the avison young mid-year 2015 canada, u.s. and u.k. office

Partnership. Performance.

MID-YEAR 2015

Avison Young Office Market ReportCanada, U.S. & U.K.

Canada & U.S. Office Market Overview 3

Canada, U.S. and U.K. Office Market Highlights 4

Canada

Calgary 9

Edmonton 10

Guelph (Southwestern Ontario) 11

Halifax 12

Lethbridge 13

Montreal 14

Ottawa 15

Quebec City 16

Regina 17

Toronto 18

Toronto West / Mississauga 19

Vancouver 20

Winnipeg 21

United States

Atlanta 22

Austin 23

Boston 24

Charleston 25

Charlotte 26

Chicago 27

Cleveland 28

Columbus, OH 29

Dallas 30

Denver 31

Detroit 32

Fairfield County 33

Fort Lauderdale 34

ContentsUnited States cont’d.

Houston 35

Indianapolis 36

Las Vegas 37

Long Island 38

Los Angeles 39

Miami 40

Minneapolis 41

New Jersey 42

New York 43

Oakland 44

Orange County 45

Orlando 46

Philadelphia 47

Pittsburgh 48

Raleigh-Durham 49

Reno 50

Sacramento 51

San Diego County 52

San Francisco 53

San Mateo 54

Tampa 55

Washington, DC 56

West Palm Beach 57

United Kingdom

London 58

Notes 59

About Avison Young 60

Our Contacts 61

Avison Young Research 62

Economic headwinds challenge Canadian office market fundamentals, U.S. sector shows resilience

The Canadian and U.S. office sectors appear to be moving in opposite directions. Stymied by less-than-stellar economic results, Canadian markets are seeing mixed performance, while U.S. indicators have been largely positive. Despite the differences, there are similarities – mounting concern surrounding depressed oil prices and the burden placed on markets tied to the energy industry (such as Calgary and Houston) on both sides of the border.

3Mid-Year 2015 Canada, U.S. & U.K. Office Market Report

Canada & U.S. Office Market Overview

Canada Overview

Already contending with a burgeoning development pipeline, Canadian office market fundamentals faced additional headwinds

from weaker-than-expected economic indicators through the first half of 2015. While performance was mixed among the 13 markets surveyed, depressed oil prices are taking a toll in Alberta – particularly Calgary. Meanwhile, workplace strategies and urban intensification continue, and as purely office development sites become increasingly scarce, urban renewal and mixed-use development – combining office, retail and residential – are found across many of Canada’s downtown markets.

As economists debate the country’s performance, the office marketplace will remain active in coming quarters. Commodity-based and development-laden markets will likely experience a flight to quality, making it difficult for landlords to maintain occupancy levels and generate notable rental rate growth, thus shifting the tenant-landlord balance that some markets have enjoyed.

Notable First-Half 2015 Canadian Office Market Highlights:

• Varying and sporadic absorption levels, coupled with new office completions, lifted Canada’s overall vacancy rate 110 basis points (bps) from one year earlier to 10.3% at the midway point of 2015.

• Quebec City (8.6%) and Lethbridge (16.5%) posted the lowest and highest vacancy rates, respectively; the greatest swing occurred in Calgary (11.5%, +320 bps).

• Weighed down by Calgary’s woes, Canada’s Western markets collectively saw vacancy spike 160 bps over the previous year to 10.3% at mid-year 2015. Eastern markets witnessed a modest 30-bps bump to 10%.

• Downtown markets as a whole posted 8.8% vacancy at mid-year 2015, up 160 bps year-over-year – more than half of the markets remained in single-digit territory.

• Suburban markets recorded positive growth as vacancy retreated marginally (12.1%, -20 bps), led by strong absorption numbers in Toronto (13%, -120 bps).

• Canada delivered 8.5 million square feet (msf) annualized of new office space (42% in Toronto), with developers slightly favouring completions in the country’s downtown markets.

• Despite a decline from 2014, more than 20 msf is under construction across Canada (52% preleased and representing 3.9% of existing inventory).

• In the past year, the average asking gross rent for class A downtown office space in Canada fell to $43.47 per square foot (psf) (-$0.52 psf), while rising modestly for suburban class A product ($41.34 psf, +$0.83 psf).

U.S. Overview

Vacancy levels in the 4.4-bsf U.S. office market improved year-over-year with positive net absorption and rising class A rents. By mid-year

2015, many U.S. cities had returned to a leasing atmosphere favorable to landlords, even while tenants continued their flight to quality and as square feet under development trended higher. Rising levels of positive absorption are notable in light of the widespread adoption of office design efficiencies and falling rates of space utilization. The labor market likewise improved. The Bureau of Labor Statistics reported the unemployment rate in June 2015 was 5.3% compared with 6.1% in June 2014.

Notable First-Half 2015 U.S. Office Market Highlights:

• Overall office vacancy fell to less than 13% at mid-year 2015, dropping by 60 bps since mid-year 2014 - though downtown markets remained much healthier and averaged just slightly less than 11% vacant. This differential highlights an urban-centric workforce and the desirability of 24-hour environments.

• San Francisco recorded 5.3% vacancy, the country’s lowest overall rate, while the tightest downtown market was also found in Northern California with San Mateo reporting a vacancy rate of 1.1%.

• At mid-year 2015, annual net absorption was 46 msf, an increase of more than 10% year-over-year, and both suburban and downtown markets recorded positive net absorption for the 12-month period.

• Dallas (6.5 msf), Boston (3.9 msf) and New York (3.6 msf) recorded the greatest amount of absorption between mid-year 2014 and mid-year 2015.

• Pricing has been trending upward with class A asking rents in downtown markets averaging more than $50 psf on a gross basis, and up by 5% year-over-year.

• New York, the country’s largest office market with 435 msf, also reported the country’s highest class A rent - $78.57 psf gross. San Francisco ($67 psf), Boston ($62.80 psf) and Washington, DC ($56.09 psf) round out the list of larger markets with downtown asking rents north of $55 psf.

• During the 12-month period ending June 30, 2015, a total of 33 msf of new office space was delivered in Avison Young’s U.S. markets. Most of that was located in suburban markets where 25 msf, or 0.9% of inventory, was delivered. In contrast, just 8 msf, or 0.5%, of downtown inventory was completed.

• 71 msf remained under construction at mid-year 2015, compared with 65 msf at this time last year. Houston (11 msf), Dallas (8 msf) and Washington, DC (8 msf) represent the three leading U.S. cities in terms of total office space under development. On the whole, preleasing activity in new development has been significant and averages 58%.

Mid-Year 2015 Canada, U.S. & U.K. Office Market Report4

U.S. Metropolitan AreaOffice Vacancy Rates

Canada Metropolitan AreaOffice Vacancy Rates

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Canada Metropolitan Area Office Vacancy Rate Comparison

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Canada & U.S. Office Market Highlights

Mid-Year 2015 Canada, U.S. & U.K. Office Market Report 5

CanadaDowntown & Suburban Office Vacancy Rates

U.S. Downtown & Suburban Office Vacancy Rates

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Canada, U.S. & U.K. - Office Area Under Construction

Canada, U.S. & U.K. - Office Area Preleased

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Lethbridge Winnipeg

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Regina Orlando

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Canada, U.S. & U.K. - Office Area Preleased

Canada, U.S. & U.K. Office Market Highlights


Calgary’s office market has changed significantly from one year ago. During the 12-month period that ended

at mid-year 2015, the vacancy rate rose to 11.5% from 8.3% due to a substantial increase in vacant sublease space on the market. As a result of a steep decline in oil prices since the fourth quarter of 2014, large energy companies have employed several defensive strategies to reduce expenses. These actions include cancelling or deferring capital expenditures, laying off staff and placing unused space on the sublease market. Sublease space, as a percentage of Downtown vacancy, rose nine percentage points year-over-year to 40%.The second quarter of 2015 marked the third consecutive quarter of overall negative absorption. Annualized from June 30, 2014, overall absorption in Calgary was negative 1.8 msf with Downtown alone registering 1.5 msf of negative absorption. Downtown recorded negative absorption of 538,000 sf in the first half of 2015 compared with positive absorption of 419,000 sf in the same period in 2014. Many prospective tenants are staying on the sidelines as long as possible as rental rates move in their favour.The current environment is conducive to merger and acquisition activity, which has been picking up in the energy industry as several players face financial difficulties. In addition to an anticipated increase in available sublease space resulting from mergers, Calgary’s office development market has approximately 6.2 msf of new projects currently under construction with deliveries through 2018. This large amount of new product could prove problematic if the price of oil remains at current levels for an extended period of time. Five developments were delivered during the first half of 2015 with significant vacancy and serve as an indication of the potential market impact if depressed oil pricing persists. Five additional developments are anticipated by year-end 2015 - three of those projects are speculative suburban developments. Cadillac Fairview’s Calgary City Centre is set to come to market Downtown in the fourth quarter. The project is expected to come to market with 19% vacancy.

Calgary Office Market

NOTABLE LEASE TRANSACTIONS BY SIZE - FIRST HALF 2015Address / Complex Tenant Size (sf) Deal Type

1 Telus Tower TransCanada Corp. 155,000 Renewal

2 Ernst & Young Tower Black Diamond Ltd. 68,000 New

3 840 Seventh Hatch Ltd. 62,000 Renewal

4 Roslyn Building Ensign Energy Services 55,000 Renewal

5 Gulf Canada Square Baker Hughes 47,000 Renewal

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Construction is well underway at Ice District, which houses two of the three major downtown office developments.

The 600,000-sf Edmonton Tower is halfway through its construction schedule and 80% preleased. The new Stantec Tower, located at the corner of 103rd Avenue and 102nd Street adjacent to Rogers Place, has started to take shape, and the Kelly Ramsey Tower, situated on Rice Howard Way, is also making excellent progress. In comparison with the second quarter of 2014, when most of these projects were at their initial stages, the downtown Edmonton skyline has grown significantly. While industry observers debate how high vacancy rates will rise in the next two years, Ice District is expected to have an extremely positive impact on the multi-residential and retail markets in the core. The office towers will also offer choice for tenants who have been starved for new modern and efficient premises. Though not to the same degree as Calgary, the Edmonton office market is feeling the effects of low oil prices, recording negative absorption of 54,298 sf in the second quarter of 2015. There have been some high-profile transactions in 2015, including Associated Engineering, which is set to occupy 44,000 sf in the newly refurbished 9Triple8 building; and MNP, which will occupy 72,125 sf at 101st Street Tower this fall. As the market prepares for the forthcoming consolidations of Enbridge and the City of Edmonton into their respective new premises in the first quarter of 2017, the landlord community, for the most part, has been determined to maintain rental rates for existing buildings. Office vacancy increased year-over-year to 8.5% at mid-year 2015 from 8.1% a year previous. Landlords such as Dream, Morguard and Oxford have increased inducement allowances to entice tenants in order to address the risk their properties face from an increase in vacancy forecasted for 2017.A dramatic drop in oil prices during the past year has had a profound influence on many markets within Alberta. With economic uncertainty looming, 2016 will represent a pivotal stage in the dynamics of Edmonton’s office market.

Edmonton Office Market


1 Broadmoor Place VI & V Opus Stewart Weir 65,200 Renewal

2 Milner Building ATCO 54,600 Renewal

3 Centre Point Place Meloche Monnex 44,900 Renewal

4 9Triple8 Jasper Associated Engineering 44,000 New

5 Edmonton Tower RBC DS 35,000 New

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Situated 45 minutes west of the Greater Toronto Area with access to three Canada-U.S. border crossings, the

Southwestern Ontario market comprises Kitchener, Waterloo, Guelph and Cambridge. Office space remains concentrated in Kitchener and Waterloo, which together make up more than 70% of the market’s 14.1 msf of office inventory. With continued economic uncertainty due to decreased demand in a market driven by the technology sector, vacancy has remained an issue over the past year. Demand for space appears to be increasing as the local economy stabilizes and business confidence improves. Some large tenants have relocated to more suburban areas as new class A buildings became available for occupancy. As a result, downtown areas continue to struggle, but landlords have become more aggressive to entice tenants to renew or relocate to the core markets. With vacancy rates remaining in the double digits at 11%, a number of landlords are offering significant incentives to tenants, including improvements, free rent and cash inducements. This trend has had an impact on tenants, as more companies are reviewing all of the alternatives and making the commitment to relocate. While several companies with small- to mid-size leases have relocated, only a limited number of 50,000-sf-plus tenants have elected to do so in the past 12 months.External factors are also having a significant influence on the Southwestern Ontario office market. Waterloo Region’s light rail transit (LRT) system, currently under construction, and increased rail and bus service to and from the GTA, are spurring construction of a number of office buildings on newly available commercial lands and along the planned LRT route. Many of these developments are on a speculative basis. These additional location options will likely affect the net effective rental rates that landlords offer in 2015. This situation is expected to continue throughout the rest of the year as the market and economy stabilize. Overall, Southwestern Ontario remains a tenant’s market with significant opportunities for short-term rental value.

Guelph (Southwestern Ontario) Office Market


1 180 Northfield Drive W., Waterloo Regus 19,200 New

2 300 Hagey Boulevard, Waterloo Stantec 17,200 New

3 180 Northfield Drive W., Waterloo Sun Life Financial 15,100 New

4 72 Victoria Street S., Kitchener Zootly 6,000 Sublease

5 409 Weber Street W., Kitchener AECOM 5,200 New

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Southwestern Ontario Office Absorption & Vacancy Rates


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Southwestern Ontario Class A Average Asking Gross Rents


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Southwestern Ontario Office Space Under Construction & Completions


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The arrival of cranes on Halifax’s skyline has resulted in new space being added to a growing office market inventory,

causing vacancy to creep slowly upwards. This trend is expected to continue through 2015. Although tenants are being lured to suburban locations with flexible lease terms, attractive rates and environmentally friendly and innovative spaces, the downtown is increasingly attractive and where demand will be focused. As a result, the downtown market is expected to continue to outperform its suburban rivals.Downtown vacancy decreased 70 bps year-over-year to 11.8% at the end of the second quarter of 2015. New developments such as the Nova Centre, which will bring 1 msf of mixed-use development – including two office towers – to the downtown market in September 2016, are likely to attract the interest of corporate and government users. New construction along Barrington Street will help revive older class B and C buildings. ESpace, at 1656 Barrington Street, will add 15,000 sf of office/retail space to the downtown market. Overall vacancy is expected to increase slightly in the remainder of 2015 as two new buildings under construction are delivered. No change in net or additional rental rates is expected in 2015 despite the growing inventory.Some developers are looking outside the city centre toward the suburbs, where they are able to offer attractive incentives such as free parking, green space and highway access to avoid downtown traffic – in conjunction with already lower assessments and taxes. For many landlords, highway access serves as a major tenant attraction. With vacancy at 7.1% as of mid-year 2015, the suburban markets continue to be resilient despite the new construction downtown. Considerable attention is being paid to the Nova Centre, which will replace the former World Trade and Convention Centre. Nova Centre is slated for completion in December 2015.

Halifax Office Market


1 TD Centre Halifax TD Bank 200,000 Renewal/Expansion

2 Bay West Centre TD Insurance 85,000 New

3 Eon Square Royal Bank of Canada 40,000 New

4 Purdy's Wharf KPMG 16,300 Renewal

5 RBC Waterside Centre Torys LLP 5,500 New

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Halifax Office Absorption & Vacancy Rates


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Halifax Office Space Under Construction & Completions


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Vacancy in the Lethbridge office market decreased to 16.5% at mid-year 2015 from 18.5% one year earlier. The

average downtown class A net asking rental rate increased to $16.25 psf in the second quarter of 2015 from $16 psf in the second quarter of 2014, while the average suburban class A net asking rental rate increased to $17.50 psf from $17 psf year-over-year. Both downtown and suburban landlords continue to offer incentives such as project management, free rent and tenant-improvement allowances to attract new tenants.Market trends in 2015 include preleasing, new construction and repurposing of industrial and retail space for office use. The vacancy rates for both downtown and suburban class A office space remain low. Downtown class A office vacancy was at 11.7% in the second quarter of 2015, down from 13% at the same point in 2014. Suburban class A office vacancy was at 7%, also down from 2014. With more than 30,000 sf of new construction anticipated to commence downtown in early 2016, and an additional 20,000 sf slated for the suburbs, a significant increase to class A vacancy is expected in 2016 and 2017.With the recent announcement of a major tenant relocating to the United States, Lethbridge will see a significant impact on overall suburban vacancy in 2016. With just under 219,000 sf of suburban inventory, the departure could potentially drive suburban vacancy to more than 40%. The suburban market recorded 15,800 sf of new inventory delivered in the 12-month period ending at mid-year 2015, with the majority being preleased. Overall downtown vacancy rates decreased to 16.8% in the second quarter of 2015 from 17.9% at the same point in 2014. The downtown market registered nearly 5,500 sf of new construction in the first half of 2015. Going forward, a rise in the downtown and suburban vacancy rates is expected due to more than 50,000 sf of new construction on the horizon, the relocation of a major tenant and retail spaces increasingly being repurposed as office space.

Lethbridge Office Market


1 4303 8 Avenue N. Farmer's Edge 11,100 New

2 608 5 Avenue S. Dental Office 10,000 New

3 400 4 Avenue S. BDO Canada LLP 8,900 New

4 200 4 Avenue S. Teamworks 6,400 Renewal

5 200 4 Avenue S. Intelligent Health Solutions 4,100 New

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Lethbridge Office Vacancy Rates

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Vacancy rates in the Greater Montreal Area (GMA) reached new heights at the end of the second quarter of 2015.

Downtown vacancy rates rose to 9.4% from 8.6% a year earlier. Furthermore, the suburban vacancy rate followed the same trend, rising to 15.6% compared with 14.6% at the end of the second quarter of 2014. Projects delivered in the downtown area during the last year amounted to nearly 129,500 sf, which is relatively small compared with the amount of space under construction. At the end of the second quarter of 2015, there were five buildings under construction in downtown Montreal, totalling almost 1.4 msf. The Deloitte Tower and La Maison Manuvie are two prominent projects under construction that will add nearly 1 msf in the downtown area. On the other hand, nearly 900,000 sf of office space has been delivered in the suburbs since the second quarter of 2014. Developers are also active in the suburbs with nine projects under construction that will add nearly 1.3 msf.As a result of the significant amount of new space delivered, the GMA office market experienced negative absorption of nearly 1.1 msf over the past 12 months with approximately 850,000 sf of negative absorption downtown and 250,000 sf of negative absorption in the suburban districts. Despite all of the ongoing construction downtown, class A rental rates have not been affected. At the end of the second quarter of 2015, gross asking rental rates remained stable compared with one year earlier with the average sitting at just under $41 psf. However, in the suburban markets, average gross asking rental rates for class A space have reached a five-year low, decreasing to $27.10 psf from $28.29 psf a year earlier. As of mid-year 2015, there were 41 new projects announced in the GMA with almost 9.5 msf preleased. Half of the preleased space is located in the downtown area. The new construction figures and announced development projects illustrate the real estate transformation that the GMA is going through, especially downtown. Delivery of yet-to-be-leased new supply should keep vacancy rates high moving forward and may negatively affect rental rates, as there will likely be more supply than demand.

Montreal Office Market


1 900 de Maisonneuve Boulevard W. Manulife 272,800 New

2 800 de Maisonneuve Boulevard E. Hydro-Quebec 66,400 Renewal

3 999 de Maisonneuve Boulevard W. Hybris Canada 48,300 New

4 6300 avenue Du Parc Moment Factory 46,000 New

5 4 Place Laval SQI 45,000 Expansion

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Montreal Office Absorption & Vacancy Rates


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Montreal Office Space Under Construction & Completions


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The Ottawa office market has had a rougher ride than what is considered normal in the nation’s capital. Downtown

vacancy increased to 8.8% at mid-year 2015 from 8.5% a year earlier and 4.8% at mid-year 2013. It is hoped that the slowing increase in vacancy is an indication that the worst is now past. The office market recorded significant negative absorption in 2014, but first-half 2015 results have reversed that trend as positive absorption was recorded. Average asking net rental rates in the downtown core decreased marginally year-over-year to $24.68 psf with several class A landlords providing generous inducement packages to protect face rental rates. This reaction has certainly provided tenants with additional options.The suburban Kanata market has turned the corner. Vacancy was 9.6% at mid-year 2015, a decline from 11.9% a year earlier, despite the addition of 230,000 sf to inventory. Asking rental rates have increased as large-pocket vacancies were absorbed by another wave of technology companies that have discovered the rich vein of talent living in the Ottawa area. As the country gears up for another federal election, the Ottawa office market is likely to adopt a wait-and-see attitude when it comes to any major expansion plans – at least by those companies that derive the majority of their income from providing goods and services to government. Locally based businesses continue to feel the pinch in this era of austerity, but showed an ability to cope as employment increased marginally in the second quarter of 2015 compared with the same period in 2014. However, there was a slight increase in the unemployment rate in the second quarter of 2015 as more individuals actively joined the workforce looking for employment opportunities. Work continues unabated on the first phase of Ottawa’s $2.1-billion LRT system. While traffic patterns have been disrupted for many residents, the result will mean greater access to Ottawa’s downtown core as well as employment nodes outside downtown. The impact of this project cannot be understated as hotel and retail developments in the core (and in proximity to future transit nodes) continue to appear on the Ottawa skyline.

Ottawa Office Market


1 528 March Road Sanmina - SCI 115,000 New

2 450 March Road Solar Winds 49,000 Renewal

3 390 March Road Qlik 45,000 New

4 500 Palladium Drive DNA Genotek 36,000 New

5 150 Elgin Street Shopify 33,000 New

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Quebec City’s downtown vacancy rate has decreased for a third consecutive year, concluding the second

quarter of 2015 at 6.5% compared with 6.9% at mid-year 2014. However, suburban vacancy did not follow the same trend and increased 190 bps year-over-year. Several new projects were announced in Quebec City during the past 12 months. The most notable was Phare de Québec, which could completely alter the city’s image. The tower would include 65 floors and be the tallest skyscraper in Canada east of Toronto. The mixed-use project would offer approximately 2 msf and require a $600-million investment; however, there has been considerable criticism of the size and complexity of the project.At the end of the second quarter of 2015, six suburban projects totalling 950,000 sf were in the preleasing phase. The SSQ building, located on Laurier Boulevard in the Ste-Foy district, accounts for 500,000 sf of the preleasing activity. There is also a large amount of space available for preleasing in the Lebourgneuf District with four projects that total 365,000 sf. For the third consecutive year, there was no inventory under construction in the downtown area. For the suburban markets, the tendency is the same. Only 133,800 sf of inventory was under construction at mid-year 2015 compared with the five-year average of almost 500,000 sf. Asking rental rates have remained stable since the second quarter of 2014. Gross rates remained steady in downtown and suburban class A buildings, averaging $27.95 psf and $26.87 psf, respectively. Quebec City registered negative absorption of 99,000 sf in the 12-month period ending at mid-year 2015. This situation was in contrast to the 724,000 sf of positive absorption recorded in the previous 12-month period. Both leasing and development are anticipated to rise in the next few years with nearly 60 mixed-use projects announced and $1.5 billion invested. Quebec City’s office market could see an increase in vacancy as a result of new construction.

Quebec City Office Market


1 950 de la Concorde Street Desjardins 20,000 Renewal

2 5700 Des Galeries Boulevard Pratte Morrissette 10,800 New

3 825 Lebourgneuf Boulevard CGSI@Solutions TI 5,100 Renewal

4 1000-1020 Rte de L'Eglise Medicago 3,300 Expansion

5 700 Charest Boulevard East Sigmund 2,200 New

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Regina’s office market has been shifting since 2013. This trend was sustained into 2015 and has resulted in a

rebalancing of the market, which has subsequently impacted owners and occupiers of office space. After years of being a landlord’s market, that trend has come to an end as the market is now considered balanced – and is very competitive. The provincial economy has remained stable despite lower oil prices - a trend that should have a positive impact on the city’s office market. A rising population should be viewed as positive, and supportive of businesses that want to relocate their head offices to Regina.Downtown and suburban nodes continued to grow in the first half of 2015. The City of Regina conducted its annual review of its office development policy in June 2015. No major changes were adopted by council, and it maintained its position that the downtown/central city office area should contain at least 80% of the city’s medium and major office development, and that no new office buildings within the downtown/central city office area shall be approved where the downtown vacancy rate is equal to, or less than, 6.5% of total known available downtown office floor area. The policy will continue to be reviewed annually due to its perceived restrictive impact on current and future office development. Meanwhile, Harbour Landing Business Park in Regina’s south end has three office buildings completed and a fourth ready to begin construction. Regina’s newest 10-storey office tower, Agriculture Place in the downtown core, is under construction and will add 160,000 sf of office/retail space and underground parking to the market when completed. Despite a slight increase in downtown inventory, the vacancy rate at mid-year 2015 remained unchanged at 10.6% from the same time in 2014. Absorption in the suburbs recorded an uptick due to ongoing demand. Average asking rental rates for downtown and suburban space in all asset classes were virtually unchanged year-over-year at the end of the second quarter of 2015. Class A net rates were at $25 psf, class B-plus at $19.50 psf and class B at $16.50 psf. Net effective rates versus face rates have changed, as landlords are offering inducements where none were needed or offered previously.

Regina Office Market


1 Hill Tower 1 Ministry Of Central Services 77,000 Renewal

2 Saskatchewan Place Ministry Of Central Services 31,700 Renewal

3 Hill Tower 1 MLT 31,000 Renewal/Expansion

4 1960 Albert Street Conexus Credit Union 13,500 Sublease

5 Saskatchewan Place Ministry Of Central Services 7,400 Renewal

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Regina Office Absorption & Vacancy Rates


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Regina Class A Average Asking Gross Rents


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Regina Office Space Under Construction & Completions


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Against a backdrop of disappointing Canadian economic data, the Greater Toronto Area (GTA) office market reached the midway

point of 2015 with positive results as the suburbs outperformed the downtown and midtown markets. Positive absorption during the second quarter was attributed to steady deal flow, with more than 4 msf transacted in the first half and tenants gradually taking occupancy in new developments. A steady influx of new supply pushed overall vacancy to 9.9%, up 70 bps year-over-year. Development remains active, with more than 3.5 msf of office space completed in the past year, evenly distributed between the downtown and suburban markets. Almost half of those deliveries came online in the first half of 2015, mostly in suburban Toronto West. Another 5.7 msf (57% preleased) is under construction – with two-thirds in Downtown Toronto – owing to urban intensification. Attracted by a growing millennial workforce and on the heels of Amazon and Apple’s entry, U.S.-based tenants continue to show considerable interest in expanding or establishing a foothold, particularly downtown. The downtown market remains resilient, despite large blocks of space being returned as tenants relocate to recently completed towers. Widespread positive absorption resulted from strong occupancy gains in Downtown South as Marsh Canada and RBC took occupancy in downtown’s newest high-performance buildings – Bremner Tower and RBC WaterPark Place, respectively. There is also a growing trend toward brick-and-beam redevelopment and mixed-use developments incorporating retail, office and residential, such as Allied Properties and RioCan REIT’s King Portland Centre in trendy Downtown West and Concert Properties’ 20 Wellington Street East in Toronto’s Financial Core. Downtown vacancy finished higher at 6.8%. Suburban vacancy improved to 13% year-over-year, despite 1.7 msf of new deliveries and another 2 msf underway. Target Canada’s quick exit and the successful lease-up of its former headquarters (185,000 sf) in the Airport Corporate Centre, by PointClickCare, attest to the market’s ability to absorb large blocks of space. Tenants reaffirming their commitment to the suburbs included Aviva, KPMG, Huawei, Acklands-Grainger, McKesson, Maple Leaf Foods and TD Bank. In the wake of new development, tenant retention will be paramount among landlords, while tenants enjoy multiple price options.

Toronto Office Market


1 310-320 Front Street W. TD Bank 231,000 New

2 AeroCentre V PointClickCare 185,000 New

3 16 & 19 Allstate Parkway Huawei Technologies 126,000 Renewal/Expansion

4 351 King Street E. Yellow Pages 110,400 New

5 6985 Financial Drive Maple Leaf Foods 105,000 Renewal

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Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015

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Toronto Office Absorption & Vacancy Rates


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Toronto Class A Average Asking Gross Rents


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The first half of 2015 was eventful in the Toronto West office market. Kicking off the year, Target Canada

vacated 185,000 sf of class A space at 5550 Explorer Drive in the Airport Corporate Centre (ACC), leaving many in the area to ponder how this gaping vacancy would affect a historically coveted and attractive market. The answer came just a few short months later as PointClickCare leased the balance of Target’s former space. Volatility in leasing activity characterizes the last two years at the ACC and its surrounding nodes. Examples of significant gains and losses during that time period include: Bayer’s lease of 125,000 sf at 2920 Matheson Boulevard; Blackberry vacating 102,000 sf at 4701 and 4715 Tahoe Boulevard; Sobeys taking occupancy of its new campus at 4980 Tahoe Boulevard, totalling 220,000 sf; Target’s departure and now PointClickCare’s take-up. As is to be expected in a turbulent leasing climate, vacancy rates have continued to edge up, reaching 15% at mid-year 2015. However, absorption is at its highest level in five years, suggesting that a fair portion of that vacant space may in fact be spoken for in the form of completed deals whose terms have yet to commence, such as PointClickCare. Bear this point in mind when taking an extended view at what is to come in the second half of 2015 for Toronto West. Noteworthy is the recent trend towards flex space in Oakville: all five of the 2015 deliveries in this market have been single-storey buildings with an average floorplate of about 44,000 sf. Heading into the remainder of 2015, these new flex developments will compete against the traditional multi-storey buildings also under development in the area. With a number of large-block deals nearing completion, it is likely that recent momentum generated in key nodes will spur further leasing velocity in Toronto West through 2015.

Toronto West / Mississauga Office Market


1 AeroCentre V PointClickCare 185,000 New

2 6985 Financial Drive Maple Leaf Foods 105,000 Renewal

3 6355 Viscount Road McKesson 76,000 New

4 55 Standish Court AGF 55,000 New

5 Spectrum Square I Investment Planning Counsel 54,000 New

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Toronto West Office Absorption & Vacancy Rates

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Toronto West Class A Average Asking Gross Rents

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Toronto West Office Space Under Construction & Completions

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Metro Vancouver office vacancy hit an 11-year high at mid-year 2015 – powered by almost 1.5 msf of new

inventory delivered in the past 12 months and strong leasing activity that resulted in more than 1 msf of positive absorption for the region as a whole since mid-year 2014.Despite previously recording two consecutive years of first-half negative absorption for the first time in at least 17 years, Metro Vancouver registered positive absorption of nearly 879,000 sf in the first six months of 2015. The mid-year 2015 regional vacancy rate of 10.4% was primarily the result of significant new office supply delivered Downtown that is actually preleased, but yet to be occupied by tenants and therefore considered vacant. Downtown vacancy rose to 9.8% (the highest Downtown vacancy registered since 2004) from 6.4% at mid-year 2014. Vacancy in two of the three submarkets that constitute Vancouver proper – Downtown and Yaletown – rose compared with 12 months earlier, while vacancy in the Broadway submarket plunged by almost half to 3.6% from 7% a year ago. Overall suburban vacancy tightened to 10.9% from 12.6% at mid-year 2014. The delivery of almost 2.5 msf of new office space in both the Downtown and suburban markets in the past two years produced a regional market in flux as it recalibrates to a more balanced state after a decade of low vacancy.With more than 538,000 sf of positive absorption Downtown and approximately 488,000 sf in the suburban markets from July 1, 2014 to June 30, 2015, regional vacancy rose just 50 bps year-over-year despite the delivery of a significant volume of new product and a middling economic performance. Sublease vacancy in Metro Vancouver (9.4%) remained unchanged year-over-year and is at its lowest point since mid-year 2012. The historical correlation between declining vacancy and positive absorption has been disrupted, as forecasted last year, and marks the first phase of the ‘new normal’ in Metro Vancouver’s office market.

Vancouver Office Market


1 Bentall V Teck 145,000 Renewal

2 4250 Canada Way Pacific Blue Cross 119,300 Renewal

3 380 W. 5th Avenue DHX Media Ltd. dba Nerd Corps Entertainment Inc. 75,000 New

4 980 Howe Street ACL Services Ltd. 66,000 New

5 840 Cambie Street Animal Logic 47,000 New

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Vancouver Office Absorption & Vacancy Rates


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Vancouver Class A Average Asking Gross Rents


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Vancouver Office Space Under Construction & Completions


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Winnipeg’s office market continues its slow and steady growth. Most transactions have been the result of

expansions, relocations or space consolidation as lease renewals remain the most cost-effective option for tenants who wish to maintain their real estate footprint. Unlike some other Canadian markets, Winnipeg has not experienced a downturn in lease rates for the last 10 or more years. While this situation may seem rather uneventful, the stability keeps investors happy, and tenants do not generally face huge swings either way upon lease renewal.While construction costs still impede many transactions that require significant new build-outs, tenants and designers are becoming very creative in utilizing existing infrastructure at many great locations. There are sizeable blocks with existing improvements available at 200 Graham Avenue, 423 Main Street (the former CWB Building) and 491 Portage Avenue. Mid-size pockets are scattered throughout downtown; a recent mandate for a 5,000-sf location in class B buildings resulted in two dozen options. Celebrating its official ribbon cutting, Centre Point at 311 Portage Avenue had two major office tenants – Stantec and iQmetrix – occupy the majority of the 80,000-sf building. A local construction/development company – FWS – absorbed 25,000 sf at Terracon’s Tuxedo Business Park. The Workers Compensation Board of Manitoba outgrew its building and spilled over to the neighbouring property at 363 Broadway Avenue with a 26,000-sf lease. Exciting redevelopment news was announced in June 2015 by True North Sports and Entertainment and CentreVenture Development Corp. True North Square, a $400-million mixed-use development right in the heart of downtown, next to the newly expanded RBC Convention Centre, is moving forward. Overall, business confidence continues to power positive sentiment in downtown Winnipeg.

Winnipeg Office Market


1 330 Portage Avenue Winnipeg Regional Health Authority 27,000 New

2 330 St. Mary Avenue Hatch 24,000 New

3 One Lombard AON 21,000 Renewal

4 280 Broadway Province of Manitoba 16,000 New

5 393 Portage Avenue Investors Group 10,000 New

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Winnipeg Office Absorption & Vacancy Rates


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Atlanta, the 10th-largest economy in the U.S., comprises 147 msf of office space. The region made significant gains

in the last year thanks to successful corporate recruiting efforts and an improving job market. According to the U.S. Bureau of Labor Statistics, Atlanta experienced annual job growth of 3.1% for the 12 months ending June 2015, and has been a top performer among all large U.S. metros in the past year. Office vacancy ended the second quarter of 2015 at 17.1%, down 160 bps year-over-year. The market has witnessed 15 quarters of net positive absorption, with nearly 2.7 msf absorbed in the last 12 months. Class A vacancy has grown particularly tight, falling by 300 bps year-over-year to end the second quarter of 2015 at 13.2%. Landlords at last have leverage to increase rental rates and rein in concessions. Class A asking rates ended the second quarter at $24.29 psf, up 7.5% year-over-year, and class B rates rose by 3.1% to $17.18 psf in the same period. The Buckhead submarket has witnessed one of Atlanta’s most impressive turnarounds. Vacancy ended the second quarter at 10.7%, down by 430 bps year-over-year and down from a cyclical high of 25.3%. In Midtown, vacancy fell to 15.1%, down 230 bps year-over-year. These urban submarkets are witnessing strong demand from technology companies in particular, and they saw the market’s most pronounced rental-rate increases in the last year. Class A asking rental rates in Buckhead rose by 12.5% to $29.79 psf - the highest in the market - and class A rates in Midtown rose by 5.7% to $27.55 psf.The market should continue to shift in favor of landlords for the next 18 to 24 months. Economists are projecting that Atlanta will add up to 100,000 new jobs in 2015. While several projects are planned, just one speculative building was underway at mid-year 2015 and construction remains at historically low levels. Little new product will hit the market before 2017, leaving ample room for rent growth. Tenants will need to act decisively and should be prepared for increased occupancy costs. Rising class A rental rates should fuel a more meaningful recovery in the class B market.

Atlanta Office Market


1 SunTrust Park Comcast 300,000 New

2 Three Ravinia Drive InterContinental Hotels Group 277,900 Renewal

3 Pershing Point Plaza Kaiser Permanente 157,000 New

4 Sterling Point II Mercedes-Benz 89,300 New

5 Atlantic Station Sage Software 78,800 New

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In the past year, Austin’s office market continued to tighten across all submarkets. The demand for space remains

highest downtown, where the vacancy rate dropped to 7.3% in the second quarter of 2015, down from 10% one year before. Much of this demand stems from the rapid growth of the local technology industry, with major firms willing to pay rental rates averaging $50.03 psf full-service in order to locate in class A space downtown. With such high rental rates and little availability, many firms are forced to look for office space in submarkets other than Austin’s CBD. In suburban markets, vacancy fell to 11.8% in the second quarter of 2015 from 12.1% a year earlier. Suburban class A asking rental rates also rose during the last year, although less drastically, to an average of $32.09 psf. As demand for office space continued to surge during the past 12 months, absorption figures continued their positive trend. From the third quarter of 2014 through the second quarter of 2015, downtown absorption reached 552,000 sf, an increase of more than 300,000 sf over the previous 12-month period. With much more office product to offer compared with downtown, Austin’s suburban markets also saw increased absorption over the past year. In the 12 months from July 2014 through the second quarter of 2015, suburban submarkets recorded 927,000 sf of absorption – up from 795,000 sf in the 12 months prior. Austin’s office market continued to attract investors and developers over the past year as well. More than 700,000 sf of new office product was delivered in Austin’s CBD, including the highly anticipated Colorado Tower and Seaholm developments. The suburban market surpassed Austin’s downtown in terms of new deliveries as nearly 1.2 msf of new product came online in the last year. Development has yet to slow down with approximately 800,000 sf and 2.4 msf of office space currently under construction in Austin’s downtown and suburban submarkets, respectively.

Austin Office Market


1 Capital Ridge Apple 217,500 New

2 500 W 2nd Google 207,900 New

3 The Summit at Lantana Bldg 3 Solar Winds 117,900 New

4 Champion Office Park 1 Indeed, Inc. 115,000 New

5 Champion Office Park 2 Indeed, Inc. 115,000 New

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Austin Office Absorption & Vacancy Rates


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Austin Class A Average Asking Gross Rents


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Austin Office Space Under Construction & Completions


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Boston is currently in the midst of its largest construction boom since 2003. Despite delays in the pipeline during

the first quarter, marked by Boston’s all-time record snowfall, more than 2.1 msf of office construction is underway in Downtown Boston – of which 59% is preleased. This office construction boom, in conjunction with an even larger residential surge (8,000 apartment units under construction), further enhances the city’s live/work/play lifestyle and the capacity needed to ensure a healthy market. The office construction surge is in reaction to downtown vacancy rates dropping for the past five quarters to 8.3% and absorption exceeding 1 msf in each of the past three years. The fundamentals in Boston remain exceptionally healthy and continued upward pressure on rental rates is anticipated. With suburban vacancy rates still above 13%, developers are hesitant to be as active with approximately 3.2 msf currently under construction, 69% of which is preleased. The immediate suburbs are responsible for most of the new product. Along the 128 Belt, class A vacancy rates have fallen below 5%, and speculative construction has become a viable option as more companies leave downtown, seeking rent relief while maintaining an urban-like lifestyle. Such major tenants as Forum Pharmaceuticals, TripAdvisor and Clarks Shoes demonstrate this activity. The overall market’s future looks bright with some of the hottest submarkets in the country continuing to churn. The Seaport district is still on the rise with class A office vacancy now below 3% and rents exceeding $56 psf, while Cambridge continues to be a hub for the country’s most innovative technology and life-science firms. Companies such as Alnylam, Genzyme and Bristol-Myers Squibb have all signed leases totaling more than 750,000 sf this year in Cambridge, solidifying the area’s long-term position as the preferred location for the life-science industry. New tenants, landlords and developers look to Boston as an enticing option.

Boston Office Market


1 200 Forest Street, Marlborough GE Healthcare 209,900 New

2 125 High Street Houghton Mifflin Harcourt 160,000 New

3 20 Guest Street, Brighton Harvard Business School Publishing 124,000 New

4 1265 Main Street, Waltham Clarks Americas 120,000 New

5 235 Wyman Street, Waltham Shire Pharmaceuticals 104,000 New

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Boston Office Absorption & Vacancy Rates


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Boston Office Space Under Construction & Completions


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Throughout its illustrious history, peninsular Charleston has served as the CBD for what is now the 12th-fastest-growing

metro in the U.S., according to census estimates. This sharp rise in population is driven by job opportunities. Expanding companies need somewhere to locate. With that in mind, innovative developers have created gateway developments at key locations in the city to meet demand. While no single development is driving the future of the CBD, three stand out in their scale and transformative nature: the Cigar Factory on East Bay Street, Courier Square on Meeting Street and WestEdge on Lockwood Boulevard. Each site is at a key entry point to the city, each appeals to a distinct market, and all will shape the way residents live and work in Charleston. The Cigar Factory is a 244,000-sf historic structure dating back to the 1880s. Originally constructed as a cotton mill, the building shell has recently been extensively renovated. Predominantly office space, it is proving to be popular with employers seeking a historic and non-traditional environment. When completed, the Cigar Factory will also feature restaurants, event space and retail. Courier Square is a long-term development that will progress over six phases, the first of which will include multi-family, retail and office. It will ultimately cover 12 acres, but the first phase will be located on 2.8 acres at the prominent corner of Meeting and Columbus Streets, and will include 225 apartments and 90,000 sf of retail and office space. At the westernmost entry to peninsular Charleston, the WestEdge development will transform a 22-acre site that will give a new identity to this area of the city. As part of a plan that will span 15 to 25 years, the initial venture will include a 150,000-sf research and office building, complemented by a mixed-use residential and retail complex. Developed on land owned by the Medical University of South Carolina (MUSC) and the City of Charleston, the site will target biotech- and research-based companies that will benefit from proximity to the MUSC campus. These significant developments illustrate Charleston’s entry into a new era that will include a growing and increasingly complex and prosperous office market.

Charleston Office Market


1 8085 Rivers Avenue Dial America Marketing Inc. 40,700 Renewal/Expansion

2 2125 Charlie Hall Boulevard MUSC Health 26,200 Renewal

3 3484 Shelby Ray Court Charleston Veterinary 16,000 Renewal

4 3860 Faber Place Drive Cambridge International Systems Inc. 15,000 New

5 1 Southpark Circle MUSC Health 14,900 New

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The Charlotte office market, comprising nearly 50 msf, ended the second quarter of 2015 with vacancy at 13.4%,

its lowest level since 2008. Vacancy has fallen 30 bps since the end of 2014 and 90 bps in the last 12 months. Class A vacancy ended the second quarter of 2015 at just 10.7%, giving landlords ample room to increase asking rental rates. The average class A asking rate stood at $25.69 psf in the second quarter, up by an impressive 11% year-over-year. The average class B rate rose by 6.3% to $19.18 psf. Vacancy is tightest in Charlotte’s urban markets – CBD and Midtown – where vacancy stands at 9% and 4.7%, respectively. The most improved submarket is the Highway 51 corridor, where vacancy ended the second quarter at 16%, down by 10.6 percentage points in the last 24 months.The largest transactions in the first half of 2015 were Synchrony Financial’s lease for 152,000 sf at Ballantyne Corporate Park in the Highway 51 submarket and Walmart’s 107,600-sf lease for its global shared-services unit at Three Water Ridge in the Airport submarket. MetLife expanded by another 28,400 sf at Ballantyne Corporate Park, bringing its total square footage in the park to 464,000.Charlotte began 2015 with a relatively modest amount of positive net absorption – just under 170,000 sf through the first half. This lull in activity follows four years of robust absorption that reduced vacancy by more than 600 bps from a cyclical high of 19.7%. The recent slowdown is likely due in part to tight market conditions. A lack of large-block class A space is driving new construction, including two major build-to-suit projects just south of the North/South Carolina border, for LPL Financial and The Lash Group, as well as a handful of speculative buildings. Just 370,500 sf of that space is scheduled for delivery in 2015 with 25% preleased. As a result, tenants will continue to face limited class A options for the next 18 to 24 months, keeping upward pressure on rental rates.

Charlotte Office Market


1 Ballantyne Corporate Park Synchrony Financial 152,000 New

2 Three Water Ridge Walmart 109,600 New

3 Two Piedmont Town Center AmWINS Group 61,000 Renewal/Expansion

4 Toringdon I Heartland Payment Systems 30,300 New

5 Ballantyne Corporate Park MetLife 28,400 Expansion

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The Chicago office market ended the second quarter of 2015 with an overall vacancy rate of 13.3% – down 60 bps from

13.9% at the same time in 2014. This marks the fifth-consecutive quarter of declining vacancy. The CBD continued to record tremendous growth as vacancy dropped to pre-recession levels – down 40 bps to 11.1%. Activity within suburban markets resulted in an uptick during the first half of 2015. Absorption shifted upwards in the past four quarters, prompting vacancy to decrease 90 bps year-over-year. Average asking rental rates across the market continue to rise. Class A rents within the CBD rose 7.5% from mid-year 2014 – a direct result of landlords across the market making capital improvements and adding building amenities. Leasing activity continued to thrive throughout the CBD. Meanwhile, demand remains strong in both the West and Central Loop submarkets. However, many tenants no longer focus solely on preferred submarkets. The “Google effect” has resulted in many tenants looking at options in alternate areas that are, in some cases, more cost-effective or provide distinctive lifestyle advantages. The East Loop submarket witnessed great momentum during the first half of 2015. Absorption shifted upward for the first time in several quarters, driving vacancy down 120 bps compared with mid-year 2014. Construction continues on two new trophy-class office towers located within the CBD’s West Loop. In the second quarter of 2015, River Point added notable tenants such as Morton Salt and Allstate – bringing the project to 58% preleased. Developer John Buck has announced plans to commence construction on a third CBD office development, 151 North Franklin, which is also located within the West Loop and is expected to break ground during the fourth quarter of 2015. Law firms Hinshaw & Culbertson and Freeborn & Peters are both in negotiations to lease 100,000 sf and 90,000 sf, respectively. Benefiting from its diversification, the Chicago metropolitan economy has continued to strengthen. More than 56,500 jobs have been added since mid-year 2014, and unemployment has dropped an impressive 100 bps to 6.7% in the same period. As demand for space remains high across the market, users should see further shortages of quality space as well as rising rents.

Chicago Office Market


1 One Parkway North United Stationers Inc. 214,200 Renewal

2 Bannockburn Centre at College Park Baxalta Inc. 170,000 New

3 Windy Point I Comcast 101,400 Renewal

4 540 W. Madison Street SAC Wireless 83,200 Renewal

5 River Point Mead Johnson Nutrition Company 78,000 New

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Located on the southern shores of Lake Erie, Cleveland is the second most populous city in Ohio. The Cleveland

metropolitan area is the largest in the state by population comprising five counties: Cuyahoga, Geauga, Lake, Lorain and Medina.The Cleveland office market continued its positive momentum in the second quarter of 2015 with both downtown and suburban markets recording gains in net absorption and declining vacancies. The CBD, which includes approximately 32 msf of office space, experienced net absorption of nearly 396,000 sf between the third quarter of 2014 and the second quarter of 2015. As of mid-year 2015, the downtown vacancy rate was 17.9%, compared with 18.6% one year earlier. Gains were buoyed by renewals, relocations within the market and smaller deals rather than significant new-to-market lease transactions. Investors continued to take advantage of redevelopment opportunities and underperforming assets. Sale transactions were highlighted by the purchase of 925 Euclid Avenue by Hudson Holdings, which is planning a $280-million renovation of the 1.3-msf former Huntington Building, and the acquisition of the Fifth Third Center for $53.75 million by Hertz Investment Group. The proposed nuCLEus project nabbed its first office tenant with Benesch agreeing to lease 66,500 sf. The 72-msf suburban office market also enjoyed a healthy second quarter and saw slightly more than 400,000 sf of net positive absorption in the 12 months ending at mid-year 2015. Vacancy rates remained tighter in the suburbs compared with downtown, declining to 11.3% from 11.7% on a year-over-year basis. Second-quarter activity was highlighted by FirstEnergy renewing the lease on its 19-story headquarters in Downtown Akron through June 2025. Average gross rental rates across all classes remained relatively flat both downtown (approximately $19 psf) and in the suburbs ($16 psf).The supply of downtown office space is expected to continue to compress as older buildings are repurposed for multi-family use. Downtown apartments currently boast an impressive 98% occupancy rate, and the growing population should pave the way for the downtown office market to enjoy continued positive absorption and a declining vacancy rate.

Cleveland Office Market


1 76 S. Main Street, Akron First Energy Corp. 400,000 Renewal

2 6100 Rockside Boulevard, Independence Vox Mobile 34,000 New

3 200 Public Square, Cleveland Fox Sports Cleveland 23,000 New

4 6050 Oak Tree Boulevard, Independence Nexus Gas/Spectra Energy 22,400 New

5 950 Main Avenue, Indepedence Jackson Lewis 14,000 Expansion

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With one of the fastest-growing populations in the U.S., Columbus is anticipated to surpass Cleveland and

become the second-largest city in Ohio in 2016 (the largest being Cincinnati). Ohio State University contributes 65,000 people to the Columbus area’s population. With a four-year graduation percentage of 82%, millennials flood the local workforce, generating demand for a more creative and contemporary working environment. The Columbus office inventory consists of nearly 71 msf spanning 11 counties. The office market continued its vibrancy in the first half of 2015 as net absorption levels exceeded expectations and vacancy rates continued on their downward trajectory. At mid-year 2015, the Columbus Metropolitan Statistical Area reported an unemployment rate of 3.8% compared with 4.3% at the same time in 2014.Demand remained high in Columbus’ CBD as overall vacancy decreased to 7.9% at mid-year 2015 from 8.6% a year earlier. Downtown vacancy fell slightly, by 20 bps to 7.6%, while the suburban market dropped an impressive 120 bps year-over-year to 8%. Total 12-month absorption through to mid-year 2015 was nearly 857,000 sf compared with 262,000 sf in the previous 12-month period. The downtown market rebounded strongly, shifting to nearly 344,000 sf of net positive absorption between mid-year 2014 and mid-year 2015 from negative 99,000 sf a year earlier. Downtown construction activity has slowed as of mid-year 2015 due to the completion of the Columbia Gas Building, which added 290,000 sf to the Arena District in the fourth quarter of 2014. As of mid-year 2015, there was nearly 112,000 sf under construction across both suburban and downtown markets with 53% preleased. Leasing activity also remained strong in the first half of 2015. Opportunities for Ohioans with Disabilities signed a new lease at 150 East Campus Boulevard for 61,000 sf, while Indiana-based Fortune 500 energy company NiSource took up 43,000 sf. The top renewal was healthcare company HealthSpot’s extension of its 20,100-sf lease at 545 Metro Place South in Dublin.

Columbus Office Market


1 150 E. Campus View Boulevard Opportunities for Ohioans with Disabilities 61,000 New

2 1600 Dublin Road NiSource 43,000 New

3 488 W. Nationwide Boulevard Aver Infomatics 24,000 New

4 545 Metro Place S., Dublin HealthSpot 20,100 Renewal

5 640 S. Front Street Total Quality Logistics 16,800 Renewal

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Columbus Office Absorption & Vacancy Rates


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Columbus Class A Average Asking Gross Rents


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Columbus Office Space Under Construction & Completions


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Dallas-Fort Worth’s commercial real estate market has had one of its best years in 2015 as significant demand

is spurring new office developments. Dallas continues to strengthen as a corporate destination with 18 Fortune 500 companies currently headquartered in the metro. Major corporate relocations and expansions have had the added bonus of attracting ancillary support companies to the area, further boosting job growth and office demand. Large-scale office projects that have been in the works for years came to fruition, resulting in impressive numbers. In the last 12 months, the market absorbed more than 6.5 msf of space as tenants took occupancy of large build-to-suit projects. State Farm delivered 1.5 msf of space at its new campus in Richardson. The company began moving its 8,000 employees to the location earlier in 2015. The campus will total 2 msf when completed in 2016. Vacancy has fallen to 14.7%, its lowest point since 2006. Asking rates have increased substantially in the last 12 months due to high demand and increased operating costs. Asking rates have increased 4% year-over-year to $21.75 psf.The Dallas office market’s building boom currently has more than 8.2 msf under construction with 65% preleased. Construction on Toyota’s 1-msf campus at Legacy West broke ground in 2015. However, Toyota has announced plans to more than double its footprint at the campus, which will now total 2.1 msf. In the past year, most new construction starts have been geared towards large build-to-suit projects. Record-low vacancy and pent-up demand will likely lead to an increase in speculative development. Many new speculative projects have been announced and will likely break ground in coming months, eventually alleviating tightness in the market.The Dallas-Fort Worth metro has robust fundamentals, including rising population, strong employment growth and a low unemployment rate. The market shows no signs of slowing, and the positive fundamentals seen in the past year are expected to continue. Vacancy is expected to tighten through 2015 until new speculative construction is delivered in 2016.

Dallas Office Market


1 Bank of America Plaza Strasburger & Price 402,600 Expansion

2 Lakeside Campus RealPage 332,700 Expansion

3 Cypress Waters CoreLogic 327,200 New

4 Tollway Office Center II Liberty Mutual 160,000 Expansion

5 Royal Ridge Business Park NEC Corp. 119,600 Expansion

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Denver’s office market is at the forefront of adapting to an evolving work environment, which has become integral

to its continued success and sustained demand. The Denver metro continues to benefit from a significant in-migration of millennials, small start-ups and entrepreneurs who are altering the office leasing landscape. To remain competitive, many existing buildings have undergone renovations to accommodate the popular collaborative work environments and improved amenities that are sought by millennials. Tenants have placed an increasing amount of value on flexibility, with a large number opting for shorter lease deals rather than locking in a lower rate in exchange for longer terms. This trend is particularly significant because asking rates increased 6.8% year-over-year to $24.22 psf at mid-year 2015, and will likely continue to appreciate. Some tenants coming up for renewals are experiencing sticker shock and are opting either to downgrade in the quality of space leased or to reduce their employee footprint. High demand lowered the vacancy rate to 9.9% at mid-year 2015, down from 11.3% at the same point in 2014. Absorption – 1 msf in the first half of 2015 and nearly 2.5 msf in the past 12 months – continued to outpace new product deliveries and is pushing Denver towards a landlord-favorable market as well as prompting speculative construction, as evidenced by several newly announced developments throughout the CBD. Projects that were on the drawing board at mid-year 2014 have broken ground and preleased quickly. More than 3.1 msf of space is currently under construction with 38% preleased. Most notably, Hines broke ground on 1144 Fifteenth on a speculative basis. The building, located in the heart of downtown, totals 640,000 sf and is the largest office building to break ground in the CBD in nearly two decades. Finally, annual employment growth was 3.5% for the 12 months ending in June 2015 and should spur additional demand for office space throughout the remainder of the year. Unemployment was 4.3% at mid-year 2015, down from 4.9% at the same point in 2014. Denver has a diverse economy that has not been significantly impacted by falling oil prices. Indicators are pointing towards a period of sustained growth going forward.

Denver Office Market


1 Millennium Plaza AECOM 282,000 Expansion

2 Panorama Comcast 250,000 Expansion

3 1801 California TransAmerica 120,000 Expansion

4 Gateway Plaza Kaiser 80,000 Expansion

5 Palazzo Verde Envision 75,000 Expansion

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Denver Office Absorption & Vacancy Rates


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Denver Office Space Under Construction & Completions


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Detroit’s office market activity is continuing at a steady pace. The Greater Detroit Area’s unemployment rate was 4.9% at

mid-year 2015, slightly higher than the statewide average of 4.8%, according to the U.S. Bureau of Labor Statistics. Demand for a contemporary working environment is at an all-time high, making Detroit’s downtown a desirable location for tech companies. However, there are still several macroeconomic factors discouraging potential businesses from a suburban-to-downtown migration. A new transportation system and Detroit Red Wings arena should spur downtown development, and Wayne State University Physician Group is building a state-of-the-art, 155,000-sf office building in the Midtown submarket. New construction projects in both suburban and downtown markets are, in total, 97.1% preleased. Attracted by the recent recession and over-inflated cap rates, international investors continue to keep an eye on Detroit’s downtown. Office vacancy in the downtown market dropped 110 bps year-over-year to 14% at mid-year 2015. The suburban vacancy also fell to 17.3% from 19.1% a year earlier. Downtown class A average asking rental rates increased slightly to $21.84 psf at mid-year 2015 from $21.62 psf at the same time in 2014. Major office market activity includes the sale of the historic Fisher and Albert Kahn buildings to Detroit firm Redico for a combined $12.2 million ($13 psf) in June 2015. Both buildings are a combined 65% leased and total 925,000 sf. Quicken Loans renewed its 300,000-sf lease at One Campus Martius. Ally Financial had been considering moving its headquarters to Southfield in the suburbs, but elected to consolidate all three offices to one location downtown. Ally will move into 322,000 sf in the soon-to-be-named Ally Detroit Center located at 500 Woodward. Major suburban activity included HTC Global Services acquiring Caretech Solutions and consolidating both companies’ offices in 130,000 sf at the Centennial Office Building located in Troy - an asset recently purchased by HTC. As demand for office space in Detroit’s CBD increases, owners of older office inventory will continue to renovate to meet new market requirements.

Detroit Office Market


1 One Detroit Center Ally Financial 322,000 New

2 Compuware World Headquarters Quicken Loans Inc. 300,000 Renewal

3 Compuware World Headquarters Meridian Health 300,000 Renewal

4 Haggerty Corridor Corporate Park Harman Becker Automotive 188,000 Renewal

5 Fairlane Business Park Roush 169,200 New

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Fairfield County registered more than 1 msf of leasing during the first half of 2015. Much of the leasing

was, unfortunately, accomplished at the beginning of the year and, subsequently, volume has been flat. The largest transactions signed during the first half of 2015 included Synchrony Financial’s lease renewal of 312,000 sf at 777 Long Ridge Road and UBS’ relocation to 119,200 sf at 600 Washington Boulevard, both in Stamford. Frontier Communications moved its headquarters to 84,500 sf at 401 Merritt 7 in Norwalk from Stamford, while Sikorsky Aircraft took 121,000 sf at 1 Far Mill Crossing in Shelton. Solid leasing activity helped push the Fairfield County market’s overall vacancy rate down to 18.1% at mid-year 2015 from 22% a year earlier. Fairfield County’s vacancy rate has historically settled in the high teens. While the overall market was below 20% at mid-year 2015, a broadly defined Stamford CBD recorded vacancy greater than 20%, an increase of 460 bps year-over-year. Blocks of additional space were added throughout the county. In the first half of 2015, at least 10 blocks in excess of 30,000 sf each were added to the market. Furthermore, there will continue to be a surplus of shadow vacancy (space that is leased but not occupied) added to the market through 2015. It is anticipated that GE will divest itself of many of its financial services units, potentially adding more than 300,000 sf to the Norwalk Route 7 corridor submarket.Due to significant office space overhang in the market and the threat of more to come, landlords have started to reduce asking rental rates. Fairfield County’s overall average direct asking rental rate has fallen by $1.28 psf to $33.23 psf since mid-year 2014. The class A rate has followed suit with a $1.69 year-over-year decrease to $36.87 psf at mid-year 2015.

Fairfield County Office Market


1 777 Long Ridge Road Synchrony Financial 312,000 Renewal

2 1 Far Mill Crossing Sikorsky Aircraft 121,000 Expansion

3 401 Merritt 7 Frontier Communications 84,500 New

4 6 Landmark Square Cummings & Lockwood 55,600 Renewal

5 600 Steamboat AMG Funds 40,000 New

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Fort Lauderdale’s office market – which also includes all of Broward County – witnessed a great number of sales and

leasing and construction activity during the first half of 2015. Vacancy is declining – downtown vacancy fell 60 bps year-over-year and suburban vacancy dropped 130 bps. Average asking rental rates for downtown class A space rose to $35.74 psf gross at mid-year 2015 from $32.98 psf gross a year earlier. Average asking rental rates for suburban class A space increased only marginally year-over-year to $28.20 psf gross at mid-year 2015.After years with no new construction in Downtown Fort Lauderdale, there are currently two buildings under construction totaling nearly 60,000 sf. One West Las Olas Boulevard is expected to be complete in October 2015 and will feature 32,200 sf of class A office space with approximately 80% preleased. Another downtown building, 105 North Federal Highway, is set to deliver in early 2016, offering 27,400 sf of class B office space. Suburban Broward County is experiencing a surge in new construction with nearly 890,000 sf under construction in eight buildings as of mid-year 2015 – an increase of more than 700% compared with one year earlier – with 77.2% of this new construction preleased. The largest suburban project currently under construction is the new American Express regional headquarters, a 400,000-sf class A building in Sunrise. Both downtown and suburban Broward County markets registered positive absorption in the four quarters ending at mid-year 2015. Suburban Broward recorded nearly 417,000 sf of positive absorption during that time, a 59% increase year-over-year. Downtown Fort Lauderdale also experienced positive absorption, though at a less rapid rate, with 17,300 sf absorbed since the third quarter of 2014. It is expected that absorption, as well as rental rates, will increase as the new product currently under construction is completed. The largest office lease transaction year-to-date was AmSurg Corp.’s new 221,600-sf lease at 8000 West Sunrise Boulevard in Plantation. AmSurg is set to occupy 167,000 sf by September 2016 and then expand in May 2017.

Fort Lauderdale Office Market


1 8000 W. Sunrise Boulevard AmSurg Corp. 221,600 New

2 3200 S. University Drive Nova Southeastern 90,000 New

3 1100 W. McNab Road ChildNet 82,900 New

4 Royal Palm at South Pointe Thales LLC 54,000 Renewal

5 Las Olas City Centre Patriot National Inc. 49,100 Renewal

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Fort Lauderdale Office Space Under Construction & Completions


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Depressed oil prices in the first half of 2015 have resulted in mounting concern over their potential impact on

Houston’s office market. Tenants have shifted focus from securing real estate in prime locations to downsizing as a cost-cutting measure, a drastic change in outlook from just 12 months earlier. Houston recorded negative net absorption of 187,700 sf in the first half of 2015, compared with positive absorption of 6.1 msf in the first half of 2014. Leasing velocity fell sharply in the first half of 2015 as companies continued to implement a wait-and-see approach. Leasing activity is not expected to pick up through the rest of 2015 given the current market conditions, but should increase in 2016 as more tenants approach lease expirations.Houston entered 2015 from a position of strength, which is helping to minimize the current downturn’s negative influence. Particular concerns are substantial amounts of available sublease space, recently delivered vacant space, and rising shadow space (due to tenants moving to newly delivered space) as a result of lower oil prices. Tenants who are able to make real estate decisions will find opportunities in the form of concessions, particularly for sublease space. Asking rates have held up in the past three major downturns – a trend that continued in the first half of 2015. Overall average asking rates increased by 2.5% to $26.99 psf in the 12 months ending at mid-year 2015. Vacancy increased to 12.1% at mid-year 2015 from 10.3% one year earlier. Large occupancies from newly delivered buildings and leases signed in 2014 will counteract the vacated space, resulting in only a moderate increase in vacancy by year-end 2015. However, the downturn in the energy industry appears to have halted Houston’s construction boom. This situation will likely give demand a chance to catch up with supply and pull the market back from the brink of an overbuild scenario. As of mid-year 2015, a total of 10.8 msf of office space was under construction with 54% preleased. Office construction will still have an impact on the vacancy rate over the next seven quarters as available space is delivered to the market.

Houston Office Market


1 West Memorial Place II IHI E&C 171,000 New

2 West Loop Plaza Stage Stores 170,000 Expansion

3 Five Greenspoint Place Swift Energy 113,800 Expansion

4 Parc Plaza Business Park United Way of Greater Houston 80,000 Expansion

5 Westway Plaza Superior Energy Services 64,000 New

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Houston Office Absorption & Vacancy Rates


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Houston Office Space Under Construction & Completions


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Indianapolis’ office market has a collective inventory of 35 msf. As of June 2015, the city’s unemployment rate

fell to 4.5% from the 6.8% reported a year earlier. There are 18 Fortune 1000 companies that call Indianapolis home. The largest industries (by employment) are health care, manufacturing and retail trade. Along with having the most diverse interstate commerce, Indianapolis is recognized for being a prime center for logistics and distribution facilities. The local office market continues to report solid numbers. Downtown and suburban markets had a combined net absorption of 197,000 sf between mid-year 2014 and mid-year 2015. Overall vacancy fell to 17.1% from 18.2% on a year-over-year basis. The suburban market, which consists of approximately 25 msf, demonstrated a significant reduction in vacancy in the same period, dropping 130 bps to 15.8% from 17.1%. After three years without completions, new supply deliveries in the suburban market have intensified. Approximately 255,000 sf was completed between mid-year 2014 and mid-year 2015. An additional 161,000 sf was still under construction at mid-year 2015 with 44% preleased. The downtown market saw a slight improvement in vacancy, dropping 50 bps to 20.3% at mid-year 2015 from 20.8% a year earlier. Net absorption for the 12 months leading up to June 2015 was only 52,000 sf for the downtown market. Downtown class A rental rates have been stable since 2011; the average asking gross rate for downtown class A sits at $19.54 psf. The suburban market remains predictable, with average gross asking rates of $24.39 psf.Major leasing activity included Hall Render Killian Heath & Lyman and the Indiana Department of Child Services both signing new leases totaling 136,000 sf at 500 North Meridian Street, and Carrington Mortgage Services taking an additional 78,000 sf in the suburbs at 19831 US 31 North in Westfield, Indiana.

Indianapolis Office Market


1 500 N. Meridian Street Hall Render Killian Heath & Lyman 68,000 New

2 500 N. Meridian Street Indiana Department of Child Services 68,000 New

3 6325 Digital Way Indiana Wesleyan University 36,000 Renewal

4 2601 Metropolis Centene Management 36,000 New

5 12900 N. Meridian Street Experian 30,000 Renewal

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Indianapolis Office Absorption & Vacancy Rates


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Indianapolis Office Space Under Construction & Completions


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The Las Vegas office market continued to show signs of improvement as vacancy dropped 80 bps to 18.6%

in the second quarter of 2015 as compared with 19.4% in the second quarter of 2014. Medical office vacancy also decreased to 16.1% in the second quarter of 2015 from 17.8% one year earlier. While average class A asking lease rates have increased in 2015, average class B asking rates dropped considerably compared with the second quarter of 2014. Approximately 165 leases and 120 sales transactions were completed throughout the valley in the first half of 2015. The majority of new tenant activity took place in the south and southwest submarkets with lease deals averaging 5,000 sf. Of the 120 office buildings sold, 27 were medical buildings. By comparison, average asking class B lease rates remained relatively flat for the 12-month period ending at mid-year 2015. Class A rates, however, are noticeably increasing. During the Great Recession, many class B tenants took advantage of vulnerable market conditions and moved into class A space at class B rates. Now that the market is starting to stabilize, average asking class A rates are climbing due to decreasing vacancy, forcing some tenants to relocate to more affordable space.With a continued lack of new construction, demand is pushing sale prices upward. Increases in foreclosures and short sales in recent years are beginning to taper and market pricing is becoming more realistic. While banks still have office properties in their inventory, many of them are working to add value before selling. The amount of available sublease space has decreased significantly in recent quarters. Those businesses that needed to downsize due to the economic downturn are starting to recover, reducing the amount of sublease space on the market. While some tenants chose to relocate to smaller suites, many waited for their subtenants’ leases to expire before reoccupying their original space.

Las Vegas Office Market


1 4750 Oakey United Healthcare Services 98,000 New

2 1701 Charleston University of Nevada School of Medicine 34,900 New

3 6611 Las Vegas Boulevard Solar City 22,000 New

4 8205 Warm Springs Desert Orthopedic 17,600 New

5 7450 Arroyo Crossing Solar City 15,300 New

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The first half of 2015 brought a detectable increase in activity in the Long Island office market. However, Long

Island conditions are still lagging those in the region’s stronger urban markets. Insurance companies, law firms and health care still remain the most active sectors, with financial and real estate divisions lagging. Additionally, Long Island’s unemployment rate remains at post-recession lows of 4.5%. The office market ended the second quarter of 2015 with a vacancy rate of 10.5%, reflecting a significant decrease from a year earlier. These rates demonstrate the impact of growth in the health care, financial and energy sectors and the resultant activity in all submarkets. Meanwhile, asking and effective rents are continuing their upward trend, and with continued activity forthcoming, positive absorption and lower vacancy rates should prevail in the ensuing months. Significant space resulting from Canon’s departure from Lake Success still remains vacant. However, there is activity in the submarket, primarily fueled by North Shore-LIJ, which continues to be the most active health care organization in the region. Further east in the Melville market, the departure of Adecco from a large block of space and the planned relocation of First Data have put several hundred thousand square feet on the market in western Suffolk County, which has been experiencing soft market conditions. Historically, Suffolk County has always been a softer market than Nassau County due to Suffolk County’s relative location to New York City, lower population density and bedroom community status.Average asking rents for class A buildings have remained stable over the past few years, but typical leasing incentives, such as free rent, work letters and escalations, are beginning to come off their highs. The average asking rent for class A buildings increased slightly to $31.73 psf full-service (plus electric) at mid-year 2015, rising $0.60 from a year earlier. This promising increase is indicative of growing demand for class A space on Long Island.

Long Island Office Market


1 600 Community Drive North Shore-LIJ Health System 252,000 Renewal/Expansion

2 300 Jericho Quadrangle Darby 69,000 Renewal

3 RXR Plaza Ruskin 63,000 Renewal

4 88 Froelich Farm Wells Fargo 22,000 Renewal/Expansion

5 6800 Jericho Turnpike Neilsen 21,000 Renewal

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Los Angeles County office vacancy continued to decrease as of mid-year 2015 due to an increase in leasing activity.

At mid-year 2015, the vacancy rate had declined 130 bps to 15.7% from 17% a year earlier. The direct average asking rent increased at a solid pace, reaching $33.72 psf full-service gross (FSG) as of mid-year 2015, up from $32.04 at mid-year 2014. The range of asking rents in the seven markets within the Los Angeles County office market, which run from $25.32 psf FSG in Hollywood/Mid-Wilshire to $48.72 psf FSG in West Los Angeles, highlight the different market dynamics at play. The Los Angeles County office market recorded 992,000 sf of net absorption during the 12 months ending at mid-year 2015. The amount of square footage under construction in the suburbs reached slightly more than 2 msf, with some suburban areas slowing due in part to recent deliveries. Of this new suburban inventory, nearly 44% is preleased, and there is confidence that the market will readily lease the remainder. The downtown area has more than 700,000 sf under construction, with more than 12% preleased. Creative office space may be driving the newer developments; however, there is still a hefty requirement for traditional private offices in the market, and this need for a variety of premises is ensuring a healthy amount of leasing activity. A significant increase in positive absorption was recorded in the first half of 2015 as leasing activity picked up across Downtown, South Bay, and both West and North Los Angeles. West Los Angeles led the market with strong activity from media, entertainment and technology firms. The unemployment rate in Los Angeles County decreased to 7.3% as of June 2015 – putting 2015 on track to reach an average rate lower than that of the previous year. Educational and health service industries, along with the leisure and hospitality sectors, powered employment gains, while manufacturing jobs declined. An increase in leasing activity is expected in the second half of 2015 as tenants seek to skirt the continuing upward rental-rate trend.

Los Angeles Office Market


1 333 S. Hope Street The Capital Group Companies Inc. 306,000 Renewal

2 633 W. 5th Street Lewis Brisbois Bisgaard & Smith 215,200 Renewal

3 2175 E. Park Place, El Segundo DaVita Inc. 130,000 New

4 2 Innovation Way, Pomona Southern California Edison 125,000 New

5 350 S. Grand Avenue City of Los Angeles 114,600 New

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Miami’s office market is experiencing increased demand across all classes and submarkets. Large tenants

renewed leases and expanded into more space during the first half of 2015. Vacancy is declining – with downtown vacancy down 80 bps year-over-year and suburban vacancy down 70 bps year-over-year at mid-year 2015. Asking rental rates for downtown class A space rose 3.6% to $41.45 psf gross at mid-year 2015 from $40.01 psf gross at the same point in 2014. Asking rates for suburban submarkets are also increasing, up 5.3% year-over-year to $37.87 psf gross at mid-year 2015.The first new downtown office project in several years, Two MiamiCentral, a 215,000-sf class A building, is currently under construction and expected to be delivered in 2017. As of mid-year 2015, a total of 726,900 sf of office space was under construction in Miami-Dade County, up from the 557,000 sf a year earlier. More than 50% of the space under construction has been preleased. One notable construction project is the ambitious Brickell City Centre development, a mixed-use project that includes more than 260,000 sf of office space. Both downtown and suburban Miami-Dade County markets have registered positive absorption and led the state in net absorption during the past four quarters. Suburban Miami recorded 684,000 sf of absorption from the third quarter of 2014 to mid-year 2015. Downtown Miami also recorded nearly 250,000 sf of absorption since the third quarter of 2014. Norwegian Cruise Line (NCL) renewed and expanded its Miami headquarters at Airport Corporate Center. NCL renewed its 206,100-sf lease in buildings 10 and 11 and expanded into 70,300 sf in building 8. Airport Corporate Center was purchased by CBRE Global Investors in 2014 and will be undergoing major renovations. Miami Center office tower is also undergoing major renovations, including $20 million to upgrade the lobby, elevators and exterior plaza. Citigroup recently renewed its 125,000-sf lease in Miami Center.

Miami Office Market


1 The Landing at MIA (Bldgs. 10 & 11) Norwegian Cruise Line 206,100 Renewal

2 Miami Center Citibank 123,300 Renewal

3 Museum Tower Sterns Weaver 103,000 Renewal

4 PRC Building Alorica Inc. 101,300 Renewal

5 The Landing at MIA (Bldg. 8) Norwegian Cruise Line 70,300 Expansion

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Minneapolis is the second-largest economic center in the Midwest and lies on both the Mississippi and

Minnesota Rivers. With the recent increase in demand for urban living, new apartment projects and plans have flooded the Minneapolis/St. Paul region. The broader metropolitan area, which includes Anoka, Dakota, Midway, Minneapolis, Scott City, St. Paul and Washington County, is the 15th-largest (with 3.8 million in population) in the United States. The Minneapolis metropolitan area is home to 18 Fortune 500 company headquarters. A city that was once known for producing farm implements is now a major hub for the commerce, finance, logistics services and health care industries. During the last four years, Minnesota has added 189,000 jobs, according to the Minnesota Department of Employment. As of June 2015, the unemployment rate was 3.4%, one of the lowest unemployment rates in the nation, employing approximately 2 million people, according to the U.S. Bureau of Labor Statistics. Minneapolis has a combined suburban and downtown office inventory of nearly 148 msf. Downtown vacancy has decreased in the past year, falling to 13.5% at mid-year 2015 from 14.5% a year earlier. Downtown office construction has ramped up with 1.7 msf scheduled to be added to the market in 2016 with 99% preleased as of June 2015. The vacancy rate for the suburban office market dipped slightly to 9.4% from 9.7% year-over-year at the halfway point of 2015. Construction activity has remained relatively consistent for the suburban market with approximately 1 msf completed annually since the third quarter of 2013. Class A rental rates downtown have continued to increase annually at an average of 9% since 2011 and reached $25.52 psf in June 2015. Class A rental rates in the suburbs dipped slightly to $21.05 psf from $21.85 psf on a year-over-year basis at mid-year 2015.Major leasing activity included Smiths Medical, a designer and manufacturer of medical devices, signing a 182,300-sf lease at 6000 Nathan Lane in Plymouth.

Minneapolis Office Market


1 6000 Nathan Lane, Plymouth Smiths Medical 182,300 New

2 Butler Square Aimia 54,400 New

3 605 Waterford Park, Plymouth OneBeacon Insurance 53,000 New

4 Fifth Street Towers Martin Williams Agency 31,400 New

5 Highlight Center Sport Ngin 30,000 New

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The New Jersey Economic Development Authority (NJEDA) continues to offer aggressive incentives for companies

relocating to and remaining in the state. Over the past 12 months, the Hudson Waterfront, otherwise known as New Jersey’s “Gold Coast,” has been a major beneficiary of state funds, showing strong leasing demand as companies moved or expanded their operations from throughout the region. New York Life Insurance, RBC, Jackson Hewitt and First Data all took advantage of state aid to lease space in Jersey City, where they will receive more than $50 million worth of incentives and add more than 1,350 jobs. Since 2010, more than $5 billion has been awarded through the Urban Transit Hub Tax Credit, Economic Redevelopment and Growth, and Grow New Jersey Assistance programs signed into law by Governor Chris Christie, whose administration has spent the most in state history on business retention and growth. Available in qualified incentive areas statewide, these tax breaks provide benefits to areas beyond the aforementioned Hudson Waterfront. In West Windsor, BlackRock received approval for more than $12 million to expand its facility. Like BlackRock and First Data, the finance and technology industries continue to be targets for the NJEDA, which hopes to bring more of these high-paying jobs to New Jersey. More than one-third of all approved tax incentives have gone to technology companies alone. The state’s open purse strings have not gone unnoticed by developers, who are now completing projects to meet the increased demand for new space. SJP Properties’ recently completed 508,000-sf office and retail tower in Hoboken is already 60% leased. In spite of the aggressive incentives, New Jersey continues to lag neighboring states economically and, according to the U.S. Department of Commerce, ranked 46th in the country overall in GDP growth for 2014. This lag is naturally reflected in the statewide office vacancy rate, which remained constant year-over-year, at 21.3% as of mid-year 2015. As a result, tenant opportunity will remain in the marketplace for the foreseeable future, provided companies can sort out the other economic terms and impacts that go hand-in-hand with locating and operating in New Jersey.

New Jersey Office Market


1 295 North Maple Avenue Verizon Wireless 1,306,400 New

2 67 Whippany Road Metlife 185,000 New

3 184 Liberty Corner Road GlaxoSmithKline 144,500 New

4 103 JFK Parkway Dun & Bradstreet 123,000 Renewal

5 30 Hudson Street New York Life Insurance Co. 114,700 New

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New York City continues on its multi-year upward trend. Whether one looks to the successes of residential

developments and the advent of “Billionaires’ Row” along 57th Street or to the more than 10 msf of commercial office space that will be delivered in the coming years, New York is on a roll. New York City has three distinct office submarkets, and that is before venturing to Brooklyn or Queens where the least expensive leasing alternatives are now found. Midtown, Midtown South and Downtown comprise nearly 450 msf of class A and B space alone. The Midtown class A vacancy rate decreased more than 100 bps year-over-year to 10.2% at mid-year 2015. Although most submarkets saw a decrease in vacancy, the Grand Central and Times Square South areas did not as several large blocks of space became available during the second quarter. Overall, both existing and proposed space has performed very well with the development pipeline attracting several notable tenancies. Skadden, Arps, Slate, Meagher & Flom LLP will continue its march westward after the expiration of its current lease in 2020, having committed to 1 Manhattan West in the Hudson Yards development. Meanwhile, 1 Vanderbilt (next to Grand Central Station) received a commitment from TD Bank. Midtown South keeps its hold on the title of the tightest market of the three as the vacancy rate remained well below 10%, at a relatively stingy 6.8%. Blocks of class B space in the Madison Square/Park Avenue South and Hudson Square/Tribeca submarkets became available, but leasing activity was relatively tepid during the first half of the year. One notable transaction, however, was PayPal signing a 12-year lease at 95 Morton Street for 95,000 sf, leaving its current location at 625 Avenue of the Americas.Downtown class A space is still the value play for tenants with the direct asking rent standing at $66.14 psf, nearly $19 psf cheaper than the Midtown class A average. Overall, New York continues to be the place to be, and while there is a potential for a development overhang, the city’s continued job growth should easily outstrip the development pipeline.

New York Office Market


1 200 Park Avenue MetLife 550,000 New

2 1 Manhattan W. Skadden, Arp, Slate, Meagher & Flom 550,000 New

3 1675 Broadway Publicis Groupe 506,000 Renewal/Expansion

4 101 Park Avenue Morgan Lewis & Bockius 300,000 Renewal/Expansion

5 450 W. 33rd Street IPG 278,000 Renewal

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Oakland’s office market vacancy continues to fall, leaving fewer quality leasing opportunities for tenants and

putting upward pressure on rents. Demand continues to increase, resulting in year-over-year asking rent growth of roughly 29% to $37.79 psf full-service from $29.34 psf full-service for class A buildings in the Oakland CBD. The latest figure understates the true average rent, as many class A landlords in the CBD are not quoting rents in this landlord-driven market. Demand, coupled with a general lack of tenants relocating out of the market, resulted in more than 488,000 sf of absorption in the first six months of 2015. Positive gains are expected to continue through the second half of this year.Migrations are steady as San Francisco tenants continue to tour through the Oakland CBD. Expansions within the CBD are prolific as tenants secure a foothold in the market in the face of growing rental rates. However, Oakland office construction has remained sporadic in recent years. Tenant demand is strong, but construction costs are too high and asking rents are not high enough. Nevertheless, a significant number of residential projects are expected to break ground during the second half of 2015. Projected to have some of the highest forecasted rental growth in the Bay Area, market rents in Oakland will likely continue to rise in the near term. Wareham Development’s 740 Heinz Avenue is scheduled for completion in the third quarter of 2015. The 105,000-sf office/lab building, located in West Berkeley’s Aquatic Park, represents the newest office product to hit the market since 2013.The perception of Oakland has changed. Oakland is now an acceptable first-choice location for innovative and creative tenants. Not only has the market become a lower-cost alternative to San Francisco, but it is rapidly becoming a preferred choice for tenants. Vision is turning into action in Oakland, and the local vibrancy is converting into institutional reality. Investors have changed their mentality from “Oakland, no way” to “we’ll make it work” and “the numbers will pencil.”

Oakland Office Market


1 1000 Broadway Oakland Unified School District 124,500 Renewal

2 5800 Hollis Street Stanford Health Care 98,500 New

3 555 12st Street Matson Navigation 52,600 Renewal

4 2100 Franklin Street Pandora 49,300 Sublease

5 2101 Webster Street iParadigms (Turnitin) 48,900 New

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Orange County continued to see increasing demand and a tightening supply of office space that has resulted

in rising prices. This thriving hub for financial services, information technology, logistics and health care has continued to attract a talented workforce. The region’s ideal geography and bustling tourism trade contribute to a high quality of life. Orange County boasts one of the lowest unemployment rates in California, at 4.3% as of June 2015. Year-to-date, unemployment levels are on track to be significantly lower than the previous year for the county. As of mid-2015, Orange County’s office vacancy reached 9.5%, marking a sharp year-over-year decrease from 11.5% at mid-year 2014. As vacancy tightens, rental rates are registering a robust increase. At the end of the second quarter of 2015, the average asking rental rate for all classes was $26.16 psf full-service gross (FSG), up from $24.12 psf FSG one year earlier. Rents are increasing each quarter across every major submarket in the county with the highest rents found in the Airport area at $29.04 psf FSG. Total net absorption of more than 2.5 msf was recorded for the 12-month period ending June 30, 2015. There are currently seven investment-grade office properties under construction in the county, amounting to nearly 711,000 sf of new inventory that will be added, almost entirely in the suburban markets. Approximately 73% of the new inventory will be available to the market with the remainder preleased. The largest project is located in Irvine. The 425,000-sf, LEED-Gold development has no prelease commitments. As of the mid-point of 2015, there has been one new office delivery, also a LEED Gold-certified development, totaling 21,300 sf. The larger volume of new construction that was delivered in nearly equal proportion between the downtown area and the suburbs in 2014 is not expected in 2015; however, developers are still moving forward, albeit cautiously since the recession. There is nearly 6.5 msf of proposed office development on record in the county.

Orange County Office Market


1 4000 MacArthur Boulevard, Newport Beach Hyundai Capital America 177,000 New

2 5515 E. La Palma Avenue, Anaheim Safran 87,000 New

3 9701 Jeronimo Road, Irvine Unisys 83,100 Renewal

4 3800 W. Chapman Avenue, Orange American Advisors Group 71,500 Renewal

5 26642 Towne Centre Drive, Foothill Ranch LoanDepot 67,700 Renewal

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Orlando’s office market consists of the Orlando metropolitan area as well as the coastal submarkets:

Titusville/Cape Canaveral, Cocoa Beach and Melbourne. Vacancy rates in this market are tightening significantly. Downtown vacancy is down 170 bps year-over-year and suburban vacancy is down 160 bps year-over-year. Asking rental rates for downtown class A space are up slightly, to $25.55 psf gross at mid-year 2015 from $25.02 psf gross at mid-year 2014. Suburban asking rates are also increasing, having climbed to $22.19 psf gross at mid-year 2015 from $21.29 psf gross in the second quarter of 2014. No new office developments have been completed in Downtown Orlando in the past several years. There were also no projects under construction as of mid-year 2015. However, 252,000 sf of office space was under construction in suburban Orlando (34% preleased), up from 172,000 sf a year earlier. The largest suburban project under construction is the 92,000-sf GuideWell Innovation Center at Lake Nona, a multi-tenant building geared toward life sciences, health innovation and technology companies and scheduled for delivery in late 2015.Both downtown and suburban Orlando markets saw positive and increasing absorption during the four quarters ending at mid-year 2015. Suburban Orlando recorded more than 577,000 sf of positive absorption during that period. Downtown Orlando is also registering positive absorption, with more than 227,000 sf absorbed during the same period. These increases represent a significant departure from the negative absorption of 173,000 sf recorded in the previous 12-month period. Diamond Resorts International renewed its 30,000-sf-plus lease and expanded into an additional 54,000 sf at SouthPark Center for a total of more than 85,000 sf. Wells Fargo’s renewal of its 81,900-sf lease at One Orlando Center was another large lease transaction in the first half of 2015.

Orlando Office Market


1 SouthPark Center Diamond Resorts 85,900 Renewal/Expansion

2 One Orlando Center Wells Fargo 81,900 Renewal

3 Maitland Colonnades Sprint 44,800 New

4 University Corporate Center Northrop Grumman 36,100 Renewal

5 Bank of America Center CareerSource 22,100 New

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Orlando Class A Average Asking Gross Rents


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Philadelphia, the fifth-largest city in the United States, lies in the seventh-largest metropolitan area in the country.

Comprising 13 counties, the Philadelphia region stretches into northern Delaware, southern New Jersey and central Pennsylvania, while also running up the I-81 corridor into northeast Pennsylvania. The office market consists of more than 312 msf. Class A office space totaling 130 msf accounts for 42% of the market. Within the CBD, class A space makes up 58% of the total office market. In the suburbs, this figure drops to 39%. The Philadelphia market has seen an overall drop in vacancy across all building classes; however, things played out differently in the CBD versus the suburbs. For all building classes, the CBD posted a vacancy rate of 9.5% at mid-year 2015, up from 8.6% at the same time in 2014, while vacancy in the suburbs declined to 10.6% from 11.6% over the same period. The Philadelphia market saw class A vacancy tighten as it dropped 40 bps year-over-year in the suburbs to 12.8%, and to 9.9% from 11.2% in the CBD. The CBD recorded 12-month positive absorption of nearly 492,000 sf, which represents a 54% increase over the previous year. Absorption also increased by 72% in the suburbs to nearly 1.4 msf.Class A office space registered a small overall decrease in average gross rent to $26.25 psf at mid-year 2015 from $26.88 psf at mid-year 2014; however, CBD and suburban rental rates went in opposite directions. In the CBD, where the market is primarily landlord-driven, rents increased to $28.60 psf from $27.07 psf whereas in the suburbs, where specific markets are currently soft, rents dropped to $24.65 psf from $26.69 psf. Space under construction in the CBD jumped 64% to nearly 2 msf from 1.2 msf, with 87% preleased as of mid-year 2015. In the suburbs, total square feet under construction fell 97.7% to 32,500 sf with 7,500 sf (23%) preleased at the same point. During the 12-month period leading up to mid-year 2015, nearly 444,000 sf of office space in the CBD was completed. The suburbs delivered 751,000 sf of new office space compared with 639,500 sf in the previous year.

Philadelphia Office Market


1 1865 Marlton Pike, Cherry Hill, NJ Clinical Health Care 150,000 New

2 40 Liberty Boulevard, Malvern The Vanguard Group 126,000 New

3 101-163 E. County Line Road, Hatboro ABB Process Automation 115,000 Renewal

4 1900 Market Street Independence Blue Cross 112,000 New

5 401 Market Street American Bible Society 93,000 New

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Pittsburgh’s office market, consisting of more than 82 msf across five counties, ended the second quarter of 2015

with a vacancy rate of 8.2%, up 20 bps from 8% in the second quarter of 2014. This increase marked the fifth-consecutive year in which the vacancy rate has been below 10%. Year-over-year office leasing activity was vibrant at mid-year 2015 with 1.2 msf of positive absorption, which represented a significant increase compared with the previous 12-month period. Downtown outperformed the suburban markets by slightly more than 72,000 sf. Notable lease transactions in the first half of 2015 included PPG Industries’ 348,000-sf renewal and expansion at PPG Place in Pittsburgh’s CBD, Rice Energy’s new headquarters lease for 150,000 sf at Zenith Ridge III, a class A office building currently under construction in Southpointe Business Park, and Chevron’s 120,000-sf lease at 700 Cherrington Parkway in Moon Township. Meanwhile, Apple has been looking to expand its presence in the city and will be taking approximately 26,000 sf at Three Crossings, a mixed-use complex in the Strip District, upon completion. Average asking rental rates for class A office space increased to $26.10 psf in the second quarter of 2015 from $25.47 psf a year earlier, representing another year of increases. Moving forward, asking rental rates may continue to increase; however, rental rates should remain stable as a result of the influx of available space on the horizon. During the first half of 2015, several of the region’s largest corporations announced plans to consolidate a total of approximately 1.4 msf over the next three years, primarily in the Downtown market. Additionally, another 1.4 msf of office space under construction is scheduled for completion by year-end 2015. These factors will have an impact on the region’s office market conditions in the near term, shifting leverage from the landlord to the tenant and providing opportunities for large users to establish a presence in new or existing space.

Pittsburgh Office Market


1 1 PPG Place PPG Industries Inc. 348,000 Renewal/Expansion

2 Zenith Ridge III Rice Energy 150,000 New

3 700 Cherrington Parkway Chevron Corp. 120,000 New

4 Tower Two-Sixty JLL 54,400 New

5 Foster Plaza 9 CA Technologies 22,100 New

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Sustained employment growth and new construction drove robust activity in the Raleigh-Durham office

market in the first half of 2015. Net absorption surged to more than 2.1 msf in the 12-month period ending at mid-year 2015 – a level of activity not witnessed since the late 1990s. In Cary, Highwoods Properties completed two buildings totaling 427,000 sf for MetLife as well as a 75,000-sf build-to-suit for Biologics. Three speculative buildings were also delivered, all of which were at least 50% preleased: GlenLake V (167,000 sf ) in the Glenwood/Creedmoor submarket, Charter Square (243,000 sf ) in Downtown Raleigh and Alliance One (146,000 sf ) in West Raleigh. Vacancy ended the second quarter of 2015 at 13.4%, down 190 bps during the last 12 months and at its lowest level since 2007. Class A vacancy fell to just 9.1%. A dwindling supply of quality leasing options, combined with the higher price point of new construction, placed upward pressure on rental rates. Class A asking rates rose to $22.98 psf in the second quarter, up by 7.5% in the last 24 months and a record high for the region. In Downtown Raleigh, the average class A asking rate jumped to $28.08 psf, up 27% in the last 24 months. Asking rental rates are poised to increase further heading into 2016. Rates for speculative projects still underway range from $24.95 to $34.50 psf with the average at $30.80 psf. Additional buildings are expected to break ground before the end of 2015, including the second Charter Square tower (250,000 sf ) and Edison (250,300 sf ) in Downtown Raleigh and Midtown Plaza (330,000 sf ) at North Hills on Six Forks Road. Allscripts preleased 250,000 sf at Midtown Plaza, but will vacate approximately 305,000 sf at the Forum office park just a few miles away.Demand from office tenants is projected to be strong through at least 2016. Unemployment has fallen to pre-recession levels, and employers continue to be drawn to the region for its quality of life, low cost of living and doing business, and highly educated workforce.

Raleigh-Durham Office Market


1 Midtown Plaza Allscripts 250,000 New

2 GlenLake VI PRA International 46,300 Expansion

3 SouthCourt Blue Cross Blue Shield of NC 50,000 New

4 Berrington Center Quintiles 31,600 New

5 North Hills Tower Two G&S Business Solutions 25,500 New

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Reno is a tertiary office market and, by definition, growth is slower than in other markets. For the past few years,

nearby primary and secondary markets have improved and even thrived while Reno remained stagnant. The city’s growth has, until recently, been slow at best. Reno’s office market vacancy at mid-year 2015 was 17.1%, down from 19% one year earlier. This decrease represents net absorption of nearly 23,000 sf in the past year. Much of the activity has been from the medical sector with Renown Health taking 80,000 sf for administration purposes in the second quarter of 2015 and New York-based ArroHealth leasing 30,000 sf for a customer-support center. Large vacancies in the past 12 months included Morrison University vacating 25,000 sf and WMS Gaming returning 54,000 sf to the marketplace. The big drivers of leasing activity have been tenants of 10,000 sf or less. The 2.2-msf Meadowood submarket is the largest in Reno, and it was the biggest winner during the 12-month period ending at mid-year 2015. Vacancy decreased 500 bps to 12.2% from 17.2%, representing net absorption of 111,000 sf. The biggest lease transaction involved the Coral Academy, which occupied 27,000 sf. The remainder of leasing activity involved sub-10,000-sf tenants. The Central Reno submarket recorded negative absorption of 34,000 sf. This submarket represents mostly older class B and C buildings that suffered during the Great Recession and, until the lease rate spread between class A, B and C product improves, a flight to quality will continue. Reno’s historic vacancy rate is 15%. As market vacancy begins to stabilize at that point, more developers will consider speculative construction. McKenzie Properties plans to break ground in the first quarter of 2016 on a 40,000-sf building with a 13,000-sf prelease commitment from a medical group. This project represents the first new office building of any decent size in Reno since 2009.

Reno Office Market


1 10315 Professional Circle Renown Health 63,000 New

2 1450 Vassar Street ArroHealth 30,000 New

3 6275 Neil Road Coral Acadamy of Science 27,000 New

4 50 Liberty Street Renown Health 17,000 New

5 10615 Professional Circle Coupa 12,000 New

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Sacramento Valley’s office market is inching closer to where it was before the recession started in 2008. Since the

beginning of 2012, the market has experienced 2.5 msf of positive net absorption – and more than 600,000 sf during the past 12 months, ending the second quarter of 2015 with a vacancy rate of 14.2%. This is the lowest vacancy rate the Sacramento Valley office market has recorded since the third quarter of 2008. Moving forward in 2015, observers will pay close attention to the Downtown Sacramento submarket. With the NBA’s Sacramento Kings’ new arena breaking ground in the fourth quarter of 2014 at Downtown Plaza, the downtown district is preparing for a rebirth. Over the past 12 months, the arena has already started to have a positive effect on the 10-msf downtown office market. It recorded the highest amount of occupancy in all of the Sacramento Valley during the past 12 months, with more than 170,000 sf of positive absorption. The team’s owners have plans to develop up to 475,000 sf of office space adjacent to the arena.The Highway 50 corridor has been very active to date in 2015, recording 223,000 sf of positive absorption during the first six months of the year. This absorption was largely due to Blue Shield of California leasing a total of 174,000 sf in the submarket. After experiencing negative absorption for the first time in 15 quarters during the fourth quarter of 2014, the Roseville/Rocklin submarket was back in the black in each of the first two quarters of 2015. Despite the negative absorption during late 2014, it has recorded 44,000 sf of positive absorption in the last 12 months and 1.3 msf of positive absorption dating back to 2012. Moving into and beyond the second half of 2015, the challenge for the Sacramento Valley office will be a lack of major job generators to feed the local economy. The state government and the health care industry will continue to drive the market.

Sacramento Office Market


1 3300 Zinfandel Drive Blue Shield of California 128,100 New

2 10834 International Drive Blue Shield of California 46,400 New

3 555 Capitol Mall Murphy, Austin, Adams, Shoenfield LLP 14,200 New

4 2901 Douglas Boulevard VALIC 10,000 Renewal

5 2180 Harvard Street Alliant 9,500 New

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San Diego’s office market is moving forward with confidence, supported by its diverse industries and

desirable geography. The region is a thriving hub for biotechnology, telecommunications and tourism, which have contributed to the resilience of the market since the Great Recession. There is strong demand for space from health care innovators, independent research institutes and sectors that work closely with the local military. The unemployment rate for San Diego County, as of June 2015, dropped to 5%. Year-to-date, unemployment levels are markedly lower in comparison with the previous year. The San Diego County office vacancy rate dropped to 10.7% at mid-year 2015, tightening significantly from 12.3% at mid-year 2014. Rental rates are responding to this movement and, by the end of the second quarter of 2015, the average asking rental rate for all classes reached $30 psf full-service gross (FSG), up from $27.84 psf FSG one year earlier. Rents are experiencing a quarter-over-quarter increase across every major submarket in the county. The highest rents, by far, are found in the Central Coast area, at $36.12 psf FSG. The North County Coastal area and the Downtown area achieved the next highest rents, while the Central Cities experienced the greatest gain over the previous year. Total net absorption for the 12-month period ending at mid-year 2015 was nearly 1.9 msf. The San Diego office market had six investment-grade office properties under construction at the midpoint of 2015. These projects amount to more than 635,000 sf of new inventory, approximately 89% of which will be available to the market with the remainder preleased. The Downtown market saw the completion of a 320,000-sf, LEED-Gold certified office tower, which is fully occupied by Sempra Energy. There is currently more than 8 msf of proposed office development on record in the county. A gradual increase in new construction is expected to continue through 2015 and well into 2016.

San Diego County Office Market


1 15051 Avenue of Science Daybreak 70,000 New

2 4767 Nexus Centre Drive Senomyx Inc. 65,300 Renewal

3 8954 Rio San Diego Drive Kaiser Foundation Healthcare 62,100 Renewal

4 10636 Scripps Summit Court MedImpact 47,200 New

5 11149 N. Torrey Pines Road, La Jolla Synthetic Genomics Inc. 44,800 Renewal

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The San Francisco office market showed no signs of slowing down as the first half of 2015 came to a close.

Unemployment fell to a historic low of 3.5% at mid-year 2015 from the previous historic low of 4.4% in the second quarter of 2014. Vacancy continued to decrease, dropping 110 bps to 5.3% at mid-year 2015 from mid-year 2014. Leasing activity remained strong with more than 4.6 msf in transactions during the first half of 2015.Much like the first half of 2014, technology companies continued to be the driving force in the market. Four of the top five leases in the first half of 2015 belonged to tech companies looking to expand their footprint in the city. Stripe had the largest deal with a 300,000-sf prelease at 510 Townsend Street. Uber increased its presence by taking 172,800 sf at 555 Market Street, while Fitbit signed a new 163,600-sf lease at 199 Fremont Street. Both Orrick, Herrington & Sutcliffe and Advent Software renewed their leases; Orrick at 405 Howard Street for 168,200 sf and Advent Software at 600 Townsend Street for 129,500 sf.There has been a lot of speculation regarding sublease availability in San Francisco. The market has not witnessed an influx of sublease space to date. At the close of the second quarter of 2015, 1.4 msf of sublease space was available on the market. Sublease availability has averaged approximately 1.3 msf over the past five years. Unlike the dot-com bust in the early 2000s, the majority of companies are not subleasing their existing spaces due to downsizing, but instead are either banking space for future growth or simply outgrowing their current spaces and relocating. Rental rates continue to increase steadily; average class A asking rental rates are currently at $67 psf full-service, compared with $57 psf at mid-year 2014. With more than 20 tenants seeking 100,000 sf or more during the next 12 to 24 months, the San Francisco office market is expected to remain extremely active in the second half of 2015.

San Francisco Office Market


1 510 Townsend Street Stripe 300,000 New

2 555 Market Street Uber 172,800 New

3 405 Howard Street Orrick, Herrington & Sutcliffe 168,200 Renewal

4 199 Fremont Street Fitbit 163,600 New

5 600 Townsend Street Advent Software 129,500 Renewal

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San Francisco Class A Average Asking Gross Rents

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San Mateo County boasted the lowest unemployment rate in California at 3.3% as of June 2015. Year-over-

year, employment grew by nearly 17,000 jobs in San Mateo County. The positive employment figures helped increase occupancy by almost 190,000 sf in the market during that time period. The San Mateo County office market ended the second quarter of 2015 with an 8.9% vacancy rate, down 70 bps year-over-year. The majority of the growth over the past year has come from expanding tenants that already have a presence in San Mateo County. However, new construction projects in south San Mateo County have received a lot of attention from Silicon Valley companies. In downtown Redwood City, Silicon Valley-based tech company Box Inc. preleased the entire 300,000-sf Crossing/900 office development, which is due to deliver in the second half of 2015. Another Silicon Valley company, EMC Corp., preleased 151 Commonwealth Drive, a 260,000-sf new development in Menlo Park. After decreasing for the first time in 15 quarters in the fourth quarter of 2014, average asking rental rates for all classes increased in the first half of 2015, ending at $46.80 psf full service.Due to an increase in demand from technology tenants, development activity in San Mateo County is the most active it has been since the dot-com days in the early 2000s. More than 460,000 sf has been delivered during the past 12 months, while more than 1 msf is currently under construction within the county. That total does not include the more than 7 msf of potential future projects being considered within the borders of San Mateo County; however, the majority of these projects are at least 24 months from breaking ground. San Mateo County will continue to be a landlord’s market as demand from tenants remains extremely strong, enabling landlords to increase asking rates. With tenants totaling nearly 3 msf looking for space within the county during the next 24 months, a strong second half of 2015 is expected.

San Mateo Office Market


1 2955 Campus Drive NetSuite 140,000 Renewal/Expansion

2 162 Jefferson Drive, Menlo Park EMC 135,300 New

3 1800 Bridge Parkway, Redwood Shores Nevro Corp. 50,500 New

4 2855 Campus Drive GoPro 49,300 New

5 700 Saginaw Drive, Redwood City Revolution Medicine 41,900 New

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The Tampa office market consists of Hillsborough, Pinellas, Pasco, Polk, Hernando, Manatee and Sarasota counties.

In the first half of 2015, downtown office vacancy, including Tampa and St. Petersburg, decreased 160 bps year-over-year to 11%, and suburban vacancy fell 240 bps year-over-year to 12%. Asking rental rates for downtown class A space rose 5.9% to $25.41 psf gross at mid-year 2015 from $23.99 psf gross at mid-year 2014. Asking rental rates for suburban class A space were up 2.3% to $24.49 psf gross at mid-year 2015 from $23.94 psf gross a year earlier.There have been no new office construction projects or completions in downtown for many years. However, this situation could change in the near future with developer Jeff Vinik’s $1-billion plan to revitalize Downtown Tampa with new office buildings and a new University of South Florida (USF) Medical School building on 40 acres in Channelside. The project will total 2.5 msf of office, retail, residential and USF campus. Suburban Tampa Bay is experiencing a surge in development with nearly 621,000 sf under construction at mid-year 2015 (89.5% preleased), up more than 900% year-over-year. The largest suburban project currently under construction is the USAA’s new corporate offices in Brandon, near the Crosstown Expressway. Phase one of construction, which is 260,000 sf of class A office space, is set to be completed in late 2015. Construction has not yet begun on phase two, which will have 160,000 sf of office space. Both downtown and suburban Tampa markets recorded positive absorption in the 12-month period ending at mid-year 2015. Leading the state, suburban Tampa has experienced nearly 1.5 msf of positive absorption since the third quarter of 2014, an increase of nearly 300% compared with the previous 12-month period. Downtown Tampa’s positive absorption increased at a less rapid rate, with 296,000 sf absorbed between the third quarter of 2014 and the second quarter of 2015. The largest office lease transaction year-to-date was Citigroup’s 135,000-sf lease at Hidden River Corporate Park. Another notable transaction was Ashley Furniture’s 67,600-sf lease in Centro Ybor, a former movie theater, for its e-commerce offices. Ashley Furniture is backfilling the Centro Ybor space.

Tampa Office Market


1 Hidden River Corporate Park Citigroup 135,000 New

2 Centro Ybor Ashley Furniture 67,600 New

3 Ceridian Building Jabil 51,000 New

4 Grand Regency Holland & Knight 48,600 New

5 Corporate Center Two BioSpine 30,700 New

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The Metropolitan Washington office market comprises nearly 377 msf in the District of Columbia, Northern Virginia and

Suburban Maryland. As a whole, the market recorded a 14.8% vacancy rate and 347,000 sf of negative net absorption between mid-year 2014 and mid-year 2015. The strongest demand is in newer and class A properties, where the positive growth is occurring. Likewise, there has not been any softening in class A rental rates. Tenants continue to demonstrate a preference for mixed-use and amenity-rich projects near public transportation, often at the expense of traditional suburban office parks. This trend, coupled with a paradigm shift in how office space is utilized, has resulted in an overall decline in office occupancy in the region. As well, new office leases, by and large, reflect a shrinking tenant footprint. One bright spot for the aging vacant inventory is that adaptive reuse continues to rise. Recently, suburban office buildings have been converted to schools, residential and other uses.During the last 12-month period, less than 2 msf was delivered in the region, an amount notably below historical averages. In the prior four reporting periods, the 12-month average was 3.6 msf. Nevertheless, another 8 msf is underway, for delivery during the next three years, with an overall prelease rate of 64%. Federal government leasing activity has been moribund. The largest non-government office transaction in the first half of 2015 was Fannie Mae’s prelease for its new headquarters, in which it is slated to occupy 700,000 sf. As with other major tenants, Fannie Mae will be reducing its overall occupancy, by roughly 30%, when its new building is completed in 2018.Metrorail’s expansion continues to have a meaningful impact on market conditions around the region. The Silver Line opening in Virginia and its future extension to Dulles International Airport and beyond mean that certain tenants now consider beyond-the-Beltway submarkets viable after possibly eschewing them previously. Likewise in Maryland, the proposed Purple Line extension (approved but undergoing design and budget review) is expected to be a catalyst for business expansion in emerging submarkets. With the exception of a few select submarkets and prime properties, current market conditions should persist through year-end 2015.

Washington, DC Office Market


1 1150 15th Street, NW Fannie Mae 700,000 New

2 1215 South Clark Street U.S. Marshals Service 371,000 New

3 1301 Pennsylvania Avenue, NW Kirkland & Ellis 187,000 New

4 12000 Sunrise Valley Drive Fannie Mae 186,000 New

5 2002 Edmund Halley Drive Noblis 160,000 New

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The West Palm Beach office market has not shown the levels of growth that other South Florida markets are experiencing.

However, vacancy is declining. As of mid-year 2015, downtown vacancy was down 120 bps year-over-year to 13.7% while suburban vacancy was down 180 bps year-over-year to 15.5%. Average asking rental rates for downtown class A space remained nearly flat year-over-year and were at $35.13 psf gross in the second quarter of 2015. Suburban class A space asking rates were up more than 5%, to $33.26 psf gross at mid-year 2015 from $31.63 psf gross a year earlier.There has been no new office space construction downtown in Palm Beach County for many years despite low vacancy rates. The City Commission approved a measure in April 2015 amending the downtown master plan to allow for additional development capacity as well as additional height for class A office and hotel buildings. The city is hopeful that this revision will encourage development of more class A office product. Suburban Broward County has had some new construction with approximately 140,000 sf completed during the past 12 months and 58,000 sf completed in the year prior. One notable completion during the last year was Harbourside Place, a mixed-use development that includes nearly 100,000 sf of class A office space, in Jupiter.Suburban Palm Beach markets witnessed more than 734,000 sf of positive absorption between the third quarter of 2014 and mid-year 2015, an increase of more than 50% year-over-year. Downtown West Palm Beach also experienced positive absorption, though at a less rapid rate, with 32,500 sf absorbed during the same period. The largest office lease transaction in the first half of 2015 was Bank of America’s long-term lease renewal of its 32,000-sf space in the Bank of America Tower in Boca Raton. Another notable lease was Olympus Insurance’s new 18,600-sf lease at Corporate Center at the Gardens in Palm Beach Gardens, a relocation from Orlando.

West Palm Beach Office Market


1 Bank of America Tower Bank of America 32,000 Renewal

2 Corporate Center @ the Gardens Olympus Insurance 18,600 New

3 Delray Office Plaza Lifescape Solutions 14,500 New

4 Northbridge Pavilion S&N Debt Solutions 14,000 New

5 Golden Bear North Tower Slimfast 13,300 New

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In London’s office market, the issue is how to manage growth. This challenge is most clearly demonstrated in

press headlines about rental-rate growth. Central London rental-rate growth hit 1.5% in June 2015 – equivalent to 19.6% per annum (pa) – with the West End submarket hitting 2%. The West End is now the most expensive office location in the world based on the highest per-square-foot rent paid in the market. In the St. James submarket, small office suites have hit as high as £185 psf. The previous record rent was £140 psf, set in 2007. In the City of London, upper floors in tower buildings are hitting £90 psf, although the benchmark for lower floors is £62.50 psf. Previously “cheap” submarkets, such as Shoreditch (located on the northern fringe of the City of London), have seen quoting rents move into the mid-£60s-psf range.These headline-grabbing rents are symptomatic of a market that is running out of space. Take-up in Central London for the first six months of 2015 was the highest since 1998. This trend is set to continue. Across most Central London submarkets, vacancy rates are 4% or less – and rental growth is inevitable. The office supply in most of the key submarkets is less than 12 months’ take-up. In response, some occupiers are moving jobs out of London. For example, HSBC recently announced that it will move its 1,000-head retail banking operation to Birmingham from Canary Wharf. Other firms are also thinking hard about their Central London occupational strategies.Serviced offices have come into favour by offering more flexible occupancy options than the traditional lease. Market entrants are widening the scope and scale of the offering – WeWork recently took 168,000 sf in Moor Place in the City of London. In the past, London has shown its ability to meet occupiers’ needs. The Broadgate and Ludgate schemes opened up new areas for office users. Arguably, the development of the Kings Cross and London Bridge areas is performing that same function in this cycle. That said, there is no obvious domestic reason for demand to slow.

London, U.K. Office Market


1 10 Upper Bank Street Deutsche Bank 389,000 New

2 1 New Street Square Deloitte LLP 275,000 New

3 56 Westfield Avenue Transport for London 260,000 New

4 Moorgate Exchange WeWork 168,000 New

5 30 Fenchurch Street QBE International Insurance 100,500 Renewal

0.0%

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London, UK Office Absorption & Vacancy Rates


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Downtown Asking Rent Suburban Asking Rent

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London, UK Office Space Under Construction & Completions


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Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015


Notes


Avison Young at a Glance

Avison Young is the world’s fastest-growing

commercial real estate services firm.

Headquartered in Toronto, Canada, Avison

Young is a collaborative, global firm owned

and operated by its principals. Founded

in 1978, the company comprises 1,900 real

estate professionals in 67 offices, providing

value-added, client-centric investment sales,

leasing, advisory, management, financing and

mortgage placement services to owners and

occupiers of office, retail, industrial and multi-

family properties.

Transaction Services- Tenant representation, lease

acquisition and disposition- Investment acquisition

and disposition for owners and occupiers

- Landlord representation—all property types—office, industrial, retail, build-to-suit, land and multi-family

Consulting & Advisory Services- Portfolio review and analysis- Valuation and appraisal- Benchmarking- Transaction management- Asset rationalization- Mergers and acquisitions- Workplace solutions- Acquisitions and dispositions- Property tax services

Management Services- Project management- Property and operations review- Property/facility management- Tenant relations- Financial reporting- Lease administration- Operations consulting- Asset management- Portfolio management

Enterprise Solutions- Integrated services coordination- Transaction management- Optimization strategies- Portfolio lease administration- Project coordination and

reportingInvestment Management- Acquisitions- Asset management- Portfolio strategy- Capital repositioning

Founded: 1978 Total Real Estate Professionals: 1,900+ Offices: 67 Brokerage Professionals: 800+ Property Under Management: >75 million sf

WASHINGTON, DC

RALEIGH-DURHAM (2)

SUBURBAN MARYLAND

HALIFAX

NEW YORK CITY

ORANGE COUNTY DALLAS

HOUSTON

ATLANTA

WEST PALM BEACH (2)

BOSTON

PITTSBURGH

OTTAWA

CHICAGO (2)

DETROIT

GUELPH

MISSISSAUGA

MONTREALEDMONTON

REGINAWINNIPEG

CALGARYVANCOUVER

LETHBRIDGE

DENVER

RENO

LAS VEGAS

SAN FRANCISCO

LOS ANGELES (4)

NEW JERSEY

TYSONS CORNER, VA

SOUTH CAROLINA (2)

TORONTO (2)

QUEBEC CITY

TORONTO NORTH

CHARLOTTE

SAN DIEGO

SACRAMENTO

SAN MATEO

LONG ISLAND

FAIRFIELD/WESTCHESTER

PHILADELPHIA

TAMPA

COLUMBUS

AUSTIN

OAKLAND

CLEVELAND

ORLANDO

MONCTON

FORT LAUDERDALE

MIAMI

MINNEAPOLIS

INDIANAPOLIS

LONDON

THAMES VALLEY

FRANKFURT

MUNICH

DUESSELDORF

HAMBURG

About Avison Young


Canadian OfficesToronto (HQ) T 416.955.0000

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Canadian Research Bill Argeropoulos, PrincipalPractice Leader, Research (Canada)[email protected]

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Avison Young Industrial Market Report

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Avison Young 2015 Forecast

Commercial Real EstateCanada, U.S. and U.K.(2014 Annual Review)

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Leveraging in-depth knowledge from our broad services platform with information from internal proprietary and independent third-party data-tracking systems, our clients’ real estate decisions are fully supported by best-in-class, interpreted data – true market intelligence.

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(Fall 2014)

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© 2015, Avison Young (Canada) Inc. Data sourced from: AltusInSite, Avison Young, Costar Group Inc., Real Capital Analytics, Inc., Reis Services, LLC The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young (Canada) Inc.

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