Office market trends and outlook (Q4 2015)

Highest quarterly absorption during the cycle so far further demonstrates healthy demandUnited States Office Review Q4 2015

Despite global economic uncertainty, office market fundamentals across the United States showed no signs of a slowdown, with occupancy growing at a rate 1.3x faster than new supply and company expansion into new markets representing nearly 10.0 percent of total leasing activity. CBDs remain the premier location for many tenants, but suburbs are starting to pick up as pricing and competition encourages many tenants to look to markets such as Atlanta, Charlotte, Dallas and Raleigh-Durham.

3

Landlord confidence firmly rooted across most U.S. markets, tenants face increasing rents amidst dwindling supply

Source: JLL Research

Leasing activity• Leasing activity declined slightly by 2.8 percent to 60.5 million square feet, although it remained above the 60-

million-square-foot threshold, bringing year-to-date volumes to 241.9 million square feet. This represents a year-over-year gain of 2.4 percent as markets, particularly diversified and mid-sized geographies, continue to demonstrate solid signs of improved demand.

Absorption• Occupancy growth across the United States totaled 18.7 million square feet in Q4, the highest quarterly figure

recorded during the cycle so far. Year-end absorption was equal to 2014’s rate of 1.4 percent year-on-year.• Los Angeles joined other diversified markets, such as Dallas, Chicago, Phoenix, Atlanta and Philadelphia, in

being a leader in net absorption over the course of 2015.

Vacancy• A sharp uptick in absorption helped to propel total vacancy downward by 40 basis points to 14.7 percent, falling

below the 15.0-percent mark for the first time this cycle.• Properties across class and geographies are experiencing declines in vacancy at varying rates, with suburban

Class A posting the fastest pace in declines as minimal large CBD options hinder faster take-up of space.

Rents• Asking rents saw their second-highest level of quarterly growth during Q4 at 2.3 percent, bringing year-over-

year gains to 3.5 percent; the U.S. office market has now reached pre-recession rent levels.• While CBD Class A space continues to surpass all other classes over the course of the cycle, quarterly upticks

in other sectors have been faster as rising economic conditions boost much of the overall market.

Construction• Construction activity declined slightly over the quarter to 88.3 million square feet as numerous projects began

to deliver, although groundbreakings in Q1 2016 are likely to reverse this trend.• High preleasing rates of 47.7 and 53.1 percent for developments coming online in 2016 and 2017 mean that

relief will be somewhat limited, elevating asking rents for new space even further.

Leasing activity

5

Leasing activity was slightly slower than Q3, but remained strong at 60.5 million square feet

2007 2008 2009 2010 2011 2012 2013 2014 20150

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

Leas

ing

activ

ity (s

.f.)


6

Annual activity surpassed 2014 by 2.4 percent, with five markets posting more than 3.0 million square feet of transactions

2007

2008

2009

2010

2011

2012

2013

2014

YTD 2015

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

258,547,529

246,521,385

228,764,145

275,274,581

282,356,988

234,094,033

249,187,644

236,140,690

241,866,448

Leasing activity (s.f.)


7

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

20,000 s.f. or larger

94average term in months

52% / 41% / 7% of tenants are growing / shrinking / stable

46.7% vs. 53.3%urban vs. suburban breakdown

of Q3 volume

A significant number of large-block activity (> 100,000 s.f.) consisted of renewals, slightly pushing down rate of expansion

Source: JLL Research – only for leases larger than 20,000 square feet

8

Urban Suburban Total metro

Financial, tech and government activity propelled CBD volumes to more than 1.0 m.s.f. in many geographies

Source: JLL Research – only for leases larger than 20,000 square feet

Philadelphia

Houston

Portland

Raleigh-Durham

SF Peninsula

San Francisco

Denver

Charlotte

Boston

Pittsburgh

Seattle-Bellevue

Chicago

Silicon Valley

Washington, DC

New York

0 3,000,000 6,000,000

361,208

374,991

406,412

427,018

604,726

617,190

889,915

1,071,864

1,073,922

1,099,000

1,135,564

1,504,842

1,886,577

2,448,250

3,020,346


Atlanta

Suburban MD

Baltimore

Tampa

Austin

Orange County

Los Angeles

Chicago

Philadelphia

Dallas

Denver

Boston

Houston

New Jersey

Northern VA

0 3,000,000

437,404

450,300

484,501

484,695

497,774

548,861

639,627

784,357

795,735

864,320

890,188

896,089

900,038

1,252,939

1,856,044


Austin

San Diego

Houston

Seattle

Philadelphia

Denver

San Francisco

Orange County

Dallas

New Jersey

Los Angeles

Boston

Chicago

New York

Washington, DC

0 4,500,000 9,000,000

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


9

Education

Accounting consulting research strategy

Telecom

Aerospace and defense

Energy and utilities

Life sciences

Other professional and business services

Law firm

Other

Healthcare

Government

Banking and financial services

Technology

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

2.3%

2.7%

2.8%

3.3%

3.5%

3.6%

4.7%

6.3%

6.4%

7.3%

8.9%

15.9%

16.8%

Share of leasing activity (%)

Tech and finance continue to drive occupancy growth across a diversity of markets

Source: JLL Research – only for leases larger than 20,000 square feet and industries with more than 2.0 percent share of activity

10

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

40,000-49,999 s.f.

50,000-74,999 s.f.

75,000-99,999 s.f.

100,000-199,999 s.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

8,000,000

9,000,000

6,053,192

3,184,575 3,156,701

4,476,8194,109,935

6,292,398

8,162,871

Leas

ing

activ

ity (s

.f.)

More than one-third of activity was comprised of leases smaller than 30,000 s.f. as growth diversifies


11

Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 20150%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

43.2% 48.0%56.0%

43.7%

57.9%52.0%

48.7% 41.0%34.0%

46.3%

38.3%41.0%

8.1% 11.0% 10.0% 10.0%3.8% 7.0%

Growing Stable Shrinking


A slight uptick in contraction activity pushed down gains elsewhere, but more than half of activity remains expansionary

8.3%Shrinking

41.6%Stable

50.1%Growing

Average share

12

ConstructionTelecom

EngineeringEnergy and utilities

GovernmentInsuranceLaw firm

Architecture and engineeringOther

Marketing and communicationsAerospace and defense

NonprofitBanking and financial services

Media and entertainmentLife sciences

HealthcareFood and beverage production

EducationAccounting and consulting

Retail and hospitalityOther professional services

Real estateTechnology

Manufacturing and distributionAssociation nonprofit union

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0.0%

15.2%15.4%

18.3%19.4%

28.3%29.4%

35.6%38.2%38.5%

41.2%51.1%

59.9%62.1%63.4%64.2%64.6%65.0%

70.6%71.6%

74.8%76.3%

78.0%81.0%

87.2%

100.0%62.1%

79.4%81.7%

49.8%51.6%

48.7%64.4%59.8%

61.5%56.8%

48.9%34.5%

27.3%34.3%

35.8%15.7%

26.9%29.4%28.4%21.8%

23.7%19.7%

19.0%12.8%

0.0%22.7%

5.2%0.0%

30.8%20.1%

21.9%0.0%

2.0%0.0%

2.0%0.0%

5.7%10.6%

2.3%0.0%

19.7%8.0%

0.0%0.0%

3.4%0.0%

2.2%0.0%0.0%

Growing Stable Shrinking

Share of leasing activity (%)

More than 75.0 of associations, manufacturing, technology an real estate companies signed expansionary leases in Q4


Absorption

14

For the first time this cycle, quarterly occupancy growth totaled 0.5 percent of inventory

2008 2009 2010 2011 2012 2013 2014 2015-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Qua

rterly

net

abs

orpt

ion

(as

% o

f inv

ento

ry)


15-year trailing annual average

15

Due to slightly slower uptake in previous quarters, annual absorption remained consistent at 1.4 percent of inventory

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

YTD

net

abs

orpt

ion

(as

% o

f inv

ento

ry)


15-year trailingannual average

16

Movement to Class B space as quality options diminish is increasing; quarterly B absorption double rate of early recovery


2010-Q3 2014 Past four quarters0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

31,348,654

12,456,664Cla

ss B

net

abs

orpt

ion

(s.f.

)

1,567,433 s.f. per quarter 3,114,166 s.f. per quarter

Dallas Chicago Boston PhoenixSilicon Valley Atlanta Los Angeles Seattle-BellevuePhiladelphia Austin All other markets

Market YTD net absorption (s.f.) Share

Dallas 4,794,274 8.6%

Chicago 3,585,989 6.5%

Boston 3,045,721 5.5%

Phoenix 2,965,982 5.3%

Silicon Valley 2,891,738 5.2%

Atlanta 2,578,651 4.6%

Los Angeles 2,557,260 4.6%

Seattle-Bellevue 2,461,440 4.4%

Philadelphia 2,453,633 4.4%

Austin 2,253,197 4.1%

All other markets 25,893,173 46.7%

United States 55,481,058 100.0%

17


Los Angeles joins other diversified markets (Dallas, Chicago, Phoenix, Atlanta and Philadelphia) as a driver of absorption

18

More than 1.0 million square feet of absorption in Los Angeles, the SF Peninsula and Silicon Valley boosted West Coast in Q4

2010 2011 2012 2013 2014 20150%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

East Coast Central West Coast

Shar

e of

qua

rterly

net

abs

orpt

ion


19

With 13.1 million square feet of absorption, the Sun Belt continues to gain momentum; tech’s share rises by 820bp

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%

201137.5%

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

0.9%

31.3%

4.1%

23.6%

40.2%

YTD 2015

20

Housto

n

Pittsbu

rghDen

ver

Seattle

San Fran

cisco

Silicon

Valley

Austin

SF Penins

ulaAtla

ntaTam

pa

Phoen

ix

Raleigh

-Durham

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

-0.1%

0.4%

2.0%

2.7% 2.9%

4.2%

4.9% 4.9%

1.9%

3.4% 3.6% 3.8%

YTD

net

abs

orpt

ion

(s.f.

)Multiple tech markets absorb more than 4.0 percent of inventory, while Sun Belt geographies are approaching that threshold


Energy Tech Sun Belt

U.S.average

21

Earlier flight to quality has kept Class A’s share of absorption gains strong, but B and C are approaching the 50-m.s.f. mark


Trophy and Class A net absorption

181.1m.s.f.

2010-YTD 2015

Class B and C net absorption

43.8m.s.f.

2010-YTD 2015

22

Submarkets with creative and tech-friendly space outperform the national Class B average

Mid-Market (SF) South Financial District (SF)

Pioneer Square (Seattle) River West (Chicago) Santa Monica (Los Angeles)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%11.1%

10.0%

5.6%

3.2%2.9%

YTD

Cla

ss B

net

abs

orpt

ion

(% o

f inv

ento

ry)


U.S. average

Vacancy

24

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 20150.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Tota

l vac

ancy

(%)

2010 2011 2012 2013 2014 201514.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

The 18.7 m.s.f. of absorption in Q4 pushed vacancy down sharply by 40bp to 14.7%; first time it has fallen below 15.0% this cycle


25

Suburban A and B properties registered sharper downturns in vacancy over the quarter due to lack of space in urban cores

2010 2011 2012 2013 2014 2015-600

-500

-400

-300

-200

-100

0

100

Chan

ge in

tota

l vac

ancy

(bp)


-420bpCBD Class A

-510bpSuburban Class A

-290bpCBD Class B

-310Suburban Class B

Change in vacancy since Q1 2010

26

The 149,000 additional office-using jobs added during Q4 were partially responsible for the sharp drop in vacancy

2011 2012 2013 2014 201525,000

26,000

27,000

28,000

29,000

30,000

31,000

32,000

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%Office-using employment (thousands) Total vacancy (%)

Offi

ce-u

sing

em

ploy

men

t (th

ousa

nds)

Tota

l vac

ancy

(%)


27

Sublease space continues to fall (currently at 42.7 million square feet) despite increasing in Houston due to stalling conditions

2009 2010 2011 2012 2013 2014 201530,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

Subl

ease

spa

ce (s

.f.)


Rents

29

Peakingphase

Fallingphase

Risingphase

Bottomingphase

Sustained rent growth is pushing markets farther along the clock, with Houston being the notable outlier


Dallas, San Francisco

Charlotte, Fort Lauderdale, Kansas CityOakland-East Bay, Orlando, Salt Lake City

Houston

Cleveland, Indianapolis, Raleigh-Durham, St. Louis

San Francisco Peninsula

Baltimore, Detroit, Hartford, San Antonio,West Palm Beach, Westchester County

Los Angeles, San Diego

Silicon Valley

Atlanta, Jacksonville, Miami,Orange County, Richmond, United States

New York, Pittsburgh, Portland, Tampa

Denver, Minneapolis, Seattle-Bellevue

New Jersey,Washington, DC

Chicago, Phoenix

Columbus, Sacramento

Long Island, Philadelphia

Boston

Cincinnati, Fairfield County,Hampton Roads, Milwaukee

Austin

Nashville

30

CBDs remain slightly ahead on aggregate, with many approaching cyclical peaks in terms of rent growth


Peakingphase

Fallingphase

Risingphase

Bottomingphase

Dallas, Fort Lauderdale, Los Angeles, Portland

Charlotte, New York (Midtown),Philadelphia, Raleigh-Durham

Houston

Cincinnati, Milwaukee, Phoenix, West Palm Beach

Jacksonville, Oakland, Orlando

Austin, Nashville, New York (Midtown South),Silicon Valley

Baltimore, Kansas City

Atlanta

Boston, New York (Downtown), Pittsburgh

Denver, Seattle

Detroit, Hartford, Washington, DC

Chicago, Miami, San Diego, United States

Sacramento, White Plains

Salt Lake City

Columbus, Richmond, San Antonio, St. Louis

San Francisco

Minneapolis, Tampa

Cleveland, IndianapolisFairfield County

31

Peakingphase

Fallingphase

Risingphase

Bottomingphase

Suburban markets display more variance, from super-hot tech geographies to lagging exurban submarkets


Dallas

Charlotte, Chicago, Cleveland, East Bay,Indianapolis, Westchester County

Fort Lauderdale, Orlando, Miami, Milwaukee, Raleigh-Durham

HoustonSan Francisco Peninsula

Central NJ, Detroit, Hartford, West Palm Beach

Los Angeles, Nashville, San Diego

Silicon Valley

Atlanta, Baltimore, United States

Austin, Bellevue, Richmond

Boston, Minneapolis, Phoenix, Seattle, Salt Lake City

Washington, DC

Cincinnati, Fairfield County,Hampton Roads, Oakland

Lehigh Valley, Northern DE,Northern NJ, Sacramento

Philadelphia

Cambridge

Nassau County, Orange County, Tampa

Columbus, San Antonio

San Francisco (non-CBD)

Jacksonville, Pittsburgh, Portland, St. Louis

Southern NJ

Suffolk County

Denver

Kansas City

32

Annual rent growth remains steady at around 3.5 percent per year, while asking rents are at pre-recession highs

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

$10

$15

$20

$25

$30

$35

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Aver

age

aski

ng re

nt ($

p.s

.f.)


Annual rent growth (%)

33

As large blocks diminish and new supply begins to deliver, rents rose at the second-highest rate this cycle so far (+2.3 percent)

2008 2009 2010 2011 2012 2013 2014 2015-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Qua

rterly

rent

gro

wth

(%)


34

CBD A growth over the course of the cycle remains highest, but suburban A and CBD B posting faster rates of increase of late

2010 2011 2012 2013 2014 2015-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0% Class A (CBD) Class A (suburban)Class B (CBD) Class B (suburban)Class C (CBD) Class C (suburban)

Gro

wth

in a

skin

g re

nts

sinc

e Q

1 20

10


+25.0%CBD Class A

+11.9%Suburban Class C

+13.7%CBD Class C

+13.5%Suburban Class A

+13.7%CBD Class B

+8.4%Suburban Class B

35

Both CBD and suburban rents are rising appreciably, but the gap between the two grew further to $16.67 per square foot

2010 2011 2012 2013 2014 2015$20.00

$25.00

$30.00

$35.00

$40.00

$45.00 CBD Suburbs

Aver

age

aski

ng re

nt ($

p.s

.f)


$11.36

$16.67

36

Both TI packages and free months declined once again in Q4, although they are higher than in 2014 as new space delivers

2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

$23.00

$24.00

$25.00

$26.00

$27.00

$28.00

$29.00

$30.00

$31.00

$32.00

3.5

4.1

5.1

6.1 6.2

5.7

5.15.3

5.8

5.2

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

Free

mon

ths

of re

nt

TI a

llow

ance

($ p

.s.f.

)


Construction

38

Construction volumes are up 11.0 percent since year-end 2014 to 88.3 m.s.f. in Q4 2015

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

Unde

r con

stru

ctio

n (s

.f.)


+296.3%

since 2010

39

A number of large deliveries and groundbreakings slated for Q1 2016 pushed quarterly activity down in Q4

2010 2011 2012 2013 2014 20150

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

Unde

r con

stru

ctio

n (s

.f.)


40

Market Under construction (s.f.) Share

New York 13,666,640 15.5%

Dallas 7,605,715 8.6%

Washington, DC 6,833,786 7.7%

Houston 6,306,180 7.1%

Seattle-Bellevue 5,912,171 6.7%

Boston 5,573,171 6.3%

San Francisco 3,664,519 4.1%

Silicon Valley 3,276,660 3.7%

Philadelphia 3,183,329 3.6%

Chicago 3,055,164 3.5%

Nashville 2,840,446 3.2%

Denver 2,739,079 3.1%

Salt Lake City 2,695,442 3.1%

Charlotte 2,617,222 3.0%

All other markets 18,384,503 20.8%

United States 88,328,543 100.0%

Mid-sized markets such as Nashville, Salt Lake City and Charlotte are becoming more prominent

New York Dallas Washington, DC Houston Seattle-BellevueBoston San Francisco Silicon Valley Philadelphia ChicagoNashville Denver Salt Lake City Charlotte All other markets


41

Excluding Houston, development was largely stable quarter-on-quarter at 82.0 m.s.f.

2010 2011 2012 2013 2014 20150

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

Rest of U.S. Houston

Unde

r con

stru

ctio

n (s

.f.)


42

A sharp uptick in completions in Q4 to 44.2 m.s.f. brings 2015 close to the historical average of 46.0 m.s.f.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

Com

plet

ions

(s.f.

)

44.2 m.s.f.


Average completions: 46.0 m.s.f.

43

55.2 percent of space currently under construction will come to the market in 2016

2016 2017 2018 20190

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

Speculative BTS

Com

plet

ions

(s.f.

)


44

47.7 and 53.1 percent of 2016 and 2017 space has been preleased, respectively, limiting options for tenants and pushing up rents

2016 2017 2018 20190

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

Available Preleased

Com

plet

ions

(s.f.

)


45

Starts slowed in Q4, although tightening conditions will likely trigger more groundbreakings in 2016

2013 2014 20150

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

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

7,331,979

Star

ts (s

.f.)


46

Market Starts (s.f.) Share

Washington, DC 1,010,180 13.8%

Seattle 776,962 10.6%

Dallas 728,455 9.9%

Salt Lake City 697,390 9.5%

San Francisco 680,000 9.3%

Charlotte 667,500 9.1%

Philadelphia 534,000 7.3%

Austin 517,000 7.1%

Cincinnati 485,000 6.6%

Baltimore 292,140 4.0%

Portland 280,907 3.8%

Silicon Valley 224,052 3.1%

Denver 211,879 2.9%

New Jersey 125,445 1.7%

San Francisco Peninsula 75,569 1.0%

Indianapolis 25,500 0.3%

United States 7,331,979 100.0%

A flurry of new projects in DC, Seattle and Dallas pushed them into leading positions for starts

Washington, DC Seattle Dallas Salt Lake CitySan Francisco Charlotte Philadelphia AustinCincinnati Baltimore Portland Silicon ValleyDenver New Jersey San Francisco Peninsula Indianapolis


47

Among top construction markets, BTS-driven geographies are seeing preleasing rates in excess of 60 percent

Denver

Los Angeles

Austin

San Francisco

Seattle-Bellevue

New York

Silicon Valley

Boston

Washington, DC

Dallas

Houston

Philadelphia

Phoenix

Chicago

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

24.1%

26.0%

32.0%

35.0%

35.1%

46.6%

47.6%

49.0%

56.5%

57.2%

59.1%

63.7%

66.2%

69.4%

Preleasing rate (%)


48

Trophy space under construction is 40.3 percent more expensive than existing Class A properties as demand heats up further

Trophy U/C Class A U/C Class A Class B Class C$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$51.23

$45.71

$36.52

$25.48$23.17

Dire

ct a

vera

ge a

skin

g re

nt ($

p.s

.f.)


Sales

50

Realized diversification deeper into primary markets, secondary markets and larger transactions spurs 16.5 percent growth in 2015

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

Q1 Q2 Q3 Q4 Forecast

Offi

ce in

vest

men

t sal

e vo

lum

es (b

illion

s of

$US

)

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

18.8%

32.1%

19.6%

16.5%

Moderated growth forecasted in 2016

51

Primary and secondary cap rates continue to decline

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2.2%

4.4%

5.2%

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

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

Despite the interest rate hike, the spread between office cap rates and the 10-year Treasury has widened slightly for primary and secondary markets to 219 and 296 basis points, respectively

52

Canadian and Asian capital continue to dominate inbound capitalEuropean and Middle Eastern groups are present, though did not buy at scale in 2015

Most active foreign investors (2014) Most active foreign investors (2015)

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

24.0%

21.9%

15.3%

13.5%

9.0%

16.4%

Norway Germany CanadaSingapore South Korea All others

35.1%

15.8%15.5%

9.5%

5.6%

18.5%

Canada China GermanySouth Korea Hong Kong All others

53

Of the top destinations for foreign capital, primary markets remain ahead, though secondary markets emerge

New York

Washin

gton,

DCBos

ton

Seattle

-Bellevu

e

Chicag

oMiam

i

Atlanta

Los A

ngele

s

San Fran

cisco

Dallas /

Fort W

orth

Silicon

Valley

Housto

n$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000 $11,237

$2,323$1,935

$1,184 $995 $709 $602 $515 $394 $347 $249 $172

Qua

rterly

offi

ce in

vest

men

t vol

ume

(milli

ons

of $

US)

Primary markets Secondary marketsSource: JLL Research (Foreign acquisition activity, Assets larger than 50,000 s.f.)

54

33.2%

56.3%

10.5%

Trophy A B

Foreign activity into Class B increased from $644.5 million in 2014 to $4.1 billion, equating to 20.0 percent of total.

201333.1%

60.3%

6.7%

Trophy A B

2014

2015

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

22.9%

57.1%

20.0%

Trophy A B

55

Secondary market momentum realized in 2015 with 11 markets exceeding $1.0b, led by Atlanta, Dallas-Forth and Philadelphia

Atlanta

Dallas /

Fort W

orth

Philade

lphia

Denve

r

Phoen

ix

New Je

rsey

Orange

County

San Dieg

oMiam

i

Minnea

polis-

St. Pau

l

Raleigh

-Durham

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2014 2015

Seco

ndar

y m

arke

t inv

estm

ent v

olum

es (m

illion

s of

$US

)


56

Trophy investment volume was outpaced by Class A & BHowever, supply-demand gap for Trophy product spurred leading per-square-foot pricing appreciation in 2015

Class A Class B Trophy$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

2014 volumes 2015 volumes Year-over-year pricing change

Annu

al in

vest

men

t sal

es v

olum

e (m

illion

s of

$US

)

Annu

al g

rowt

h in

pric

e pe

r squ

are

foot

(%)


U.S. core product office CBD cap rates

57

NJ

CT MA

NH

NC

VA

WA

VT

AL

AZ

AR

CACO

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

Houston6.00-6.50%

Washington, DC4.00 – 6.00%

New York3.25-3.75%Chicago

4.95-5.95%

Los Angeles5.00-6.00%

Seattle4.50 – 5.50%

Boston4.00– 5.00%

San Francisco3.00 – 4.00%

Dallas5.00-7.00%

Atlanta5.00-6.00%

Miami4.50 – 6.00%

Denver5.00-6.00%

San Diego6.00-7.00%

Philadelphia6.00– 7.50%

Tampa5.75-7.00%

Charlotte6.25 – 7.50%

Raleigh6.50 – 7.50%

Orlando5.50 – 7.00%

Minneapolis6.00-7.00%

Austin4.50-5.25%

Cincinnati8.50 – 9.50%

Phoenix7.00-7.50%

Sacramento5.75-6.50%

Columbus8.00 – 9.00%

Detroit9.50 – 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 Bay6.50-7.50%

Portland5.00 – 6.50%

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

Kansas City7.00-8.00%

Cleveland7.50 – 8.50%

Source: JLL Research, September 2015

Indianapolis8.50 – 9.50%

U.S. core product office suburban cap rates

58

NJ

CT MA

NH

NC

VA

WA

VT

AL

AZ

AR

CACO

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

Houston6.50-8.00%

Washington, DC6.00 – 8.00%

New Jersey7.00 - 7.50%Chicago

7.00-8.00%

Los Angeles4.00-7.00%

Seattle5.50-6.25%

Boston6.00-7.00%

Dallas5.50-7.50%

Silicon Valley5.00 – 6.00%

Atlanta6.00-7.00%

Miami5.75 – 7.00%

Denver6.00-8.00%

San Diego5.50-6.50%

Philadelphia6.00 – 7.00%

Tampa6.25-7.50%

Charlotte6.75 – 8.00%

Raleigh7.00 – 8.00%

Orlando6.25-7.50%

Minneapolis7.00-8.00%

Austin5.00 – 6.00%

Phoenix5.00-7.00%

4.00 – 5.00%5.00 – 6.00%6.00 – 7.00%7.00 – 8.00%8.00 - 9.00%

Cincinnati8.50 – 9.00%

Columbus8.00 – 9.00%

Detroit8.00 – 9.00% Pittsburgh

7.50 – 8.50%

9.00% +

East Bay6.00-7.00%

Portland6.50%-7.50%

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

Sacramento 6.75-7.50%

Cleveland8.00 – 9.00%

Indianapolis8.00– 9.00%

Source: JLL Research, September 2015

Looking ahead, 2016 is expected to be another year of big numbers as markets prepare to deliver 48.9 m.s.f. of new supply, putting upward pressure on rental rates while providing large tenants with much needed supply to support expansion. Local markets maintain a favorable outlook for landlords through 2016 and 2017.

COPYRIGHT © JONES LANG LASALLE IP, INC. 2015

Julia GeorgulesDirector – Office Research+1 415 354 [email protected]

Phil RyanResearch Analyst – Office and Economy Research+1 202 719 [email protected]

Sean CoghlanDirector – Investor Research+1 215 988 [email protected]

Rachel JohnsonResearch Analyst – Capital Markets+1 312 228 [email protected]

Real Estate

Office market trends and outlook (Q4 2015)