u.s. office market statistics: q3 2014

Another strong quarter of occupancy growth chips away at vacancy

United States Office Review Q3 2014

For the past three years, tech-and energy-centered markets have dominated expansion activity with those geographies accounting for more than 56 percent of occupancy gains from 2011 through the second quarter, but many other markets are beginning to top those growth numbers. Ninety percent of markets displayed increased occupancy levels compared to year-end 2013 levels and 88 percent of markets posted quarterly occupancy gains for the second quarter in a row.

3

Fundamentals are tightening across markets, particularly absorption and development

Source: JLL Research

Leasing activity• Q3 posted 61.2 million square feet of leasing activity.• Leasing levels down 0.4 percent from Q2 2014.• Compared to Q3 2013, leasing volume is up 6.6 percent.

Absorption• Absorption levels increased, resulting in the 18 th consecutive quarter of occupancy growth.• The 15.9 million square feet of net absorption during Q3 represents the highest quarterly occupancy growth

during this cycle so far.• This quarter’s biggest contributors to absorption were New York, Boston, Dallas, Raleigh-Durham, Houston,

and Chicago.

Vacancy• Vacancy dropped by 40 basis points to a recovery low of 15.9 percent this quarter, and by 90 basis points year-

over-year.• Both CBDs and suburbs played a role in this decline, falling to 12.7 percent and 17.7 percent, respectively.

Rents• Despite improved market conditions, asking rents increased by just 0.1 percent to $30.05 per square foot. This

was mostly the result of blocks of quality Class A space being taken off the market in many markets• In supply-constrained CBDs, rents actually declined by 0.1 percent, whereas strong leasing activity in suburbs

led to a 0.7 percent increase in rents.

Construction• YTD construction starts have totaled almost 34.2 million square feet. This is 53.5 percent higher than total

2013 construction starts.• There are 18 markets with more than 1.0 million square feet under construction, led by Houston with 15.6

million square feet, and total construction volume has increased by 8.0 percent quarter-over-quarter.

4

Leasing activity sentiment across markets was mixed during Q3, with a plurality posting declines in volumes…

2011 2012 2013 20140%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Up Neutral Down


5

…pushing down leasing activity by 0.4 percent to 61.2 million square feet

2007 2008 2009 2010 2011 2012 2013 20140

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

This also represented a 6.6-percent decline year-on-year, although Q3 volumes vary significantly

Q3 2007

Q3 2008

Q3 2009

Q3 2010

Q3 2011

Q3 2012

Q3 2013

Q3 2014

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

67,652,882

60,412,400

58,747,620

73,987,648

65,406,846

58,715,037

65,385,862

61,150,463

Leasing activity (s.f.)


7

Outside of top markets, leasing activity relatively even across geographies, similar to previous quarters

New

York

Chica

goW

ashin

gton

, DC

Bosto

nLo

s Ang

eles

San

Fran

cisco

Dalla

sNe

w Je

rsey

Denv

erOr

ange

Cou

nty

Silic

on V

alley

Atlan

taSa

n Di

ego

Hous

ton

Oakla

nd-E

ast B

ayPh

ilade

lphia

Seat

tlePh

oenix

Tam

paM

innea

polis

San

Fran

cisco

Pen

insula

Baltim

ore

St. L

ouis

Portl

and

Austi

nDe

troit

Ralei

gh-D

urha

mPi

ttsbu

rgh

Char

lotte

Miam

iSa

cram

ento

Milw

auke

eSa

lt Lak

e Ci

tyFo

rt La

uder

dale

Cinc

innat

iCl

evela

ndOr

lando

Wes

t Palm

Bea

chJa

ckso

nville

Colum

bus

Wes

tches

ter C

ount

yFa

irfiel

d Co

unty

India

napo

lisLo

ng Is

land

San

Anto

nioHa

mpt

on R

oads

Rich

mon

d0

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

Leas

ing

activ

ity (s

.f.)


37.7% 18.4% 43.9%

8

After a recovery high in Q2, Q3 demonstrated even more gains in occupancy, with 15.7 million square feet of net absorption

2008 2009 2010 2011 2012 2013 2014-1.0%

-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

9

As a result, YTD absorption now trails year-end 2013 totals by only 10 basis points, a further sign of a broadening recovery

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

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

YTD

net a

bsor

ptio

n (a

s %

of i

nven

tory

)


15-year trailingannual average

10

While Class A space continues to drive absorption, Class B take-up is growing as quality space options are becoming scarce

2010 2011 2012 2013 2014-10,000,000

-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000 Class A (CBD) Class A (suburban)Class B (CBD) Class B (suburban)Class C (CBD) Class C (suburban)

Qua

rterly

net

abs

orpt

ion

(s.f.

)


11

Only seven markets have experienced a net loss of occupancy YTD, of which four are greater than -100,000 square feet

New

York

Hous

ton

Bosto

nAt

lanta

Silic

on V

alley

Chica

goDa

llas

Phoe

nixLo

s Ang

eles

Seat

tle-B

ellev

ueRa

leigh

-Dur

ham

San

Fran

cisco

Denv

erCh

arlot

tePo

rtlan

dPh

ilade

lphia

Detro

itBa

ltimor

eOr

ange

Cou

nty

Miam

iKa

nsas

City

San

Fran

cisco

Pen

insula

San

Dieg

oM

innea

polis

Fa

irfiel

d Co

unty,

CT

Wes

t Palm

Bea

chSa

lt Lak

e Ci

tyFo

rt La

uder

dale

Austi

nM

ilwau

kee

Colum

bus

Sacr

amen

toTa

mpa

Bay

Cinc

innat

iSt

. Lou

isIn

diana

polis

Oakla

nd-E

ast B

ayPi

ttsbu

rgh

Sa

n An

tonio

Ham

pton

Roa

dsCl

evela

ndOr

lando

Jack

sonv

illeLo

ng Is

land

Rich

mon

dNe

w Je

rsey

Wes

tches

ter C

ount

y, NY

Was

hingt

on, D

C

-3,000,000

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

YTD

net a

bsor

ptio

n (s

.f.)


YTD net occupancy losses amount to

2.1 million square feetin Washington, DC

12

The rise of the Sunbelt: Los Angeles, South Florida, Phoenix and Atlanta bring Sunbelt share of absorption to near-tech levels


NYC and DC (*excludes Midtown South)

Tech markets (*includes Midtown South)

Energy markets

Sunbelt

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

8.7%

26.6%

15.9%22.2%

26.6%

2014

13

Energy, tech and Sunbelt markets all posting above-average absorption; Sunbelt surpassing energy in some cases

Dallas

Denve

r

Housto

n

Portlan

d

San Fran

cisco

Seattle

SF Penins

ula

Silicon

Valley

Atlanta

Miami

Phoen

ix

Raleigh

-Durham

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1.1% 1.1%

2.0%

1.5% 1.6% 1.6%

2.3%

2.9%

1.5%

2.0% 2.1%

3.1%

YTD

net a

bsor

ptio

n (s

.f.)


Energy Tech Sunbelt

U.S. average

14

NYC’s 3.8 million square feet of absorption in Q3 helps to boost East Coast’s share yet again

2010 2011 2012 2013 20140%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

East Coast Central West Coast

Shar

e of

qua

rterly

net

abs

orpt

ion


15

Even though Atlanta and South Florida are nearing 2013 absorption levels already, rest of the East Coast is catching up


2010 2011 2012 2013 2014-10,000,000

-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000 Atlanta South Florida Rest of the East Coast

Net a

bsor

ptio

n (s

.f.)

16

2010 2011 2012 2013 2014-3,000,000

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000Atlanta Chicago Los Angeles Miami Philadelphia Phoenix

Net a

bsor

ptio

n (s

.f.)

Diversified markets hit another recovery high with 3.2 million square feet of occupancy gains this quarter, led by Chicago


Atlanta and Phoenix have absorbed a combined 13.9 million square feet since 2010, or 65.1 percent of cumulative total.

17

Quarterly Class B absorption over the past four quarters is taking place 3.4x faster than from 2010 to Q3 2013…


2010-Q3 2013 Past four quarters0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

14,049,878

12,688,994

Clas

s B

net a

bsor

ptio

n (s

.f.)

936,658 s.f. per quarter 3,172,248 s.f. per quarter

18

…although 4.8x as much Trophy and Class A space has been absorbed than Class B and C space during the same time period


Trophy and Class A net absorption

129.0m.s.f.

2010-2014

Class B and C net absorption

26.7m.s.f.

2011-2014

19

Lack of available Class A space is pushing down its share of quarterly absorption

2011 2012 2013 20140.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

350.0%

133.5%

93.9%74.5% 76.3%

295.2%

98.5%82.0% 78.3%

45.2%

73.4%63.5%

80.9%

57.3%

82.3%66.9%

Clas

s A

shar

e of

qua

rterly

abs

orpt

ion


20

CBD absorption remains somewhat volatile; after Class A being responsible for all gains in Q2, now only two-thirds in Q3

2011 2012 2013 20140.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%166.2%

90.4% 88.8%80.8%

100.0%106.1%

74.8%

0.0%

88.1% 86.5%

49.6%

92.0%

48.8%

100.9%

66.4%

Clas

s A

shar

e of

qua

rterly

abs

orpt

ion


21

Absorption in Class A space maintains largest share, with CBDs and suburbs nearly evenly split

2011 2012 2013 20140.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

116.9%

97.9%

62.3%

75.1%

167.8%

102.5%

84.3% 85.3%

43.2%

73.4% 72.8% 70.3%61.1%

67.6% 67.4% 66.8%

Clas

s A

shar

e of

qua

rterly

abs

orpt

ion


22

But demand for creative office space is strengthening Class B in many submarkets across the United States

San Francisco (SOMA)

Philadelphia (The Navy Yard)

Boston (East Cambridge)

Chicago (River West)

Portland (Lloyd District)

New York (Penn Plaza/

Garment)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%7.3%

5.9%5.6%

4.7%

3.3%

2.6%

YTD

CBD

Clas

s B

net a

bsor

ptio

n (%

of i

nven

tory

)


U.S. average

23

Still, Class A continues to trump Class B according to most indicators


70.5%of absorbed space in 2014

has been Class A

$10.67per square foot difference

between Class A and B space…

44.0%premium charged for Class A space

versus Class B

-220bpdifference between Class A and

Class B total vacancy

24

The steep decline in vacancy this year, currently at 15.9 percent, is the result of nearly 40 million square feet of absorption

2009 2010 2011 2012 2013 201414.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

Tota

l vac

ancy

(%)


25

Vacancy is now closer to its previous low point, rather than the high

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20140.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Tota

l vac

ancy

(%)


26

Total vacancy declining overall, but all segments of the CBD are outperforming the suburbs, lower by 480 basis points

2010 2011 2012 2013 201410.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0% Class A (CBD) Class A (suburban)Class B (CBD) Class B (suburban)Class C (CBD) Class C (suburban)

Tota

l vac

ancy

(%)


27

Industry Real estate footprint Most affected markets

State government Contracting California, Illinois, New JerseyFederal government Contracting Washington, DCMedia/print Contracting LA, NYCFinance/banking Contracting NYC, Charlotte, Chicago, Palm Beach, PittsburghLaw firms Contracting (rightsizing) Washington, DC, NYC, SF, Atlanta, LAConsulting Contracting (rightsizing) NYC, Chicago, Washington, DCAccounting Contracting (rightsizing) Chicago, NYC, LATelecom Stable NJ, Dallas, AtlantaRetail/consumer goods Stable NYC, Atlanta, Los AngelesEducation Growing EverywhereMedia (digital and TV) Growing Atlanta, NYC, LA, Philadelphia, Washington, DCGreen energy/clean technology Growing Pittsburgh, Silicon Valley, Denver

Real estate (residential) Growing Southern CA, Nevada, AZ, FL, GA, Carolinas

Technology Growing Silicon Valley, San Francisco, Austin, Seattle, Portland, Midtown South NYC, Cambridge, MA

Shared office space providers / co-working spaces Growing All markets particularly coastal markets and Chicago

Natural gas/oil/energy Growing Denver, Houston, Dallas, PittsburghBiotech/pharmaceutical Growing San Francisco, San Diego, NJ/Phil, Boston, RDU

Office growth being driven by atypical tenant industries


28

Demographics and technology are driving productivity and utilization and the next evolution of office space use


15%space reduction by U.S. law firms and financial services

relocating

72%of global CREs plan

to aggressively increase density in

next 3 years

150Square-foot-per-

employee average target density, down

from 225 in 2009

50% of the U.S.

workforce was baby boomers in 2010. Gen Y will be 50% by 2020

29

Many of these changes show stark pre- and post-recession contrasts


Floor plates

Floor plates are up from 25,000 square feet before the recession to 60,000 square feet.

Personal space

Before the recession, employees had around 300 s.f. per person; now they have 200 s.f.

Interaction

Employees have gone from rarely running into others to a nine-in-ten chance of bumping into a coworker.

Building features

Aesthetic and building features such as increased roof heights and floor-to-ceiling windows are “in.”

30

And, as a result, law firms are shifting


15.2%Giveback by law firm across the U.S. when

relocating

20.5%Giveback by law firm

across the top seven U.S. markets when relocating

24.7%Giveback by law firm

across DC when relocating

• Going digital• Elimination of law libraries• One-sized fits all office• Higher administrative ratios

• Migration to glass boxes• Migration to long and lean• Migration to smaller floorplates

31

Consulting and accounting are shifting


25.0%Giveback by consulting

firms across the U.S.when relocating

225 s.f.Average space per

consultant inyears past

90 s.f.Average space per

consultant in the most efficient firms today

• Benching• Work flexibly and client officing• Offices gone, collaboration rooms in

• Increasingly looking at new construction to meet efficiency standards

• Industry giving back most space

32

Technology companies are shifting


22.0%Percent increase in

high-tech service jobssince 2009

13.6%Total vacancy in core tech markets, compared to 16.3

percent nation-wide

2.2%Growth in

core tech marketrents in 2014

• Benching is standard• Less personal space, more shared

and amenity space• “Open hangar” design preferred

• Migration to Class B+ with character

• Space viewed as core to culture• Remote work is waning

33

Banks are shifting


10.1%Give-back by average bank

across the U.S. when renewing (flat headcount)

86.0%Percent of banking transactions that nolonger need a teller

66.0%Percent of surveyed banks planning to

reduce CRE footprint

• Regulation and cost pressures forcing portfolio consolidation

• Offices shrinking• Business units competing

• Branch reductions common• Increasing importance of back

office (second- and third-tier markets)

• Remote working increasing

34

Even the federal government is shifting


170 s.f.Target utilization rate per

employee for federally leased space

$1.7 billionAmount spent annually

by the GSA for propertiesdeemed underutilized

15.9%Average give-back by GSA across Metro DC

in FY 2013

• Telecommuting• Benching• Co-locations• Minimal funds to implement

• Consolidations in low cost buildings/submarkets

• Migration to off-center locations• Disposition of underutilized

assets.

35

As office-using employment increases by 212,000 net new jobs, vacancy declines to 15.9 percent

2011 2012 2013 201426,000

26,500

27,000

27,500

28,000

28,500

29,000

29,500

30,000

30,500

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

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

Offi

ce-u

sing

em

ploy

men

t (th

ousa

nds)

Tota

l vac

ancy

(%)


36

CBD vacancy nearing historic low, while suburban vacancy still rather elevated

CBD (hist

oric)

Suburb

an (h

istori

c)20

1020

1120

1220

1320

145.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

19.0%

21.0%

23.0%

Tota

l vac

ancy

(%)


37

Following declines in total and direct vacancy, sublease space falls to a low 46.8 million square feet

2009 2010 2011 2012 2013 201430,000,000

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.)


38

Rent growth remains minimal, but is expected to increase upon increasing demand as office-using sectors grow

2008 2009 2010 2011 2012 2013 2014-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Qua

rterly

rent

gro

wth

(%)


39

CBD segments posting negative or nearly flat results, while suburban segments record 2.0 percent or more

2010 2011 2012 2013 2014$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00 Class A (CBD) Class A (suburban)Class B (CBD) Class B (suburban)Class C (CBD) Class C (suburban)

Aver

age

aski

ng re

nts

($ p

.s.f.

)


Peakingphase

Fallingphase

Risingphase

Bottomingphase

Q3 2014 U.S. overall office clock

Fort Lauderdale, Kansas City, Orange County,Salt Lake City, Tampa

Houston, San Francisco,San Francisco Peninsula, Silicon Valley

Austin, Pittsburgh, Seattle-Bellevue

Baltimore, Hampton Roads, Long Island, Sacramento

Dallas

Atlanta, Fairfield County, Indianapolis,Jacksonville, Phoenix

Charlotte, Detroit, Milwaukee, Oakland-East Bay, Philadelphia, Richmond, San Diego

Chicago, Cincinnati, San Antonio,St. Louis, Westchester County

New York, Portland

New JerseyCleveland, Minneapolis, Raleigh-Durham

Boston, Miami

Denver, Los Angeles, United States

Columbus, Orlando,Washington, DC, West Palm Beach


Peakingphase

Fallingphase

Risingphase

Bottomingphase

Q3 2014 U.S. CBD office clock

Salt Lake City

Austin, Houston

Miami, Portland, San Jose CBD, Seattle CBD

Baltimore, SacramentoDallas, Milwaukee, Orlando

Chicago, Downtown (New York),Indianapolis, Minneapolis, Stamford CBD

Atlanta, Jacksonville, Philadelphia, Tampa

Columbus, San Diego,White Plains CBD

Fort Lauderdale, Greenwich CBD,Midtown (New York)

Midtown South (New York), San Francisco

St. Louis

Boston, Pittsburgh

Charlotte, Cleveland, Detroit, Kansas City,Los Angeles, Oakland CBD, Raleigh-Durham

Phoenix, Richmond, San Antonio,Washington, DC, West Palm Beach

Cincinnati

Denver, United States


Peakingphase

Fallingphase

Risingphase

Bottomingphase

Q3 2014 U.S. suburban office clock

Cambridge, Houston, San Francisco,San Francisco Peninsula

Cleveland, Fairfield County, Jacksonville, Miami, Milwaukee,Seattle-Bellevue, St. Louis, Westchester County

Atlanta, Baltimore, Charlotte, East Bay, Fort Lauderdale,Lehigh Valley, Philadelphia, San Diego

Dallas

Orange County, Richmond, Salt Lake City

Columbus, Northern Delaware

Southern New Jersey

Northern and CentralNew Jersey

Chicago, Cincinnati, Detroit, Minneapolis, Oakland, Raleigh-Durham, Sacramento, San Antonio, Southside (Hampton Roads)

Boston, Phoenix

Pittsburgh

Los Angeles

West Palm Beach

Orlando, Washington, DC

Silicon Valley

Bellevue CBD

Suffolk County (Long Island)

Denver, Indianapolis, Portland, NassauCounty (Long Island), Tampa, United States

Peninsula (Hampton Roads)

Austin, Kansas City


43

After spiking, CBD rents fall due to removals of quality space; suburban rents on the up quarterly and are more stable

2011 2012 2013 2014-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0% CBD rent growth Suburban rent growth

Qua

rterly

rent

gro

wth

(%)


CBD average: 0.9%

Suburban average: 0.2%

44

The consistent decline in CBD space is shrinking the rent gap with the suburbs, falling $0.22 per square foot since last quarter

2010 2011 2012 2013 2014$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

$14.97

45

A similar trend has emerged regarding the Class A premium vs. overall rents, which is down $0.02 per square foot to $4.90 per square foot compared to Q2

2010 2011 2012 2013 2014$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$3.40$3.49 $3.49 $3.53

$3.68

$3.81

$3.97 $3.99

$4.21$4.26

$4.37 $4.38

$4.86

$4.71$4.82

$4.76

$4.97$4.92 $4.90

Clas

s A

prem

ium

($ p

.s.f.

)


46

TI allowances are beginning to elevate due to new construction

2006 2007 2008 2009 2010 2011 2012 2013 20140.0

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

3.5

4.1

5.1

6.1 6.2

5.7

5.15.3

5.7

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

Free

mon

ths

of re

nt

TI a

llowa

nce

($ p

.s.f.

)


47

New supply coming to market is slowly increasing, but still well below historic norms

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

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.

)


Average annual completions

48

The vast majority of new completions are Class A, the majority of which is arriving in suburban markets rather than CBDs

2010 2011 2012 2013 YTD 20140

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000 Class A (CBD) Class A (suburban)

Class B (CBD) Class B (suburban)

Class C (CBD) Class C (suburban)

YTD

com

plet

ions

(s.f.

)


49

Construction volumes jumped 49.4 percent compared to YE 2013, led by Houston

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

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.)


50

The majority of new construction is now in suburbs rather than CBDs, and the share continues to grow thanks to Silicon Valley, Dallas, Austin and Houston, in particular

2010 2011 2012 2013 20140%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CBD Suburbs

Shar

e of

con

stru

ctio

n


51

Year-to-date construction starts are 53.5 percent higher than 2013, a clear sign of improving economies

2010 2011 2012 2013 YTD 20140

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

11,843,789

18,490,24417,558,896

22,251,850

34,154,704

Cons

truct

ion

star

ts (s

.f.)


52

Houston once again leads construction starts with Amazon’s Lake Union campus following

Housto

n

Seattle

-Bellevu

e

Philade

lphia

Milwau

kee

Chicag

oDalla

s

Washin

gton,

DC

Phoen

ixAus

tin

Minnea

polis

Orange

County

Northe

rn Virg

inia

San Anto

nio

Raleigh

-Durham

Boston

Charlo

tte

Portlan

d

San Fran

cisco

Baltim

ore

Cincinn

ati

Denve

r

Kansa

s City

Hampto

n Roa

ds

Fort La

uderd

ale

Orland

o0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Cons

truct

ion

star

ts (s

.f.)


53

Strong preleasing activity is helping new developments go ahead, but is also reducing the ability to ease supply constraints


San Francisco: 62.5%

Washington, DC: 92.6%

New York: 57.9%

Chicago: 58.4%

Atlanta: 63.0%

Houston: 58.8%

Seattle-Bellevue: 44.7%

54


Outlook buoyed by economic headwinds

U.S. GDP levels are forecasted to grow by 3.0 to 3.5 percent in 2015 and 2016, driven by an energized corporate and consumer.

The market will move from an environment that absorbed +/- 0.8 percent to 1.0 percent of inventory levels annually over the past few years to a market that likely hits the 1.2 percent to 1.5 percent levels over the next 24 to 30 months.

Vacancy levels in many CBDs will approach the single-digits over the next two years with overall U.S. levels expected to dip below 15 percent by the early part of 2016.

JLL forecasts over the next 27 months call for rent increases nationally of 13 to 14 percent, driven largely by a new wave of developments delivering, priced at 20.0 to 25.0 percent premiums, which will trickle down to reset market pricing.

The market over the next 36 months will likely shift from an under-supplied market to an over-supplied one by late 2016, with many of the buildings that lead to the environment breaking ground over the next nine months

1.

2.

3.

4.

5.

Although market conditions are still largely in favor of tenants, fundamentals continue to tighten and the decline in quality space is leading to both increased activity in second-tier product as well as new developments across the country. As activity increases, the shifting landscape will provide greater value for owners and investors capitalizing on a recovery that’s finally taking hold beyond gateway markets.

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

John SikaitisManaging Director – Office and Local Markets Research+1 202 719 [email protected]

Julia GeorgulesAssociate Director, Office Research+1 415 354 [email protected]

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

>> Click to access our complete report on the current state of the U.S. office market

http://www.us.jll.com/united-states/en-us/research/5090/US-Office-Outlook-Q3-2014-JLL?utm_source=research&utm_medium=slideshare&utm_campaign=q3%202014%20office%20review

u.s. office market statistics: q3 2014

Real Estate

percent increase

percent higher

percent quarteroverquarter

percent decline year

absorption absorption

jll research q3

strong leasing activity

ytd absorption