Skyline review 2015

5 key themes shaping the U.S. Skyline

Source: JLL Research

1

Not everyone gets a Trophy…

Average Skyline Trophy rental rate was 77% higher than the Skyline non-Trophy rate

5 key themes shaping the U.S. Skyline

Source: JLL Research

2

Navigating the gulf

The gap between Trophy and non-Trophy rents will widen even further over the near term

5 key themes shaping the U.S. Skyline

Source: JLL Research

3

Is B the new Trophy?

The country’s fastest-growing industries are relatively indifferent to building quality

5 key themes shaping the U.S. Skyline

Source: JLL Research

4 Emerging demand, emerging markets

Emergence of Class B buildings as viable contenders has led to a revitalization of submarkets

5 key themes shaping the U.S. Skyline

Source: JLL Research

5 Fierce competition for quality product

Foreign capital has been a key factor in the current competitive environment

Skyline leverage: 2015

Source: JLL Research

Skyline leverage: 2016

Source: JLL Research

Skyline leverage: 2017

Source: JLL Research

2015 U.S. Skyline office clock

Industry hubs remain farthest along the rent cycle, nearing peak in Houston

Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Dallas, Downtown Los Angeles, Pittsburgh

Austin, Raleigh-Durham, San Francisco

Baltimore, Indianapolis, Newark, Phoenix, San Diego, St. Louis

Bellevue, Century City

Atlanta, Boston, Dallas,

Fort Worth, New York, Philadelphia

Charlotte, Chicago, Orlando, Portland

Cincinnati, West Palm Beach

Cleveland,

Hudson Waterfront,

Richmond

Columbus, Detroit, Washington, DC

Denver, Seattle

Fort Lauderdale, Oakland, Orange County,

Salt Lake City, Tampa

Houston

Stamford

Minneapolis

Sacramento

Miami

Source: JLL Research

Net absorption

12,560,001

10,740,036

162,714

-3,280,790

5,188,038 5,356,018

6,397,451

9,065,381

16,300,836

6,994,948

-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Net

abs

orpt

ion

(s.f.

)

2014 net absorption surpassed previous cycle’s peak; on track for another record in 2015

Source: JLL Research

240,725

245,259

249,920

258,030

335,120

355,686

381,774

529,462

673,005

722,600

780,607

967,410

1,301,290

5,735,210

10,867,621

0 5,000,000 10,000,000 15,000,000

Boston

Baltimore

San Diego

Charlotte

Denver

Miami

Washington, DC

Austin

Philadelphia

Houston

Atlanta

Dallas

San Francisco

Chicago

New York

2.8%

2.8%

2.9%

3.3%

3.3%

3.8%

3.9%

4.2%

4.5%

4.7%

4.7%

5.0%

8.5%

10.3%

11.1%

0% 2% 4% 6% 8% 10% 12%

Cincinnati

Atlanta

Washington, DC

Houston

San Diego

Columbus

Miami

Baltimore

West Palm Beach

Dallas

San Francisco

Fort Lauderdale

Chicago

New York

Austin

Highest net absorption (2014 and Q1 2015, s.f.)

Net absorption

New York and Chicago far surpass all other Skylines in terms of total net absorption since 2014

Fastest net absorption (2014 and Q1 2015, s.f.)

Source: JLL Research

Occupancy

451,406,332

476,823,343

487,563,379 487,792,927 484,512,138

489,700,176 495,056,194

501,453,645

511,860,471

528,104,262

535,099,210

82.0%

83.0%

84.0%

85.0%

86.0%

87.0%

88.0%

89.0%

90.0%

400,000,000

420,000,000

440,000,000

460,000,000

480,000,000

500,000,000

520,000,000

540,000,000

560,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Occ

upan

cy ra

te (

%)

Occ

upan

cy (s

.f.)

Occupancy

Occupancy rate

Occupancy reaches a record 535.1 m.s.f., while occupancy rate is still below previous peak at 86.6%

Source: JLL Research

88.7%

88.7%

89.0%

89.4%

89.8%

89.8%

90.1%

90.8%

91.0%

91.0%

91.1%

92.0%

92.6%

94.2%

97.0%

84% 86% 88% 90% 92% 94% 96% 98%

Raleigh

New York

Boston

Oakland

Richmond

Washington, DC

Baltimore

Charlotte

Houston

St. Louis

Portland

Philadelphia

San Francisco

Pittsburgh

Bellevue

84.8%

84.6%

84.2%

83.1%

83.0%

82.8%

82.2%

81.4%

81.1%

79.6%

79.4%

78.8%

78.0%

74.6%

61.3%

50% 60% 70% 80% 90%

Century City

Sacramento

Columbus

Fort Worth

Hudson Waterfront

Newark

Orange County

Atlanta

Los Angeles

Cleveland

Indianapolis

Cincinnati

Dallas

Phoenix

Stamford

Highest occupancy rates (%)

Occupancy

Nine markets have Skyline occupancy rates exceeding 90.0 percent

Lowest occupancy rates (%)

Source: JLL Research

Total vacancy

67,735,400

63,060,130 61,183,357

65,511,612

81,585,553

87,889,909 86,817,441 90,282,246 88,935,850

82,966,641 83,071,868

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tot

al v

acan

cy (

%)

Tot

al v

acan

cy (

s.f.)

Total vacancy

Vacancy rate

Total vacancy stable in Q1 2015 due to new deliveries; rate at recovery low of 13.4%

Source: JLL Research

Asking rents

$29.01

$30.95

$36.76

$39.06

$35.67 $35.22

$36.70

$39.19

$40.17

$41.08

$42.30

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dire

ct a

vera

ge a

skin

g re

nt (

$ p.

s.f.)

Rents reached a record high of $42.30 per square foot, up 20.1 percent since bottoming in 2010

Source: JLL Research

$38.20

$38.76

$39.30

$39.51

$41.83

$43.92

$44.51

$47.35

$51.14

$51.98

$53.75

$59.46

$68.75

$75.37

$82.97

$0 $20 $40 $60 $80 $100

Hudson Waterfront

Oakland

Los Angeles

Seattle

Miami

Houston

Bellevue

Austin

Century City

Orange County

Stamford

Boston

San Francisco

Washington, DC

New York

$25.92

$25.80

$25.56

$25.04

$24.94

$24.73

$24.43

$24.39

$23.52

$23.21

$22.90

$21.70

$20.88

$20.20

$19.67

$15 $17 $19 $21 $23 $25 $27

Charlotte

Atlanta

Dallas

Orlando

Tampa

Richmond

Baltimore

Salt Lake City

Phoenix

Cincinnati

St. Louis

Detroit

Indianapolis

Cleveland

Columbus

Most expensive Skyline markets ($ p.s.f.)

Asking rents

Skyline rents in numerous markets exceed $50 per square foot

Lease expensive Skyline markets ($ p.s.f.)

Source: JLL Research

Concessions

$35.38 $36.19

$37.69

$39.44

$41.41

$43.28 $43.42 $43.08 $43.95 $43.96

$44.95

3.0

4.0

5.0

6.0

7.0

8.0

9.0

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Fre

e m

onth

s

TI a

llow

ance

($

p.s.

f.)

TI allowance ($ p.s.f.)

Free months

Although TI allowances have risen steadily since 2005, free months are slowly falling

Source: JLL Research

Under construction

18,548,370

21,685,152

25,376,443 26,020,837

19,416,028

10,433,911

6,602,008

11,161,968

13,696,941

23,546,748

28,856,491

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Und

er c

onst

ruct

ion

(s.f.

)

Tightening conditions have prompted the highest level of Skyline construction in a decade

Source: JLL Research

Under construction

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Und

er c

onst

ruct

ion

(s.f.

)

Atlanta Miami Phoenix

Charlotte Raleigh-Durham Orlando

Tampa Fort Lauderdale West Palm Beach

Sun Belt development is slowly returning, but more restrained than during the mid-2000s

Source: JLL Research

Preleasing

9,168,120 9,043,572

10,576,169

13,114,484

8,983,316

4,945,971

3,362,168

6,339,733

8,083,797

10,523,323

12,381,433

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pre

leas

ing

rate

(%

)

Pre

leas

ed (

s.f.)

Preleasing

Preleasing rate

Preleasing is also near record highs, although improved confidence is lowering the preleasing rate

Source: JLL Research

Future completions

5,433,267

14,341,567

5,190,895

2,861,402

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

2015 2016 2017 2018

Und

er c

onst

ruct

ion

(s.f.

)

The vast majority of projects currently underway will deliver in 2016; only 3WTC scheduled for 2018

Source: JLL Research

Sales volume

65,811,910

102,715,918

118,173,930

29,712,811

11,464,307

31,019,912

58,400,893

48,586,797

64,460,298 69,502,660

18,309,764

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sal

es v

olum

e (s

.f.)

Sales activity is slowly growing but remains well below previous peaks

Source: JLL Research

Total sales and pricing

$17,784,804,562

$32,258,475,400

$47,002,733,255

$11,456,603,167

$3,010,753,389

$10,386,706,985

$16,546,878,222

$13,795,739,689

$18,492,700,357

$24,763,181,964

$7,942,562,395

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$0

$5,000,000,000

$10,000,000,000

$15,000,000,000

$20,000,000,000

$25,000,000,000

$30,000,000,000

$35,000,000,000

$40,000,000,000

$45,000,000,000

$50,000,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pre

leas

ing

rate

(%

)

Pre

leas

ed (

s.f.)

Total sales Sales pricing

Even though sales volume and total sales are below previous peak, pricing is at record highs

Source: JLL Research

New York Boston Chicago San Francisco

Century City Washington, DC Los Angeles Austin

Atlanta Philadelphia Denver Fort Lauderdale

Charlotte Houston All other markets

Market 2014-Q1 2015 sales ($)

New York $4,021,823,685

Boston $3,527,968,697

Chicago $2,786,000,000

San Francisco $2,341,103,050

Century City $1,641,500,000

Washington, DC $1,337,250,549

Los Angeles $1,066,520,000

Austin $937,900,000

Atlanta $696,279,533

Philadelphia $559,000,000

Denver $557,840,278

Fort Lauderdale $522,400,000

Charlotte $445,000,000

Houston $425,700,000

All other markets $11,839,458,567

United States $32,705,744,359

Total sales by market

Nearly $20.9 billion in sales has occurred in large investment markets over the past five quarters

Source: JLL Research

Largest buyers

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000

KBS

Morgan Stanley

Salesforce

Parkway

SL Green

Heitman

Deutsche Bank

JPMorgan Chase

MetLife

Blackstone

Oxford

Hines

Ivanhoe Cambridge

Norges

2014-Q1 2015 acquisitions ($ millions)

With more than $3.5 billion in acquisitions, Norges dominates the Skyline investment sales market

Source: JLL Research

Cap rates

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ave

rage

cap

rat

e (%

)

Cap rates have fallen to previous lows as pricing continues its steady increase

Source: JLL Research

Trophy market at a glance

The Trophy market has consistently outperformed the overall office market since 2010

295,756,939 s.f. Inventory

The Trophy market represents 47.8 percent of the national

Skyline, but only 7.6 percent of the overall office market.

+44,334,895 s.f. Net absorption since 2010

Despite comprising just 7.6 percent of national inventory, the

Trophy segment has been responsible for 25.0 percent of

occupancy growth.

10.0% Direct vacancy

Direct vacancy in the Trophy segment is 440 basis points

below the national rate of 14.4 percent.

$57.97 Average asking rent

Trophy properties command a 96.6-percent rent premium

compared to the overall market and are growing 1.4x faster

than average.

Source: JLL Research

Occupancy rate

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

86.0%

88.0%

90.0%

92.0%

94.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Occ

upan

cy ra

te (

%)

Trophy Non-Trophy

Occupancy rates are below historical highs as Trophy occupiers have become more efficient

89.3% Trophy

83.7% non-Trophy

Source: JLL Research

Net absorption

5,315,328 4,847,384

-1,431,075

1,540,172

11,083,772

9,546,922

12,161,786

6,960,293

10,494,847

5,172,048

-4,000,000

-2,000,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Net

abs

orpt

ion

(s.f.

)

Flight to quality has resulted in occupancy growth of 55.4 million square feet since 2010

Source: JLL Research

113,916

114,477

136,540

193,368

211,414

347,374

361,333

361,675

377,700

422,130

434,443

505,611

508,178

602,340

10,867,621

0 5,000,000 10,000,000 15,000,000

Portland

Baltimore

Chicago

Denver

Los Angeles

Miami

Austin

San Francisco

Houston

Orange County

Boston

Dallas

Washington, DC

Hudson Waterfront

New York

27,206

21,255

12,949

7,540

-287

-13,742

-29,132

-35,459

-38,000

-44,829

-54,127

-55,294

-55,613

-63,019

-160,867

-200,000 -150,000 -100,000 -50,000 0 50,000

Newark

Bellevue

Tampa

Richmond

Salt Lake City

Sacramento

St. Louis

Raleigh

Phoenix

Oakland

Pittsburgh

Minneapolis

Seattle

Philadelphia

Indianapolis

Highest Trophy net absorption since Q1 2014 (s.f.)

Net absorption

New York commands largest occupancy growth; Trophy absorption exceeds 400,000 s.f. elsewhere

New York’s net absorption partially the result of expanding

Trophy inventory by 8.7 m.s.f. (including deliveries of 1 and 4 WTC)

Lowest Trophy net absorption since Q1 2014 (s.f.)

Source: JLL Research

Occupancy growth

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2010 2011 2012 2013 2014 2015

Occ

upan

cy g

row

th s

ince

201

0 (%

)

Trophy Non-Trophy

Occupancy growth in Trophy properties is triple that of non-Trophy buildings

+20.2% Trophy

+6.5% non-Trophy

Occupancy has

grown 3.3x faster

in Trophy properties

Source: JLL Research

Direct vacancy

14,397,311 14,097,131 14,451,173 15,664,353

23,548,793

30,156,402

37,206,522

32,416,830 32,817,648

28,853,230 29,533,169

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Vac

ancy

rat

e (%

)

Dire

ct v

acan

cy (

s.f.)

Direct vacancy

Vacancy rate

Deliveries keep direct vacancy for Trophy space stable at 10.0 percent in Q1 2015

Source: JLL Research

7.8%

7.7%

7.1%

6.2%

6.1%

5.5%

4.7%

4.6%

4.6%

4.4%

3.6%

3.3%

3.2%

2.9%

0.9%

0% 2% 4% 6% 8% 10%

Minneapolis

San Francisco

Fort Lauderdale

Raleigh

Chicago

Richmond

St. Louis

Pittsburgh

Portland

Newark

Philadelphia

Houston

Baltimore

Charlotte

Bellevue

10.3%

10.4%

10.8%

11.2%

11.5%

14.3%

14.5%

14.6%

15.1%

15.7%

16.3%

17.5%

17.7%

23.2%

24.5%

0% 5% 10% 15% 20% 25% 30%

New York

Austin

Orlando

Oakland

Indianapolis

Century City

Sacramento

Denver

Miami

Detroit

Dallas

Fort Worth

Los Angeles

Orange County

Phoenix

Markets with lowest direct Trophy vacancy (%)

Direct vacancy

Bellevue, Houston, Chicago and San Francisco among Trophy markets with lowest direct vacancy

Markets with highest direct Trophy vacancy (%)

Source: JLL Research

Large blocks

Despite generally tightening conditions, some high-profile buildings do have large blocks remaining

Map shows sum of contiguous blocks per building,

not all buildings with large blocks shown

609 Main at Texas

1,043,873 s.f.

Houston

Renaissance Tower

660,000 s.f.

Dallas

4 WTC

873,711 s.f.

New York

1 WTC

574,801 s.f.

505 Madison Street

706,000 s.f.

Seattle

600 Peachtree Street

481,056 s.f.

Atlanta

350 S Grand Avenue

364,600 s.f.

Los Angeles

555 12th Street NW

363,348 s.f.

Washington, DC

200 Spectrum Center

425,044 s.f.

Orange County

53 State Street

382,332 s.f.

Boston

Source: JLL Research

Asking rents

$32.42

$39.43

$55.02

$58.82

$46.78 $45.20 $45.10

$52.27 $53.80

$55.46

$57.97

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dire

ct a

vera

ge a

skin

g re

nt (

$ p.

s.f.)

Trophy rents up 4.5 percent in Q1 2015, growinig at an annualized rate of 18.1 percent

Source: JLL Research

$31.35

$30.93

$30.00

$29.94

$28.75

$28.50

$28.48

$28.40

$28.02

$27.14

$26.53

$25.94

$25.50

$24.25

$23.00

$15 $20 $25 $30 $35

St. Louis

Charlotte

Pittsburgh

Dallas

Tampa

Richmond

Fort Worth

Raleigh

Salt Lake City

Cleveland

Phoenix

Orlando

Indianapolis

Cincinnati

Detroit

Most expensive Trophy markets ($ p.s.f.)

Asking rents

Six Trophy markets post asking rents averaging more than $60 per square foot

Least expensive Trophy markets ($ p.s.f.)

$42.35

$42.39

$43.14

$44.37

$45.17

$48.66

$50.14

$50.22

$50.74

$61.92

$63.00

$63.41

$71.83

$75.37

$82.97

$0 $20 $40 $60 $80 $100

Hudson Waterfront

Seattle

Fort Lauderdale

Miami

Bellevue

West Palm Beach

Houston

Chicago

Austin

Century City

Orange County

Boston

San Francisco

Washington, DC

New York

Source: JLL Research

5.0%

5.6%

5.8%

6.1%

6.6%

8.1%

10.1%

10.1%

10.7%

12.1%

13.5%

14.8%

15.4%

23.9%

27.3%

0% 5% 10% 15% 20% 25% 30%

Chicago

Seattle

Portland

Minneapolis

Bellevue

West Palm Beach

New York

Denver

Austin

Boston

Fort Lauderdale

Houston

Oakland

Raleigh

Atlanta

1.5%

1.4%

1.0%

0.8%

0.7%

0.0%

0.0%

-0.3%

-0.3%

-0.5%

-1.3%

-2.1%

-2.2%

-4.9%

-5.7%

-8% -6% -4% -2% 0% 2%

Newark

Orlando

Phoenix

Los Angeles

Pittsburgh

Baltimore

Richmond

Washington, DC

Detroit

Dallas

Philadelphia

Fort Worth

Salt Lake City

Cincinnati

Sacramento

Trophy markets with fatest-growing rents since Q1 2014 (%)

Asking rents

Sun Belt markets such as Atlanta, Raleigh and South Florida have registered fastest rent growth

Trophy markets with slowest-growing rents since Q1 2014 (%)

Source: JLL Research

Asking rents

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2010 2011 2012 2013 2014 2015

Ren

t gro

wth

sin

ce 2

010

(%)

San Francisco leads primary Trophy markets in terms of rent growth; Houston seeing slowdown

+49.9% San Francisco

+0.1% Washington, DC

+2.6% Los Angeles

+17.9% Chicago

+6.6% Century City

+15.0% New York

+28.9% Houston

+37.6% Boston

+16.2% Seattle

Source: JLL Research

Now that you’ve seen the trends, dig

deeper into your market(s) of interest. Explore your

Skyline