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CBRE Global Research and Consulting
U.S. Office MarketView Q2 2012
LEASE RATE $25.63
NET ABSORPTION12.7 MSF
RECOVERY BROADENING ACROSS WESTERN MARKETS
CONSTRUCTION COMPLETIONS2.0 MSF
VACANCY RATE15.7%
Executive Summary
• Officemarketfundamentalsimprovedmodestlyduringthesecondquarter,drivenprimarilybythehigh-techandenergysectors.
• Ascoreofficepricingbecomesincreasinglyfrothy,investorshavebeguntoconsidersecondarymarketsinsearchofhigheryields.
• OfficeconstructionremainsmutedfornowbutspeculativeconstructionisbeingconsideredinthetopgatewaymarketswheretherearelimitedoptionsforusersofClassAspace.
• EastCoastmarketshavecomeunderpressuregivenfinancialservicesectorrisk,greatertiestoEurope,publicsectorcutbacksandrecentBRAC(BaseRealignmentandClosure)moves.
• Projectedemploymentgainsinoffice-usingservicesoverthenexttwotofiveyearswillbenefitU.S.officemarketfundamentalsinthemedium-tolong-term.
Economic Trends Signal a Slowdown in Second Half of 2012
TheU.S.officemarketcontinuestoimprovemodestlybutwithwidevariationsinfundamentalsbetweenmarkets.Demand-sidefundamentalssupportedgreaterleasingactivitywithspacedemandchangingcourseinthesecondquarterof2012,recording12.7millionsq.ft.ofpositiveabsorptionfollowingnegativeabsorptioninQ12012.Vacancyratesdropped30basispoints(bps)to15.7%inQ22012.U.S.suburbanmarketsledthewaywitha30-bpsvacancyratedropversus20bpsfordowntownmarkets.Keybrightspotsincludethenation’shigh-tech/mediacentersaswellenergymarketsinTexas.ThemetropolitanmarketsmakingthemostsignificantcontributionstopositiveabsorptionwereBoston(1.8millionsq.ft.),Seattle(1.1millionsq.ft.)andHouston(1.0millionsq.ft.).Absorptionwaspositivein44outof55
metromarketsthroughouttheU.S.inQ22012,comparedto35marketsinQ12012,with78%ofsuburbanmarketsexperiencingpositiveabsorptionversus66%ofdowntownmarkets.
Duringthesecondquarter,officemarketdemandwasdrivenprimarilybyemploymentgainsinthetechnologyandenergysectors.MarketslikeSanFrancisco,Boston,SeattleandAustinhaveseentechnology-concentratedsubmarketstightensignificantly.MarketslikeHouston,DenverandDallashavebeenbolsteredbyactivityfromlargeenergytenants.Financialandprofessionalservicesfirms,whilestillactiveinthemarket,areresponsibleforaresurgenceofrenewalactivity.RecoveryintheNewYorkandWashington,DC,marketsremainmutedin2012,aslargefinancialservicesand
U.S. O
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2
0.0
0.5
1.0
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2.0
2.5
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3.5
4.020
10Q2
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Consumer Spending Real GDP
Annual Percent Change (%)
Forecast
Source: IHS Global Insight, Interim Forecast, July 2012
Figure 1: U.S. Economy Downshifts
professionalservicesfirmsrespondtocurrenteconomicconditionsandpublicsectorwoes.
RecoveryinthewesternandsouthernU.S.officemarketsoutpacedtheeast,asmarketslikeSeattle,Austin,MiamiandOrlandoexperiencedthelargestdecreasesinvacancyduringQ22012.Whileactivityfromthetechnologysector
hasbeenarealpositiveforBostonandtheMidtownSouthmarketinManhattan,eastcoastmarketsinparticularhavebeennegativelyimpactedbyfinancialservicessectorrisk,tiestotheeurozoneandgovernmentcutbacks.Marketswithhighexposuretothefederalandstategovernmentsareunderpressure.Thecontractioninthepublicsectorisleadingtogreaterofficespace
OFFICE LEASING MOMENTUM TO MODERATE IN THE SHORT RUN
efficiencies.Thisisgreatnewsforbudgetdeficitsatthefederal,state,andlocallevelbuthardonofficelandlords.Thedownsizingacrossthelegalsectorcontinuestoprovideanothermajorheadwindtoofficemarketslocatedinthemajorcoastalgatewaymarkets.Majorlawfirmscontinuetoconsolidateofficespaceastheytrytolowerrealestateandotherexpenses.
TherecentdecelerationofU.S.andglobaleconomicactivitymayspelltroublefortheU.S.officemarketoverthenearterm.Despitemodestimprovementinofficedemandduringthepastquarter,thelatestsignofeconomicweaknessmayleadtoalossinleasingmomentumoverthenextcoupleofquarters.Recenteconomicdatasuggestsadecelerationinthelabormarkets,consumerspending,andbusinessinvestment.Giventheglobalheadwinds,includingtheeurozonecrisisandtheslowdowninChinesegrowth,theU.S.economyseemsunabletoshiftintohighergear.TheretrenchmentatstateandlocalgovernmentshasalsopreventedafasterU.S.economicrebound.Ontopoftheserestraints,thelooming“fiscalcliff”intheU.S.in2013isaddinganotherlayerofuncertainty.Assuch,economicgrowthhasbeendownwardlyrevisedinboth2012and2013,asreflectedinFigure1.
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2,500
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1,000
1,500Jobs (Thousands, Seasonally Adjusted)
2007
Q120
07Q3
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Q120
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Q120
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Q120
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2011
Q120
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Forecast
Source: Moody’s Analytics
Figure 2: U.S. Labor Market Performance: Net Gains
-2%
-1%
0%
1%
2%
3%
4%
2-Year History 2-Year Forecast 5-Year History 5-Year Forecast
Total Employment Office-Using FIRE Office-Using Services
Annual Percent Change (%)
Source: CBRE Econometric Advisors
Figure 3: Office Employment On Recovery Path
Iftheserisks,Europeandfiscalcliff,areaverted,theU.S.economyshouldbeabletoweatherthecurrentsoftpatchandgaintractionlaterthisyearandin2013.Thereareanumberofreasonsthatrenderusmoreoptimisticaboutthelonger-termtrajectoryofU.S.economicgrowth.Financialconditionsareeasinggivenlowinterestratesandtheincreasedwillingnessofbankstolend.LowerenergypricesshouldalsobeawindfallforU.S.consumers.ButthemostimportantfactordrivingourbeliefthattheU.S.economywillimproveistheprogressthathasbeenmadein
repairingtheexcessesofthecreditandhousingbubblesofpastyears.Homepricesareinbetteralignmentwithunderlyinghouseholdincomefundamentals.Householdshavealsoloweredtheirdebtlevelswhilebenefitingfromarecoveryinequityvalues.
Non-financialcorporatebalancesheetsarepristine,withfirmssittingonrecordamountsofcash.Astheeconomygainstraction,hiringamongbusinessesshouldpickup,providedthattheU.S.doesnotgooffthefiscalcliffandEuropedoesnotimplode.Thelabormarketisthekey
linkbetweentheU.S.economyanddemandforofficespace.Jobgainshavedisappointedrecently,averagingapaltry75,000amonthforthesecondquarter.Expectationsareforjobgainstoremainmutedthroughyear-end2012givenelection-yearuncertainty,buttoimprovein2013.Theoffice-usingemploymentsectorswilloutperformtheoveralllabormarket.ThesecularshiftintheU.S.economytoprofessionalservicesshouldcontinuetobenefitoffice-occupationsoverthenexttwoandfiveyears(Figure3).
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Source: CBRE Econometric Advisors
Source: CBRE Econometric Advisors
7%
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Completions (L) Absorption (L) Vacancy Rate (R)
Completions and Absorption (MSF) Vacancy Rate (%)
7%8%9%10%11%12%13%14%15%16%17%18%19%
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Completions (L) Absorption (L) Vacancy Rate (R)
Completions and Absorption (MSF) Vacancy Rate (%)
Amongofficeusers,thereisanotableflighttoqualityacrossmajormarkets.ClassAvacancyrateshavebeentighteningatafastclip,asofficetenantsrelocatefromClassBproperties.Thelackofnewsupplyisleadingtoshortagesoflargercontiguousofficespace.Officelandlordshavebeguntopullbackonconcessions,signalingthefirststageofmarkettightening.Aseffectiveofficerentsrebound,thereissomeanecdotalevidenceofspeculativeconstructionbeingcontemplatedinseveralmarkets,butthissupplytrendisnotyetwidespread.
Figure 4: U.S. Downtown Supply and Demand
OFFICE CONSTRUCTION BEING CONTEMPLATED IN A HANDFUL OF MARKETS
Figure 5: U.S. Suburban Supply and Demand
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56.7%6.8%6.9%7.0%7.1%7.2%7.3%7.4%7.5%7.6%7.7%
$0
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Office Transactions (L) Average Cap Rates (R)
Office Transaction Volume ($ Billions) Cap Rates (%)
Jan
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2011 2012
Source: Real Capital Analytics
Pricingremainsstrongbutbiddepthisnotasdeepasithadbeenearlierintheyear.Bycomparison,trophyassetswerereceivingsixtoeightstrongbidsinQ12012,comparedtofourtosixbidsinQ22012.Despitethereduction,thisscenarioisfarbetterthan2010and2011.Averageofficecapratescontinuetodeclineforbothdowntownandsuburbanofficeassets.Primarymarketscommandpremierpricingasinvestorsfocusonthebestassets.Intheprimarycoastalmarkets,corepricingisabitfrothyascapratesarebacktopre-recessionlevels,inpartfueledbythehistoricallylowcostofcapital.Investorshavebegunexpandingtheirsearchforvalue-addofficeassetsinbothprimaryandsecondarymarkets,insearchofhigheryields.Underwritingremainsfairlydisciplinedforvalue-addassetsintheweakermarkets,however.
Officereturnperformancehasrecentlycomeunderpressure.BasedontheNCREIFPropertyIndex(NPI),officereturnsfellforathirdconsecutivequarterinQ12012to2.34%forthequarter,and13.41%onanannualbasis.Officereturnsnowtrailthatofbothmulti-housingandindustrialperformance.AdecelerationinofficevaluegainsistheprimaryfactorloweringofficeNPIreturns.Goingforward,officereturnperformancewillonaveragebemoreafunctionofunderlyingnetoperatingincomegrowth(NOI)thancapratecompression.
OfficeconstructionactivityintheU.S.isexpectedtoremainatrelativelylowlevelsthrough2014,with2012deliveriesconsistentwith2011.ThemetroWashington,DC,officemarketcontributedthelargestamountofnewconstructionduringQ22012,with1millionsq.ft.delivered,68%ofitpreleased.Speculativeconstructionwasmoreprevalentinwesternmarkets,withSanJose,SeattleandInlandEmpire
contributingthemajorityduringQ22012.AsClassAvacancyratescontinuetodeclineacrossseveralU.S.marketsandlargeblocksbecomehardertofindindesirablesubmarkets,constructionactivityispoisedtoincrease.
InHouston,forexample,thereisonlyoneavailableClassAblockofspaceover150,000sq.ft.inthedesirableEnergyCorridor.InSanFrancisco,where
strongrentalrategrowthandoccupancyhavereinvigoratedtheconstructionpipeline,a279,000-sq.-ft.speculativenewdevelopmentprojectbrokegroundduringQ22012.Additionally,intheChicagoCBD,anewspeculativedevelopmentproject,RiverNorth,wasannouncedduringthepastquarter.
Inlightofoverallglobalmarketvolatilityinthebroaderequityandfixedincomemarketsandresurgenceofrisk-aversion,officeinvestmentvolumesslowedinMayto$4.1billion,a31%declinefromayearago.Thedeclineisarguablyduetoseverallarge,uniquetransactionsin2011ratherthanproblemsin2012.Year-to-date,officetransactionvolumetotaledahealthier$23billion.Investorenthusiasmisundergoingthenow-familiarsummerantipathy,buttrophyandvalue-addassetsinprimarymarketscontinuetogarnerthemostinterestfrombothdomesticandcross-borderinstitutionalinvestors.Thebiggestfactorfacingthemarketisthecompleteindifferencecapitalisshowingtowards
core-plusofferings.Whiletrophyassetsandhighqualityvalue-addofferingsarereceivingrobustbiddingfromadeeppoolofinvestors,goodquality,stabilizedassetscannotseemtofindareception.Thisremainsthebestrisk-returnopportunityinthemarket.Anotherfactorimpactingthemarketwasamomentarypullbackindebtpricingandavailability,especiallyforless-than-trophyassets.Theresultwasareversalofwhathadbeenmonth-over-monthincreasesinachievedsaleprices.Sellershavedemonstratedadisciplineofholdingontotheirassetsiftheycannotachievedesiredpricing,anotherfactorbehindslowerofficetransactionvolumes.
OFFICE CAPITAL MARKETS: BID-ASK SPREADS WIDENING
Figure 6: Office Market Transaction Volume and Pricing
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76Source: CBRE Research
Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and
completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.
*The arrows indicate a trend and do not represent a positive or negative value for the underlying statistic (e.g., net absorption could be negative, but still represent a positive trend over the time period).
MANHATTAN389,070 SF7.7%$59.48
PHOENIX80,615 SF25.1%$20.41
PITTSBURGH80,038 SF10.5%$18.82
DETROIT74,631 SF26.7%$17.48
MINNEAPOLIS/ST. PAUL
66,999 SF18.8%$22.36
SAN DIEGO66,112 SF
16.2%$25.32
BALTIMORE64,418 SF16.5%$21.59
SAN JOSE53,679 SF13.7%$30.20
SACRAMENTO52,925 SF23.5%$20.52
KANSASCITY52,753 SF17.9%$16.71
ST. LOUIS49,024 SF
17.4%$17.95
TAMPA45,684 SF19.5%$19.64
WASHINGTON, DC*383,924 SF13.5%$34.80
CHICAGO239,216 SF18.3%$26.48
DALLAS/FT. WORTH226,204 SF19.7%$17.92
LOSANGELES
196,543 SF16.8%$30.37
HOUSTON190,675 SF13.9%$23.31
BOSTON181,755 SF14.2%$26.60
NEW JERSEY157,580 SF16.6%$24.74
ATLANTA133,316 SF23.0%$19.85
SAN FRANCISCO115,154 SF10.4%$44.82
DENVER107,654 SF14.8%$20.00
PHILADELPHIA103,255 SF18.6%$25.06
ORANGECOUNTY99,854 SF14.2%$23.04
SEATTLE97,227 SF15.9%$28.37
MANHATTAN389,070 SF7.7%$59.48
PHOENIX80,615 SF25.1%$20.41
PITTSBURGH80,038 SF10.5%$18.82
DETROIT74,631 SF26.7%$17.48
MINNEAPOLIS/ST. PAUL
66,999 SF18.8%$22.36
SAN DIEGO66,112 SF
16.2%$25.32
BALTIMORE64,418 SF16.5%$21.59
SAN JOSE53,679 SF13.7%$30.20
SACRAMENTO52,925 SF23.5%$20.52
KANSASCITY52,753 SF17.9%$16.71
ST. LOUIS49,024 SF
17.4%$17.95
TAMPA45,684 SF19.5%$19.64
WASHINGTON, DC*383,924 SF13.5%$34.80
CHICAGO239,216 SF18.3%$26.48
DALLAS/FT. WORTH226,204 SF19.7%$17.92
LOSANGELES
196,543 SF16.8%$30.37
HOUSTON190,675 SF13.9%$23.31
BOSTON181,755 SF14.2%$26.60
NEW JERSEY157,580 SF16.6%$24.74
ATLANTA133,316 SF23.0%$19.85
SAN FRANCISCO115,154 SF10.4%$44.82
DENVER107,654 SF14.8%$20.00
PHILADELPHIA103,255 SF18.6%$25.06
ORANGECOUNTY99,854 SF14.2%$23.04
SEATTLE97,227 SF15.9%$28.37
400,000,000 SF
45,000,000 SF
MARKETNRA (SF x 1000)VACANCY RATEGROSS ASKING RENT
Figure 7: 25 Largest Office Markets - Q2 2012
Regional office market dynamics vary considerably, driven by the relative performance of industry sectors. The high-tech and energy markets continue to drive greater office space demand. By contrast, consolidation in financial services, government sector cuts, and BRAC moves weigh on a number of regional office markets.
Other trends that warrant observation are heightened demand for Class B space driven by technology tenants and an accelerated pace of recovery in suburban and secondary markets throughout the U.S. The cautious posture of traditional professional services firms has resulted in increased renewal activity with an eye toward space utilization in many primary markets. Back office cost-saving and on-shoring strategies will benefit secondary markets. Increased demand from less traditional or start-up technology and media firms has had an impact on Class B vacancy and average asking rates. The suburban office markets of Austin, San Jose, Cambridge, Salt Lake City and Orlando top the list for year-over-year decreases in suburban market vacancy. Austin’s suburban vacancy rate has decreased by more than 6%—the largest year-over-year decrease in the U.S.
THE REGIONAL OFFICE MARKETS IN PERSPECTIVE
Q2 2012 Current QoQ YoY
Vacancy Rate 15.7% i i
Lease Rate $25.63 h h
Net Absorption* 12.7 MSF h h
Construction Completions 2.0 MSF h h
NATIONAL QUICK STATS
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RecoveryintheManhattanmarketoverallslowedinQ22012.BothMidtownandDowntownexperiencednegativeabsorptionof419,000sq.ft.and407,000sq.ft.,respectively.MidtownSouth,ontheotherhand,increaseditspaceofrecovery,witha70-bpsdecreaseinvacancyandaskingrentsnearinghistorichighsat$51.73persq.ft.
Manhattan’sfinancialservicessector,morecloselytiedtoglobalandeurozoneeconomicuncertainty,retrenchedtoacautiouspostureinQ22012.RenewalsdominatedfinancialservicesactivityinMidtownandDowntown.EightofManhattan’stop25transactionswerecompletedbyfinancialservicesfirmsandonlytwoofthemwerenewleases.
allbutonemonth.Year-over-yearaverageaskingrentshaveincreasedby6.3%inMidtownversus17.7%inMidtownSouth.
Thereiscurrentlyover10millionsq.ft.eitherunderconstructionorplannedinManhattan.Roughly5.3millionsq.ft.isscheduledtocomeon-lineDowntownattheWorldTradeCenterin2013,with2.6millionsq.ft.pre-leased.BothvacancyratesandaverageaskingrentswillriseinDowntownasaresultofthisnewClassAstock.Midtownhas1.3millionsq.ft.comingtomarketin2013andanotherroughly3.9millionsq.ft.through2015,with7BryantParkanddevelopmentprojectsonthefarwestsideattheHudsonRailYards.
Manhattan’stwolargesttransactionswereahistoric1.6million-sq.-ft.renewalbyViacom,followedbya491,000-sq.-ft.renewalbyCitigroup.Meanwhile,technologyfirmsdominatednewleasingintheMidtownSouthmarket,characterizedbyseveralsmallertransactionsinClassBbuildings.
ThecomparisonofactivityintheMidtownandMidtownSouthmarketsexemplifiestheperformanceofmarketsreliantontechnologyversustraditionalfinancialandprofessionalservicesfirms.Leasingactivity(excludingrenewals)intheMidtownmarkethascomeinbelowitsfive-yearaverageforallbutonemonthin2012,whereasMidtownSouth,amarketdominatedbytechnologyfirmactivity,hasbeatitsfive-yearaveragefor
NEW YORK
WASHINGTON, DC
Washington,DC,continuestostrugglewithgovernmentcutbacksandpoliticaldeadlockastheupcomingelectionsapproach.Anyincreasesinprofessionalservicesemploymenthasbeenmutedbydecreasesinthenumberofgovernmentworkers.WhiletheDowntownWashington,DC,vacancyrateisdown10bpsoverlastquarter,metropolitanWashington,DC’svacancyratehasincreasedby90bpssincelastyear.
TheGSAisoneofthemostactiveusersintheWashington,DC,market.Theneteffectofupcomingactivityfromthissector,however,willlikelybedominatedbyrenewalsandresultinanetdecreaseofoccupiedspaceasagenciesadheretonewspaceusageefficiencystandards.Asbusinessconfidencestagnatesandeconomicuncertaintyremains,manyotherprofessionalservicesfirmsare
takingasimilarlycautiousposture.Sixlargelawfirmsareactiveusersinthemarketrightnow.Muchofthisactivitycouldalsoresultinanetdecreaseinoccupiedspaceasthesefirmsseekmoreefficientfloorplansandareductioninsquarefootageperemployee.
Washington,DC,hasexperiencedarecentspikeinconstructionactivity,mostofitspeculative.Developersarebettingonthelong-termviabilityofthemarketandseektofulfilldemandforhighqualityspace.2.8millionsq.ft.isslatedtocomeon-lineoverthecourseofthenexttwoyearswithmorethanhalfofthatamountavailablefortenantoccupancyin2013.
MetropolitanWashington,DC—specificallyNorthernVirginia—isstartingtofeeltheeffectsofBRAC,whichwill
resultinDepartmentofDefensetenantsvacatingmorethan6millionsq.ft.ofleasedspaceinNorthernVirginiaoverthecourseofthenext12to18months.Todate,roughly3.0millionsq.ft.hasbeenvacated.
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SAN FRANCISCO
HOUSTON
SanFranciscoofficemarketfundamentalscontinuetoimprove,andhavebeendrivenbythetechnologysector.InQ22012,theSanFranciscoMetropolitanareamovedfromthefifth-lowestvacancyrateinQ12011tothethird-lowestnationally.OnlythethreedowntownManhattanmarketsboastvacancyrateslowerthandowntownSanFrancisco,whichdropped30bpsoverthepreviousquarterto9.7%inQ22012.WhiletighteningofthedowntownSanFranciscomarketcontinues,thepaceofrecoverycooledsomewhatinQ22012,withpositiveabsorptionof224,000sq.ft.comparedto867,000sq.ft.inQ12012.ThesharpupwardtrendofaverageaskingrentsflattenedabitinQ22012,reaching$44.02persq.ft.,a2.3%
EnergyisanotherindustrysectordrivingimprovementsinU.S.commercialrealestatefundamentals.TheHoustonMSA,energycapitaloftheU.S.,hasseenhealthygainsinemployment.Whilestillwellbelowthehighsof2007,roughly88,000jobshavebeenaddedin2012.Miningandlogging,manufacturingandemploymentsectorstiedtopopulationgrowthhaveseenthesharpestincreases.Forty-eightpercentofHouston’stop25leaseswereoilandgascompanies.Ofthose12oilandgastransactions,allbuttwowerenewleasesorrenewalsandexpansions.FifteenofHouston’s25largesttenantsinthemarketareoilandgascompanies.TheEagleFordShaleformation,spanningroughly3,000squaremiles,willcontinuetobringjobsandsignificantpopulationincreasestoSouthTexasaswellasseveralnewor
increaseoverQ12012.Thetechnologysectoraccountedforallofthemarket’stop10transactionsandtwo-thirdsoftotalmarketactivity.
SimilartootherU.S.markets,activitygeneratedbythenon-techusersisdominatedbyrenewalswithimprovementsinspaceusageefficiencyoftenresultinginanetcontractionofspace.Technologyfirmactivity,however,ischaracterizedbynewleasesandexpansions,asfirmswhichalreadyembedspaceusageefficiencyintheirculturegrow,andnewcompaniesareformed.
IncreasesinrentalratesandoccupancyhaverenewedinterestinconstructionandrenovationactivityindowntownSan
expandingenergycompaniestoHou-ston.Roughly26%ofHouston’stransac-tionactivitysinceJanuary2011canbeattributedtotheEagleFordShale.
TheHoustonmetropolitanareahasundergonea190-bpsyear-over-yeardecreaseinofficevacancy–thestrongestperformanceofalloftheenergy-focusedmarkets.SuburbanHoustoninparticularhasundergonea220-bpsdecreaseinvacancywithmuchofQ22012activitytakingplaceinWestHouston.Energy-dominatedsuburbansubmarkets—En-ergyCorridor,KatyFreewayandtheWoodlands—boastsingle-digitvacancyratesof7.9%,7.0%and6.2%,respec-tively.WithenergycompaniesfavoringClassAspace,thissectorisparticularlytightandaverageaskingratesarefinallycatchinguptothedemand.Witha
Francisco.ClassAaskingrentshaveincreasedalmost25%sinceQ22011andClassBaskingrentsroseroughly40%.Thereis1.7millionsq.ft.ofnewconstructionorfullbuildingrenovationprojectscurrentlyunderway.
ClassAvacancyrateof2.8%,averageaskingrentsintheEnergyCorridorhaverisenby$4.79persq.ft.overthecourseof2012to$33.31persq.ft.
DevelopersarerespondingtotherapidlytighteningsuburbanHoustonmarketwith2.7millionsq.ft.ofconstruc-tioncurrentlyunderway,themajorityofitinWestHouston.Inthenorth,theWoodlands,withaClassAvacancyrateof1.6%,has984,000sq.ft.underconstruction.Withtotalinventoryof6.0millionsq.ft.,thissmallsubmarketwillincreaseinventorybyalmost17%.Threeofthetenbuildingscurrentlyundercon-structioninHoustonarespeculativeandthattrendisontherise.
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Source: CBRE Research
*Percentage point change Source: CBRE Research
Figure 8: Office Market Snapshot
Figure 9: Largest Quarterly Decreases and Increases*
Lowest Vacancy Rates (%)METROPOLITAN DOWNTOWN SUBURBANCAMBRIDGE 7.6 MANHATTAN, MIDTOWN SOUTH 5.3 CAMBRIDGE 7.6
MANHATTAN 7.7 MANHATTAN, DOWNTOWN 7.9 NASHVILLE 9.3
SAN FRANCISCO 10.4 MANHATTAN, MIDTOWN 8.3 PITTSBURGH 10.0
PITTSBURGH 10.5 SAN FRANCISCO 9.7 SAN FRANCISCO 11.7
NASHVILLE 12.0 WASHINGTON, DC 10.1 SAN JOSE 12.0
Decreases in VacancyMETROPOLITAN DOWNTOWN SUBURBANSEATTLE -1.3 SEATTLE -1.8 CHARLOTTE -1.6
CHARLOTTE -1.2 MIAMI -1.6 ALBUQUERQUE -1.5
BOSTON, ORLANDO & WILMINGTON -1.1 SAN ANTONIO -1.4 BOSTON -1.4
ALBUQUERQUE & PHOENIX -1.0 CINCINNATI -1.3 PHOENIX -1.3
MINNEAPOLIS/ST. PAUL -0.9 AUSTIN & WILMINGTON -1.2 MINNEAPOLIS/ST. PAUL, ORLANDO, TUCSON -1.2
Highest Vacancy Rates (%)METROPOLITAN DOWNTOWN SUBURBANDETROIT & PALM BEACH COUNTY 26.7 TUCSON 35.7 DETROIT 27.2
LAS VEGAS 25.3 DALLAS/FT. WORTH 27.6 PALM BEACH COUNTY 26.7
PHOENIX 25.1 ST. LOUIS 25.5 LAS VEGAS 25.9
SACRAMENTO 23.5 DETROIT 25.1 SACRAMENTO & PHOENIX 25.5
INLAND EMPIRE 23.3 HARTFORD 25.0 CINCINNATI 23.5
Increases in VacancyMETROPOLITAN DOWNTOWN SUBURBANFT. LAUDERDALE 0.9 TUCSON 5.2 FT. LAUDERDALE 1.1
INLAND EMPIRE 0.6 LAS VEGAS 3.5 MIAMI & SAN FRANCISCO 0.7
LAS VEGAS & SAN JOSE 0.5 PHOENIX 0.8 INLAND EMPIRE & SAN JOSE 0.6
OAKLAND 0.4 SALT LAKE CITY 0.7 LAS VEGAS 0.5
NEW JERSEY & KANSAS CITY 0.3 ALBUQUERQUE 0.5 JACKSONVILLE 0.4
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* Included in Manhattan, Downtown ** Included in Washington, DC metro *** Washington, DC metro figures include Maryland Suburban, Virginia Northern and Washington, DC Downtown U.S. national figures provided by CBRE Econometric Advisors (CBRE EA), all other figures compiled by CBRE Research
Figure 10: Office Vacancy - Q2 2012
Downtown Suburban MetropolitanMarket Area Size Rank Q2 12 Q1 12 Q2 11 Q2 12 Q1 12 Q2 11 Q2 12 Q1 12 Q2 11BALTIMORE 20 18.1 19.0 20.1 15.8 15.7 14.7 16.5 16.8 16.5BOSTON 7 10.8 11.5 11.8 16.5 17.9 16.7 14.2 15.3 14.8CAMBRIDGE 50 N/A N/A N/A 7.6 8.2 10.4 7.6 8.2 10.4HARTFORD 46 25.0 24.9 26.1 19.5 20.3 19.7 21.7 22.2 22.2LONG ISLAND 31 N/A N/A N/A 14.4 14.8 15.6 14.4 14.8 15.6MANHATTAN, DOWNTOWN 1 7.9 7.4 8.2 N/A N/A N/A 7.7 7.6 7.8MANHATTAN, MIDTOWN * 8.3 8.1 7.8 N/A N/A N/A N/A N/A N/AMANHATTAN, MIDTOWN SOUTH * 5.3 6.0 7.3 N/A N/A N/A N/A N/A N/AMARYLAND SUBURBAN ** N/A N/A N/A 15.0 15.0 15.0 N/A N/A N/ANEW JERSEY 8 N/A N/A N/A 16.6 16.3 16.5 16.6 16.3 16.5PHILADELPHIA 12 14.1 14.1 14.0 22.0 21.7 21.8 18.6 18.4 18.5PITTSBURGH 16 11.0 10.9 12.4 10.0 10.1 10.5 10.5 10.5 11.5STAMFORD 29 N/A N/A N/A 20.1 20.1 19.4 20.1 20.1 19.4VIRGINIA NORTHERN ** N/A N/A N/A 15.2 15.0 13.3 N/A N/A N/AWASHINGTON, DC *** 2 10.1 10.2 10.0 N/A N/A N/A 13.5 13.4 12.6WESTCHESTER COUNTY 42 N/A N/A N/A 17.7 17.5 17.4 17.7 17.5 17.4WILMINGTON 52 21.4 22.6 21.9 22.0 22.9 22.8 21.7 22.8 22.4East 9.7 9.8 10.1 16.2 16.3 15.8 13.2 13.3 13.2CHICAGO 3 14.8 14.9 15.9 22.5 22.6 23.1 18.3 18.4 19.2CINCINNATI 34 22.1 23.4 20.8 23.5 23.6 24.3 22.9 23.5 22.9CLEVELAND 36 18.9 19.2 22.9 21.7 22.8 23.9 20.4 21.1 23.5COLUMBUS 39 17.0 16.9 17.0 19.7 19.7 20.9 18.8 18.7 19.7DETROIT 17 25.1 25.6 28.1 27.2 27.5 28.5 26.7 27.1 28.4INDIANAPOLIS 37 17.9 17.7 20.1 20.5 20.2 22.7 19.6 19.4 21.8KANSAS CITY 23 17.3 17.0 16.4 18.1 17.9 16.6 17.9 17.6 16.5MILWAUKEE 27 17.6 18.1 24.2 15.7 15.9 17.6 16.4 16.7 19.6MINNEAPOLIS/ST. PAUL 18 19.1 19.6 19.0 18.6 19.8 19.1 18.8 19.7 19.1ST. LOUIS 24 25.5 25.9 25.4 14.0 14.0 14.3 17.4 17.6 17.6Midwest 17.6 17.8 18.8 20.9 21.1 21.7 19.6 19.8 20.5ATLANTA 9 22.8 23.5 25.0 23.0 23.1 22.8 23.0 23.3 23.6AUSTIN 32 13.1 14.3 16.4 16.3 17.0 22.4 15.6 16.4 21.1CHARLOTTE 33 13.4 14.0 13.7 22.7 24.3 24.1 18.9 20.1 19.9DALLAS/FT. WORTH 4 27.6 28.0 27.4 18.5 18.7 19.7 19.7 19.9 20.7FT. LAUDERDALE 44 21.6 21.8 20.3 19.4 18.3 18.4 19.9 19.0 18.8HOUSTON 6 10.8 10.7 11.6 14.8 15.5 17.0 13.9 14.4 15.8JACKSONVILLE 48 24.9 25.7 24.5 20.8 20.4 20.0 22.1 22.0 21.4MIAMI 28 20.2 21.8 19.7 18.7 18.0 17.6 19.2 19.3 18.3NASHVILLE 40 20.9 21.3 24.2 9.3 9.3 11.0 12.0 12.1 14.0ORLANDO 35 15.2 15.7 18.2 18.7 19.9 21.0 17.9 19.0 20.4PALM BEACH COUNTY 49 N/A N/A N/A 26.7 27.3 26.0 26.7 27.3 26.0SAN ANTONIO 45 22.3 23.7 25.6 15.7 16.1 16.4 16.9 17.5 18.1TAMPA 25 16.5 16.7 16.8 20.0 21.0 21.9 19.5 20.3 21.1South 19.0 19.6 20.1 18.4 18.7 19.6 18.5 18.9 19.7ALBUQUERQUE 53 22.5 22.0 20.1 16.8 18.3 17.5 18.0 19.0 18.0DENVER 11 11.9 13.0 14.4 15.7 16.0 16.6 14.8 15.3 16.1HONOLULU 54 15.7 15.6 16.3 14.9 14.7 14.2 15.3 15.1 15.1INLAND EMPIRE 47 N/A N/A N/A 23.3 22.7 23.5 23.3 22.7 23.5LAS VEGAS 38 15.4 11.9 16.9 25.9 25.4 25.2 25.3 24.8 24.7LOS ANGELES 5 18.3 18.3 18.1 16.5 16.9 17.5 16.8 17.2 17.6OAKLAND 43 12.3 12.2 14.3 14.8 14.2 16.0 13.8 13.4 15.3ORANGE COUNTY 13 N/A N/A N/A 14.2 15.0 15.8 14.2 15.0 15.8PHOENIX 15 23.9 23.1 21.2 25.5 26.8 27.3 25.1 26.1 26.0PORTLAND 26 10.2 9.7 9.7 19.8 20.3 20.5 15.2 15.2 15.3SACRAMENTO 22 16.2 16.4 16.2 25.5 25.6 24.9 23.5 23.7 23.1SALT LAKE CITY 41 18.1 17.4 16.2 13.9 14.5 16.6 15.4 15.5 16.4SAN DIEGO 19 18.4 18.6 19.1 15.8 16.2 16.9 16.2 16.6 17.2SAN FRANCISCO 10 9.7 10.0 13.5 11.7 11.0 11.8 10.4 10.3 12.9SAN JOSE 21 23.7 23.5 25.1 12.0 11.4 15.6 13.7 13.2 17.0SEATTLE 14 14.5 16.3 18.9 17.0 17.9 18.8 15.9 17.2 18.8TUCSON 55 35.7 30.5 25.0 15.5 16.7 17.0 17.7 18.3 17.0VENTURA COUNTY 51 N/A N/A N/A 23.2 24.0 23.0 23.2 24.0 23.0WALNUT CREEK 30 N/A N/A N/A 16.3 16.9 18.3 16.3 16.9 18.3West 14.3 14.6 16.1 17.5 17.8 18.6 16.7 17.0 17.9
UNITED STATES 12.6 12.8 13.0 17.5 17.8 18.1 15.7 16.0 16.3
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Global ReseaRch and consultinG This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.
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