Five up and coming real estate markets for 2016

NERDS markets are powering

growth in the office sector

January 2016Nashville, East Bay, Raleigh-Durham, Denver and Salt Lake City

Overview

1

What and where are the NERDS?

Source: JLL Research, Bureau of Economic Analysis, Bureau of Labor Statistics, U.S. Census Bureau

DenverPopulation: 2.8 million

GMP: $171.5 billion

Employment growth: +2.0%

East Bay (Oakland)Population: 2.7 million

GMP: $160.8 billion

Employment growth: +1.7%

NashvillePopulation: 1.8 million

GMP: $106.7 billion

Employment growth: +3.0%

Salt Lake CityPopulation: 1.2 million

GMP: $75.7 billion

Employment growth: +3.5%

RaleighPopulation: 1.2 million

GMP: $71.6 billion

Employment growth: +1.4%

DurhamPopulation: 0.5 million

GMP: $43.5 billion

Employment growth: +2.6%

Gross metropolitan product

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

GM

P (

$ bi

llion

s)

Denver East Bay Nashville Salt Lake City Raleigh Durham

2

NERDS reach $629.9 billion in output in 2014, 3.7x 1990 levels

Source: JLL Research, Bureau of Economic Analysis

$171,591Denver

$160,848East Bay

$106,695Nashville

$75,672Salt Lake City

$71,574Raleigh

$43,484Durham

GMP ($ millions)

Market2010-14 growth

($ millions)

Share of

growth

Denver $29,889.5 26.4%

East Bay $21,528.7 19.0%

Nashville $21,494.0 19.0%

Raleigh $17,529.3 15.5%

Salt Lake City $12,128.8 10.7%

Durham $10,748.4 9.5%

NERDS $113,318.7 100.0%

Output growth by market

Denver East Bay Nashville Raleigh Salt Lake City Durham

3

Growth has been spread out across NERDS: no market responsible for more than 30% of increase

Source: JLL Research, Bureau of Labor Statistics

NERDS employment

-300.0

-250.0

-200.0

-150.0

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

12-m

onth

net

cha

nge

(tho

usan

ds)

Denver East Bay Nashville Salt Lake City Raleigh Durham

4

Year-on-year job growth higher than previous cycle and now stronger than during the ‘90s

Source: JLL Research, Bureau of Labor Statistics

+119.8 per month

51 months

+85.8 per month

54 months

+109.7 per month

119 months

+84.4 per month

101 months

NERDS employment

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

12-m

onth

% c

hang

e (t

hous

ands

)

Denver East Bay Nashville Salt Lake City Raleigh Durham

5

With the exception of SLC in the late 1990s, NERDS markets tend to be aligned in job growth rates

Source: JLL Research, Bureau of Labor Statistics

NERDS employment

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12-m

onth

% c

hang

e (t

hous

ands

)

NERDS United States

6

Apart from a few months at a time, NERDS employment growth has been faster than the U.S. overall

Source: JLL Research, Bureau of Labor Statistics

+2.3%NERDS

1980-2014

average

+2.8%NERDS

2015 only

average

+1.3%U.S.

1980-2014

average

+2.1%U.S.

2015 only

average

Market12-month net

change

Share of

growth

Denver 27,300 24.5%

Nashville 26,900 24.1%

Salt Lake City 23,400 21.0%

East Bay 18,100 16.2%

Raleigh 8,300 7.4%

Durham 7,600 6.8%

NERDS 111,600 100.0%

Job growth by market

Denver Nashville Salt Lake City East Bay Raleigh Durham

7

NERDS gains over the past year have been distributed relatively evenly among geographies

Source: JLL Research, Bureau of Labor Statistics – data as of November 2015

Job growth by subsector

-5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Information

Manufacturing

Financial activities

Government

Leisure and hospitality

Education and health

PBS

All other subsectors

12-month net change (thousands)

Denver East Bay Nashville Salt Lake City Raleigh Durham

8

Diversification of growth mirrors national trends, making “all other subsectors” the largest contributor

Source: JLL Research, Bureau of Labor Statistics – data as of November 2015

Total population

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Tot

al p

opul

atio

n

Denver East Bay Nashville Salt Lake City Raleigh Durham

9

NERDS markets are now home to 10.2 million people, or 3.2 percent of Americans

Source: JLL Research, Bureau of Economic Analysis

2,754,258Denver

2,722,260East Bay

1,792,649Nashville

1,153,340Salt Lake City

1,242,974Raleigh

542,710Durham

2014 population

Population growth

-50,000

0

50,000

100,000

150,000

200,000

Ann

ual p

opul

atio

n gr

owth

Denver East Bay Nashville Salt Lake City Raleigh Durham

10

Average annual growth over the past three years (+174,430) has surpassed the previous cycle

Source: JLL Research, Bureau of Economic Analysis

Population growth

10.0%9.6%

8.3% 8.2%

7.6%7.3% 7.1%

6.6% 6.4% 6.2% 6.0% 5.9%

4.0% 3.9%

3.0%

1.4%1.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2010

-201

4 po

pula

tion

grow

th (

%)

11

Raleigh is currently one of the few markets nationally experiencing double-digit population growth

Source: JLL Research, Bureau of Labor Statistics – San Francisco excludes East Bay counties

Median household income

$51,996

$52,250

$53,492

$61,250

$61,760

$62,760

$72,399

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000

Nashville

United States

Durham

Salt Lake City

Raleigh

Denver

East Bay

12-month net change (thousands)

12

Concentrations of specialized and highly educated employees result in above-average incomes

Source: JLL Research, U.S. Census Bureau

Net absorption

-2,000,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

Net

abs

orpt

ion

(s.f.

)

Denver East Bay Nashville Salt Lake City Raleigh-Durham

13

Over the course of the current cycle, NERDS markets have absorbed 22.1 m.s.f. of office space

Source: JLL Research – 2005 data for Salt Lake City unavailable

8,507,757Denver

3,243,994East Bay

2,670,565Nashville

2,717,900Salt Lake City

5,004,741Raleigh-Durham

2010-present

net absorption (s.f.)

Asking rents

$10

$15

$20

$25

$30

$35

Dire

ct a

vera

ge a

skin

g re

nt (

$ p.

s.f.)

Denver East Bay Nashville Salt Lake City Raleigh-Durham

14

Rental growth is accelerating due to low vacancy, particularly in the East Bay, Denver and Nashville

Source: JLL Research

Asking rents

$25.72

$26.05

$28.05

$31.45

$38.76

$48.06

$48.17

$0 $10 $20 $30 $40 $50 $60

Salt Lake City

Durham CBD

Raleigh CBD

Nashville

Denver

United States

Oakland CBD

CBD Class A direct average asking rent ($ p.s.f.)

15

Tech-related demand and lack of construction pushing Oakland CBD above the national average

Source: JLL Research

-36.6%NERDS discount for

CBD Class A space

Accelerating ahead of the pack, Nashville’s value is quickly

catching up to its appeal

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Nashville East Bay Raleigh-Durham Denver Salt Lake City

Average cap rate %

2014 2015

U.S. average cap

rate 4.5%

16

Source: JLL Research, Real Capital Analytics

Strong demographics, industry growth and rising values are

attracting local, institutional and foreign investors in Denver

$0

$500

$1,000

$1,500

$2,000

$2,500

Nashville East Bay Raleigh-Durham Denver Salt Lake City

Total sales volume ($, millions)

2014 2015

17

Source: JLL Research, Real Capital Analytics

As tenant demand mounts, so too does pricing across NERDS,

with East Bay and Nashville increasing at an average of 38.4

percent, year-over-year

$0 $50 $100 $150 $200 $250

Salt Lake City

Denver

Raleigh-Durham

East Bay

Nashville

Average price ($ p.s.f.)2015 2014

18

Source: JLL Research, Real Capital Analytics

NERDS offer an attractive discount to primary markets, though

price at a premium to the secondary markets at large

19

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015(Q3)

Ave

rage

cap

rat

es (

%)

10-year Treasury Primary markets Secondary markets NERDS markets

Source: JLL Research, NCREIF

While Denver is historically active in investment sales, Raleigh

had the highest year-over-year growth of the NERDS in 2015

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Denver Nashville Oakland-East Bay Raleigh-Durham Salt Lake City

Total sales volume ($, millions)

2010 2011 2012 2013 2014 2015

20

Source: JLL Research, Real Capital Analytics

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

Julia GeorgulesDirector – Office Research

+1 415 354 6908

Julia.Georgules@am.jll.com

Phil RyanResearch Analyst – Office and Economy Research

+1 202 719 6295

Phil.Ryan@am.jll.com

Sean CoghlanDirector – Investor Research

+1 215 988 5556

Sean.Coghlan@am.jll.com

Rachel JohnsonResearch Analyst – Capital Markets

+1 312 228 3017

Rachel.Johnson@am.jll.com