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NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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The Best Office Marketin America
Moderator and Panelists
Michael SchuerichArch-Con Corporation
Meade BoutwellCBRE
Chip ColvillColvill Office Properties
Paul FrazierBrookfield Property Partners
Dave MageeCommerce Real Estate Solutions
2
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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The Best Office Market in America
Category San Francisco Houston New York Seattle
Market Size (sf)
37.8 Million 271 Million (50 Million Downtown)
393 Million(87.5 million Downtown)
41.8 Million
Average Rate ($/SF) per Year
$70.65 $47.20 $57.58($74.40/$63.28)
$36.08
Rent Growth (%)
16.2% 5.4% 17%(7.7%/5.9%)
2.5%
Vacancy Rate (%)
7.0% 12.5% 10.4% 9.3%
Under Construction (sf)
4.42 Million SF 8.8 Million SF(1.6 M Downtown)
7.1 Million SF 6.28 Million SF
Employment Growth
Forecast: 1.6% Forecast 1.8% 107,000 jobs added
111,600 jobs added
The Best Office Market in AmericaMarket Overview & Comparison
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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San Francisco
New office development pipelineNew supply unable to keep pace with demand for large blocks of space
0.0
0.3
0.5
0.8
1.0
1.3
1.5
155 FifthSt (Renov.)
680Folsom/50Hawthorne
505Howard
One Tenth(Renov.)
535Mission
340 Bryant(Conv. to
Office)
333Brannan
350Mission
222Second
270Brannan
390 Main(Renov.)
1600Owens
345Brannan
181Fremont
350 Bush/500 Pine
SalesforceTower
Mill
ions
Sq.
Ft.
Amount Pre-Leased Building Square Footage
2014 Completions1.8 MSF recently completed
(92% leased)
2016-17 Completions 2.2 MSF under construction
(32% pre-leased)
2015 Completions2.2 MSF under construction
(90% pre-leased)
Q1 2017Q1 2016
June 2015• 6.2 million sq. ft. under const./ completed
• 70% pre-leased (4.3 MSF)
UOP
Eventbrite
Riverbed
Macys.com
Athenahealth
NeustarPerkins
Coie
TruliaWeWor
kTalkdes
kLibratoEnvivio
Dropbox Dropbo
x
Salesforce
SalesforceLinkedI
n
Splunk
MTCKaiser
Permanente
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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Silicon valley venture capital fundingSoftware/Media-Entertainment is over 60% of all S.V. funding
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
$0
$5
$10
$15
$20
$25
$30
$35
$40
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD
Bill
ion
s
Silicon Valley Total Funding ($) S.V. Share of Total U.S. Funding (%) Software/Media-Entertainment Share of Total S.V. Funding (%)
Source: CBRE Research & PwC MoneyTree
Venture Capital Funding in Silicon Valley Historical Data (through Q1 2015)
Biggest Threats to Demand
• Housing
• Housing
• Housing
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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Why San Francisco is the Best Office Market
• We attract and retain the most innovative people in the U.S.
– Water on three sides, and the Planning Commission on the fourth
– Great mass transit system– Multiple major industries, one is always growing– Most of the VC money is based here– Weather– Access to recreation/outdoors– Asia– Warriors, Giants, 49ers
Houston
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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WHY Houston vs NY, Seattle, Boston and San Francisco?
Lower Cost of Living
-7.3
-5.2
-4.9
-3.8
-3.1
-2.8
6.9
9.5
13.0
13.3
35.0
35.1
35.4
37.7
50.4
53.8
-15.0 -5.0 5.0 15.0 25.0 35.0 45.0 55.0 65.0
Tampa
Houston
Detroit
Phoenix
Dallas
Atlanta
Chicago
Baltimore
Seattle
Miami
Washington DC
Los Angeles
San Diego
Boston
New York
San Francisco
Cost Of Living Index = 100
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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Jobs Recovered Since Bottom of Recession
34.6%
76.1%
82.2%
83.5%
91.9%
110.3%
120.7%
140.7%
158.4%
159.4%
160.3%
174.8%
204.1%
204.2%
278.3%
381.6%
0.0% 50.0% 100.0% 150.0% 200.0% 250.0% 300.0% 350.0% 400.0% 450.0%
Detroit
Tampa
Phoenix
Chicago
Los Angeles
Miami
Atlanta
San Diego
Seattle
Baltimore
New York
San Francisco
Washington DC
Boston
Dallas
Houston
% of Jobs Recovered through December 2014
Lower & Less Volatile Home Prices
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Boston-Cambridge-Quincy, MA-NH Houston-Baytown-Sugar Land, TX
New York-Wayne-White Plains, NY-NJ San Francisco-Oakland-Fremont, CA
Seattle-Tacoma-Bellevue, WA
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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Great things happen in Houston…
The Texas Medical CenterWorld’s largest medical complex:
45.8 million SF comprised of 290 buildings and 27,500 parking spaces.
21 Renowned Hospitals8 Academic & Research Institutions
6 Nursing Programs3 Public Health Organizations
3 Medical Schools2 Universities
2 Pharmacy Schools
The Port of Houston25-mile-long complex of public terminals and over 150 private facilities. Each year, more than 200 million tons
move through the port carried by more than 8,000 vessels and 200,000 barge calls.
U.S. Rankings1st in foreign waterborne tonnage
1st in imports1st in exports
MillennialsAges 18-34 / 24% of total population
25% increase in the number of Millennials 2010-2013Among the top 10 cities nationally with the fastest-growing
Millennial populationsHigh-rise and walkability
Lower cost of livingPlentiful and flexible work arrangements
Fortune 500 Companies26 companies on the 2015 Fortune 500 list are
headquartered in Houston3rd in U.S. behind New York and Chicago, ahead of Dallas,
Atlanta, Los Angeles and San FranciscoNewest move is Occidental Petroleum 2015
from Los Angeles
Energy Capital of the World5,000 energy-related businesses in Houston
Home to 40 of the nation’s 134 publicly traded oil and gas exploration and production firms including 10 of the top 25.9 refineries process more than 2.3 million barrels of oil each day – 50%
of the Texas total production and 13.2% of the total U.S. capacityAs of YE 2014, Houston held:
31.6% of the nation’s jobs in oil and gas extraction16.1% of the nation’s jobs in support activities for mining
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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The Houston Market
Office Market Size 271 Million SF (6,785 buildings)
Vacancy Rate 12.5%
Under Construction 8.8 Million SF (+3.5 Million SF owner-occupied)
% Preleased 50%
10-YR Annual Average Historical Absorption 4.4 Million SF
10-YR Annual Average Employment Growth 2.3%
2015 Forecasted Employment Growth 55,000 Jobs – 1.8%
Class A CBD Rental Rate (FSG) $47.20 ($31.19 NNN / $16.01 OpEx)
Class A CBD % Rent Growth Y-O-Y 5.4%
Bullish on Houston… You bet!
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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4th Largest City / 5th Largest Metro
2.19 Million City / 6.3 Million MSA
2.9 Million Payroll Jobs
more than 36 other U.S. States
$522.9 Billion in 2013 GDP
23rd Largest World Economy, Greater than Norway or Venezuela
26 Fortune 500 Companies
New York (72) and Chicago (30)
10,000+ Square Miles…
Larger than New Hampshire
New York
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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New York Market Update
Downtown – New York
Category Downtown NY
Market Size (sf) 87.5 million
Average Rate ($/SF) $57.58
Rent Growth (%) 17% (year over year Q1 2014 – Q1 2015)
Vacancy Rate (%) 10.4%
Under Construction (sf)
7.1 msf
Projects underdevelopment
World Trade Center – 7.1 million SF
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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Midtown – New York
Category Midtown
Market Size (sf) 239.7 million SF
Average Rate ($/SF) $75.44
Rent Growth (%) 7.7% (year over year Q1 2014 – Q1 2015)
Vacancy Rate (%) 9.4%
Under Construction (sf)
1.15 msf
Projects under development
425 Park – 675,000 SF7 Bryant Park – 472,000 SF
Midtown South – New York
Category Midtown
Market Size (sf) 66.6 million SF
Average Rate ($/SF) $63.28
Rent Growth (%) 5.9% (year over year Q1 2014 – Q1 2015)
Vacancy Rate (%) 7.0%
Under Construction (sf) 6.3 msf
Projects under development Manhattan West – 2 million SFHudson Yards – 1.7 million SF
Manhattan West
Hudson Yards
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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Market Summary
• Surge of new development due to the need for new space:– The average age of the existing buildings in NYC is 70 years old– Design standards have improved (i.e. greater efficiency and technology)
• Development costs– Costs are currently $1,000 - $1,100 per SF and rising
• Demand drivers for development– TAMI (Technology, Advertising, Media and Information) tenants
• Threats to the market– Current administration (anti-business, anti-police, crime and overall quality
of life)– Overbuilding
Why New York is the best office market
• Financial capital of the World• Quality of life• Steady growth• Financial services sector has not begun to grow
again. When it does, demand will increase
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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Seattle
Seattle
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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billionaires
booksbands
biotechbytes
bootsboats
brew
boeing
NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015
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Discussion
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31
Thank You!
We’ll see you in Toronto for the Commercial Real Estate Conference!
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