Summary

The overall national office market recovery slowed slightly in the first quarter of 2016 amid financial market volatility. However, as financial markets stabilized later in the quarter, office-using job growth accelerated, likely signaling stronger tenant demand in the months ahead. Tech companies continued to drive growth across the nation, resulting in a scarcity of creative space in many cities. On the inverse, energy-dominated markets slowed further due to sustained low oil prices. Many companies continued to seek space in vibrant downtown and suburban areas near public transportation in order to attract millennial talent desiring a live/work/play environment. With healthy office-using employment growth and limited new supply expected in 2016, rents will likely increase further. However, we continue to keep a close eye on any impact from financial market volatility and global risk factors on office market fundamentals.

AMERICAS OFFICE TRENDS REPORT

Americas Office Trends Report

Q2 2016

AMERICAS OFFICE TRENDS REPORT

CBRE Research

NATIONAL TENANT / USER PERSPECTIVES

NATIONAL LANDLORD / OWNER PERSPECTIVES

CAPITAL MARKETS PERSPECTIVES

CBRE Research OfficeServices|2

Q2 2016

• Manytenantsarestillfocusedondowntownandhighlyamenitizedsuburbanmarketswithtransitaccessandlive/work/playenvironments.

• TighteningintheClassAmarkethastenantsexploringwell-locatedClassBpropertiesandcreativespace.

• Tenantsacrossgeographiesandindustriesareexploringalternateworkplacestrategiestomaximizeefficienciesandcollaboration.

• Themostactiveindustriesaretechnologyandhealthcare.Theenergysectorhasslowedduetolowoilprices.

• Techcompaniescontinuetolookforcreative,renovatedwarehousespacebutalsoaremigratingtoClassAspacewithampleamenities.

• DevelopersarerenovatingClassBbuildingsduetoashortageofClassAspace.

• Alackofnewsupplyisresultinginashortageoflarge,availableblocksofClassAspaceinanincreasingnumberofmarkets.

• Landlordscontinuetopushrentalrateincreasesandreduceconcessionsinmanymarkets.

• Speculativeconstructionisincreasingslowly.However,risingconstructioncostsarerestrainingdevelopmentactivityoutsideofthestrongestmarkets.

• Mostmarketsarewitnessingpositiveabsorption.

• U.S.officeinvestmentincludingentity-levelacquisitionsdecreasedby14.8%year-over-yearinQ12016.

• TheratioofsuburbanacquisitionstoCBDinQ12016wasonparwith2015buthigherthanpreviousyears,accountingfor53.4%oftheQ1total.

• Cross-borderofficeinvestmenttotaled$5.3billioninQ12016,a23%decreasefromQ12015.

• TheaveragesalespricepersquarefootforbothCBDandsuburbanassetpurchasesdecreasedslightlyinQ12016,althoughthiscouldbeduetoachangingassetmix.

• RealCapitalAnalyticsdataindicatethatCBDcapratesdeclinedinQ12016whilesuburbancaprateswidenedslightly.

Thisreportreflectscurrentobservationsandsentimentsfrommorethan1,500CBREOfficeAdvisory&TransactionandInvestmentprofessionalsintheAmericas.

Perspectives

AMERICAS OFFICE TRENDS REPORT

CBRE Research

REGIONAL PERSPECTIVES

CBRE Research OfficeServices|3

Q2 2016

NORTHEAST REGION

• Technology,advertising,mediaandinformation(TAMI)tenantscontinuetodominatedemandinManhattan,outpacingthetraditionalfinancialandlegalindustries.

• City,stateandfederalgovernmenttenantsareveryactiveinDowntownManhattan.

• DowntownBostontrophyassetscontinuetoattractforeigncapital.

• SharedworkplaceprovidersweretheprimarydriversofgrowthinthedowntownWashington, DCmarketinQ12016.

• AflighttoqualityhasdrivendowntrophyvacancyratesindowntownandsuburbanPhiladelphiatonear-recordlows.

• Mid-sizedgovernmentcontractorsandcyber-securityfirmsareamajordriverinBaltimore.

• TenantsseekinglargeblocksinbothdowntownandsuburbanHartfordhavefewoptions.

• NewandrenovatedbuildingsinHarrisburgarebenefitingfromaflighttoquality,whileolderpropertiesarestrugglingtoattractandretaintenants.

SOUTHEAST REGION

• SeveralmillionsquarefeetofcreativeofficespaceareunderconstructioninAtlanta.

• TechcompaniesseekingtoattractmillennialshavedrivenuprentsfornewproductindowntownNashvilletorecordhighs.

• Legal,financialandhealthcaretenantswereactiveinTampainQ12016.

• ManyBirminghamtenantsareinexpansionmode,drivingdemandforboutiquespaceattractivetomillennials.

• AsignificantamountofClassAofficeconstructionactivityisoccurringinCharlotte.

• RapidresidentialandhospitalityindustrygrowthinGreenvillehascreatedparkingandinfrastructurechallenges.

• NonewspaceisexpectedintheneartermindowntownSavannah,whereheightandmassrestrictionsmakedevelopmentchallenging.

• Backoffice,logisticsandbiosciencetenantshavebeendrivingdemandinMemphisinrecentyears.

MIDWESTERN REGION

• Despitecautioussentiment,includingincreasingsubleasespace,positivefundamentalscontinueinChicago’sCBD.

• PreleasingremainshighinbuildingsbreakinggroundinDallas,alleviatingfearsregardingoverbuilding.

• Houstonsubleasespaceisexpectedtoreach10millionsq.ft.withinthenexttenmonthsasenergyfirmsdownsizefurther.

• RobustleasingactivityhasresultedinvirtuallynolargeblocksavailableintheAustinCBD.

• Withvacancyratesdeclining,constructionactivityinSt. Louishasrisentothehighestlevelsincetherecession.

• Healthcaretenants,includingexpandinghospitalsystems,areactiveinLouisville.

• OwnersinMinneapolisarerenovatingandrepositioningexistingpropertiestoattractgrowingtechcompanies.

• RentsarerisinginIndianapolis,partiallytooffsethigherTIcosts.

WESTERN REGION

• AlthoughupslightlyinQ12016,subleasespaceisbeingrapidlyabsorbedinSanFrancisco.

• Despiterecentrapidgrowth,rentsremaintoolowtojustifynewconstructionin

AMERICAS OFFICE TRENDS REPORT Q2 2016

Oakland,limitingtenantoptions.• Robusttechtenantdemandandrentgrowth

aredrivingtheWest Los Angelesinvestmentmarket.

• RecenttenantactivityinLos Angeles Northhasconsistedprimarilyofconsolidationsandrenewals.

• Tech,gamingandcloudcompanies,includingmanyBayArea-basedfirms,continuetoexpandinSeattle.

• TenantsarerelocatingfromadjacentstatestoPhoenixforitslowercosts.

• TenantsinRenofacealackoflarge,contiguousblocksofClassAspace.

• ActivetenantsinSacramentoincludestategovernmentandhealthcare,tech,insurance,educationandlawfirms.

CANADA

• Afteraslow2015,Canada’seconomystarted2016withrelativelystronggrowth.

• Employmentgrowthincoreoffice-usingindustrieshasbeenpositive,bolsteringdemandforspace.

• AlthoughofficeabsorptionpickedupslightlyinQ12016,significantregionaldisparitiesexist.

• TheoverallvacancyrateincreasedinQ12016,largelyduetoslowingdemandinenergy-centriccitiesandnewofficesupplybeingdeliveredtothemarket.

MEXICO

• MexicoCityhasreached55.7millionsq.ft.ofClassAofficeinventoryandavacancyrateof12.6%.

• Q12016netabsorptionremainedstrongat885,000sq.ft.,upfrom603,000sq.ft.inQ12015.

• ClassAunderconstructionprojectstotaled18.2millionsq.ft.attheendofQ12016.

CBRE ResearchCBRE Research OfficeServices|4

REGIONAL PERSPECTIVES (CONT.)

Edward J. Schreyer, SIOR President,AssetServices&AdvisoryandTransactionServices|Investor TheAmericas|CBRE

T+12148633042ed.schreyer@cbre.comwww.cbre.com/ed.schreyer

Whitley Collins President,AdvisoryandTransactionServices|Occupier TheAmericas|CBRE

T+13103634842whitley.collins@cbre.comwww.cbre.com/whitley.collins

Andrea Cross HeadofOfficeResearch, TheAmericas|CBRE

T+14157720337andrea.cross@cbre.comwww.cbre.com/research

AMERICAS OFFICE TRENDS REPORT Q2 2016

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

TolearnmoreaboutCBREResearch,ortoaccessadditionalresearchreports,pleasevisittheGlobalResearchGatewayatwww.cbre.com/research.

Contacts