u.s. office market statistics, trends and outlook: q3 2015

Expansionary leasing driving supply constraints

as tenants await significant deliveries in 2016

United States Office Review Q3 2015

Markets conditions are becoming increasingly more landlord favorable as sharp vacancy declines in the country’s primary markets make for a competitive leasing environment for tenants. Opportunity to expand into dynamic secondary and tertiary markets throughout the sunbelt and southeast, however, will provide growth opportunities for both tenants and landlords capitalizing on these growing economies.

Landlord confidence firmly rooted across most U.S. markets,

tenants face increasing rents amidst dwindling supply

2

Source: JLL Research

Leasing activity

• Leasing activity posted a dip in the third quarter, down 3.1 percent to 62.3 million square feet; however,

expansionary activity remained the dominant driver of leasing, representing more than 57.9 percent of lease

transactions of 20,000 square feet and larger—the fifth straight quarter in which the majority of activity was

expansionary.

Absorption • Occupancy gains continued to mount in the third quarter, coming in at more than 14.6 million square feet,

compared to 14.4 and 6.2 million square feet in Q2 and Q1, respectively, for a year-to-date total of 37.3 million

square feet.

Vacancy • Vacancy continued to move downward amidst the expanding economy, falling 20 basis points from last quarter

to reach 15.1 percent, an 80 basis point decline from 12 months ago.

Rents • Rental rates across the U.S. increased by 1.6 percent during the quarter, for a cumulative 4.3 percent increase

since the beginning of 2015, and will be the highest annualized rent gain recorded so far in this cycle.

Construction • Overall, 26.6 million square feet have been delivered across the U.S. in 2015, while the current development

pipeline grew by 8.5 million square feet during the third quarter and 16.3 percent since the end of 2014 to a

total of 92.8 million square feet.

Leasing activity

Leasing activity remained consistent in Q3 2015, reaching 62.3

million square feet in what is typically the quietest quarter

4

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Leas

ing

activ

ity (

s.f.)


Year-to-date, leasing activity is on track to meet 2014 levels;

currently at 76.8 percent of previous year’s total

5

258,547,529

246,521,385

228,764,145

275,274,581

282,356,988

234,094,033

249,187,644

236,140,690

181,384,095

0 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 300,000,000

2007

2008

2009

2010

2011

2012

2013

2014

YTD 2015

Leasing activity (s.f.)


6

30.6 m.s.f. total square feet leased in Q3 in transactions

20,000 s.f. or larger

97 average term in months

57.9% / 38.3% /

3.8% of tenants are growing / shrinking / stable

42.6% vs. 57.4% urban vs. suburban breakdown

of Q3 volume

Suburban leasing activity is making a comeback, with contraction

minimal during Q3


7

Urban Suburban Total metro

Leasing activity distributed across all large markets, with strong

performance from some mid-sized and secondary geographies


256,911

307,832

351,427

382,392

426,779

513,853

541,900

587,481

618,310

786,132

1,119,155

1,421,295

3,250,000

3,579,835

5,669,264

0 3,000,000 6,000,000

Atlanta

Oakland

Dallas

Portland

Austin

Los Angeles

Minneapolis

Denver

Seattle

Philadelphia

Boston

San Francisco

Washington, DC

Chicago

New York


945,074

1,004,429

1,007,518

1,059,482

1,137,410

1,229,784

1,338,755

1,338,896

1,531,242

2,107,067

2,154,900

2,325,645

2,485,732

2,714,879

4,500,000

0 3,000,000 6,000,000

Atlanta

Phoenix

Philadelphia

Silicon Valley

Seattle-Bellevue

Denver

San Diego

Houston

Chicago

Orange County

Dallas

Boston

Los Angeles

New Jersey

Washington, DC


1,343,465

1,444,108

1,529,476

1,755,720

1,793,650

1,817,265

1,859,002

2,107,067

2,506,327

2,714,879

2,999,585

3,444,800

5,111,077

5,669,264

7,750,000

0 4,500,000 9,000,000

Austin

San Diego

Houston

Seattle

Philadelphia

Denver

San Francisco

Orange County

Dallas

New Jersey

Los Angeles

Boston

Chicago

New York

Washington, DC


8

0.9%

1.1%

1.6%

1.7%

1.8%

1.8%

2.7%

2.8%

3.4%

3.5%

3.6%

3.6%

4.0%

5.0%

6.0%

6.5%

6.6%

7.7%

15.3%

20.5%

Education

Energy and utilities

Marketing advertising communications PR

-

Real estate

Association nonprofit union

Aerospace defense transportation

Manufacturing and distribution

Telecom

Accounting consulting research strategy

Architecture engineering construction design

Media and entertainment

Other professional and business services

Retail and hospitality

Law firm

Government

Life sciences

Healthcare

Banking, finance and insurance

Technology

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

Technology companies remain dominant players in the office

leasing market in Q3 2015


9

5,778,559

2,887,061

2,616,576

4,382,877

2,397,643

6,411,311

6,069,604

> 30,000 s.f. 30,000-39,999s.f.

40,000-49,999s.f.

50,000-74,999s.f.

75,000-99,999s.f.

100,000-199,999s.f.

200,000+ s.f.

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Leas

ing

activ

ity (

s.f.)

Large leases (100,000+ s.f.) represented 40.9 percent of activity

in Q3 as small- and mid-sized transactions intensified


43.2% 48.0%

56.0%

43.7%

57.9%

48.7% 41.0% 34.0%

46.3%

38.3%

8.1% 11.0% 10.0% 10.0% 3.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015

Growing Stable Shrinking

10


Expansionary activity contributed to its largest share of leasing

during the recovery so far, while contraction was minimal

8.6% Shrinking

41.7% Stable

49.8% Growing

Average share

4.0%

21.0%

32.1%

33.6%

34.9%

43.1%

44.1%

54.6%

56.1%

57.9%

60.2%

65.6%

69.6%

70.4%

72.9%

77.9%

80.1%

80.8%

81.0%

96.0%

78.2%

54.9%

54.5%

65.1%

56.9%

55.9%

41.5%

43.9%

37.5%

33.7%

32.2%

15.3%

28.3%

23.9%

12.9%

19.9%

19.2%

12.9%

0.0%

0.9%

13.0%

11.9%

0.0%

0.0%

0.0%

3.8%

0.0%

4.6%

6.1%

2.2%

15.1%

1.2%

3.2%

9.3%

0.0%

0.0%

6.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Government

Law firm

Telecom

Associations and non-profits

Real estate

Manufacturing and distribution

Transporatation and aerospace

Education

Accounting and consulting

Banking, finance and insurance

Other professional services

Marketing, advertising and PR

Healthcare

Architecture and engineering

Technology

Energy and utilities

Life sciences

Media and entertainment

Retail and hospitality

Share of leasing activity (%)

Growing Stable Shrinking

11

Creative, technical and leisure sectors continued to post the

highest rates of expansion during the third quarter


Absorption

Occupancy growth has yet to waver at 0.4 percent in Q3,

matching the historical average

13

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2008 2009 2010 2011 2012 2013 2014 2015

Qua

rter

ly n

et a

bsor

ptio

n (a

s %

of i

nven

tory

)


15-year trailing annual average

YTD net absorption has surpassed historical average and will

likely reach 2014 levels of 1.4 percent

14

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

YT

D n

et a

bsor

ptio

n (a

s %

of i

nven

tory

)


15-year trailing

annual average

Quarterly absorption in Class B space is now occurring 2.1x

faster than during earlier in the recovery

15


26,738,872

11,588,390

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2010-Q2 2014 Past four quarters

Cla

ss B

net

abs

orpt

ion

(s.f.

)

1,407,309 s.f. per quarter 2,897,098 s.f. per quarter

Dallas Chicago Silicon Valley Atlanta

Seattle-Bellevue Boston Austin San Francisco

Philadelphia Phoenix All other markets

Market YTD net absorption (s.f.) Share

Dallas 3,954,840 10.6%

Chicago 2,445,429 6.6%

Silicon Valley 2,138,429 5.7%

Atlanta 1,939,156 5.2%

Seattle-Bellevue 1,909,849 5.1%

Boston 1,707,107 4.6%

Austin 1,528,730 4.1%

San Francisco 1,519,568 4.1%

Philadelphia 1,399,516 3.8%

Phoenix 1,359,529 3.6%

All other markets 17,361,792 46.6%

United States 37,263,945 100.0%

16


Diversified markets (Dallas, Chicago, Atlanta, Philadelphia and

Phoenix) are driving net absorption nationally

Absorption was relatively evenly distributed by region; most

markets seeing gains

17

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014 2015

Sha

re o

f qua

rter

ly n

et a

bsor

ptio

n

East Coast Central West Coast


Houston is dragging down energy markets’ contribution, while

tech and Sunbelt remain powerhouses

18

Source: JLL Research – figures denote share of annual net absorption

NYC and DC (*excludes Midtown South)

Tech markets (*includes Midtown South)

Energy markets

Sun belt

All other markets

70.0%

29.7%

6.4%

2010

5.1%

33.5%

19.0%

18.4%

23.9%

2011

37.5%

26.0%

29.1%

7.4%

2012

11.1%

21.6%

22.3%

18.6%

26.4%

2013

13.7%

23.1%

15.3%

20.1%

27.8%

2014

3.1%

28.6%

4.7%

20.8%

42.8%

YTD 2015

Although Houston occupancy growth has been nearly non-

existent, tech and Sun Belt absorption is high

19

0.1%

0.7%

1.2%

0.7% 0.9%

2.0% 2.1%

3.2%

1.1%

1.4%

3.0% 3.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

YT

D n

et a

bsor

ptio

n (s

.f.)


Energy Tech Sun Belt

U.S.

average

Quality space continues to lead, having contributed to 81.5

percent of net absorption since Q1 2010, share slowly declining

20


Trophy and Class A

net absorption

168.1 m.s.f.

2010-YTD 2015

Class B and C net

absorption

38.2 m.s.f.

2010-YTD 2015

Submarkets with creative and tech-friendly space outperform the

national Class B average

21

8.5%

4.1%

3.0%

2.4%

2.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Mid-Market (SanFrancisco)

Pioneer Square (Seattle) Austin CBD Santa Monica (LosAngeles)

Portland CBD

YT

D C

lass

B n

et a

bsor

ptio

n (%

of i

nven

tory

)


U.S. average

Vacancy

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015

Tota

l vac

ancy

(%

)

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

2010 2011 2012 2013 2014 2015

Demand outstripping supply is keeping vacancy on a downward

trend; currently stands at 15.1 percent as of Q3 2015

23


Large users taking on space as well as greater availability have

meant that suburban Class A is leading vacancy decline

24

-600

-500

-400

-300

-200

-100

0

100

2010 2011 2012 2013 2014 2015

Cha

nge

in to

tal v

acan

cy (

bp)


-420bp CBD Class A

-480bp Suburban Class A

-240bp CBD Class B

-260bp Suburban Class B

Change in vacancy

since Q1 2010

As office-using employment growth begins to slow due to labor

shortages, the rate of vacancy decline is plateauing

25

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

25,000

26,000

27,000

28,000

29,000

30,000

31,000

32,000

2011 2012 2013 2014 2015

Tota

l vac

ancy

(%

)

Offi

ce-u

sing

em

ploy

men

t (th

ousa

nds)

Office-using employment (thousands) Total vacancy (%)


Space coming back onto the market in Houston is keeping

sublease availability stable at 44.4 million square feet

26

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

2009 2010 2011 2012 2013 2014 2015

Sub

leas

e sp

ace

(s.f.

)


Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Q3 2015 U.S. office clock

28


Dallas

Silicon Valley

San Francisco Peninsula

Portland

Charlotte, Fairfield County, Indianapolis, Raleigh-Durham

Baltimore, Detroit, San Antonio, West Palm Beach

Columbus, Sacramento

Chicago, Fort Lauderdale, Kansas City,

Oakland-East Bay, Orlando, Salt Lake City, San Diego

Boston, Denver, New York, Pittsburgh, Tampa

Hampton Roads, Milwaukee, Westchester County

New Jersey,

Washington, DC

Cincinnati, St. Louis

Orange County, Phoenix, Richmond

Cleveland, Long Island, Philadelphia

Houston

Atlanta, Jacksonville, Miami, United States

Los Angeles, Seattle-Bellevue

Austin, San Francisco

Minneapolis

Nashville

Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Q3 2015 U.S. CBD office clock

29


Dallas, Los Angeles, Portland

San Jose CBD

Chicago, Jacksonville, Midtown (New York),

Philadelphia, Raleigh-Durham

Detroit, Phoenix, San Diego, Washington DC

Charlotte, Salt Lake City, Stamford CBD

Indianapolis

Boston, Denver, Fort Lauderdale, Pittsburgh, Seattle

Sacramento, White Plains CBD

Cincinnati, Cleveland, Greenwich CBD, Milwaukee

West Palm Beach

Columbus, Richmond, San Antonio

Houston

Minneapolis, Tampa

Miami

Austin, Midtown South (New York),

Nashville, San Francisco

Oakland CBD, Orlando, United States

Baltimore, Kansas City,

St. Louis

Atlanta, Downtown (New York)

Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Q3 2015 U.S. suburban office clock

30


Dallas

Silicon Valley

San Francisco Peninsula

Jacksonville, Nassau County, Portland, St. Louis

Fort Lauderdale, Hampton Roads, Miami

Milwaukee, Orlando, Raleigh-Durham

Central New Jersey, Detroit, West Palm Beach

Charlotte, Cincinnati, Oakland Suburbs, United States

Lehigh Valley, Northern

Delaware, Northern New

Jersey, Sacramento

Chicago, East Bay Suburbs, Fairfield County,

Indianapolis, Westchester County

Atlanta, Baltimore, San Diego, Seattle

Austin, Richmond

Suffolk County

Houston

Philadelphia

Southern New Jersey

Washington, DC

Los Angeles, Nashville

Bellevue

Cleveland, Columbus, San Antonio

Kansas City, Pittsburgh

Boston, Denver, Minneapolis, Orange County,

Phoenix, Pittsburgh, Salt Lake City, Tampa

Cambridge, San Francisco

Rental growth of 1.6 percent was the second-highest quarterly

rate during the recovery so far, boosted by diminishing vacancy

31

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2008 2009 2010 2011 2012 2013 2014 2015

Qua

rter

ly r

ent g

row

th (

%)


Since Q1 2010, CBD Class A rents have grown by more than

one-fifth; Suburban Class B barely increased in nominal terms

32

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2010 2011 2012 2013 2014 2015

Gro

wth

in a

skin

g re

nts

sinc

e Q

1 20

10

Class A (CBD) Class A (suburban)

Class B (CBD) Class B (suburban)

Class C (CBD) Class C (suburban)


+23.5% CBD Class A

+12.5% Suburban Class C

+15.7% CBD Class C

+12.4% Suburban Class A

+9.4% CBD Class B

+6.4% Suburban Class B

The gap between the CBD and suburbs is still large at $15.67 per

square foot, but isn’t expanding as fast as earlier in the recovery

33

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

2010 2011 2012 2013 2014 2015

Ave

rage

ask

ing

rent

($

p.s.

f)

CBD Suburbs


$11.36

$15.67

Both TI packages and free months declined during Q3, although

they are higher than in 2014 as new space delivers

34

3.5

4.1

5.1

6.1 6.2

5.7

5.1 5.3

5.8

5.2

$23.00

$24.00

$25.00

$26.00

$27.00

$28.00

$29.00

$30.00

$31.00

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

TI a

llow

ance

($

p.s.

f.)

Fre

e m

onth

s of

ren

t

Free months of rent TI allowance ($ p.s.f.)


Construction

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Und

er c

onst

ruct

ion

(s.f.

)

36


Construction volumes up 16.6 percent since year-end 2014 to

92.9 m.s.f. in Q2 2015

Market Under construction (s.f.) Share

New York 14,600,312 15.7%

Houston 10,808,257 11.6%

Dallas 7,735,314 8.3%

Washington, DC 6,148,330 6.6%

Seattle-Bellevue 5,747,830 6.2%

Boston 5,404,211 5.8%

Silicon Valley 4,433,962 4.8%

Phoenix 3,951,737 4.3%

Philadelphia 3,278,829 3.5%

San Francisco 3,134,205 3.4%

All other markets 27,606,202 29.7%

United States 92,849,189 100.0%

New York Houston Dallas Washington, DC

Seattle-Bellevue Boston Silicon Valley Phoenix

Philadelphia San Francisco All other markets

37


New York surpasses Houston as the United States’ largest

construction market as Hudson Yards takes shape

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Com

plet

ions

(s.

f.)

38

27.0 m.s.f.


Average completions: 46.7 m.s.f.

Combined completions of 9.0 m.s.f. in Houston and Dallas

pushed new supply over 2014 volumes to 27.0 m.s.f.

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

2015 2016 2017 2018 2019

Com

plet

ions

(s.

f.)

Speculative BTS

39


42.4 percent of development underway will deliver in 2016; new

groundbreakings boosting 2017 and even 2018 completions

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

2015 2016 2017 2018 2019

Com

plet

ions

(s.

f.)

Available Preleased

40


Due to high levels of preleasing, only 43.3 m.s.f. of construction

will be available upon delivery in 2015 and 2016

7,322,061

11,407,786

13,060,032

4,781,395

11,818,372

9,168,187

9,855,374

12,720,560 12,810,553

9,748,464

8,484,369

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2013 2014 2015

Sta

rts

(s.f.

)

41


Construction starts slowed in the third quarter, although YTD

figures are higher in 2015 than 2014

Market Starts (s.f.) Share

New York 4,156,136 49.0%

Charlotte 978,309 11.5%

Dallas 557,767 6.6%

Austin 517,000 6.1%

Cincinnati 485,000 5.7%

Detroit 376,000 4.4%

Phoenix 375,912 4.4%

Miami 315,000 3.7%

Denver 232,444 2.7%

Baltimore 192,000 2.3%

All other markets 298,801 3.5%

United States 9,748,464 100.0%

New York Charlotte Dallas Austin

Cincinnati Detroit Phoenix Miami

Denver Baltimore All other markets

42


30 and 55 Hudson Yards’ groundbreakings in New York were

responsible for nearly half of all starts nationally during Q3

Market U/C (s.f.) Share

Related 5,881,386 6.3%

Hines 4,459,605 4.8%

KDC 3,089,992 3.3%

Silverstein 2,861,402 3.1%

Trammell Crow 2,685,800 2.9%

Boston Properties 2,680,530 2.9%

Brookfield 2,554,500 2.8%

Ryan Companies 2,079,000 2.2%

Liberty 1,652,000 1.8%

Jay Paul 1,647,614 1.8%

All other developers 63,257,360 68.1%

United States 92,849,189 100.0%

Related Hines KDC Silverstein

Trammell Crow Boston Properties Brookfield Ryan Companies

Liberty Jay Paul All other developers

43


Related is the leader in office development nationally due to

Hudson Yards, followed by Hines and KDC

44

49.1% All properties

32.9% Spec only


Although slightly under half of all U/C space is preleased, this

figure falls sharply looking only at speculative development

24.5%

26.6%

29.9%

32.2%

35.9%

46.7%

51.3%

55.0%

55.6%

58.6%

59.3%

63.0%

63.9%

69.4%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

Denver

Los Angeles

Austin

New York

Seattle-Bellevue

Silicon Valley

Houston

Washington, DC

San Francisco

Dallas

Philadelphia

Boston

Phoenix

Chicago

Preleasing rate (%)

45


BTS-heavy markets such as Phoenix, Philadelphia and Dallas are

posting the highest preleasing rates nationally

MIX

BTS

MIX

BTS

BTS

MIX

MIX

SPEC

MIX

SPEC

SPEC

SPEC

SPEC

SPEC

46

609 Main at Texas (Hines)

Houston

1,057,668 s.f.

390 Madison Avenue (L&L)

New York

858,710 s.f.

800 Capitol Street (Skanska)

Houston

750,000 s.f.

Moffett Gateway (Jay Paul)

Silicon Valley

600,864 s.f.


Energy Center V (Trammell Crow)

Houston

505,000 s.f.

1775 Tysons Boulevard (Lerner)

Northern Virginia

476,913 s.f.

929 Office Tower (Trammell Crow)

Bellevue

462,000 s.f.

Three Alliance (Tishman Speyer)

Atlanta

500,000 s.f.

As confidence builds, speculative developments without any

preleasing are rising

$55.64

$42.71

$36.38

$24.95 $23.52

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

Trophy U/C Class A U/C Class A Class B Class C

Dire

ct a

vera

ge a

skin

g re

nt (

$ p.

s.f.)

47


With rents more than $55 per square foot for Trophy space, new

construction commands a very large premium

$39.7 billion of third quarter office investment sales bring year-

to-date growth to 33.5 percent

49

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD

Offi

ce in

vest

men

t sal

e vo

lum

es (

billi

ons

of $

US

)

Q1 Q2 Q3 Q4

Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)

Modest core office cap rate compression continues, down 10

basis points year-to-date in both primary and secondary markets

50

2.0%

4.5%

5.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD

10-year Treasury (%) Primary cap rates (%) Secondary cap rates (%)

Source: JLL Research, NCREIF, Board of Governors of Federal Reserve

Primary markets continue to drive U.S. investment activity,

accounting for over 63.4 percent of quarterly office investment

51

$7,152

$1,804 $1,414

$1,177 $1,175 $1,014 $918 $879 $790 $712 $573 $543 $534 $520 $503

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

Qua

rter

ly o

ffice

inve

stm

ent v

olum

e (m

illio

ns o

f $U

S)

Primary markets Secondary markets Source: JLL Research (Assets larger than 50,000 s.f.)

$563 $558 $550 $457 $432

Phoenix Philadelphia OrangeCounty

San Diego Atlanta

$7,200

$918 $889 $711 $589

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

New York Washington,DC

Chicago Seattle-Bellevue

Boston

Primary markets dominating CBD investment activity; non-CBD

volumes led by secondary markets

52

Most active CBD markets Most active Non-CBD markets

Of CBD volumes in Primary markets Of Non-CBD volumes in Secondary markets

Qua

rter

ly o

ffice

inve

stm

ent v

olum

e (m

illio

ns o

f $U

S)

Source: JLL Research (Assets larger than 50,000 s.f.)

Robust activity gains in New York, Seattle, Chicago and Boston

spurring year-to-date primary market growth of 43.9 percent

53

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Prim

ary

mar

ket i

nves

tmen

t vol

umes

(m

illio

ns o

f $U

S)

2014 YTD 2015 YTD


56.7%

43.3%

Primary markets Secondary markets

Secondary market activity continues to rise on a square footage

basis, accounting for 53.9 percent of 2015 activity year-to-date

54

2013

47.1% 52.9%


2014

46.1%

53.9%


2015 YTD


Top secondary markets all in growth mode, nearly doubling

comparable 2014 activity year-to-date

55

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Sec

onda

ry m

arke

t inv

estm

ent v

olum

es (

mill

ions

of $

US

)

2014 YTD 2015 YTD


Secondary suburban office investment sales reach expansionary

high in third quarter, doubling activity year-to-date

56

44% 40%

50% 56%

43%

69%

52% 45%

53% 46% 45%

27% 28%

27% 23%

27%

15%

17% 24%

23%

22% 21%

13% 17%

10% 7%

14%

9%

10% 14%

7%

12% 10%

16% 15% 13% 14% 17% 7%

21% 17% 17% 20% 23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3

Primary CBD Primary Non-CBD Secondary CBD Secondary Non-CBD


Canada leading inbound investment, followed by Asian groups

57

Asian capital continues to increase exposure to U.S. office product, comprising three of the five most

active foreign office investors and 43.5 percent of inbound capital year-to-date

Canada 31%

China 28%

Germany 9%

Hong Kong 7%

South Korea 6%

All others 19%

Norway 33%

Germany 22%

Canada 21%

South Korea 14%

United Kingdom

5%

All others 5%

Foreign investment activity (2014) Foreign investment activity (2015 YTD)


U.S. core product office CBD cap rates

58

NJ

CT

MA

NH

NC

VA

WA

VT

AL

AZ

AR

CA CO

FL

GA

ID

IL

IN

IA

KS KY

LA

ME

MI

MN

MS

MO

MT

NE

NV

NM

NY

ND

OH

OK

OR

PA

SC

SD

TN

TX

UT WV

WI

WY

MD

DE

RI

Houston

6.00-6.50%

Washington, DC

4.00 – 6.00%

New York

3.25-3.75% Chicago

4.95-5.95%

Los Angeles

5.00-6.00%

Seattle

4.50 – 5.50%

Boston

4.00– 5.00%

San Francisco

3.00 – 4.00%

Dallas

5.00-7.00%

Atlanta

5.00-6.00%

Miami

4.50 – 6.00%

Denver

5.00-6.00%

San Diego

6.00-7.00%

Philadelphia

6.50– 7.50%

Tampa

5.75-7.00%

Charlotte

6.25 – 7.50%

Raleigh

6.50 – 7.50%

Orlando

5.50 – 7.00%

Minneapolis

6.00-7.00%

Austin

4.50-5.25%

Cincinnati

8.50 – 9.50%

Phoenix

7.00-7.50%

Sacramento

5.75-6.50%

Columbus

8.00 – 9.00%

Detroit

9.50 – 10.50% Pittsburgh

8.00 – 9.00%

4.00 – 5.00% 5.00 – 6.00%

6.00 – 7.00%

7.00 – 8.00%

8.00 - 9.00%

9.00% +

East Bay

6.50-7.50%

Portland

5.00 – 6.50%

Sub 5-6% level in most primary and rising secondary markets

Kansas City

7.00-8.00%

Cleveland

7.50 – 8.50%

Source: JLL Research, September 2015

Indianapolis

8.50 – 9.50%

U.S. core product office suburban cap rates

59

NJ

CT

MA

NH

NC

VA

WA

VT

AL

AZ

AR

CA CO

FL

GA

ID

IL

IN

IA

KS KY

LA

ME

MI

MN

MS

MO

MT

NE

NV

NM

NY

ND

OH

OK

OR

PA

SC

SD

TN

TX

UT WV

WI

WY

MD

DE

RI

Houston

6.50-8.00%

Washington, DC

6.00 – 8.00%

New Jersey

7.00 - 7.50% Chicago

7.00-8.00%

Los Angeles

4.00-7.00%

Seattle

5.50-6.25%

Boston

6.00-7.00%

Dallas

5.50-7.50%

Silicon Valley

5.00 – 6.00%

Atlanta

6.00-7.00%

Miami

5.75 – 7.00%

Denver

6.00-8.00%

San Diego

5.50-6.50%

Philadelphia

6.00 – 7.00%

Tampa

6.25-7.50%

Charlotte

6.75 – 8.00%

Raleigh

7.00 – 8.00%

Orlando

6.25-7.50%

Minneapolis

7.00-8.00%

Austin

5.00 – 6.00%

Phoenix

5.00-7.00%

4.00 – 5.00% 5.00 – 6.00%

6.00 – 7.00%

7.00 – 8.00%

8.00 - 9.00%

Cincinnati

8.50 – 9.00%

Columbus

8.00 – 9.00%

Detroit

8.00 – 9.00% Pittsburgh

7.50 – 8.50%

9.00% +

East Bay

6.00-7.00%

Portland

6.50%-7.50%

Sub 6-8% level in most primary and rising secondary markets

Sacramento

6.75-7.50%

Cleveland

8.00 – 9.00%

Indianapolis

8.00– 9.00%

Source: JLL Research, September 2015

Office fundamentals will continue to tighten in markets that embrace a shifting demographic profile as well as higher density development, as industry growth within tech, finance, professional and business services adapt to a new standard of workplace and work life. Though conditions are highly competitive across the majority of markets today, a robust pipeline of new supply will begin to temper competition in 2016 and 2017.

COPYRIGHT © JONES LANG LASALLE IP, INC. 2015

Julia Georgules Director – Office Research

+1 415 354 6908

[email protected]

Phil Ryan Research Analyst – Office and Economy Research

+1 202 719 6295

[email protected]

Sean Coghlan Director – Investor Research

+1 215 988 5556

[email protected]

Rachel Johnson Research Analyst – Capital Markets

+1 312 228 3017

[email protected]

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u.s. office market statistics, trends and outlook: q3 2015

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