14
SERI2014
TABLE OF CONTENTS
Statistical Summary
1
Summary of Key Findings
2
National Benchmarks
5
Tenant Effective Rent by Market
10
Landlord Concessions by Market
13
Landlord Effective Rent by Market
15
Total Rent Components by Market
19
CBD Rent Trends by Market
25
Suburban Rent Trends By Market
33
Glossary
37
SERI Supplement
38
Methodology
Since 1995, the Studley Effective Rent Index (SERI) has been providing the real estate industry’s only
comprehensive, in-depth study of effective rental rate trends and the real cost of occupancy for tenants in the
nation’s major Central Business Districts (CBDs) and selected suburban markets. The SERI report tracks actual
lease terms that reflect negotiated rents and concessions, as well as the costs of maintaining a building that
are partially passed through to tenants – operating expenses, real estate taxes and electricity costs. The SERI
Supplement highlights key economic trends and market fundamentals that underpin each market’s performance.
Every year, Studley’s Research team examines larger long-term direct deals signed in higher-caliber Class A
properties. Total (gross) rent is separated into its key components: net (or base) rent and building expenses
(operating expenses, real estate taxes and electricity costs). The Tenant Effective Rent Index (the cost of
occupancy to the tenant) is derived from total rent less the amortized value of concessions provided by the
landlord. Finally, the Landlord Effective Rent Index (the landlord’s bottom line) is calculated from total rent less
costs incurred by the landlord, which include expenses, concessions and commissions.
All statistics in this year’s SERI report are based on larger long-term leases completed during 2013 in existing or
newly constructed Class A buildings.
SERI2014
Total (Gross) Rent
MINUS
Building Expenses
Operating Expenses
Real Estate Taxes
Tenant Electric
Net (Base) Rent
MINUS
Amortized Concessions
Tenant Effective Rent
(Average cost of
occupancy for tenants)
MINUS
Operating Expenses,
Real Estate Taxes,
Amortized Concessions &
Commissions
Landlord Effective Rent
(Landlord's remaining
balance)
All numbers based on negotiated larger long‐term direct leases in higher‐caliber Class A properties.
Statistical Summary
CBD Markets
Atlanta (ATL)
Chicago (CHI)
Dallas (DAL)
Denver (DEN)
Houston (HOU)
Downtown Los Angeles (DTLA)
West Los Angeles (WLA)
Miami (MIA)
Manhattan - Downtown (DTNY)
Manhattan - Midtown (MTNY)
New Jersey (NJ)
Philadelphia (PHI)
San Diego (SDO)
San Francisco (SAN FRAN)
Tampa Bay (TAM)
Washington, DC (WDC)
Totals
Total (Gross)
Rent
Operating
Expenses
Building Expenses
Real Estate
Taxes
Tenant Electric
Leasing Costs
Net (Base) Rent
Concessions
Tenant
Effective
Landlord
Effective
2012
2013
2013
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
28.44
38.73
25.83
32.00
37.28
37.90
39.53
38.66
46.24
74.68
27.02
30.22
30.04
58.35
26.50
64.45
28.90
40.90
24.85
35.05
40.23
37.68
41.15
39.45
47.78
76.90
27.25
30.23
30.40
59.80
27.25
64.68
7.00
8.64
7.90
6.85
6.35
10.23
10.00
7.90
11.40
13.50
8.48
8.93
7.19
12.00
5.50
9.55
7.15
8.60
8.00
6.75
6.50
10.31
10.10
7.95
11.50
13.55
8.50
8.45
7.20
12.10
5.65
9.00
3.66
8.15
2.63
2.65
3.50
3.32
3.70
4.95
8.85
14.95
3.10
3.69
4.50
5.05
3.00
12.35
3.75
8.25
2.65
2.70
3.75
3.32
3.73
5.05
8.95
14.80
3.15
3.98
4.55
5.10
3.00
12.58
1.50
1.70
1.80
1.75
2.25
2.03
2.30
2.90
2.79
3.28
1.77
2.00
2.85
3.30
2.50
2.80
1.50
1.75
1.70
1.80
2.30
2.05
2.32
2.95
2.83
3.30
1.80
2.00
2.90
3.35
2.50
2.85
16.28
20.24
13.50
20.75
25.18
22.32
23.53
22.91
23.20
42.95
13.67
15.60
15.50
38.00
15.50
39.75
16.50
22.30
12.50
23.80
27.68
22.00
25.00
23.50
24.50
45.25
13.80
15.80
15.75
39.25
16.10
40.25
93.07
95.00
46.00
62.00
60.00
75.00
80.00
86.00
95.00
115.15
57.00
58.21
57.50
72.00
52.08
120.00
88.38
90.68
48.00
60.99
53.84
75.00
75.00
80.00
92.83
119.28
58.50
54.60
55.00
69.93
45.46
136.21
15.60
25.62
19.48
22.01
29.00
27.55
28.49
26.79
33.13
58.79
19.15
22.19
19.22
47.24
19.31
47.89
16.70
28.39
18.23
25.22
32.80
27.33
30.80
28.41
34.97
60.44
19.18
22.70
20.05
49.01
20.98
45.89
1.01
6.96
7.33
11.45
17.05
12.39
13.12
13.85
10.93
27.80
5.68
7.87
6.31
28.43
8.27
23.22
1.84
9.66
6.01
14.71
20.27
12.10
15.22
15.32
12.50
29.44
5.62
8.57
7.06
30.05
9.71
21.06
54.15 55.83 10.77 10.74 8.82 9.16
2.62
2.65
31.95 33.27 93.74 94.25 41.00 42.26 19.00 20.13
Suburban Markets
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
Central Perimeter, GA
Cook County, IL
DuPage County, IL
Fairfield County, CT
Fort Lauderdale, FL
Long Island, NY
Main Line/Conshohocken, PA
North Dallas Corridor, TX
Northern Virginia
Orange County, CA
Raleigh/Durham, NC
Silicon Valley, CA
Southeast, CO
West Loop/Galleria, TX
West Palm Beach, FL
Westchester, NY
21.71
26.48
25.50
40.15
33.60
32.04
31.60
26.37
40.25
26.85
21.35
37.65
22.25
31.42
44.93
34.73
22.88
26.05
25.15
39.75
33.93
32.19
32.46
27.20
36.85
27.52
21.85
40.45
22.82
35.70
44.60
34.60
5.89
8.00
7.35
11.05
8.70
8.10
7.45
8.55
5.65
6.69
4.55
8.30
3.80
6.75
10.35
9.73
5.95
7.75
7.15
11.10
8.75
8.15
7.50
8.35
6.00
7.13
4.60
8.40
3.85
6.90
10.40
9.75
2.20
4.67
1.87
4.35
3.75
6.80
2.95
3.95
3.20
1.80
1.90
3.80
3.85
3.15
4.36
6.25
2.20
4.50
2.00
4.40
3.75
6.85
3.00
3.75
2.90
1.97
2.00
3.95
3.90
3.20
4.30
6.35
1.50
1.56
1.78
2.75
2.90
1.34
2.70
2.75
2.90
2.00
1.90
3.05
1.75
2.07
2.90
3.00
1.50
1.50
1.75
2.75
2.93
1.34
2.50
2.60
2.95
2.00
1.90
3.10
1.75
2.10
2.90
3.00
12.12
12.25
14.50
22.00
18.25
15.80
18.50
11.12
28.50
16.36
13.00
22.50
12.85
19.45
27.32
15.75
13.23
12.30
14.25
21.50
18.50
15.85
19.46
12.50
25.00
16.42
13.35
25.00
13.32
23.50
27.00
15.50
55.00
66.53
67.05
45.00
50.00
42.50
30.00
46.00
79.50
55.00
35.00
30.00
42.50
55.00
51.16
45.00
50.16
62.00
61.00
47.00
47.50
42.50
30.00
45.00
82.99
50.00
32.84
27.50
43.15
47.80
54.00
47.00
15.24
17.30
16.25
33.74
26.70
28.12
27.46
20.02
29.28
19.26
15.39
32.74
16.39
24.52
37.87
28.52
15.96
17.49
16.73
33.26
27.38
28.05
28.06
20.99
25.40
20.62
16.25
35.95
16.87
29.15
32.73
28.11
4.19
3.13
5.53
16.20
12.41
11.75
15.23
5.93
18.19
9.65
7.77
20.15
7.79
13.52
20.01
10.68
4.76
3.74
6.08
15.68
13.02
11.60
15.33
7.23
14.46
10.37
8.46
23.07
8.17
17.79
19.79
10.17
Totals
1
31.19 31.50 7.69
STUDLEY EFFECTIVE RENT INDEX 2014
7.61
3.68 3.69
2.30
2.29
17.52 17.92 49.70 48.15 24.30 24.56 11.38 11.86
SERI2014
Summary of Key Findings
Effective Rents Nudge Higher, Concessions Remain Elevated
Most tenants in the largest U.S. Central Business Districts faced slightly higher occupancy costs during 2013. Tenant effective rent rose by 3.1%, from
$41.00 to $42.26. Although concessions fell in most markets, the value of concession packages spiked in the two largest markets – Manhattan (Midtown)
and Washington, DC – pushing the national average up by 0.5% to $94.25. Net rent increased by 4.1% from $31.95 to $33.27, rising in 13 of 16 markets.
Landlord effective rent rose by 5.9% from $19.00 to $20.13, exceeding the moderate jump in 2012 but well short of the nearly 25.0% increase in 2011.
Landlord effective rent increased in 12 of 16 markets. Although rental rate growth has spread to more CBDs, tenants can still select from a relatively deep
pool of space. Most landlords, in turn, must still offer generous concession packages and have only a little leverage to increase rents. Assuming the economy
gains further momentum in 2014, tenants are likely to face sharper increases in effective rents next year as new construction activity remains controlled and a
greater number of businesses pull the trigger on space-use decisions.
KEY CBD FINDINGS
CBDs
2012 % 2013 % Decreasing/
CBDs
Change Change No Change Increasing
2012
2013
COMMENTS
Total (Gross) Rent - (Page 20)
$54.15
$55.83
0.8%
3.1%
3
13
Total rent rose in nearly all markets, with declines in
only two and increases of 5.0% or more in three.
Operating Expenses - (Page 21)
$10.77
$10.74
3.0%
-0.2%
2
14
Operating expenses fell slightly.
Real Estate Taxes - (Page 22)
$8.82
$9.16
-1.8%
3.9%
0
16
Real estates taxes registered sharp increases as
property assessments jumped in many markets.
Tenant Electric - (Page 23)
$2.62
$2.65
-0.3%
1.4%
1
15
Tenant electric costs were flat in 2013.
Net Rent - (Page 24)
$31.95
$33.27
0.9%
4.1%
3
13
Concessions - (Page 6)
$93.74
$94.25
-0.4%
0.5%
5
11
Tenant Effective Rent Index - (Page 10)
$41.00
$42.26
1.0%
3.1%
3
13
Landlord Effective Rent Index - (Page 14)
$19.00
$20.13
1.8%
5.9%
4
12
The Net Rent Index rose for the third year in a row,
with increases in nearly all markets.
Concessions fell in most markets, but big spikes in the
largest CBDs offset these declines.
Tenants encountered higher effective rents in nearly all
markets as base rents rose and landlords pulled back
on concessions.
Landlord effective rent also posted its third year of
growth, with moderate increases in most markets.
STUDLEY EFFECTIVE RENT INDEX 2014
2
Key Findings
Total (Gross) Rent
$55.83 (+3.1%)
LESS:
LESS:
LESS:
Building Expenses
Concessions*
$94.25 (+0.5%)
Op. Ex., Taxes, Amortized
Concessions &
Commissions
Net (Base) Rent
$33.27 (+4.1%)
Tenant Effective Rent
$42.26 (+3.1%)
Landlord Effective Rent
$20.13 (+5.9%)
Op. Ex. $10.74 (‐0.2%)
Taxes $9.16 (+3.9%)
Tenant Electric $2.65 (+1.4%)
*Concessions are amortized over the average lease term in the market ‐ 2013 value ($13.57)
3
STUDLEY EFFECTIVE RENT INDEX 2014
National Benchmarks
SERI2014
Recovery Spreads to More Markets in 2013
Despite some weakness in labor markets in late 2013, the U.S. economy appeared to achieve the so-called
“lift-off velocity” that had eluded it in 2011 and 2012. The housing, retail and hospitality sectors gained
momentum and employment growth strengthened in many of the markets that were hit hardest during the
recession. The economy pushed through headwinds, chief among them repeated standoffs in the nation’s
capital regarding the budget and the debt ceiling. Equity markets ultimately shrugged off the Federal
Reserve’s initiation of “tapering” in bond purchases.
In turn, as 2013 progressed, strong demand for office space and positive net absorption spread beyond the
markets driven by expertise (tech in Silicon Valley and San Francisco) and energy (Houston) to lower-cost,
high-growth markets. Demand intensified in Dallas’ Far North Corridor; similar markets such as Atlanta,
Tampa Bay and Denver followed Dallas’ lead. Additionally, the strong preference of many companies, as well
as of the millennials they are hiring, for urban locations spurred tightening in sections of Downtown Chicago
and Philadelphia’s Center City. Landlords took heart as well from strong investment sales that boosted
building valuations. For the first time since 2007, landlords in markets such as Atlanta, Chicago, Tampa Bay
and to a more limited extent Philadelphia and Miami negotiated higher base rents. Increased rents coupled
with slight reductions in concessions, pushed occupancy costs somewhat higher for tenants and preserved a
bit more of landlord’s bottom line.
In contrast, the highest-cost markets such as New York City, New Jersey, Washington,DC and Downtown
Los Angeles, which depend largely on demand from traditional office-space users like law firms, banks and
federal agencies, struggled to gain momentum. Tenants in these markets continue to shed space as they
renew or relocate, giving landlords little leverage to take a tough stance on lease terms.
STUDLEY EFFECTIVE RENT INDEX 2014
4
National Benchmarks
Total Rent Pushes Higher
Total Rent Components
Total (gross) rent rose for the third year in
a row, increasing by 3.1% from $54.15 to
$55.83.
$60
Total rent pushed higher due to a 4.1% jump
in net rent from $31.95 to $33.27, as well
as continued growth in building expenses.
Operating expenses ticked down by 0.2%
from $10.77 to $10.74. In contrast, real
estate taxes increased by 3.9%, from $8.82
to $9.16. Electricity inched 1.4% higher to
$2.65.
$40
Real Estate
Taxes
Electricity
$50
$30
$20
$10
$0
Net Rent
2003
$26.83
2004
$27.21
2005
$29.77
2006
$35.18
2007
$42.92
2008
$40.13
2009
$29.27
2010
$26.93
2011
$31.66
2012
$31.95
2013
$33.27
Operating Expenses
$8.22
$8.50
$8.61
$8.90
$9.56
$9.85
$10.00
$10.18
$10.46
$10.77
$10.74
Real Estate Taxes
$7.07
$7.56
$8.21
$8.38
$8.39
$8.66
$9.00
$9.09
$8.98
$8.82
$9.16
Electricity
$2.03
$2.09
$2.30
$2.41
$2.48
$2.52
$2.58
$2.61
$2.62
$2.62
$2.65
$45.36
$48.89
$54.87 $63.35 $61.16
Total Rent
STUDLEY EFFECTIVE RENT INDEX 2014
Operating
Expenses
$70
Total rent consists of four components: net
(or base) rent and three building expense
components – operating expenses, real
estate taxes and tenant electric.
5
Net Rent
$44.15
$50.84 $48.81
$53.73 $54.15 $55.83
SERI2014
Concessions Fall in Most
Markets
Tenants were still able to negotiate
favorable concessions in nearly all
markets, but declining availability,
particularly in the highest-caliber buildings,
gave landlords the confidence to reduce
free rent periods and tenant improvement
allowances.
The decline was slim in most markets,
and the two largest markets –
Manhattan (Midtown) and Washington,
DC – registered such large spikes in
concessions that the national value rose
slightly to $94.25.
Based on the ratio of amortized
concessions ($13.57) to net rent ($33.27),
the actual value of concessions fell from
42.2% to 40.8%, and has fallen from a
peak ratio of 47.3% in 2010. Additionally,
as construction costs mount the value
of tenant improvement allowances is
experiencing some deflation.
Landlord Concessions: 2003-2013
60.0%
$100
$90
50.0%
$80
$70
40.0%
$60
30.0%
$50
$40
20.0%
$30
$20
10.0%
$10
$0
2003
Value of Concessions
$60.34
Amort. Concessions/Rent 31.0%
2004
$60.07
30.5%
2005
$59.31
27.5%
2006
$58.33
22.9%
2007
$63.08
21.2%
2008
$74.77
26.8%
2009
$93.56
46.0%
2010
$88.49
47.3%
2011
$94.16
42.8%
2012
$93.74
42.2%
2013
$94.25
40.8%
0.0%
STUDLEY EFFECTIVE RENT INDEX 2014
6
National Benchmarks
Little Change in Total Rent Composition
Total (or gross) rent consists of two main components: net (or base) rent and building expenses (operating expenses, real estate taxes
and tenant electric). As a percentage of total rent, net rent increased from 58.9% in 2012 to 59.4% in 2013. Building expenses’ share
dropped from 41.1% to 40.6%.
Despite this decline, building expenses share of total rent is still much higher than it was prior to the recession – building expenses
accounted for only 34.5% of total rent in 2008.
Net
Rent
Total Rent Components
Taxes
14.3%
Op. Ex.
16.1%
7
Elec.
4.1%
Building
Expenses:
34.5%
Operating
Expenses
Elec.
4.8%
2008
Real Estate
Taxes
2013
Taxes
16.4%
Net
(Base)
Rent
65.5%
STUDLEY EFFECTIVE RENT INDEX 2014
Building
Expenses:
40.6%
Op. Ex
19.4%
Net
(Base)
Rent
59.4%
Electricity
SERI2014
Operating Margins
Approaching Normal
Range
The net (base) rent/total rent ratio
measures how much of net rent is
flowing to building expenses (prior
to deducting concessions and
commissions). Net rent accounted
for 59.6% of total rent – meaning
that 40.4% of total rent was diverted
to operating expenses, real estate
taxes and electricity. By next year, net
rents should push back above a prerecession threshold of 60.0%.
A significant portion of these expenses
are passed through to tenants, but
40.6% still equals a substantial
reduction of the landlord’s bottom line.
This was the fifth year in a row that
building expenses absorbed more than
40.0% of net rent. Between 1990 and
2008, expenses accounted for 40% of
base rent only once, in 2004.
Net Rent/Total Rent Ratio: 2003-2013
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2003
Building Expense Share 39.2%
Net Rent Share
60.8%
2004
40.0%
60.0%
2005
39.1%
60.9%
2006
35.9%
64.1%
2007
32.2%
67.8%
2008
34.4%
65.6%
2009
42.9%
57.1%
2010
45.0%
55.0%
2011
41.3%
58.9%
2012
41.0%
59.0%
2013
40.4%
59.6%
STUDLEY EFFECTIVE RENT INDEX 2014
8
National Benchmarks
Effective Rents Increase
Net rent rose by 4.1% in 2013, offsetting a
slight increase in concessions.
Tenant occupancy costs (the National Tenant
Effective Rent Index) rose by 3.1% jumping
from $41.00 to $42.26.
The National Landlord Effective Rent Index
rose from $19.00 to $20.13, up by 5.9% and
slightly below the 2005 mark of $20.79.
Tenant
Effective
National Effective Rent Comparison
Landlord
Effective
$60
$50
$40
$30
$20
$10
$0
9
STUDLEY EFFECTIVE RENT INDEX 2014
Tenant Effective Rent
2003
$35.15
2004
$36.35
2005
$40.00
2006
$46.14
2007
$53.40
2008
$49.62
2009
$37.57
2010
$36.52
2011
$40.58
2012
$41.00
2013
$42.26
Landlord Effective Rent
$17.64
$18.06
$20.79
$26.39
$32.69
$28.47
$16.43
$15.15
$18.68
$19.00
$20.13
SERI2014
Tenant Effective Rent By Market
Occupancy Costs Rise in
Most Markets
Tenant Effective Rent Market Comparison
Tenants in nearly all markets encountered
slightly higher occupancy costs in 2013.
Occupancy costs in Manhattan (Midtown)
($60.44) remained the most expensive
for a U.S. CBD. Tenant effective rent in
San Francisco ($49.01) surpassed that in
Washington, DC ($45.89), returning San
Francisco to the second-most expensive
market for the first time since 2001.
2013
$65
$60
$55
$50
$45
$40
Unweighted Average:
$30.07 (+4.3%)
$35
Houston continued to push well above the
unweighted national average ($30.07),
with an average tenant effective rent
of $32.80. The energy and commodity
hub ended the year with the fifth most
expensive occupancy costs.
Effective rents in seven of the 16 markets
were in a tight range between $20.05 (San
Diego) and $28.41 (Miami). Three markets
– New Jersey ($19.18), Dallas ($18.23)
and Atlanta ($16.70) – registered effective
rents of less than $20.00.
2012
$30
$25
$20
$15
$10
$5
$0
MTNY
SFO
WDC
DTNY
HOU
WLA
MIA
CHI
DTLA
DEN
PHI
TAM
SDO
NNJ
DAL
ATL
2012
58.79
47.24
47.89
33.13
29.00
28.49
26.79
25.62
27.55
22.01
22.19
19.31
19.22
19.15
19.48
15.60
2013
60.44
49.01
45.89
34.97
32.80
30.80
28.41
28.39
27.33
25.22
22.70
20.98
20.05
19.18
18.23
16.70
Y-o-Y Change
2.8%
3.7%
-4.2%
5.6%
13.1%
8.1%
6.0%
10.8%
-0.8%
14.6%
2.3%
8.6%
4.3%
0.1%
-6.4%
7.1%
STUDLEY EFFECTIVE RENT INDEX 2014
10
Tenant Effective Rent By Market
Modest Growth in Nearly
All Markets
Tenant effective rents fell in only three
markets during 2013 – Dallas (-6.4%),
Washington, DC (-4.2%) and Downtown
Los Angeles (-0.8%) posted declines for
the second consecutive year.
Thirteen markets posted higher tenant
effective rents and eight of them recorded
growth of 5.0% or more, ranging from
Manhattan (Downtown) (+5.6%) to
Denver (+14.6%).
Chicago and Atlanta both experienced
stronger leasing in 2013, but their
respective increases of 10.8% and
7.1% were in part due to these markets’
continued emergence from a deep trough
that is still exaggerating growth on a
percentage basis.
In contrast, increases of 14.6% in Denver,
13.1% in Houston and 8.1% in West L.A.
reflected stronger supply and demand
dynamics.
Tenant Effective Rent: Year-on-Year Change by Market
Denver
Houston
STUDLEY EFFECTIVE RENT INDEX 2014
13.1%
Chicago
10.8%
Tampa Bay
8.6%
West LA
8.1%
Atlanta
7.1%
Miami
6.0%
5.6%
Manhattan (DT)
San Diego
4.3%
San Francisco
3.7%
Manhattan (MT)
2.8%
Philadelphia
2.3%
New Jersey
0.1%
Downtown LA
-0.8%
Washington, DC
Dallas
-10%
11
14.6%
-4.2%
-6.4%
-5%
0%
5%
10%
15%
SERI2014
Effective Rents Still Well
Below Prior Peak
Houston, which did not register as sharp a
run-up in rents during the last expansion,
is now 21.5% above its prior peak. Tenant
effective rent jumped by 14.6% in Denver
during 2013, pushing it 2.7% above its
prior peak.
Five markets – Philadelphia (-1.8%);
Tampa Bay (-2.7%), Chicago (-6.2%),
Downtown Los Angeles (-6.8%) and San
Francisco (-7.6%) – are now less than
10% below their prior peak.
Washington, DC lost ground for a second
year in a row – a year ago, tenant effective
rent was 9.0% below its prior peak, while
in 2013 it fell to 16.7% below that level.
Occupancy costs in Manhattan (Midtown)
remained more than one-third below their
prior peak, as did occupancy costs in
Dallas (-36.2%) and San Diego (-49.4%).
Tenant Effective Rent Trends: % Below Prior Peak
Houston
21.5%
Denver
2.7%
Philadelphia
-1.8%
Tampa Bay
-2.7%
Chicago
-6.2%
Downtown Los Angeles
-6.8%
San Francisco
-7.6%
Washington, DC
-16.7%
Atlanta (2006)
-26.4%
West Los Angeles
-27.0%
Miami
-28.0%
Downtown New York
-30.5%
New Jersey (2006)
-31.6%
Midtown New York
-35.9%
Dallas (2008)
-36.2%
San Diego
-49.4%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
*Unless otherwise indicated, last market peak occurred in 2007
STUDLEY EFFECTIVE RENT INDEX 2014
12
Landlord Concessions By Market
Concessions Decline in
Most Markets
Landlord Concessions: Market Comparison
Concessions fell in 11 of the 16 markets
during 2013, with declines of 5.0% or more
in six markets. The unweighted national
average fell by 1.6% to $75.23. Tampa
Bay registered a 12.7% decrease in the
value of its average concession package
from $52.08 to $45.46. Tampa Bay now
has the smallest average concession
package sliding just below Dallas which
posted a 4.3% increase to $48.00.
$120
$100
STUDLEY EFFECTIVE RENT INDEX 2014
5
Unweighted Average:
$75.23 (-1.6%)
$80
0
$60
-
$40
-
$20
$0
WDC
MTNY
DTNY
CHI
ATL
MIA
WLA
DTLA
SFO
DEN
NNJ
SDO
PHI
HOU
DAL
TAM
2012
$120.00
$115.15
$95.00
$95.00
$93.07
$86.00
$80.00
$75.00
$72.00
$62.00
$57.00
$57.50
$58.21
$60.00
$46.00
$52.08
2013
$136.21
$119.28
$92.83
$90.68
$88.38
$80.00
$75.00
$75.00
$69.93
$60.99
$58.50
$55.00
$54.60
$53.84
$48.00
$45.46
13.5%
3.6%
-2.3%
-4.5%
-5.0%
-7.0%
-6.3%
0.0%
-2.9%
-1.6%
2.6%
-4.3%
-6.2%
-10.3%
4.3%
-12.7%
Y-o-Y Change
13
2013
$140
Concession packages in Washington, DC
spiked to a record $136.21 and increased
to $119.28 in Manhattan (Midtown). In
both markets, landlords achieved higher
base rents but they typically had to extend
very generous concession packages as
well.
Concessions in seven of the markets
were clustered in a relatively tight range
between a low of $45.46 in Tampa Bay
and $60.99 in Denver.
2012
-
Landlord Effective Rent by Market SERI2014
Rental Rate Growth Still Moderate in Most CBDs
Landlord effective rent rose by 5.9% in 2013, relatively moderate growth considering that most markets are in their
third year of recovery. The increase was muted by weakness in some of the index’s largest markets – Manhattan
(Midtown), Washington, DC and Downtown Los Angeles. Lower or nearly flat landlord effective rents in these
CBDs diminished the impact of larger increases of 5.0% or more in markets such as Houston, Denver and West
L.A.
In markets such as Tampa Bay, Atlanta, Chicago and Philadelphia, rental rate growth is hampered by availability
rates that are still quite high. Some leases signed during 2013 included higher base rents but they often included
very elevated concessions as well.
In contrast, tenant competition for space intensified in San Francisco and Silicon Valley, as well as in Suburban
Houston and Dallas’ North Dallas Corridor. In a few other markets, such as Denver’s CBD and Suburban San
Diego, tenants are encountering a shortfall in big blocks of quality space, tighter concessions and higher rents that
will likely escalate in 2014.
In contrast, Manhattan (Midtown) and Washington, DC lagged for the second year in a row as core sectors –
law firms, banks and federal agencies – felt continued pressure to reduce costs. Silicon Alley in Manhattan and
Silicon Beach in the L.A. region are registering strong demand but activity so far has not spilled over to either
Midtown Manhattan or Downtown L.A. New Jersey and Downtown Los Angeles once again struggled to gain any
momentum in leasing. CBDs outperformed most suburban markets but in a couple of markets – Dallas, Downtown
Los Angeles and San Diego – tenants preferred suburban office space, largely bypassing space in the CBD.
STUDLEY EFFECTIVE RENT INDEX 2014
14
Landlord Effective Rent By Market
Rental Rate Growth More
Widespread
Landlord Effective Rent Market Comparison
$25
$20
STUDLEY EFFECTIVE RENT INDEX 2014
Unweighted Average:
$14.56 (+7.6%)
$15
$10
San Francisco had the highest landlord
effective rent ($30.05) for the third year in
a row.
15
2013
$30
Landlord effective rent increased for
the third consecutive year, rising from
$19.00 to $20.13 as the increase in net
rent exceeded an up-tick in the value of
concession packages. Effective rents
increased in 12 markets and dropped
in four, with increases of 10.0% or more
in nine markets. Stronger growth in
these markets was offset by declines in
Washington, DC (-9.3% to $21.06) and flat
conditions in Manhattan (Midtown) (+1.4%
to $29.44).
Despite nearly doubling, landlord effective
rent in Atlanta remained at the other end of
the spectrum at $1.84, well below landlord
effective rent in New Jersey, the second
lowest at $5.62.
2012
$5
$0
2012
SFO
$28.43
MTNY
$27.80
WDC
$23.22
HOU
$17.05
MIA
$13.85
WLA
$13.12
DEN
$11.45
DTNY
$10.93
DTLA
$12.39
2013
$30.05
$29.44
$21.06
$20.27
$15.32
$15.22
$14.71
$12.50
$12.10
5.7%
5.9%
-9.3%
18.9%
10.6%
16.0%
28.5%
14.4%
-2.3%
Y-o-Y Change
TAM
$8.27
CHI
$6.96
PHI
$7.87
SDO
$6.31
DAL
$7.33
NNJ
$5.68
ATL
$1.01
$9.71
$9.66
$8.57
$7.06
$6.01
$5.62
$1.84
17.4%
38.8%
8.9%
11.9%
-18.0%
-1.1%
82.2%
SERI2014
Houston and Denver Only
Markets to Exceed
Pre-Recession Peak
Landlord effective rent in Houston
continued to push well above its prerecession peak (28.3%) and Denver’s
effective rent nudged 1.2% above its prior
high point.
Landlord effective rent rose in most
markets during 2013, but nevertheless
all other markets were at least 10.0%
below their prior peak and more than half
remained 20% below peak.
Atlanta (-81.1%), San Diego (-73.0%) and
Dallas (-63.1%) were still more than twothirds below their peak.
Landlord Effective Rent Trends: % Below Prior Peak
Houston
28.3%
Denver
1.2%
Chicago
-11.0%
Tampa Bay (2006)
-13.1%
San Francisco
-15.3%
Philadelphia
-16.6%
Downtown Los Angeles
-19.3%
Washington, DC
-34.3%
Miami
-39.6%
West Los Angeles
-42.7%
New Jersey (2006)
-49.8%
Midtown NY
-54.0%
Downtown NY
-56.8%
Dallas (2008)
San Diego
Atlanta (2006)
-90%
-63.1%
-73.0%
-81.1%
-70%
-50%
-30%
-10%
10%
30%
*Unless otherwise indicated, prior market peak occurred in 2007
STUDLEY EFFECTIVE RENT INDEX 2014
16
Landlord Effective Rent By Market
Relative Value of Concessions Falls
Again in Most Markets
The ratio of amortized concessions to net rent
(concession/rent ratio) is a way of comparing the value
of concessions from market to market. It also provides
a measure of leasing costs – as the ratio increases, it
indicates that the value of concessions is rising more than
rents. In most cases, the higher the ratio the more likely it
is that conditions favor the tenant.
Atlanta’s concession/net rent ratio (73.9%) was once
again nearly twice the national average of 39.1%. San
Diego (65.7%) was the only other CBD with a ratio
greater than 60.0%. Based on this ratio, Atlanta and
San Diego were the most tenant-favorable markets in
2013. Of note, the ratio in Washington, DC jumped by 5.0
percentage points from 41.7% to 46.7%, but fell by 8.0 pp
to 56.1% in Chicago.
In contrast, Houston (26.8%) and San Francisco (24.6%)
were the only two markets with ratios of less than 30.0%.
Amortized Concessions as Percentage of Net Rent
80%
70%
60%
50%
40%
30%
20%
10%
0%
ATL SDO CHI
NJ DFW DTNY PHI DTLA MIA WDC WLA DEN TAM MTNY HOU SFO
2012 78.9% 69.8% 64.8% 57.5% 47.0% 56.5% 51.5% 46.4% 51.8% 41.7% 46.9% 48.1% 46.4% 37.0% 32.9% 26.1%
2013 73.9% 65.7% 56.1% 55.0% 53.0% 52.3% 47.7% 47.0% 47.0% 46.7% 41.4% 41.3% 39.0% 36.4% 26.8% 24.6%
17
STUDLEY EFFECTIVE RENT INDEX 2014
SERI2014
Landlord’s Bottom Line
38.4% Below 2007 Peak
Landlord effective rent has increased
during every year since hitting its low of
$15.15 in 2010. Nevertheless, it is 38.4%
below its peak of $32.69 in 2007 and
remains below the $20.79 mark attained
in 2005, when the last recovery was still
struggling to gain momentum.
Additionally, although concessions
declined in most markets, they are still
cutting very sharply into landlord effective
rent. Nationally, average amortized
concessions totaled $13.57, just above the
peak of $13.55 set in 2011.
Landlord Cost Components
$70
Landlord Effective Rent
Electric
$60
$9.08
$8.39
$50
$8.54
$40
$8.68
$8.65
$8.21
$30
$20
$10
$0
Operating Expenses
$7.07
$7.56
$8.22
$8.50
$2.03
$2.09
$17.64
$18.06
2003
2004
$8.61
$8.90
$8.39
2005
$13.47
$2.48
$9.85
$9.00
$2.52
$2.41
$10.00
$26.39
2006
$32.69
2007
$2.58
$28.47
2008
$13.57
$13.55
$13.49
$8.98
$8.82
$10.46
$10.77
$10.82
$2.62
$2.62
$2.65
$18.68
$19.00
$20.13
2011
2012
2013
$12.74
$9.56
$2.30
$20.79
Amort. Concessions
$10.76
$8.66
$8.38
Real Estate Taxes
$9.23
$9.09
$10.18
$2.61
$16.43
$15.15
2009
2010
STUDLEY EFFECTIVE RENT INDEX 2014
18
Total Rent Components By Market
Higher Net Rent/Total Rent
Ratio in Many Markets
In 2012, only seven markets registered
an increase in net rents. In 2013, 14
markets posted higher net rents. The
ratio of net rent to total rent exceeded
60.0% in five markets, with Houston
(68.8%) and Denver (67.9%) once
again topping the charts. Lower building
expenses in these markets kept the ratio
of net rent to total rent higher.
Dallas, with a ratio of 50.3%, fell to the
bottom position among the major CBDs.
Net Rent/Total Rent Ratio by Market
2012
2013
65%
55%
45%
35%
25%
HOU
2012 67.5%
2013 68.8%
19
STUDLEY EFFECTIVE RENT INDEX 2014
DEN
64.8%
67.9%
SFO
65.1%
63.7%
WDC
61.7%
62.2%
WLA
59.5%
60.8%
MTNY
57.5%
59.8%
MIA
59.3%
59.6%
TAM
58.5%
59.1%
DTLA
58.9%
58.4%
ATL
57.2%
57.1%
CHI
52.3%
54.5%
PHI
51.6%
52.3%
NNJ
50.6%
52.2%
DTNY
50.2%
51.9%
SDO
51.6%
51.8%
DAL
52.3%
50.3%
SERI2014
Moderate Increase in Most
Markets
Total (Gross) Rent Market Comparison
2013
$80
The National Total Rent Index rose
by 3.1%, from $54.15 to $55.83, with
increases in 14 of the 16 markets.
$75
$70
$65
$60
Total rent in the most expensive market,
Manhattan (Midtown), posted a slight
increase for the second year in a row,
rising by 3.0% to $76.90. Three markets
– Denver (+9.5%), Houston (+7.9%) and
Chicago (+5.6%) – registered growth of
more than 5.0%.
$55
Unweighted
Average:
$40.76 (+2.6%)
$50
$45
$40
$35
$30
$25
$20
Eleven markets recorded increases of
less than 5.0%, ranging from 0.03%
in Philadelphia to 4.1% in West Los
Angeles.
$15
$10
$5
$0
Dallas (-3.8% to $24.85) and Downtown
Los Angeles (-0.6% to $37.68) reported
moderate declines in total rent.
2012
MTNY
WDC
SFO
DTNY
WLA
CHI
HOU
MIA
DTLA
DEN
SDO
PHI
ATL
NNJ
TAM
DAL
2012
$74.68 $64.45 $58.35 $46.24 $39.53 $38.73 $37.28 $38.66 $37.90 $32.00 $30.04 $30.22 $28.44 $27.02 $26.50 $25.83
2013
$76.90 $64.68 $59.80 $47.78 $41.15 $40.90 $40.23 $39.45 $37.68 $35.05 $30.40 $30.23 $28.90 $27.25 $27.25 $24.85
Y-o-Y Change
3.0%
0.4%
2.5%
3.3%
4.1%
5.6%
7.9%
2.0%
-0.6%
9.5%
1.2%
0.03%
1.6%
0.9%
2.8%
-3.8%
STUDLEY EFFECTIVE RENT INDEX 2014
20
Total Rent Components By Market
Negligible Decline in
Operating Expenses
The National Operating Expense Index
reversed directions in 2013, falling by
0.2% to $10.74.
Operating Expense Comparison
2012
2013
$14
$12
Operating expenses inched lower in
Washington, DC, Philadelphia, Denver
and Chicago but posted growth in all
other markets.
Unweighted
Average:
$8.83 (-0.1%)
$10
$8
Operating expenses in Manhattan
(Midtown) ($13.55) and San Francisco
($12.10) were more than double those in
Houston ($6.50) and Tampa Bay ($5.65).
$6
$4
$2
$0
21
STUDLEY EFFECTIVE RENT INDEX 2014
MTNY
2012 13.50
SFO
12.00
DTNY
11.40
DTLA
10.23
WLA
10.00
WDC
9.55
CHI
8.64
NNJ
8.48
PHI
8.93
DAL
7.90
MIA
7.90
SDO
7.19
ATL
7.00
DEN
6.85
HOU
6.35
TAM
5.50
2013 13.55
12.10
11.50
10.31
10.10
9.00
8.60
8.50
8.45
8.00
7.95
7.20
7.15
6.75
6.50
5.65
SERI2014
Taxes Spike
The National Real Estate Tax Index
posted its biggest jump in several years,
rising by 3.9% from $8.82 to $9.16,
with increases in all markets. Most
markets registered slight rises in taxes
of between 0.5% and 2.0% as rents and
occupancy have slowly improved in the
highest-caliber properties.
Real Estate Tax Comparison
2013
2012
$15
$12
$9
As the recovery has become more
widespread and investment activity
has flowed to more markets, property
valuations have been rising. Strong
demand for stabilized Class A assets in
major CBDs has pushed pricing higher,
and will continue to boost valuations in
some markets.
$6
Unweighted Average:
$5.65 (+2.7%)
$3
$0
2012
MTNY
14.95
WDC
12.35
DTNY
8.85
CHI
8.15
SFO
5.05
MIA
4.95
SDO
4.50
PHI
3.69
ATL
3.66
HOU
3.50
WLA
3.70
DTLA
3.32
NNJ
3.10
TAM
3.00
DEN
2.65
DAL
2.63
2013
14.80
12.58
8.95
8.25
5.10
5.05
4.55
3.98
3.75
3.75
3.73
3.32
3.15
3.00
2.70
2.65
STUDLEY EFFECTIVE RENT INDEX 2014
22
Total Rent Components By Market
Minor Increase in Tenant
Electric
Electricity Cost Comparison
2012
2013
$3.50
Tenant electricity costs rose very slightly
in 2013, increasing by 1.4% to $2.65.
They were unchanged in three markets
and rose in all others.
$3.00
Unweighted
Average:
$2.38 (+1.3%)
$2.50
Denver (up by 2.9% to $1.80) and
Houston (up by 2.2% to $2.30) posted
the largest year-on-year jumps in tenant
electricity costs during 2013.
$2.00
$1.50
$1.00
$0.50
$0.00
23
STUDLEY EFFECTIVE RENT INDEX 2014
2012
SFO
3.30
MTNY
3.28
MIA
2.90
SDO
2.85
WDC
2.80
DTNY
2.79
TAM
2.50
WLA
2.30
HOU
2.25
DTLA
2.03
PHI
2.00
DEN
1.75
NNJ
1.77
CHI
1.70
DAL
1.80
ATL
1.50
2013
3.35
3.30
2.95
2.90
2.85
2.83
2.50
2.32
2.30
2.05
2.00
1.80
1.80
1.75
1.70
1.50
SERI2014
Base Rent Rises in Most
Markets
Net Rent Comparison
2012
2013
$50
In 2013, the National Net Rent index
increased by 4.1%, rising from $31.95 to
$33.27. Dallas (-7.4%) and Downtown Los
Angeles (-1.4%) were the only two markets
to post declines in net rent.
$45
$40
$35
San Francisco (up by 3.3% to $39.25) and
Houston (up by 9.9% to $27.68) registered
the third and fourth highest net rents. Net
rent posted the strongest increase in Denver
(+14.7%) and Chicago (+10.2%).
$30
Unweighted Average:
$24.05 (+4.3%)
$25
$20
Six markets had net rents below $20.00,
including San Diego ($15.75) and Tampa
Bay ($16.10). Dallas had the lowest net rent
among the 16 CBDs, with an average of
$12.50 in 2013.
$15
$10
$5
$0
MTNY
WDC
SFO
HOU
WLA
DTNY
DEN
MIA
CHI
DTLA
ATL
TAM
PHI
SDO
NNJ
DAL
2012
42.95
39.75
38.00
25.18
23.53
23.20
20.75
22.91
20.24
22.32
16.28
15.50
15.60
15.50
13.67
13.50
2013
45.25
40.25
39.25
27.68
25.00
24.50
23.80
23.50
22.30
22.00
16.50
16.10
15.80
15.75
13.80
12.50
Y-o-Y Change
5.4%
1.3%
3.3%
9.9%
6.2%
5.6%
14.7%
2.6%
10.2%
-1.4%
1.4%
3.9%
1.3%
1.6%
1.0%
-7.4%
STUDLEY EFFECTIVE RENT INDEX 2014
24
CBD Rent Trends
Atlanta
Reversing a trend, total rent increased,
rising by 1.6% from $28.44 to $28.90. Net
rent grew from $16.28 to $16.50 (+1.4%).
Tenant electric was unchanged at $1.50, but
operating expenses ($7.15) rose by 2.1%
and real estate taxes ($3.75) jumped by
2.5%. Landlords reduced concessions for the
second year in a row (-5.0% to 88.38). Lower
concessions caused tenant effective rent to
increase by 7.1% to 16.70. Landlord effective
rent soared by 82.2%, albeit to only $1.84.
Total
Rent
Atlanta Rent Trends
$30
27.74
$25
24.94
$20
20.79
24.04
19.60
21.08
29.35
$10
STUDLEY EFFECTIVE RENT INDEX 2014
31.09
30.53
8.41
17.94
9.31
2005
2006
14.44
2007
2008
39.00
38.59
35.15
35.35
15.60
2009
3.13
2010
42.11
$40
36.10
$30
$25
16.93
Total
Rent
$45
$35
38.15
39.78
0.72
1.01
2011
2012
Tenant
Effective
41.00
38.73
30.27
24.05
23.52
$20
28.90
16.70
6.73
2.15
2004
28.44
9.75
4.12
2003
29.62
20.28
16.04
8.98
30.48
22.69
Chicago Rent Trends
2013
Landlord
Effective
40.90
28.39
25.68
25.27
1.84
22.78
23.66
25.57
25.82
5.99
6.10
2010
2011
25.62
$15
10.86
$10
$5
$0
25
29.90
$15
$0
Following the trend of the prior three years,
total rent registered a moderate increase,
rising by 5.6% from $38.73 to $40.90. Net
rent rose by 10.2% to $22.30. Operating
expenses dipped by 0.5% to $8.60, but real
estate taxes inched up by 1.2% to $8.25 and
electricity rose by 2.9% to $1.75. The value
of concessions fell by 4.5% from $95.00
to $90.68. Tenant effective rent jumped
by 10.8% from $25.62 to $28.39. In turn,
landlord effective rent increased by 38.8%
from $6.96 to $9.66.
Landlord
Effective
$35
$5
Chicago
Tenant
Effective
6.84
2003
5.85
2004
4.22
2005
2006
9.66
6.31
6.22
2007
2008
4.09
2009
6.96
2012
2013
SERI2014
Dallas
Total rent continued to decline, dropping
by 3.8% from $25.83 to $24.85. Net rent
fell by 7.4% from $13.50 to $12.50. Tenant
electric was unchanged at $1.70, but real
estate taxes ticked up by 0.8% to $2.65 and
operating expenses grew by 1.3% to $8.00.
Concessions increased by 4.3% from $46.00
to $48.00. Lower rents and slightly higher
concessions caused a decline in tenant
effective rent – occupancy costs fell by 6.4%
from $19.48 to $18.23. Landlord effective
rents decreased for the fifth consecutive
year, plunging by 18.0% from $7.33 to $6.01.
Denver
Total rent ($35.05) rose by 9.5% due to a
sharp increase in net rent, which spiked
from $20.75 to $23.80 (+14.7%). Operating
expenses dropped by 1.5% but real estate
taxes grew by 1.9% and tenant electric
increased by 2.9%. The value of concession
packages, which had increased significantly
during the previous year, dropped by 1.6% to
$60.99. Tenant effective rent rose to $25.22,
up by 14.6%. Landlord effective rent surged
by 28.5% to $14.71.
Total
Rent
Dallas Rent Trends
Tenant
Effective
Landlord
Effective
$40
$35
34.38
31.24
$30
$25
$20
24.75
20.61
26.00
26.15
22.30
22.45
27.32
23.99
21.60
$15
$10
13.94
10.11
10.92
10.81
28.68
27.87
27.83
25.32
20.77
27.06
21.14
2003
2004
2005
11.01
2006
9.40
2007
19.48
24.85
18.23
15.58
8.63
8.92
$5
$0
25.83
2008
2009
2010
Total
Rent
Denver Rent Trends
2011
7.33
2012
Tenant
Effective
6.01
2013
Landlord
Effective
$40
$35
35.05
31.75
$30
$25
23.12
14.69
24.08
$0
25.00
6.51
2003
27.45
28.16
25.22
22.01
21.35
16.71
29.50
24.55
19.74
18.25
19.50
18.75
19.74
14.71
14.54
11.54
$10
$5
28.54
27.56
$20
$15
32.00
7.78
2004
8.69
2005
2006
2007
11.45
9.73
9.15
2008
2009
8.39
2010
9.28
2011
2012
2013
STUDLEY EFFECTIVE RENT INDEX 2014
26
CBD Rent Trends
Houston
Total rent increased by 7.9% to $40.23,
driven mostly by a 9.9% spike in net rent
to $27.68. Electricity rose by 2.2% to $2.30
and operating expenses ticked up by 2.4%
to $6.50. Real estate taxes registered a
sharper 7.1% jump to $3.75. The value of
concession packages continued to slide
lower, decreasing by 10.3% from $60.00
to $53.84. Tenant effective rent grew from
$29.00 to $32.80 (+13.1%). Landlord
effective rent recorded a gain for the third
year in a row, soaring by 18.9% from $18.43
to $20.27.
Downtown Los Angeles
Total rent decreased slightly (-0.6%) from
$37.90 to $37.68. Net rent dropped by 1.4%
from $22.32 to $22.00. Operating expenses
ticked up by 0.8% from $10.23 to $10.31.
Real estate taxes ($3.32) and tenant electric
($2.05) remained stable. Concessions were
also unchanged at $75.00. Tenant effective
rent inched down by 0.8% to $27.33.
Landlord effective rent also declined, by
2.3% from $12.39 to $12.10.
Total
Rent
Houston Rent Trends
Tenant
Effective
Landlord
Effective
$45
$40
40.23
$35
34.45
31.32
$30
$25
$20
$15
25.37
20.75
16.31
21.00
15.82
20.37
$0
31.28
27.00
20.68
26.55
6.15
5.52
2003
2004
2005
2006
24.93
34.37
27.12
15.37
2007
2008
2009
13.63
2010
Total
Rent
Downtown Los Angeles Rent Trends
15.50
2011
$30
31.15
31.76
32.25
$25
$20
21.53
22.00
22.34
10.16
10.49
10.57
2003
2004
2005
34.18
24.27
35.47
25.56
36.73
26.37
35.44
36.14
25.09
25.10
11.58
12.03
12.07
10.64
10.91
2006
2007
2008
2009
2010
2012
2013
Landlord
Effective
37.90
37.68
27.55
27.33
12.12
12.39
12.10
2011
2012
2013
36.68
26.33
$15
$10
17.05
Tenant
Effective
$40
$35
32.80
29.00
20.27
11.67
6.91
32.48
19.75
15.80
15.19
$10
$5
37.28
36.83
$5
$0
27
STUDLEY EFFECTIVE RENT INDEX 2014
SERI2014
West Los Angeles
Total rent registered a second year of
growth, rising by 4.1% from $39.53
to $41.15. This increase was largely
attributable to a 6.2% jump in net rent from
$23.53 to $25.00. Real estate taxes
inched up by 0.8% from $3.70 to $3.73.
Electricity climbed by 0.9% from $2.30 to
$2.32. Operating expenses ticked up by
1.0% from $10.00 to $10.10. The value
of concession packages fell by 6.3% from
$80.00 to $75.00. Tenant effective rent grew
for the second straight year, from $28.49 to
$30.80 (+8.1%). Landlord effective spiked
more dramatically, from $13.12 to $15.22.
Miami
Total rent posted a third year of moderate
growth, rising by 2.0% from $38.66 to
$39.45. Net rent grew by 2.6% from $22.91
to $23.50, and all components of building
expenses registered increases. Operating
expenses inched up by 0.6% from $7.90 to
$7.95. Electricity rose by 1.7% from $2.90 to
$2.95. Real estate taxes increased by 2.0%
from $4.95 to $5.05. Concessions dropped
by 7.0%, falling from $86.00 to $80.00.
Tenant effective rent rose by 6.0% from
$26.79 to $28.41. Landlord effective jumped
by 10.6% from $13.85 to $15.32.
Total
Rent
West Los Angeles Rent Trends
Tenant
Effective
Landlord
Effective
$60
$50
50.43
46.93
41.86
$40
37.31
36.00
$30
$20
31.20
22.91
21.37
25.49
$10
$0
9.28
2003
2004
38.40
38.05
28.50
28.05
27.01
14.11
13.43
2009
2010
39.53
28.49
41.15
30.80
19.42
14.98
10.17
38.85
32.54
32.17
26.68
20.10
40.07
2005
2006
2007
2008
Total
Rent
Miami Rent Trends
12.27
13.12
2011
2012
Tenant
Effective
15.22
2013
Landlord
Effective
$50
$45
45.00
$40
$35
$30
$25
40.50
33.00
28.82
35.32
44.00
37.71
35.75
26.66
25.36
25.94
22.72
22.00
17.37
34.77
36.92
38.66
30.32
25.60
$20
$15
34.00
35.50
39.45
25.19
26.79
39.45
28.41
18.78
14.21
12.91
$10
13.92
12.89
13.85
15.32
$5
$0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
STUDLEY EFFECTIVE RENT INDEX 2014
28
CBD Rent Trends
Manhattan (Downtown)
Total rent grew for the third consecutive
year, rising by 1.1% from $46.24 to $47.78.
Net rent increased by 5.6% from $23.20 to
$24.50. Operating expenses (+0.9%), real
estate taxes (+1.1%) and tenant electric
(+1.4%) all pushed slightly higher. Landlords
continued to pull back on concessions, which
fell by 2.3% from $95.00 to $92.83. Tenant
effective rent consequently rose by 5.6%
from $33.13 to $34.97. Landlord effective
rent jumped by 14.4% from $10.93 to
$12.50.
Total
Rent
Manhattan (Downtown) Rent Trends
Tenant
Effective
Landlord
Effective
$70
61.07
$60
56.72
51.53
$50
49.83
45.18
$40
39.17
$30
29.78
40.52
40.54
28.87
29.44
40.43
41.34
35.00
$20
$10
11.58
10.51
26.99
23.24
20.28
34.97
33.13
30.93
28.45
47.78
46.24
43.74
10.58
22.17
12.50
10.93
9.27
5.08
$0
Manhattan (Midtown)
Total rent posted a 3.0% increase from
$74.68 to $76.90. Net rent rose by 5.4%
from $42.95 to $45.25. Operating expenses
ticked up by 0.4% from $13.50 to $13.55,
and tenant electric grew by 0.6% from
$3.28 to $3.30. In contrast, real estate taxes
decreased by 1.0% from $14.95 to $14.80.
The value of concession packages increased
by 3.6% from $115.15 to $119.28. Tenant
effective rent rose by 2.3% from $58.79 to
$60.14. Landlord effective rent jumped by
5.9% from $27.80 to $29.44.
STUDLEY EFFECTIVE RENT INDEX 2014
2003
2004
2005
2006
2007
2008
2009
2010
Total
Rent
Manhattan (Midtown) Rent Trends
2011
2012
Tenant
Effective
2013
Landlord
Effective
$120
102.45
$100
88.02
$80
$60
73.34
62.32
50.48
64.46
$20
92.24
94.59
80.68
78.03
63.96
62.99
53.37
$40
$0
29
0.71
63.13
52.17
51.23
47.26
59.00
76.90
74.30
74.68
58.43
58.79
60.44
28.10
27.80
29.44
2011
2012
2013
44.10
37.35
26.70
29.06
19.21
2003
2004
2005
2006
2007
2008
2009
15.40
2010
SERI2014
New Jersey
Following five years of decline, total rent
rose somewhat (+1.6% from $27.02 to
$27.25). Also reversing a trend, net rent
increased by 1.0% from $13.67 to $13.80.
Operating expenses (+0.2%), real estate
taxes (+1.6%) and tenant electric (+1.7%)
recorded moderate growth. Concessions
again ticked up slightly, by 2.6% to $58.50.
Tenant effective rent ticked up by 0.1% to
19.18 and landlord effective rent dipped by
1.1% to $5.62.
Total
Rent
New Jersey Rent Trends
$30
$25
26.50
22.80
27.60
27.78
23.90
23.34
28.49
28.66
24.05
23.85
29.32
22.66
$20
28.45
21.21
28.11
27.72
20.52
19.92
7.05
6.41
2010
2011
27.02
27.25
19.15
19.18
5.68
5.62
2012
2013
$15
$10
$0
Total rent ticked up from $30.22 to $30.23
(+0.03%). Net rent rose by 1.3% from
$15.60 to $15.80 and real estate taxes
jumped by 7.9% from $3.69 to $3.98.
In contrast, operating expenses fell by
5.4% from $8.93 to $8.45. Tenant electric
was unchanged at $2.00. The value of
concession packages dipped by 6.2% to
$54.60 from $58.21 in 2012.Tenants saw a
third year of increase as effective rent grew
to $22.70 from $22.19, up by 2.3% due to
decreasing concession packages and limited
availability. Landlord effective rent rose by
8.9% from $7.87 to $8.57.
Landlord
Effective
$35
10.93
11.84
11.18
11.20
10.86
9.02
7.68
$5
Philadelphia
Tenant
Effective
2003
2004
2005
2006
2007
2008
2009
Total
Rent
Philadelphia Rent Trends
Tenant
Effective
Landlord
Effective
$35
$30
30.95
27.35
$25
24.74
21.14
$20
28.92
30.50
29.33
28.90
23.12
22.69
26.50
19.84
21.52
23.10
28.21
28.31
19.93
20.28
6.97
6.73
2010
2011
30.22
30.23
22.19
22.70
$15
$10
12.02
8.74
7.79
9.10
10.28
10.28
9.78
$5
$0
2003
2004
2005
2006
2007
2008
2009
7.87
2012
8.57
2013
STUDLEY EFFECTIVE RENT INDEX 2014
30
CBD Rent Trends
San Diego
After five years of decrease, total rent rose
by 1.2% to $30.40. Net rent increased
by 1.6% to $15.75. Operating expenses
(+0.1%), real estate taxes (+1.1%) and
electricity (+1.8%) all rose moderately.
Reversing a trend, the value of concession
packages declined by 4.3% to $55.00.
Tenant effective rent grew by 4.3% to
$20.05. Landlord effective rent, which had
dropped dramatically during the previous
year, rebounded somewhat with an increase
of 11.9% to $7.06.
Total rent, $59.80, posted a 2.5% year-onyear increase. Net rent rose for the third
year in a row, by 3.3% to $39.25. Operating
expenses (+0.8%), real estate taxes (+1.0%)
and electricity (+1.5%) recorded moderate
gains. The value of concession packages
dipped by 2.9% from $72.00 to $69.93.
Tenant effective rent increased by 3.7% from
$47.24 to $49.01. Landlord effective rent
also rose, jumping by 5.7% from $28.43 to
$30.05.
$45
43.89
$40
39.63
$35
$30
$25
$20
$15
30.86
27.45
32.95
36.76
37.13
33.35
33.72
33.38
32.32
29.54
26.13
21.09
17.91
37.71
23.88
24.54
20.90
22.95
31.39
21.79
18.07
11.76
10.09
8.91
$5
2003
2004
2005
2006
2007
2008
2009
2010
Total
Rent
San Francisco Rent Trends
2011
30.04
30.40
19.22
20.05
6.31
7.06
2012
2013
Tenant
Effective
Landlord
Effective
$70
$60
59.79
53.06
$50
$30
57.93
49.79
55.06
46.26
42.38
$40
33.95
34.95
26.83
27.83
12.81
13.31
2003
2004
36.21
35.26
35.54
29.62
$20
$0
STUDLEY EFFECTIVE RENT INDEX 2014
Landlord
Effective
43.42
$10
$10
31
Tenant
Effective
$50
$0
San Francisco
Total
Rent
San Diego Rent Trends
32.23
28.60
53.15
43.88
25.81
55.75
58.35
46.57
47.24
28.11
28.43
2011
2012
59.80
49.01
30.05
20.19
15.08
2005
2006
2007
2008
2009
2010
2013
SERI2014
Tampa Bay
Total rent rose by 2.8%, increasing
from $26.50 to $27.25. This increase
is attributable to a 3.9% rise in net rent
($16.10) and a jump of 2.7% in operating
expenses ($5.65). Real estate taxes ($3.00)
and electricity ($2.50) remained stable.
Landlords reduced concessions for the third
year in a row, and the value of concession
packages fell by 12.7% to $45.46. Tenant
effective rent consequently rose by 8.6% to
$20.98. Landlord effective rent increased for
the third consecutive year, jumping by 17.3%
to $9.71.
After recording a decline during the prior
year, total rent was essentially flat, inching
0.4% higher to $64.68. Net rent increased
by 1.3% to $40.25. Real estate taxes
climbed by 1.9% to $12.58 and electricity
rose slightly. In contrast, operating expenses
declined by 5.8% to $9.00. The value of
concession packages continued its ascent
(+13.5% to $136.21) as landlords were
still forced to be very aggressive. Tenant
effective rent fell for the second consecutive
year, declining by 4.2% to $45.89. Landlord
effective rent posted a 9.3% decrease to
$21.06.
Tenant
Effective
Landlord
Effective
$30
26.75
$25
$20
$15
$5
27.00
25.00
21.25
22.00
23.00
20.56
16.00
16.67
6.05
6.40
2003
2004
17.65
6.61
5.81
2006
26.50
18.23
18.59
7.19
7.55
2010
2011
26.50
2007
27.25
19.31
10.75
7.39
2005
26.50
20.98
16.93
11.18
26.50
21.57
18.73
$10
$0
Washington, DC
Total
Rent
Tampa Bay Rent Trends
2008
2009
Total
Rent
Washington, DC Rent Trends
8.27
2012
Tenant
Effective
9.71
2013
Landlord
Effective
$80
$70
$60
$50
$40
$30
51.25
43.11
27.41
53.00
44.86
27.33
55.50
48.10
28.22
58.50
63.75
64.00
54.87
53.64
49.99
29.00
65.75
67.00
68.21
53.20
52.82
47.89
47.67
31.39
27.90
26.32
26.08
21.09
$20
64.45
23.22
64.68
45.89
21.06
$10
$0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
STUDLEY EFFECTIVE RENT INDEX 2014
32
Suburban Rent Trends
Fort Lauderdale
Total rent rose by 1.0% from $33.60 to
$33.93 as net rent inched up by 1.4% to
$18.50. Operating expenses increased by
0.6% from $8.70 to $8.75 and tenant electric
increased by 1.0% from $2.90 to $2.93. Real
estate taxes were unchanged, remaining at
$3.75. The value of concession packages
pushed lower, falling by 5.0%, from $50.00
to $47.50. Tenant effective rent rose by 2.5%
from $26.70 to $27.38. Landlord effective
rent posted a 4.9% jump from $12.41 to
$13.02.
Total rent ended a four-year stretch of
declines, inching up by 2.5% to $27.52.
Net rent ticked up from $16.36 to $16.42, a
0.4% increase. Operating expenses (+6.6%)
and real estate taxes (+9.4%) posted sharp
increases to $7.13 and $1.97, respectively.
Tenant electric was unchanged. Landlords
pulled back on concessions for the second
year in a row – decreasing them by 9.1%
to $50.00. Stable rents coupled with lower
concessions caused tenant effective rent to
rise by 7.1% from $19.26 to $20.62. Landlord
effective rent in turn grew by 7.5% from
$9.65 to $10.37.
33
STUDLEY EFFECTIVE RENT INDEX 2014
Tenant
Effective
Landlord
Effective
$45
$40
36.50
$35
$30
$25
$20
31.50
28.08
25.58
$10
33.00
30.58
38.25
34.70
32.33
33.50
33.47
33.10
33.60
33.93
25.67
26.33
25.99
26.70
27.38
11.27
11.87
12.41
13.02
2010
2011
2012
2013
28.49
27.08
22.16
15.69
$15
9.99
10.78
2003
2004
16.48
16.64
14.35
12.10
$5
$0
Orange County
Total
Rent
Fort Lauderdale Rent Trends
2005
2006
2007
2008
2009
Total
Rent
Orange County Rent Trends
Tenant
Effective
Landlord
Effective
$45
$40
39.00
$35
34.86
$30
$25
28.20
23.02
28.80
27.59
26.97
26.85
19.31
18.69
19.26
9.34
8.61
2010
2011
27.52
24.51
21.82
17.88
14.10
33.60
27.68
27.36
24.52
$20
$15
32.47
31.80
29.40
36.91
21.21
17.15
15.46
11.26
$10
20.62
9.65
10.37
2012
2013
$5
$0
2003
2004
2005
2006
2007
2008
2009
SERI2014
Silicon Valley
Total rent rose by 7.4% to $40.45. Net rent
pushed higher for the third year in a row,
rising by 11.1% to $25.00. Tenant electric
inched up by 1.6% to $3.10. Real estate
taxes rose by 3.9% to $3.95
and operating expenses ticked up by
1.2% to $8.40. Landlords pulled back on
concessions, which dropped by 8.3% to
27.50. Tenant effective rent rose by 9.8%
to $35.95. Landlord effective rent also
increased, jumping by 14.5% to $23.07, its
highest mark since 2001.
Total rent posted its second consecutive
year of decline, sliding by 8.4% from $40.25
to $36.85. Net rent dropped by 12.3% from
$28.50 to $25.00, and real estate taxes fell
by 9.4% from $3.20 to $2.90. In contrast,
operating expenses (+6.2% from $5.65 to
$6.00) and tenant electric (+1.7% from $2.90
to $2.95) rose moderately. Concessions
increased by 4.4% from $79.50 to $82.99.
Tenant effective rent declined for the second
straight year, falling by 13.3% from $29.28 to
$25.40. Landlord effective rent dipped even
more significantly from $18.19 to $14.46
(-20.5%).
Tenant
Effective
Landlord
Effective
$45
$40
$35
$30
$25
$20
40.45
33.00
27.27
29.50
21.31
34.25
34.25
34.25
27.70
27.54
27.37
31.75
27.50
25.20
14.04
11.82
11.15
2004
2005
37.65
37.65
32.74
32.74
20.15
20.15
2011
2012
35.95
28.27
23.07
17.83
$10
34.00
20.95
$15
15.51
15.35
15.18
2007
2008
2009
16.33
$5
$0
Northern Virginia
Total
Rent
Silicon Valley Rent Trends
2003
2006
2010
Total
Rent
Northern Virginia Rent Trends
$45
42.55
$40
36.25
$35
28.75
$25
24.50
$20
20.43
$10
36.40
35.68
33.50
$30
$15
Tenant
Effective
12.58
26.10
22.83
36.85
31.23
25.89
23.58
24.56
23.86
13.99
14.45
2004
2005
15.72
13.95
13.30
2008
2009
29.28
25.40
24.78
20.15
16.64
Landlord
Effective
40.25
35.82
29.50
2013
18.19
14.46
14.17
$5
$0
2003
2006
2007
2010
2011
2012
2013
STUDLEY EFFECTIVE RENT INDEX 2014
34
Suburban Rent Trends
Suburban Tenant and
Landlord Effective Rent
Tenant effective rents fell in six markets,
most notably in Northern Virginia (-13.3%)
and West Palm Beach, Florida (-13.6%).
They rose in the ten remaining markets,
most significantly in Silicon Valley, California
(+9.8%) and West Loop/Galleria, Texas
(+18.9%). The highest tenant effective
rents were recorded in Fairfield County,
Connecticut ($32.75) and Silicon Valley
($35.95). Raleigh/Durham, North Carolina
($13.35), Lake County, Illinois ($15.50) and
Central Perimeter, Georgia ($15.96) posted
the lowest rates.
Suburban Tenant Effective Rent Comparison: Percentage Change 2012 - 2013
West Loop/Galleria, TX
Silicon Valley, CA
Orange County, CA
North Dallas Corridor
Central Perimeter, GA
DuPage County, IL
Southeast, CO
Raleigh/Durham, NC
Fort Lauderdale, FL
Main Line/Conshohocken, PA
Cook County, IL
Long Island, NY
Lake County, IL
Fairfield County, CT
Westchester, NY
Northern Virginia
West Palm Beach, FL
-15%
4.8%
4.8%
7.1%
18.9%
9.8%
3.0%
2.9%
2.7%
2.5%
2.2%
1.1%
-0.2%
-1.0%
-1.4%
-1.4%
-13.3%
-13.6%
-10%
-5%
0%
5%
10%
15%
20%
Suburban Landlord Effective Rent Comparison: Percentage Change 2012 - 2013
On an annual comparison, landlord
effective rents declined in six markets, with
Northern Virginia registering the greatest
drop (-20.5%). Rates rose in the other 11
markets, with the most substantial jumps
occurring in the North Dallas Corridor
(+21.9%) and West Loop/Galleria (+31.6%).
Landlord effective rents were highest in
West Palm Beach ($19.79) and Silicon
Valley ($23.07). They were lowest in
Cook County, Illinois ($3.74) and Central
Perimeter ($4.76).
West Loop/Galleria, TX
North Dallas Corridor
Cook County, IL
Silicon Valley, CA
Central Perimeter, GA
DuPage County, IL
Raleigh/Durham, NC
Orange County, CA
Fort Lauderdale, FL
Southeast, CO
Main Line/Conshohocken, PA
West Palm Beach, FL
Long Island, NY
Lake County, IL
Fairfield County, CT
Westchester, NY
Northern Virginia
-25%
35
STUDLEY EFFECTIVE RENT INDEX 2014
31.6%
21.9%
19.5%
14.5%
13.6%
9.9%
8.8%
7.5%
4.9%
4.9%
0.7%
-1.1%
-1.3%
-2.8%
-3.2%
-4.8%
-20.5%
-15%
-5%
5%
15%
25%
35%
$5
$0
Raleigh/Durham, NC
$4
$0
$5.25
Cook County, IL
$6.08
$3.74
2008
2012
Central Perimeter, GA
$4.76
Lake County, IL
$7.23
$10
DuPage County, IL
$8.17
$8.45
$10.17
$10.37
$11.60
$13.02
$14.46
$15.33
$15.68
$17.79
$19.79
$23.07
Suburban Landlord Effective Rent
North Dallas Corridor
Southeast, CO
$8
Raleigh/Durham, NC
Westchester, NY
Orange County, CA
Long Island, NY
$12
Fort Lauderdale, FL
Northern Virginia
Main Line/Conshohocken, PA
Fairfield County, CT
$16
West Loop/Galleria, TX
$20
West Palm Beach, FL
2013
Silicon Valley, CA
$13.35
$15.50
$15.96
$16.73
$16.87
2012
Lake County, IL
Central Perimeter, GA
DuPage County, IL
Southeast, CO
$15
$17.49
$20.62
$20.99
$25.40
$27.38
$28.05
$28.06
$28.11
$29.15
$32.73
$33.26
$35.95
Suburban Tenant Effective Rent
Cook County, IL
Orange County, CA
$20
North Dallas Corridor
Northern Virginia
$25
Fort Lauderdale, FL
Long Island, NY
Main Line/Conshohocken, PA
Westchester, NY
West Loop/Galleria, TX
$30
West Palm Beach, FL
Fairfield County, CT
$35
Silicon Valley, CA
SERI2014
2009
2013
$40
$24
STUDLEY EFFECTIVE RENT INDEX 2014
36
Glossary
Net Rent (Base Rent)
The gross rental rate exclusive of the tenant’s proportionate share of real estate taxes, operating expenses and tenant
electricity.
Operating Expenses
Includes (1) heating, ventilation and air conditioning (HVAC); (2) maintenance; (3) common area utilities and electricity; (4)
cleaning; and (5) all other non-capital costs associated with the operation of a building.
Real Estate Taxes
Local real estate taxes exclusive of special assessments and other one-time charges.
Tenant Electricity
Payments made by the tenant, whether to the landlord or public utility, or by the landlord, as a general building expense, for the
electrical power utilized within a tenant’s premises, exclusive of building HVAC.
Total Rent (Gross Rent)
The sum of the four rental rate components: net rent, operating expenses, real estate taxes and electricity.
Concessions
Includes tenant improvements, free rent and other non-rent incentives that a tenant may receive as part of the lease terms.
The dollar value of the concession package is calculated as the total value of free rent and tenant improvements.
Tenant Effective Rent
An estimate of the actual cost of occupancy for the tenant.
The calculation is the total rent minus lease concessions, which are amortized over the average lease term in the market, using
an 8.0% interest rate and beginning-of-period payments.
Landlord Effective Rent
An estimate of rent received from a tenant less related expenses.
The calculation is the total rent less operating expenses, real estate taxes, concessions and commissions. [This estimated rent
is determined without consideration of a landlord’s debt service obligation, if any, since financing structures are complex and
involve far too many variables to be factorable.]
37
STUDLEY EFFECTIVE RENT INDEX 2014
SERI2014
SERI Supplement
U. S. GDP - Post WWII
GDP grew by less than 2.0% in the first half of 2013 but pushed to 2.0% in the third quarter, with a further increase to 2.6% in the fourth quarter.
Consumer spending sparked most of the fourth quarter jump, suggesting that households were not immobilized by the sequestration and general
gridlock at the federal level. Nevertheless, the U.S. economy continues to expand at a pace that falls well short of prior cycles.
16.0%
Source: U.S. BEA
1950s: AGR
+6.7%
14.0%
1960s: AGR
+4.9%
12.0%
1970s: AGR
+5.1%
1980s: AGR
+4.1%
10.0%
1990s: AGR
+3.7%
8.0%
04‐08: AGR
+2.6%
6.0%
2010‐13:
AGR +2.2%
4.0%
2.0%
0.0%
-2.0%
2012Q3
2011Q1
2009Q3
2008Q1
2006Q3
2005Q1
2003Q3
2002Q1
2000Q3
1999Q1
1997Q3
1996Q1
1994Q3
1993Q1
1991Q3
1990Q1
1988Q3
1987Q1
1985Q3
1984Q1
1982Q3
1981Q1
1979Q3
1978Q1
1976Q3
1975Q1
1973Q3
1972Q1
1970Q3
1969Q1
1967Q3
1966Q1
1964Q3
1963Q1
1961Q3
1960Q1
1958Q3
1957Q1
1955Q3
1954Q1
1952Q3
1951Q1
1949Q3
-6.0%
1948Q1
-4.0%
*
STUDLEY EFFECTIVE RENT INDEX 2014
38
SERI Supplement - U.S. Economy
Dow Jones Industrial Average (1990 - 2013)
The Dow suffered several sharp declines between 2009 and 2011, precipitated by events such as Eurozone turbulence and periodic standoffs in
Washington over the debt ceiling and federal budget. The market has registered steady gains in 2013, though, and ended the year at a new peak
of 16,577. The latest equity recovery has helped high-income households recover a significant portion of the wealth they lost during the recession.
Source: Dow Jones & Co.
18,000
4Q 2013: 16,577
16,000
3Q 2007: 13,895
14,000
Stock Price Index
12,000
10,000
8,000
1Q 2009: 7,609
6,000
4,000
39
STUDLEY EFFECTIVE RENT INDEX 2014
2013Q3
2013Q1
2012Q3
2012Q1
2011Q3
2011Q1
2010Q3
2010Q1
2009Q3
2009Q1
2008Q3
2008Q1
2007Q3
2007Q1
2006Q3
2006Q1
2005Q3
2005Q1
2004Q3
2004Q1
2003Q3
2003Q1
2002Q3
2002Q1
2001Q3
2001Q1
2000Q3
2000Q1
1999Q3
1999Q1
1998Q3
1998Q1
1997Q3
1997Q1
1996Q3
1996Q1
1995Q3
1995Q1
1994Q3
1994Q1
1993Q3
1993Q1
1992Q3
1992Q1
1991Q3
1991Q1
1990Q3
0
1990Q1
2,000
SERI2014
Home Prices, Case-Shiller 20-City Composite Index (2000 - 2013)
Home prices - another key determinant of household wealth – are three years into recovery. Based on the Case-Shiller 20-City Composite Index,
pricing has increased by a cumulative 20.8% since it hit a low point in late 2011. Price growth appears to have lost some momentum recently.
2.5%
2.0%
2000‐2006:
105.4% increase
Since 2011:
20.8% increase
1.5%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
STUDLEY EFFECTIVE RENT INDEX 2014
Oct‐13
May‐13
Dec‐12
Jul‐12
Feb‐12
Sep‐11
Apr‐11
Nov‐10
Jun‐10
Jan‐10
Aug‐09
Mar‐09
Oct‐08
May‐08
Dec‐07
Jul‐07
Feb‐07
Sep‐06
Apr‐06
Nov‐05
Jun‐05
Jan‐05
Aug‐04
Mar‐04
Oct‐03
May‐03
Dec‐02
Jul‐02
Feb‐02
Sep‐01
Apr‐01
Nov‐00
Jun‐00
-2.5%
2007‐ 2011:
51.0% decline
Jan‐00
Monthly Change
1.0%
40
SERI Supplement
New & Existing Home Sales (1968 - 2013)
The housing market started to add to the U.S. economy in 2012 as home sales rose and homebuilders ramped up activity. Still, housing sales
remain well below their peak levels. Existing home sales have averaged 4.47 million units annually since the start of 2011 (about two-thirds of
their peak of 6.18 million in 2006) and new home sales averaged just under 430,000 units (about one-fourth of their peak of 1.28 million in 2006).
New home sales have showed signs of escalating more recently, though, as the stock of unsold homes falls.
9,000
Source: NAR
New Home Sales
Existing Home Sales
8,000
2006 average: 6.18 m existing,
1.28 new homes
Thousands of Sales
7,000
6,000
12‐month avg: 4.47 m existing,
429k new homes
5,000
4,000
3,000
2,000
41
STUDLEY EFFECTIVE RENT INDEX 2014
May-13
Jan-12
Sep-10
May-09
Jan-08
Sep-06
May-05
Jan-04
Sep-02
May-01
Jan-00
Sep-98
May-97
Jan-96
Sep-94
May-93
Jan-92
Sep-90
May-89
Jan-88
Sep-86
May-85
Jan-84
Sep-82
May-81
Jan-80
Sep-78
May-77
Jan-76
Sep-74
May-73
Jan-72
Sep-70
May-69
0
Jan-68
1,000
Apr-03
Dec-13
Apr-13
Aug-12
Dec-11
Apr-11
Aug-10
1,400
Dec-09
Apr-09
Aug-08
Dec-07
Apr-07
Aug-06
Dec-05
Apr-05
Aug-04
Dec-03
2,000
Aug-02
Dec-01
Apr-01
Aug-00
Dec-99
Apr-99
Aug-98
Dec-97
Apr-97
Aug-96
Dec-95
Apr-95
Aug-94
Dec-93
Apr-93
Aug-92
Dec-91
Apr-91
Aug-90
Dec-89
Apr-89
Aug-88
Dec-87
Apr-87
Aug-86
Dec-85
Apr-85
Aug-84
Dec-83
Apr-83
Aug-82
Dec-81
Apr-81
Aug-80
Dec-79
Thousands of Sales
SERI2014
U.S. Auto Sales (1980- 2013)
Auto sales have increased steadily from the low point reached in 2009, but remain about 25% below their pre-recession levels.
2001 ‐ 2007 average:
1.43 m per month
Source: BEA
1,800
1,600
2008 ‐ 2013 average:
1.10 m per month
1,200
1,000
800
600
400
200
0
STUDLEY EFFECTIVE RENT INDEX 2014
42
SERI Supplement
U.S. Median Household Income (1990 - 2011)
On an inflation-adjusted basis, median household income finally showed some signs of improvement in 2011. Even so, even without inflation
adjustments, household income is well below its pre-recession peak levels.
$58,000
$56,000
$54,000
$52,000
$50,000
$48,000
$46,000
U.S. Median HH Income
$44,000
43
STUDLEY EFFECTIVE RENT INDEX 2014
Source: BOC
SERI2014
Total Outstanding Consumer Installment Credit (1980 - 2013)
Consumer installment credit – such as credit cards, bank cards and other revolving debt – has spiked over the last few decades. Until the most
recent recession, households supplemented income with gains from higher home prices and home equity loans. They also padded spending
power with credit card debt. Households lowered this debt slightly between 2008 and 2010. The debt service has improved due to higher savings
and recent improvement in employment, but outstanding credit has started to rise again as households and banks have both gained confidence.
Sept. 2013:
$3.06 trillion
$3,000
July 2008:
$2.58 trillion
July 2010:
$2.39 trillion
$2,500
$2,000
$1,500
$1,000
$500
Jun-13
Jun-12
Dec-12
Jun-11
Dec-11
Jun-10
Dec-10
Jun-09
Dec-09
Jun-08
Dec-08
Jun-07
Dec-07
Jun-06
Dec-06
Jun-05
Dec-05
Jun-04
Dec-04
Jun-03
Dec-03
Jun-02
Dec-02
Jun-01
Dec-01
Jun-00
Dec-00
Jun-99
Dec-99
Jun-98
Dec-98
Jun-97
Dec-97
Jun-96
Dec-96
Jun-95
Dec-95
Jun-94
Dec-94
Jun-93
Dec-93
Jun-92
Dec-92
Jun-91
Dec-91
Jun-90
Dec-90
Jun-89
Dec-89
Jun-88
Dec-88
Jun-87
Dec-87
Jun-86
Dec-86
Jun-85
Dec-85
Jun-84
Dec-84
Jun-83
Dec-83
Jun-82
Dec-82
Jun-81
Dec-81
Source: U.S. Board of Governors of the Federal Reserve System
$0
Dec-80
Total Outstanding Consumer Installment Credit (Billions $)
$3,500
STUDLEY EFFECTIVE RENT INDEX 2014
44
SERI Supplement
Mortgage Delinquency Rates (1980 - 2013)
Another area of improvement for the U.S. housing market has been the steady decline in delinquency rates from a range of 9.0% to 10.0% in
early 2010 to currently less than 8.0% in all regions. Delinquency has remained much higher in the Northeast and South. In contrast, the West has
gone from a delinquency rate of nearly 10.0% in 2010 to a sub-5.0% rate, by far the lowest among the four regions.
Northeast
West
South
Midwest
12.0%
8.0%
6.0%
4.0%
2.0%
Source: MBA
45
STUDLEY EFFECTIVE RENT INDEX 2014
0.0%
Delinquency Rate
10.0%
SERI2014
Corporate Financial Assets Less Liabilities (1990 - 2013)
Corporate balance sheets are in much better shape than household balance sheets. As of the third quarter of 2013, corporate financial assets
less liabilities totaled a record $1.42 trillion. High-profit margins and low business costs (including low interest rates, leaner payrolls and reduced
real estate costs), coupled with shaky household finances, have the majority of economists looking to the corporate sector to boost economic
expansion. Businesses have remained reluctant to increase their payrolls and have continued to keep capital expenditures in check, primarily
replacing equipment that has become obsolescent.
$ 1.42
$1.50
$1.00
$0.50
$0.00
-$0.50
-$1.00
2013Q1
2012Q1
2011Q1
2010Q1
2009Q1
2008Q1
2007Q1
2006Q1
2005Q1
2004Q1
2003Q1
2002Q1
2001Q1
2000Q1
1999Q1
1998Q1
1997Q1
1996Q1
1995Q1
1994Q1
1993Q1
1992Q1
1991Q1
1990Q1
1989Q1
1988Q1
1987Q1
1986Q1
1985Q1
1984Q1
1983Q1
1982Q1
-$1.50
1981Q1
Source: Federal Reserve
1980Q1
Corporate Financial Assets less Liabilities (Trillions $)
$2.00
STUDLEY EFFECTIVE RENT INDEX 2014
46
SERI Supplement
U.S. Overall Monthly Employment Trends (2008 - January 2014)
Overall employment has increased 40 months in a row (every month since October of 2010) with an average gain of 193,500 jobs in 2013, up
from 172,700 gained during the same period in 2012. Initial unemployment claims have also been declining to pre-recession norms. The average
monthly gain since the recovery started (180,000) is still only about half of the average monthly loss (349,000) in the recession.
600,000
400,000
-8.7 million
Avg. -349k per month
+7.2 million,
Average: +180k per month
200,000
-200,000
-400,000
-600,000
-800,000
-1,000,000
47
STUDLEY EFFECTIVE RENT INDEX 2014
Job Growth / Loss
0
SERI2014
U.S. Monthly Office-Using Employment Trends (2008 - January 2014)
During the last four years, office-using employment – which includes the financial, professional/business services and information sectors – has
been slowly but consistently increasing, with losses in only four months since September of 2009. Employers have added 2.48 million office-using
jobs since the start of 2010, just above the 2.4 million shed in the recession.
150,000
100,000
Job Growth / Loss
50,000
-2.4 million
0
-50,000
-100,000
+2.48 million
-150,000
-200,000
-250,000
-300,000
Source: BLS
*
STUDLEY EFFECTIVE RENT INDEX 2014
48
SERI Supplement - Office Market
Office-Using Employment, Net Absorption and Availability Rates (2013)
Thirteen of the top U.S. office markets registered office-using employment growth of 2.0% or more in 2013. Tampa Bay (+4.4%), Dallas/Fort
Worth (+4.0%) and Houston (+3.9%) posted the strongest growth. Dallas/Fort Worth and Houston’s strong employment growth translated
into positive net absorption in excess of 4.5 msf in both markets, while Atlanta (3.6 msf) and Boston (4.5 msf) also registered very strong net
absorption. All Northeast markets (excluding Boston) posted job growth under 1.0%, and New Jersey (-1.8%) was the only market with a loss.
Office-Using Employment (Average Annaul Growth)
5.0%
DFW (4.0%, 4.5 msf,
20.8% )
TAM
4.0%
Market
HOU
3.0%
CHI
L.A.
SFO
SFL
DEN
OC SEA
2.0%
NYC (0.4%, +197k,
12.4%
1.0%
WDC
ATL SVL
BOS
SDO
PHI
0.0%
-1.0
0.0
1.0
2.0
3.0
4.0
-1.0%
NNJ
-2.0%
-3.0%
Net Absorption (Last 12 Months) - Millions of Square Feet
5.0
6.0
Atlanta (ATL)
Boston (BOS)
Chicago (CHI)
Denver (DEN)
Dallas/Fort Worth (DFW)
Houston (HOU)
Los Angeles (L.A.)
Northern New Jersey (NNJ)
New York City (NYC)
Orange County (OC)
Philadelphia (PHI)
San Diego (SDO)
Seattle (SEA)
South Florida (SFL)
San Francisco (SFO)
Silicon Valley (SVL)
Tampa Bay (TAM)
Washington, DC (DC)
Source: BLS
49
STUDLEY EFFECTIVE RENT INDEX 2014
Year-on-Year Change
Office Emp. Net Abs.
2.3%
2.3%
2.7%
2.4%
4.0%
3.9%
2.7%
-1.8%
0.4%
2.2%
0.9%
0.5%
2.1%
2.3%
2.6%
2.4%
4.4%
0.6%
Avail Rate
3,597,566
22.7%
4,464,477
16.0%
2,617,312
17.3%
2,113,335
17.6%
4,539,514
20.8%
4,978,953
18.3%
2,048,906
19.0%
3,007,588
20.4%
197,046
12.4%
1,554,947
15.5%
2,266,215
17.3%
1,110,870
12.5%
1,849,196
16.8%
1,430,175
20.5%
2,475,623
10.8%
3,841,395
1,788,063
720,800
11.9%
20.7%
14.0%
SERI2014
National Office-Using Employment & Availability Rates (2000 - 2013)
The U.S has added an average of 150,542 office-using jobs per quarter in this recovery, exceeding the quarterly average of 122,796 jobs gained
in the last expansion. Nevertheless, availability rates have fallen more slowly, in part due to unleased new construction but also because of a
widespread effort by companies to consolidate multiple locations and lease less space per employee. Sixteen quarters after peaking at 18.8%,
the availability rate has fallen by only 1.5 pp, a fraction of the 4.4 pp decline in the first sixteen quarters of the last recovery.
Quarterly Job Loss
Quarterly Job Gain
400,000
Availability Rate
20.0%
peak: 18.8%
300,000
peak: 17.7%
17.5%
200,000
peak + 16 qtrs 17.3%
15.0%
0
-100,000
peak + 16 qtrs: 13.3%
13.5%
12.5%
-200,000
-300,000
8.4%
Avg. Qtrly. job growth: 150,542
Availability Rate
Job Growth/Loss
100,000
10.0%
-400,000
-500,000
7.5%
-600,000
-700,000
Source: Studley/BLS
5.0%
STUDLEY EFFECTIVE RENT INDEX 2014
50
SERI Supplement
Leasing Volume as a Percentage of Historical Average (2013)
Trailing leasing volume in the top U.S. office markets exceeded its long-term historical average by 7.6% during 2013. Philadelphia’s CBD
(+74.3%), Dallas/Fort Worth (+28.0%), San Francisco (+22.8%) and Houston (+21.6%) registered the most significant above-average leasing.
Leasing volume in Silicon Valley (-14.6%) is likely understated – tenants requiring bigger blocks of space (in excess of 100,000 sf) have opted for
owner-user purchases and build-to-suits, circumventing the leasing market. Also of note, leasing in Washington, DC and the DC suburbs fell short
of its historical average during 2013.
New Jersey, 74.8%
Washington, DC, 80.7%
San Diego, 83.6%
Silicon Valley, 85.4%
Orange County, 88.1%
Suburban Maryland, 92.3%
Suburban Philadelphia, 93.9%
Chicago CBD, 101.4%
Los Angeles , 106.5%
National , 107.6%
Northern Virginia, 109.1%
Denver , 109.4%
South Florida, 115.3%
Tampa Bay, 116.7%
Manhattan, 116.8%
Atlanta , 119.3%
Houston , 121.6%
San Francisco, 122.8%
Dallas/Fort Worth , 128.0%
Philadelphia, 174.3%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
Source: Studley
51
STUDLEY EFFECTIVE RENT INDEX 2014
180.0%
SERI2014
Un-Leased & Pre-Leased New Construction (Year-End 2013)
New construction has been picking up momentum in a handful of markets. The top five markets in terms of new construction activity -- Houston
(12.0 msf); Manhattan (8.7 msf); Washington, DC (5.1 msf); Dallas/Fort Worth (4.8 msf) and San Francisco (4.1 msf) have a combined total of 34.6
msf under construction. The next 12 markets only have 15.5 msf underway. Of note, Manhattan, Washington, DC and San Francisco have the
most amount of un-leased new construction. Many of the companies moving into new buildings will vacate big blocks of space.
Millions of Square Feet Unleased/Pre-leased
0
2
Houston
4.5
Washington, DC
2.1
Dallas/Fort Worth
Los Angeles
Philadelphia
San Diego
Miami-Dade
2.8
1.6
2.2
1.9
0.6
0.3
Un-leased New
Construction
Pre-leased
1.7
1.0
Chicago
12
3.0
0.4
Denver
Raleigh/Durham
10
4.2
2.5
Northern New Jersey
Orange County
8
8.7
2.0
San Francisco
Atlanta
6
3.3
Manhattan
Silicon Valley
4
0.8
0.7
0.8
1.3
0.1
0.9
0.3
0.5
0.4
0.2
0.6
0.5
0.3
0.1
STUDLEY EFFECTIVE RENT INDEX 2014
52
SERI Supplement
Tenant Effective
Rent
Inflation-Adjusted Rents and Concessions (2003 - 2013)
Landlord
Effective Rent
Amortized
Concessions
Adjusted for inflation, tenant effective rent rose to $41.74 in 2013 – based on 2003 dollars, tenants are paying slightly more than they did in
2005. Landlord effective rent ($19.88) is just below 2005 levels but concessions are as high as they have been in the last decade. Landlord
effective rents remain low due to elevated concessions and a steady rise in expenses.
$14
$60
$12
Landlord & Tenant Eff. Rent
$50
$10
$40
$8
$30
$6
$20
$4
$10
$0
CONC
TER
LER
$2
2003
$8.16
$34.44
$17.29
2004
$8.01
$35.12
$17.45
2005
$7.88
$38.53
$20.03
2006
$7.89
$45.23
$25.87
2007
$8.35
$51.29
$31.37
2008
$10.15
$48.95
$28.01
2009
$12.72
$37.06
$16.18
2010
$12.06
$36.09
$14.97
2011
$12.56
$39.39
$18.12
2012
$12.69
$40.23
$18.64
2013
$12.85
$41.74
$19.88
Source: Studley
53
STUDLEY EFFECTIVE RENT INDEX 2014
$0
SERI2014
Tenant Effective
Rent
Effective Rent Indexes (Base Year 2003)
Landlord
Effective Rent
Amortized
Concessions
Using an index with a base year of 2003, concession packages were up by 57% relative to 2003 in 2013. Landlord effective rent is 15% above
the base year amount. Tenants were paying about 21% more in inflation-adjusted terms relative to 2003 levels, due primarily to the higher gross
rents in 2013 compared to 2003.
205
TER
LER
Conc
Inflation-Adjusted Index (Base Year 2002)
185
165
157
150
145
125
121
115
105
98
85
87
65
45
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Studley
STUDLEY EFFECTIVE RENT INDEX 2014
54
Corporate Headquarters
399 Park Avenue, 11th Floor
New York, NY 10002
(212) 326-1000
Research Contact
Steve Coutts - SVP, National Research
(212) 326-8610
scoutts@studley.com
Atlanta
Monarch Plaza
3414 Peachtree Road, Suite 1000
Atlanta, GA 30326
(404) 467-0707
Houston
333 Clay Street, Suite 3700
Houston, TX 77002
(713) 522-5300
Philadelphia
Two Liberty Place
50 S. 16th Street, Suite 3400
Philadelphia, PA 19102
(215) 563-4000
Keith DeCoster - Sr. Manager, Analytics
(212) 326-1023
kdecoster@studley.com
Chicago
191 N. Wacker Drive, Suite 2700
Chicago, IL 60606
(312) 595-2900
Los Angeles - Downtown
777 S. Figueroa Street, 30th Floor
Los Angeles, CA 90017
(213) 553-3800
Raleigh
PNC Plaza
301 Fayetteville Street, 15th Floor
Raleigh, NC 27602
(919) 827-1818
Corporate Media Contact
Adam Smolyar - SVP, Public Relations
(212) 326-1078
asmolyar@studley.com
Dallas
15303 Dallas Parkway, Suite 1200
Addison, TX 75001
(972) 739-2200
Los Angeles - West
10960 Wilshire Blvd., Suite 1700
Los Angeles, CA 90024
(310) 444-1000
San Diego
3579 Valley Centre Drive, Suite 100
San Diego, CA 92130
(858) 793-8600
Denver
1050 17th Street, Suite 1650
Denver, CO 80265
(303) 302-5100
New Jersey - Central
99 Wood Avenue, Suite 305
Iselin, NJ 08830
(732) 906-1001
San Francisco
150 California Street, 14th Floor
San Francisco, CA 94111
(415) 421-5900
Denver Tech Center
5445 DTC Parkway, Suite 500
Greenwood Village, CO 80111
(303) 217-2600
New Jersey - North
Continental Plaza III
433 Hackensack Avenue, 12th Floor
Hackensack, NJ 07601
(201) 556-9700
Silicon Valley
2550 Hanover Street
Palo Alto, CA 94304
(650) 845-6400
Florida - South
333 Southeast 2nd Ave., Suite 2800
Miami, FL 33131
(305) 423-1919
New York
399 Park Avenue, 11th Floor
New York, NY 10022
(212) 326-1000
Suburban Washington
1600 Tysons Blvd., Suite 200
McLean, VA 22102
(703) 442-9000
Florida - Tampa
4830 W. Kennedy Blvd., Suite 700
Tampa, FL 33609
(813) 675-7070
Orange County
19100 Von Karman Avenue, Suite 1000
Irvine, CA 92612
(949) 660-3555
Washington, D.C.
555 13th Street, N.W., Suite 420E
Washington, D.C. 20004
(202) 628-6000
Entire contents copyright 2014 Studley