United States | Q2 2017 Occupancy growth rebounds as office market ...€¦ · Occupancy growth...

JLL Research

United States | Q2 2017

Office

Occupancy growth rebounds as office market braces for an impending wave of new supply

ContentsKey trends 3

State of the market 4

Office clocks 7

Local markets 10

Atlanta 11

Austin 12

Baltimore 13

Boston 14

Charlotte 15

Chicago 16

Cincinnati 18

Cleveland 19

Columbus 20

Dallas 21

Denver 22

Detroit 23

East Bay 24

Fairfield 25

Fort Lauderdale 26

Hampton Roads 27

Houston 28

Indianapolis 29

Jacksonville 30

Long Island 31

Los Angeles 32

Louisville 33

Marin/Sonoma 34

Miami-Dade 35

Milwaukee 36

Minneapolis–St. Paul 37

Napa/Solano 38

Office Outlook | United States | Q2 2017

Nashville 39

New Jersey 40

New York 41

Northern Virginia 42

Oakland 43

Orange County 44

Orlando 45

Philadelphia 46

Phoenix 48

Pittsburgh 49

Portland 50

Raleigh-Durham 51

Richmond 52

Sacramento 53

Salt Lake 54

San Diego 55

San Francisco 56

San Francisco Mid-Peninsula 57

Seattle-Bellevue 58

Silicon Valley 59

St. Louis 60

Suburban Maryland 61

Tampa Bay 62

Washington, DC 63

West Palm Beach 64

Westchester 65

United States employment 66

United States office statistics 67

Office appendix charts 68

Contacts 71


3key trends

Concession packages are rising as landlords entice tenants to new developments and repositioned assets. Tenant improvement allowances have jumped 10.5% since 2014 as landlords face a more competitive leasing environment. Increased concessions are helping reduce the pain tenants are feeling as a result of rising face rates.

Vacancy rose slightly once again as a result of speculative construction. With 11.7 m.s.f. of new deliveries in Q2, total vacancy rose for the third consecutive quarter to 14.8%. Increases were found across property types and geographies, particularly within the Class B segment, as tenants opted for newer product.

Absorption is up, but will remain subdued over the near term. After a slow Q1, net absorption rose to a healthier 8.4 m.s.f. during Q2. This is still below levels seen in 2014, 2015 and 2016. Growth is expected to remain muted as relocations to new supply and give-backs of second-generation space occur.

New supply is boosting rents even as demand stabilizes


After a slow start to the year, the U.S. office market rebounded during the second quarter on the back of sustained tenant demand, consistent economic fundamentals and a raft of new supply coming to the market. Net absorption over the quarter totaled 8.8 million square feet, bringing year-to-date occupancy growth to 9.9 million square feet, healthy but below the previous levels of growth seen in 2014, 2015 and 2016. At the same time, an additional 11.7 million square feet of completions, coupled with relocations and give-backs representing rightsizing from traditional users, helped to push vacancy up by a 10 basis points to 14.8 percent, marking the third consecutive quarter of vacancy increase. These high-quality blocks and the premium compared to existing space that they can attain have placed significant upward pressure on average asking rents, which have risen by 3.2 percent over the year and by 4.9 percent for CBD Class A space. Moving into the second half of 2017 and into 2018, the wave of new supply to deliver over the next six quarters will markedly alter the office landscape, increasing competition among landlords for tenants and stabilizing rents in the process.

Leasing activity saw a modest bump of 5.2 percent over the quarter, reaching 56.6 million square feet with a diverse set of geographic and industry contributors. Although tech remained the largest industry by volume, its share of transactions (17.4 percent) fell below previous quarters as

hiring constraints, uncertainty over immigration and visa policies and widespread merger and acquisition activity throughout the sector limited its dominance during the second quarter. A bevy of large leases from financial firms, including Bank of America’s anchor lease at the proposed 110 N Wacker Drive in Chicago as well as 3.2 million square feet in large (100,000+ s.f.) leasing activity from financial tenants over the past three months pointed to strength in an industry that is heavily exposed to rightsizing and automation. As a whole, leasing transactions remain highly expansionary: 45.7 percent of all leases during the second quarter represented growth, while only 9.8 percent were contractionary.

5.2%

7.2%

21.2%

28.4%

30.1%

38.5%

42.9%

45.9%

49.6%

56.6%

61.2%

65.8%

74.2%82.0%

64.1%

54.0%

78.8%

71.6%

69.9%

52.0%

53.1%

47.4%

50.4%

43.4%

38.8%

34.2%

22.1%17.3%

30.7%

38.8%

9.5%

4.0%

6.7%

3.7%

Government

Law firms

Energy and utilities

Accounting and consulting

Education

Insurance

Finance

Nonprofits and associations

Media and entertainment

Life sciences

Coworking

Healthcare

Advertising and marketing

Technology

Share of quarterly leasing activity (%)Growing Stable ShrinkingSource: JLL Research

In terms of expansion, however, tech still outperforms all other major industries

Source: JLL Research

Seattle-Bellevue and Dallas remain the primary drivers of absorption, accounting for 55.4 percent of growth

Seattle-BellevueDallasPhoenixAustinRaleigh-DurhamNew YorkOakland-East BayDenverCharlotte

YTD net absorption (s.f.)

Seattle-Bellevue 2,860,841

Dallas 2,604,812

Phoenix 1,522,142

Austin 743,118

Raleigh-Durham 720,885

New York 569,502

Oakland-East Bay 547,982

Denver 523,791

Charlotte 476,135

Philadelphia 448,277

All other markets 0

United States 9,869,667


Despite a return to healthier levels during the second quarter, net absorption has become increasingly unstable at the market level. Of the nearly 9.9 million square feet of occupancy growth posted so far this year, 55.4 percent has come from two markets – Seattle-Bellevue and Dallas – powered by organic tech and corporate expansion that continues apace in business clusters such as Lake Union and Far North Dallas. Secondary markets such as Austin, Raleigh-Durham, Oakland-East Bay, Denver and Charlotte have also made further strides this year, representing an additional 4.5 million square feet since January. Notably, absorption continues in these metro areas despite significant tightening and rent growth as their talent pools and relative cost advantages compared to gateway markets make them attractive for occupiers in knowledge-intensive and creative industries.In contrast, year-to-date absorption has been negative in certain key markets, including Silicon Valley (-740,869 square feet), San Francisco (-254,865 square feet) and Nashville (-159,650 square feet), all of which previously led much of the recovery and were consistently among the strongest contributors to national net absorption. Flatlining of occupancy, however, is characteristic of their position in the rent cycle, which is marked by increasing amounts of new supply and greater relocation activity. While supply-and-demand dynamics will lead to slowly rising vacancy and concession packages from landlords to attract tenants, we expect continued activity: in San Francisco and Silicon Valley, high-profile tech tenants including Salesforce and Bosch took on large blocks during the second quarter, while healthcare tenants such as Blue Cross Blue Shield and Vanderbilt University remain active in Nashville. As 78.2 percent of leasing in these markets was expansionary over the past three

months, occupancy will likely stay stable even as inventory and options increase.

For the third consecutive quarter, total vacancy increased, registering a 10-basis-point rise to 14.8 percent. Vacancy has increased in nearly all asset classes over the quarter, with suburban Class A seeing the highest jump of 30 basis points. Over the year, Class A space has been responsible for all net growth in vacancy as new supply comes to the market and cost-conscious tenants continue to take on space in Class B assets as rent growth for quality space has placed it increasingly out of reach for many occupiers. Since Q2 2016, CBD and suburban Class A vacancy is up 50 and 60 basis points, respectively, while Class B vacancy in CBD and suburban locations posted no change at 12.3 and 16.7 percent.The surge of groundbreakings that began in 2014 and 2015 is now beginning to provide some relief in a

number of in-demand submarkets, which will help to spur further activity that was hindered due to a lack of options and cost concerns. This has been particularly noticeable in tech hubs: Sunnyvale in Silicon Valley, for instance, has seen vacancy rise from 8.9 to 14.0 percent, while Los Angeles’ Playa Vista posted a 530-basis-point jump in vacancy over the year. As technology companies expand at a more restrained pace compared to previous years, landlords will place greater emphasis on concession packages, quality build-outs and other incentives to entice tenants, in turn shifting leverage in once heavily landlord-favorable clusters to more neutral and balanced conditions.


New supply responsible for vacancy increases in Class A space compared to no change elsewhere

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Q2 2016

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Even with muted occupancy growth, CBD A rents continue to break away at 35% growth since 2010

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2010

2011

2012

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0 (%

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+35.7%CBD Class A

+19.7%Suburban

Class A

+12.7%Suburban

Class B

+15.6%CBD Class B

Rent growth since Q1 2010


In contrast to more subdued net absorption and a turnaround in vacancy, average asking rents continue to rise with little in the way of slowing down. Compared to Q1, rents have climbed by a healthy 0.8 percent and are up 3.2 percent of the year; for Class A space, this figure rises to 3.7 percent, driven largely by top-of-market asking rents at newly delivered buildings. Divergence remains between urban and suburban geographies, with CBDs commanding a 63.2-percent rent premium compared to the suburbs. Since the beginning of the expansion, CBD Class A rents in particular have far outperformed the rest of the office market, growing by more than 35 percent and growing at similar rates to 2014 and 2015, when CBDs were characterized by severe undersupply. In tandem with rising rents, concession packages have trended upward, with tenant improvement allowances increasing 10.5 percent since 2014. Growing free rent periods are also helping reduce the pain tenants are feeling as a result of rising face rates.

This sustained rise in asking rents is largely the result of the wave of completions that started in late 2016. New construction rents average $46.55 per square foot compared to $38.93 per square foot for existing Class A space; new, available blocks have and will in greater amounts place upward pressure on asking rents even as vacancy increases incrementally. As we expect an additional 38.3 million square feet to hit the market through year-end 2017 and 46.6 million square feet in 2018, rising average asking rents will become increasingly common before the corrections and equilibrium are reached later in the cycle.

With the national office market solidly far along in the expansionary cycle, construction is at near-cyclical highs and present in nearly all markets. Development is well balanced between urban and suburban locations, the latter of which is largely concentrated in more amenitizedmicromoarkets and industry clusters. Continuing from the previous quarter, groundbreakings fell below the levels seen in recent years as developers carefully monitor conditions to avoid oversupply, reaching only 10.9 million square feet in the second quarter. Year-to-date starts of 20.4 million square feet are down by roughly one-third compared to the first half of 2015 and major potential groundbreakings are limited in the near-term pipeline. In turn, active construction volumes have demonstrated little change, currently standing at 108.8 million square feet, a figure that will gradually decrease as the rate of deliveries ramps up in the coming quarters.

Looking ahead to the second half of 2017 and into 2018 and 2019, the office market will move further into a period of slower but still positive growth, characterized by greater intra-market movement from tenants and increasing activity at both the top-tier and in value-oriented product, hollowing out performance in second-generation Class A space. In combination with 84.9 million square feet of deliveries expected over the next six quarters, 49.6 percent of which is currently available, dynamics will change markedly in terms of landlord/tenant leverage, paving the way for a more balanced and competitive marketplace.


Construction starts fall below the long-term average for the second consecutive quarter

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2013 2014 2015 2016 2017

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Office clocks

Asking rents continued their sustained growth throughout the second quarter, rising by 0.8 percent on a quarterly basis and by 3.2 percent over the year. Growth remains steady due to a combination of top-tier blocks of new supply delivering at a significant rent premium compared to existing space as well as tightening in value-oriented properties. In turn, most markets are progressing through the rent cycle accordingly, with most in or near the peaking phase, indicating a viable environment for speculative construction to alleviate supply in constraints. In key gateway markets, notably Washington, DC, New York, San Francisco and Chicago, the increasing rate of current and anticipated completions over the next 12 to 24 months will

result in further changes to the supply-and-demand dynamic, boosting both rents and vacancy before reaching equilibrium. At the same time, many secondary markets, particularly those in the Sun Belt such as Austin, Charlotte, Nashville and Raleigh, continue to experience strong rent growth due to organic tightening, a lack of supply and inward migration of tenants and residents from higher-cost geographies. Heading into the second half of 2017 and into 2018, we expect rents to continue their rise on the back of deliveries and economic growth, with corresponding increases in vacancy to bring the market into more neutral conditions.

Office clock



Peakingphase

Fallingphase

Risingphase

Bottomingphase

Washington, DCDenver, New York

Atlanta, Chicago, Dallas, Nashville

San Francisco Peninsula, Silicon ValleySan Francisco

Austin, Boston, Salt Lake City

Los Angeles

Portland, Seattle-Bellevue

Minneapolis, Raleigh-Durham

Oakland-East BayMiami, Phoenix

Fort Worth, Philadelphia, San Diego, Suburban Maryland

Charlotte, Orange County, Tampa

Baltimore, Fort Lauderdale, Northern Virginia,Orlando, Pittsburgh, Sacramento

Cleveland, Jacksonville, Milwaukee, RichmondCincinnati, Detroit, Hampton Roads, North Bay, St. Louis

Columbus, Indianapolis

Louisville, San AntonioFairfield County, Hartford, Long Island, West Palm Beach

New Jersey, Westchester County

Houston


Office clock (CBD)

Office clock (Suburbs)

Peakingphase

Fallingphase

Risingphase

Bottomingphase

Washington, DCChicago, Denver, New York

Atlanta, Boston, Philadelphia, Silicon Valley

Los AngelesAustin, Nashville, San Francisco

Dallas, Salt Lake City, Seattle

Charlotte, Pittsburgh, Portland

Minneapolis, TampaRaleigh-Durham

Oakland-East BayMilwaukee

Fort Lauderdale, Fort Worth, Indianapolis

Miami

Sacramento

ClevelandCincinnati, Detroit

Columbus, Orlando, Phoenix, San Diego

Baltimore, Louisville, St. Louis, West Palm BeachGreenwich, Hartford, Jacksonville, Richmond, San Antonio, Stamford

Westchester County

Houston

Peakingphase

Fallingphase

Risingphase

Bottomingphase

Denver

Cambridge

San Francisco Peninsula, Silicon ValleyDallas

Salt Lake City

Austin

Los Angeles, Raleigh-Durham

Oakland-East BayCharlotte, Portland, San Diego, Tampa

Baltimore, Boston, Chicago, Fort Worth, Suburban Maryland

Orange County, Phoenix, Seattle-Bellevue

Indianapolis, Jacksonville, Northern Virginia, Sacramento

ClevelandCincinnati, Detroit, Hampton Roads, North Bay, Orlando

Columbus, Miami, Minneapolis, Richmond, St. Louis

Fort Lauderdale, Louisville, Milwaukee, Pittsburgh, San AntonioFairfield County, Hartford, Long Island

New Jersey, West Palm Beach, Westchester County

Houston

Atlanta, Nashville

Philadephia

10

Local markets

Atlanta

Fundamentals Forecast

YTD net absorption -293,663 s.f. ▲Under construction 4,076,418 s.f. ▼Total vacancy 17.5% ▶Average asking rent (gross) $24.46 p.s.f. ▲Concessions Steady ▶

(1,000,000)

-

1,000,000

2,000,000

3,000,000

2013 2014 2015 2016 YTD

2017

Supply and demand (s.f.)Net absorption

Deliveries

Atlanta market continues march higher, as absorption rebounds

20.2% 20.0%

18.5%

17.1% 17.5%

2013 2014 2015 2016 2017

Total vacancy

$10

$15

$20

$25

$30

$35

2013 2014 2015 2016 2017

Average asking rents ($/s.f.) Class AClass B

For more information, contact: Craig Van Pelt | [email protected]

Net absorption gained 243,362 square feet during the second quarter, clawing back nearly half of the negative absorption of the first quarter. The Atlanta metro will need another strong quarter to get out of the red this year. Despite this setback, Atlanta market fundamentals remain strong with steady leasing activity through the first half of the year. It appears that the negative absorption in the first quarter was more of an abnormality than a trend at this point in the cycle.

Once again, the urban submarkets are pushing the market higher. Average Class A direct asking rents passed the $30 per square foot mark for the first time. The spread between urban Class A and suburban Class A rates continues to widen. Two years ago, the spread was $1.25 per square foot. Today, that spread stands at $4.41 per square foot. This trend has been helped by the Downtown submarket that has seen Class A rents increase nearly 33 percent during that same time frame. The continued urbanization and revitalization of the urban core has driven employers to choose submarkets that provide the amenities that employees desire and the Atlanta CBD is playing a more vital role in the attraction and retention of talent.

OutlookWith the delivery of Three Alliance and 8000 Avalon during this quarter, a total of 1.14 million square feet of office space has now entered the market this year. These new deliveries are 28 percent leased. How these properties respond in the next several quarters will be a good barometer for the appetite of new construction and the correspondingly higher asking rates. Analysts will also be closely watching the pre-leasing activity of the 1.95 million square feet of spec office space currently under construction.

• Led by Class A properties, absorption recovered in the second quarter after a first quarter dip.

• Urban direct asking rents for Class A properties pushed past $30 per square foot for the first time.

• New construction deliveries for the year exceeded one million square feet, but relief to tenants is limited.


Austin

Uber and Lyft made their triumphant return, a major acquisition of Austin-based Whole Foods was announced and the city approved its first economic incentive agreement in years for Merck to build an IT facility. All in all, Austin had a good second quarter and it doesn’t stop at the news headlines. More than 275,000 square feet delivered this quarter, all of which are on the south side of the market. These buildings are Yeti’s build to suit project Lantana Ridge I & II (175,000 s.f. – Southwest), Galleria Oaks II (74,532 s.f. – Southwest) and 2301 E Riverside (29,205 s.f. – Southeast). There is still almost 1.9 million square feet under construction around the market, 32 percent of which has already been pre-leased.

Tenants in the market are still extremely active, with more than 12 million square feet of active requirements throughout the city. While a majority of this demand continues to focus on the CBD, Northwest and Southwest submarkets, many tenants have set their sights on smaller, secondary submarkets such as the East, South and North. These submarkets offer discounted asking rates and less competition for space while still being within close proximity to the urban core. Technology-related tenants are the most active, accounting for nearly one third of all active tenants in the market.

OutlookConstruction activity slowed slightly this quarter following a robust start during the first few months, but things are projected to pick back up during the second half of the year. There is nearly 1.5 million square feet between 10 projects that is planned to break ground by year end while more than 1.1 million square feet is projected to deliver throughout the remainder of this year. Though overall vacancy has increased since 2016, nearly 1 million square feet of pre-leased new construction is expected to be absorbed over the course of the next few quarters. This paired with high demand from tenants should keep the overall vacancy rate stable for the foreseeable future.


YTD net absorption 743,118 s.f. ▲Under construction 1,892,932 s.f. ▲Total vacancy 11.6% ▶Average asking rent (gross) $37.34 p.s.f. ▲Concessions Decreasing ▼

0

1,000,000

2,000,000

2013 2014 2015 2016 2017

Supply and demand (s.f.) Net absorptionDeliveries

Technology users continue to drive demand

12 Month Forecast

14.2%12.7% 12.0%

10.3%11.6%

2013 2014 2015 2016 Q2 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 Q2 2017


For more information, contact: Emily Hunt | [email protected]

• Austin has added over 1.2 million square feet of new office product so far this year, 77 percent of which was pre-leased upon completion

• Large available blocks tick up in the CBD and Southwest submarkets• 60 percent of all tenants actively seeking space in the Austin market are

targeting the CBD, Northwest and Southwest submarkets


Baltimore

Through the first half of 2017, occupancy growth continued to plod along at a sluggish rate, while leasing activity for deals larger than 10,000 square feet declined by 14.4 percent compared to 2016. New supply year-to-date, totaling nearly 700,000 square feet, has been anchored by relocating tenants within the market, leaving the suburban Class B market with 186,342 square feet of negative net absorption. In Baltimore City, the CBD posted its highest quarterly net absorption figure since Pandora’s move from Columbia in Q1 2015. RK&K’s relocation from multiple locations, including owned space in Midtown, into 116,659 square feet at 700 E Pratt Street drove 91,066 square feet of net absorption for the CBD in the quarter. Market dynamics continued to vary widely across both urban and suburban Baltimore, with Class A product located in close proximity to a strong amenity base outperforming Class B by a widening margin in both occupancy and rental rate growth.

Leasing during the quarter focused on Baltimore City and County, while activity in the southern suburbs of Howard and Anne Arundel County was driven primarily by deals under 10,000 square feet. PricewaterhouseCoopers expanded into 38,000 square feet at 100 E Pratt Street, and McGuire Woods was the latest tenant to migrate to Pratt Street as the law firm relocated from 7 St. Paul Street to 20,972 square feet at 500 E Pratt Street. In Owings Mills, EBI expanded within the market to 29,750 square feet at 700 Red Brook Boulevard.

OutlookFollowing the delivery of new supply, Class A rental rate growth will likely continue to moderate in coming quarters as the market absorbs the new space. While dynamics pockets of amenity-rich Class A product trend increasingly in favor of landlords, lower segments of the market and Class B product will continue to experience tenant-favorable conditions.


YTD net absorption 222,024 s.f. ▲Under construction 1,126,803 s.f. ▶Total vacancy 13.6% ▶Average asking rent (gross) $24.00 p.s.f. ▲Concessions Stable ▶

0

500,000

1,000,000

1,500,000

2013 2014 2015 2016 YTD

2017


Leasing and absorption sluggish across Baltimore in first half of year

14.9%

13.5%12.8%

13.2%13.6%

2013 2014 2015 2016 2017

Total vacancy

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Patrick Latimer | [email protected]

• New deliveries have outpaced annual net absorption by a three-to-one margin, pushing vacancy upward for the third consecutive quarter.

• Annual Class A rent growth has slowed, rising by 3.8 percent year-over-year in the second quarter. Class B rates declined by 2.1 percent.

• Renewals helped to drive leasing volume up compared to the beginning of the year, but still fell short of 2016 activity.


Boston

Across Boston’s submarkets fundamentals remain strong fueled by demand from Boston’s diverse tenant base. Technology firms continue to be the strongest driver, accounting for 25.0 percent of leasing activity this quarter, but Boston’s CBD also saw an uptick in demand from more traditional industries such as law firms. And it was Boston’s CBD that led leasing activity, accounting for seven of the top 10 deals signed, including Reebok's headquarter relocation to the Innovation & Design Building on the edge of the Seaport. In fact, nearly half of this quarter’s large leases were in Boston’s CBD, reflecting the continued migration of tenants to Boston’s urban core.

However, the overall Class A market has been relatively flat for the last two years; vacancy rates have held steady and rents have merely inched up since early 2015. Concessions—free rent and tenant improvement allowances—are on the rise as owners of older inventory compete for tenants. One positive outcome of this competitive market is that owners continue to upgrade older buildings, investing millions of dollars in improvement in the last few years.

OutlookThe Greater Boston office market is moving further along a steadfast course. With limited 2017 deliveries and tenant demand continuing on a steady pace, there will be a supply/demand imbalance for the near-term. Urban locations such as high-demand East Cambridge and transit-heavy Downtown will thrive while new residential and retail developments will further increase the Seaport’s attraction. However, suburban markets remain relevant as recent highly-amenitized deliveries have redefined many of the Class A suburban markets. Overall, rent growth in 2017 will be more gradual than 2016 but it will likely remain positive and continue to attract investors and tenants alike.


YTD net absorption 682,081 s.f. ▲Under construction 3,519,403 s.f. ▲Total vacancy 13.3% ▶Average asking rent (gross) $36.52 p.s.f. ▶Concessions Rising ▲

Gradual gains in rents reflect solid tenant demand

For more information, contact: Lisa Strope | [email protected]

• Greater Boston is hovering near historic low vacancy with the tightest submarkets ranging from 6.2% in Cambridge to 9.3% in Boston’s CBD.

• Rent growth has been on a slow, but steady climb growing 2.8% since the start of the year and 4.0% year-over-year.

• 2017 will record a slower pace of new construction and is expected to deliver only 1.2 m.s.f., less than one-third of 2016. 2018 will see that number tick up again and new deliveries should reach near 2.0 m.s.f.

$20.00

$40.00

2013 2014 2015 2016 2017


15.8% 15.4%

14.1%

13.5% 13.3%

2013 2014 2015 2016 2017

Total vacancy

-2,000,000

0

2,000,000

4,000,000

2013 2014 2015 2016 YTD

2017



Charlotte

Leasing activity continues to thrive in the urban submarkets of Charlotte as both Midtown/South End and Uptown posted 410,224 square feet of positive net absorption for the second quarter of 2017. US Bank expanded their Uptown footprint, taking the entire fourth floor of 201 South Tryon Street, for a total of 24,124 square feet. US Bank’s continued growth in Charlotte is evident as their headcount has reached 650 employees, up from 400 a year ago.

The market has seen just under 1 million square feet deliver in 2017, a number of groundbreakings has kept the development pipeline healthy as 2.2 million square feet is currently under construction. With a number of proposed projects set to break ground, we don’t expect any lull in development activity moving forward.

An emerging trend to keep an eye on is premier suburban submarkets Class A rental rates rivaling those of the urban submarkets, specifically Southpark. Southpark’s Class A average asking rate sits at $30.57 per square foot for the second quarter of 2017. Comparatively, Uptown’s Class A asking rate came in at $31.98 per square foot.

OutlookThe continued growth of micro market South End from a population and inventory standpoint is expected to continue as 4,509 apartments are under construction or in the planning stage. Historic South End was recently dubbed the nation’s #1 busiest submarket for construction by RealPage. A number of creative office projects are set to break ground in the third quarter of 2017 in the millennial-friendly area of Midtown. With a reputation as the multi-family mecca of the Southeast, South End’s office sector is beginning to take off due to the area’s retail, transportation and apartment boom as of late.


YTD net absorption 487,070 s.f. ▲Under construction 2,220,970 s.f. ▲Total vacancy 12.3% ▶Average asking rent (gross) $24.74 p.s.f. ▲Concessions Stable ▶

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Development pipeline reloads for both urban and suburban markets

17.0%

13.8% 12.7% 11.5% 12.3%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

2013 2014 2015 2016 2017


For more information, contact: Patrick Byrnes | [email protected]

• Developers take note of low vacancy rates, coupled with high demand, as nearly 1 million square feet has been delivered to the market in 2017.

• Over 50% of the newly delivered product has been preleased by tenants including Babson Capital, Regions Financial and WeWork.

• The capital markets sector remained active as 1.7 million square feet traded hands in the second quarter.


Chicago Downtown

Downtown development is heating up. One of the last buildable riverfront sites along Wacker Drive, 110 N Wacker landed Bank of America as its anchor tenant this quarter. The 50-story Trophy office tower is set to break ground later this year. Two additional Class A office towers are underway in the West Loop, and further south, 601W Companies is leading the massive redevelopment of the Old Post Office. Also nearby, Blackstone’s iconic Willis Tower is undergoing a $500-million dollar renovation. The amenity-packed offering has generated strong tenant interest, as shown in new leases from ESD and National Restaurant Association.

Continue west and the development continues in the hottest submarket, Fulton Market. Following McDonald’s landmark, 600,000-square-foot build-to-suit, Glassdoor, Dyson and Climate Corporation will open offices nearby at Fulton West. Sterling Bay’s latest project at 210 N Carpenter will add 202,500 square feet of creative Class A office by late 2018. And these are just some of the big deals to note.

OutlookThe supply/demand balance is the most important topic to watch in Chicago commercial real estate today. Although developers remain confident, leasing activity has actually slowed and a number of buildings underway have no committed tenants. To date, pre-leasing is at 31.2 percent for developments under construction, a stark contrast to 60.0 percent at year-end 2015. As a result, landlords are becoming less aggressive on term and are more open to multi-tenanting floors versus holding for a single user. While overall market sentiment remains positive, the slowing of pre-leasing activity reflects the beginning of a cooling period as tenants and landlords alike take pause to assess rent growth and how much longer this cycle will last.


YTD net absorption 914,785 s.f. ▲Under construction 4,833,590 s.f. ▼Total vacancy 11.6% ▶Average asking rent (gross) $39.66 p.s.f. ▲Concessions Falling ▼

0

2,000,000

4,000,000

2013 2014 2015 2016 YTD

2017


New construction is on the horizon, but is it too late in the cycle?

15.3%12.8% 12.4%

10.3%11.6%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

2013 2014 2015 2016 2017


For more information, contact: Hailey Harrington| [email protected]

• Cranes are still rising in the CBD, with multifamily and office development booming.

• The tech ecosystem is on track to break Chicago’s venture capital funding record; Outcome Health landed a $500-million investment from Goldman Sachs among others.

• Downtown continues to see an injection of new tenants from the suburbs and several Bay Area tech firms seeking expansion.


Chicago Suburbs

Activity in the suburbs picked up this quarter, due to several large move-ins and significant lease transactions. Large tenant move-ins drove strong positive absorption in Class A product in nearly every submarket. These move-ins include Great American Insurance at 1450 American Lane in the Northwest submarket and Combined Insurance at 8750 W Bryn Mawr in the O’Hare submarket. The suburbs attracted new tenants as well. Caterpillar selected Deerfield as the home of its new headquarters at 510 Lake Cook Road, citing its close proximity to O’Hare International Airport and transit to downtown.

Increased leasing activity pushed rents toward levels not seen since pre-Recession for Class A space. Class A vacancy decreased quarter-over-quarter and is expected to continue this decline as demand persists.

OutlookThe outlook for the last half of the year is net positive, as larger move-ins are scheduled and as mid-sized tenants renewed and expanded space. While Class A absorption drove rental increases this quarter, total vacancy slightly increased. There still remains excess space in the market, as most mid-size tenants are seeking higher quality product. In addition, over 100 tenants are in the market searching for space in the suburbs. Nearly 1.5 million square feet of space is expected to be leased in 2017 alone. The suburbs will continue to attract and retain tenants from a wide range of industries, from healthcare to financial services, yet Class B and C spaces will likely grapple with high vacancies and flat rents.


YTD net absorption -667,437 s.f. ▲Under construction 193,000 s.f. ▼Total vacancy 20.5% ▶Average asking rent (gross) $25.02 p.s.f. ▲Concessions Steady ▶

-1,000,000

0

1,000,000

2013 2014 2015 2016 YTD

2017


Class A product records strong absorption, boosts overall rents

24.3%22.6%

18.5% 19.1%20.5%

10.0%

15.0%

20.0%

25.0%

30.0%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: David Barnett | [email protected]

• Class A absorption reached over 300,000 square feet due to large move-ins, while more are expected in the last half of 2017.

• Suburbs continue to retain local tenants and attract relocating companies seeking high-quality space.

• Rents for Class A product are the highest they have been since pre-Recession, standing at $27.02 per square foot.


Cincinnati

The office market spent the second quarter working tirelessly to compensate for a slow beginning to 2017. Leasing activity within downtown office spaces slowed, as recent transactions in the Cincinnati market have been concentrated among areas outside the CBD. Although vacancy experienced a spike in the first quarter going from 16.1 percent to 18.6 percent, it has begun to trickle back down currently sitting at 17.6 percent. With absorption still negative year-to-date, developers remain hesitant to break ground on any new speculative development.

Submarkets in the northern part of Cincinnati anchored absorption gains for the quarter. Notable transactions included CBTS’s nearly 70,000-square-foot lease in the Tri County submarket and Mayfield Brain and Spine’s 12,500-square-foot lease in the West Chester submarket. Much of the leasing activity within the CBD has stemmed from renewals and expansions among the current tenant profile. Over the course of the year, the CBD has experienced the effects of several large users vacating and consolidating their current spaces. With recent announcements such as the Cincinnati Enquirer consolidating within 312 Elm, large blocks of space within Class A buildings are beginning to free up, allowing new leasing activity to be brought to the CBD.

OutlookAfter 2017’s rocky start, fundamentals within the office market are starting to strengthen. Leasing activity continues to be driven by tenants in the market seeking a range of 10,000-25,000 square feet of space. Due to several large users vacating and consolidating their space over the course of the year, the office market has been positioned for increased activity over the remainder of 2017. With this, in addition to little speculative development on the horizon, vacancy will continue to decrease as users will be forced to occupy space within the current inventory set.

Office market attempting to bounce back from a slow start to 2017

21.3% 19.8% 18.1%16.1% 17.6%

2013 2014 2015 2016 2017

Total vacancy

• Contrary to national trends, recent leasing activity in Cincinnati has been concentrated in the suburbs.

• Several large tenants vacated space in the CBD, increasing availability among premier Class A buildings.

• While vacancy is up slightly year-to-date, trends over the past few years indicate declining rates in the coming quarters.

For more information, contact: Abby Armbruster | [email protected]

$0.00

$20.00

2013 2014 2015 2016 2017


-500,000

500,000

1,500,000

2013 2014 2015 2016 YTD

2017



YTD net absorption -268,855 s.f. ▲Under construction 239,000 s.f. ▲Total vacancy 17.6% ▼Average asking rent (gross) $19.53 p.s.f. ▶Concessions Stable ▶


Cleveland

For more information, contact: Andrew Batson | [email protected]

It is an exciting time in downtown Cleveland, with new businesses and residents moving in each month. The city has experienced a residential boom over the last five years, much of which has been supported by office-to-residential conversions. These redevelopment projects have removed large swaths of functionally obsolete office space from the market, dramatically reducing vacancy rates. National investors have been attracted by the improving market conditions, and the ownership landscape looks much different today than it did just a few years ago. These new owners have made substantial upgrades to their assets, and have subsequently begun to push rents higher. While there has been some talk of new office construction in downtown Cleveland, these projects are a ways off. So as vacancy continues to tighten over the coming year, we project asking rents climb higher.

Office demand is also strong in the suburbs, prompting the first speculative office developments in years. Developers are particularly bullish on the East submarket where three projects are under construction: Pinecrest (150,000 square feet) in Orange, Van Aken (66,000 square feet) in Shaker Heights, and Highlands Center (47,000 square feet) in Beachwood. Each property has secured preleasing commitments, signaling a companies’ willingness to pay a rent premium for well-located, modern office space.

OutlookCleveland’s strengthening economy will increase office demand in 2017. Downtown Cleveland will remain a key beneficiary of this growth, with declining office vacancy and increased investor interest. The pace of preleasing will pick up at the speculative office developments in the East submarket. Finally, we will be watching the burgeoning Midtown submarket closely this year. This neighborhood is seeing increased interest from tenants and developers and we think 2017 will be a breakout year.


YTD net absorption 20,902 s.f. ▲Under construction 263,000 s.f. ▶Total vacancy 19.0% ▶Average asking rent (gross) $19.18 p.s.f. ▲Concessions Falling ▼

-250,000

250,000

750,000

2013 2014 2015 2016 YTD

2017


20.6%

19.9% 20.0%

19.0% 19.0%

2013 2014 2015 2016 2017

Total vacancy

$12.00

$16.00

$20.00

$24.00

2013 2014 2015 2016 2017


• Businesses and residents continue to migrate downtown, spawning a dramatic improvement in the office market over the last few years.

• Three speculative office developments are under construction in the East submarket. Look for preleasing at these projects to accelerate in 2018.

• Tenant interest in the Midtown submarket is growing, prompting Hemingway to move forward with its Link 59 office development.

Residential conversions take a bite out of downtown vacancy; new construction underway in the suburbs


Columbus

Market performance has been undeniably solid in recent years as a result of user demand and subsequent rent appreciation. Class A rates increased for the 10th consecutive quarter and total vacancy has fallen nearly 400 basis points since 2013. While the market outlook remains guardedly optimistic, momentum stalled following a strong start to the year. Citi Fund Services vacated 238,000 square feet in Easton, while Abbott Nutrition relocated to a new build-to-suit medical office building. Despite stalled momentum, we expect demand to course correct and turn positive by the end of the year.

The largest lease signed in the second quarter was also a user receiving a substantial tax incentives package from the state. Medical Staffing Options is occupying the third floor of The Buggyworks in the CBD and is one of eight Central Ohio companies that have recently announced workforce expansion plans as a result of state tax breaks. The direct effect of such incentives on the region’s job growth remains a topic of discussion as several other Ohio metros struggle. Nonetheless, the Columbus region’s job growth (16 percent) has been faster than the nation (12 percent) or state (10 percent) since 2010.

OutlookLandlord-favorable conditions persist within submarkets of premier asset quality despite subdued leasing velocity market-wide. Class A vacancy remains at a considerably low rate compared to aging inventory. Property owners will be more inclined to place capital into upgrades to compete with new supply, in addition to accommodate evident user preference for new or renovated space. Despite near full-employment, companies continue to expand their workforce. As both the city and metro population continue to rise, employment growth will likely continue and support a leasing activity bounce back accompanied by sustained rental growth through 2017.


YTD net absorption -256,342 s.f. ▲Under construction 1,141,500 s.f. ▲Total vacancy 13.5% ▼Average asking rent (gross) $19.62 p.s.f. ▶Concessions Stable ▶

-500,000

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Market momentum stalls, but robust Columbus economy shows few signs of waning

17.0% 15.8%12.9% 12.2%

13.5%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Sam Stouffer | [email protected]

• Market momentum slows considerably as leasing activity dipped and users downsized

• Asking rents continue rise in premier submarkets with new product and landlord investment on the horizon

• Growing population and diverse industry base unpin positive forecast for CRE


Dallas

As Dallas continues to gain more jobs at higher wages relative to its cost of living than most other metros in the country, employers across all industries are reshaping the office market to accompany the growth. With over 2.5 million s.f. absorbed this year across all buildings, over 4 million s.f. has been absorbed in buildings delivered in 2016 and 2017. This appetite for shiny new office product among the influx of new talent is resulting in major renovations or large concessions in older buildings to remain attractive to tenants coming up on the end of their leases. With more than half of the office space currently under construction already spoken for, the supply-demand dynamics are keeping average rental rates on a steady tick upwards, increasing 5.4% year-over-year.

When looking at non-build-to-suit construction, however, the story changes slightly. The first half of 2017 has seen eight speculative buildings deliver an average 50% leased. As it stands now, there are eight more spec buildings totaling 1.7 million s.f. set to deliver later this year, cumulatively sitting at 16% pre-leased. With over 5 million s.f. of spec space currently under construction or soon to break ground, the ongoing supply of new space will undoubtedly change the face of Dallas’ office landscape over the next several years.

Outlook2017 is shaping up to be a breakout year for the Dallas office market. We believe the remainder of 2017 will continue to bring a new breath of life into the office dynamics. While the new product will drive average rental rates to new heights in coming quarters, Dallas’ relative affordability to other markets will continue to draw both employers and employees. This, coupled with an increasing supply of office space in the pipeline, should result in stable office fundamentals in the next 2-3 years.


YTD net absorption 2,604,812 s.f. ▲Under construction 7,783,398 s.f. ▼Total vacancy 19.4 % ▶Average asking rent (gross) $26.61 p.s.f. ▲Concessions Rising ▲

Dallas’ diverse job growth continues to profoundly reshape the office market

For more information, contact: Clay Schleimer | [email protected]

• YTD absorption across all submarkets is more than twice as high as Q2 2016, primarily due to recent deliveries of large built-to-suits

• Rental rates continue to reach historic highs across all submarkets• With continued delivery of build-to-suits and speculative product,

fundamentals should approach long-term averages in coming quarters

200,000

2,200,000

4,200,000

6,200,000

2013 2014 2015 2016 YTD

2017


19.6%19.4%

18.7% 18.7%

19.4%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017



Denver

Despite positive net absorption, total vacancy rose for the fifth consecutive quarter thanks to new deliveries with empty space. Newly built Colorado Center, Tower III adds to the market 229,670 square feet (s.f.), with no signed leases to-date, plus One Belleview Station delivered 318,000 s.f., but tenants will not occupy until next quarter. Nearly 200,000 s.f. of sublease space was absorbed this quarter, finally chipping away at the eight-year high sublease vacancy that was largely a product of the energy sector’s downturn.

As expected, rental rate growth is waning. Rents rose 1.4 percent market-wide—a paltry increase compared against the nearly double-digit leap Denver recorded last year. Investor and user interest remains focused in LoDo and other suburban transit-oriented developments. However, neighborhoods that were once industrial hubs, like Platte Valley and RiNo, are quickly moving to the top of tenants’ lists. With new developments and redevelopments, plus retail and restaurants, these areas are attracting a variety of tenants, from tech to energy. BP leased 127,000 s.f. in Platte Valley, and HomeAdvisor is expanding its presence in the market with a new 70,000-s.f. RiNo flagship.

OutlookDenver’s 2.1 percent unemployment rate is the nation’s lowest among large metros. Our economy is thriving, but fewer available jobs and a shortage of skilled labor may curb user demand. Landlords will continue to offer concessions to attract and retain tenants; owners should consider upgrades to remain competitive, especially with newer product. With availability on the rise and new construction coming online over the next four quarters, users will have additional options to consider while negotiating deal terms. In short, advantage tenants.


YTD net absorption 523,791 s.f. ▲Under construction 4,312,123 s.f. ▼Total vacancy 14.3% ▼Average asking rent (gross) $28.21 p.s.f. ▲Concessions Rising ▲

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2013 2014 2015 2016 YTD

2017


New construction and increased availability swings pendulum toward tenants

13.9% 13.8%

13.3%

13.8%

14.3%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: Mandy Seyfried | [email protected]

• Construction starts have slowed (particularly CBD) but remain active for smaller buildings in hot areas (RiNo and Platte Valley).

• Asking rents are growing at a more muted pace and are driven by new construction, rather than increasing rates in existing buildings.

• In a near-full employment market, user demand could take a hit as fewer people look for work, resulting in reduced tenant demand.


Detroit

The second quarter of 2017 marked another step forward for the Detroit office market. While leasing activity was somewhat muted, conditions continue to improve. Although asking rents slightly declined quarter-over-quarter, vacancy fell below 20.0%. 186,989 square feet were absorbed this quarter, with the most notable lease being Adient’s 58,000-square-foot deal at Galleria Officentre in Southfield. The May delivery of the QLine commuter rail has created a buzz along Woodward Ave, and with little availability downtown, the market is eagerly awaiting new construction. Little Caesars Arena’s office component will deliver next quarter, while the Hudson’s development and SoMa (South of Mack Avenue) are expected to break ground later this year. Outside of the CBD, the first phase of the Packard Plant redevelopment broke ground in May, reactivating a long overlooked portion of East Detroit.

Amidst the excitement downtown, the suburban market saw Etkin break ground on their 74,000-square-foot office development in Royal Oak. Just a couple blocks away, a 190,000 square-foot municipal office center, dubbed The ROCC, will deliver in the third quarter of 2018. Furthermore, Maserati and Hutchinson both announced plans to move their North American HQs to Auburn Hills, demonstrating a positive outlook for Detroit’s suburban market.

OutlookAs fundamentals continue improving in Detroit’s office market, we will see rent growth and continued development activity. Downtown, expect to see increased mixed-use projects along Woodward, while in the suburbs build-to-suit projects will remain prevalent. Improving market conditions in Detroit, which recently recorded its lowest unemployment rate in 16 years, have sparked sales activity, with multiple trades in the second quarter. As we press on towards 2018, we expect investment sales to increase, reflecting market health.


YTD net absorption 186,989 s.f. ▲Under construction 663,957 s.f. ▲Total vacancy 19.5% ▶Average asking rent (gross) $18.97 p.s.f. ▲Concessions Falling ▼

0

500,000

1,000,000

1,500,000

2013 2014 2015 2016 YTD

2017


Downtown excitement overshadows healthy suburbs

25.4% 25.1%

19.0% 20.2% 19.5%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$15.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Harrison West | [email protected]

• Downtown Detroit’s recently delivered QLine streetcar has connected the CBD to Midtown, New Center and the North End neighborhoods

• The suburban office market remains a dependable market for leasing and investment sales, despite CBD attention

• Capital markets activity reflects positive investor sentiment in Detroit as the city’s unemployment reaches 16-year low-point

Robert Goldstein | [email protected]


East BayI-680 Corridor

Investors are targeting the suburbs with more than $637.3 million in overall transaction volume since October and $303.0 million YTD. This quarter, Walnut Creek Center traded for $381 per square foot, while Mt. Diablo Plaza is currently on the market and is expected to trade within the same range.

The Tri-Valley is enjoying both new and organic growth as Philips Electronics leased 50,000 square feet at Rosewood Commons in Pleasanton, and Micro Dental leased over 36,000 square feet at Vineyard Business Park in Livermore. Additionally, large commitments from Ellie Mae and GE Digital in the Tri-Valley have taken over 300,000 square feet of office space off the market. As a result, limited large blocks above 50,000 square feet remain. San Ramon’s Bishop Ranch 1 and Park Place in Dublin are the only projects with contiguous blocks greater than 100,000 square feet, while Workday is rumored to release as much as 150,000 square feet of space at Pleasanton Corporate Commons by 2018.

Meanwhile, as much as 400,000 square feet of Class A space will become available by 2018 at 2001 Clayton Road and 1200-1220 Concord. Upcoming vacancies will accommodate demand from price-sensitive Walnut Creek tenants with who are considering options in Concord as a result of “sticker-shock” when contemplating renewals.

OutlookAn uptick in availability will provide opportunities for larger users seeking blocks of space in a supply-constrained market. Releasing the pressure valve will continue to attract occupiers looking to achieve lower real estate costs and business taxes while maintaining their employee base near amenities.


YTD net absorption 394,536 s.f. ▼Under construction 0 s.f. ▶Total vacancy 10.4% ▲Average asking rent (gross) $35.16 p.s.f. ▲Concessions Falling ▼

-500,000

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Future vacancies coming to the market; alleviates pressure on large-block supply

12.7% 13.4% 13.8%12.5%

10.4%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

2013 2014 2015 2016 2017


• Tri-Valley leads suburbs in occupancy gains, with over 300,000 square feet absorbed

• Price-sensitive Walnut Creek tenants experience “sticker-shock” approaching lease expirations, shifting demand towards tertiary markets

• Large block supply coming to the market in the next 18 months will create opportunities for large tenants considering occupancy in the North I-680

For more information, contact: Katherine Billingsley | [email protected]


Fairfield

Much like the quarter before it, Fairfield County experienced negative absorption nearing 1.0 million square feet in the second quarter. The Greenwich metro area was the only submarket to display significant positive absorption, due in large part to Blue Sky Studio’s lease extension of their 150,000-square-foot space at 1 American Lane, the largest deal of the quarter. Among the largest firms facing lease expirations, many chose to renew and take advantage of their strength in the marketplace. Eight of the top 10 leases of the quarter were some type of renewal, including Merrill Lynch’s 51,000-square-foot extension at 301 Tresser Boulevard and AIG’s renewal at 50 Danbury Road for 47,980 square feet. Forced to contend with persistent high vacancy rates and a shortage of large tenants in the market, landlords were pressured to make whatever concessions they must to keep tenants in place. Despite positive absorption seen in the second quarter, there remained 153,130 square feet of negative net absorption year-to-date in the Greenwich market. The only market to show positive absorption since year end 2016 is Fairfield Central. Fairfield Central was also the only major submarket where Class A rents actually increased for the quarter. In every other market, Class A asking rents regressed in reaction to weak demand from tenants.

OutlookThough the Stamford office vacancy rate remains elevated, the city has experienced a resurgence in population since 2010, increasing by over 5.0 percent. In particular, young people have gravitated towards Stamford and 65.0 percent of households in the downtown area have someone ages 18-34. As the millennial generation begins to start families and seek more space in the suburbs, more firms are likely to gravitate back to Stamford and Fairfield County.


YTD net absorption -804,129 s.f. ▲Under construction 0 s.f. ▶Total vacancy 24.8% ▲Average asking rent (gross) $36.67 p.s.f. ▼Concessions Rising ▲

-1,000,000

0

1,000,000

2013 2014 2015 2016 YTD

2017


A few bright spots in an overall challenged market

22.6%21.8%

24.4%

22.4%

24.8%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

2013 2014 2015 2016 2017


For more information, contact: Guthrie Stanback | [email protected]

• Greenwich was the only market to display significant positive absorption for the quarter

• Renewals were the dominant lease type for the largest deals as tenants took advantage of a favorable market

• Class A average rents adjusted downward in all but one major submarket


Fort Lauderdale

While many indicators remain at or nearing peak levels, the rate of growth has slowed as the market has seen fewer tenant expansions, an increasing number downsizes, and limited new-to-market tenants. This, coupled with fewer building trades, has led rent and occupancy growth to slow, although it remains positive.

Building trades and rent growth tend to go hand-in-hand in a strengthening market. However, since the start of 2014, nearly half the inventory in Broward County has traded –76.9 percent of trades have been Class A assets. That leaves a shrinking number of properties available for sale, although a limited number of re-trades have occurred. Interestingly, the average asking rent among the assets yet to trade is $29.45 per square foot (FS) compared with $34.27 per square foot (FS) among assets which have changed hands. That means the average premium for asking rents among recently traded assets is 16.4. As investment has slowed, rent growth among Class A assets has also fallen. Between 2014 and 2015 average asking rents (FS) increased 3.5 percent. Comparably, over the past six quarters we have seen a total of 2.4 percent rent growth among the same Class A assets.

OutlookThe Broward County commercial real estate market has historically tracked in line with the national economy. Meaning, when the national economy and confidence in the economy is strong, the CRE market in Broward County is strong. And, when the economy slows, activity tends to drop. While the economy is still strong, the path remains unclear. This uncertainty seems to being pushing many companies towards a “wait-and-see” mentality.

With less room to growth, trends are expected to remain positive, albeit overall growth is expected to be slower than previous years. Despite these trends, developers and the pipeline for new construction continue to grow. In Southwest Broward, the second phase of development at Pembroke Pointe is looking increasingly likely. TPA Group purchased the land from Duke in mid-2017. In downtown Fort Lauderdale, the 201 E Las Olas (Stiles Realty) development looks to be moving forward as marketing for pre-leasing has been ramping up in recent months.


YTD net absorption 202,070 s.f. ▲Under construction 0 s.f. ▲Total vacancy 13.4% ▼Average asking rent (gross) $29.52 p.s.f. ▲Concessions Stable ▶

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Investment has leveled off, leading to slower growth

18.516.8 16.3

14.3 13.4

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: Ilyssa Shacter | [email protected]

• Periods of investment tend to coincide with periods of rent growth. However, investment has slowed as much of the Class A stock has already traded hands this cycle.

• Average asking rents among recently traded assets are 16.4 percent higher than those which have yet to trade.

• The next 12 months could prove very impactful on the future of the market based on preleasing of proposed office projects.


Hampton Roads

The large deals that drove first-quarter leasing activity to the highest level since Q4 2015 started to affect supply, with vacancy rates dropping and net absorption positive for both Class A and Class B space on both the Southside and the Peninsula. But it wasn’t a pace that could be maintained – large deals were scarce in the second quarter, and leasing activity dropped by over two-thirds. First-quarter leasing should keep absorption positive through the next few months and tour activity is up, but vacancy declines will level off unless third-quarter activity returns to normal.

Norfolk’s Social Security Administration Building and ADP Building both traded at cap rates in the low 7.0-percent range, with the latter setting a record price for a local office building sale. But while owners have explored the idea of putting prime multitenant properties on the market, leasing demand has not yet reached levels to make the idea of selling attractive enough for formal offerings.

OutlookWhile leasing activity stepped back after a busy start to the year, overall demand remains steady. Brokers report increasing interest and tour activity, although it consists of tenants already in the market looking to expand rather than an influx of companies new to Hampton Roads. Economic activity and employment are both heading upward. We expect effective rents to follow as landlords become more aggressive when renewing because they are more confident that they will be able to backfill space. Large tenants will still have leverage and owners of Class B buildings on the Peninsula (18.6 percent overall vacancy) will need to deal, but building owners are likely to wait and let their smaller tenants explore a market that has become more expensive before proposing renewal terms.


YTD net absorption 336,268 s.f. ▲Under construction 0 s.f. ▶Total vacancy 12.9% ▶Average asking rent (gross) $18.87 p.s.f. ▲Concessions Falling ▼

-250,000

0

250,000

500,000

750,000

2013 2014 2015 2016 YTD

2017


Two steps forward, one step back: The market takes a breather after an active first quarter

13.6%

15.3%

14.2%13.9%

13.4%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Michael Metzger | [email protected]

• With few large deals signed this quarter, leasing activity drops from Q1 highs to a below-average pace

• First-quarter leasing cuts second-quarter supply, and landlords in hotter submarkets are now willing to hold out for higher rents

• Two large single-tenant net lease sales occurred, but demand for prime multitenant buildings isn’t strong enough yet to trigger offerings


Houston

Since the fourth quarter of 2014, leasing activity in Houston has lagged behind its 10-year quarterly average of 3.8 million square feet in nine of the past 10 quarters. Unfortunately, the second quarter of 2017 was among the nine underperformers. As a result of the slowdown in tenant demand, total vacancy has risen in each of the past 10 quarters, rising from a healthy 13.5 percent in the fourth quarter of 2014 to a decade-high 22.4 percent. Additionally, the market added over 12.8 million square feet of new office product and a nearly identical amount of sublease space over this same time. This imbalance on both the demand and supply sides of the equation has placed a great deal of pressure on the market to say the least.

While a great deal of work remains to be done on the demand side, the market has taken several important steps towards stabilizing the supply slide. Most notably, the market’s available sublease inventory contracted for the third consecutive quarter to 11.1 million square feet during the second quarter, which represents a decrease of over 1.1 million square feet from its peak. Further, at 2.3 million square feet, the construction pipeline is now at its lowest level since the first quarter of 2012 and well below its 10-year quarterly average of 4.7 million square feet.

OutlookRectifying six consecutive quarters of negative net absorption and 10 consecutive quarters of rising vacancy will not happen overnight, especially given the recent performance of the market from a leasing activity perspective. As a result, we expect office market conditions in Houston to persist for the remainder of 2017 as tenant demand remains muted and the possibility of a market recovery taking shape in 2018 and 2019 should significant demand return.


YTD net absorption -1,376,620 s.f. ▼Under construction 2,274,831 s.f. ▼Total vacancy 22.4% ▲Average asking rent (gross) $30.79 p.s.f. ▼Concessions Rising ▲

-3,000,000

0

3,000,000

6,000,000

9,000,000

2013 2014 2015 2016 YTD

2017


Limited tenant demand drags down market; limited new supply provides hope for stabilization

13.5% 13.5%17.8%

20.8% 22.4%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: Reid Watler | [email protected]

• Consolidations and space give-backs result in sixth consecutive quarter of negative net absorption.

• Construction resumes at Capitol Tower following Bank of America’s 210,000 square foot pre-leasing commitment.

• Asking rental rates remain largely unchanged year-over-year despite total vacancy rising over 325 basis points over the same time.


Indianapolis

The highly anticipated occupancy by Salesforce in downtown Indianapolis occurred this quarter. This helped the office market achieve positive net absorption at the midpoint of 2017. The presence of Salesforce is already having a profound impact on the CBD. Union 525, a recently redeveloped building catering to tech startups is fully leased less than six months after opening. And India-based Infosys will open a 35,000-square-foot tech hub in OneAmerica Tower, a stone’s throw away from Salesforce Tower.

Marietta on Mass also delivered in the CBD this quarter and will be almost fully occupied in the third quarter. This is just the tip of the construction iceberg as 500,000 square feet remains in development. All are in the suburbs and will start coming online next quarter. Demand for this space is high. These buildings are already 75.0 percent preleased.

Investment activity continued in the second quarter as four more sales closed. This brings the year-to-date total to 12. Over half of these transactions centered around Class B product in the North Meridian/Carmel submarket. These value-add properties represent an excellent entry point to one of Indianapolis’ most desirable submarkets for investors.

OutlookLook for further investment activity throughout the remainder of the year as several high-profile properties in the CBD come to market. Also since January 2016, 30 major employment announcements (100 jobs or more) were made throughout the MSA. If all hiring goals are met, it would be enough to fill Salesforce Tower, the state’s tallest building, one and a half times. This equates to 1.4 million square feet of office space, over half of which has already been leased.


YTD net absorption 28,722 s.f. ▲Under construction 517,616 s.f. ▼Total vacancy 16.8% ▼Average asking rent (gross) $20.13 p.s.f. ▲Concessions Stable ▶

-200,000

0

200,000

400,000

600,000

2013 2014 2015 2016 YTD

2017


Market set to grow amid a flurry of new construction and major job announcements

16.5%16.2%

15.9%

16.4%

16.8%

2013 2014 2015 2016 Q2 2017

Total vacancy

$10.00

$15.00

$20.00

$25.00

2013 2014 2015 2016 Q2 2017


For more information, contact: Mike Cagna | [email protected] Marshall | [email protected]

• The market rebounded from a slow start to the year with 121,000 square feet of net absorption during the second quarter

• Marietta on Mass was completed this quarter, the first of several new office buildings scheduled for delivery in 2017

• Investment activity remains high, especially in the North Meridian/Carmel submarket


mailto:[email protected]


Jacksonville

While the economy remains hot, Jacksonville is seeing most activity in the suburbs, as downtown activity remains flat. With the development of the St. Johns Town Center, there has been a massive concentration of population in the immediate area. With more and more development and office interest, Van Trust has broken ground on a speculative building, 165,000-square-foot Town Center I, which has already garnered significant interest. The project has leased 100,000 square feet to Availity, a healthcare technology company. Also in the suburbs, the 828,233-square-foot Gramercy Woods portfolio has traded to Ladder Capital, eager to invest in a portfolio leasing to Bank of America.

Both the CBD and Butler Boulevard submarkets are at the lowest vacancy since 2001, and market conditions continue to improve. In an effort to redevelop Downtown Jacksonville, the City of Jacksonville has agreed to have Shad Kahn, owner of the Jacksonville Jaguars, redevelop the shipyards of Jacksonville, 70 acres on downtown’s Northbank next to the skyline office buildings. The development will likely result in hospitality and multifamily construction on the river.

OutlookOver the past few years Jacksonville’s business-friendly environment has made it a popular location for back-office operations. The suburban office market will continue to drive growth and is often the first choice for tenants larger than 30,000 square feet. The professional & business services and financial services industries make up the majority of the office tenant base, and groups looking to move into the area will find options limited and will continue to be pushed into the Butler Boulevard submarket due to low parking ratios available in the CBD.


YTD net absorption 197,228 s.f. ▶Under construction 164,999 s.f. ▶Total vacancy 12.4% ▶Average asking rent (gross) $19.55 p.s.f. ▲Concessions Stable ▶

0

100,000

200,000

300,000

2013 2014 2015 2016 YTD

2017


Jacksonville suburbs home to new developments and key tenants

18.3% 17.2% 15.8% 14.5%12.4%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Will Harding | [email protected]

• Van Trust breaks ground on new speculative office building.• CSX leadership changes expected to result in RE consolidation.• Gramercy Woods portfolio trades to Ladder Capital


Long Island

After several blocks greater than 30,000 square feet were absorbed last quarter, the market experienced a substantial decline in leasing activity; Hauppauge Library’s leasing of 20,000 square feet at 1373 Veterans Highway in Hauppauge ranked the largest transaction of the second quarter. While Central Suffolk registered the most leasing volume, the activity consisted mainly of internal movement, such as Austin & Williams’ leasing of 16,000 square feet at 80 Arkay Drive. Corporate demand is still robust as we see more company expansions; consequently, Western Suffolk trumped the other submarkets in total net absorption by 65,000 square feet. Large blocks soon entering the submarket should foster a wave of major leases in 2017. Tenants are overall taking on a flight-to-quality approach, spurring an increase in renovations of Class B assets. PSE&G’s leasing of 31,872 square feet last quarter in Bethpage helped insulate Nassau’s Class B market from net absorption losses. Nevertheless, the parallel decline in Class A and B vacancy rates indicates that this shift has not yet caused Class B product to lag behind.

OutlookAlthough Western Nassau has served as the main driver of leasing activity for the past several years, we anticipate that it will take a back seat to Western Suffolk as its Class A vacancy rate of 4.0 percent has left little room for progression. Class A assets remain best positioned in the market, which will bode well for Western Suffolk. Upon the recent completion of Dealertrack’s new headquarters, there is no major office construction in the pipeline. The market proves to be buoyant amid favorable economic conditions, however the question remains as to how sustainable this will be for the Island in the long run. Retaining and attracting young talent remains top-of-mind for managers and developers, which will cultivate the exploration of more open, creative layouts as seen in the loft-style designs adapted recently by companies such as 24Seven and Foley Carrier Services.


YTD net absorption 130,548 s.f. ▲Under construction 0 s.f. ▶Total vacancy 12.2% ▼Average asking rent (gross) $26.54 p.s.f. ▲Concessions Falling ▼

-500,000

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Activity falls short after leasing galore during Q1

16.1% 16.7% 16.8%

13.4% 12.2%

2013 2014 2015 2016 2017

Total vacancy

$20.00

$25.00

$30.00

$35.00

2013 2014 2015 2016 2017


For more information, contact: Sarah Bouzarouata | [email protected]

• Only one lease transaction exceeded 20,000 square feet in Nassau and Suffolk counties.

• As expected, newly available quality blocks elevated direct asking rents 16.4 percent since 2016.

• While demand from medical tenants persists, tightening market conditions in Western Nassau led to occupancy losses for the first time in one year.


Los Angeles


YTD net absorption -34,204

Under construction 1,927,380 s.f.

Total vacancy 14.9% ▶Average asking rent (gross) $39.57p.s.f. ▶Concessions Stable ▶

The market moved forward with positive net absorption during the quarter. Although technology and entertainment remain primary growth drivers, healthcare picked up with a handful of large leases signed. On the capital markets front, pricing neared peaks, with a record sale on the Westside commanding over $1,400 per square foot and a trade in downtown hitting $470 per square-foot.

After a handful of well publicized companies left Santa Monica in favor of cheaper creative product in Playa Vista in the prior two years, it appears the pendulum has swung back in Santa Monica’s favor. As the price point in Playa Vista rises, activity appears to have stalled, and tenants have turned their attention back to Santa Monica, the original epicenter of Silicon Beach. Absorption in the micro market is back in the black due in part to some large scale expansions and relocations by homegrown technology companies.

As the market heats back up along the coastline, tenants and developers alike are looking for adjacent markets which can offer comparable product and amenities with a lower price tag. Culver City appears to be just that. Priced 35 percent lower than nearby Santa Monica, Culver City currently has 641,247 square feet of creative office under construction/renovation and is attracting the attention of large tenants.

OutlookTenant demand will continue to chip away at vacancy throughout the remainder of the year. Los Angeles is in no way oversupplied with new ground-up office development. Well-planned, adaptive re-use projects in the most active submarkets will continue to draw creative users. Record-high levels of employment are likely to sustain tenant demand through 2017.

-250,000

250,000

750,000

1,250,000

2013 2014 2015 2016 YTD

2017


Westside demand bolsters overall momentum

16.8%16.2%

15.5%14.6% 14.9%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

2013 2014 2015 2016 2017


For more information, contact: Henry Gjestrum | [email protected] Devon Parry | [email protected]

• Strong second quarter growth lessens the sting after first quarter losses. • Momentum swings in Santa Monica’s favor as activity in Playa Vista takes

a pause.• As rents rise on the Westside, the hunt for a cost-effective alternative

commences.


Louisville

The second quarter saw significant leasing velocity from companies relocating their headquarters within the market. The leasing announcements and physical relocations that took place in the second quarter put on display the organic growth currently taking place in the Louisville business community. West Louisville came out the biggest winner in the second quarter as Passport Health announced their relocation to 18th Street and West Broadway, while Interapt announced their relocation to 1226 Rowan Street in Portland. Both announcements will have a significant impact on West Louisville, which has struggled to attract private investment in the past. The Central Business District made headlines with Torchlight Investors’ sale of Meidinger Tower to In-Rel Properties for $32.0 million, reinforcing investor confidence in the market.

The urban core wasn’t the only recipient of major announcements as the suburban submarkets saw positive activity in the second quarter by way of three headquarters move-ins totaling more than 90,000 square feet. The corporate relocations followed the recent trend in the market of companies looking to consolidate their office space, as well as “trade up” for higher quality space.

OutlookAfter starting 2017 strong, the second quarter solidified the positive sentiment in the market with significant leasing announcements and expansions within the market. Investment activity is projected to remain active in the second half of 2017 as market fundamentals strengthen and Class A product is absorbed. Leasing activity in the suburbs is expected to remain focused on the Middletown/Eastpoint submarket. Due to a shortage of developable sites within the Gene Snyder, construction is projected to be focused in the Northeast suburbs.


YTD net absorption 124,540 s.f. ▲Under construction 100,000 s.f. ▲Total vacancy 10.7% ▼Average asking rent (gross) $17.59 p.s.f. ▲Concessions Falling ▼

-100,000

100,000

300,000

500,000

2013 2014 2015 2016 YTD

2017


Headquarter relocations drive active second quarter

13.6% 13.1% 12.8% 12.2%10.7%

2013 2014 2015 2016 2017

Total vacancy

$10.00

$15.00

$20.00

$25.00

2013 2014 2015 2016 2017


• In-Rel Properties purchased the 331,000-square-foot Meidinger Tower for $32.0 million in April.

• Passport Health announced their plans to relocate their 500+ employee corporate headquarters to West Louisville.

• Churchill Downs completed the relocation of its advanced deposit wagering service from California to the corporate headquarters at 600 N. Hurstbourne.

For more information, contact: Ross Bratcher | [email protected]


Marin/Sonoma

Marin/Sonoma continues to benefit from tenants looking to maintain access to San Francisco’s employment base while achieving lower real estate prices for quality space. Sonoma County’s total vacancy dipped this quarter, from 9.7 percent in Q1 to 8.2 percent in Q2. Marin County’s vacancy is heavily weighed on the vacant Fireman’s Fund 710,000-square-foot building at 14.3 percent. However, excluding the project will drop vacancy down to 7.7 percent.

Market conditions in Marin County remain steady as rental rates remain above North Bay’s market average by 26.2 percent. Tenants are being priced out of Southern Marin County, causing a shift in demand towards San Rafael, Novato and Petaluma. As a result, Northern Marin County is positioned for continued growth due to the spillover and tightening southern markets.

In Sonoma County, leasing activity this quarter was driven by Ygrene Energy Fund’s 45,000-square-foot sublease in Petaluma, while Kaiser is set up to renew 18,000-square feet. Capital markets are in full swing as Basin Street purchased Simons and Woodard’s Stoney Point portfolio and is now one of the largest building owners in Sonoma County. Meanwhile, investors are looking at residential development ahead of new office development in order to ensure a solid employment base for future tenants.

OutlookThe Marin/Sonoma office market should continue to see growth with a rise of buyers in the area with stabilized occupancies in value-add buildings. In addition, the area’s booming residential market, coupled with plans to extend the SMART train, should increase demand for the remainder of the year.


YTD net absorption 33,027 s.f. ▲Under construction 80,000 s.f. ▶Total vacancy 10.9% ▼Average asking rent (gross) $28.20 p.s.f. ▲Concessions Stable ▶

-500,000

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


A rise in buyer interest positions Marin/Sonoma for growth

15.9% 12.2% 11.6% 11.8%8.2%

13.4%14.1% 15.1% 20.1%

14.3%

2013 2014 2015 2016 2017

Total vacancy Sonoma Marin

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017



• Marin/Sonoma’s proximity to San Francisco continues to attract tenants looking to maintain a strong employee base while managing lower real estate costs

• Tenants are being priced out of Southern Marin County as high watermark deals are closing between $51.00 per square foot and $63.00 per square foot full service.


Miami-Dade

Total office leasing activity across Miami-Dade maintained the healthy pace set through the first quarter of the year, as roughly 220 transactions of a median 1,700 square feet were signed throughout the county during Q2 2016. This represents a marginal improvement over last year’s quarterly average 170 transactions of a median 2,000 square feet. County-wide year-to-date leasing activity remains up 6.0 percent year-on-year, driven to a notable degree by non-CBD submarkets that had been unsettlingly quiet through 2016: Coral Gables and Miami Beach registered 150 percent and 70 percent year-to-date total square footage leased year-on-year increases respectively. Considering the quarter’s near-complete absence of outlier/outsized deals (excepting Harvard Maintenance’s 24,000-s.f. lease in Miami Center, Everest Business Funding’s 27,000-s.f. lease in Downtown Doral, and a 24,000-s.f. lease in the Lincoln on Miami Beach) which have slightly skewed the market through the past couple years, however, the quarter served as an exhibit of the ability of bread-and-butter demand (2,000 – 6,000 s.f.) to drive market growth and support at-or-near record high rates.

OutlookThe Miami-Dade office market year-to-date has absorbed 158,000 square feet of space (or 0.45 percent of total inventory) and direct average asking rates have resumed a rapid upward trajectory of 1.0 percent quarter-on-quarter. The more than 3.0 million square feet of known requirements currently existing across Miami’s core submarkets constitute roughly 60.0 percent of available space, on-the-ground reports indicate strengthening touring activity, and positive indicators of expanded local business activity continue to appear. Within this context – and at least until the bulk of the county’s office construction pipeline (800,000 s.f.) delivers at the start of 2018 – the near-to-medium term prospect of a meaningful downward pricing correction appears unlikely.



0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Miami-Dade office market maintains broad base of healthy leasing activity

17.1%

14.5%

12.3%13.4% 12.8%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$25.00

$50.00

2013 2014 2015 2016 2017


For more information, contact: Tim Powers | [email protected]

• Miami-Dade year-to-date total leasing activity of 1.2 million square feet represents 6.0 percent year-on-year growth

• Suburban submarkets Coral Gables and Miami Beach lead market activity, continuing recovery from recent years’ lethargic activity

• 3.0+ million square feet of known requirements across Miami’s core submarkets (Miami CBD, Miami Airport, Coral Gables)


Milwaukee

The second new, multi-tenant office development to deliver downtown since the decade-long dry spell (finally broken with 833 last year) officially welcomes its anchor tenant – Bader Rutter. The move-in brings one of the first major stories of downtown migration full circle, and what a movement it has proven to be. Yet overall market inventory has been effected by more than just new construction this quarter, as the “clean up” of outdated office product across our market continues. As 735 W Wisconsin prepares for conversion to multi-family, 200 E Ryan Rd is converted to a single-tenant facility for Aurora and 790 N Jackson is taken off market for potential redevelopment, vacancy rates tighten in each of their respective submarkets.

Opportunity seems to have presented itself – and is swiftly taken advantage of- in suburban properties that are just now seeing relatively large blocks of vacancy for the first time in years. The ability for large users to see newly listed space, with landlords that may be willing to play ball for a quick backfill, may be the push some firms need to make real estate decisions now rather than later.

OutlookRecent announcements of large users (BMO, Michael Best, Fiserv) leasing or looking for space has rallied the market around the idea that the time to shape the future of our city is now. Outside investment in our downtown has supported the notion, and increasing asking rates elude to the fact, that the city is being viewed in a different light recently. The foreseeable future promises continued investment in downtown Milwaukee – both privately and publically – and the accompanying increasing cost of real estate. However, the quality will match the price tag, and there will continue to be more affordable options in the suburbs and downtown alike.


YTD net absorption 104,503 s.f. ▲Under construction 159,149 s.f. ▲Total vacancy 16.8% ▶Average asking rent (gross) $20.17 p.s.f. ▲Concessions Falling ▶

-500,000

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Parting with outdated office helps strengthen the market

20.3% 19.3% 19.4%16.9% 16.8%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Kyle Koller | [email protected]

• 110,000 s.f. of Class A office delivers downtown, while Hammes continues work on the 74,000 s.f. first phase development just across the street

• A second quarter of positive absorption reflects moderate leasing activity, especially in the suburbs where tenant migration has left holes to fill

• Average overall asking rates tick ever upwards with downtown, Class A product leading the charge as new owners value-add with renovations –new construction isn’t the only factor that is reshaping our skyline


Minneapolis –St. Paul

In the wake of Wells Fargo’s move to their build-to-suit towers, the Baker Center signed its first major tech tenant post-renovation: Field Nation. The freelancer software firm will relocate from the AT&T Tower to occupy 35,000 square feet in early 2018. The Baker Center renovation includes a new rooftop deck and media wall to displaying the digital work of rotating artists.

East Town’s Millwright Building delivered 163,400 square feet this quarter, of which 55,000 square feet is taken by Ryan Companies. The space offers typical amenities sought by tech tenants, including skyway access and underground parking, that are much rarer in the North Loop.

Across the river in St. Paul, the former Ecolab Headquarters have been purchased with a similar goal of creating a tech hub downtown. The investment group behind the project led by PAK Properties has re-branded the building as the Osborn370, with rolling occupancy starting late July 2017 and a final wrap-up fall 2018.

Supercomputer company Cray vacated 66,758 square feet in the St. Paul CBD while finalizing their relocation and expansion to The Offices @ MOA in Bloomington. Although the Offices @ MOA spec development is in a suburban setting, the building’s views of both skylines, proximity to the light rail, and numerous hospitality and retail offerings at the Mall of America are counterpoints to the perception that all tech talent wants to be downtown.

Outlook

By the end of the year there will be additional office absorption of over one million square feet due to signed leases for space that has not yet been occupied. This upcoming activity will have the greatest positive impact on vacancy rates in the Minneapolis and St. Paul CBDs and the Southwest submarket.

Industrious and WeWork, two of now six shared workspace providers in the Minneapolis CBD, leased 34,057 square feet at T3 and 53,271 at Capella Tower respectively. By the time they occupy at the end of this year, downtown co-working space will account for 160,528 square feet, or 0.6 percent of the office submarket. Comparatively, co-working space accounts for 1.5 percent of the Chicago CBD. An additional 214,340 square feet would put us on par.


YTD net absorption -146,764 s.f. ▲Under construction 659,163 s.f. ▶Total vacancy 16.3% ▼Average asking rent (gross) $26.24 p.s.f. ▲Concessions Stable ▶

-500,000

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Renovations and repurposing are driving new supply to meet rising creative office demand

17.4%

16.0%

14.6%

16.0% 16.3%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: Carolyn Bates | [email protected] or Tyler Hegwood | [email protected]

• Office renovation and repurposing projects begin to peak.

• Millwright delivers in East Town, an emerging CBD micromarket that can accommodate creative tenants more readily than the North Loop.

• Shared workspace providers Industrious and WeWork sign leases in Minneapolis CBD; Ecolab and Cray vacate St. Paul CBD offices.




Napa/Solano

Napa/Solano Counties continues to perform well in the first half of 2017. In Downtown Napa, retail and hotel developments are translating into a shift in tenant demand towards South Napa, where Class A product is now limited. Quality office space above 10,000 square feet is limited, creating a challenge for larger users touring the market.

Notable deals this quarter include LG Electronics in South Napa, leasing 23,000 square feet at 650 Airpark Road. In addition, Biagi Bros./ScannellProperties acquired Carnera Corporate Center – a three-building Class A office project totaling 34,732 square feet – and leased 26,951 square feet to Constellation Brands. Biagi Bros. is planning to occupy the remaining 7,781 square feet of office space at 464-488 Devlin Road.

In Solano County, Partnership Healthplan plans to deliver 104,000 square feet of Class A office space by 2018. The company is expanding into two-floors and will release the remaining full floor to the market, in which medical-related tenants are actively touring. Moving forward, Solano County is well-positioned to receive potential spillover tenants from the surrounding Bay Area submarkets as those markets as those markets continue to tighten.

OutlookSigns point to an optimistic outlook for the remainder of 2017. The ongoing construction of additional local amenities can be expected to add appeal and value to the area. The largest of these mixed-use re-development projects currently under construction is First Street Napa, which includes the Archer Hotel, a five-story, 183 room project, will deliver year end-2017, and anchor a mixed use development of 40 shops and restaurants in Napa Valley. Similarly, construction at the Napa Valley Commons Business Park will add 145 hotel rooms at the Meritage Hotel, further improving the areas services.



-200,000

-100,000

0

100,000

200,000

2013 2014 2015 2016 YTD

2017


Tightening markets cause a shift in demand, benefitting tertiary submarkets

9.3% 7.3% 7.0% 7.8% 5.7%

15.3% 14.7% 15.5% 15.7% 13.4%

2013 2014 2015 2016 2017

Total vacancyNapa Solano

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017



• Tenants are being priced out of Downtown Napa into South Napa due to re-positioning of ground floor office space to retail

• Solano County poised for growth as neighboring markets tighten• New retail and hotel deliveries in the next 12-24 months will add

additional appeal and value to the region


Nashville

Smashville’s score shows that tenants want new Class A space in the urban core. As new buildings come online with high pre-leased percentages (around 67.5%) second generation space is not absorbing as quickly. As a result, Nashville vacancy has increased for the third consecutive quarter, witnessing a marginal 50-basis-point increase between Q1 and Q2. Midway through 2017, Nashville vacancy sits at 8.6 percent, which is 100 basis points below the city’s near-term historical average. Nashville’s vacancy has averaged around 9.7 percent over the past 10 years.

Demand for new construction will continue to make the score of this real estate cycle. Class B space in the urban core (Downtown and Midtown submarkets) holds the highest class vacancy in the market – at 12.0 percent –compared to a suburban Class B vacancy of 9.6 percent. Meanwhile, urban Class A vacancy continues to decline, sitting at 5.1 percent, and Class A suburban vacancy rose slightly to 7.8 percent. As a by-product of shrinking urban Class A vacancy and growing Class B vacancy, Q2 2017 witnessed a minor rental decline of 1.2 percent. Market rents now sit at $25.46. Markets with small inventories and vacancies, such as Nashville, tend to have rents that react more sharply to fluctuations in vacancy. Over the course of the next couple quarters, rental trends will help forecast where the market is headed.

OutlookVacancy is the highest it has been in 2.5 years, which will usher the market into a more neutral stage. Leasing activity for the remainder of the year looks active; however, the sheer number of deals in the market is shrinking. A couple of large tenants are circling the market, so even with a reduced number of deals, the square footage may keep up with leasing over the past two years.


YTD net absorption -159,650 s.f. ▲Under construction (new) 2,544,225 s.f. ▼Total vacancy 8.6% ▶Average asking rent (gross) $25.46 p.s.f. ▲Concessions Rising ▲

-250,000

750,000

1,750,000

2013 2014 2015 2016 YTD

2017


Nashville’s office market is still hot like its hockey – even though we lost a couple points

9.0% 9.3%

6.8%6.2%

8.6%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Hensley Loeb | [email protected]

• The office vacancy increased slightly for its 3rd consecutive quarter – by 50 basis points.

• Even still, the office market is currently tied with San Francisco for the second most occupied market in the country.

• Rent declined marginally at 1.2%, landing at $25.46 per square foot.• 2.7 million square feet of new product is projected to deliver by Q4 2017;

73.0 percent of this product is already pre-leased.


New Jersey

After trending higher during the past six months and approaching 25 percent in early 2017, the Northern and Central New Jersey overall vacancy rate slipped to 24.6 percent at mid-year, as a slight uptick in tenant requirements outpaced additional supply generated by consolidations and restructurings. Despite this decline, the vacancy rate remained 20 basis points higher from one year ago. Furthermore, the state’s vacancy rate had stubbornly fluctuated near the 25 percent level during the past two years in response to the lack of sustained demand.

The lower Northern and Central New Jersey overall vacancy rate recorded in the second quarter was fueled by nearly 510,000 square feet of positive net absorption. This helped put a dent in the 914,960 square feet of negative net absorption witnessed in the first quarter. The rebound in absorption was traced to increased leasing velocity in Central New Jersey, where all eight submarkets reported positive absorption figures during the second quarter. Furthermore, the Monmouth, Parkway Corridor, Princeton and Route 78 markets each posted more than 100,000 square feet of positive absorption.

OutlookNearly 85 percent of the 510,000 square feet of positive net absorption registered during the second quarter was concentrated in the Northern and Central New Jersey Class A office market. Whether located in mass-transit oriented submarkets or suburban-centric markets, high-end Class A space will remain on the radar screen of office occupiers during the second half of 2017. However, the relatively empty speculative construction pipeline will challenge tenants seeking modern work environments for their operations. As a result, savvy landlords are upgrading their buildings and packing them with the amenities to help make their product stand above the competition.


YTD net absorption -70,795 s.f. ▲Under construction 45,200 s.f. ▶Total vacancy 24.6% ▼Average asking rent (gross) $26.59 p.s.f. ▲Concessions Stable ▶

Demand for Class A space translates into positive absorption at mid-year

For more information, contact: Stephen Jenco | [email protected]

• Quarterly leasing volume posted a slight improvement after falling to a nearly eight-year low in early 2017

• Leases in excess of 100,000 square feet remained elusive during the first half of 2017, which had restrained the market’s recovery

• Rebound in demand for Class A office space was a leading factor behind the 510,000 square feet absorbed in the second quarter

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2013 2014 2015 2016 YTD

2017


24.9% 24.9%

24.6%24.5% 24.6%

2013 2014 2015 2016 2017

Total vacancy

$10.00

$15.00

$20.00

$25.00

$30.00

2013 2014 2015 2016 2017



New York City

The pendulum swung from Downtown to Midtown in the second quarter with a number of high-profile transactions west of Fifth Avenue, including the outperforming Hudson Yards/Manhattan West district. The two largest leases for the quarter were HSBC’s renewal at 452 Fifth Avenue (548,000 square feet) and JPMorgan Chase at 5 Manhattan West (305,365 square feet). Large tech tenants—including the technology divisions of the financial industry—remain in growth mode. Snap Inc. expanded by 121,000 square feet at 229 West 43rd Street, the former New York Times building, and Google grew by 60,000 square feet at 85 Tenth Avenue. JPMorgan Chase’s lease in Midtown West was an expansion of its current fintech unit. Despite good activity, the Manhattan Class A vacancy rose from 10.9 percent to 11.2 percent over the quarter as new and returning space hit the market. Three World Trade Center officially entered the Downtown inventory, and space formerly occupied by UBS at 299 Park Avenue nudged the Trophy vacancy upward in Midtown. Asking rents were mostly flat, but the average drifted higher as newer and higher-quality space became available. While the hedge fund sector goes through a period of dislocation, the larger asset management segment remains active and is taking premium space. Silver Lake, an investment firm that focuses on the technology sector, will follow asset management giant KKR to Hudson Yards, taking two tower floors at 55 Hudson Yards (58,000 square feet).

OutlookDemand for new construction and strength in the tech sector will continue to drive the market. More activity from health care and biotech is also expected as these industries have been growing at unprecedented levels. A number of major leases—from a range of industries—are expected to close by the end of the year at Hudson Yards and elsewhere. This will be offset by new and returning blocks. Both vacancy and rents are likely to remain near current levels through year end.


YTD net absorption 569,502 s.f. ▲Under construction 13,566,876 s.f. ▲Total vacancy 10.6% ▲Average asking rent (gross) $72.46 p.s.f. ▶Concessions Rising ▲

(5,000,000)

-

5,000,000

10,000,000

2013 2014 2015 2016 YTD

2017


New product drives leasing as Manhattan activity shifts west; vacancy moves higher with new blocks entering the market

11.1%

9.5% 9.6%

10.4% 10.6%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

2013 2014 2015 2016 YTD

2017


For more information, contact: Tristan Ashby | [email protected]

• Hudson Yards/Manhattan West continues to thrive as tenants vie for new construction and West Side locations.

• Large tech tenants—including the technology divisions of the financial industry—remain in growth mode.

• Top-tier transactions ($100+ per square foot) are fewer but larger, driven by a handful of sizable leases.


Northern Virginia

While vacancy in Northern Virginia remains elevated, much of the vacancy is located in functionally and locationally obsolete buildings that will likely be converted or redeveloped in the coming years. Access to transit continues to bifurcate the market as tenants migrate from car-dependent submarkets to buildings near Metro. While there was 675,062 square feet of negative net absorption this quarter, most of that was caused by the Department of Defense vacating 640,000 square feet at 200 Stovall Street to consolidate into existing space in Crystal City; plans were already announced to convert 200 Stovall Street into an apartment building.

The other large driver of negative net absorption was caused by the U.S. State Department purchasing 1801 N Lynn Street in Rosslyn, which removed 340,870 square feet of leased space from JLL’s inventory. Despite these statistical anomalies, the majority of tenants have started growing their footprints. Of the 28 leases larger than 20,000 square feet signed this quarter, nine featured growth, while only four involved contraction. The growth is being realized near Metro stations; submarkets along the Silver Line have posted 351,143 square feet of positive net absorption this year.

OutlookThe majority of tenant and construction activity will stay centered around the RB Corridor, Tysons and Toll Road markets ahead; 62.6% of office construction is located in those submarkets.

Tenants seeking high-quality, new and efficient space will have plenty of opportunity in those three markets over the next 24 months as more than 1.1 million square feet of space will be made available through new construction and another 500,000+ square feet of redeveloped space will be made available through 2019.


YTD net absorption -1,022,558 s.f. ▲Under construction 4,505,380 s.f. ▶Total vacancy 20.2% ▼Average asking rent (gross)

$33.23 p.s.f. ▶

Concessions Stable ▶

-1,500,000-1,000,000

-500,0000

500,0001,000,0001,500,0002,000,0002,500,000

2013 2014 2015 2016 YTD

2017


Supply shrinks as tenants purchase buildings and owners convert obsolete offices into other uses

19.0%

20.6%

20.1% 19.9%20.2%

2013 2014 2015 2016 2017

Total vacancy

$28.00

$33.00

$38.00

2013 2014 2015 2016 2017


For more information, contact: Robert Sapunor | [email protected]

• Inventory has decreased over the last few years due to building conversions and owner-occupier purchases.

• This quarter, one building was purchased by a user, while three additional were planned for future conversion.

• 31 of 51 leases > 20,000 square feet signed this year were along the Silver Line, continuing a tenant preference for Metro-served locations.


Oakland CBD

Deal velocity in Oakland-CBD picked up in the second quarter as remaining full floors were leased. Notable deals include Mosaic Solar leasing 30,000 square feet at Kaiser Center, and Oracle and ARUP leasing two floors at 1330 Broadway totaling more than 32,000 square feet. Additionally, WeWork plans to lease 81,000 square feet at 1111 Broadway. Considering recent leasing activity, projected vacancy for the CBD is estimated to be below 3.0 percent by 2018. However, several buildings are scheduled to deliver in 2018-2019, including 601 City Center, 1100 Broadway, the renovated 2150 Webster St, and Uptown Station. In total, as much as 1.0 million square feet of new or redeveloped office space will become available, alleviating supply pressures on the market.

In the second quarter, overall rents have increased by 18.6 percent year-over-year, driven by limited Class A availability and Class B modern renovations. The CBD is positioned to see continued rent growth in the next 12-18 months as landlords are expected to target between $60 p.s.f. and $70 p.s.f. full service rents on new deliveries. Additionally, demand remains steady from San Francisco.

OutlookInvestors continue to show interest in the CBD as stabilized occupancies provide value-add opportunities in the market. 180 Grand traded this quarter at $430 ps.f., nearly double what it sold for in 2014 ($222 p.s.f.). 505 14th Street and 1300 Clay Street are set to trade in the next several months, while 1700 Broadway, Plaza 360 and 405 14th Street are all on the market, bringing Class B investment the spotlight. The repositioning of quality assets coupled with upcoming new office space, Oakland is poised for continued growth for through 2017.


YTD net absorption 6,093 s.f. ▲Under construction 600,000 s.f. ▶Total vacancy 5.3% ▲Average asking rent (gross) $58.20 p.s.f. ▲Concessions Stable ▶

-500,000

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017

Supply and demand (s.f.) Net absorption

CBD market to tighten further as tenants lease up remaining full-floor availabilities

12.4%10.3%

7.5%

3.2%5.3%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

2013 2014 2015 2016 2017



• Majority of remaining full-floor availabilities have leased; expect vacancy rate to dip significantly in the following quarters

• Anticipated deliveries in 2018 will alleviate demand pressures • CBD poised for continued rent growth as landlords push rents in a

supply-constrained office market


Orange County

The Orange County office market has recorded positive net absorption for six consecutive years as the local economy experiences strong job growth. While job growth is significant, additional factors contribute to sustainable economic expansion, such as the housing supply. With millennials buying homes at later ages than previous generations, new housing options for the growing workforce is vital to support economic growth. The multifamily supply is increasing throughout the county with most development concentrated in the Airport Area with nearly 3,000 units under construction and 5,700 units approved. Sufficient housing attracts mature and startup firms to the market, which boosts the labor pool and helps drive office demand.

During the first half of 2017, Central County has recorded more positive net absorption (379,479 square feet) than the entire Orange County market (182,054 square feet). Rising rents in the Airport Area and South County are driving tenant movement to Central County. Companies including Nationstar Mortgage, OC 405 Partners and Peregrine Pharmaceuticals have either relocated to, started a business, or expanded in Central County.

Despite delivering 636,244 square feet of office space in the Irvine Spectrum since Q1 2016, vacancy remains low at 7.6 percent. The new developments are 86 percent leased. While large users including Mazda, Crown Castle, Cavium, and AutoGravity have led the charge, small firms are also attracted to the increasing number of nearby retail amenities and new housing supply.

OutlookFurther infrastructure enhancements will play a key role for Orange County to continue to attract a highly educated and talented labor pool. Office demand benefits as a greater number of companies have a presence in the market and view Orange County as a strategic component to their business.



0

300,000

600,000

900,000

1,200,000

1,500,000

1,800,000

2013 2014 2015 2016 YTD

2017


Affordability of Central County and new development in Irvine Spectrum drive demand

15.3% 14.8%11.8% 11.3% 11.5%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$1.00

$2.00

$3.00

$4.00

2013 2014 2015 2016 2017


For more information, contact: Jared Dienstag | [email protected]

• New multifamily development provides additional housing for the growing labor force

• Central County leads the market in demand as tenants are drawn to the submarket’s affordable rent

• New developments in Irvine Spectrum drive tenant activity in the tight market


Orlando

After a banner year in 2016 for Orlando’s office market, the metro’s suburban markets caught the eyes of investors. In the second quarter alone, 1.9 million square feet traded for a record $244.6 million. Most notably, the Class A Colonial Center buildings were purchased by the Brookdale Group for $207 per square foot, one of the highest per square foot trades in the market’s history. The majority of investment activity has been in Maitland and Lake Mary, where 2.1 million square feet have traded YTD. Only four buildings in Maitland have been placed on the market and failed to transact.

Meanwhile in the CBD, as direct vacancy hovers around historic lows, and rents have reached record highs, serious development talks have begun. Tremont Realty Capital announced a plan to begin construction a mixed-use tower in the heart of downtown by year-end 2017. Among other uses, the new project would add roughly 200,000 square feet of office inventory to the market. This coincides with a sharp increase in sublet space on the market (230,000 square feet), though, which has been driven by law firms marketing space. Nearly every major firm is looking to give space back, which should leave the market cautious regarding new developments.

OutlookStill, there is much to be optimistic about in the short-term for Orlando, as two of its economic staples continue to thrive. With a renewed focus on defense spending nationally, Orlando is poised to benefit as the market is home to one of the highest concentrations of defense contractors in the country, particularly in the Research Pak micro-market. News has already been positive with Lockheed Martin announcing the creation of 500 Orlando jobs. Additionally, tourism continues to increase, which has helped drive employment to record highs that has resulted in significant strengthening in the tourism-heavy Southwest submarket.


YTD net absorption 177,201 s.f. ▲Under construction 134,000 s.f. ▲Total vacancy 10.6% ▼Average asking rent (gross) $21.91 p.s.f. ▲Concessions Stable ▼

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Investors eye the suburbs, while developers consider downtown, despite a modest cooling off in the CBD

16.5% 16.3%14.3%

11.3% 10.6%

2013 2014 2015 2016 YTD 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 YTD 2017


For more information, contact: Will Harding | [email protected]

• A recent flurry of sales in Maitland demonstrates healthy investor interest in Orlando.

• Law firms downtown are uniformly subleasing space, amid changing real estate needs.

• New contracts in the defense industry creating jobs in Research Park and the Space Coast.


Philadelphia CBD

More full floors came to market this quarter as large tenants are consolidating or relocating: Morgan Stanley is subleasing the 37th and 38th floors of One Liberty, creating the highest multi-floor listing in the CBD. The majority of new blocks are in non-Trophy Class A, a segment that has seen less recent activity than any other cross section. Spaces include several floors at Four Penn Center (previously leased by Chubb), 1700 Market (leased by Independence Blue Cross), and 1818 Market. These movements place more options on the table for large tenants rolling in 2019, a peak year for major expirations.

Leasing activity held steady compared to Q1. With no major expansions or inbound relocations, absorption was negative as a function of CHOP’s relocation out of 3535 Market and into its own property at 700 Schuylkill. This is not of major concern for University City, which has suffered from a lack of lower-cost space. Across town, stalled plans for the residential conversion of a portion of the Public Ledger Building brought several hundred thousand feet of space back on the market, contributing to an uptick in Market East vacancy.

OutlookWith large and inbound tenants showing less price sensitivity than longtime occupiers, it is likely that new construction and buildings with robust capital improvement plans will continue to out-perform status quo options. Activity at 1735 Market, the Independence Collection, and creative assets like The Bailey Building and 448 N 10th suggest that quality and amenities will continue to drive the market. Supply-side expansion is likely to slow or flatten the rent growth experienced over the past two years, but decline is unlikely. Full- and multi-floor deals are needed to chip away at new supply and reverse the current absorption story. Given trends toward efficiency, the question for the next 12-18 months is whether the CBD’s dynamism is strong enough to attract more gateway offices and larger tenant relocations.


YTD net absorption -250,027 s.f. ▲Under construction 2,558,000 s.f. ▼Total vacancy 11.0% ▲Average asking rent (gross) $30.39 p.s.f. ▶Concessions Stable ▲

-500,000

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Market becoming more tenant favorable as large occupiers give back floors and leasing levels hold flat

12.1%10.8%

8.5%10.2% 11.0%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: Clint Randall | [email protected]

• Full-floor availabilities in commodity office towers are increasing as more long-time tenants contract.

• Absorption continued to decline primarily due to Children’s Hospital’s relocation of over 225,000 square feet to an owner-occupied building, opening up a large lower-cost block within the Science Center.

• Rents grew 1.8% overall, driven by Class A, but certain submarkets saw declines. While a total slide back is unlikely, rates will continue to flatten.


Philadelphia Suburbs

Flat leasing activity has continued across the market for the first half of 2017, but a few notable tenant moves mean the suburbs enter the second half of the year with strong fundamentals. In King of Prussia/Wayne, Vertex expanded to 180,000 square feet at the Triad Building, and Dell Boomi outgrew its space at Berwyn Park and moved to 1400 Liberty Ridge. Also contributing to the quarter’s strong absorption is TelerX, which upgraded from a Class C office into the newly renovated 410 Horsham Road. Recent moves from Radnor to King of Prussia for The Hartford and JG Wentworth have reinforced King of Prussia as a high quality, lower cost alternative to suburbs closer to the CBD.

The common theme among all of these transactions is that suburban tenants require well-located, high quality offices to attract talent. King of Prussia, for example, offers that with its proximity to new residential and retail hotspots. Despite the relative rent discount for these non-core locations, rents are rising across the suburbs as tenant demand for Class A space grows. Class A office is averaging an asking rent of $29.22 per square foot and has driven the overall market’s asking rents up 1.6 percent quarter-over-quarter.

OutlookSubmarkets like King of Prussia/Wayne, Plymouth Meeting/Blue Bell, and Fort Washington are well-positioned to thrive as their large, older office parks offer owners the chance to create the more urbanized setting that workers want within a suburban backdrop. But don’t expect Radnor or Bala Cynwyd to be left in the dust. Still the most expensive option in the suburbs, the slight discount that we are seeing in Radnor’s asking rents will draw new tenants that place a premium on location. Meanwhile, Bala Cynwyd is seeing new momentum with One Bala Plaza’s proposed $38 million renovation. Recent attention by multifamily developers and investments from the City Avenue District could easily transform Bala into the hot new (but old) suburb.



0

500,000

1,000,000

1,500,000

2013 2014 2015 2016 YTD

2017


Tenants seeking urban features—TOD, amenities—are driving demand in core suburban markets

17.2% 17.6%15.2% 14.1% 13.8%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Gina Lavery | [email protected]

• Most major leasing activity can be attributed to tenants seeking the best suburban location and selecting properties with amenities that compete with a more urban environment.

• Average asking rents rose across the suburbs with the recent listing of large, expensive spaces in Radnor and Conshohocken.

• The first half of 2017 saw a flurry of owner-user purchases with more under contract.


Phoenix

Since 2014, Phoenix has recorded more than 9.6 million square feet of positive net absorption. Averaging nearly 690,000 square feet per quarter, absorption doesn’t show any signs of slowing in the near future. Significant size lease commencements in the second quarter include:

• ICE Enterprise: 150,000 s.f. at 7720 N Dobson Rd (Central Scottsdale) • Amazon.com: 64,892 s.f. at Nexus @ ASU Research Park (Chandler) • Advisor Group: 64,783 s.f. at CenturyLink Tower (Midtown)• Orbital Sciences: 46,225 s.f. at Allred Park Place Central (Chandler)

Five new office construction projects broke ground in the second quarter, which includes a large build-to-suit project in the Tempe submarket. The Boyer Company is currently under construction of a 300,000-square-foot office project for Freedom Financial. Located at the Loop 101/202 interchange in Tempe, the first of two buildings is slated for completion in 2018. The second notable project, Camelback Collective, is the first significant construction project in the Camelback Corridor submarket since 2010. The 118,090-square-foot Class A office building and 160-room hotel are being developed by Holualoa Companies and LaPour Partners Inc.OutlookIs the Downtown office submarket poised for a renaissance? Recent office leases signed by Quicken Loans, Uber, Galvanize and Upgrade signal yes. The companies selected Downtown due in part to the growing variety of retail amenities, exciting arts and entertainment options, and convenient light rail access available to their employees. With the emergence of the Warehouse District and a new 220,000-square-foot office project set to begin construction this summer, the revitalization of the Downtown submarket is underway. In addition to new office space being added, a bevy of new multifamily construction is making Downtown Phoenix a true live, work, play environment that attracts the high-quality employees that employers desire.


YTD net absorption 1,522,142 SF

Under construction 1,493,291 SF

Total vacancy 19.6%

Average asking rent (gross) $25.21 PSF

Concessions Falling

0

1,000,000

2,000,000

3,000,000

4,000,000

2013 2014 2015 2016 YTD

2017


Phoenix on pace to surpass 2.0 million square feet of absorption for the fourth year in a row

24.5%

22.8%

21.2%19.8% 19.6%

2013 2014 2015 2016 YTD 2017

Total vacancy

$15.00

$20.00

$25.00

$30.00

2013 2014 2015 2016 YTD 2017


For more information, contact: Keeley Byer | [email protected]

• Average asking rents are up 5.3 percent from one year ago, but are still 6.0 percent below the peak of $26.82 reached in 2007

• Second quarter absorption was 595,346 square feet, the 16th consecutive quarter of positive net absorption

• Construction is ramping up in the second quarter, with five new office projects breaking ground totaling 638,090 square feet

▼

▼

▼

▼▶


Pittsburgh


YTD net absorption 22,071 s.f. ▼Under construction 404,274 s.f. ▲Total vacancy 16.6% ▲Average asking rent (gross) $23.05 p.s.f. ▼Concessions Stable ▶

In most metros, law firms and financial institutions set up offices in the CBD, while higher employee density offices stay in the suburbs. The same is true for Pittsburgh. However, Pittsburgh is growing and areas of the city are molding into subsections, much like a high school cafeteria. The Fringe and Oakland / East End attract technology companies due to the proximity to downtown and universities. Out West and in Southpointe, energy companies find their offices. And in the middle of it all, in the CBD, are the law firms, financial companies, and business services. Of course, there are exceptions and companies find offices that best suits them, regardless of trends. But as the city attracts large investments, like Shell’s ethane cracker plant and Ford’s $1.0 billion investment in autonomous vehicles, new-to-Pittsburgh companies will look for examples of where the successful companies are located. This will result in more defined industry neighborhoods.

OutlookThe Fringe is the most active submarket regarding construction and renovation. Four floors in the Highline are now available at 60,000 square feet each. The Burns White building at 3Crossings delivered at the end of the first quarter, adding 105,000 square feet to the inventory and contributing to positive absorption for the year. In Q2 2017, the announcement of joint venture RDC Inc. and Orangestar’s 105,000 square-foot District Fifteen was the first ground-up office development announced on Buncher’s 55-acre land development site in the Strip District in years. With the success of 3Crossings the outlook for new development in this neighborhood is optimistic. The driving factor is Pittsburgh’s growing tech and robotics sector. Ford’s $1.0 billion investment in Pittsburgh opened up a lot of eyes. With the new development in this submarket and an already solid talent base in Pittsburgh, it may only take one more major headline for tenant demand to skyrocket.

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Pittsburgh’s technology industry is one more major headline away from the levee breaking

15.9% 15.9% 15.8%

16.6% 16.6%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Tobiah Bilski | [email protected]

• Pittsburgh mayor’s office invests in new software to speed up the building approval and permit process.

• Ground-up development and office investment is prevalent in the Strip District and Lawrenceville, catering towards the technology firms.

• A well balanced industry mix has been Pittsburgh’s success, even during the last recession, however as new industries like robotics and life sciences catch fire, the city is set for accelerated economic growth.


Portland

After a mediocre first quarter, the second quarter put a smile back on the face of Portland commercial real estate with 145,000 square feet of positive absorption. Both leasing and absorption were up in the second quarter, with the number of leases signed above 10,000 s.f. increasing to 26. Autodesk inked the largest deal in the metro in two years when they leased up the whole of Towne Storage, the largest office development ever in the Close In Eastside.

On the topic of development, five new projects kicked off in the second quarter, adding another 388,000 square feet to the swelling development pipeline. Two of these projects are in the Close-In Eastside, where there is boom of small and mid-size developments. Nine of the 25 projects currently under construction are in the Close In Eastside.

A new high-water mark was set in Portland when 1320 Broadway sold to Credit Suisse for $541 p.s.f. The sale represents the biggest flip of an office building as the joint venture between Clarion Partners and Urban Renaissance Group sold the building for more than 6 times its purchase price in less than two years.

OutlookWith construction activity at a post-recession high, all eyes are on pre-leasing. Portland is historically not a strong ‘leasing before construction starts’ kind of town, with the majority of leasing occurring fairly close to delivery. With the majority of the 2 million square feet under construction set to deliver in 2018, the next half of 2017 will shine a light on to how much more new office construction Portland can absorb. Of course rents play a large factor in determining the viability of a project, and with average Class A rents touching $35 p.s.f. full service in the CBD, $45.00 for new construction is not uncommon in Portland anymore.


YTD net absorption 37,621 s.f. ▲Under construction 1,971,508 s.f. ▲Total vacancy 9.8% ▲Average asking rent (gross) $28.31 p.s.f. ▲Concessions Stable ▶

0

500,000

1,000,000

1,500,000

2013 2014 2015 2016 YTD

2017


Rose City real estate blooms this spring

11.1%9.6% 8.9% 9.4% 9.8%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 YTD 2017


For more information, contact: Tim Harrison | [email protected]

• Both the number and total square footage of leases signed above 10,000 s.f. ticked up to the highest level in a year

• Construction has reached a new cyclical high with almost 2 million s.f.under construction

• Rents of under construction Class A buildings now average $43.15 p.s.f. full service


Raleigh-Durham

Raleigh-Durham’s development pipeline commands attention this quarter as732,253 square feet is finished. Midtown Plaza wrapped up construction and is93.8 percent leased. Allscripts and SunTrust Bank account for 252,000 squarefeet. Troutman Sanders announced a relocation to the building fromDowntown Raleigh, and Perspectum Diagnostics is expected to take down8,730 square feet. In RTP / RDU, Forty540 completed construction. AlignTechnology, which leases 60,000 square feet, is already expanding in thebuilding, leasing an additional 21,516 square feet. Most construction activityin Raleigh-Durham has been speculative, but recent expansions show thistrend may change. MetLife and Credit Suisse, two companies with largefootprints in the area, announced their intent to expand their technologypresence. F.N.B. Bank also signed a 40,000-square-foot lease that will kick off150,000 square foot tower in Downtown Raleigh.

The Raleigh-Durham market is on the rise, and investors are taking notice.California-based Karlin Real Estate bought GlaxoSmithKline’s 1.8 millionsquare foot campus. The pharmaceutical company has signed a 10-year leaseand will occupy 700,000 square feet. As for the rest of the campus, which is amix of office and lab, Karlin plans to spend $80 million on renovations tocreate an innovation hub, catering to the high concentration of tech talent.

OutlookWhile vacancy rates will increase in the coming quarters thanks to the 1.1 million square feet set to deliver this year, we expect strong leasing activity as tenants take advantage of recently completed space. With the number of large expansions announced in the market, long term absorption is expected to be positive.


YTD net absorption 720,885s.f. ▲Under construction 1,976,954 s.f. ▼Total vacancy 11.2% ▶

Average asking rent (gross) $21.86 p.s.f. ▲Concessions Stable ▶

0

1000000

2000000

2013 2014 2015 2016 YTD

2017

Supply and demand (s.f.) Net absorption

Deliveries

Confidence is key: companies and investors take advantage of rising market

12.8%13.4%

11.9%

12.6%

11.2%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Ashley Rogers | [email protected]

• Urban Class A submarkets continue to strengthen; total vacancy sits at 6.7 percent, and asking rents passed $30 per square foot in both downtown submarkets

• Overall asking rent is down for now; vacancy expected to increase as new product is delivered

• Raleigh-Durham has added over 11,000 new jobs this year alone; unemployment dipped to 3.8 percent in April 2017


Richmond



Occupancy gains in the second quarter pushed 2017 YTD net absorption positive with over 110,000 square feet absorbed this quarter. The largest occupancy driver was the delivery of The Symbol office building in Scott’s Addition, fueling nearly 40,000 square feet of positive absorption. Following the completion of The Symbol, The Rebkee Company announced plans for a 65,000-square-foot office development on North Boulevard adjacent to the Scott’s Addition submarket. Coupled with continued renovation of the Handcraft Building, the Scott’s Addition area was most active in terms of office development in the leasable inventory.

New-lease volume was fueled by state government relocations Downtown. This quarter, Virginia Worker’s Compensation will consolidate two locations to 333 E Franklin Street, leasing nearly 104,000 square feet within Media General’s former headquarters. Additionally, the Virginia DEQ leased 82,244 square feet at the Bank of America Center. DEQ’s former headquarters at 629 E Main Street, circa 1922, will likely be converted to apartments as residential demand drove multifamily development within Richmond’s urban centers.

In the suburbs, 13.3 acres of surplus land surrounding Well’s Fargo operations center in Innsbrook was under contract. Marketed as a mixed-used development, the site had potential for over 50,000 square feet of office space with structured parking. Additionally, 4240 and 4300 Cox Road were in escrow following an auction this quarter. The two Class B assets were vacated by Magellan Healthcare in 2014 and have the potential to add nearly 110,000 square feet of competitive office space after renovation.

OutlookSupply constraints will fuel Class A rent growth and create spill-over demand for Class B space as occupiers attempt to curb escalating real estate costs. Several active space requirements greater than 50,000 square feet could contract vacancy further or potentially spur suburban construction.

-250,000

250,000

750,000

2013 2014 2015 2016 YTD

2017


State government relocations drive new lease volume, net absorption shifts positive

14.6%

13.8% 13.7% 13.8% 13.7%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$6.00

$12.00

$18.00

$24.00

2013 2014 2015 2016 2017


For more information, contact: Geoff Thomas | [email protected]

• Office development gained traction in urban submarkets, while medical office construction prevalent in suburbs

• State government relocations to fuel Class B occupancy levels in the CBD this year.

• Tech firms and consulting groups led space takedowns in urban submarkets outside the CBD


Sacramento

Several larger healthcare-related users landed and expanded during the second quarter, causing overall vacancy to dip below 13.0 percent for the first time since 2001. Despite dwindling leasing options, demand in the CBD is outpacing every other submarket. The Highway 50 Corridor also experienced an increase in net absorption with the relocation of Belami e-commerce and the opening of Growth Public Schools.

Demand in 2017 has been conservative compared to the robust gains made during the past two years, but upward pressure on asking rates is steady. Market conditions favor landlords, and tenants seeking space in highly competitive micro-markets like the Capitol District are now looking at annual rent increases of 3.0 percent. With little quality space available and declining concessions, tenants looking downtown are considering adjacent suburban submarkets like South Natomas and Point West.

OutlookThe regional unemployment rate is ticking down and now sits just below the state unemployment rate, at 4.4 percent. But another major layoff lies down the pipeline. Aerojet announced the company will be relocating or eliminating up to 1,400 jobs. While Sacramento has yet to attract scale-tipping companies to the area, both healthcare and professional services have pushed payrolls organically. Healthcare alone added 6,500 jobs during the past 12 months.The market will stay on its current trajectory, with local tenants incrementally expanding their footprints and rent growth persisting. But demand will likely spill out of core submarkets and into previously overlooked ones.



(300,000)

700,000

1,700,000

2013 2014 2015 2016 YTD

2017


Demand swings back into positive territory

19.4% 18.3%16.0%

13.2% 12.8%

2013 2014 2015 2016 2017

Total vacancy

$1.20

$1.60

$2.00

$2.40

2013 2014 2015 2016 2017


For more information, contact: John Sheaffer | [email protected]

• Rent growth is strong where available options exist; Point West leads the pack, with 6.4 percent year-over-year growth

• Vacancy dips below 13.0 percent for the first time since the dot-com boom

• Healthcare-related services and professional business tenants drive demand in core submarkets


Salt Lake

The thriving Salt Lake office market continues its expansion with new supply and increasing asking rates, especially in high-quality Class A buildings. Since the start of 2016 over 3.5 million square feet (m.s.f.) have been delivered with 3.3 m.s.f. of that consisting of Class A space. In addition, this growth has been focused in the CBD, Draper, Sandy South Towne and North Utah County submarkets with 2.9 m.s.f. of that total.

Coupled with these newly constructed buildings, the current prevalence of sublease availability helps mitigate a supply constrained market and provides more options for space-seeking tenants. Although total vacancy is sitting at a low 8.1%, sublease availability (vacant and occupied) is at a decade high 2.0% with Class A reaching 3.5%. This is most evident in Utah County where Class A sublease availability tops 7.5%. While this trend has three distinct causes, companies like Ancestry.com securing space for future expansion and subleasing out a portion for the short-term, companies downsizing like Micro Focus, or relocating to a new Class A build-to-suit like Vivint Solar, the result of providing additional options for tenants is the same.

OutlookAlthough a rapidly expanding Class A inventory and a recent increase in sublease availability tilt the Salt Lake market in favor of extra supply, strong tenant demand keeps office supply/demand near equilibrium. This is evidenced by low Class A total vacancy and a $26.40 average asking lease rate that has seen a 12.6% increase from three years ago. Rent growth in the short term may slow until the sublease space is backfilled, while quality new space and strong tenant demand should cause rental rates to trend upwards by year’s end.



0

1,000,000

2,000,000

3,000,000

2013 2014 2015 2016 YTD

2017


Class A space leads the way in new construction, sublease availability, and rising asking rates

8.9%8.5%

7.4%8.3% 8.1%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Sean Eaton| [email protected]

• New construction in 2017 will be at its second highest level since 2008 and is keeping pace with strong tenant demand.

• Recent sublease availability and newly constructed buildings bring more options for tenants.

• Average asking rates have consistently increased over the last decade and should continue on same trajectory.


San Diego

During the first six months of 2017, demand for Class B space (339,128 square feet positive net absorption) has significantly outpaced the rest of the market (negative 79,324 square feet). Where is this demand coming from? Government tenants including the City of San Diego (Downtown) and County of San Diego (Kearny Mesa) have been leading the charge. Healthcare and pharmaceutical companies have also contributed to this trend, including SleepData (Kearny Mesa) and GW Pharmaceuticals (Carlsbad). The affordability factor of Class B properties is attractive to tenants who become priced out of Class A space.

The current Class A average monthly asking rental rate of $3.22 per square foot, full service gross (FSG) is now less than one percent off from the $3.24 FSG rate reached in Q1 2008. While the current rental rate represents a 27.3 percent increase from the trough of Q2 2011, rent growth has been stagnant so far this year. From 2011 through 2016, the Class A market recorded positive net absorption of 4.3 million square feet, driving rent increases during this time period. So far in 2017, the market has experienced negative net absorption of -121,012 square feet.

OutlookSince the start of 2010, the employed labor force of San Diego has grown 12.4 percent, bringing the current unemployment rate down to the third lowest level of the century. The Government, Educational & Health Services, and Financial Activities sectors have recorded strong year-over-year job growth. In order for demand of office space to continue, economic expansion needs to be sustainable. It is imperative for the local labor force to remain in San Diego while also growing the workforce by attracting people from outside the market. This has a direct relationship to expanding the companies that have a presence in San Diego.


YTD net absorption 259,804 s.f. ▶Under construction 563,859 s.f. ▶Total vacancy 12.4% ▶Average asking rent (gross) $2.68 p.s.f. ▲Concessions Stable ▶

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

2013 2014 2015 2016 YTD

2017


Class B segment pushes market to positive net absorption at midpoint of 2017

14.5%13.7%

14.4%

12.9%12.4%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$1.00

$2.00

$3.00

$4.00

2013 2014 2015 2016 2017


For more information, contact: Jared Dienstag | [email protected]

• Demand for Class B space drives occupancy gains during the first half of 2017

• The Class A average asking rental rate is closing in on the 2008 market peak

• San Diego unemployment drops to 3.6 percent, the lowest level since May 2006


San Francisco

Three 100,000+ square foot transactions drove second quarter leasing activity. First Republic Bank renewed and expanded for 179,000 square feet at One Front, Salesforce leased an additional 148,910 square feet in Salesforce Tower and OTTO leased 126,594 square feet at Pier 70. Though venture capital investments have tapered in the past 18 months, technology companies represented 46 percent of leasing activity for the quarter.

The market is bifurcated between traditional office space and second-generation creative space. Demand for popular creative space is affecting the lease up rate of traditional office availabilities. Landlords are offering more generous TI packages that in some cases top more than $100 per square foot on non-creative spaces to allow for its transformation.

Co-working space, which offers smaller tenants flexibility, while limiting their up-front capital exposure, is proliferating. WeWork has added three locations totaling more than 175,000 square feet so far this year. The field is becoming competitive, with several other co-working groups expanding in the city as well.

OutlookNo buildings in the construction pipeline delivered during the first half of 2017, but Salesforce Tower, 181 Fremont and 350 Bush will together add 2.2 million square feet to the market by year end. At Salesforce Tower, Accenture signed for an additional floor, and Salesforce leased an additional six floors, taking the project to 80 percent pre-leased. Market absorption will grow as already-committed tenants occupy the new buildings, but vacancy will also increase as not all space in these buildings is pre-leased. Rents in the city should remain stable through the end of 2017.


YTD net absorption -254,865 s.f. ▲Under construction 6,671,299 s.f. ▲Total vacancy 8.6% ▲Average asking rent (gross) $74.17 p.s.f. ▶Concessions Rising ▲

-500,000

1,500,000

3,500,000

2013 2014 2015 2016 YTD

2017


Uptick in demand is driving the market forward despite supply increase & muted absorption

11.1%9.8%

8.2% 8.2% 8.6%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

$80.00

2013 2014 2015 2016 2017


For more information, contact: Jack Nelson | [email protected]

• Leasing activity is strong, with more than 1.3 million square feet in transactions greater than 20,000 square feet in the second quarter.

• Higher cost creative space build-outs are pushing tenant improvement costs up, and owners are responding with higher TI allowances on spaces that require significant improvement.

• Rental rates are expected to hold steady through year-end as demand remains strong, keeping increased availabilities at bay.


San FranciscoMid-Peninsula

A growing number of tenants that are unable to find space in Palo Alto or Mountain View are migrating to the Mid-Peninsula. Much of the leasing activity has been focused along the Caltrain spine. During 2017, downtown micro markets such as Redwood City, San Mateo and Burlingame have experienced tightening conditions. The cost of amenitized downtown space has yet to reach prime Valley highs, but recent deals are placing upward pressure on rents. The suburban areas of the Peninsula are also noting strong demand. CourseHero leased 40,000 square feet at Informatica’s building in Redwood City, while GPJ expanded into 20,000 square feet in San Carlos. Concern exists about sublease availabilities, but some of the new availabilities are filling with companies like Perfect World, which sublet 30,000 square feet from Axiom at 100 Redwood Shores. The influx of professional services and fast growing startups looking for flexible terms at discounted rates is easing some worries.

OutlookMarket conditions will tighten further as the migration trend from the Valley is expected to ramp up during the next 12 months, driven by relatively lower asking rents for Class A space. Sublease availabilities have increased, but are not a significant concern because many of the options are smaller than 60,000 square feet and fall within the “sweet spot” of the Peninsula’s demand. Tech companies dominate in the market, despite cooling VC funding for seed and early stage startups. The professional services sector has also been very active. Rents are expected to grow further in prime submarkets, which could speed up leasing velocity as tenants look to sign leases before the market reaches its peak. The Mid-Peninsula will benefit from tight leasing conditions in neighboring markets and is well-positioned for ongoing occupancy growth for the remainder of 2017.


YTD net absorption 75,963 s.f. ▲Under construction 1,652,550 s.f. ▲Total vacancy 11.3% ▶Average asking rent (gross) $59.12 p.s.f. ▲Concessions Stable ▶

0

500,000

1,000,000

1,500,000

2013 2014 2015 2016 YTD

2017


Peninsula benefits from overheated Silicon Valley spillover

15.1% 14.1%

10.4% 10.7% 11.3%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

$80.00

2013 2014 2015 2016 2017


For more information, contact: Christan Basconcillo | [email protected]

• Tenants that have been priced out of Palo Alto and Mountain View are looking to the Peninsula for rent relief and options larger than 30,000 s.f.

• The South County market has tightened further, with little relief in sight because most new construction is pre-leased.

• Available sublease space has increased risen as a result of M&A activity, but on a smaller scale compared to other parts of the Bay Area.


Seattle-Bellevue

For the third consecutive quarter, Silicon Valley experienced substantial occupancy losses, raising questions as to whether the market is reaching a plateau. Demand for full-floor availabilities has been strong, but it has not been enough to offset the volume of space vacated by companies that have been acquired or are consolidating. BlueCoat and Ericsson accounted for half of the 500,000 square feet of occupancy losses this quarter. While some tenants are downsizing, others are expanding. Roche Technology will backfill space left behind by Bluecoat, and Barefoot Networks sublet 60,000 square feet of space from Ooyala, which was acquired by Telestra. One-third of sublease space on the market is a result of company acquisitions, while the consolidation of older hardware and networking companies is pushing direct vacancy higher. On a brighter note, several large tech companies are expanding and targeting spaces that are currently under development.

OutlookThough vacancy has risen, four million square feet of pre-leased new construction is slated to be absorbed, half of which is expected to occur over the next six months. However, news of layoffs and ongoing consolidation of traditional tech companies will be a dampener to some of the expansion. Another million square feet is expected to be vacated by 2018, which could finally prompt market-wide rent stabilization. Rents are expected to maintain their upward trend as newly-delivered vacant Class A space completes, but older Class B is seeing some downward pressure. Though there is some uncertainty, the flight-to-quality movement is still a predominant trend, but submarkets carrying the bulk of vacancy like Santa Clara and North San Jose may begin to see conditions further soften should tenants put major real estate decisions on hold to wait and see how conditions play out.


YTD net absorption -620,847 s.f. ▲Under construction 8,877,849 s.f. ▼Total vacancy 14.8% ▲Average asking rent (gross) $46.44 p.s.f. ▲Concessions Stable ▶

-2,000,000

0

2,000,000

4,000,000

6,000,000

2013 2014 2015 2016 YTD

2017


Occupancy losses continue as acquisitions and rightsizing hit the market

15.4%13.8%

12.4% 12.4%14.8%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

2013 2014 2015 2016 2017



• M&A fallout is catching up to the market. Companies that have been acquired are vacating space.

• Rent growth in hot submarkets is stabilizing, while up-and-coming areas like Downtown San Jose have gained more traction.

• Sublease activity is focused on spaces smaller than 60,000 square feet; touring activity slows for large blocks of space.


Silicon Valley

For the third consecutive quarter, Silicon Valley experienced substantial occupancy losses, raising questions as to whether the market is reaching a plateau. Demand for full-floor availabilities has been strong, but it has not been enough to offset the volume of space vacated by companies that have been acquired or are consolidating. BlueCoat and Ericsson accounted for half of the 500,000 square feet of occupancy losses this quarter. While some tenants are downsizing, others are expanding. Roche Technology will backfill space left behind by Bluecoat, and Barefoot Networks sublet 60,000 square feet of space from Ooyala, which was acquired by Telestra. One-third of sublease space on the market is a result of company acquisitions, while the consolidation of older hardware and networking companies is pushing direct vacancy higher. On a brighter note, several large tech companies are expanding and targeting spaces that are currently under development.

OutlookThough vacancy has risen, four million square feet of pre-leased new construction is slated to be absorbed, half of which is expected to occur over the next six months. However, news of layoffs and ongoing consolidation of traditional tech companies will be a dampener to some of the expansion. Another million square feet is expected to be vacated by 2018, which could finally prompt market-wide rent stabilization. Rents are expected to maintain their upward trend as newly-delivered vacant Class A space completes, but older Class B is seeing some downward pressure. Though there is some uncertainty, the flight-to-quality movement is still a predominant trend, but submarkets carrying the bulk of vacancy like Santa Clara and North San Jose may begin to see conditions further soften should tenants put major real estate decisions on hold to wait and see how conditions play out.


YTD net absorption -620,847 s.f. ▲Under construction 8,877,849 s.f. ▼Total vacancy 14.8% ▲Average asking rent (gross) $46.44 p.s.f. ▲Concessions Stable ▶

-2,000,000

0

2,000,000

4,000,000

6,000,000

2013 2014 2015 2016 YTD

2017


Occupancy losses continue as acquisitions and rightsizing hit the market

15.4%13.8%

12.4% 12.4%14.8%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

$60.00

2013 2014 2015 2016 2017



• M&A fallout is catching up to the market. Companies that have been acquired are vacating space.

• Rent growth in hot submarkets is stabilizing, while up-and-coming areas like Downtown San Jose have gained more traction.

• Sublease activity is focused on spaces smaller than 60,000 square feet; touring activity slows for large blocks of space.


St. Louis

The local economy continues to move full steam ahead. Unemployment is the lowest since the dot-com era, and office employment has been at record levels for several months. The office market is no different. As expected, the market gained in Q2. Absorption topped 160,000 square feet as Clayton and West County added almost 300,000 square feet. Centene continues to grow at an exponential rate, occupying more than 125,000 square feet in Clayton this quarter and leasing all of 12443 Olive Boulevard (104,000 square feet) in West County. The building was set to become vacant later this year. Over the last two years, Centene has leased over 500,000 square feet in Clayton and West County, all of it as expansions. Due to Centene, large blocks of space are hard to come by in the two submarkets. Class A vacancy is just 4.3 percent in Clayton and 7.4 percent in West County. If you are a tenant looking in either market for 25,000 square feet, there are only four options available, none in Clayton. Meanwhile, nine Class A buildings in the CBD can accommodate that size requirement. The CBD remains a tenant’s market as vacancy rates are double what they are in the suburbs.

OutlookLandlords in tighter submarkets will continue to hold firm on asking rates. Class A rates in Clayton and West County both moved up over 3.0 percent from last year. Increasing rates $0.50 to $1.00 per square foot is getting more common and will continue during current conditions.

With a lack of new buildings hitting the market anytime soon, larger tenants looking for space in the next 24 months are having to cast a wider net for alternative locations. There could be some relief in sight with acquisitions of Scottrade and Isle of Capri. Scottrade has a large real estate footprint that could shrink, and Isle of Capri’s space is being marketed for sublease.


YTD net absorption 26,844 s.f. ▲Under construction 795,234 s.f. ▲Total vacancy 12.4% ▼Average asking rent (gross) $19.30 p.s.f. ▲Concessions Stable ▶

-250,000

250,000

750,000

2013 2014 2015 2016 YTD

2017


Office market gets back on track

17.1%15.8%

14.7%

12.7% 12.4%

2013 2014 2015 2016 2017

Total vacancy

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Blaise Tomazic | [email protected]

• Quarterly absorption totaled 160,764 square feet. Clayton and West County buoyed the market with 294,176 square feet of absorption.

• The suburbs continue to carry the region. Class A asking rates in the suburbs are 29.7% higher than the CBD.

• Healthcare and financial services firms are driving future activity, the two industries account for 30% of tenants in the market.


SuburbanMaryland

The growth achieved during the first quarter was overshadowed by federal move-outs and consolidations in the second quarter, which tempered demand for office space and increased vacancy rates by 10 basis points to 17.9 percent. The Federal Agency for Healthcare Research and Quality moved out of its home for the last 14 years, leaving 137,949 square feet vacant at 77 Upper Rock in Shady Grove and moving to 5600 Fishers Lane due to enhancement to efficiencies. Two additional major vacancies were created by federal tenants: The National Institutes of Health (NIH) vacated 74,300 square feet at 6100 Executive Boulevard in Rockville Pike, and the Federal Bureau of Investigation (FBI) moved out of 67,639 square feet at 11700 Beltsville Drive in Prince George’s County. Traditionally tight urban submarkets, such as Downtown Silver Spring, Chevy Chase and Bethesda-CBD, saw conditions tighten and move further in favor of landlords.

Leasing continued at a tepid pace in the second quarter. In the first half of 2017 large-scale leasing activity decreased 48.6 percent compared to last year. Large-scale leasing activity involved a mix of private sector tenants, with Kaiser Permanente signing the largest lease of the quarter at 176,000 square feet. This lease started another new construction in Prince George’s County at 4000 Garden City Drive near the New Carrollton Metro station.

OutlookOverall, demand remained stalled in the second quarter, and substantial growth, mainly from the Education-Technology and Healthcare and Life Science sectors appears beyond the immediate horizon. The length of time it takes for normalized demand to return to the market will determine how challenging the months ahead will be for landlords. Conversely, tenants with solid financial footing will benefit from increased negotiating leverage.


YTD net absorption -69,118 s.f. ▶Under construction 251,000 s.f. ▲Total vacancy 17.9% ▶Average asking rent (gross) $27.62 p.s.f. ▶Concessions Rising ▲

-1,000,000

0

1,000,000

2013 2014 2015 2016 YTD

2017


Vacancy increases as federal tenants shed space in consolidations

17.9%

19.5%20.0%

18.6%17.9%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: Sara Hines| [email protected]

• Another project broke ground in Prince George's County, this one located near New Carrollton at COPT’s M Square project

• Federal move-outs tied to consolidations within the market increased vacancy in the region

• Rental rates are likely to remain stagnant as demand as stalled, decreasing 2.8 percent since 2007


Tampa Bay

Tampa Bay experienced approximately 55,000 square feet of negative net absorption during the second quarter as a result of a few groups consolidating their local footprints. This is not expected to continue through the remainder of 2017 with a few groups expected to take significant blocks off the market in coming quarters. Despite the negative absorption during the past quarter Tampa Bay has still experienced more than 100,000 square feet of positive absorption during the first half of 2017.

There has been a flight to quality over the past 18 months with tenants flocking to the Tampa CBD and Westshore submarkets. Between the two submarkets there are only 22 blocks larger than 20,000 in both Class A and B product, creating increased leverage for landlords to increase rates and hold out for larger tenants. Groups entering the market are also experiencing significant sticker shock as rates are $5.00-$7.00 higher than even five years ago prompting groups to expand their search for space into the Northwest and I-75/I-4 Corridor submarkets. The I-75/I-4 Corridor has experienced significant growth in rental rates year over year, increasing by 9.6 percent. Specifically, Class B product has seen 16.6 percent growth year over year as the region continues to become more popular, especially for larger users.

OutlookThe top-tier submarkets will continue to experience consistent demand through 2017. Landlords are expected to continue to raise rates across the market, especially in Class B product as some tenants are being priced out of Class A space. Market conditions continue to strengthen, potentially opening the door for future development, although developers are not expected to break ground on any new product in 2017.


YTD net absorption 104,117 s.f. ▲Under construction 150,000 s.f. ▶Total vacancy 12.8% ▼Average asking rent (gross) $24.17 p.s.f. ▲Concessions Falling ▼

0

250,000

500,000

750,000

1,000,000

1,250,000

2013 2014 2015 2016 YTD

2017


Leasing activity slow down in second quarter not a sign for worry as asking rates continue to rise

18.9% 17.4%14.4% 13.1% 12.8%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$10.00

$20.00

$30.00

2013 2014 2015 2016 2017


For more information, contact: Drew Gilligan | [email protected]

• Overall rents increased across the market, growing 3.8 percent year-over-year. Class B product experienced significant growth with asking rates rising 7.0 percent year over year.

• Total vacancy increased 20 basis points to 12.8 percent after a couple of groups consolidated local operations.

• Tampa Bay continues to make the short list for large national companies performing multi-market searches for relocations.


Washington, DC

Development activity in the core continues to ascend beyond cyclicals highs, largely driven by the willingness of developers to break ground on new projects with increasingly smaller anchor tenants. During Q2, 1900 N Street and 2100 L Street proceeded forward after securing 70,000-75,000-square-foot preleases by Goodwin Procter and Morrison & Foerster, respectively. Preleasing the top four floors at each project, an additional 300,000 square feet of lower to mid-level space priced in the low to mid $80s full-service is now being marketed, space that a majority of the demand pool finds less desirable and space that is also very competitive with the remaining availabilities in more than five projects that are current under construction or have recently delivered. Not only is competition among new product growing, but existing product is also facing challenges from a demand perspective. Over the next five years, the largest law firms (many of which have already signed long-term lease commitments) are slated to give back a total of 1 million square feet upon rightsizing. However, in Q2, coworking, tech, nonprofits and even several law firms signed deals showing growth.

OutlookThe surge in development and lack of near-term law firm demand that drives activity in the $70+ full-service segment, coupled with law firms rightsizing and returning second-generation, large-block space priced in the $60-$70 full-service range, will cause Class A vacancy to trend to 15-20 percent and result in a 7-12 percent decline in net effective rents once new product delivers.

In contrast, the Class B/C market priced below $55 full-service will continue to face growing supply constraints as more product is repositioned to Class A. Class B/C rents still have room to grow, but given the cost-conscious nature of many Class B/C tenants, rents should ceiling out as demand begins to flow to non-core submarkets and the inner suburbs of RB and Bethesda.


YTD net absorption 470,280 s.f. ▲Under construction 6,974,934 s.f. ▲Total vacancy 11.8% ▲Average asking rent (gross) $59.82 p.s.f. ▶Concessions Rising ▲

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2013 2014 2015 2016 YTD

2017


Tenants exhibiting signs of growth but development pipeline is surging, which will upset equilibrium

11.7%

12.4%

11.8%

12.1%

11.8%

2013 2014 2015 2016 2017

Total vacancy

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

$70.00

2013 2014 2015 2016 2017


For more information, contact: CJ Caputo | [email protected]

• Development soared as 7 projects totaling 2 million square feet broke ground in Q2; 8 other projects will break ground over the next 12 months.

• Growth returned as 13 tenants signed leases to expand by more than 5,000 square feet, generating more than 250,000 square feet of future occupancy gains.

• Supply continued to outpace demand and new developments kicked off with increasingly smaller preleases.


West Palm Beach

Palm Beach County continued on its path of slow but steady growth during the second quarter. Throughout the current cycle, the county has seen much more stable growth with fewer peaks and valleys than the counties to the south. The lack of new construction has led to a larger share of Palm Beach County’s current inventory to be absorbed. In aggregate, over the past five years, Miami-Dade County and Broward County have absorbed 7.8 percent and 7.1 percent of their stock, respectively. Comparably, in Palm Beach County, year-to-date there has been 70,400 square feet of absorption – that equates to 0.3 percent of the stock. And, over the past five years, there has been nearly 1.8 million square feet of absorption, or 8.7 percent of total inventory.

It is important to note that while there have been significant deliveries for new office construction in Miami-Dade (579,400 square feet) and a smaller share in Broward, Palm Beach County has seen just 37,500 square feet of new inventory this cycle. All of which came from the recently delivered Class B office building,Gardens Innovation Center (354 Hiatt Drive), in North Palm Beach.

Downtown West Palm Beach remains particularly tight among the four Trophy assets with vacancy at 5.1 percent and asking rents above historic highs at $46.04 per square foot (NNN). This trend is being sustained by the void of new supply. While a new building would likely bring some new tenants to the market, it would likely lease up in large part due to a “musical chairs effect,” by which many tenants already located downtown would vacated existing space for the new asset. This would lead to increased competition among existing assets to lease space.

The county, and downtown in particular boasts a robust development pipeline, consisting in large part by multifamily. Steady growth should remain with no new construction expected to break ground in the near term unless significant preleasing is secured.


YTD net absorption 70,412 s.f. ▲Under construction 0 s.f. ▶Total vacancy 15.4% ▼Average asking rent (gross) $31.54 p.s.f. ▲Concessions Stable ▶

0

500,000

1,000,000

2013 2014 2015 2016 YTD

2017


Palm Beach County experiences the strongest absorption growth in the metro area

22.3%19.1%

17.2% 15.6% 15.4%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: Ilyssa Shacter | [email protected]

• Palm Beach County has experienced slow but steady growth this cycle with limited new construction.

• Absorption in Palm Beach County outpaced that which was experienced in Miami Dade and Broward at 8.7 percent over the previous five years.

• Downtown West Palm Beach (Core CBD) remains tight among Trophy assets as no major projects have broken ground this cycle.


Westchester

Westchester County experienced another strong period of leasing activity over the last three months, with tenants leasing even more space than the last quarter. White Plains was the hotbed for most of this activity, as four of the five largest deals were signed in the city with the notable exception being Ascensia’s 65,000-square-foot lease at 100 Summit Lake Drive in Valhalla. Sumitomo, Danone, Premier Home Health Care Services all signed large leases in the CBD totaling over 200,000 square feet. Much like NY Life’s lease in White Plains the previous quarter, Danone’s move continued the trend of firms transitioning from suburban campuses to offices in the city. This movement is helping White Plains position itself as a center for the “live-work-play” lifestyle in Westchester, spurred also by abundant residential development in the city.

The take-up in the urban areas was not enough to counter the enormous amount of space that came onto the market, particularly in Northern Westchester. The vacancy rate for Class A space in that submarket increased from 37.0 percent at the end of last quarter to 63.0 percent as all 1.1 million square feet of the former IBM campus was added to a market already saturated with vacant space in suburban office parks.

OutlookLooking back at the first half of 2017, it is clear that urban offices in close proximity to transit options have been the chief market driver, while the suburban markets have been challenged by lack tenant interest. We expect this trend to continue, with some suburban assets likely to be repositioned for non-office use. While not a traditional office occupier, the Westchester life science industry has generated several large multimillion-square-foot research and development projects, with more in the pipeline over the next few years.


YTD net absorption -552,682 s.f. ▲Under construction 0 s.f. ▶Total vacancy 24.7% ▼Average asking rent (gross) $27.04 p.s.f. ▲Concessions Stable ▶

-750,000

-250,000

250,000

2013 2014 2015 2016 YTD

2017


Excess of suburban office space overshadows strong leasing activity

20.2% 20.9%22.9% 23.0% 24.7%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

$40.00

2013 2014 2015 2016 2017


For more information, contact: Guthrie Stanback | [email protected]

• Large firms in search top talent continue to transition from campus headquarters to urban centers

• White Plains has positioned itself as a hub for the live-work-play lifestyle • The oversupply of Class A space in the Northern Westchester submarket

has driven up vacancy rates


United States employment


MarketTotal nonfarm

jobs 12-month net change (000s)

Total nonfarm jobs 12-month percent change

Office jobs* 12- month net change (000s)

Office jobs* 12- month

percent change

Unemployment (2017)

Unemployment (2016)

12-month unemployment

change (bp)

Atlanta 81.9 3.1% 39.9 5.4% 4.5% 4.7% -20

Austin 28.3 2.8% 4.9 1.9% 3.2% 2.9% 30

Baltimore 7.9 0.6% 2.3 0.7% 4.1% 4.1% 0

Boston 47.3 1.7% 22.9 3.2% 3.8% 3.4% 40

Charlotte 35.7 3.1% 15.9 5.2% 4.0% 4.4% -40

Chicago 34.4 0.7% 22.8 1.9% 4.1% 5.3% -120

Cincinnati 21.6 2.0% 8.8 3.5% 3.9% 3.9% 0

Cleveland 8.2 0.8% 1.1 0.5% 5.8% 4.9% 90

Columbus 17.2 1.6% 5.6 2.0% 3.7% 3.7% 0

Dallas 90.4 3.6% 40.5 5.4% 3.8% 3.5% 30

Denver 35.1 2.5% 6.5 1.6% 2.3% 3.0% -70

Detroit 42.3 2.1% 4.6 2.7% 3.6% 4.7% -110

Fairfield County 2.5 0.6% -1.7 -1.4% 4.8% 5.0% -20

Fort Lauderdale 31.1 3.8% 12.3 5.6% 3.8% 4.3% -50

Fort Worth 25.4 2.0% 2.5 1.4% 3.8% 3.7% 10

Hampton Roads -1.1 -0.1% 5.4 3.5% 4.2% 4.3% -10

Hartford 7.2 1.3% 3.9 2.8% 4.8% 5.2% -40

Houston 45.3 1.5% 12.8 2.0% 5.1% 4.9% 20

Indianapolis 21.7 2.1% 2.7 1.1% 2.7% 3.9% -120

Jacksonville 23.4 3.5% 7.6 4.4% 3.8% 4.4% -60

Long Island 23.2 1.7% 5.0 1.9% 3.9% 3.7% 20

Los Angeles 55.7 1.3% 10.0 1.0% 4.0% 4.8% -80

Louisville 12.9 2.0% 3.5 2.5% 3.9% 4.1% -20

Miami 26.5 2.3% 3.5 1.3% 4.7% 5.2% -50

Milwaukee 2.4 0.3% -0.6 -0.3% 3.1% 4.2% -110

Minneapolis 38.5 2.0% 9.7 2.0% 3.2% 3.1% 10

Nashville 37.5 4.0% 9.8 4.1% 2.3% 3.4% -110

New Jersey 45.0 1.1% 17.9 1.8% 4.2% 5.0% -80

New York 83.0 1.9% 33.4 2.4% 4.3% 5.2% -90

North Bay 0.9 0.8% 0.1 0.4% 2.6% 2.9% -30

Oakland-East Bay 19.8 1.7% 5.8 2.2% 3.4% 3.9% -50

Orange County 3.8 0.2% 3.7 0.9% 3.2% 3.7% -50

Orlando 48.0 4.0% 14.5 4.8% 3.6% 4.2% -60

Philadelphia 46.1 1.6% 14.7 2.0% 5.0% 4.9% 10

Phoenix 47.0 2.4% 14.9 2.7% 4.3% 4.4% -10

Pittsburgh 7.3 0.6% 6.3 2.3% 5.3% 5.5% -20

Portland 21.0 1.8% 5.6 2.1% 3.3% 4.5% -120

Raleigh-Durham 15.7 2.6% 10.9 6.7% 3.8% 4.1% -30

Richmond 11.1 1.7% 2.4 1.4% 3.9% 3.9% 0

Sacramento 11.6 1.2% 3.2 1.6% 4.1% 4.7% -60

Salt Lake City 22.2 3.2% 8.4 4.3% 3.2% 3.1% 10

San Antonio 25.5 2.5% 3.6 1.5% 3.6% 3.4% 20

San Diego 20.3 1.4% 4.3 1.3% 3.6% 4.3% -70

San Francisco 24.3 2.2% 2.2 0.5% 2.6% 2.8% -20

Seattle-Bellevue 48.3 2.5% 15.5 3.2% 3.6% 4.3% -70

Silicon Valley 15.0 1.4% 5.3 1.6% 3.0% 3.5% -50

St. Louis 12.9 0.9% 6.0 1.8% 4.0% 4.1% -10

Tampa 43.0 3.3% 17.6 4.9% 3.8% 4.3% -50

Washington, DC 48.3 1.5% 14.9 1.5% 3.6% 3.6% 0

West Palm Beach 14.7 2.4% 2.6 1.6% 3.9% 4.4% -50

Westchester County 12.5 1.8% 5.2 3.7% 4.1% 3.9% 20

United States 2,266.0 1.6% 771.0 2.5% 4.3% 4.7% -40


Market totals (CBD and Suburban)

Inventory (s.f.) Quarterly total net

absorption(s.f.)

YTD total net absorption

(s.f.)

YTD total netabsorption

(% of inventory)

Total vacancy

(s.f.)

Total vacancy

(%)

Average direct asking

rent ($ p.s.f.)

Quarterly percent change

rent

YTD completions

(s.f.)

Underconstruction / renovation

(s.f.)

Atlanta 134,482,992 221,645 -293,663 -0.2% 23,496,258 17.5% $24.46 1.2% 1,137,057 4,076,418

Austin 51,290,468 321,146 743,118 1.4% 5,955,028 11.6% $37.34 -0.7% 1,204,739 1,892,932

Baltimore 72,363,073 31,207 222,024 0.3% 9,864,598 13.6% $24.00 0.9% 696,099 1,126,803

Boston 166,843,976 688,008 423,098 0.3% 22,205,875 13.3% $36.52 4.6% 340,236 3,519,403

Charlotte 47,981,322 487,070 476,135 1.0% 5,916,166 12.3% $24.74 0.6% 984,259 2,220,970

Chicago 247,211,044 702,940 359,551 0.1% 37,089,848 15.0% $31.21 -0.2% 3,530,164 5,026,590

Cincinnati 35,379,098 43,670 -268,855 -0.8% 6,226,930 17.6% $19.53 -1.2% 226,000 239,000

Cleveland 28,240,930 41,649 20,902 0.1% 5,376,188 19.0% $19.18 2.1% 0 263,000

Columbus 28,870,688 -446,068 -256,342 -0.9% 3,885,210 13.5% $19.62 0.2% 69,784 1,141,500

Dallas 175,458,239 2,522,687 2,604,812 1.5% 34,036,637 19.4% $26.61 -0.1% 4,412,111 7,783,398

Denver 109,701,857 256,296 523,791 0.5% 15,686,731 14.3% $28.21 4.4% 1,248,455 4,312,123

Detroit 67,884,004 136,867 186,989 0.3% 13,268,239 19.5% $18.97 -3.5% 0 418,334

Fairfield County 43,278,441 492,672 -313,434 -0.7% 10,807,018 25.0% $36.67 -0.2% 0 0

Fort Lauderdale 22,573,092 214,873 202,070 0.9% 3,029,960 13.4% $29.52 2.7% 0 91,819

Fort Worth 41,935,376 -242,077 -199,466 -0.5% 7,541,400 18.0% $22.88 1.0% 573,044 918,978

Hampton Roads 18,917,028 333,592 336,268 1.8% 2,539,791 13.4% $18.87 -0.4% 209,109 0

Hartford 25,361,868 -306,097 -200,956 -0.8% 3,963,509 15.6% $21.19 0.0% 0 100,284

Houston 165,689,829 -581,086 -1,376,620 -0.8% 37,147,685 22.4% $30.79 1.2% 2,274,831 2,366,874

Indianapolis 32,343,840 120,518 28,722 0.1% 5,418,590 16.8% $20.13 0.4% 25,361 517,616

Jacksonville 20,263,540 210,402 197,228 1.0% 2,516,224 12.4% $19.55 -1.0% 0 0

Long Island 41,863,735 110,677 130,548 -0.4% 5,099,168 12.2% $26.54 0.5% 0 0

Los Angeles 189,907,114 621,674 -34,204 0.0% 28,257,206 14.9% $39.57 -0.5% 858,644 1,927,380

Louisville 18,468,604 30,593 124,540 0.7% 1,984,604 10.7% $17.59 0.2% 160,000 100,000

Miami 37,816,854 157,965 167,189 0.4% 4,829,498 12.8% $37.36 1.0% 127,608 797,492

Milwaukee 27,638,314 81,414 104,503 0.4% 4,630,468 16.8% $20.17 2.9% 110,000 159,149

Minneapolis 69,634,048 -15,972 -146,764 -0.2% 11,381,464 16.3% $26.24 1.7% 342,000 659,163

Nashville 35,352,312 42,341 -159,650 -0.5% 3,042,986 8.6% $25.46 -1.2% 796,535 2,544,225

New Jersey 159,535,771 508,739 -70,795 0.0% 39,237,523 24.6% $26.59 1.2% 45,000 45,200

New York 451,157,838 300,407 569,502 0.1% 47,839,120 10.6% $75.32 1.3% 178,504 13,566,876

North San Francisco Bay 28,558,678 102,963 188,504 0.7% 3,083,568 10.8% $27.00 0.9% 0 184,000

Oakland-East Bay 52,215,427 352,917 547,982 1.0% 5,410,365 10.4% $39.12 -0.3% 0 1,168,000

Orange County 96,156,325 23,805 182,054 0.1% 11,042,573 11.5% $32.52 0.5% 211,200 2,351,896

Orlando 28,238,330 103,050 177,201 0.6% 3,064,360 10.9% $21.91 4.0% 0 134,000

Philadelphia 133,719,042 203,083 448,277 0.3% 16,879,134 12.6% $26.26 0.0% 118,331 4,030,053

Phoenix 86,284,584 595,346 1,522,142 1.8% 16,868,922 19.6% $25.21 1.2% 1,589,106 1,493,291

Pittsburgh 50,984,591 -276,258 22,071 0.0% 8,476,879 16.6% $23.05 -0.3% 214,500 404,274

Portland 59,980,293 145,011 37,621 0.1% 5,854,324 9.8% $28.31 1.0% 152,352 1,971,508

Raleigh-Durham 47,335,503 251,460 720,885 1.5% 5,320,261 11.2% $21.88 -2.4% 732,253 1,976,954

Richmond 24,417,004 110,454 78,380 0.3% 3,346,010 13.7% $19.31 0.3% 60,000 15,321

Sacramento 43,877,872 162,468 132,683 0.3% 5,616,966 12.8% $23.64 0.0% 0 97,000

Salt Lake City 55,805,838 337,758 272,649 0.5% 4,544,180 8.1% $21.30 2.9% 543,958 1,633,940

San Antonio 30,426,169 140,078 78,510 0.3% 4,456,217 14.6% $22.54 -3.4% 173,034 1,207,237

San Diego 78,152,884 63,880 259,804 0.3% 9,659,901 12.4% $32.16 1.9% 0 563,859

San Francisco 76,436,932 -136,571 -254,865 -0.3% 6,595,619 8.6% $74.17 1.0% 0 6,611,299

San Francisco Peninsula 26,676,528 58,630 75,963 0.0% 3,010,331 11.3% $59.16 1.2% 192,000 1,652,550

Seattle-Bellevue 97,410,327 980,685 2,860,841 2.9% 8,242,869 8.5% $35.60 1.3% 2,288,329 5,950,728

Silicon Valley 69,571,631 -645,081 -740,869 -1.1% 10,361,809 14.9% $46.44 0.5% 907,234 8,877,849

St. Louis 42,493,994 160,764 26,844 0.1% 5,282,665 12.4% $19.30 -0.2% 0 795,234

Tampa Bay 34,983,805 -55,618 104,117 0.3% 4,467,381 12.8% $24.17 0.3% 0 148,800

Washington, DC 327,925,737 -475,862 -489,098 -0.1% 54,982,358 16.8% $38.48 3.3% 927,148 11,731,314

West Palm Beach 20,623,612 64,502 70,412 0.3% 3,172,933 15.4% $31.54 1.5% 37,500 0

United States totals 4,111,454,697 8,802,534 9,869,667 0.2% 609,857,790 14.8% $33.05 0.8% 27,696,485 108,814,634

United States office statistics

0% 5% 10% 15% 20% 25% 30%

Salt Lake CitySeattle-Bellevue

NashvilleSan Francisco

PortlandOakland-East Bay

New YorkLouisville

North San Francisco BayOrlando

Raleigh-DurhamSan Francisco Peninsula

Orange CountyAustin

Long IslandCharlotte

San DiegoJacksonville

St. LouisPhiladelphia

Tampa BayMiami

SacramentoBoston

Fort LauderdaleHampton Roads

ColumbusBaltimoreRichmond

DenverSan AntonioLos Angeles

Silicon ValleyChicago

West Palm BeachHartford

MinneapolisPittsburgh

IndianapolisMilwaukee

Washington, DCAtlanta

CincinnatiFort WorthCleveland

DallasDetroit

PhoenixHouston

New JerseyWestchester County

Fairfield County

Vacancy rate (%)

Total vacancy rates

(including sublease)


0 200 400

LouisvilleHampton Roads

JacksonvilleWest Palm Beach

Fort LauderdaleRichmond

HartfordSan Francisco Peninsula

MilwaukeeOrlando

ClevelandNorth San Francisco Bay

ColumbusSan Antonio

Westchester CountyIndianapolis

Tampa BayNashville

CincinnatiMiami

Long IslandFort Worth

St. LouisFairfield County

SacramentoRaleigh-Durham

CharlottePittsburgh

AustinOakland-East Bay

Salt Lake CityPortland

DetroitSilicon ValleyMinneapolis

BaltimoreSan Francisco

San DiegoPhoenix

Orange CountySeattle-Bellevue

DenverPhiladelphia

AtlantaNew Jersey

HoustonBoston

DallasLos Angeles

ChicagoWashington, DC

New York

Square feet (millions)

Inventory (s.f.)


-2,000 0 2,000 4,000

HoustonSilicon Valley

Westchester CountyWashington, DCFairfield County

AtlantaCincinnatiColumbus

San FranciscoHartford

Fort WorthNashville

MinneapolisNew JerseyLos Angeles

ClevelandPittsburgh

St. LouisIndianapolis

PortlandWest Palm Beach

San Francisco PeninsulaRichmond

San AntonioTampa BayMilwaukee

LouisvilleLong Island

SacramentoMiami

OrlandoOrange County

DetroitNorth San Francisco Bay

JacksonvilleFort Lauderdale

BaltimoreSan Diego

Salt Lake CityHampton Roads

ChicagoBoston

PhiladelphiaCharlotte

DenverOakland-East Bay

New YorkRaleigh-Durham

AustinPhoenix

DallasSeattle-Bellevue

Square feet (thousands)

YTD total net absorption

(including sublease)

$0.00 $20.00 $40.00 $60.00 $80.00

Louisville

Hampton Roads

Detroit

Cleveland

St. Louis

Richmond

Cincinnati

Jacksonville

Columbus

Indianapolis

Milwaukee

Salt Lake City

Raleigh-Durham

Orlando

San Antonio

Fort Worth

Pittsburgh

Sacramento

Baltimore

Tampa Bay

Atlanta

Charlotte

Phoenix

Nashville

Minneapolis

Philadelphia

Long Island

New Jersey

Dallas

North San Francisco Bay

Westchester County

Denver

Portland

Fort Lauderdale

Houston

Chicago

West Palm Beach

San Diego

Orange County

Seattle-Bellevue

Boston

Fairfield County

Austin

Miami

Washington, DC

Oakland-East Bay

Los Angeles

Silicon Valley

San Francisco Peninsula

San Francisco

New York

Average asking rent

$ per square foot (full service)


0 5,000,000 10,000,00015,000,000

Fairfield CountyHampton Roads

JacksonvilleLong Island

West Palm BeachWestchester County

RichmondNew Jersey

Fort LauderdaleSacramento

LouisvilleHartfordOrlando

Tampa BayMilwaukee

North San Francisco BayCincinnatiCleveland

PittsburghDetroit

IndianapolisSan Diego

MinneapolisSt. Louis

MiamiFort WorthBaltimoreColumbus

Oakland-East BaySan Antonio

PhoenixSalt Lake City

San Francisco PeninsulaAustin

Los AngelesPortland

Raleigh-DurhamCharlotte

Orange CountyHouston

NashvilleBoston

PhiladelphiaAtlantaDenver

ChicagoSeattle-Bellevue

San FranciscoDallas

Silicon ValleyWashington, DC

New York

Square feet

Under construction (s.f.)

0.0% 4.0% 8.0% 12.0% 16.0%

Fairfield CountyHampton Roads

JacksonvilleLong Island

West Palm BeachWestchester County

New JerseyRichmond

SacramentoFort Lauderdale

Tampa BayOrlando

LouisvilleMilwaukee

DetroitNorth San Francisco Bay

CincinnatiSan DiegoPittsburghCleveland

MinneapolisLos Angeles

HoustonBaltimore

IndianapolisPhoenixSt. LouisChicago

MiamiBoston

Fort WorthOakland-East Bay

Orange CountySalt Lake City

New YorkPhiladelphia

AtlantaPortland

Washington, DCAustin

DenverColumbus

San AntonioRaleigh-Durham

DallasCharlotte

Seattle-BellevueSan Francisco Peninsula

NashvilleSan FranciscoSilicon Valley

Under construction as % of inventory

Scott HomaSenior Vice PresidentDirector of U.S. Office Research +1 202 719 [email protected]

Want more information?


Phil RyanSenior Research Analyst+1 202 719 [email protected]



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