three Class B properties located in Suburban West Palm Beach,
traded for $20.5 million ($74 per square foot) when Crimson Peak purchased the
properties from Panther Real Estate.
2009
2012
2015
Four buildings trade for a strong start to 2016
15
Core CBD
Suburban West Palm Beach
10
4
5
3
3
6
2
0
2
2014
Palm Beach County development pipeline grows
The development pipeline downtown is growing as a number of major players
have announced new projects in recent months. Most notably, Jeff Greene
announced plans for a new mixed-use center, One West Palm, which would
likely included an office component (early reports note the project would include
approximately 340,000 square feet of office). More recently, Related, which has
a few other projects in the works, announced plans for a 30-story, 300,000square-foot, Class A office tower on land currently owned by the First Church of
Christ, Scientists. In addition to the many speculative mixed-use projects which
are still in the early planning stages, there are a number of residential projects
under construction downtown. Currently there are four projects with a combined
700 residential units expected to come to market before year-end 2017.
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
Vacancy
$20.00
2015
2016
Diversification of development pipeline
Name
Developer
Phase
Type
3 Thirty Three
Kolter Group
Under-Construction
Multi-Family
City Place*
Related
Proposed
Mixed-Use
One West Palm
Jeff Greene
Proposed
Mixed-Use
Transit Village
Michael Masanoff
2,257
Proposed
Mixed-use
The Cosmopolitan
US Hospitality Group/
PrivCap Holdings
Proposed
Mixed-Use
* Denotes multiple projects proposed
20,570,000
-47,800
$30.20
0
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
17.4%
-47,800
4.7%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
68
WESTCHESTER COUNTY
- Dayna McConnell
Research Analyst,
Fairfield County
Healthcare and renewals drive Westchester activity
Healthcare and medical office space users lead Westchester activity
First quarter leasing activity across Westchester County showed continued
strength in the healthcare sector, with two of the largest transactions totaling over
115,000 square feet. Columbia Hospital signed in White Plains CBD for 50,000
square feet at 1 North Broadway, while the Hospital for Special Surgery (HSS)
leased over 65,000 square feet at 1133 Westchester Avenue, located in the I287 East submarket.
Leasing activity by industry
Financial Svcs/Banking
16%
18%
Healthcare
3%
6%
Consumables
Law firm
18%
39%
Government
Other
Source: JLL Research
Landlords holding tight to existing tenants
In response to Westchester’s continued high vacancy rates, landlords are
making the effort to maintain their existing tenants. Merrill Lynch had the largest
renewal in White Plains CBD at 360 Hamilton Avenue, keeping 46,122 square
feet of space. Law firms also located in the CBD are signing in-place renewals in
prime buildings; Keane & Beane renewed for 26,000 square feet at White Plains
Plaza and Delbello, Donnellan, Weingarten, Wise & Wiederkehr, LLP retained
their 27,000 square feet at 1 North Lexington. Outside of the CBD, Sabra Dipping
Company and the Visiting Nurses Association renewed at 777 Westchester
Avenue and 540 White Plains Road, respectively, for a combined 60,000 square
feet of space, appriximately.
Renewals account for the majority of Q1 transactions
Renewal with expansion
New to market
Renewals
Relocation
Extension
Expansion
14,272
58,430
224,316
114,359
15,810
14,272
-
Source: JLL Research
50,000 100,000 150,000 200,000 250,000
450 Mamaroneck Avenue – Harrison
Building investment market heats up while office leasing market stays cool
Though office leasing activity in this market has remained relatively unchanged
over the past few quarters, major properties in Westchester are piquing the
interest of potential buyers, including the 700 series on Westchester Avenue, 44
South Broadway in downtown White Plains, and 100 Manhattanville Road in
Purchase. Typically new owners enter the market looking for growth, which will
likely translate into better quality space, higher asking rents, and increased
demand from tenants to be in Trophy buildings.
$39.6M
Harrison Plaza, a Class A building in the I-287 East
Corridor, boasts the highest sale price in
Westchester
Source: JLL Research
32,333,229
56,382
$24.68
0
Total inventory (s.f.)
Q1 2016 net absorption (s.f.)
Direct average asking rent
Total under construction (s.f.)
22.9%
56,382
4.8%
0.0%
Total vacancy
YTD net absorption (s.f.)
12-month rent growth
Total preleased
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
69
APPENDIX:
Stats
Employment
Rankings
Leases
Sales
Developments
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
70
UNITED STATES
Market totals
(CBD and Suburban)
Atlanta
Austin
Baltimore
Boston
Charlotte
Chicago
Cincinnati
Cleveland
Columbus
Dallas
Denver
Detroit
Fairfield County
Fort Lauderdale
Hampton Roads
Hartford
Houston
Indianapolis
Jacksonville
Long Island
Los Angeles
Miami
Milwaukee
Minneapolis
Nashville
New Jersey
New York
Oakland–East Bay
Orange County
Orlando
Philadelphia
Phoenix
Pittsburgh
Portland
Raleigh–Durham
Richmond
Sacramento
Salt Lake City
San Antonio
San Diego
San Francisco
San Francisco Peninsula
Seattle–Bellevue
Silicon Valley
St. Louis
Tampa Bay
Washington, DC
West Palm Beach
Westchester County
United States totals
◄ Table of contents
OFFICE STATISTICS
Quarterly
YTD total
YTD total net
total net
net Direct Total
absorption
Inventory (s.f.) absorption
absorption vacancy vacancy
(including
(including
(% of
(%)
(%)
subleases)
subleases)
Inventory)
Current
quarter
YTD
Under
Quarterly
Under
direct
Completions /
construction
percent
construction
average
deliveries
as % of
change
(s.f.)
marketed
(s.f.)
inventory
rent ($p.s.f.)
133,507,824
325,436
49,439,503
774,647
71,152,035
29,742
165,505,659
259,388
47,047,960
298,170
235,598,374 1,655,104
34,582,680
285,382
28,121,038
95,963
30,482,513
211,506
162,502,918
164,935
107,645,722 -349,535
61,651,347
-62,018
48,491,420
402,225
22,564,674
40,671
18,612,715
311
26,374,513 -495,116
162,502,374
227,138
31,569,882
-1,501
21,627,558
8,277
42,253,140
309,871
188,741,769
432,114
37,345,817 -146,340
27,567,279
259,208
69,094,277
183,049
33,732,255
206,416
158,786,477 -562,303
449,872,906 -1,580,918
54,680,995
122,940
95,731,037
229,551
29,145,997
213,699
124,092,821
604,158
82,688,661
423,748
50,677,398
24,279
58,709,017
178,251
44,363,957
-55,594
25,116,317
-16,121
43,791,678
260,541
45,865,424
15,110
26,513,851
395,164
79,312,880
442,206
325,436
774,647
29,742
259,388
298,170
1,655,104
285,382
95,963
211,506
164,935
-349,535
-62,018
402,225
40,671
311
-495,116
227,138
-1,501
8,277
309,871
432,114
-146,340
259,208
183,049
206,416
-562,303
-1,580,918
122,940
229,551
213,699
604,158
423,748
24,279
178,251
-55,594
-16,121
260,541
15,110
395,164
442,206
0.2%
1.6%
0.0%
0.2%
0.6%
0.7%
0.8%
0.3%
0.7%
0.1%
-0.3%
-0.1%
0.8%
0.2%
0.0%
-1.9%
0.1%
0.0%
0.0%
0.7%
0.2%
-0.4%
0.9%
0.3%
0.6%
-0.4%
-0.4%
0.2%
0.2%
0.7%
0.5%
0.5%
0.0%
0.3%
-0.1%
-0.1%
0.6%
0.0%
1.5%
0.6%
16.4%
10.3%
12.4%
11.5%
11.0%
13.6%
16.6%
18.4%
12.9%
18.3%
12.6%
19.4%
22.1%
15.4%
13.9%
15.8%
15.7%
15.3%
15.2%
14.3%
14.3%
12.8%
18.0%
14.0%
6.1%
22.3%
8.5%
11.7%
11.4%
14.7%
11.8%
20.0%
14.3%
7.9%
10.6%
12.8%
15.1%
6.0%
15.5%
12.6%
17.2%
11.1%
12.8%
13.9%
11.6%
14.5%
17.4%
19.3%
13.1%
19.1%
13.7%
19.4%
24.4%
16.1%
14.3%
16.7%
17.6%
15.6%
15.6%
15.5%
15.0%
13.3%
18.5%
14.9%
6.3%
24.7%
10.0%
12.2%
11.8%
14.9%
12.2%
20.9%
16.4%
8.3%
11.9%
14.3%
15.4%
6.5%
15.7%
13.5%
$22.98
$33.72
$22.99
$33.77
$23.15
$29.75
$19.25
$19.07
$17.51
$24.79
$26.19
$18.35
$31.90
$28.17
$18.47
$20.68
$29.82
$19.00
$19.26
$26.22
$36.60
$35.48
$19.03
$25.31
$21.68
$25.26
$72.57
$34.52
$30.96
$20.92
$24.02
$23.75
$23.07
$25.12
$20.82
$18.84
$22.92
$20.66
$23.09
$30.00
2.0%
4.5%
0.3%
-0.8%
0.5%
-0.4%
0.1%
-0.2%
0.1%
1.7%
2.2%
-0.3%
0.2%
0.4%
-0.3%
1.0%
0.1%
0.6%
0.7%
-0.5%
1.9%
1.4%
2.7%
0.6%
6.7%
0.4%
1.6%
9.7%
3.9%
0.9%
1.2%
1.1%
1.9%
2.2%
1.4%
0.6%
-0.5%
0.0%
0.5%
0.4%
0 2,602,297
347,445 2,137,233
486,354 1,437,452
639,200 5,715,195
0 2,223,472
0 4,311,164
0
200,000
0
47,000
204,400
580,692
1,096,910 8,307,051
120,768 2,965,842
0
401,334
0
0
0
95,098
0
287,858
0
25,484
1,296,600 5,723,178
29,200
301,050
0
0
0
338,885
0 2,309,645
134,552
694,676
0
148,924
0
464,236
135,000 3,276,446
0
440,445
0 14,353,410
0
0
574,252 1,065,424
0
271,000
1,078,035 3,600,593
445,000 2,217,644
367,000
592,000
64,682 1,607,791
0 1,667,451
44,378
0
0
0
51,600 2,765,312
147,000
529,735
65,500
451,841
1.9%
4.3%
2.0%
3.5%
4.7%
1.8%
0.6%
0.2%
1.9%
5.1%
2.8%
0.7%
0.0%
0.4%
1.5%
0.1%
3.5%
1.0%
0.0%
0.8%
1.2%
1.9%
0.5%
0.7%
9.7%
0.3%
3.2%
0.0%
1.1%
0.9%
2.9%
2.7%
1.2%
2.7%
3.8%
0.0%
0.0%
6.0%
2.0%
0.6%
75,553,912
153,135
27,335,762
121,596
92,656,684
838,562
69,004,122
824,960
42,125,546
-74,190
34,348,959
170,908
329,824,434
92,220
20,573,002
-47,791
32,333,229
98,326
3,950,820,312 7,666,904
153,135
121,596
838,562
824,960
-74,190
170,908
92,220
-47,791
98,326
7,666,904
0.2%
0.4%
0.9%
1.2%
-0.2%
0.5%
0.0%
-0.2%
0.3%
0.2%
7.2%
10.7%
8.5%
10.6%
14.3%
14.0%
16.4%
17.1%
20.6%
13.7%
8.2%
12.7%
9.1%
12.4%
14.9%
14.6%
17.3%
17.4%
19.1%
14.8%
$72.04
$56.41
$34.77
$49.04
$19.05
$23.18
$36.93
$30.20
$27.26
$32.28
4.8%
0 4,669,927
4.5%
280,614 1,121,229
2.3%
320,000 6,755,651
15.8% 1,912,031 3,483,727
-3.4%
0
125,000
0.8%
175,998
0
0.1%
618,855 6,486,237
-0.2%
0
0
2.9%
0
0
3.2% 10,635,374 96,773,145
6.2%
4.1%
7.3%
5.0%
0.3%
0.0%
2.0%
0.0%
0.0%
2.4%
JLL | United States | Office Outlook | Q1 2016
71
UNITED STATES
EMPLOYMENT
Market
Atlanta
Austin
Baltimore
Boston
Charlotte
Chicago
Cincinnati
Cleveland
Columbus
Dallas–Fort Worth
Denver
Detroit
Fort Lauderdale
Hampton Roads
Hartford
Houston
Indianapolis
Jacksonville
Long Island
Los Angeles
Miami
Milwaukee
Minneapolis–St. Paul
Nashville
New Jersey
New York
Oakland-East Bay
Orange County
Orlando
Philadelphia
Phoenix
Pittsburgh
Portland, OR
Raleigh–Durham
Richmond
Sacramento
Salt Lake City
San Antonio
San Diego
San Francisco
San Jose (Silicon Valley)
Seattle–Bellevue
St. Louis
Stamford, CT (Fairfield County)
Tampa
Washington, DC
West Palm Beach
White Plains, NY (Westchester County)
United States
Total nonfarm
jobs 12-month
net change
(000s)
88.4
43.4
24.1
37.2
30.6
68.2
11.7
11.7
20.2
113.7
34.8
35.2
28.3
4.2
4.1
16.4
23.2
28.1
18.7
93.3
23.3
5.7
33.1
35.4
72.0
111.6
29.6
40.1
55.5
58.2
67.1
0.2
34.0
23.5
26.7
24.4
16.9
27.6
38.2
43.7
38.6
54.6
15.8
0.1
44.3
70.6
19.7
16.3
2,802.0
Total nonfarm
jobs 12-month
percent change
Office jobs*
12-month net
change (000s)
3.5%
4.7%
1.8%
1.4%
2.8%
1.5%
1.1%
1.1%
2.0%
3.4%
2.6%
1.9%
3.6%
0.6%
0.7%
0.6%
2.4%
4.5%
1.5%
2.2%
2.1%
0.7%
1.8%
4.0%
1.8%
2.7%
2.8%
2.7%
4.9%
2.1%
3.6%
0.0%
3.1%
4.2%
4.2%
2.7%
2.6%
2.9%
2.8%
4.3%
3.8%
3.0%
1.2%
0.0%
3.6%
2.3%
3.4%
2.4%
2.0%
16.6
8.8
5.8
13.5
9.8
2.3
1.9
0.7
4.6
30.0
11.7
20.5
9.5
-0.2
1.5
-9.8
2.1
2.7
3.0
27.3
6.1
-3.4
5.4
15.6
14.8
37.9
1.9
10.1
9.3
21.6
26.9
-0.1
10.9
8.4
10.7
3.0
5.9
5.5
9.0
22.8
19.7
19.2
5.1
-1.4
15.6
17.9
6.0
2.8
656.0
Office jobs*
12-month
percent change
2.3%
3.7%
1.9%
1.9%
3.4%
0.2%
0.8%
0.3%
1.7%
3.3%
3.0%
4.0%
4.5%
-0.1%
1.1%
-1.5%
0.9%
1.6%
1.2%
2.7%
2.4%
-1.8%
1.1%
7.2%
1.5%
2.9%
0.8%
2.4%
3.3%
3.1%
5.2%
0.0%
4.3%
5.5%
6.7%
1.7%
3.2%
2.4%
2.8%
6.0%
6.2%
4.3%
1.6%
-1.2%
4.6%
1.9%
3.9%
2.1%
2.2%
Unemployment Unemployment
(2015)
(2014)
5.2%
3.2%
5.1%
4.3%
5.3%
6.7%
5.2%
4.9%
4.8%
3.8%
3.0%
5.7%
4.7%
5.1%
6.0%
4.8%
4.6%
4.9%
4.5%
6.0%
5.6%
5.3%
3.9%
3.7%
4.7%
5.3%
4.4%
5.5%
4.7%
4.8%
4.6%
5.5%
4.7%
4.8%
4.4%
5.5%
3.4%
3.7%
4.7%
3.2%
3.9%
5.6%
5.2%
6.0%
4.8%
4.2%
4.9%
4.5%
5.0%
12-month
unemployment
change (bp)
6.2%
3.8%
6.1%
5.1%
5.8%
6.9%
5.5%
5.8%
5.1%
4.5%
4.6%
7.2%
5.5%
5.7%
6.7%
4.6%
5.7%
5.9%
5.3%
7.9%
6.2%
5.5%
4.2%
5.2%
6.9%
6.3%
5.5%
7.2%
5.7%
6.1%
5.8%
6.0%
5.8%
4.9%
5.3%
6.7%
3.8%
4.2%
5.9%
4.0%
4.9%
5.1%
5.8%
6.6%
5.8%
5.0%
5.3%
5.3%
5.5%
-100
-60
-100
-80
-50
-20
-30
-90
-30
-70
-160
-150
-80
-60
-70
20
-110
-100
-80
-190
-60
-20
-30
-150
-220
-100
-110
-170
-100
-130
-120
-50
-110
-10
-90
-120
-40
-50
-120
-80
-100
50
-60
-60
-100
-80
-40
-80
-50
Source: JLL Research, Bureau of Labor Statistics
* Office jobs include professional and business services, information and financial activities sectors
* United States totals represent national employment, not sum of markets above
* Data as of March 2016 (national) and February 2016 (local)
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
72
UNITED STATES
OFFICE RANKINGS
Inventory
Total vacancy rates (including sublease)
Nashville
Salt Lake City
San Francisco
Portland
Seattle-Bellevue
New York
Austin
Charlotte
Orange County
Raleigh-Durham
Oakland-East Bay
Philadelphia
Silicon Valley
San Francisco Peninsula
Baltimore
Columbus
Miami
San Diego
Denver
Boston
Hampton Roads
Richmond
Chicago
Tampa Bay
St. Louis
Minneapolis
Orlando
Los Angeles
Sacramento
Long Island
Jacksonville
Indianapolis
San Antonio
Fort Lauderdale
Pittsburgh
Hartford
Atlanta
Washington, DC
Cincinnati
West Palm Beach
Houston
Milwaukee
Westchester County
Dallas
Cleveland
Detroit
Phoenix
Fairfield County
New Jersey
New York
Washington, DC
Chicago
Los Angeles
Boston
Dallas
Houston
New Jersey
Atlanta
Philadelphia
Denver
Orange County
Seattle-Bellevue
Phoenix
San Diego
San Francisco
Baltimore
Minneapolis
Silicon Valley
Detroit
Portland
Oakland-East Bay
Pittsburgh
Austin
Fairfield County
Charlotte
Salt Lake City
Raleigh-Durham
Sacramento
Long Island
St. Louis
Miami
Cincinnati
Tampa Bay
Nashville
Westchester County
Indianapolis
Columbus
Orlando
Cleveland
Milwaukee
San Francisco Peninsula
San Antonio
Hartford
Richmond
Fort Lauderdale
Jacksonville
West Palm Beach
Hampton Roads
0
◄ Table of contents
100 200 300 400
Square feet (millions)
500
0%
5%
10% 15% 20% 25% 30%
Vacancy rate (%)
JLL | United States | Office Outlook | Q1 2016
73
UNITED STATES
OFFICE RANKINGS
YTD total net absorption (including sublease)
Marketed rents
Chicago
Seattle-Bellevue
Silicon Valley
Austin
Philadelphia
San Diego
Los Angeles
Phoenix
Fairfield County
San Antonio
Atlanta
Long Island
Charlotte
Cincinnati
Sacramento
Boston
Milwaukee
Orange County
Houston
Orlando
Columbus
Nashville
Minneapolis
Portland
Tampa Bay
Dallas
San Francisco
Oakland-East Bay
San Francisco Peninsula
Westchester County
Cleveland
Washington, DC
Fort Lauderdale
Baltimore
Pittsburgh
Salt Lake City
Jacksonville
Hampton Roads
Indianapolis
Richmond
West Palm Beach
Raleigh-Durham
Detroit
St. Louis
Miami
Denver
Hartford
New Jersey
New York
New York
San Francisco
San Francisco Peninsula
Silicon Valley
Washington, DC
Los Angeles
Miami
Seattle-Bellevue
Oakland-East Bay
Boston
Austin
Fairfield County
Orange County
West Palm Beach
San Diego
Houston
Chicago
Fort Lauderdale
Westchester County
Long Island
Denver
Minneapolis
New Jersey
Portland
Dallas
Philadelphia
Phoenix
Tampa Bay
Charlotte
San Antonio
Pittsburgh
Baltimore
Atlanta
Sacramento
Nashville
Orlando
Raleigh-Durham
Hartford
Salt Lake City
Jacksonville
Cincinnati
Cleveland
St. Louis
Milwaukee
Indianapolis
Richmond
Hampton Roads
Detroit
Columbus
-2,000
◄ Table of contents
-1,000
0
1,000
Square feet (thousands)
2,000
$0.00
$20.00 $40.00 $60.00
$ per square foot
$80.00
JLL | United States | Office Outlook | Q1 2016
74
UNITED STATES
OFFICE RANKINGS
Under construction
Under construction as % of inventory
New York
Dallas
Seattle-Bellevue
Washington, DC
Houston
Boston
San Francisco
Chicago
Philadelphia
Silicon Valley
Nashville
Denver
Salt Lake City
Atlanta
Los Angeles
Charlotte
Phoenix
Austin
Raleigh-Durham
Portland
Baltimore
San Francisco Peninsula
Orange County
Miami
Pittsburgh
Columbus
San Antonio
Minneapolis
San Diego
New Jersey
Detroit
Long Island
Indianapolis
Hampton Roads
Orlando
Cincinnati
Milwaukee
St. Louis
Fort Lauderdale
Cleveland
Hartford
Fairfield County
Sacramento
Tampa Bay
Oakland-East Bay
Westchester County
Jacksonville
Richmond
West Palm Beach
Nashville
Seattle-Bellevue
San Francisco
Salt Lake City
Dallas
Silicon Valley
Charlotte
Austin
San Francisco Peninsula
Raleigh-Durham
Houston
Boston
New York
Philadelphia
Denver
Portland
Phoenix
Baltimore
San Antonio
Washington, DC
Atlanta
Columbus
Miami
Chicago
Hampton Roads
Los Angeles
Pittsburgh
Orange County
Indianapolis
Orlando
Long Island
Minneapolis
Detroit
Cincinnati
San Diego
Milwaukee
Fort Lauderdale
St. Louis
New Jersey
Cleveland
Hartford
Fairfield County
Sacramento
Tampa Bay
Oakland-East Bay
Westchester County
Jacksonville
Richmond
West Palm Beach
0
◄ Table of contents
10,000,000
Square feet
20,000,000
0.0% 2.0% 4.0% 6.0% 8.0% 10.0%12.0%
JLL | United States | Office Outlook | Q1 2016
75
SELECT LARGE LEASES
> 100,000 SQUARE FEET
Market
Tenant
New York
Boston
Chicago
Suburban Maryland
Boston
Houston
Northern Virginia
McGraw Hill
Kronos
CNA Financial
2U
Putnam Investments
United
CACI
Silicon Valley
Toshiba
New York
New York
New York
Austin
Orange County
Charlotte
Boston
Austin
New York
Chicago
Orlando
Detroit
Salt Lake City
Dallas
Miami
Chicago
Phoenix
New York
Boston
Minneapolis
Dallas
Los Angeles
New York
Salt Lake City
Washington, DC
Washington, DC
Suburban Maryland
Washington, DC
Boston
New Jersey
Chicago
Chicago
Orange County
Indianapolis
Dallas
Los Angeles
Austin
Chicago
Washington, DC
Denver
Northern Virginia
New Jersey
Salesforce
Citadel
DLA Piper
Home Depot
Volt
Duke Energy
Shire
YETI
Omnicom Group
Cars.com
Axium
ZF TRW
Solar City
Securus
Telemundo
Constellations Brands
CVS
ING
Optum
ECMC
Fannie Mae
Netflix
UBS
Wells Fargo
WeWork
Cleary Gottlieb
U.S. Food and Drug Administration
U.S. Bureau of Prisons
WeWork
Linde
WeWork
Beam Sunatory
Mazda
Allied Solutions
Multiview
ICM
Accenture
Holland & Knight
Universal Services Administrative Company
Urban Lending Solutions
Sinclair Broadcasting
Newell Brands
◄ Table of contents
Sorted by lease size and completed during Q1 2016
Address
55 Water Street
900 Chelmsford Street
151 N Franklin Street
7900 Harkins Road
100 Federal Street
609 Main Street
14360/14370 Newbrook
55 W Trimble/2610–2630 Orchard
Parkway
1095 Avenue of the Americas
425 Park Avenue
1251 Avenue of the Americas
13011 McCallen Pass
2401–2421 N Glassell Street
400 S Tryon Street
45–55 Hayden Avenue
7601 Southwest Parkway
220 E 42nd Street
300 S Riverside Plaza
3200 Lake Emma Road
34605 W 12 Mile Road
12832 S Frontrunner Boulevard
4000 International Parkway
12400 NW 25th Street
131 S Dearborn Street
444 N 44th Street
1133 Avenue of the Americas
1325 Boylston Street
111 Washington Avenue
15601 Dallas Parkway
5808 W Sunset Boulevard
299 Park Avenue
299 S Main Street
655 15th Street NW
2112 Pennsylvania Avenue NW
7500 Standish Place
370 L'Enfant Plaza SW
31 Saint James Avenue
200 Somerset Corporate Boulevard
125 S Clark Street
222 Merchandise Mart
200 Spectrum Center Drive
Midtown Carmel
7701 Las Colinas Ridge
10250 Constellation Boulevard
3110 Esperanza Crossing
131 S Dearborn Street
701 13th Street NW
11802 Ridge Parkway
1100 Wilson Boulevard
221 River Street
Size (s.f.)
Lease type
900,027
370,812
275,000
252,952
252,000
225,000
220,551
Renewal
Relocation within market
Relocation within market
Relocation within market
Relocation within market
Relocation within market
Renewal
218,645
Relocation within market
202,678
200,000
199,140
198,000
190,000
184,358
177,000
175,000
167,003
158,000
157,000
155,898
155,000
154,298
150,000
150,000
138,240
132,400
126,004
125,010
123,652
123,221
120,000
118,970
117,000
114,958
113,730
113,301
113,067
112,720
112,000
112,000
110,628
109,600
109,000
108,259
105,000
104,376
102,348
101,678
100,000
99,960
Relocation within market
Relocation within market
Renewal
Expansion in market
Relocation within market
Renewal
Expansion in market
Expansion in market
Renewal
Relocation within market
N/A
New
Expansion in market
Relocation within market
New
Relocation within market
Expansion in market
Relocation within market
Relocation within market
Relocation within market
Renewal
Expansion in building
N/A
Renewal
Expansion in market
Relocation within market
Renewal
Relocation within market
Expansion in market
New
Expansion in market
New
Expansion in market
Expansion in market
Renewal
Expansion in building
Relocation within market
Extension (< 36-month term)
Relocation within market
Renewal
Renewal
New
JLL | United States | Office Outlook | Q1 2016
76
SELECT LARGE SALES
> 100,000 SQUARE FEET
Market
Building
RBA (s.f.)
Sale price $
Sorted by total sales price and completed in Q1 2016
Price per
square
foot
($ p.s.f.)
Buyer
Seller
Citigroup
SL Green
AXA Investment
David Werner
BioMed Realty Trust
New York
388–390 Greenwich Street
2,634,670
$2,000,000,000
$759
New York
New York
Boston
787 Seventh Avenue
5 Times Square
3 Blackfan Circle
1,761,781
1,101,779
702,940
$1,932,900,000
$800,000,000
$630,424,951
$1,097
$1,452
$897
Los Angeles
10960 Wilshire Boulevard
576,018
$476,500,000
$827
Los Angeles
Philadelphia
10880 Wilshire Boulevard
Multiple
534,047
3,900,000
$433,500,000
$398,100,000
$812
$102
CalPERS
RXR Realty (50%)
Blackstone
Douglas Emmett Realty (60%) JV Qatar
Investment Authority (40%)
Douglas Emmett Realty (60%) JV Qatar
Investment Authority (40%)
Och-Ziff Capital Management
Seattle-Bellevue
Philadelphia
2001 Eighth Avenue
2970 Market Street
516,985
862,692
$370,000,000
$354,000,000
$716
$410
Deutsche Bank
Korea Investment Holdings
AEW Capital Management
Brandywine Realty Trust
Boston
Northern and
Central NJ
500 Kendall Street
349,325
$313,288,753
$897
Blackstone
BioMed Realty Trust
70 & 90 Hudson Street
857,940
$299,000,000
$349
Spear Street Capital
CBRE Global Investors
New York
63 Madison Avenue
815,000
$290,376,334
$727
Jamestown (49%)
New York
200 Madison Avenue
750,000
$273,123,317
$743
Jamestown (49%)
Boston
675 Kendall Street
302,919
$271,669,980
$897
BioMed Realty Trust
Los Angeles
1100 Glendon Avenue
334,000
$271,000,000
$811
Blackstone
Douglas Emmett Realty (60%) JV Qatar
Investment Authority (40%)
San Diego
7525–7555 Torrey Santa Fe Road
465,812
$262,300,000
$563
Intuit
Kilroy Realty Corp
San Diego
465,812
$262,300,000
$563
Intuit
Kilroy Realty
Los Angeles
7525–7555 Torrey Santa Fe Road
55 S Lake Ave and 800 E Colorado
Boulevard
439,650
$257,000,000
$585
CBRE Global Investors
Beacon Capital Partners
Washington, DC
Atlanta
1615 L Street, NW
600 Peachtree Street NE
417,852
1,294,590
$229,000,000
$220,000,000
$548
$168
Carr Properties
Shorenstein Properties
SF Mid Peninsula 1111 Bayhill Drive
515,000
$215,000,000
$417
Google
Spitzer Enterprises
CW Capital Asset Management
Hudson Pacific Properties JV
Farallon Capital Partners
San Francisco
284,000
$203,871,581
$718
Blackstone
BioMed Realty Trust
1,024,090
$202,358,000
$198
Facebook
RREEF OBO SWIB
918,656
$200,000,000
$218
Metropark Investor LLC
Ivanhoe Cambridge JV Callahan Capital
Partners
Tishman Speyer
Shorenstein Properties
Rockpoint Group (75%)
TIAA-CREF JV Alexandria Real Estate (40%)
Nightingale Properties
Swig Company
Alexandria Real Estate
Trammell Crow JV Washignotn
Capital Management
800 Gateway Boulevard
SF Mid Peninsula 1601 Willow Road
Northern and
Central NJ
190 Wood Avenue S
Blackstone
Brandywine Realty Trust
George Comfort & Sons JV
Loeb Partners Realty
George Comfort & Sons JV
Loeb Partners Realty
Chicago
180 North LaSalle Street
781,670
$198,000,000
$253
Philadelphia
East Bay
San Francisco
1700 Market Street
300 Lakeside Drive
499 Illinois Street
841,172
811,005
455,069
$198,000,000
$197,000,000
$189,672,759
$235
$243
$1,042
Seattle
1124 Columbia Street
228,000
$185,682,833
$814
San Francisco
Washington, DC
Boston
180 Montgomery Street
733 10th Street, NW
200 Sidney
304,162
170,813
191,904
$182,497,200
$180,000,000
$172,107,249
$600
$1,053
$897
Los Angeles
10940 Wilshire Boulevard
207,000
$168,000,000
$812
Sidra (HNW)
Investcorp Group JV ScanlanKemperBard
Blackstone
Douglas Emmett Realty (60%) JV Qatar
Investment Authority (40%)
San Francisco
New York
580 California Street
142 West 57th Street
313,000
240,000
$165,000,000
$162,073,041
$703
$675
JP Morgan
GreenOak JV Mitsubishi (99%)
Northern Virginia
Northern and
Central NJ
7555-7574 Colshire Drive
100, 989, 993, 997, 1000, 1009,
1200, 2000 Lenox Drive
574,588
$158,000,000
$276
Northrop Grumman
800,546
$156,000,000
$195
JFR Global Investments
Pittsburgh
301 Grant Street
1,011,000
$148,752,900
$147
Shorenstein Properties
◄ Table of contents
Blackstone
Heitman JV NexCore Group
Blackstone
Beacon Capital Partners
CBREI
Jamestown
BioMed Realty Trust
Blackstone
LaSalle Investment
Management JV Prudential
BlackRock JV L&L Holding
Dividend Cap Diversified
Property Fund
Prism Capital Partners
Oxford Development
Company
JLL | United States | Office Outlook | Q1 2016
77
SELECT DEVELOPMENTS UNDERWAY
> 100,000 SQUARE FEET
Market
New York
New York
New York
Dallas
New York
Phoenix
New York
San Francisco
Philadelphia
Chicago
Dallas
Houston
Chicago
Houston
Northern Virginia
New York
Boston
Chicago
Seattle-Bellevue
Seattle-Bellevue
Chicago
San Francisco
Seattle-Bellevue
Seattle-Bellevue
New York
Northern Virginia
San Francisco
Denver
New York
Charlotte
Philadelphia
Houston
Philadelphia
Northern Virginia
Columbus
Orange County
Dallas
San Francisco
Houston
Milwaukee
Nashville
Boston
Austin
Atlanta
Boston
Atlanta
Northern Virginia
Nashville
Chicago
Salt Lake City
New York
◄ Table of contents
Submarket
World Trade Center
Penn Plaza/Garment
Penn Plaza/Garment
Far North Dallas
Penn Plaza/Garment
Tempe
Penn Plaza/Garment
South Financial District
Market Street West
West Loop
Far North Dallas
Westchase
West Loop
CBD
Tysons Corner
Grand Central
North
West Loop
Seattle CBD
Seattle CBD
Schaumburg
South Financial District
Renton/Tukwila
Bellevue CBD
Hudson Square
Eisenhower Avenue
Mission Bay
West CBD
Plaza District
CBD
University City
Galleria
Market Street West
Rosslyn
North Central
Irvine
Uptown
South Financial District
Katy Freeway
Downtown East
Downtown
495/Mass Pike
CBD
Buckhead
Seaport District
Midtown
Tysons Corner
Downtown
Clybourn Corridor
CBD
World Trade Center
Building
3 World Trade Center
30 Hudson Yards
1 Manhattan West
Toyota HQ
10 Hudson Yards
Marina Heights
55 Hudson Yards
415 Mission Street
Comcast Innovation and Technology Center
150 N Riverside Plaza
Liberty Mutual Campus
Phillips 66 HQ
444 W Lake Street
609 Main Street
Capital One HQ
390 Madison Avenue
Partners Healthcare HQ
151 N Franklin Street
The Mark
Madison Centre
Zurich HQ
250 Howard Street
Southport Office Campus
400 Lincoln Square
One SoHo Square
2415 Eisenhower Avenue
1800 Owens Street
1144 15th Street
425 Park Avenue
300 S Tryon Street
FMC Tower
BHP HQ
2400 Market Street
1201 Wilson Boulevard
3100 Easton Square Drive
The Boardwalk
McKinney & Olive
375 Beale Street
Energy Center V
330 E Kilbourn Avenue
Bridgestone
1 Boston Scientific Place (Building 3)
500 W 2nd Street
Three Alliance
100 Northern Avenue
NCR HQ
1775 Tysons Boulevard
Capitol View - HCA
4000 W Diversey Avenue
111 S Main Street
3 World Trade Center
Sorted by square feet and underway as of Q1 2016
Construction type
Speculative
Speculative
Speculative
BTS
Speculative
BTS
Speculative
Speculative
BTS
Speculative
BTS
BTS
Speculative
Speculative
BTS
Speculative
BTS
Speculative
Speculative
Speculative
BTS
Speculative
Speculative
Speculative
Speculative
BTS
Speculative
Speculative
Speculative
Speculative
Speculative
BTS
Speculative
Speculative
BTS
Speculative
Speculative
Speculative
Speculative
Speculative
BTS
BTS
Speculative
Speculative
BTS
BTS
Speculative
BTS
Speculative
Speculative
Speculative
RBA s.f.
Preleased %
Expected
delivery year
2,861,402
2,600,000
2,300,000
2,100,000
1,725,250
1,698,000
1,556,136
1,420,081
1,334,000
1,229,064
1,100,000
1,100,000
1,073,100
1,056,658
975,000
858,710
850,000
825,000
766,779
764,000
753,000
751,000
730,000
724,693
700,000
700,000
680,000
670,000
670,000
638,459
635,000
600,000
559,740
552,781
550,000
537,224
530,000
529,232
524,328
520,900
514,000
510,878
500,436
500,000
500,000
485,000
476,913
475,000
450,000
440,452
2,861,402
37.0%
100%
32.5%
100%
92.8%
100%
5.4%
57.8%
100%
89.4%
100%
100%
94.0%
28.3%
100%
0.0%
100%
48.5%
32.2%
1.3%
100%
0.0%
0.0%
6.3%
7.7%
100%
0.0%
5.7%
29.9%
54.4%
54.4%
100%
38.6%
64.6%
100%
0.0%
40.5%
73.9%
0.0%
69.7%
100%
70.6%
41.6%
0.0%
72.0%
100%
26.2%
100%
0.0%
39.7%
37.0%
2018
2019
2019
2017
2016
2017
2018
2017
2018
2017
2017
2016
2017
2016
2018
2017
2017
2018
2017
2017
2016
2018
2018
2016
2016
2017
2017
2018
2018
2016
2016
2016
2017
2018
2016
2017
2016
2016
2016
2016
2017
2017
2017
2016
2016
2018
2016
2016
2018
2016
2018
JLL | United States | Office Outlook | Q1 2016
78
TENANTFAVORABLE BY
2017?
High levels of preleasing activity paired
with sustained tenant demand for both
new and expansionary office space will
continue to encourage landlords to
increase rental rates across most U.S.
office markets. However, with economic
momentum expected to slow over the
next 12 to 18 months at the same time
that new, vacant supply settles into the
market, conditions are expected shift
moderately more toward neutral
conditions in 2017.
◄ Table of contents
JLL | United States | Office Outlook | Q1 2016
79
For more information, please contact:
Julia Georgules
Director
Office Research
+1 415 354 6908
julia.georgules@am.jll.com
Sean Coghlan
Director
Investor Research
+1 215 988 5556
sean.coghlan@am.jll.com
Phil Ryan
Research Analyst
Office and Economy Research
+1 202 719 6295
phil.ryan@am.jll.com
Rachel Johnson
Research Analyst
Capital Markets
+1 312 228 3017
rachel.johnson@am.jll.com
About JLL
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the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and
completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management,
has $56.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For
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About JLL Research
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