u.s. office outlook - q1 2016 - jll - investment · pdf file4 5 key trends to watch in 2016...

Office Outlook

United States | Q1 2016

U.S. office markets remain stable amidst market jitters

Outlooks leading into the new year

called for further expansion across U.S.

office markets. However, stock market

tumbles driven by a weakening China

and depleted oil prices shifted

sentiment from that of a growth

perspective to one of increased caution.

Despite this, economic and real estate

fundamentals remain primarily landlord-

favorable through the remainder

of 2016.

JLL | United States | Office Outlook | Q1 2016 2

WHAT’S

INSIDE:

3

5 office market trends 4

United States office market 5

United States office clock 8

United States economy 10

United States investment sales 12

Local U.S. office markets

Atlanta 16

Austin 17

Baltimore 18

Boston 19

Charlotte 20

Chicago (CBD) 21

Chicago (Suburban) 22

Cincinnati 23

Cleveland 24

Columbus 25

Dallas 26

Denver 27

Detroit 28

East Bay 29

Fairfield County 30

Fort Lauderdale 31

Hampton Roads 32

Houston 33

Indianapolis 34

Jacksonville 35

Long Island 36

Los Angeles 37

Miami 38

Milwaukee 39

Minneapolis 40

Nashville 41

New Jersey 42

New York 43

Northern Virginia 44

Oakland 45

Orange County 46

Orlando 47

Philadelphia (CBD) 48

Philadelphia (Suburban) 49

Phoenix 50

Pittsburgh 51

Portland 52

Raleigh-Durham 53

Richmond 54

Sacramento 55

Salt Lake City 56

San Antonio 57

San Diego 58

San Francisco (CBD) 59

San Francisco (Mid-Peninsula) 60

Seattle-Bellevue 61

Silicon Valley 62

St. Louis 63

Suburban Maryland 64

Tampa 65

Washington, DC 66

Washington, DC Metro 67

West Palm Beach 68

Westchester County 69

Appendix 70

Contacts 80

JLL | United States | Office Outlook | Q1 2016

TABLE OF

CONTENTS

4

KEY TRENDS TO WATCH IN 20165


Oil pricing declines and global economic uncertainty set off a stock market decline early in the new year that shifted the economic outlook from one of

heightened optimism and perceived stability to one in which a near-term recession was imminent. As a result, momentum in the office market slowed

moderately as occupiers more carefully considered expansionary plans while waiting for a clearer economic outlook, but market fundamentals overall

proved steady with supply and demand moving in lockstep.

OUTLOOK

Looking ahead, the

remainder of 2016 will

remain largely landlord-

favorable as

expansionary leases

begin to take

occupancy across the

United States, but

conditions will begin to

shift in 2017 as markets

work to absorb the

more than 80 million

square feet of new

supply that will deliver

over the next two years.

Additionally, as markets

move nearer to their

inflection points in

terms of rental rates

and market growth,

2017 will start to see

some cooling as

markets stabilize—

especially in primary

markets that performed

highly earlier in the

expansion.

At 143.8 million, employment is at its highest level ever recorded and sustained job

growth over the last several years has consistently driven occupancy growth that’s

expected to continue into 2017.1 .Though more employees may be heading into the office, the U.S. development pipeline

of 96.8 million square feet remains below the previous two peaks in 2000 and 2008, at

139 million and 108 million square feet, respectively. As a result, most markets will be

well positioned from a supply perspective once leasing momentum begins to slow in

2017 and 2018.2 .

Leasing activity remains dominated by both technology and financial services

companies, which have been driving growth in markets across the country, but volume

in the first quarter came in at its lowest level (50 m.s.f.) since the recession as concerns

over the economy’s stability grew. With fears of a recession now diminished, leasing

activity should begin to increase over the course of the year.3 .

Despite lower leasing volume, low vacancy and limited new deliveries kept the overall

leasing environment highly competitive in the country’s most in-demand markets. As a

result, rental rates increased at the highest rate thus far in the cycle with a 3.2 percent

increase. In secondary and tertiary markets where development is limited or nonexistent

and demand stable, rents will continue to post above-average increases. 4 .

Strengthening fundamentals in secondary markets, combined with a decline in

investment opportunities and high barriers to entry in primary markets has resulted in

an increased focus on secondary markets with high occupancy growth. But signs of

softening in select secondary markets may keep investors focused only on the

highest performing. 5 .

UNITED STATES

OFFICE MARKET

Where occupier demand is highest, so, too, are occupancy gains

Typical of this cycle, occupancy growth in the first quarter shrank

considerably from the fourth quarter, coming in at 7.7 million square feet

versus the 18.7 million square feet of occupancy growth at year-end 2015.

Desirable talent hubs and urban markets captured the largest share of

gains, led by Chicago’s 1.7 million square feet of net absorption as

companies, such as Kraft Heinz, moved back into the CBD from the

suburbs. Technology hotbeds from both a business and talent perspective

continued to drive the Seattle-Bellevue and Silicon Valley markets, which

posted 839,000 square feet and 825,000 square feet of new absorption,

respectively, with Google expanding into an 180,000-square-foot build-to-

suit in Seattle’s Kirkland submarket, while also occupying 315,000 square

feet in the last building at Moffett Place in Sunnyvale. Rounding out the top

five were Austin and Philadelphia, where absorption gains came in at

775,000 and 604,000 square feet, respectively.

Several large, planned vacancies hit the market in New York during the

quarter at 390 Madison Avenue, 485 Lexington Avenue and 5 Manhattan

West, contributing to 1.6 million square feet in occupancy losses, while in

New Jersey the Route 24, Bergen North and Princeton Area submarkets

contributed to more than 562,000 square feet of negative net absorption.

As one of the first markets to soften in this cycle, Houston has yet to

register the impact of the oil and energy sector’s decline through its

market statistics. Currently, the market has roughly 9 million square feet

of sublease availability on the market, but none of it has translated into

occupancy losses yet. In fact, Houston recorded modest gains of

227,000 square feet net absorption during the quarter, as potential large

blocks of sublease vacancy continue to wait in the wings.

Expansionary leasing activity slows, but tenants still keen on

moving within markets

Over the past year-and-a-half, tenants leasing 20,000 square feet or

more have done so with expansionary plans in mind. Since the third

quarter of 2014, 48.7 percent of all leases signed represented occupancy

growth as companies moved to accommodate record-level employment

and changing workplace preferences. Over that same period, the volume

of companies downsizing has remained a minimal portion of leasing

activity, averaging just 8.0 percent. Though leasing activity remained

largely expansionary during the first quarter, increased fear of a near-

term recession spooked many tenants, and as a result, plans for

expansion were put on hold. From the fourth quarter of 2015 to the first

quarter this year, the share of expansionary leasing declined from 52.0 to

40.0 percent, respectively.

At the sector level, retail and hospitality leasing activity across the

country was entirely (100 percent) expansionary, while life sciences

(85.8 percent) and food and beverage (83.1 percent) closely followed in

the first quarter. However, overall leasing activity remained dominated by

technology and financial services firms, with large lease transactions

including Kronos’ 370,000-square-foot relocation in Boston’s suburbs

and Putnam Investments’ 252,000-square-foot relocation in its CBD.

Meanwhile, Allied Solutions signed an expansionary lease for 110,000

square feet in Indianapolis’ North Meridian/Carmel suburb and Uber

continued its Bay Area expansion with a 93,000-square-foot lease in San

Francisco’s Mid-Market. Though concern over a nonexistent IPO market

looms over the technology industry, it did not prevent publicly traded

companies like Facebook, LinkedIn, Microsoft and Oracle from moving

forward with expansion plans on a combined 275,000 square feet of

leased space.

Most telling of the current office market trends, however, is the continued

expansion of shared office space. During the first quarter, WeWork

signed 10 new leases—each representing expansion—in markets such

as Orange County, Philadelphia and Silicon Valley for a total of 715,000

square feet. Additionally, Regus signed six leases amounting to nearly

150,000 square feet during the quarter, three of which were

expansionary. Other, smaller players, such as Make Offices and Centrl

Office, also signed on for new office space in Washington, DC, and

Portland, respectively.

5

A slowdown in expansionary leasing due to limited options for

growth became pronounced in Q1

Source: JLL Research


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Sha

re o

f act

ivity

(%

) 53.8%Stable

40.0%Growing

6.2%Shrinking

Though leasing activity remained largely

expansionary during the first quarter, increased fear

of a near-term recession spooked many tenants, and

as a result, plans for expansion were put on hold.

Sublease vacancy across the United States maintained its downward

trend in the first quarter at just 1.0 percent of the total U.S. inventory.

Despite Houston’s looming impact and New Jersey and Westchester

County’s elevated share of sublease vacancy resulting, in part, from

corporate relocations into other markets, no real signs of softening exists

within the greater U.S. office market. In markets where small upticks

were recorded, the impact was met by overall vacancy declines. This

was true in Austin, Orange County and San Diego, where overall

vacancy is below average at 11.1, 11.8 and 13.5, respectively.

Additionally, with most occupiers conservatively expanding during the

course of this cycle, the impact of a future slowdown or contraction may

be minimized by more efficient space use.

In more recent quarters, sublease vacancy increases in primary markets

like Boston, Chicago and San Francisco have been the result, in part, of

companies readying for relocation and expansion into new space.

Moving further into the development cycle, sublease vacancy may begin

to increase as the nearly 100 million square feet under construction

delivers to markets through 2019 and economic momentum begins to

slow job growth and real estate expansion.

New supply outpaces occupancy growth, but not for long

During the first quarter, total U.S. development volume increased by 9.7

million square feet—a 31.8 percent quarter-over-quarter increase in

construction starts—to bring the total development pipeline to 96.8

million square feet. This marks the highest level of development thus far

in the cycle as consistent expansionary activity has encouraged

developers to break ground where supply constraints persist. New

groundbreakings were driven by Dallas (2 million square feet), Silicon

Valley (1.6 million square feet) and Orange County (1.1 million square

feet), with projects that include Liberty Mutual’s 1.1-million-square-foot

build-to-suit in West Plano; Menlo’s two-building, 555,000-square-foot

development at 3333 Scott Boulevard in Santa Clara; and Trammell

Crow’s 537,220-square-foot spec development, The Boardwalk, in Irvine.

Compressed vacancy rates push rental rates

Supply constraints persisted across the country as demand for both

quality and location remain high on the list of must-haves for occupiers.

Across CBDs, 11 markets posted vacancy rates below 10.0 percent and

below the CBD average vacancy rate of 12.1 percent. Compared to the

suburbs, which came in at a 16.3 percent vacancy rate, six suburban

markets reported single-digit vacancy rates—each benefitting from

proximity to dynamic, urban CBDs that have captured occupier demand

accordingly over the course of this cycle.

6

Despite dropping sharply compared to a heavy-hitting Q4,

YTD 2016 totals higher than 2015


Even as sublease vacancy rises in Houston and begins to rise in

the Bay Area, it fell in Q1 on aggregate



-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000

2010 2011 2012 2013 2014 2015 2016

Qua

rter

ly n

et a

bsor

ptio

n (s

.f.)

CBDTotal

vacancy rate

SuburbTotal

vacancy rate

Oakland 5.1% Nashville 4.5%Portland Central City 6.5% Salt Lake City 5.4%Austin 6.7% Boston (Cambridge) 6.7%New York(Midtown South)

6.9% Portland-Eastside 7.2%

Raleigh-Durham 7.6% San Francisco 7.5%Seattle (Downtown) 7.7% Seattle (Eastside) 9.3%San Francisco 8.5% Portland-Vancouver 9.3%Charlotte 8.5%Philadelphia CBD 8.6%Salt Lake City 9.2%Boston 9.6%Oakland 5.1%

Across CBDs, 11 markets posted vacancy rates

below 10.0 percent and below the CBD average

vacancy rate of 12.1 percent.

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

2009 2010 2011 2012 2013 2014 2015 2016

Sub

leas

e va

canc

y (s

.f.)

Despite improved fundamentals in most U.S. office markets, however,

many secondary and tertiary markets await minimal new supply, and

where development is under way, high preleasing rates have reduced

the supply relief tenants would like to see. Primary markets, which

compose 44.8 percent of the total office market, also contribute the

largest share of developments to the total pipeline with 53.8 million

square feet. Conversely, among the 24 tertiary markets that JLL tracks,

only 11.3 million square feet (or 1.4 percent of total inventory) is currently

under construction. Additionally, eight markets, including Jacksonville,

Tampa and West Palm Beach, remain without any projects in

the pipeline.

During the quarter, new deliveries of 10.6 million square feet outpaced

the rate of occupancy growth by 38.7 percent. This was especially true in

Dallas, Houston, Philadelphia and Silicon Valley, where a combined total

of 5.4 million square feet in new supply was met by 1.8 million square

feet of net absorption. For 2016 deliveries in total, however, occupancy

growth is expected to outpace new supply, with 56.1 percent of the

pipeline already preleased.

7JLL | United States | Office Outlook | Q1 2016

Primary markets, which compose 44.8 percent of the

total office market, also contribute the largest share

of developments to the total pipeline with 53.8

million square feet.

As the development cycle nears its peak in 2016, deliveries will

diminish slowly through 2019


0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

2016 2017 2018 2019

Com

plet

ions

(s.f.

)

Speculative (preleased)

Speculative (available)

BTS

UNITED STATES

OFFICE CLOCK

The JLL office clock demonstrates where each market sits within its real

estate cycle. Markets generally move clockwise around the clock.

Geographies on the left side of the clock are generally landlord-favorable,

while markets on the right side of the clock are typically tenant-favorable.

As of the first quarter, the vast majority of markets are firmly positioned

on the left side of the clock.

As the national office market kicked into high gear in 2015 as a result of a

generally uplifted economy, leasing activity that translated into

occupancy growth resulted in a swift tightening of fundamentals. A year-

over-year drop of 80 basis points, combined with 44.4 million square feet

of new, top-quality space, has helped to push rents up by 8.7 percent

during the same period, with growth now seen across asset classes and

markets. During the first quarter alone, new space was partially

responsible for the 3.2 percent spike in rents seen across the 50 markets

that JLL tracks, even though total vacancy rose by 10 basis points.

At the market level, geographies near or within the peaking phase of the

cycle continued to register accelerated rent growth during the first

quarter. Space constraints driven by high-growth industries pushed

vacancy rates downward in Silicon Valley, Oakland–East Bay, Nashville,

San Francisco and Austin as rents increased by 15.8, 9.7, 6.7, 4.8 and

4.5 percent, respectively, compounded by minimal completions with high

preleasing rates.

Similarly, secondary markets have recorded gains, albeit slightly slower

than peaking powerhouses. In the Carolinas, annualized rent growth in

Charlotte and Raleigh-Durham totals 2.0 and 5.6 percent, respectively.

Atlanta, Miami and Phoenix posted quarterly increases of 2.0, 1.4 and

1.1 percent, respectively, and the recent boost in tenant activity and

residual supply from the previous cycle mean equilibrium is just now

being reached. As a result, significant relief for tenants in Class A and

amenitized submarkets is years away. Further, with capital flows into

these markets accelerating, rents will rise accordingly to meet pro forma

expectations. Secondary markets are witnessing near-peak pricing as

this movement intensifies, and in some cases new high-water marks

have been set.

Rent growth continues to be highly variable at the class level. Quarterly

growth in CBD Class A submarkets continues to exceed the national

average by 30 basis points, but this gap in lower than in earlier quarters.

With a readily available supply of large, Class A blocks in the suburbs

depleting, landlord confidence in that sector has risen appreciably.

Asking rents in this segment increased by 1.9 percent over the quarter

and 5.5 percent over the year. The spillover into Class B space has also

been notable as well, with a 6.3 percent annual jump in rents.

Additionally, submarkets with a large supply of creative space or in

mixed-use, amenitized settings consistently outperform. Seattle’s Lake

Union registered a 14.1 percent year-over-year increase for Class B

space, while overall rents in New York’s SoHo rose by 24.7 percent over

the same time period to $77.04 per square foot, one of the highest

figures in the country. Even in slower-growth markets such as

Philadelphia, Market Street East rents have climbed by 12.5 percent and

overall asking rents in River West in Chicago are up 11.0 percent with

new supply and renovations hitting the market.

Over the course of 2016, rental rate increases will continue but may slow

as markets in the peaking phase of the cycle reach an inflection point

while welcoming new supply across markets. In the longer term, the

eventual cooldown of the labor market and further economic uncertainty

globally will likely signal a slowdown in leasing dynamics starting in 2017

and moving into 2018.


Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Dallas

Jacksonville, Miami, Orange County

New Jersey,

Washington, DC

Atlanta, New York, Portland, Tampa

Charlotte, Fort Lauderdale, Milwaukee, Oakland–East Bay, Orlando, Salt Lake City

Baltimore, Detroit, Hartford, West Palm Beach

Los Angeles, San Diego, Seattle-Bellevue

Cleveland, Raleigh-Durham, Sacramento, St. Louis

San Francisco Peninsula

San Francisco

Denver, Silicon Valley

Phoenix

Boston, United States

Hampton Roads, Long Island, San Antonio

Minneapolis

Chicago, Indianapolis, Richmond

Philadelphia, Pittsburgh, Westchester County

Austin, Nashville

Houston

Columbus

Cincinnati, Fairfield County

UNITED STATES

CBD OFFICE CLOCK

9

UNITED STATES

SUBURBAN OFFICE CLOCK


Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

Dallas, Downtown (New York), Los Angeles

Denver

Boston, Miami, San Diego, United StatesMidtown (New York)

Midtown South (New York), Nashville

Charlotte, Oakland CBD, Orlando, Philadelphia

Atlanta, Fort Lauderdale, Portland

Baltimore, Richmond

Minneapolis, Seattle

Chicago, Jacksonville

Cincinnati, Phoenix, San Antonio, West Palm Beach

Austin, Tampa

Milwaukee, Raleigh-Durham, Sacramento

San Francisco, San Jose CBD

Columbus, St. Louis

Salt Lake City

Detroit, Hartford, Washington, DC, White Plains

Cleveland, Indianapolis

Houston

Fairfield County, Pittsburgh

Peaking

phase

Falling

phase

Rising

phase

Bottoming

phase

DallasSilicon Valley

Miami, Phoenix

Lehigh Valley,

Northern NJCentral NJ, Columbus, Hartford, Northern DE, West Palm Beach

Charlotte, Chicago, Cleveland, Milwaukee,Oakland–East Bay, Westchester County

Fort Lauderdale, Hampton Roads, Orlando, Long Island,Raleigh-Durham, Philadelphia, Sacramento, San Antonio

Baltimore

Bellevue, Cambridge

Boston, Orange County, Seattle, St. Louis, United States

Atlanta, Jacksonville, Portland, Tampa

Los Angeles, Nashville, San Diego, Seattle-Bellevue

San Francisco Peninsula

San Francisco

Minneapolis, Salt Lake City

Washington, DC

Indianapolis

Austin, Richmond

Denver

Southern NJ

Houston

Cincinnati, Fairfield County

Detroit, Pittsburgh

UNITED STATES

ECONOMY

and services. Over the year, real GDP is up 3.1 percent, slower than the 3.9 percent expansion in 2014 but still well above nearly all peer economies. This slowdown is attributable to a number of gradual shifts during the second half of 2015, notably a flatlining of private domestic investment, which has yet to move above $3.0 trillion for three consecutive quarters as a number of nonresidential components slowed or even contracted moderately. The slump in business investment correlates with another quarter of declining corporate profits, which at $1.9 trillion are 11.5 percent below Q4 2014.

A strengthening dollar has also begun to take its toll on net exports, which have gradually trended downward over the course of the cycle. Although the fourth quarter posted a small bump up in the trade deficit of $514.3 billion, this was largely due to a decline in year-over-year volumes of both imports and exports. As emerging markets continue to falter, markets with exposure to international trade and logistics may see a slowdown; any pullback in this sector would have knock-on effects on the rest of the labor market, as it represents nearly one-fifth of jobs and even higher shares in hubs such as Los Angeles, Dallas and Chicago.

Job market resilient, but how much longer can gains last?

Even as the global economy remains up in the air, the U.S. labor market

continues to display solid momentum, adding 628,000 jobs so far in

2016, a significant jump from the 570,000 added during the first three

months of 2015. Throughout the cycle, year-over-year growth has been

remarkably consistent, hovering between 1.9 and 2.1 percent for 24

consecutive months and showing little sign of slowing. As a testament to

the sustained growth this cycle, the current level of employment (143.8

million) is the highest ever recorded and 5.3 million jobs higher than the

previous peak in January 2008.

The global economic picture has become increasingly mixed of late, with

political issues in emerging and resource-rich countries muting growth

from previously strong sources of capital and continued uncertainty

surrounding the Eurozone crisis and further stimulus from the ECB.

Additionally, questions persist about how much longer the domestic labor

market and general economy can continue to grow at a steady clip.

Despite this, the U.S. economy remains largely stable, adding jobs at a

markedly consistent rate along with solid personal consumption

expenditures driving GDP growth. Other indicators, such as consumer

confidence and corporate profits, continue to wobble, but general

sentiment remains upbeat over the near term.

For the office market, global and domestic economic activity will show its

impact gradually over the next few quarters, segmented by geography

and industry. In addition to the roughly one-year lag between economic

indicators and market movement, the wide variance among markets in

terms of position within the cycle will become increasingly apparent.

However, employment growth exceeding 200,000 jobs per month and the

need for companies to accommodate growing workforces will keep

market momentum positive, aided by the impending completion of 47

million square feet of space throughout 2016, with more deliveries

expected in 2017 and 2018.

GDP growth consistent, but components beginning to wobble as

vulnerability increases

Revised estimates showed GDP growing by 1.4 percent at seasonally adjusted annual rates during the fourth quarter, led by personal consumption expenditures (+2.4 percent), in particular durable goods

10

A strengthening dollar may exacerbate the increasing trade deficit

as exports become more expensive

Source: JLL Research, Bureau of Economic Analysis

Wage growth is gaining traction across industries, with

particularly strong increases in information and finance

Source: JLL Research, Bureau of Labor Statistics


-$600

-$500

-$400

-$300

-$200

-$100

$0

-$3,000.0

-$2,000.0

-$1,000.0

$0.0

$1,000.0

$2,000.0

$3,000.0

2010 2011 2012 2013 2014 2015

Rea

l im

port

s an

d ex

port

s of

goo

ds a

nd

serv

ices

($

billi

ons)

Real imports Real exports Real net exports

3.5%

2.9%2.7% 2.6%

2.4%2.2%

2.0%1.8%

1.4%1.1%12

-mon

th %

cha

nge

2016 exceeding 2015 and capping more than 60 consecutive months of

net gains, the labor market logically suggests room for incremental

tightening. Other metrics show a similar slow-but-steady recovery: home

prices have gradually improved over the course of 2015 and into

January 2016 (+10.4 percent year-over-year), initial unemployment

claims remain around 250,000 per week—their lowest level since 2007—

and job openings and quits are both trending upward as employee

confidence increases. Tightening will also need to take place before the

overall economy reaches its cyclical peak, and while there is still slack in

the labor market and runway for further consumer spending as wages

rise faster than inflation, just how much more room is left will depend

on a wide range of domestic and international economic and

geopolitical factors.

Overall, the strength of the U.S. economy in contrast to murky waters

globally will benefit the office market over the next four to six quarters.

Unlike the previous cycle, in which the office market led the economy as

a whole, the more cautious approach on the part of both investors and

occupiers has enabled the market to respond better to fluctuations as it

now follows macroeconomic and demographic trends. Optimism on the

part of occupiers to increase headcounts will further chip away at a

dwindling number of large blocks, while the lack of significant

overbuilding in aggregate will ease the softening expected beginning in

late 2016 and early 2017, even as job creation continues unabated.

Like GDP, employment gains have become increasingly mixed at the

subsector level. A combination of strength earlier in the recovery, talent

shortages and diversification of growth have all impacted the office-using

industries in recent months; over the past year, they have been

responsible for 656,000 new jobs, or just 23.4 percent of total gains. In

comparison, the office-using sector represented more than one-quarter

of jobs created in 2014 and close to 30 percent in certain months earlier

in the recovery. Compensating for this moderate pause has been an

upswing in construction, leisure and other services, all of which benefit

from a general uplift in economic momentum and hit their strides slightly

later into the cycle.

Similarly, a number of high-growth geographies have registered a

slowdown in annual employment growth as previous rates of increase

have become difficult to sustain. That being said, these markets continue

to be economic powerhouses: Dallas and Atlanta, for instance, have

added a combined 189,300 jobs over the past 12months at a rate of

more than 3.0 percent. Professional services growth has seen a slight

slowdown in these geographies as well, but it is at full-throttle in

Nashville (+9.2 percent), San Francisco (+7.3 percent), Raleigh-Durham

(+6.7 percent), Silicon Valley (+6.4 percent) and Austin (+4.2 percent).

When will the Federal Reserve raise interest rates?

In December, the Federal Reserve took a critical step and raised the

federal funds rate by a quarter-point, the first time in almost 10 years.

Since then, it has kept the rate steady pending subsequent releases of

labor, output and other macroeconomic data. With a three-month start to

11

Sustained employment growth may lead to another interest rate

hike, but Fed action remains uncertain

Source: JLL Research, Bureau of Economic Analysis

Many high-growth markets are still holding steady, but annual

gains are becoming more difficult to sustain

Source: JLL Research, Bureau of Labor Statistics – markets ranked in terms of

2015–2016 job growth


As a testament to the sustained growth this cycle,

the current level of employment (143.8 million) is the

highest ever recorded and 5.3 million jobs higher

than the previous peak in January 2008.

2.2%

2.6%

2.7%

2.9%

3.5%

3.6%

4.0%

4.2%

4.5%

4.6%

3.6%

4.3%

4.1%

3.8%

4.4%

4.3%

Charlotte

Denver

Miami

Atlanta

Dallas

Nashville

San Francisco

Austin

12-month % change 2014–2015 2015–2016

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

-1,000

-800

-600

-400

-200

0

200

400

600

Fed

eral

fund

s ra

te (

%)

1-m

onth

net

cha

nge

(tho

usan

ds)

1-month net change (thousands)

Federal funds rate (%)

12

First quarter pullback in capital markets activity after five

consecutive years of growth

First quarter 2016 volumes increased a modest 1.0 percent year-over-

year after five consecutive years of strong increases in office capital

markets activity. Despite this increase, $35.4 billion of investment sales

still comprises the second most active quarter of the last five years, a

function broadly of 2015 deal closings. Current volatility in the macro

economy, caution over pricing levels and scarcity of assets on the

market drove declines in most primary markets. Chicago, following a

very strong year in 2015 and the first acquisition of an office asset priced

at over $1.0 billion, saw volumes decrease to $472.6 million. Silicon

Valley also recorded a sharp decline after 2015 sales volume reached

$3.1 billion and per-square-foot pricing of $1,300, while first quarter 2016

volumes in Silicon Valley dropped to $147.0 million. Instability in energy

markets is further suppressing capital markets activity in Houston, with

less than $100.0 million of transactions year-to-date in 2016. While

primary market activity overall is down quarter-over-quarter, Boston and

Los Angeles posted strong first quarters with $2.5 billion and $1.8 billion

of transactions, respectively. Los Angeles activity was boosted by the

Westside portfolio acquisition, totaling 1.7 million square feet, by Douglas

Emmett Realty and Qatar Investment Authority for $1.3 billion, while in

Boston, Blackstone’s acquisition of BioMed Realty Trust, 21.0 percent of

asset square footage in Cambridge, elevated overall sales volume. In

secondary markets, however, investment activity remains strong,

reaching peak levels relative to primary markets in the first quarter, with

two markets recording transaction volumes over $1.0 billion. As we move

further into 2016, flat growth to moderate declines in activity are

projected as a result of these dynamics.

Despite softened growth, occupancy markets remain strong and

disjointed from recent capital markets slowdown

Despite the slowdown in investment sales, office leasing fundamentals

remain strong, with rents increasing across the United States by 3.2

percent. At 7.7 million square feet of absorption, take-up has slowed

from the latter part of 2015, although the lack of expansionary activity is

likely due to supply constraints in single-digit occupancy markets. The

first quarter saw a realized divergence in occupancy and capital markets

fundamentals, especially in the primary markets. Overall primary

markets saw a positive absorption reading, indicating that strong leasing

fundamentals are catching up to the capital markets, which drove pricing

in the early stages of the cycle. As an example, Chicago, the primary

market with the largest decrease in investment sales, recorded the

largest quarterly absorption figure of any market in the U.S. with 1.7

million square feet. Seattle came in after Chicago in terms of absorption

and posted investment volumes slightly higher than average, although

below the high levels recorded at earlier points in the cycle.

On the other hand, leasing and capital markets fundamentals continue to

move in tandem in the secondary markets. Austin, however, the highest

secondary market for absorption, posted a moderate decrease in volume

quarter-over-quarter. Other secondary markets leading in absorption for

the quarter—Philadelphia, San Diego and Phoenix—are continuing to

see upward trending investment volume. Across the U.S. this cycle,

strong capital markets activity outperformed occupier markets, which had

been slower to recover after the downturn. In early 2016, this

outperformance has reversed, driving disjointed indicators across most

markets—reflective of an underlying improvement in income

fundamentals across more markets.

UNITED STATES

INVESTMENT SALES

Following five consecutive years of strong growth, office

transaction volumes increase by 1.0 percent year-on-year

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

Occupational markets remain strong yet disjointed from

investment sales activity in Q1, notably in primary markets



$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

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

Offi

ce in

vest

men

t sal

e vo

lum

es

(bill

ions

of $

US

)

Q1

Q2

Q3

Q4

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2013 2014 2015 2016

Q1

2016

hig

hest

abs

orpt

ion

mar

kets

(t

hous

ands

of s

.f.)

Chicago Seattle

Silicon Valley Austin

Philadelphia Los Angeles

Momentum in yield compression continues, though divergence

appears, with select secondary markets beginning to show signs

of slowing

Nationally, cap rates remain in compression mode, declining 30 basis

points in the past 12months from 4.8 to 4.5 percent. At this level, national

cap rates are below the prior peak of 4.8 percent, leading investor

concerns over current pricing. Across the primary markets, all have

recorded compression in the last 12 months by 39 basis points in

aggregate. Of these, while New York and Chicago cap rates remain flat,

West Coast markets Seattle, Silicon Valley and San Francisco continue

to see strong cap rate compression, having decreased over 30 basis

points over the last 12 months. However, cap rates in three primary

markets—Houston, Boston and Los Angeles—have not yet surpassed

their respective prior peaks. While Houston is unlikely to see further

compression due to the slowdown in energy markets, strong property

market fundamentals and resilient investor demand in Boston and Los

Angeles are expected to drive continued compression, notably in high-

barrier-to-entry submarkets.

Secondary markets are seeing a dichotomous trend as two clusters

emerge: one leading national cap rate compression and the other

showing signs of slowing. The secondary markets driving compression—

Nashville, Minneapolis, Salt Lake City, Phoenix and Charlotte—have

each recorded over 60 basis points of downward movement in the past

12 months. These markets are emerging as destinations for diversifying

capital and, as a result, are seeing cap rates compress as the risks

associated with smaller secondary markets recede. Meanwhile, select

leading secondary markets are beginning to move in the opposite

direction, indicating a moderation of investor confidence. Raleigh-

Durham, Tampa and St. Louis cap rates are softening, with Dallas

stabilizing. In 2016, cap rate compression will continue across most

markets, though at modest levels, with perceived fully priced secondary

markets beginning to show signs of stabilization or softening.

Secondary market activity increase driven by large portfolio

acquisitions and urban submarkets

In the first quarter of 2016, 37.0 percent of total transaction volumes

flowed into secondary markets, totaling $7.6 billion. Quarter-over-quarter,

primary markets accounted for the overall moderation in volume growth,

while secondary markets recorded a modest increase. In secondary

markets in particular, this was boosted by large portfolio and entity-level

acquisitions. In the largest transaction of the quarter, Blackstone

acquired BioMed Realty Trust, taking over their life sciences–centric

office and lab portfolio for $4.8 billion, boosting activity in San Diego as

well as some of the primary markets, such as Boston’s Cambridge

submarket, the San Francisco Peninsula and Seattle. In another

noteworthy secondary market portfolio, Och-Ziff Capital Management

purchased 58 properties of suburban product from Brandywine Realty

Trust for $398.1 million, totaling 3.9 million square feet, located along the

Northeast Corridor from New Jersey to Virginia.

Outside of the large portfolio acquisitions in the secondary markets,

increased activity was concentrated in urban submarkets. In particular,

Philadelphia, Atlanta, New Jersey and Oakland boosted secondary

market activity with urban volumes increasing in aggregate by 165.6

percent year-over-year. Though secondary markets are recording

stronger investment volume growth than primary markets, there is not a

comparable level of institutional activity. Institutional acquisitions

decreased, while purchases by private equity groups increased. The

largest acquisition by this investor group was 70 & 90 Hudson Street in

Jersey City in the Northern New Jersey market, which was acquired for

$299.0 million by Spear Street Capital. The most active buyer in the

secondary office market this quarter was Shorenstein, who purchased a

Trophy asset in Pittsburgh and Class A assets in Philadelphia and

Atlanta for a total of $566.2 million. While the primary markets are seeing

activity decline, the diversification into secondary markets remains

strongly evidenced, leading these markets to drive U.S. investment sale

growth. This will continue through the year. However, despite resurgent

economic and property market fundamentals in select small and

midsized markets such as Austin, San Diego and Phoenix, institutional

capital remains disciplined and selective.

13

Secondary markets have strongest first quarter in three years, as

primary markets in aggregate decline

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

Cap rates continue to compress with nearly 94.0 percent of

markets seeing compressing or stabilizing yields

Source: JLL Research, NCREIF; Includes 32 major office markets; Stable defined

as markets seeing fluctuations within 10 basis points year-over-year.


$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2013 Q1 2014 Q1 2015 Q1 2016 Q1

Prim

ary

mar

ket i

nves

tmen

t vol

umes

(m

illio

ns o

f $U

S)

PrimarySecondary

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Ann

ual c

ap r

ate

fluct

uatio

ns

Compressing Stable Softening

As foreign activity declines in the first quarter, European overtake

Asian groups as most active source

Foreign activity made up 12.1 percent of total volume in the first quarter,

totaling $2.6 billion—a decrease of 20.5 percent year-over-year and

slightly below established current cycle norms on a percentage basis in

recent years. A factor in this decline statistically is the decline in primary

market activity, where this capital remains focused with selective

diversification into secondary markets. Foreign investment into the office

sector reached a peak in 2015 of $22.0 billion, equating to 20.9 percent

of total volume. In 2015, groups from Canada and China were the most

aggressive in purchasing U.S. office real estate, accounting for 40.9

percent of total acquisitions. In the first quarter of 2016, the foreign buyer

pool has shifted, with groups from Germany accounting for 37.0 percent

of the total. This was driven by Deutsche Bank and Jamestown, who

acquired assets in New York, Silicon Valley and Seattle. New inbound

entrants to the market decreased other than smaller groups from the

United Kingdom and Canada, who were active in Chicago, Atlanta and

New York. In 2016, it is likely that further increases in inbound capital

from European groups, including Germany, will be evident given ongoing

economic and political concerns with resilient capital from Asia as well.

14

Germany dominates as top origin of inbound capital, surpassing active Asian and Canadian capital from prior two years

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


MOST ACTIVE FOREIGN INVESTORS

24.0%

21.9%

15.3%

13.5%

9.0%

16.4%

Norway

Germany

Canada

Singapore

35.1%

15.8%15.5%

9.5%

5.6%

18.5%

Canada China

Germany South Korea

Hong Kong All others

37%

22%

12%

10%

6%2%

Germany Qatar

South Korea Canada

China United Kingdom

2014 2015Q1

2016

Nationally, cap rates remain in compression mode,

declining 30 basis points in the past twelve months

from 4.8 to 4.5 percent

LOCAL

MARKETS

Looking ahead, the remainder of 2016 will

remain largely landlord-favorable as

expansionary leases begin to take occupancy

across the United States, but conditions will

begin to shift in 2017 as markets work to

absorb the more than 80 million square feet

of new supply that will deliver over the next

two years. Additionally, as markets move

nearer to their inflection points in terms of

rental rates and market growth, 2017 will start

to see some cooling as markets stabilize—

especially in primary markets that performed

highly earlier in the expansion.


16

- Ryan Harchar

Senior Research Analyst,

Atlanta

ATLANTA


Landlords increase rates of large Class B blocks

Asking rate delta points to opportunity for investors

Recent Class B leasing occurred in the northern arc

Landlord-favorability forces occupiers to diversify, Class B benefits

The first quarter of 2016 offered more evidence of strong market conditions in the

Southeast’s capital. Driven by positive demand with limited supply, occupiers

have resorted to diversifying both in terms of geography and the quality of

product they are seeking. This compromise has led to dramatic improvements in

Class B fundamentals. Landlords have noticed, increasing asking rates of large

available blocks of space. Brokers point to increased tour volume and a gradual

decline in competing large blocks. Expect the trend to continue as tenants justify

expansion and others relocate to metro Atlanta office buildings.

Office fundamentals offer a window for value creation

Value add investors have found opportunity to buy low in metro submarkets,

exhibiting both rising rental rates and pronounced spreads between the Class A

and B segments. Through repositioning, renovation, and addressing deferred

maintenance, investors are beginning to acquire well located A- and B+ assets at

a low basis and benefit from rate appreciation. Buckhead, Northwest, and

Central Perimeter indicate the most extreme delta between the two class

segments. Although, many of the well-located opportunities have been spoken

for in recent quarters. Buyers are now moving beyond these submarkets in

search of greater yield.

Leasing activity continues to broaden

Absorption was brisk over the quarter, which led to a 30 bps decline in overall

vacancy rates, a trend observed for 19 consecutive quarters. This has allowed

leasing activity to broaden. Several deals were signed to Class B buildings over

the first months of 2016. Well represented was the healthcare industry, including

IMS Health for 22,700 square feet in Buckhead and Endochoice for 16,000

square in North Fulton. A stand-out trend was the majority of transactions

occurring in the northern arc submarkets, suggesting occupiers are seeking

value-oriented options outside the city’s core submarkets.

Occupiers & investors pivot to alternative segments

133,507,824Total inventory (s.f.)

325,436Q1 2016 net absorption (s.f.)

$22.98Direct average asking rent

2,602,297Total under construction (s.f.)

17.2%Total vacancy

325,436YTD net absorption (s.f.)

10.9%12-month rent growth

44.6% Total preleased

20

25

30

35

40

45

50

$16.00

$17.00

$18.00

$19.00Asking Rate Block Count

$11.04$7.89

$7.05$6.70

$6.22$5.31$5.12

$4.01$2.68

BuckheadNorthwest

Central PerimeterMidtown

North FultonNortheastNorthlake

DowntownSouth Atlanta $6.22 psf:

Average difference between

Class A&B asking rates by

submarket




68%Over last

6 months

Northwest North Fulton Northeast

MACTEC

thyssenkrupp

NORTH

POINT

RESOURCES

ECOLAB

WIPRO

DELTA

17

- Travis Rogers

Research Analyst,

Austin

AUSTIN


Investment opportunities by submarket

Citywide projected construction deliveries and preleasing

Class A rental rate increase Y-O-Y (Base Rent vs OpEx)

Large portfolios coming to market allow for investors to be choosy

Traditionally, investors looking to acquire office product in Austin have had

relatively few investment opportunities and faced fierce bidding competition. A

few large portfolio owners are now bringing their properties to market, creating

an array of investment options. While buyers still face intense competition, this

increase in overall investment opportunities allows buyers to be more discerning

in their next acquisition. There are currently over 3.2 million square feet,

representing 6.5 percent of inventory, up for grabs in the Austin market.

New construction preleasing gaining momentum at delivery

Four properties, representing over 340,000 square feet, delivered in Q1 2016

across three submarkets. The largest deliveries include Research Park Plaza V

(173,000 square feet) and Domain 1 (125,000 square feet). Collectively, these

two properties delivered 38.9 percent leased with a rumored 100,000 square feet

at leases. The majority of leasing activity occurred within a few months of each

delivery, representing a recent trend with speculative developments across all

submarkets. The most anticipated deliveries during Q2 2016 are 5th & Colorado

(180,000 square feet - CBD), The Arnold (95,000 square feet - East), Domain 5

(75,000 square feet - NW) and The Lakes at Techridge (40,000 square feet - NE).

Collectively, these properties are over 60 percent preleased.

Think base rent is driving rent growth? Think again

Citywide Class A rents experienced a surge of growth during the first quarter.

Contributions to this growth stem from both base rent and operating expenses.

Year-over-year, Class A operating expenses downtown increased an average of

$2.13 per square foot (12.9 percent) while the suburban market experienced a

more subtle increase of $0.69 per square foot (5.5 percent). The real estate tax

portion of operating expenses is the main contributor to the increase. As

properties trade, their value is reassessed by the local taxing authority to reflect

the trade value. When properties trade higher than their assessed value, real

estate taxes increase to reflect a higher property valuation.

Supply allows investors the freedom to be choosy

2,257$30.18 $32.97

$21.75 $22.75

$16.48$18.61

$12.56 $13.25

$0

$20

$40

$60

Q1 2015 Q1 2016 Q1 2015 Q1 2016

Base

OpEx





11.1%Total vacancy




12.9%

9.2%

5.5%

4.6%

CBD Suburbs

0

250,000

500,000

750,000

1,000,000

Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q3 17

Available Space (s.f.)

Leased Space (s.f.)

Preleasing Future deliveries

39%57% 40%69% 59% 70% 77% 36%

2,25753%

30%

9%

4%4%

NW CBD FNW C SW

3,200,000 s.f.On the market

18

- Patrick Latimer

Research Manager,

Baltimore

BALTIMORE


Office employment trends (12-month change)


Healthy level of tenants in the market


Large Class A vacant blocks


Economic indicators mixed on slow absorption

2,2574

10

6

20

5

10

15

25,000 - 50,000 s.f. 50,000 - 100,000 s.f. > 100,000 s.f.

# of

blo

cks

Baltimore City Suburbs





12.8%Total vacancy




Employment drivers mixed at the beginning of 2016

Office-occupying segments of the Baltimore economy grew by a net 4,300 jobs

year-over-year, but performance across sectors was mixed. Professional &

business services (PBS) led in gains by a wide margin, helping to offset a

shrinking government sector. Losses in government were split evenly between

local and state, while federal government employment stood unchanged from the

prior year. Financial activities and information both started the year with neutral

growth. Growth in PBS, which totaled the largest annual gains made since 2013,

should help drive net absorption in the office market in the coming quarters.

Leasing activity down, but tenant-in-the-market activity steady

Outside of a handful of major renewals, signed leasing activity in the first quarter

of the year was tepid, falling short of 2015 by 19.1 percent. Tenants searching

the market, however, remained active with over 2.2 million square feet of

requirements, which is up 11.3 percent compared to the previous quarter. The

largest new deal of the quarter landed in the CBD at 1 South Street, where

MECU relocated within the submarket to 55,101 square feet of Class A space.

Education & healthcare along with engineering and architecture firms comprised

the bulk of demand in the pipeline.

Existing Class A vacant blocks limited across metro area

Limited new construction over the past three years combined with an ongoing

flight to quality by tenants has left few vacant Class A blocks across the market.

Vacancy for Class A space dipped to 10.0 percent, which is over a 10-year low

for Baltimore. As a result, build-to-suit activity has increased and developers

have moved forward on speculative development, most notably St. John

Properties in Maple Lawn. Several large Class A blocks will hit the market in the

coming year, however, with the largest being 152,833 square feet at 750 E Pratt

Street, where Exelon will be vacating as they move to Harbor Point.

-5.0

5.0

15.0

2011 2012 2013 2014 2015 2016

Tho

usan

ds jo

bs

Professional & Business ServicesInformationGovernmentFinancial Activities

Active requirements 110

S.f. of active requirements 2,247,512

11

S.f. of average requirement 20,432

19

- Lisa Strope

Research Manager,

New England

BOSTON


Net absorption continues its positive run


Suburban Class A rents on the rise (year over year growth)


Boston area attracting more VC dollars

Source: JLL Research, CB Insights

Tenant demand stays its course

Greater Boston experienced yet another solid quarter of net absorption.

Strong touring activity across the market combined with the buzz from GE’s

announcement in January that it will be bringing its headquarters and 800

new jobs to the Seaport District helped to kick start the year’s positive

occupancy gains. With nearly 50.0 percent of the 5.8 million-square-feet of

projects under construction preleased and vacancy rates near historic lows,

tenants with future growth or relocation plans may be challenged by limited

availabilities for value options.

New deliveries in well-located Suburban markets drive Class A rents

Suburban Class A rents surged in the first quarter of 2016 due in large part

to activity in the 128/Mass Pike market. Class A rents in Boston’s most

active submarket are nearing $40 per square foot and grew 5.1 percent in

the first quarter alone. Much of this growth can be attributed to the increase

in high quality space on the market from new deliveries such as the Atrium

Center, a 287,200-square-foot speculative development at 300 Boylston

street in Chestnut Hill. Further rent growth is expected as 3.5 million square

feet of new supply in Suburban markets is expected to deliver in the next two

years. With 53.0 percent of this space pre-leased, nearly 1.9 million square

feet may deliver vacant and at above average market rents. But strong

demand for highly amenitized suburban projects and continued tightening

across Boston’s suburban submarkets, leaves little concern for over supply.

VC money continues to flow into the Boston area

In 2015, Boston ranked as the third most popular destination for venture

capital investment, after San Francisco and New York. The booming biotech

sector took over 40.0 percent of the area’s largest VC deals and is the heart

of the region’s startup culture. But Boston’s computer technology sector is

also attracting VC investors, particularly in the cybersecurity area. Recent

funding deals included Digital Guardian, Cybereason and Bit9. With 44

Massachusetts companies on CB Insights’ 2016 IPO Pipeline, the coming

year is set to continue the market momentum.

The first quarter sets a positive tone for the year

2,257





13.9%Total vacancy




150

250

350

500

2500

2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4

Funding Deals

-10%

0%

10%

20%

2011 2012 2013 2014 2015 Q1 2016

Suburbs Class A

Suburbs Class B

-500,000

0

500,000

1,000,000

1,500,000

2011 2012 2013 2014 2015 Q1 2016

20

- Patrick Byrnes

Research Analyst,

Charlotte

CHARLOTTE


Under Construction


Asking rates continue to push


Direct vacancy


CBD dominates new development

Currently there is just under two million square feet of development underway in

the market, with the majority taking place in the CBD. Headlining the new

construction are projects at 300 South Tryon Street and 615 South College

Street. Spectrum Properties is developing the 638,459-square-foot building at

300 South Tryon Street and anchor tenant Babson Capital will occupy over

200,000 square feet upon completion. Portman Holdings is behind the

project at 615 South College Street, the property will total 381,263 square feet

at completion.

Rental rates stay rising

With the current average asking rate sitting at $23.13 per square foot, jumping

0.10 cents from last quarter, it comes as no surprise that ground breakings are

occurring. Developers recognize the demand for readily available space and are

helping with supply. For the first time, suburban market’s rental rates are being

advertised above the $30.00-per-square-foot threshold. With new developments

showing strong signs of preleasing, look for rents to continue to rise in the

forseeable future.

Vacancy reaching historic lows

The market’s direct vacancy rate has dipped to a new historic low, reaching 11.0

percent for the first time in 10 years. Since 2013, where the vacancy rate

reached 17.4 percent, the rate has been on a slide. Direct vacancy has dropped

by 6.4 percentage points since then to the current rate of 11.0 percent. With

tenants competing to secure the best available space in the market, it is likely

that vacancy will continue to tighten moving forward.

2,257

14.7%13.8%12.0%

15.5%17.9%17.0%16.9%17.4%

14.3%12.7%

11.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q12016



$23.13Direct average asking rate


11.6%Total vacancy



55.3%Total preleased

$15.00

$17.00

$19.00

$21.00

$23.00

$25.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q12016

0.00

1,000,000.00

2,000,000.00

3,000,000.00

4,000,000.00

5,000,000.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Low vacancy helps asking rates increase

21

- Hailey Harrington

Research Analyst,

Chicago CBD

CHICAGO (CBD)


Quarter in review

Strong leasing activity in 2015 continued into the first quarter of 2016.

Interestingly, much of the recent activity was concentrated in submarkets that

typically see fewer large deals. Historically a quiet submarket, the East Loop has

surprised some office market observers this year, posting a record low Class A

vacancy rate and the largest positive net absorption of any submarket, due to

move-ins from Kraft Heinz, Zeno Group, and JLL’s HQ expansion, among others.

This recent office activity in the East Loop is just one part of the overall energy in

the area. With several hotels under development between Millennium Park and

the Chicago River, and retail migrating south along Michigan Avenue, the East

Loop appears poised for a strong resurgence in tenant and investor demand.

Elsewhere in the CBD, many tenants have begun preleasing shadow space that

will be available in high-quality assets at below market rents. This trend will likely

continue as tenants expand their footprints to accommodate growth and large

tenant lease expirations begin rolling in the next few years. Note that sublease

availabilities increased to over three million square feet, a near record high.

West of the Loop, Fulton Market continues its streak as the submarket with the

most initial tenant interest, despite rising rents that now match those of more

established areas..

Outlook

While investment sales activity has slowed in 2016, several high-profile

properties are now available for sale, including 1K Fulton and the still-unfinished

150 N Riverside. The demand and pricing for these assets will be important

indicators of the state of the Chicago capital markets. Additionally, the

development pipeline remains strong, with several boutique projects planned in

Fulton Market, and a few Class A towers that could break ground if they are able

to secure just a few more large tenant commitments. As new projects move

forward, the Class A towers along Wacker Drive will be the assets to watch, either

for rising vacancy or quick backfill. Their occupancy will reflect the overall strength

of the Chicago leasing market.

East Loop’s historical Class A net absorption

Total vacancy rate

Under Construction concentrated in the traditional CBD

Strong 2015, felt in 2016

24,851

181,877

3,072

282,536

2013 2014 2015 Q1 2016

$35.3 $35.0 $39.0$33.8

$27.9

$39.9$32.1

$37.2

$25.2

CentralLoop

EastLoop

WestLoop

FultonMarket

FarWestLoop

RiverNorth

RiverWest

NMichigan

Ave

SouthLoop


1,224,960Q1 2016 net absorption (s.f.)



11.5%Total vacancy

1,224,960YTD net absorption (s.f.)



3,127,164

431,000CBD

Kennedy West




22

- Christian Beaudoin

Senior Vice President, Research

Central Region

CHICAGO (SUBURBAN)


Quarter in review

Despite continued concern that today’s employees prefer urban offices, the real

estate market in the Chicago suburbs kicked off the year with a sequence of

tenants recommitting to the suburbs. The largest of these transactions was AIM

Specialty Health signing a renewal at 540 Lake Cook Road for 94,000 square feet.

Also recommitting to the suburbs this quarter was Houghton Mifflin Hartcourt,

which renewed its lease at 909 Davis Street in Evanston for almost 60,000

square feet.

Notably, a significant portion of the leasing activity this quarter (40.8 percent of

leases over 10,000 square feet), were signed by medical and healthcare tenants.

Besides AIM Specialty Health, tenants including Millennium Medical, IKS Health,

Advocate Healthcare and Lundbeck completed large transactions.

Outlook

While leasing activity is strong, the suburban vacancy rate will continue to battle

against an abundance of available large blocks of space. With a series of large

blocks scheduled to become available throughout 2016, the suburbs will continue

to rely on tenants like Donlen, HSBC, Verizon, Lundbeck and McShane who all

have moves already planned for 2016. And with tenants such as Paylocity, Conifer

Health Solutions, Northwestern Medicine and Bosch out in the market Class A

large blocks will be in demand.

After several years with no new speculative development in the suburbs it was

announced that the Alter Group will be moving forward with Phase 4 of Corridors

North in Downers Grove. This announcement of spec development in the Eastern

East-West Corridor strongly reflects the trend of the submarkets immediately

surrounding Chicago outperforming the suburbs which are further from the core.

With the lowest vacancy rates and highest rents, the submarkets of the Eastern

East-West Corridor and North Cook County are likely to continue to attract tenants

at the expense of the farther-out submarkets.

Total net absorption (s.f.)

Total vacancy rate

Direct average asking rent ($ p.s.f.)

18.9%Total vacancy




753,000Total under construction (s.f.)


Strong leasing demand, yet large blocks remain

-242,577

-1,018,749

-2,165,869

-283,123

394,775

-107,998

153,085

1,643,4391,277,749

436,164

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$22.61

$23.74 $24.10

$23.49 $23.08 $23.08 $23.12

$22.91

$23.60 $23.43 $23.40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

20.0%20.7%

22.8%

24.8% 25.0% 24.5% 24.6% 24.3%

22.6%

18.5% 18.9%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Large block leasing activity surges in Q1

Out of town office investment since Jan 1, 2015

Notable Downtown conversion projects


23

- Ross Bratcher

Research Analyst,

Great Lakes

CINCINNATI


Property Owner Bldg s.f

Fourth & Walnut Centre Hudson Holdings 375,000

309 Vine Village Green Cos. 300,000

Textile Building Hudson Holdings 213,000

Hartford Building Vulcan Property Management 64,000

Large block leasing builds on Q4, posts strong first quarter

Large block leasing activity built on the momentum of the fourth quarter of 2015

with eight leases signed over 20,000 square feet. Large block leasing was most

active in the northern suburban markets, while leases were also signed in the

CBD, CBD peripheral, and Northern Kentucky submarkets. This further solidified

the strength of the Cincinnati office market as large block leasing activity was

focused in the Midtown and Kenwood submarkets in fourth quarter of 2015.

Large block leases were signed in both Class A and B product over the last two

quarters, showing positive tenant demand for both classes across the market.

Office investment continues hot streak in the first quarter

The Cincinnati office market has seen significant sales activity since the start of

2015. The trend continued in the first quarter as Landings I&II and McAuley

Place traded for a combined total of $87.4 million. The flow of capital into the

office market has been driven by out of town investment in the form of private

capital groups and equity funds looking to the Cincinnati market to broaden their

portfolios into secondary markets and generate a return from Cincinnati’s recent

momentum. The major players in the market span from New York to California,

further solidifying Cincinnati as a national destination for firms looking to invest in

secondary markets.

Downtown office conversion momentum continues

The Central Business District has seen multiple conversions of Class B office

space over the last 18 months and the first quarter proved to be no different.

Both the Textile Building and the Hartford Building traded with the intent to

repurpose the properties into mixed-use and residential, respectively. This trend

has gained steam due to increased residential and hospitality demand in the

market, as well as a lagging Class B office market in the CBD. Other notable

projects include Fourth & Walnut Centre, which will be converted into a mixed-

use complex that will include up to three hotels, and 309 Vine, which will be

repurposed for residential units.

Large block leasing remains hot into 2016

2,25734,582,680Total inventory (s.f.)




17.4%Total vacancy




-

20,000

40,000

60,000

80,000

Veritiv UnitedHealth Care

Mercy Health BusinessBacker

QuotientTechnology

The PotterLaw Firm

GraydonHead

Leased s.f.

0

2

4

6

8

$20

$40

$60

$80

$100

$120

Van Trust Real EstateGriffin CapitalSmith/Hallemann PartnersCarter ValidusRubenstein PartnersApollo Global

Total acquisition cost (millions) Number of transactions

Van Trust

Real Estate

Griffin

Capital

Smith/ Hallemann

PartnersCarter

Validus

Rubenstein

PartnersApollo

Global

24

- Andrew Batson

Research Manager,

Great Lakes

CLEVELAND


Address Use Size Sales price

100 Public Square Office 815,000 s.f. $79.0M

230 W Huron Retail 577,000 s.f. $56.5M

1600 W 2nd Street Office 321,000 s.f. $34.5M

24 Public Square Hotel 491 rooms $20.5M

75 Public Square Office 150,000 s.f. $4.0 M

Recent sales comps near Public Square

Source: JLL Research, Real Capital Analytics

Office product taken offline for residential conversion (m.s.f.)


Rockside Corridor office market fundamentals


Public investment induces private investments near Public Square

The economic theory that public investments in infrastructure will generate

increased levels of private investment is proving true once again in the heart of

downtown Cleveland. The $50.0 million overhaul of Public Square in the core of

downtown Cleveland is fast approaching a June 2016 completion date. The 10-

acre transformational project has caught the interest of real estate investors, who

have been active in acquiring property adjacent to the square. A handful of

properties have transferred in the last two years with a combined value of $194.5

million. However, the Key Center complex, which is currently listed for sale and

includes 1.3 million square feet of office space and a 400-room Marriott, could

trade for more than all of the recent sales combined—as much as $285.0 million.

Residential demand has a positive impact on the downtown office market

Residential demand in downtown Cleveland has increased significantly over the

last 15 years and this has had a positive impact on the office market. The

increase in demand has been driven predominately by the millennial generation

and a desire to live, work, play in the urban core. The downtown population now

stands at 14,000, representing a 79.0 percent increase since 2000. The increase

in demand has required a significant amount of new supply. While a portion of

this added supply has been ground-up construction, the majority has been the

product of residential conversions of underutilized and functionally obsolete

office buildings. In total, more than 3.3 million square feet of office product has

been repurposed into residential, leading to a tightening of the office market.

The suburban submarkets quietly regain their footing

With so much excitement and focus on downtown Cleveland and its high profile

wins in recent quarters it’s easy to understand how the suburban submarkets

could be overlooked. However, once considered down-and-out by many, the

suburbs have quietly regained their footing. This is particularly true in the

Rockside Corridor, Cleveland’s largest suburban submarket. Rockside has

retained several key tenants and attracted a few new ones in recent quarters.

Those tenants include Farmers, Honeywell, Vox Mobile and Chart Industries.

While the average asking rate in the submarket has remained fairly flat over the

last six years, the vacancy rate has recorded a substantial reduction.

Market continues to strengthen, forecast is positive

2,257





19.3%Total vacancy




15%

25%

35%

$18

$19

$20

2010 2011 2012 2013 2014 2015 YTD2016

Average asking rent Total vacancy

0.0

0.4

0.8

1.2

2012 2013 2014 2015

25

COLUMBUS- Ross Bratcher

Research Analyst,

Great Lakes


Property Buyer Price ($M) Bldg s.f.

Metro Center IV & V Lone Star Funds $16.3 320,414

2405 Columbus St Physicians Realty Trust $12.8 73,465

Three Crosswoods Center Hudson Holdings $7.5 117,309

Crosswoods Tech Center-B RCS Crosswoods $3.6 77,890

Absorption breakdown by submarket cluster (s.f.)


Notable first quarter office sales


Vacancy Trends


Large absorption gains recorded across every submarket cluster

Strong demand for suburban office space spanning the entire market led to a

huge first quarter for the Columbus market. Alliance Data, which leased 86,000

square feet at its new office campus in Easton, topped the market in the first

quarter. XPO Logistics signed a 63,000-square-foot lease for former Verizon

Wireless space in Dublin leading to 40,914 square feet of positive absorption in

the submarket for the first quarter. The Polaris submarket recorded just over

40,000 square feet of positive absorption thanks to several leases ranging from

7,000 to 12,000 square feet. Capitol Square recorded over 41,000 square feet of

positive net absorption, showing strength in the CBD.

Investors look to Class B product for higher returns

Investors have turned to secondary markets for office investment as returns in

primary markets continue to shrink. Investors looking to secondary markets such

as Columbus are in search of value-add plays, often acquiring Class B assets

with vacancy in the building. Through the improvement of common area facilities

and aggressive tenant improvement packages, investors are able to make the

properties more enticing for tenants. This trend can be seen with Lone Star

Fund’s acquisition of Metro IV and V in the Dublin submarket. The Worthington

submarket also saw a significant Class B trade with the sale of Three

Crosswoods Center.

Class B product continues to lag Class A

The first quarter of 2016 showed a continued trend of Class A space

outperforming Class B product in the Columbus market. The Class A vacancy

rate was positively impacted by large users signing leases in the first quarter, of

which six of the seven largest executed leases were for Class A space. Due to

high rates of Class A absorption over the last six quarters, the market has shifted

in favor of landlords due to a lack of quality space. Developers are responding to

the continued tenant demand with multiple new projects in the pipeline. As the

new projects are completed in late 2016 and early 2017, the vacancy rate is

projected to increase slightly while tenants fill the newly delivered space.

Suburban submarkets deliver strong start to year

2,257





13.1%Total vacancy



25% Total preleased

50,177

72,54042,245

46,544CBD

Northeast

Northeast

Northwest

6.0%

10.0%

14.0%

18.0%

22.0%

2011 2012 2013 2014 2015 Q1 2016

Class A Class B

26

- Walter Bialas

Vice President, Research,

Dallas

DALLAS


UC pipeline large, large portion is built-to-suits


Class A & B rental rates by submarket p.s.f.


Majority of spec construction scheduled for 2016


Vacancy beginning to rise as new construction outpaces absorption

Corporate relocation and consolidation continues to be driving office demand.

Two examples include McKesson’s recent purchase a 500,000-square-foot

complex in Las Colinas to consolidate and expand in the region, while Spire

Realty Capital will be relocating their corporate headquarters from Arizona to

Uptown in mid-2016. In the first quarter of 2016, new speculative construction

outpaced net absorption, moving total vacancy up slightly to 19.1 percent. While

drifting upward, vacancy remains near the region’s historic low, as well as for

many submarkets. We expect vacancy to increase slightly through 2016, and the

slow pace of first quarter absorption seems to be more related to the market

taking a pause after 2015’s a very robust pace.

Rate pressure remains in place

Despite the vacancy increase, rent pressure remains in effect for all submarkets.

Year-over-year, direct asking rates increased for Class A and B space by 7.4

percent. Rent increases ranged from 1.0 percent in Preston Center to 18.0

percent for North Central Expressway, as tenants look for rent relief from higher

rent areas like Preston and Uptown. Brokers commonly report sticker shock as

some tenants are seeing renewal rates 25.0 to 40.0 percent above their existing

leases. We expect new Class A construction to put upward pressure on rates as

space is delivered, which is also putting upward pressure on Class B properties.

There is also a move to convert typically quoted “plus-electric” rates to triple net

in an effort to maximize NOI and limit expense exposure.

Construction pipeline is large, strong absorption needed to keep pace

While the construction pipeline is above the historic average, more than half is

made of a handful of very large built-to-suits (most of which will deliver in 2017

and early 2018). In the first quarter, over one million square feet was delivered

(half built-to-suit, half spec). During 2016, another 3.6 million square feet is

scheduled for completion. Of that pipeline, two million square feet is not built-

to-suit or preleased. Recently signed deals point to higher net absorption later in

the year, but we expect vacancy to inch up in 2016 due to the high volume of

spec construction.

Absorption pace pauses, construction remains high

2,257





19.1%Total vacancy



66% Total preleased

$16$21$26$31$36

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

2.5 million s.f.(vacant spec will be delivered in 2016)

27

- Amanda Seyfried


Denver

DENVER


Year-over-year change in unemployment (percentage points)


Total net absorption as a percent of inventory


Increase in available office space including occupied space


Metro Denver boasts the lowest unemployment in the nation

Denver has among the nation’s most diverse sector compositions, helping drive

its economic expansion to a level bested by very few other metros. Further,

consistent in-migration has provided companies a large pool from which to

choose. Hiring has followed: up 15.2 percent in the past five years, local office-

using job growth has outpaced the U.S. and hit a record high in August 2014. In

January 2016, Denver had the lowest unemployment of 51 metros with

populations of one million or more, clocking in at 3.0 percent. Unemployment

has been declining since 2012, and swiftly so since 2014. Decreases will likely

not continue at this pace, but will continue to decline at a flatter rate.

Large tenant subleases and move-outs contribute to negative absorption

Negative net absorption in the first quarter can largely be attributed to sublease

space becoming vacant. Specifically, Newfield Exploration and WPX Energy’s

subleases at 1001 17th Street in West CBD contributed to over 240,000 square

feet of the total 349,535 square feet of occupancy losses during the quarter. In

the Southeast Suburban, CoBank fully vacated 225,000 square feet at its old

headquarters at 5500 S Quebec Street for its shiny new build-to-suit space at

6340 S Fiddlers Green Circle, which was largely occupied in Q4 2015. Tenants

including WeWork and Comcast will occupy large blocks of space in the coming

quarters, which will help to dig absorption out of the red.

Non-vacant availabilities on the rise

With negative net absorption, the first quarter ended with a rise in vacancy at

12.6 percent direct and 13.7 percent total vacancy, including subleases. These

numbers are a far cry from the 18.0+ percent total vacancy numbers seen in the

midst of the recession, however availability in both vacant and non-vacant

spaces is increasing rapidly throughout the market. In the CBD, total availability

exceeds 19.0 percent including the large number of oil and gas subleases

currently available. In Southeast Suburban, total availability north of Belleview

Avenue is currently 33.6 percent, because of large blocks recently placed on the

market. These numbers are expected to remain consistent in the coming

quarters, with a few spaces being absorbed due to recent leasing activity.

Economy remains strong through slow first quarter

2,257

-0.8%

0.4%

2.1% 2.0%

0.2%

-0.5% -0.7%

-1.7% -1.6% -1.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0.4%0.1% 0.0%

-0.1%

1.4%

0.5%

1.6% 1.7% 1.8%

-0.3%-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

18.0% +Overall market availability including

non-vacant spaces


-349,535Q1 2016 net absorption (s.f.)



13.7%Total vacancy

-349,535YTD net absorption (s.f.)



28

- Aaron Moore

Research Analyst,

Great Lakes

DETROIT


Historical Detroit vacancy rates


CBD absorption and rents


Suburban Class A rents and vacancies


The gap between CBD and suburbs is narrowing

2,257





19.4%Total vacancy


-.3%12-month rent growth


Detroit, a bright spot in a slowing sector

Nationally the real estate market feels like it’s moving into precarious times.

Volatility in financial markets is hurting real estate demand. Rates of return are

falling and lenders are getting stingier when it comes to funding risky U.S. real

estate developments, putting pressure on landlords in need of fresh funding to

keep their projects afloat. However, Detroit is feeling like a bright spot. This can

be attributed to the commitment of a few to make sure Detroit never slips back to

pre-bankruptcy conditions. While conventional lending is still hard to come by,

unconventional lenders and the myriad sources of credit and incentives are still

making Detroit development an attractive option.

Positive trends continue in Detroit’s urban submarkets

Detroit has a bit of a conundrum, so to speak. With one entity controlling the

majority of the urban office market the question remains, what impact will one

voice and vision have on the overall market? As it stands the trends remain

positive. Absorption for the quarter in the urban submarket was 80,184 square

feet, vacancy stood at 13.7 percent with no change quarter-over-quarter;

however it decreased 2.7 percentage points year-over-year. Rents year-over-

year showed a 2.7 percent uptick. Furthermore, Class A supply remains

constrained, but should loosen up as more office properties undergo upgrades

and renovations.

Suburban submarkets are reinventing themselves

Not long ago, Detroit’s suburban office markets were on edge, fearing a mass

exodus of companies moving from the suburbs to the urban core. However,

millennial buyers, strapped by student debt, stagnant wages, and tighter credit,

are having a more difficult time renting or buying housing in the urban cores. As

the largest generation in history matures and forms families, economics suggest

that developers will pursue cost-effective opportunities to house them in

transformed suburbs. This may explain why Detroit’s suburban office vacancy

rate decreased 5.7 percentage points year-over-year. Class A suburban office

remains competitive as rents continue their upward trend ending the quarter at

$23.90, an increase of 2.5 percent year-over-year.

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

YTD 2016201520142013

$20.00

$22.00

$24.00

9.00%

12.00%

15.00%

2013 2014 2015 2016

Rents Vacancy

0

60,000

120,000

180,000

240,000

$19.00

$19.50

$20.00

$20.50

$21.00

Q1 2015 Q2 2015 Q3 2015 Q4 2015 YTD 2016

Total Absorption Rents

29

- Katherine Billingsley

Research Analyst,

Oakland - East Bay

EAST BAY


Tenants target transit markets

Source: JLL Research, tenant demand as of March 2016

Year-over-year rent growth strong in core submarkets

Source: JLL Research, Q1 y-o-y figures

Average direct asking rent along the 680 Corridor ($/psf)


East Bay’s labor force relevant to changing workplace trends

Workplace trends are evolving in some offices from high cube partitions to open-space

floorplans. Some companies view this as a tool to capture and retain new talent, and the

East Bay is a hub for a viable and educated workforce. Evolving workplace trends are not

specific to startups and tech companies, some traditional and corporate companies are

gradually catching on as well. Workplace dynamics are changing to accommodate and

attract more employees, increasing the need for parking, translating into a strong demand

for locations near transit. In the last five years, BART ridership has increased 30.8

percent in the East Bay. There is nearly 400,000 square feet of tenant demand targeting

transit markets; however, vacancy rates in these markets such as Downtown Walnut

Creek (WC) and Pleasant Hill-BART are down to single digits (9.5 percent and 8.8

percent, respectively).

Location, location, location

In secondary markets along the 680, tenants are challenged to find space that will

accommodate the needs of their employees. Companies view their location as a competitive

advantage and are targeting offices with walkable amenities and access to transit. As a

result, rental rates in core markets such as Downtown Walnut Creek have grown 8.3

percent y-o-y, while Pleasant Hill-BART rents grew by 14.0 percent y-o-y. Despite the

sticker shock from increased rents in recent years, some tenants are negotiating renewals in

lieu of relocating to more affordable markets or commodity space in order to keep their

employees close to nearby amenities. Rent-sensitive and expanding companies are shifting

demand toward markets such as Concord or the Tri-Valley where large blocks remain

available. In the Tri-Valley, where BART is not an option, major office campuses have been

providing free transportation to and from BART for employees. Developers are making

efforts to lure tenants by providing city-like elements on campus grounds, creating a quasi-

urban lifestyle.

Positive outlook for the remainder of 2016

Notable leases this quarter include large user deals like Cisco Systems and Trumark

Commercial, who leased space in Pleasanton and San Ramon, respectively. The Tri-Valley

continues to attract tenants with its greater supply of large blocks; this is a key point of

differentiation in the southern end of the corridor. In the North 680, tenants continue to look

into quality options that are on par with Trophy assets in other major Bay Area markets. With

rent showing steady increases since last year, landlords remain optimistic and will continue

to push rental rates amidst strong demand and large user activity. Additionally, investment

activity is expected to accelerate moving into 2016 as major building projects come to the

market in the next three to six months. Stabilized occupancies provide growth opportunities

for investors and signify a positive outlook in East Bay for the remainder of 2016.

2,257

60%

Of the 615,500 square feet of

tenant demand along the 680

Corridor, 60.0 percent are

targeting submarkets with a BART

station.

14.0%

8.3%

4.7% 4.4%

0.0%

5.0%

10.0%

15.0%

20.0%

PH-BART Downtown WC Pleasanton San Ramon




0Total under construction (s.f.)

13.3%Total vacancy




$22.80

$28.08

$29.64

$30.00

$31.44

$32.40

$40.68

$42.12

Livermore

Concord

Pleasant Hill

San Ramon

Pleasanton

Dublin

Downtown WC

PH-BART

680 poised for a steady climb through 2016

30

- Dayna McConnell

Research Analyst,

Fairfield County

FAIRFIELD COUNTY


Vacancy rate declining in Greenwich CBD


Stamford South sees increased activity, follows trend in 2015


Q1 Stamford leasing activity by industry


Demand for office space remains high in Greenwich

Increased leasing activity in both the CBD and non-CBD contributed to a 2.2

percent rise in absorption. Landlords of Class A buildings in the CBD are taking

advantage of the high demand and decreased availability; asking rents have

climbed as high as $100.00 per square foot in some buildings, a rate which

hasn’t been seen since before the recession. As vacant space is absorbed in

Greenwich, upward pressure may be placed on the Stamford office market, likely

resulting in higher asking rents in Stamford’s Class A buildings.

Stamford CBD starts off slow as Stamford South activity increases

Leasing activity in Stamford’s CBD was weak in the first quarter of 2016, while

activity in Stamford South continued to gain even more momentum. Bridgewater

& Castleton Commodities penned two of the largest leases, accounting for

132,000 square feet of positive absorption in Class A space at BLT’s Harbor

Point. Despite a lackluster first quarter in the CBD, overall vacancy rates in the

first quarter in Fairfield County were 32.1 percent, rising only slightly from 31.9

percent at the end of 2015.

Longtime businesses say goodbye to Connecticut

Fairfield County’s commercial real estate outlook is hazy for the year ahead as

large tenants depart the market. In the first week of January, GE formally

announced plans to relocate their corporate headquarters in Fairfield to Boston,

MA, in effect leaving upward of 382,000 square feet of suburban office space

vacant. RBS and UBS have downsized, leaving large blocks of vacant space.

Beyond these finalized deals are questions involving Starwood Hotels and

Charter Communications, rumored to be relocating out of Connecticut

following mergers.

There may be some light at the end of the tunnel; law firms and financial tenants

continued to renew or lease new space in Stamford’s CBD. Additionally, the

healthcare sector is growing with hospitals needing space for ambulatory care

centers. This drives demand for space; owners struggling to find tenants may

benefit from repositioning an office building to meet the developing needs of

medical users.

Pockets of promise despite looming setbacks

2,257





24.4%Total vacancy



0% Total preleased

132,000 s.f.Positive absorption in Stamford South during Q1

18.1%20.5%

19.1%17.3% 17.6% 17.6%

16.2% 16.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2009 2010 2011 2012 2013 2014 2015 Q1 2016

25%

17%

15%

11%

9%

7%

7%9%

Financial/Banking

Aviation

Law Firms

Healthcare

Business Services

Accounting

Tech

Other

31

- Marc Miller

Research Manager,

Florida

FORT LAUDERDALE


Downtown Class A vacancy continues to decline


A number of trades shift ownership market share


Cypress Creek leasing activity shows strong tendency for

tenants to stay in place

Downtown, led by the trophy assets, had a strong start to 2016

Vacancy among Downtown Trophy assets declined for the fifth straight quarter

as it reached 6.1 percent – the lowest point since the delivery of Bank of America

Plaza in 2002. Thi quarter’s 50 basis point decline was driven by the move-in of

Goldstein, Schechter, & Koch (CPA), which occupied 15,000 square feet in

SunTrust Center. In addition, the Class A properties off Las Olas saw quarter-

over-quarter decline in vacancy as a number of tenants occupied space,

propelling positive absorption. Further, the current vacancy spread between Las

Olas Trophy assets and those off Las Olas is 250 basis points below the five

year average with an 11.8 percent differential (current Las Olas total vacancy is

6.1 percent and Off Las Olas vacancy is 19.1 percent).

A number of properties trade as investment in Broward County continues

Activity started early this quarter as Tower 101 (along with 101 Centre) sold for

$56.3 million ($245 p.s.f.) when Ivy Equites purchased the property from Banyan

Street Capital. This mark the first major downtown building sale since New River

Center traded in December 2014. Also notable, the Weston Pointe properties

(buildings I, II, III, and IV) traded in Southwest Broward when New York Life

picked up the buildings from Duke Realty. In addition to the most recent sales,

Duke Realty has sold 12 other office properties (in the Western Broward

suburban markets) since the start of 2014, reducing their market share in the

area. Currently, their notable office ownership consists of the new Pembroke

Pointe project (the first building of the project was recently delivered), just off

Pines Boulevard and I-75 in Southwest Broward.

The majority of leases signed in Cypress Creek are tenants staying in place

Among actively tracked transactions, less than 40.0 percent of all leasing activity

since mid-2014 in Cypress Creek has been from new-to-market tenants.

Comparatively, 55.0 percent of leasing activity has come from tenants signing

renewals or expanding at current properties. In addition, the average tenant size

in Cypress Creek is just over 3,000 square feet, making spec suites a viable

option for landlords trying to lease up space. Many smaller tenants (under 3,000

square feet) look for space that is turn-key and is ready to occupy faster than the

more traditional larger tenants.

Downtown leads the way as vacancy declines

2,257

0.0%

20.0%

40.0%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Las Olas Off Las Olas





16.0%Total vacancy




Name Buyer Seller Price

Tower 101 & 101 Centre Ivy Realty Banyan Street Capital $56.3M

Weston Pointe I New York Life Duke Realty $28.9M

Weston Pointe II New York Life Duke Realty $28.7M

Weston Pointe III New York Life Duke Realty $28.7M

Weston Pointe IV New York Life Duke Realty $28.4M

36%

9%33%

22%New-to-market

Lateral relocation

Renewal

Expansion

32

- Geoff Thomas

Senior Research Manager,

Richmond

HAMPTON ROADS


Total new jobs announced (all industries)

Source: Virginia Economic Development Partnership

Blocks of available space over 50,000 square feet


Total office inventory with troubled CMBS loans


Economic development wins begin upward trajectory

The Hampton Roads market transitioned into 2016 with major wins for the local

economy. The largest attainment, ADP, will be opening a regional service center

in Downtown Norfolk and move into 287,000 square feet at 2 Commercial Place

(currently under renovation) by 2017. The move will expand Downtown Norfolk’s

tenant tapestry, but raises questions around whether this submarket can

accommodate the increased parking and housing demand from 1,800 new

positions. Without the addition of any new parking structures, the relatively

recent implementation of light rail in 2011 (The Tide) and new multifamily

developments surrounding the CBD will be tested by this immediate influx of

personnel Downtown.

Some large requirements opting for non-traditional office buildings

Space constraints in both the Class A and Class B office inventory guided some

larger requirements to older retail centers. The most recent example is

Movement Mortgage’s executed lease at the Military Circle Mall in the Central

Norfolk submarket. A former 209,109-square-foot anchor space will be converted

to office with Movement Mortgage initially taking on 75,000 square feet as the

first tenant for their expanded operations center. Aside from the lack of large

blocks, drivers for this non-traditional space have been low space costs and

higher parking ratios that have allowed users to maximize space efficiencies.

Modest leasing momentum pushed several loans into troubled status

CMBS loans that originated during the height of the recession were nearing

maturity, leaving some landlords that were unable to capture a portion of limited

tenant demand in imminent default. 500 E Main Street in Downtown Norfolk was

purchased by NPV Direct Invest in 2007, and was unable to secure additional

tenants over the past two years. The 228,730-square-foot tower was 68.0

percent leased at the time of default and was scheduled for auction next quarter.

Despite the recent partnership between Rosemont Realty and Gemini

Investments, 300 E Main Street entered troubled status after losing several key

tenants, most notable were USI Insurance and MMM Design.

Large block leasing activity gaining momentum

2,257


311Q1 2016 net absorption (s.f.)



14.3%Total vacancy

311YTD net absorption (s.f.)


100% Total preleased

3.93.5 3.3

4.9

2.92.4

3.1

1.8 1.9

3.5

2.4 2.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

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

Jobs

in T

hous

ands

3

1 1

Peninsula Southside

Class A

Class B

1,457,724Square feet

33

- Eli Gilbert


Houston

HOUSTON


Sublease space arriving to market over prior 15 months


3 total building sales occurred in Q1 2016


Tenants remain cautious and waiting for bottom of market


New large blocks of sublease space arrive and add pressure to market

2016 continues at a record pace in terms of sublease space in Houston’s office

market, with companies such as Shell, BHP Billiton and Technip adding 100,000

square feet or more to the market during the first quarter. These additions give

Houston a record 9.4 million square feet of sublease options, while continued

downsizing and M&A by energy firms in 2016 are expected to add additional space

to market to push the total to close to 10 million square feet by year-end.

Additionally, a decrease in both direct and sublease leasing velocity has total

available space within the market to an all time high of 24.0 percent of stock. The

combination of these factors, along with 2.7 million square feet of still to be leased

new deliveries will push market vacancy to near 20.0 percent by the end of 2016

and mark the beginning of a challenging year for Houston’s office market.

Building sales activity reflects a concerned market

A combination of oil price concerns and job losses continue to cause pullbacks in

the market, and the effects were seen peripherally in office sales activity. While the

number of buildings trading hands remained the same as the prior quarter, there

was a marked shift in size and class toward smaller Class B trades. The lack of

Class A asset transactions is reflective of a market in flux, with buildings owners

largely taking a cautious approach to putting Class A or Trophy assets on the

market. As these buildings, for the most part, have solid tenant bases and limited

roll, building owners are content to sit on the sidelines and wait out the market

uncertainty as opposed to putting an asset on the market and not finding the

demand and transaction terms to their liking.

Market and tenants cautious as “Trough” questions remain

West Texas Intermediate oil, a benchmark for American oil production, rebounded

over the prior 90 days, holding near $40/bbl during the quarter. While this

represents an increase over year-end 2015, the impact has yet to be felt in the

market. Leasing activity overall remained sub 2.0 million square feet during the

quarter, with only 11 leases greater than 20,000 square feet executed and minimal

activity among tenants new to the market. 9.1 million square feet of tenants in the

market await the answer to the question of has the Houston market reached it’s

trough? Once answered, Houston may see companies begin to re-enter the market

to take advantage of the tenant-favorable status it holds in 2016 and 2017.

2016 begins with continued market downturn

2,257

S.F. of tenant requirement in the market in preliminary or hold stages

4,173,300 s.f.





17.7%Total vacancy




Jan.

201

5

Mar

. 201

5

May

. 201

5

Jul.

2015

Sep

. 201

5

Nov

. 201

5

Jan.

201

6

Mar

. 201

6

0

500,000

1,000,000

1,500,000

2,000,000

Only Class B activity occurred in Q1 2016 totaling

$76.8 million

34

- Mike Cagna


Indianapolis

INDIANAPOLIS


Tenant Size (s.f.) Location

Allied Solutions 109,600 Midtown Carmel

Stanley Security Solutions 80,000 Fishers Pointe

Sallie Mae 75,558 Three Woodfield

Republic Services 68,000 Two Concourse

NextGear Capital, Inc. 44,479 City Center @ Penn

Location Size (s.f.) Buyer

Lockerbie Portfolio 179,870 Gershman Partners / Citimark

210 S Meridian Street 88,564 Choice Hotels

One North Pennsylvania 82,565 NAYA USA Investment & Management

One Jackson Square 60,000 OP McCrea Indianapolis, LLC.

IBJ Building 57,625 Drury Hotels

Top leases signed this quarter

Breakdown of current office development pipeline


CBD office investment activity this quarter

Several large transactions kick off the new year

The Indianapolis office market has started 2016 off with a bang as there have

already been five leases signed in just the first three months of the year in

excess of 40,000 square feet. By way of comparison, there were only seven

such deals signed all of last year. There are an additional two or three significant

lease transactions that may close later this year. One of which has the potential

to be the single biggest lease transaction closed in Indianapolis since Rolls-

Royce North America signed on to lease Faris I and II in downtown Indianapolis

in 2011.

Construction activity heating up

Several office projects are currently under construction in Indianapolis with

several more scheduled to break ground soon. 580 E Carmel Drive was

delivered this quarter with approximately 7,300 square feet pre-leased to the

Garg Group. 22,000 square feet remains available for lease. By year’s end

Lakeside Green Business Center, River North at Keystone and the Marietta on

Mass will come online adding more than 140,000 square feet of Class A space to

the market. In addition, deals were recently signed by Allied Solutions, Stanley

Security Solutions, Braden Business Systems and Blue Horseshoe to anchor

soon to be developed office projects totaling an additional 294,600 square feet.

Investment activity centers on downtown Indianapolis

Seven office investment transactions closed during the first quarter, five of which

involved properties located in the CBD. Two of the properties were purchased by

hotel operators and will be converted from Class B office space into hotels in the

not too distant future. This mimics a trend being seen across the country where

office buildings are being scooped up and redeveloped into multi-family or

hospitality. Other examples of this trend can be seen around downtown

Indianapolis as the Brougher Building was purchased last year for conversion

into multi-family. Meanwhile, the Consolidated building and Illinois building are

both currently being redeveloped into hotels. The non-CBD properties that traded

were Glendale Tower (Midtown) and Merchants Pointe (North Meridian/Carmel).

Indianapolis office market off to a good start in 2016





15.6%Total vacancy



29,200 YTD completions (s.f.)

31.4%

68.6%

S.f. available

S.f. pre-leased

35

- Drew Gilligan


Central Florida

JACKSONVILLE


Annual leasing activity


Historical Class A asking rates


Total vacancy by submarket


Choppy leasing activity year-over-year

From 2010-2014 the Jacksonville office market recorded an average of 1.5

million square feet of leasing activity. In 2015 leasing activity totaled more than

2.5 million square feet, a 40 percent increase from the market average. A

number of large groups already in the market signed leases, explaining the large

jump. However, to start the year, leasing activity is down 35.0 percent compared

to average first quarter activity over the past five years, but this is likely an

abnormal quarter as the next few are expected to be in line with annual averages

as multiple large tenants are touring the market.

Little movement in rent growth, not a sign for worry

Class A product is currently experiencing an all-time high in asking rates despite

minimal growth in rates over the previous 24 months. Historically, rates have

fluctuated between $17.00 - $20.50 per square foot, indicating that the slow

growth is in line with historical trends. As the Jacksonville market continues to

make national headlines as a growing financial services hub with appealing

business incentives, landlords will likely push rents in 2016, particularly because

few large blocks remain in the Butler Boulevard and CBD submarkets–further

solidifying leverage for landlords.

Vacancy remains low in all submarkets

Vacancy is at an all-time low for the CBD submarket at 14.6 percent. In addition,

the Butler Boulevard submarket recently experienced its lowest vacancy rate two

quarters ago before two negative quarters of absorption. Over the past four years,

tenants have occupied more than 1.1 million square feet, dropping overall

vacancy to 15.7 percent, and even lower in Class A product (11.4 percent).

Butler Boulevard remains the strongest submarket in Jacksonville with vacancy

fluctuating between 10.0 to 12.0 percent for Class A space, and the CBD is

gaining ground quickly with a declining vacancy rate.

Slow first quarter not a cause for concern

2,25730.6%

14.6%

14.5%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

Southside

Jax CBD

Butler Boulevard

$19.95 $20.73

$19.86

$21.16

$19.61 $19.41 $19.67 $20.09

$20.53 $20.88 $21.26

$15.00

$17.00

$19.00

$21.00

$23.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016





15.7%Total vacancy




0300,000600,000900,000

1,200,0001,500,0001,800,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

36

- Sarah Bouzarouata

Research Analyst,

Long Island

LONG ISLAND


Long Island unemployment rate by county

Source: NYS Department of Labor, JLL Research

Class A direct asking rental rate and vacancy trends (p.s.f.)


Class A net absorption by submarket (s.f.)


Nassau County houses lowest unemployment rate in the state

Nassau County’s unemployment rate fell 70 basis points from January 2015 to

January 2016, giving it the lowest unemployment rate in the state. Suffolk County’s

unemployment rate also decreased, lowering the Long Island unemployment rate to

4.5 percent. Despite yearly employment gains, the Long Island office market

maintained a slow pace of growth due to its continual struggle in attracting a

younger workforce and retaining jobs. The slow market along with election-related

uncertainty led to a spike in properties up for sale as investors sought opportunities

in other markets. Among these were 1981 and 1983 Marcus Avenue in Lake

Success, as well as 900 and 990 Stewart Avenue in Garden City.

Limited large Class A blocks of space maintains upward pressures on rents

Increased tenant demand for Class A office space could lead to an off-balance

between supply and demand in the upcoming years, as the market sees a slowdown

in speculative development. The Class A vacancy rate fell substantially to 13.1

percent, a decrease of 170 basis points from year-end 2015. Among the recently

completed transactions was Aon’s 60,000-square-foot lease at 900 Stewart Avenue

in Garden City, while Abrams Fensterman absorbed 36,000 square feet at 3 Dakota

Drive in Lake Success. The tightening Class A office market will maintain upward

pressures on asking rents. Class A asking direct rents climbed to $30.08 per square

foot, an increase of $0.29 from the end of 2015.

Western Nassau submarket outperforms in Class A net absorption

The Western Nassau submarket posted 263,442 square feet of positive net

absorption, which accounted for more than one-half of the nearly 306,000 square

feet absorbed in the Long Island Class A market. Northwell Health was the largest

driver of this absorption through its occupancy of more than 50,000 square feet at

330 South Service Road in Melville, 22,000 square feet at 226 Middle Country Road

in Smithtown, and its plans to expand beyond the 440,000 square feet occupied at

1111 Marcus Avenue in Lake Success. Central Nassau was the only submarket in

Nassau County to post negative absorption. This was mostly due to the closing of

JPMorgan Chase’s offices at 900 Stewart Avenue in Garden City at year-end 2015.

2,257



$26.22Direct average asking rent (p.s.f.)

338,885 Total under construction (s.f.)

15.5%Total vacancy


-1.5%12-month rent growth


10.0%

15.0%

20.0%

$29.50

$30.00

$30.50

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Class A asking rent Overall vacancy

-50,000 50,000 150,000 250,000 350,000

Central Nassau

Central Suffolk

Eastern Suffolk

Southern Nassau

Eastern Nassau

Western Suffolk

Western Nassau

Jan. 2015 4.9% 5.6%

Jan. 2016 4.2% 4.8%Nassau County Suffolk County

Class A demand boosts rents, pulls down vacancy

37

- Henry Gjestrum


Los Angeles

LOS ANGELES


Creative industries account for majority of demand

Westwood purchase brings major ownership concentration

El Segundo creative set sees consistent positive absorption

Media and entertainment drove leasing activity

Large consolidation paves way for higher rents

Douglas Emmett, along with QIA (Qatar Investment Authority), an 80 percent

partner, purchased the four-building EOP/Blackstone-Westwood portfolio. The

estimated purchase price was $1.3 billion with a 3.7 percent cap rate. The buyer,

Douglas Emmett, already owned two properties, previously representing 15.0

percent of the market in Westwood. With the four-building addition, they now

control 78.0 percent of the Class A office stock along Wilshire Boulevard. The

combined portfolio has 12.9 percent vacancy and an average gross asking rental

rate of $4.55 p.s.f. With control of so much stock, it would be plausible that

ownership would continue to push rates.

El Segundo gets creative and tenants respond favorably

Creative office properties and build-outs have resonated with a wide range of

users throughout Los Angeles. As this trend expands both geographically and

across industry sectors, more and more office micro-markets are joining in the

trend. El Segundo, which lies just south of Playa Vista has been slowly adding

creative square footage to its office base. There is currently 2.3 million square

feet of existing creative product in the market and an additional 1.2 to 1.6 million

square feet of conversions either under way or in the planning phases. Since

2014, and despite commanding an 18.8 percent rental rate premium over

traditional Class A El Segundo office product, the market has seen consistent

positive net absorption.

Media and entertainment drive leasing activity

The media and entertainment sectors accounted for over a third of all leasing

activity during the first quarter. Large entertainment transactions included

distributer and producer Netflix signing a 123,300 square foot lease in Hollywood

while talent agency International Creative Management (ICM) signed for 108,300

square feet in Century City. A series of box office hits has bolstered the

entertainment industry. The expansion and extension of the California Film &

Television Tax Credit Program will help underpin future growth in the

entertainment industry by significantly curtailing runaway productions.

2,257





15.0%Total vacancy




-400,000

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

2011 2012 2013 2014 Q1 2016

Apollo at

Rosecrans

comes online

2014

678,236 sf

33%

17%13%

12%

5%

5%

Media & entertainmentBanking, finance, insuranceHealthcareLaw firmConsultingOthertechologyAerospace and defenceNon-profitEducation

13%

78%

9%

Center West

Douglas Emmett, Inc.

Tishman Speyer

Source: JLL Research, *Set excludes Irvine Co. owned Westwood Gateway

38

- Tim Powers

Research Analyst,

Miami

MIAMI


Suburban transaction volume easing, but CBD bucks the trend

The pace of total office leasing activity across Miami-Dade slowed moderately to

begin the year, as roughly 175 transactions of a median 2,000 square feet were

signed throughout the County during Q1 2016 (versus a 2015 quarterly average

of 220 transactions with a median size of 2,000 square feet). This easing follows

185 transactions last quarter – a relaxed pace itself versus historical norms –

albeit, of a slightly higher median deal size of 2,300 square feet (comparatively,

quarterly leasing activity between 2011 and 2015 averaged 210 transactions of a

median 2,100 square feet). This trend was largely attributable to the seven

suburban submarkets, where transaction activity slowed to 110 transactions of a

median 1,800 square feet (in contrast with 2011-2015's quarterly average 140

deals of a median 2,000 square feet). Miami's CBD, however, bucked the trend:

Brickell and Downtown Miami executed 70 transactions of a median 2,600

square feet in the first quarter (on pace with both the 2015 quarterly average 70

deals of a median 2,200 square feet and the 2011-2015 five-year quarterly

average 70 deals of a median 2,300 square feet).

Bread-and-butter demand back at the forefront

On an average basis, the execution of a large number of outlier/outsized lease

transactions skewed the 2015 demand distribution. Q1 2016 saw the market

return to normalized transaction levels, as exhibited by the the quarter’s low

standard deviation of transaction sizes. This deviation shrank in the CBD to just

4,300 square feet (the smallest single-quarter standard deviation since Q1 2014,

versus 2015’s average standard deviation of 12,100 square feet) due in part to

100,000+ square foot leases signed by Citibank, Akerman, and Stearns Weaver.

This increased gravitation toward the mean was also witnessed in the suburbs,

where the standard deviation of transaction sizes shrank to 3,200 square feet

compared to last year’s average of 7,400 square feet, indicating absorption

levels in the forthcoming quarters similar to those of 2013 and 2014.

Confidence considerations

Despite some quavering in suburban submarkets, county-wide confidence

remains bifurcated into the buoyant and the patient; total weighted average direct

asking rates rose 1.5 percent quarter-on-quarter (up 5.7 percent year-on-year),

and average rate changes to pre-existing availabilities accelerated to 1.7 percent

from 2015’s quarterly average of 1.5 percent. A large contingent of landlords

have seemingly paused to assess the market, however, as first quarter rate

changes to spaces listed longer than three months slowed to 228 in number,

down from an average count of 375 in 2015 and below the 2011-2015 five-year

quarterly average of 315 rate changes.

Miami-Dade transaction activity 2011 - Present


Demand more in line with historical norms than recent past


Rate adjustment volume slows, but rate rise trend continues


Confidence abides as demand returns to historical norms

2,257





13.3%Total vacancy




40

60

80

100

120

140

160

180

1,400

1,900

2,400

2,900

3,4001Q

11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

numbersquare feet CBD, count (R) Suburbs, count (R)

CBD, median size (L) Suburbs, median size (L)

3,000

8,000

13,000

18,000

23,000

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

transaction size, s.f.

CBD, standard deviation Suburbs, standard deviation

0

100

200

300

400

500

-1.5

-0.5

0.5

1.5

2.5

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

number$ p.s.f.

* Changes to spaces listed for longer than three months

Rate changes*, count (R) Weighted average rate change* (L)

39

- Kyle Koller

Research Analyst,

Milwaukee

MILWAUKEE


2016 Business outlook survey forecast predicts growth

Source: JLL Research, MMAC

Max contiguous space by region


Total net absorption (s.f.) by class


Key metrics expected to rise over 2016 for non-manufacturing industries

According to the Metro Milwaukee Association of Commerce 2016 Business

Outlook Survey, in which 114 Milwaukee area firms are surveyed, sales, capital

expenditures, and employment are expected to rise compared to 2015. In fact,

79.0 percent of respondents expect an increase in sales over 2016, and more

than half expect employment to rise. Confirmation came in the form of those who

outgrew their space beginning to move into Milwaukee’s newly constructed office

tower, 833 East. The tower was over 60.0 percent preleased before opening its

doors, with a majority of new tenants moving from only a few blocks away.

First quarter sees positive absorption but large blocks remain

Apart from negative absorption in the suburbs, largely within Class B inventory in

Brookfield, most submarkets saw positive quarterly absorption to start the year.

Still, there remains a great supply of large blocks of space, especially in

suburban submarkets. Tenants looking to occupy more than 50,000 square feet

have multiple options at Park Place or on Executive Drive in Brookfield. Looking

downtown, large blocks of space remain at 833 East or 330 Kilbourn as the

FBI vacates.

Strong downtown absorption may be paid for next quarter

As the delivery of 833 East falls on the cusp of the second quarter, its new

tenants have yet to fully vacate their old spaces. It will not be until next quarter

when a majority of the tenants moving in (including large users such as Irgens,

KPMG, Jason Inc., and Colliers) see their former space hit the market. Any

space that does not have new tenants in line will be taking a hit to occupancy

levels, and as home to the moving firms, the Downtown East and Downtown

West submarkets will feel the largest impact.

Actions in line with expectations

2,257

79%

4%17%





18.5%Total vacancy




16

105

2545

15

55

8 143 61 220

78

0

50

100

150

CBD Suburban

< 5K 5-10K 10-25K 25-50K 50-100K >100K Full

-100,000-50,000

050,000

100,000150,000200,000250,000

A B C

CBD

Suburban

41%

16%

43%52%

9%

39%

Sales Capital Expenditures Employment

Rise Decline No Change

40

- Carolyn Bates


Minneapolis

MINNEAPOLIS


2015-2016 YTD delivered office product, square feet

Minneapolis CBD Skyline vacancy, 30th floor and above

Average age of buildings in Q1 sales transactions (years)

Source: JLL Research, RCA

BTS developments loosen up Northeast and Minneapolis CBD inventory

In the last two quarters, 1.3 million square feet of build-to-suit (BTS) office space

has been delivered, including the 1.1 million-square-foot Downtown East Wells

Fargo towers in the first quarter and the 240,000-square-foot Be the Match

headquarters in the fourth quarter. Both employers previously had multiple leases

in a variety of multi-tenant office buildings. As such, Northeast experienced large

negative absorption last quarter when Be the Match’s employees relocated to its

new HQ in the North Loop. Throughout early 2016, the Minneapolis CBD will see

the same trend as Wells Fargo’s employees begin to vacate its current space and

aggregate in the new owner-occupied digs in Downtown East. Despite some initial

increases in vacancy rates, these migrations will open up much-needed

contiguous blocks for tenants in the market, the largest being 455,000 square feet

at Northstar West.

Legal services are creating ripples, soon waves, in vacancy rates

The trend of law firms choosing to right-size in order to save money on real estate

costs is creating churn in the Minneapolis CBD. Nearly 15,500 square feet of

contiguous space opened up at IDS Center this quarter when law firm Wagner

Falconer & Judd relocated to the Fifth Street Towers. Likewise, Lindquist &

Vennum will relocate and downsize to 80,000 square feet by the end of 2016,

eventually leaving120,000 square feet of vacant space on floors 40-44 of the IDS

Center. This is a rare availability, considering that among Minneapolis CBD

Skyline buildings, vacancy on the 30th floor and above has dropped from 10.0 to

8.0 percent year-over-year.

Class B repurposed office buildings are driving CBD office sales

As vacancy diminishes and rental rates continue to rise, developers are getting

creative in regards to office building investments. In the first quarter, all office

sales in the Minneapolis CBD were for historic structures, including the Internet

Exchange and The Washington, a former adult store now being converted into

first-floor retail and 46,000 square feet of multi-tenant office on the upper floors.

Out-of-state investors like Chicago-based R2 Companies are increasingly

choosing to rehab historic Class B buildings for creative office space due to their

unique architectural detail and relative affordability.

Old tenants move to brand new buildings & vice versa

2,257





14.9%Total vacancy




119

45 34 31 31 18 17

0

50

100

150

8.9%Q1 2016 vacancy

11.7%Projected Q3 2017

vacancy

203,736 212,000

464,560

1,340,000

-

500,000

1,000,000

1,500,000

2,000,000

Speculative BTS

Under Construction Completed

41

- Hensley Loeb

Research Analyst,

Nashville

NASHVILLE


Booming business and subsequent job growth drive leasing

Source: JLL Research and the Bureau of Labor Statistics

Office market construction represents 19.7 percent of total

Source: JLL Research and The Nashville Business Journal

Composition of construction type: BTS, preleased and spec



206,416 Q1 2016 net absorption (s.f.)


3,371,446 Total under construction (s.f.)

6.3%Total vacancy

206,416 YTD net absorption (s.f.)



152Construction projects

underway, planned

and proposed Multifamily Hospitality Office

Job growth + construction activity next to noneJob growth that surpasses all U.S. counties illuminates office demandNashville’s Williamson County, home to the submarkets with the consistently lowest vacancy

rates, witnessed a 6.5 percent increase in job growth in 2015, outstripping the largest counties

in the country, which averaged an increase of 1.9 percent in employment growth. The sector

with the largest employment increase in Williamson County occurred in professional and

business services, which bodes well for office leasing. Davidson County and Rutherford

County were also above the national average respectively increasing employment by 3.3 and

3.9 percent, respectively. According to the Tennessean, new business filings increased by 7.2

percent, marking it the 17th consecutive quarter for business growth. As employment growth

continues in Nashville, new office options become few and far between. The overall market

vacancy rate at the end of Q1 2016 is 6.3 percent, down from last quarter’s 6.7 percent. As

expansions, relocations and subsequent job growth continue leasing activity will continue to

rise, so long as office space can accommodate the stunning growth trends.

Nashville to grow more than any other office market in the countryWith 3,371,446 square feet of office under construction, Nashville has the most construction

underway in the United States as a percentage of its inventory. For the six U.S. markets with

inventories between 30 to 40 million square feet, the average construction as a percentage of

inventory is roughly 2.5 percent. Nearly a dozen other markets also have greater than 3

million square feet under construction; however, Nashville’s projects represents 10 percent of

its inventory, positioning Nashville to grow more than any other office market in the country.

Two buildings delivered this quarter: 35 Music Square East (95,000 square feet) and Mallory

Park Phase I (39,333 of 87,101 square feet complete). 35 MSE came to market 81.5 percent

leased upon delivery and Mallory Park Phase I was 100 percent leased upon delivery. The

17,911 square feet remaining from these deliveries will not add sufficient relief for demand.

Spec development signals positive market outlookNashville has not traditionally been a market to build speculative buildings. Historically,

projects have required preleasing before construction begins; however, Nashville’s

construction trends are changing. 7 of 16 projects are speculative developments in Nashville.

This upward trend in speculative development can be attributed to developers’ positive outlook

on the market. Economic expansion is lending itself towards increased rental rates and a

vacancy that is nearing a cyclical low. Rental growth has continued at 5.0 percent over the

past 12 months. Rent landed at $21.68 this quarter, and even more appealing to landlords,

the rental rate average for new product is $33.88. The increasingly less vacant market has

created a sufficient supply-demand imbalance. With only 1,271,035 of the 3,371,446 square

feet under construction available for deliveries through 2018, speculative developments are

coming online to meet market demand.

92

34 30

25.0%

31.3%

43.8%

Build-to-suit Preleased Speculative

Nashville has not traditionally been

a market to build spec buildings, but

market confidence is changing

construction habits. 7 of 16 projects

are spec.

0.0%

5.0%

10.0%

15.0%

0

50

100

150

200

2010 2011 2012 2013 2014 2015 Q1 2016

New Business Filings Office Vacancy RateUnemployment Rate

42

- Steve Jenco


New Jersey

NEW JERSEY


Northern and Central New Jersey office leasing activity (s.f.)


Hudson Waterfront Class A net absorption trends (s.f.)


Transit-centric vs suburban NJ vacancy rate trends


Leasing velocity trails off in early 2016

After averaging more than 3.0 million square feet of leasing transactions per

quarter during 2015, leasing activity in the Northern and Central New Jersey

office market hit the brakes in early 2016. Approximately 2.0 million square feet

of leases were signed during the first quarter, which represented the lowest

volume in over three years. More than 65.0 percent of leases involved Class A

buildings. Demand for Class A space was a recurring theme over the past year.

Diminished leasing velocity combined with additional vacancies in the Class B

office market pushed the Northern and Central New Jersey overall vacancy rate

10 basis points higher from year-end 2015 to 24.7 percent in early 2016.

Hudson Waterfront attracting diversified mix of business sectors

After posting 164,180 square feet of negative net absorption during the fourth

quarter, a rebound in demand for Class A space led to nearly 199,500 square

feet of absorption in the Hudson Waterfront three months later. This represented

the largest volume of absorption in the Northern and Central New Jersey Class A

office market. While financial services firms initially populated the Waterfront,

other sectors continued to establish footprints in this strategically located market.

Among these companies was e-commerce startup Jet.com, which recently

doubled its headquarters to 80,000 square feet, while Newell Brands leased

nearly 100,000 square feet at Waterfront Corporate Center III in Hoboken.

Mass transit-centric submarkets on the radar screen for office tenants

New Jersey’s transit hub markets are characterized as areas housing a

significant number of office properties in proximity to a commuter rail station.

Among these markets are Hoboken/Jersey City, Metropark, Morristown, Newark,

New Brunswick and Summit. Persistent demand, combined with the lack of

speculative construction, have kept their vacancy rates in the teens for the past

several years. This was in contrast to the state’s suburban vacancy rate, which

had stubbornly remained below 30.0 percent. The state’s transit hubs will remain

active in the coming year as companies pursue space options located in

amenity-rich areas offering access to mass transportation.

Vacancy rate ticks upward as leasing volume slows

2,257





24.7%Total vacancy



100% Total preleased

10.0%

15.0%

20.0%

25.0%

30.0%

2012 2013 2014 2015 Q1 2016

Transit Hub Markets Suburban NJ

228,371 203,812

-164,181

199,454

-200,000

-100,000

0

100,000

200,000

300,000

Q2 2015 Q3 2015 Q4 2015 Q1 2016

3,240,291 3,225,765 3,321,269

1,977,903

0

1,000,000

2,000,000

3,000,000

4,000,000

Q2 2015 Q3 2015 Q4 2015 Q1 2016

43

- Tristan Ashby


New York City

NEW YORK


Midtown Class A asking rent


Top 20 Manhattan leases by type


Midtown South leasing activity by industry


Midtown asking rents increase despite rise in vacancy

In the face of rising vacancy, some landlords have begun reducing rents in

Midtown. New construction and existing space returning to the market in top-tier

buildings like 390 Madison Avenue and 250 West 55th Street, however,

outweighed the reductions. The Midtown Class A average asking rent recorded a

1.0 percent increase to $81.09 per square foot in the first quarter despite a dip in

February. The Midtown overall average asking rent recorded greater gains—

2.4 percent year-to-date to $74.98 per square foot—as demand for Class B

space has tightened vacancy.

Renewals are back

Year-to-date, renewals have accounted for half of the top 20 leases in Manhattan.

In contrast, relocations made up the majority of leasing activity in the first quarter

of last year with only five renewals in the top 20 leases. McGraw Hill Financial

signed the largest lease of the quarter, a renewal of its 900,027-square-foot

space at 55 Water Street. Other large renewal activity so far this year included

DLA Piper’s renewal of 199,140 square feet at 1251 Avenue of the Americas,

Omnicom Group’s renewal of 167,003 square feet at 220 East 42nd Street and

UBS’ renewal of 120,000 square feet at 299 Park Avenue.

TAMI continues to dominate Midtown South leasing

While there have been concerns about weakness in the tech sector—a potential

pullback in venture capital and talk of a correction—the TAMI sector (technology,

advertising, media and information) remained strong in Midtown South,

accounting for 89.2 percent of first quarter leasing activity. NY1 News, Facebook,

and the marketing arm of Anheuser-Busch InBev signed high-profile leases to

begin the year, indicating that creative tenants continue to view a Midtown South

location as a competitive advantage in attracting and retaining talent despite

paying record high rental rates.

Vacancy moves higher amid moderate activity

2,257


-1,580,918Q1 2016 net absorption (s.f.)



10.0%Total vacancy

-1,580,918YTD net absorption (s.f.)



$80.24$80.59

$80.00

$81.09

$79

$80

$80

$81

$81

$82

Dec-15 Jan-16 Feb-16 Mar-16

5

11

1

3 Renewal

New

Sublease

Expansion

Q1

201510

6

3 1

Q1

2016

89.2%

10.8%

TAMI

Other

44

- Robert Sapunor

Research Analyst,

Northern Virginia

NORTHERN VIRGINIA


NoVa regaining its foothold in tenant migration (2015-16)

Downsizings and moves hurt Fairfax Center and Herndon

State and local incentives (per job) for major NoVa employers

Source: JLL Research, Washington Post, WBJ, YesVirginia.org

Northern Virginia capturing inbound tenant demand from DC

As market conditions have tightened in the District of Columbia and the value

proposition of suburban locations has become increasingly enticing, many

tenants have expanded the geographic scope of their search areas. Multiple

nonprofits and associations have looked across the river into the Rosslyn-

Ballston Corridor and Crystal City. This quarter, Chemonics International moved

from the CBD into 53,929 square feet at 251 18th Street S and GW Medical

Faculty Associates moved from the CBD into 48,900 square feet at 3811 N

Fairfax Drive. The opening of the Silver Line has also enticed tenants to tour

sites further west, with some groups in the Rosslyn-Ballston Corridor now

considering Tysons.

Absorption flat due to large contractor downsizing

Northern Virginia posted positive net absorption for the fourth consecutive

quarter, but the growth was limited by a handful of big government contractor

move-outs. Booz Allen Hamilton vacated 396,490 square feet at 13200

Woodland Park Drive in Herndon and TASC vacated 79,067 square feet at 4805

Stonecroft Boulevard in Route 28 South. However, the majority of tenants in

Northern Virginia are beginning to expand, including Unicom, Washington Gas

and MakeOffices this quarter. Two large relocations out of Fairfax Center also

involved contractions as CSRA moved to Route 28 South and Fairfax County

Public Schools moved to Merrifield.

Incentives battle heats up

Arlington County awarded $1 million in incentives (matched by the

Commonwealth of Virginia) to retain Opower. It is the first time the county has

given money to attract or retain a tenant. Arlington County’s Manager also

proposed setting aside $1.5 million to attract tech companies between 5,000 and

20,000 square feet. There are two bills working their way through the Virginia

legislature that would raise incentives to between $25 and $32 million. The fight

to attract companies across the region (as well as local jurisdictions within each

state) will continue to escalate with each large tenant that hits the market.

Tenant migration shifts in Northern Virginia’s favor

$0

$20,000

$40,000

$60,000

0

100,000

200,000

Tenant migration to NorthernVirginia

Tenant migration to WashingtonDC

From Suburban Maryland From Washington DC

From Northern Virginia





20.0%Total vacancy




-1,000,000

-500,000

0

500,000

1,000,000

TollRoad

FairfaxCenter

RBCorridor

Merrifield CrystalCity

Tysons Route 28South

45

- Katherine Billingsley

Research Analyst,

Oakland - East Bay

OAKLAND


CBD Class A rents surpass $50

Source: JLL Research, Q1 average asking rents

Outsized demand for a shrinking supply of space


Q1 2016 Sales activity by building class ( > 10,000 s.f.)


Economy boosts office market; asking rates skyrocket

Leasing activity was brisk in the first quarter of 2016. Available full floors were

quickly leased, as Geosyntec and Marqueta took full floors at 1111 Broadway

and 180 Grand, respectively. In Alameda, Cost Plus and American Cancer

Society leased over 100,000 square feet of office space at Marina Village and

total leasing activity for the Oakland metro this quarter was north of 270,000

square feet. Demand for quality office space in the CBD has been particularly

high; as a result rents for Class A buildings have reached $51.00 per square foot,

a 33.6 percent increase since last year and on an upward trend. This is the

strongest y-o-y rent growth in CBD history.

Scarcity plays big role in Oakland

Rent differentials continue to be a major driver for east bound relocation, and

tenant demand remains steady. However, rising occupancy creates scarce

availability, and the vacancy rate in the CBD is down to 5.1 percent. This is

spurring rent growth and sparking greater interest for space in non-CBD

submarkets. There is over 2.0 million square feet of active requirements

targeting Oakland metro, 75.0 percent of which is focused on the CBD alone.

Tenant makeup is a diverse mix of industries. While demand across a variety of

industries is driving the East Bay market, non-profits and professional services

dominate peripheral market demand as they continue to be priced out of markets

across the Bay Bridge.

Is this a big year for Oakland development?

Demographic trends favor the cities east of San Francisco. The majority of the

Bay Area workforce lives in Alameda and Contra Costa Counties, and the

growing cost and shrinking availability of housing is pushing stronger population

growth east, prompting developers to plan new projects. On the other hand,

current rental rates have not reached levels required to support new office

development. Developers are waiting for another Uber-like tenant to hit the

market. Kaiser Center and 2000 Franklin are notable transactions this quarter,

with additional buildings in line to come to the market this year. The East Bay

story continues to evolve - Oakland has become a destination rather than a side

trip for Bay Area tenants.

2,257

$27.24 $29.04$33.48 $31.92 $31.56 $31.57 $31.75 $32.00 $33.48

$38.16

$51.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016



$48.12CBD direct average asking rent


11.6%Total vacancy




1489499

744105

0

500,000

1,000,000

1,500,000

2,000,000

Active CBD requirements Current Available Space

Destination: Oakland

$197,000,000

$27,325,000

$224,325,000

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

A B Grand Total

46

- Jared Dienstag


Orange County

ORANGE COUNTY


Class B rental rate appreciation year-over-year


Expected office deliveries (SF)


Class A Vacancy


New building deliveries push rental rates up

2,257

3.1%

8.0%

9.4%

11.5%

15.3%

West County

North County

Central County

Airport Area

South County

9.8%14.5%

17.1%19.4%

18.4%17.1%

14.9%14.3%

12.0%12.6%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

2007200820092010201120122013201420152016





11.8%Total vacancy




Asking rental rates rise

The Orange County office market began in 2016 the same way it ended the

previous year; by increasing rental rates. Although monthly average asking rents

have risen 32.4 percent since the end of 2012 to $2.58 per square foot, full

service gross, this remains below the 2007 peak rate of $2.74 per square foot,

full service gross, leaving room for further growth. Not only are average asking

rents feeling upward pressure from higher rates of existing space, but they are

also being lifted by new buildings recently delivered to the market, including 200

Spectrum Center, The Source Tower in Buena Park and the newly renovated

buildings of Avalon in Newport Beach, Intersect in Irvine and 33.7 North in Tustin.

Driven by occupancy gains and the completion of new and renovated buildings,

rents are projected to continue on this path throughout 2016.

Medical technology industry expands

Growth of the local medical sector continues to have a positive impact on Orange

County’s economy and commercial real estate market. Specifically, the local

medical technology field has been experiencing high growth, made evident by the

strong venture capital funding in the industry. According to PwC Moneytree, 2015

venture capital funding totaled $366.2 million, increasing in volume each quarter

of the year. Top companies that received funding include Alphaeon ($107.1

million), Axonics Modulation Technologies ($55.8 million) and Reshape Medical

($38.0 million). As firms expand their operations, real estate footprints

subsequently grow as well, thus benefitting market fundamentals.

Airport Area leads the market to positive net absorption

The Airport Area submarket recorded occupancy gains of 194,868 square feet

during the first quarter, which accounted for nearly 85.0 percent of Orange

County’s net absorption total. Four of the five submarkets experienced positive

net absorption with the exception of Central County. Despite the positive

demand, the direct vacancy rate for the overall market increased 20 basis points

to 11.2 percent from the previous quarter; however, this was only due to the

delivery of 574,252 square feet of new space to the market.

574,252

1,065,424 1,100,000

750,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2016 2017 2018 2019

47

- Valerie Mnayarji

Research Analyst,

Central Florida

ORLANDO

Tenant LocationSquare

feet Deal type

Axium Healthcare Pharmacy Lake Mary 157,000 Lease/purchase

Asurion Southwest 72,000 New

CDM Smith Maitland 65,000 Relocation

NBC Universal Southwest 47,800 Relocation within

Industry sector job loss/gain (12-month change)

Source: JLL Research, Florida DEO

Growing theme park attendance supports local occupancy

Source: JLL Research, Themed Entertainment Association

Large block tenant activity in suburban submarkets

Job growth represents a record 11-year high, supporting decreasing

vacancy rates

According to the most recent employment figures, the Orlando MSA added

52,200 jobs in 2015, increasing employment by 20.0 percent year-over-year and

making this yearly employment gain the highest amount since 2004. Employment

growth in the market equated to about 150 jobs added per day. Within the

industries directly supporting office demand, the professional and business

services industry represented one of the largest employment gains at 8.6 percent

year-over-year, helping propel overall occupancy 170 basis points to 85.2

percent. This is driven by a recent increase in employment service firms

facilitating local office expansions in technology, healthcare and legal sectors,

directly impacting office demand and particularly in the CBD and Lake Mary.

Theme park expansions provide leasing opportunities to local submarkets

Given the record breaking number of visitors to Orlando’s Tourist Corridor last

year (over 62.5 million people) nearly every major theme park has announced

expansion plans and hotel developments, thus increasing demand for office. Most

notably, Disney’s planned Star Wars attraction, when completed, will be Disney’s

largest “themed-land” expansion in history. With theme park expansions

underway, Universal and Disney on-site office spaces are being redeveloped to

make room for additional amusement-related uses, resulting in spill-over tenant

demand for neighboring Southwest and Celebration submarkets. Last year, over

200,000 square feet of space renewed by tourism related tenants, and continued

demand from theme park operations will continue given expansionary plans.

Suburban tenant activity is outpacing CBD demand

Suburban submarket demand in both leasing and absorption are outpacing the

CBD. While the volume of tenants touring suburban submarkets only increased

marginally quarter-over-quarter, tenant requirements increased by 8.0 percent

over the same time period to about 1.7 million square feet. This is compared to

requirements in the CBD, which declined by nearly 13.7 percent to 500,000

square feet. Tenant demand shifting to suburban submarkets is evinced by

absorption gains in these areas, which increased by over 100,000 square feet

and represented 0.7 percent of total stock, a larger absorption figure than the

CBD which only accounted for 0.5 percent of total stock. The competitive

advantage of the suburban submarkets derives from the high parking ratios, as

well as lower rental rates for comparative, Class A spaces.

Orlando’s record job growth provides positive economic outlook





14.9%Total vacancy

85.2%Occupancy percent




-600

2,900

2,100

1,600

8,200

400

6,400

15,900

8,600

10,000

-2,000 2,000 6,000 10,000 14,000 18,000

Information

Manufacturing

Other Services

Total Government

Construction

Financial Activities

Education and Health Services

Professional and Business Services

Trade, Transportation, and Utilities

Leisure and Hospitality

Number of Jobs

70.0%

75.0%

80.0%

85.0%

0.0

50.0

100.0

2009 2010 2011 2012 2013 2014

Mill

ion

s o

f vi

sito

rs

Magic Kingdom EpcotAnimal Kingdom Hollywood StudiosUniversal Studios Islands of AdventureCelebration and Tourist Corridor occupancy

48

- Clint Randall

Research Analyst,

Philadelphia

PHILADELPHIA (CBD)


Overall rental rate increases year over year


Total percentage vacancy by space type


Speculative office proposals and construction by submarket


Market East asking rents drive strong year-over-year growth across CBD

Class B product is undergoing dramatic repositioning and bringing rates up quickly

with them across the submarket. Thylan hopes to repeat its success at the Biddle

Building (now fully occupied) at the adjacent Bailey Building (50,000 square feet),

while Brickstone Realty is marketing several boutique buildings between 11th and

Broad, including the Hale, Steele, and Shwartz. On the east side of the submarket,

the forthcoming vacancy at Dow creates a large block in a landmark building, while

the nearby Public Ledger and Independence Collection properties are in the early

stages of major upgrades. With so many buildings renovating to a Class A and

creative standard, asking rates are pushing into the $30 range east of Broad for

the first time, with some of the highest rates in former B space.

Is creative space the new trophy?

The vacancy rate among trophy towers (4.3 percent) is half the overall CBD

average. The next tightest segment is the creative property set, which saw

vacancy below 3.0 percent last year and is now seeing 8.3 percent total vacancy

as owners race to renovate older and quirkier product to a non-traditional standard.

Boutique buildings and flexible floor plates are compelling options for small and

growth-oriented companies. With more than half of known tenants in the market

requiring 10,000 square feet or less, and a growing number of companies

relocating from the suburbs, it’s not surprising unique space is gaining traction.

Construction pipeline continues to evolve with Schuylkill Yards unveiling

Drexel and Brandywine Realty Trust revealed a new name and more articulated

vision for their gateway to University City. The mega-project’s first phase –

including a new park, renovated Bulletin Building, and 700,000-square-foot tower –

will move forward over the next 12-24 months. Office construction is likely to pick

up significantly in the coming months with 3675 Market, 2400 Market, and One

Franklin all preparing to break ground. The CBD’s ability to grow net new demand

(between new-to-market tenants, suburban relocations, and organic expansions)

will be critical to monitor as speculative development increases. The city’s 2.4

percent job growth above its pre-recessionary peak is cause for optimism.

Creative renovation and new construction surging

as jobs grow and tenant activity remains strong

2,257

4.2%

-4.1%

12.5%

3.8%

5.5%

Market West

University City

Market East

Navy Yard

CBD Overall

4.3%

8.3%9.5% 10.2%

0.0%

5.0%

10.0%

15.0%

Trophy Creative A B

To

tal V

acan

cy

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

University City Market East Market West Navy Yard

Squ

are

feet

Under construction Proposed





8.6%Total vacancy




49

-Lauren Gilchrist


Philadelphia

PHILADELPHIA (SUBURBAN)


Quarter-over-quarter core suburban submarket rent growth


Direct Class A vacancy


Sales volumes


Core suburban submarkets post strong quarter-over-quarter Class A

rent growth

The Pennsylvania suburbs’ core submarkets all experienced quarter-over-quarter

Class A rent growth, with Malvern/Exton leading the way with a 2.0 percent

increase over Q4 2015. Comparison to the Central Business District, which has

experienced significant market tightening over the past few years, puts these

rental rate increases into current context. While asking rental rates at Trophy

buildings in the CBD remained virtually unchanged quarter-over-quarter at $34.97

per square foot, and non-Trophy Class A averaged $29.00 per square foot, most

core suburban submarkets averaged $30.00 per square foot or more in Class A

asking rates, with Radnor and Conshohocken exceeding Trophy asking rates at

$39.41 and $35.11 per square foot, respectively.

Direct Class A vacancy reaches lowest level in four years

While leasing activity for Q1 was relatively slow in the Pennsylvania suburbs at

just 700,000 square feet, several large move-ins contributing to more than 383,000

square feet of positive net absorption brought the overall vacancy rate to less than

11.0 percent for direct Class A space. Highlights include Incyte Pharmaceuticals’

occupancy of 48,000 square feet at 200 Endo Boulevard and SEI occupying

45,500 square feet at 52 E Swedesford Road. With several known absorption

events on the horizon for the duration of 2016, select suburban submarkets should

continue to experience declining vacancy rates and ongoing tightening throughout

the year.

Q1 2016 sales volumes surpass every quarter of 2015

2016 got off to a strong start for office sales in the Pennsylvania suburbs. Nearly

1.5 million square feet traded hands, not including assets that were part of

Brandywine’s 58 building, $389 million suburban office portfolio sale to Och Ziff

Capital Management. Saint Gobain’s headquarters and 300 Four Falls Corporate

Center both traded in excess of $300 per square foot, at $382 and $330,

respectively, setting the bar for the upper end of the market for well-located, high

quality suburban assets.

Fundamentals continue to improve in PA Suburbs

2,257

14.0

%

13.1

%

12.0

%

12.5

%

10.9

%

5.0%

10.0%

15.0%

20.0%

2011 2012 2013 2014 2015

0.1%

1.3%1.5% 1.5%

1.9%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

PlymouthMeeting / Blue

Bell

Conshohocken Radnor King of Prussia /Wayne

Malvern / Exton





14.8%Total vacancy



0% Total preleased

$120,700,000 $76,800,000

$261,800,000

$160,000,000

$343,900,000

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

50

- Kiana Cox


Phoenix

PHOENIX


Net new supply, net absorption and total vacancy


Metro Phoenix speculative deliveries per quarter


Office employment trends (12-month change)


Steady absorption with continued Phoenix growth

The Phoenix metro area office market picked up where it left off at the end of last

year. Built on a stable economic foundation of strong job growth and calculated

construction, new office space is being absorbed almost as fast as it is being

delivered. In the first quarter of 2016, 423,748 square feet of office space was

absorbed in Phoenix, a 48.5 percent increase from one year prior. The total

vacancy rate in the Valley has decreased 720 basis points from a peak of 28.1

percent in the second quarter of 2011 to a low 20.9 percent at the end of the first

quarter this year. Overall vacancy is expected to decline further in 2016 as office-

using employers continue to expand and relocate to the Valley.

Construction continues as developers assess market

In the first quarter of 2016, 450,000 square feet of vacant speculative office

space was delivered in Metro Phoenix, a 57.0 percent decline from just over 1.0

million square feet of speculative space completed in the previous quarter. The

total vacancy rate remained unchanged at 20.9 percent, with nearly 424,000

square feet of total absorption reducing the impact of new vacant space added to

the market. More than 2.2 million square feet of office space (including 439,530

square feet of speculative space) is currently under construction in Greater

Phoenix with 80 percent of it preleased.

Office employment sectors driving Phoenix forward

Phoenix has experienced a much more diverse recovery during this economic

growth cycle, steadily adding a healthy balance of jobs in contrast to previous

cycles when the Valley would be flooded with construction employment. Office-

using employment sectors continue to experience strong growth over the past

year, recording an annualized net gain of 23,500 jobs (3.1 percent) across the

MSA. Office employment gains are translating into greater absorption of office

space in some of the Valley’s premier submarkets. Year-over-year employment

gains were led by the professional & business services, adding 16,100 jobs (5.1

percent) and financial activities gaining 8,600 jobs (5.3 percent).

Strong market fundamentals as 2016 begins

2,257

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Available Leased





20.9%Total vacancy


$27.59Class A average asking rent

80.0% Under construction preleased

15%

20%

25%

30%

-500,000

500,000

1,500,000

2,500,000

3,500,000

2010 2011 2012 2013 2014 2015 YTD2016

Deliveries Absorption Vacancy

-20.0

0.0

20.0

40.0

2011 2012 2013 2014 2015 2016

in th

ousa

nds

Professional & Business ServicesGovernmentInformationFinancial Activities

51

- Andrew Batson

Research Manager,

Great Lakes

PITTSBURGH


Attractive returns drive investment activity

Source: JLL Research, Real Capital Analytics

Office demand keeps pace with new supply


Sublease space on the market in Southpointe (s.f.)


Shorenstein’s acquisition is the latest in a string of high-profile trades

With primary markets oversold during the current cycle, investors have turned to

secondary markets for opportunities with attractive returns. Investors have been

particularly active in Pittsburgh, thanks to the diversified economy and solid

office market fundamentals. Shorenstein’s recent acquisition of the 1.0 million-

square-foot One Oxford Center in downtown Pittsburgh for $148.8 million was

just the latest in a string of high-profile trades. Prior transactions include Faros

Properties’ $67.5 million acquisition of Allegheny Center, M&J Wilkow’s $38.4

million acquisition of the Penn Center East development and The Davis

Companies’ 14.0 million acquisition of the Union Trust Building.

The development pipeline remains full, driven by tenant demand

In the first quarter nearly 400,000 square feet of for-lease office space was

delivered in the Pittsburgh market. In addition to that, another 672,000 square

feet remains in the development pipeline and is scheduled for completion over

the next four quarters. Among secondary markets in the Great Lakes region,

construction levels have been among the highest in Pittsburgh, driven by robust

tenant demand. Two notable projects delivered in the first quarter, including the

128,000-square-foot Tower Two-Sixty development in the CBD submarket and

the 209,000-square-foot Bakery Square 2.0 project in the Oakland/East End

submarket. Preleasing at the two projects exceeded 60.0 percent.

Southpointe softens further as commodities remain in turmoil

The prolonged downturn in the oil and gas industry continues to have an adverse

effect on the Southpointe submarket. Nearly all of the energy companies with

operations in the region have located their corporate offices in Southpointe, and

while Class A vacancy in this submarket stood below 5.0 percent less than two

years ago, market conditions have softened dramatically in recent quarters in

tandem with falling commodity prices. Vacancy in the submarket has increased

10.6 percentage points within the last year while the average asking rate

decreased by $1.39 per square foot. However, the deteriorating submarket

conditions are most evident when analyzing the space available for sublease,

which has more than tripled over the last 12 months.

Market performance remains solid, investors notice

2,257





16.4%Total vacancy




$0

$50

$100

$150

$0

$200

$400

$600

$800

2007 2009 2011 2013 2015

Total sales volume ($M) Average sales price ($ p.s.f.)

Tot

al s

ales

vol

ume A

verage sales price

-

250,000

500,000

750,000

1,000,000

2010 2011 2012 2013 2014 2015 Q1 2016

Office deliveries (s.f.) Total net absorption (s.f.)

0

50,000

100,000

150,000

2010 2011 2012 2013 2014 2015 Q1 2016

Class A Class B Total

52

- Tim Harrison

Research Analyst,

Portland

PORTLAND


Portland metro area unemployment rate


CBD asking rents and absorption


Demand from tenants in the market


3,919,525 s.f.Demand from tenants in the market

0.0%

5.0%

10.0%

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Economy firing on all cylinders

The area’s economy is standing tall. In February, Bloomberg released a report

declaring Oregon the best-performing economy in the US as measured by a

variety of business, financial and industrial factors. Bloomberg’s Economic

Evaluation of States reviews employment performance, home prices and

personal income, among other measures, and determined that Oregon’s

economy was the most improved in 2015. With the current metro area

unemployment sitting at 4.3 percent, its lowest level since early 2000, and job

growth for 2015 among the strongest of all major metro areas in the country, it is

no wonder that Portland’s population has been growing seven times faster than

the US average. All factors driving the area’s office market performance.

Skyline buildings getting makeover

The Portland Skyline is defined as buildings that have a significant impact due to

their size, quality of space or iconic status. The skyline set includes 15 existing

assets and one being delivered this year. The buildings were built between 1972

and 2016, but not all Skyline buildings are performing at the same level. Vacancy

in the Skyline set ranges from below 2 percent to greater than 22 percent and

asking rents range from $28 to almost $42 full service. Their performance

depends greatly on how well the properties have aged and if their amenity set

has kept pace with tenant demand. Plans are underway for lobby renovations

and building repositions for several older Skyline properties as owners seek to

keep their buildings relevant and competitive.

Tenant demand surges, concentrated in CBD and tech

March saw demand from tenants in the market surge to record levels. JLL is

tracking almost 4 million square feet of tenants in the market, a level 11.0

percent higher than any previous month on record. 32.0 percent of this demand

can be attributed to tech/information services tenants and 13.0 percent of this

demand is coming from professional and business services tenants. In terms of

tenants’ geographical preferences, 60.0 percent of the demand is coming from

tenants looking for space in the CBD, that number grows to 66.0 percent for

tenants seeking options in the close in urban areas.

Boomtown, USA

2,257





8.3%Total vacancy

659,639Avg. Annual net absorption (s.f.)



-1,100

-100

900

1,900

$20

$22

$24

$26

$28

$30

$32

Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016

Hu

nd

red

s

CBD Absorption CBD Rents

53

- Ashley Lewis

Senior Research Analyst

Raleigh-Durham

RALEIGH-DURHAM


Construction finally catching up with demand?


Downtown Durham hits historic vacancy rates


High sales volume expected to continue


Breaking ground in first quarter

2016 started off with four speculative construction starts in Raleigh-Durham. The

new developments were spread across the entire market, including Orange

County, West Raleigh and both central business districts. With over 1.5 million

square feet under construction, developers are finally catching up with tenant

demand. Although the first quarter’s total net absorption is at a two-year quarterly

low, it is simply an indicator that the market is tight until these new projects

deliver. Preleased at an average of 43.0 percent, new product continues to drive

up the market’s average asking rate with these developments in particular asking

up to $35.00 per square foot. With four new cranes in the sky this quarter, the

market expects to see three new office deliveries this year.

Downtown Durham availabilities bleak

While Downtown Raleigh’s vacancy up-ticked slightly this quarter, Downtown

Durham has hit an all-time vacancy low. With 384,000 square feet under

renovation at The Chesterfield and 150,000 square feet under construction at

One City Center, both properties are already pre-leased at an average of 54.1

percent. Tenants may see slight relief when some of this new inventory delivers

later in the year but not for long due to a dry pipeline for the submarket. Total

direct vacancy for the submarket is sitting at 2.4 percent and Class A vacancy

under 2.0 percent with few sublease vacancies to speak of. The most notable

expansion is Duke University who signed leases to expand its footprint

downtown at both new buildings.

Prominent Raleigh-Durham buildings hit the market

Coming off the highest year in office sales volume in eight years, two high profile

offers hit the market first quarter. The first offer brought on March 2nd consists of

five prominent buildings at Imperial Center in Durham. Combined, they make up

a total rentable square footage of 367,717 and are 98 percent occupied. The

second offer brought Quintiles Plaza to market by Easdil Secured. This high-

profile asset sits right on Interstate 40 at Imperial Center. It is fully occupied for

another 10 years by Quintiles’ corporate headquarters. Both offers expect

numerous looks from national and international investors.

New year firing off with new construction

2,257





11.9%Total vacancy




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

Carolina Square

One City Center

Forty540

The Dillon

Preleased s.f.

Total s.f.

6 buildings 627,248 square feet

averaging 99% occupied

0.0%

5.0%

10.0%

15.0%

20.0%

1,500,000

1,600,000

1,700,000

1,800,000

1,900,000

2,000,000

2010 2011 2012 2013 2014 2015 Q12016

Inventory Class A vacancy Rate

s.f.

s.f.

54

- Geoff Thomas


Richmond

RICHMOND


Historical CBD availability rates


SunTrust’s footprint in Richmond


Creative office developments to deliver or commence in 2016


Downtown remains a tenant’s market as another Trophy tower rises

The timing of James Center’s anchor tenant, McGuireWoods, relocation to a new

Trophy tower and the maturity of their 10-year CMBS loan this year proved

fateful. The ownership of three Class A towers transferred to the special servicer,

LNR Partners, with only 31.1 percent of the 244,000 square feet vacated leased.

Now a second Trophy tower is set to deliver by the end of 2017, this time luring a

Class B tower’s anchor tenant, SunTrust Bank. The move will place over

200,000 square feet on the market at 919 E Main Street and question near-term

fundamentals for this class segment.

Richmond’s largest employers consolidating and shifting footprints

The second arm of SunTrust’s real estate reorganization will possibly shift

operations to the Innsbrook submarket’s last vacant building, Westmark One,

totaling 227,000 square feet. SunTrust currently leases a total of 158,360 square

feet between two suburban locations and owns two other operation centers in

Manchester and the Parham East submarket totaling over 607,157 square feet.

However, it is unclear how many of their personnel or current suburban office

footprint will be repositioned. The move will overlap Capital One’s consolidation

of their leased offices to their West Creek campus (owner-occupied) later this

year, vacating 135,375 square feet at Liberty Plaza II by the third quarter.

Creative office development increases in the urban submarkets

Manchester and Scotts Addition have been the hotbed of activity over the past

four quarters with three projects currently under construction or breaking ground

this year. In Scotts Addition, the Sauer Office Building is currently under

construction with the entire project available for lease—17,000 square feet in

total. In addition, Spy Rock’s The Symbol was completing the demolition phase

of 1800 Highpoint Avenue and should start construction on the 40.0 percent

preleased, 60,000-square foot office/retail development next quarter.

Manchester’s City Lofts project also locked in its second tenant, AuthX, for the

small office phase of the mixed-use development that delivered this quarter.

Downtown continues to refresh its aging inventory

2,257





14.3%Total vacancy



0% Total preleased

10% 10%15%

21%19%

16%

21%19% 20% 19%

21% 20%18%

31%

2010 2011 2012 2013 2014 2015 2016

Class A Class B

714,386513,000

339,517535,657

Current Future

Downtown Suburban

90,500Square feet

55

- John Sheaffer


Sacramento

SACRAMENTO


Region adds 23,300 jobs over past 12 months


Expect CBD rental rates to continue their climb in 2016


Highway 50 Corridor absorption swings


Government agencies and healthcare groups drive office growth

The unemployment rate in the Sacramento region dipped to 5.4 percent in

February 2016, falling to a new post-recession low. Nearly 50.0 percent of

payroll gains during the past 12 months are attributed to the region’s two major

economic engines, the government and healthcare-related groups, which have

helped tip the scales in their respective submarkets with significant expansions.

The State led employment growth among government agencies, adding 1,600

jobs and nearly every healthcare group in the area is aggressively exploring

footprint expansion options. The 2016-2017 Governor’s budget and the

healthcare sector’s long-term longevity indicate healthy and sustained office

demand over the next 12 months.

CBD rents poised to accelerate in 2016

The CBD submarket, as did every other submarket in the region, posted

significant positive annual rent growth at the onset of 2016. State agency

expansions and tenant in-migration from neighboring submarkets have

compressed the vacancy rate to the lowest figure since 2007, falling to 13.0

percent, and limited space has given landlords more negotiating leverage, in

addition to selling the prospect of a revitalized urban core experience. The

average Class A taking rent outpaced the average asking rent in the first quarter

of 2016, signaling rent growth momentum observed downtown in 2015 shows no

sign of slowing in 2016 and will likely increase in velocity with no deliveries in

near sight.

Highway 50 Corridor, the last large block frontier

Asking rents continue to climb among all submarkets, due in part to the dwindling

supply of options for large users. A disproportionate share of available blocks

greater than 15,000 square feet remain along the Highway 50 Corridor, where

over 71.0 percent of available space qualifies as large block. As a result, the

submarket has posted major absorption swings recently and is the last

battleground for large users seeking multiple, contiguous options. Rent growth

along the Highway 50 Corridor is expected to accelerate in 2016, as competition

for space ramps up.

Rising market tide lifting all boats in 2016

2,257

59,589 47,874

155,437 133,447

(110,594)-200,000

-100,000

0

100,000

200,000

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

s.f.





15.4%Total vacancy




Healthcare and Social Assistance

State gov't

Local gov't

Federal gov't

Other

31%

7%

6%

54%

2%

$2.80

$2.87

$2.60

$2.70

$2.80

$2.90

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Class A asking rent

Class A taking rent

56

- Christian Forbes

Research Analyst,

Salt Lake City

SALT LAKE CITY


Tech + Finance: projected growth in SLC outpaces U.S.

Source: JLL Research, Moody's

CBD compared to Suburban markets—gap between the two


Red-hot construction pipeline thanks to strong user demand


Jobs market continues to fire on all cylinders

Salt Lake City (SLC) payroll growth is white-hot, rising nearly twice as fast the

national average over the last 12 months. Leading the way has been a steady,

substantial expansion in the white-collar jobs market—especially prevalent in the

high-tech and financial services sectors. These industries continue to reap the

benefits of a growing population, a well-educated workforce, and low business

costs; consequently, SLC has been gaining jobs and seeing marked expansions

and new entries by tech and financial firms alike. The metro is poised to continue

attracting those companies opting for a lower cost environment or those priced

out of more expensive areas like New York City and Silicon Valley.

Statistical gap between CBD and Suburban narrowing

During the last several quarters, SLC has routinely placed among the nation’s

lowest vacancy rate markets. In turn, it has been increasingly targeted by

developers searching for opportunity throughout the entire market, but

particularly so in suburban markets like Utah County and Draper. Over the last

15 months, the vacancy spread between Downtown properties and their

suburban counterparts has narrowed, as has the asking rent premium between

the geographies. Total vacancy rates and direct asking rents are at their closest

in the last five years; SLC’s suburbs are clearly high in demand.

Will 2016 new construction deliveries meet and surpass tenant demand?

Following two straight years of strong positive absorption—including a 2015 that

broke 1.0 million square feet of tenant demand—net absorption for January

through March sits at a two-and-a-half-year quarterly low. Still, this is more a

sign of just how tight the market remains rather than a slackening in user

demand. In fact, record levels of new construction are illustrative of a market in

which developers have struggled to build quickly enough. For the year ahead,

2.8 million square feet of new product is set to deliver—a figure that, if met,

would significantly best the previous ten-year record (set in 2007). Nearly half

(49.4 percent) is being built speculatively. Users should see some measure of

relief when this new, spec inventory is delivered, but nearly one-third of it already

spoken for.

Office-using industries propel widespread gains

2,257

0.0%

5.0%

10.0%

15.0%

20.0%

0

150

300

450

600

750

2012 2013 2014 2015 YTD

Bas

is p

oint

s

Vacancy rate Asking rent





6.5%Total vacancy




0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2016 2017 2018 2019

Ann

ual g

row

th

SLC financial services U.S. financial services

SLC high-tech U.S. high-tech

2.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2011 2012 2013 2014 2015 2016

Mill

ion

squa

re fe

et

Historical completions

57

- Travis Rogers

Research Analyst,

Austin

SAN ANTONIO


Square feet under construction by class and submarket

Average asking rent by submarket and class

Total vacancy by submarket

Northwest and North Central dominate with new product

Ridgewood Plaza delivered Far North Central during the first quarter. Of the

147,000 square feet available, 26.5 percent of the building was preleased by

EOG. There are four other properties currently under construction. These

properties are Vista Corporate Center (150,735 square feet), Security Service

FCU (270,000 square feet), 1900 NW Loop 410 (57,000 square feet) and

Huntington Center (52,000 square feet). Both Security Service FCU and 1900

NW Loop 410 are build-to-suits, 100 percent preleased to Security Service FCU

and The Bank of San Antonio, respectively. Collectively, there is approximately

530,000 square feet under construction with 61.7 percent preleased.

One submarket experiences rent growth above the rest

The Far North Central submarket recorded significant rental rate growth quarter-

over-quarter. Not only did the Far North Central submarket experience the

highest rent growth at 6.3 percent, it also has the lowest spread between Class A

and B rental rates. Overall, San Antonio marketed rents have increased

approximately 2.4 percent year-over-year. Looking at the market as a whole,

spreads are the lowest in northern San Antonio and highest in the south or

downtown. This is a result of newer and/or higher quality Class B office product

in a booming northern corridor.

Most submarkets experience a slight increase in vacancy

San Antonio’s total vacancy rate experienced a slight uptick quarter-over-quarter.

The market generally bounces between 14.5 and 15.9 percent vacancy. With

over two million square feet of new construction delivered between 2014 and

2015, tenants are moving between projects. While preleasing for new

construction is high, the majority of the leasing activity comes from build-to-suit

projects. As speculative developments, such as Ridgewood Plaza, deliver

vacancy will temporarily increase in advance of tenants taking occupancy of their

new space.

Build-to-suit activity remains strong

2,257





15.7%Total vacancy




10%

90%

North Central Northwest

$25.87

$30.05$26.23 $25.77 $26.38

$19.05

$26.48

$22.09$18.00

$20.22$23.30

$0

$10

$20

$30

CBD Far NorthCentral

NorthCentral

Northeast Northwest South

Class A Class B

21.7%

17.3%

12.6%

9.6%

16.5%

20.9%

CBD

Far North Central

North Central

Northeast

Northwest

South

529,735 s.f.under construction

58

- Josh Brant


San Diego

SAN DIEGO


Pipeline of offices under construction


Bosa’s 18-month total investment in Downtown offices


Quarter-over-quarter Class A asking rental rate change


San Diego’s office construction pipeline is now 100 percent speculative

For the first time in five years, the pipeline of offices under construction is entirely

comprised of speculative projects. Most of the projects under construction are in

the county core areas of Del Mar Heights, Sorrento Mesa and UTC/Eastgate.

The exception is Regent Properties’ 230,000-square-foot Atlas renovation project

in Carlsbad. The current offices under construction have not preleased any of

their available space yet. 2015 saw the most speculative office projects deliver of

the past five years, and 2015 recorded the least amount of positive net

absorption of the past five years. We anticipate the offices currently under

construction to act as a headwind against occupancy growth as they deliver.

Bosa Development is most active investor in Downtown offices

Bosa Development is best known for its residential condo development projects,

in Downtown San Diego. However, in the past 18 months Bosa has acquired

three separate offices in Downtown, investing a total of $83.8 million dollars. The

three acquisitions are more than any other investor in Downtown during that time

frame. The largest and most recent of these transactions was the 232,900-

square-foot office at 530 B St., for $53.3 million. Bosa’s office portfolio Downtown

previously consisted of only the Paladion building. Additionally, over the past six

months, Bosa has invested $79.1 million in six other Downtown land-banking

transactions for future residential projects.

The Irvine Company single-handedly suppressed Q1 Class A rent growth

Countywide Class A asking rents were effectively flat quarter-over-quarter.

However, UTC was the only major submarket in the county to record quarter-

over-quarter declines in asking rental rates with a 3.0 percent decrease versus

the fourth quarter. The Irvine Company owns 60 percent of the Class A offices in

UTC. During the first quarter, The Irvine Company’s asking rents in UTC were

cumulatively marked down 5.3 percent, driving the overall Class A rent decrease

in the submarket. The Irvine Company also reduced its asking rate on a few

availabilities in Downtown as well.

Developers remain bullish on spec construction

2,257 0.0%

2.3%

2.3%

-3.0%

0.0%

2.7%

1.4%

0.0%

-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%

Downtown

Mission Valley

Kearny Mesa

UTC

Sorrento Mesa

Del Mar Heights

Rancho Bernardo

Carlsbad

$83.8 million

0

500,000

1,000,000

1,500,000

2,000,000

2011 2012 2013 2014 2015 2016

s.f. Build-To-Suit Speculative





13.5%Total vacancy




59

- Jack Nelson

Research Analyst,

San Francisco

SAN FRANCISCO


LinkedIn and Salesforce headquarter moves boost

absorption


Tech subleases on the market for shortest period of time


New construction opportunities still available


Major move-ins drive absorption

Despite growing concerns regarding the stock market and VC funding in early

Q1 2016, San Francisco saw continued net absorption gains totaling more than

150,000 square feet. Activity was driven primarily by two major move-ins with

Salesforce moving into a portion of their new space at 350 Mission Street and

LinkedIn at 222 2nd Street. Dropbox is scheduled to move into their new

headquarters at 333 and 345 Brannan Street in Q2 2016 further driving

absorption into 2016. Large expansionary lease deals from WeWork (73,348

square feet), Quantcast (94,889 square feet), and Twilio (91,823 square feet) will

further contribute to absorption figures into 2016, driving down vacancy and

limiting large block availabilities.

Sublease space, a growing secondary market

Sublease availabilities continue to grow into 2016, with more than 2.3 million

square feet now on the market, up 14.0 percent since Q4 2015. However,

demand for sublease space is strong: 5 of the top 8 sublease spaces have

pending leases which would cut availabilities by 670,000 square feet when the

transactions complete. Tech firms represent the majority of demand in San

Francisco at more than 40.0 percent. With a slowdown in VC funding and more

firms focusing on the bottom line, the demand for plug-and-play space is robust.

As the cost of construction has risen 47.0 percent in the past five years, second

generation space requiring large capital expenditures has become a less

attractive option.

Pre-leasing activity on new construction up from Q4 2015

Several large pre-leasing deals transacted in Q1 2016, totaling more than

200,000 square feet. With asking rates for new construction well above market

averages, attracting tenants is a balance between design features catered to the

modern workplace, added amenities, and competitive concession packages.

There is currently 2.9 million square feet of space set to deliver over the next two

years, providing more opportunities for pre-leasing. Tenants will have options,

but at a premium.

2,257

37.0%

63.0%

Pre-leased

Available





8.2%Total vacancy



37% Total preleased

235,000Square feet absorbed by Salesforce and LinkedIn

0.0

2.0

4.0

6.0

Technolgy Legal FinancialServices

ProfessionalServices

Mo

nth

s

Industry

3 months

Tenants taking a harder look at total costs

60

- Eduardo Romero

Research Analyst,

Silicon Valley

SAN FRANCISCO MID-PENINSULA


Jittered investors mull tech valuations, but Peninsula companies resilient

There are growing concerns that a VC funding crunch could jeopardize the

growth of young tech startups, triggering an abrupt release of office space.

However, the impact would be very limited in the Mid-Peninsula for two reasons.

First, the highest concentrations of young tech startups in the region are found in

downtown micro-markets where they occupy 45.0 percent of leased office space.

These areas represent only 15.0 percent of the Mid-Peninsula’s total inventory; a

steep decline in venture capital funding would have a limited impact on the

overall market. Second, downtown micro-markets have historically backfilled

vacant space quickly as vacancy rates have been below 10.0 percent for the

past 15 quarters. The array of tenants in the Mid-Peninsula will likely insulate the

market from severe disruptions caused by a pullback in venture capital funding.

Technology giants sprawl in the Mid-Peninsula

Google and Facebook have gobbled up a combined 5.7 million square feet of

office and R&D space within the past two years and are expected to continue

expanding. However, a considerable amount of this is currently occupied by

many legacy tenants. There are at least 1.2 million square feet of potential future

demand that could be created as tenants are likely to become uprooted in the

market. It is uncertain as to what Google and Facebook plan to do with the space

they now control, but their rapid expansion will generate additional future

demand for space in the Mid-Peninsula over the course of the next 12 to

18 months.

New proposed development meets bullish sentiment on the market

Amid strong rent growth and high demand for Class A space, developers

continue to bring to market development proposals in core submarkets like

Redwood City and San Mateo. With more than 1.2 million square feet currently

under construction, developers still believe future demand will not be satiated

with current supply levels. For instance, large blocks of space are still in short

supply in the Mid-Peninsula, with only four buildings offering contiguous spaces

greater than 100,000 square feet. Such options are specially appealing to large

Silicon Valley tenants who cannot find similar options in core submarkets or are

unwilling to pay high rent premiums.





12.7%Total vacancy




Google ramped up its Mid-Peninsula presence in past 2 years


Young tech companies cluster in downtown micro-markets


Vacant large blocks of space in short supply


Funding crunch looms, tech giants gobble up space

2,257

45%

In Q1 2016, 45% of leased office

space in the Mid-Peninsula

downtown micro-markets was

occupied by tech companies

founded in the last 6 years.

1.9 m.s.f.of office space to be recently acquired by Google

7 3 1

1

0

10

20

30

50,000 - 100,000 s.f. 100,000 - 200,000 s.f. > 200,000 s.f.

# of

blo

cks

Class A Class B

61

- Alex Muir

Research Manager,

Seattle-Bellevue

SEATTLE-BELLEVUE






9.1%Total vacancy




Square feet of office product delivered


Sales volume by submarket ($mil)


Vacancy in single digits on both sides of the lake


2,257

128,904 283,545 462,312 480,000

2,251,966

320,000

0

1,000,000

2,000,000

3,000,000

2011 2012 2013 2014 2015 YTD 2016

Development activity continues on its upward momentum

Google’s new 180,000-square-foot campus in Kirkland and Fairview Research

Center II, a 140,000-square-foot state of the art laboratory and office building in

Lake Union, were delivered in the first quarter. With another 2.9 million square

feet scheduled to deliver this year, 2016 is poised to surpass 2015 as the most

active year for office development since prior to the recession. Declining vacancy

and strong tenant demand have lessened the concern of overbuilding in the

market, but with nearly 6.8 million square feet of product currently under

construction, the development pipeline will continue to be a major topic of

discussion. Preleasing rates of new construction space currently stands at 38.4

percent and average asking rents are being marketed at $48.55 per square foot,

full service, representing a 39.6 percent premium over the regional average.

Sales volume exceeded $1.0 billion despite a lack of CBD transactions in

the first quarter

In the first quarter alone, more than $1.2 billion in office investment transactions

occurred in the Puget Sound region. Interestingly, the high volume of sales

occurred without any CBD buildings trading. 62.5 percent of the buildings sold

this quarter are in suburban submarkets such as Kent Valley and Redmond.

Following on last year’s strong performance, Lake Union far surpasses other

submarkets with year-to-date sales volume of $499.4 million. The largest

transaction in Q1 was the sale of West 8th, a 28-story Trophy office tower built in

2009, for $370.0 million to Deutsche Asset & Wealth Management. The skyline

asset fetched an impressive $716 per square foot.

Market vacancy hits its lowest level since 2001

838,562 square feet of space was taken down in the first quarter. Total vacancy

in the Seattle-Bellevue area currently stands at 9.1 percent, which is the lowest it

has been since the dot-com bubble in the early 2000s. Subsequently, average

asking rents are up 8.3 percent year-over-year to it’s current rate of $34.77. First

quarter leasing activity was driven primarily by technology tenants, with the

286,000-square-foot deal at Urban Union being the largest. Other tenants

that signed major leases include Saltchuk, Moss Adams, The Everett Clinic,

and Qualtrics.

Strong demand pushes vacancy to 15-year low

$18.3

$22.8

$25.6

$26.5

$29.1

$40.4

$499.4

$0 $200 $400

Suburban Bellevue

Federal Way

Redmond

Kent Valley

I-90 Corridor

Queen Anne

Lake Union

Millions

Downtown Seattle

7.7%Eastside

9.3%

- Christan Basconcillo

Research Manager,

Silicon Valley

62

SILICON VALLEY


Valley continues to see consistent occupancy gains


Class A vacancy edges up slightly due to new product


Valley still attracting VC funding, but velocity slowing

Source: JLL Research, PwCMoneytree

Net absorption fueled by pre-leased new construction

Silicon Valley recorded a significant volume of occupancy gains during the quarter.

However, much of the growth was driven by large corporate tech companies

occupying pre-leased new development. This trend will continue to keep the Valley’s

growth on an upward swing this year; there is still 1.7 million square feet of office

space under construction that will eventually be occupied over the next 18 months.

Despite the growing concerns over the stock market, future move-ins represent

established viable tech tenants that have enough capital to weather a volatile

business climate. Even if the economy shifts from bull to bear, market trends will

slowly taper off and cool instead rather than experience a dot-com era crash.

Demand volume pushed by redevelopment and cost of Class A

Vacancy rose slightly from last quarter, caused by the addition of approximately 1.0

million square feet of completed, but vacant, Class A office product. However, office

demand has been high enough to ease some landlord worries. Full floor tenants in

the market continue to carve away at big block availability. Additionally,

redevelopment projects like Santa Clara Square are uprooting tenants in the market.

However, rising rents for brand new space is becoming a deterrent for companies

more concerned with costs. For this reason, North San Jose and Downtown San

Jose are gaining more momentum—availability and rents are still relatively tenant-

favorable. With demand volume still high, vacancy will maintain a steady decline,

albeit slowing in pace compared to 12 months prior.

VC’s shift capital to later stage companies, slowdown on the horizon?

Though the funding spigot has yet shut off, investors are beginning to focus more

attention toward established, late-stage startups. The slashing of unicorn valuations

combined with a very thin IPO pipeline is expected to cool VC funding over the next

12 months. From a real estate perspective, the Valley will see fewer high-flying tech

startups overcommitting to prime Class A space. As stock market volatility is causing

some pull-back among investors, heavily funded tech companies that aggressively

expanded could begin to release sublease space, signaling a potential slowdown in

market trends.

Tech giants and redevelopment prop demand

-500,000

500,000

1,500,000

Q4 10 Q3 11 Q2 12 Q1 13 Q4 13 Q3 14 Q2 15 Q1 16

19.4%24.7%

30.7% 28.6% 27.1%

17.2% 16.1% 13.9% 11.9% 12.2%0.0%

10.0%

20.0%

30.0%

40.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 Q12016





12.3%Total vacancy




$0.0

$1,000.0

$2,000.0

$3,000.0

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Funding volume ($M)

63

- Blaise Tomazic


St. Louis

ST. LOUIS


Annual change in employment (in thousands)

Source: JLL Research, BLS

Leasing activity by submarket (leases over 10,000 s.f.)


Quarterly absorption since 2014


Leasing activity signals future gains

2,257

22.22%

5.56%

5.56%11.11%

55.56%

CBD

Clayton

Northwest County

St. Charles County

West County

-150,000

-75,000

0

75,000

150,000

225,000

300,000

2014 2015 2016

s.f. Absorption





14.9%Total vacancy




Office employment growth bounces back

Employment in the office occupying sectors maintained a steady annual growth

rate of 1.0 percent over the past 12 months, doubling the previous year. Several

companies have announced plans to increase head counts including: Bunge,

Thomson Reuters, and Moneta Group. Unfortunately, some tenants have also

announced plans to leave the market. Hardee’s (CBD) is relocating its corporate

office to Nashville in 2017. Similarly, AEP (West County), which was acquired

last year by, American Commercial Lines, will be moving to Louisville. Both

tenants will leave behind space in excess of 40,000 square feet.

Activity focused to the west

More than half of the leasing activity in the first quarter was done in West County,

further sustaining the trend of tenants looking toward the suburbs. The spread

between Class A and B buildings widened further this quarter. Vacancy for Class

A buildings is now 460 basis points lower. Activity is no different, almost 65.0

percent of leases this quarter were in Class A buildings. The gap in asking rates

between classes is now over $6.00 per square foot. As a result, the available

space in Class B buildings is lowering rental rates across the market.

Market takes a pause

After a banner year in 2015, the market took a breath in the first quarter posting

negative absorption for only the second time since 2014. In a reversal of

recent trends, losses were led by the suburban markets, which absorbed over

700,000 square feet last year. The CBD offset some of the losses, gaining

42,000 square feet. The losses are not expected to continue. More than 250,000

square feet of expansions were signed this quarter, with most commencing in the

next six months.

(5)

0

5

10

15

2013 2014 2015 2016

Financial Activities Professional and Business Services

Information Government

64

- Sara Hines


Suburban Maryland

SUBURBAN MARYLAND


Large block leasing activity (leases over 20,000 s.f.)


Absorption levels by county (s.f.)


Leasing activity by industry sector (leases over 20,000 s.f.)


Leasing activity continues to build

Large-block leasing activity in Suburban Maryland increased 77.7 percent from

last quarter. This increase was largely due to a few large leases. 2U signed a

252,952-square-foot lease at 7900 Harkins Road. The U.S. Food and Drug

Administration renewed at 7500 Standish Place for 113,730 square feet. DAI, a

consulting firm, decided to renew at 7600 Wisconsin Avenue for 50,000 square

feet and gave back approximately 20,000 square feet. Along with an increase in

leasing activity there was a slight uptick on length of deals compared to a year

ago. The average lease term in the first quarter was 102 months.

Absorption trends positive in the first quarter

After years of large-scale tenant consolidations, the Montgomery County office

market experienced modest occupancy growth in the first quarter of 2016.

SunEdison moved into 16,051 square feet at 7550 Wisconsin Avenue. Toole

Design moved into 37,758 square feet at 8484 Georgia Avenue in Silver Spring.

Another large move-in was the Montgomery County government, which leased

101,200 square feet at 1401 Rockville Pike. The Class A sector experienced a

significant amount of growth, recording 272,829 square feet of positive net

absorption in Montgomery County. Prince George’s County’s office market has

never fully recovered from the consolidations that occurred in the mid-2000s and

continues to show signs of softness as National Center for Health Statistics gave

back 49,634 square feet at 3311 Toledo Road.

Technology and life science sectors experience growth

The federal government remains a dominant industry sector in Suburban

Maryland, however, all of the federal leases signed in the first quarter were

renewals and contributed no net new growth to the market. The tenant base

showed signs of diversifying beyond its government and contractor focus, as

technology and life science companies expanded. Education technology

company 2U signed the largest lease of the first quarter and a new life science

start-up, Nextcure, expanded by 25,000 square feet in Prince George’s County.

Nextcure was launched in 2015 and the company raised $67.0 million in series A

financing in the first quarter of 2016.

Large tenants drive leasing activity

2,257

0

500,000

1,000,000

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

25,035

264,307

-58,449-100,000

0

100,000

200,000

300,000

Frederick County Montgomery County Prince George'sCounty





20.0%Total vacancy


-0.1 %12-month rent growth


40%

24%

14%

7%

5%

3% Technology

Government

Accounting consulting research strategy

Nonprofit

Law firm

Engineering

Life sciences

Real estate

Squ

are

feet

Squ

are

feet

65

- Drew Gilligan


Central Florida

TAMPA


Tenants in the market by industry


Counties with most STEM job availabilities

Source: JLL Research, FDEO

Historical Class A asking rates

Source: JLL Research, BLS

31.8%

27.4%

22.3%

6.2%

6.2%5.6% Professional and business services

Financial services

Scientific and technical

Logistics and distribution

Healthcare and Life Sciences

Creative

Retail

Three industries dominate space requirements in the market

Groups in the professional and business services, financial services and

scientific industries account for 81.5 percent of current space requirements in

Tampa Bay, totaling 1.3 million square feet. There are currently no buildings

under construction and only 20 Class A spaces greater than 30,000 square feet

available in all of Tampa Bay. Of the 1.3 million square feet in requirements, 80

percent of that total is seeking space in Hillsborough County, which only has 16

spaces larger than 30,000 square feet. Something has to give as current

availabilities can’t support the demand, which could lead to build-to-suit

developments or office buildings with a portion pre-leased.

Highest demand for STEM jobs in the state

As tracked by Florida Department of Economic Opportunity, Florida has over

80,000 STEM jobs currently available, which is in line with numbers from a year

ago. Health care, professional and business services, and finance and insurance

are the industries seeking the most talent in terms of available positions.

Hillsborough County ranks first in available jobs of any county in the state with

over 10,000 postings, while Pinellas ranks seventh with 4,500 postings. This

alludes to sustained growth in the local economy through 2016 and a strong

indicator for continued strength in the office market.

Asking rates continue to climb

Overall Tampa Bay Class A asking rates have risen $1.16 per square foot (4.4

percent) in the past 12 months and $1.93 per square foot (7.4 percent) in the

past 24 months. The increase in price is even more prevalent in the Tampa CBD

and Westshore submarkets. While rents in the Tampa CBD have increased only

3.3 percent, which is still strong, landlords have pushed rents on average $2.66

per square foot (9.8 percent) over the previous 24 months. The Westshore and I-

75/I-4 Corridor submarkets have experienced something similar, with both

submarkets experiencing over 8.0 percent rent increases for Class A space.

Leverage continues to remain with landlords, but some tenants are balking at

some of the asking rates for high quality spaces, explaining the slowdown in rent

growth from last quarter.

Tampa Bay in line for a strong 2016

2,257

10,338

-3,000

2,000

7,000

12,000

$23.38

$24.47

$25.05

$23.96 $23.49 $23.59 $23.76

$24.21

$24.98

$26.14

$22.00

$23.00

$24.00

$25.00

$26.00

$27.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016





14.6%Total vacancy



0% Total preleased

66

- Carl Caputo


Washington, DC

WASHINGTON, DC


Long-term sublet options hit the market as firms rightsize


Creative coworking providers showing tremendous growth


Options > 20,000 s.f. in $65-$74 FS range remain abundant


Law firm rightsizings and consolidations continue to impact the core

During the first quarter, Miller & Chevalier relocated to the newly delivered 900

16th Street, NW from Metropolitan Square, leaving behind 133,000 square feet of

vacant space and rightsizing its footprint by 28 percent. In a similar vein, Cleary

Gottlieb signed a lease to relocate its office to a new development at 2112

Pennsylvania Avenue, NW, and will rightsize by 20 percent when it moves in

2018. While a majority of law firms in Washington, DC have rightsized in the

current cycle and a very limited number of large firms have upcoming lease

expirations, several firms have put large sublet blocks on the market and

continue to look for ways to achieve greater efficiency.

Emerging sectors continue to generate occupancy gains

Continued growth from coworking providers, tech companies and quasi-

government institutions helped offset limited demand from the legal and federal

sectors and generate occupancy gains. During the first quarter alone, creative

coworking providers such as WeWork, MakeOffices and Spaces leased 230,000

square feet, doubling the total space leased by the sector in all of 2016.

Additional expansions in the market came from the International Monetary Fund,

which leased 36,000 square feet at 1899 Pennsylvania Avenue, NW and

FiscalNote, which grew 12,000 square feet in its move to 1 Thomas Circle, NW.

Activity is slowly flowing into the Class A+ segment

Over the past 36 months, limited deliveries and elevated demand for top-quality

space, primarily from government affairs groups and law firms, has caused a

tightening in the Trophy segment of the market, while the repositioning of Class

B space and growing demand from tech, nonprofits and creative users has

reduced options priced below $50 full-service. The tightening from the top-down

and bottom-up has left the Class A+ segment, space typically priced in the

$65-$75 full-service range, with an elevated number of options. However, over

the past 12 months, activity has started to flow into this segment as tenants

such as CACI and Universal Services Administrative Company signed deals

for more than 75,000 square feet at 1099 14th Street, NW and One Metro

Center, respectively.

Large vacancies hit, but may soon be backfilled

2,257

0

50,000

100,000

150,000

2020 2021 2022 2023 2024 2025 2026

Term through

Law firm sublet block > 20,000 s.f.1001 Pennsylvania Ave NW401 9th St NW

9

12

1927

14$35-$44 FS

$45-$54 FS

$55-$64 FS

$65-$74 FS

$75+ FS

0

100,000

200,000

300,000

2013 2014 2015 Q1 2016





12.3%Total vacancy




67

- Scott Homa

Senior Vice President, Research,

Washington, DC

WASHINGTON, DC (Metro)


Tech industry driving regional employment growth

Large-block leasing activity picks up in off-core locations

Suburban markets drive occupancy gains

Tech offsets stagnant federal government and legal services sectors

Regional employment growth remained near cyclical highs during the first

quarter of 2016, with 68,800 jobs added year-over-year overall. Over half of all

regional job growth (58.6 percent) was concentrated within the technology

sector, while the federal government and the financial and legal services

industries remained largely stalled in terms of new job creation. Leasing activity

mirrored these employment trends, with first quarter transactions by tech firms

2U, Opower and Intelligent Automation among the largest in the region.

Meanwhile, several law firms added sublease blocks to the market, and space

compression among federal agencies and law firms negated a large portion of

growth by other industry types.

Suburban Maryland and Northern Virginia claim a growing share of activity

The suburbs accounted for 69.5 percent of regional leasing activity in Q1 2016,

up substantially from a 52.9 percent share in 2015. Although tech firms,

government contractors and healthcare groups were active in Northern Virginia

and Suburban Maryland, the District of Columbia experienced an unusually slow

period of activity, partially a result of limited law firm lease expirations and

continued financial pressure within that sector.

Suburbs lead regional net absorption

Northern Virginia and Suburban Maryland registered significant occupancy

growth in Q1 2016, driven by expansions of several tenants, including Unicom,

Washington Gas, MakeOffices and 2U. In Route 28 South, Unicom took

occupancy of the remaining vacant space at 15000 and 15010 Conference

Center Drive, moving its regional headquarters for 40 divisions to the buildings

and contributing to 459,000 square feet of positive net absorption. In Suburban

Maryland, education tech company 2U signed a 252,952-square-foot lease at

7900 Harkins Road, nearly tripling its current footprint. Lobbying activity

remained a bright spot in downtown DC, as nine of the past 10 government

affairs lease transactions represented growth.

Diversification of tenant base continues





17.3%Total vacancy




0.5

1.6

2.8

40.3

0.0 10.0 20.0 30.0 40.0 50.0

Legal services

Financial services

Federal government

Technology

Jobs added year-over-year (in thousands)

63,909

71,307

78,113

86,166

99,574

107,931

209,726

528,770

- 100,000 200,000 300,000 400,000 500,000 600,000

Bethesda CBD

Rockville Pike

RB Corridor

Merrifield

CBD

Crystal City

Tysons

Route 28 South

YTD net absorption

41%

28%

31% Northern Virginia

Suburban Maryland

District of Columbia

68

- Ilyssa Shacter

Research Analyst,

Fort Lauderdale

WEST PALM BEACH


Name Developer Phase Type

3 Thirty Three Kolter Group Under-Construction Multi-Family

City Place* Related Proposed Mixed-Use

One West Palm Jeff Greene Proposed Mixed-Use

Transit Village Michael Masanoff Proposed Mixed-use

The CosmopolitanUS Hospitality Group/

PrivCap HoldingsProposed Mixed-Use

Vacancy in Suburban WPB reaches nine year low

Four buildings trade for a strong start to 2016

Diversification of development pipeline

Suburban West Palm Beach market fundamentals strengthen

Market fundamentals in Suburban West Palm Beach have improved over the

previous 18 months, as Class A rents (NNN) increased 7.7 percent to $18.10 per

square foot and vacancy decreased 490 basis points to 14.4 percent – the lowest

point since late 2006. Propelling these trends were a number of leases signed in

late 2015 which commenced during the first quarter. Notably, Gallagher Benefit

Solutions moved into 8,300 square feet in Emerald View (2056 Vista Parkway)

and Travelers Insurance leased 2,600 square feet in Northpoint Corporate

Center (701 Northpoint Parkway).

Strong start for 2016 – Investment in West Palm Beach continues

Since the start of 2014 there have been 20 trades in the Core CBD and

Suburban West Palm Beach submarkets combined. Specifically, half of the

Downtown Class A buildings have traded over that period. Most recently,

Northbridge Tower sold late in the first quarter as Crocker Partners and

Greenfield Partners purchased the property from Gaedeke Group for $68.2

million ($145 per square foot). In addition, The Fourm, an office complex

comprising three Class B properties located in Suburban West Palm Beach,

traded for $20.5 million ($74 per square foot) when Crimson Peak purchased the

properties from Panther Real Estate.

Palm Beach County development pipeline grows

The development pipeline downtown is growing as a number of major players

have announced new projects in recent months. Most notably, Jeff Greene

announced plans for a new mixed-use center, One West Palm, which would

likely included an office component (early reports note the project would include

approximately 340,000 square feet of office). More recently, Related, which has

a few other projects in the works, announced plans for a 30-story, 300,000-

square-foot, Class A office tower on land currently owned by the First Church of

Christ, Scientists. In addition to the many speculative mixed-use projects which

are still in the early planning stages, there are a number of residential projects

under construction downtown. Currently there are four projects with a combined

700 residential units expected to come to market before year-end 2017.

Investment in new development may diversify in the coming year.

2,257





17.4%Total vacancy




10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

2006 2009 2012 2015

Asking rate (NNN) Vacancy

2

6

2

3

4

3

0

5

10

15

2014 2015 2016

Core CBD Suburban West Palm Beach

* Denotes multiple projects proposed

69

- Dayna McConnell

Research Analyst,

Fairfield County

WESTCHESTER COUNTY


Leasing activity by industry


Renewals account for the majority of Q1 transactions


450 Mamaroneck Avenue – Harrison


16%

39%18%

6%3%

18%Financial Svcs/Banking

Healthcare

Consumables

Law firm

Government

Other

Healthcare and medical office space users lead Westchester activity

First quarter leasing activity across Westchester County showed continued

strength in the healthcare sector, with two of the largest transactions totaling over

115,000 square feet. Columbia Hospital signed in White Plains CBD for 50,000

square feet at 1 North Broadway, while the Hospital for Special Surgery (HSS)

leased over 65,000 square feet at 1133 Westchester Avenue, located in the I-

287 East submarket.

Landlords holding tight to existing tenants

In response to Westchester’s continued high vacancy rates, landlords are

making the effort to maintain their existing tenants. Merrill Lynch had the largest

renewal in White Plains CBD at 360 Hamilton Avenue, keeping 46,122 square

feet of space. Law firms also located in the CBD are signing in-place renewals in

prime buildings; Keane & Beane renewed for 26,000 square feet at White Plains

Plaza and Delbello, Donnellan, Weingarten, Wise & Wiederkehr, LLP retained

their 27,000 square feet at 1 North Lexington. Outside of the CBD, Sabra Dipping

Company and the Visiting Nurses Association renewed at 777 Westchester

Avenue and 540 White Plains Road, respectively, for a combined 60,000 square

feet of space, appriximately.

Building investment market heats up while office leasing market stays cool

Though office leasing activity in this market has remained relatively unchanged

over the past few quarters, major properties in Westchester are piquing the

interest of potential buyers, including the 700 series on Westchester Avenue, 44

South Broadway in downtown White Plains, and 100 Manhattanville Road in

Purchase. Typically new owners enter the market looking for growth, which will

likely translate into better quality space, higher asking rents, and increased

demand from tenants to be in Trophy buildings.

Healthcare and renewals drive Westchester activity





22.9%Total vacancy




14,272

15,810

114,359

224,316

58,430

14,272

- 50,000 100,000 150,000 200,000 250,000

Expansion

Extension

Relocation

Renewals

New to market

Renewal with expansion

$39.6MHarrison Plaza, a Class A building in the I-287 East

Corridor, boasts the highest sale price in

Westchester

APPENDIX:

Stats

Employment

Rankings

Leases

Sales

Developments


71

Market totals

(CBD and Suburban)Inventory (s.f.)

Quarterly

total net

absorption

(including

subleases)

YTD total net

absorption

(including

subleases)

YTD total

net

absorption

(% of

Inventory)

Direct

vacancy

(%)

Total

vacancy

(%)

Current

quarter

direct

average

marketed

rent ($p.s.f.)

Quarterly

percent

change

YTD

Completions /

deliveries

(s.f.)

Under

construction

(s.f.)

Under

construction

as % of

inventory

Atlanta 133,507,824 325,436 325,436 0.2% 16.4% 17.2% $22.98 2.0% 0 2,602,297 1.9%

Austin 49,439,503 774,647 774,647 1.6% 10.3% 11.1% $33.72 4.5% 347,445 2,137,233 4.3%

Baltimore 71,152,035 29,742 29,742 0.0% 12.4% 12.8% $22.99 0.3% 486,354 1,437,452 2.0%

Boston 165,505,659 259,388 259,388 0.2% 11.5% 13.9% $33.77 -0.8% 639,200 5,715,195 3.5%

Charlotte 47,047,960 298,170 298,170 0.6% 11.0% 11.6% $23.15 0.5% 0 2,223,472 4.7%

Chicago 235,598,374 1,655,104 1,655,104 0.7% 13.6% 14.5% $29.75 -0.4% 0 4,311,164 1.8%

Cincinnati 34,582,680 285,382 285,382 0.8% 16.6% 17.4% $19.25 0.1% 0 200,000 0.6%

Cleveland 28,121,038 95,963 95,963 0.3% 18.4% 19.3% $19.07 -0.2% 0 47,000 0.2%

Columbus 30,482,513 211,506 211,506 0.7% 12.9% 13.1% $17.51 0.1% 204,400 580,692 1.9%

Dallas 162,502,918 164,935 164,935 0.1% 18.3% 19.1% $24.79 1.7% 1,096,910 8,307,051 5.1%

Denver 107,645,722 -349,535 -349,535 -0.3% 12.6% 13.7% $26.19 2.2% 120,768 2,965,842 2.8%

Detroit 61,651,347 -62,018 -62,018 -0.1% 19.4% 19.4% $18.35 -0.3% 0 401,334 0.7%

Fairfield County 48,491,420 402,225 402,225 0.8% 22.1% 24.4% $31.90 0.2% 0 0 0.0%

Fort Lauderdale 22,564,674 40,671 40,671 0.2% 15.4% 16.1% $28.17 0.4% 0 95,098 0.4%

Hampton Roads 18,612,715 311 311 0.0% 13.9% 14.3% $18.47 -0.3% 0 287,858 1.5%

Hartford 26,374,513 -495,116 -495,116 -1.9% 15.8% 16.7% $20.68 1.0% 0 25,484 0.1%

Houston 162,502,374 227,138 227,138 0.1% 15.7% 17.6% $29.82 0.1% 1,296,600 5,723,178 3.5%

Indianapolis 31,569,882 -1,501 -1,501 0.0% 15.3% 15.6% $19.00 0.6% 29,200 301,050 1.0%

Jacksonville 21,627,558 8,277 8,277 0.0% 15.2% 15.6% $19.26 0.7% 0 0 0.0%

Long Island 42,253,140 309,871 309,871 0.7% 14.3% 15.5% $26.22 -0.5% 0 338,885 0.8%

Los Angeles 188,741,769 432,114 432,114 0.2% 14.3% 15.0% $36.60 1.9% 0 2,309,645 1.2%

Miami 37,345,817 -146,340 -146,340 -0.4% 12.8% 13.3% $35.48 1.4% 134,552 694,676 1.9%

Milwaukee 27,567,279 259,208 259,208 0.9% 18.0% 18.5% $19.03 2.7% 0 148,924 0.5%

Minneapolis 69,094,277 183,049 183,049 0.3% 14.0% 14.9% $25.31 0.6% 0 464,236 0.7%

Nashville 33,732,255 206,416 206,416 0.6% 6.1% 6.3% $21.68 6.7% 135,000 3,276,446 9.7%

New Jersey 158,786,477 -562,303 -562,303 -0.4% 22.3% 24.7% $25.26 0.4% 0 440,445 0.3%

New York 449,872,906 -1,580,918 -1,580,918 -0.4% 8.5% 10.0% $72.57 1.6% 0 14,353,410 3.2%

Oakland–East Bay 54,680,995 122,940 122,940 0.2% 11.7% 12.2% $34.52 9.7% 0 0 0.0%

Orange County 95,731,037 229,551 229,551 0.2% 11.4% 11.8% $30.96 3.9% 574,252 1,065,424 1.1%

Orlando 29,145,997 213,699 213,699 0.7% 14.7% 14.9% $20.92 0.9% 0 271,000 0.9%

Philadelphia 124,092,821 604,158 604,158 0.5% 11.8% 12.2% $24.02 1.2% 1,078,035 3,600,593 2.9%

Phoenix 82,688,661 423,748 423,748 0.5% 20.0% 20.9% $23.75 1.1% 445,000 2,217,644 2.7%

Pittsburgh 50,677,398 24,279 24,279 0.0% 14.3% 16.4% $23.07 1.9% 367,000 592,000 1.2%

Portland 58,709,017 178,251 178,251 0.3% 7.9% 8.3% $25.12 2.2% 64,682 1,607,791 2.7%

Raleigh–Durham 44,363,957 -55,594 -55,594 -0.1% 10.6% 11.9% $20.82 1.4% 0 1,667,451 3.8%

Richmond 25,116,317 -16,121 -16,121 -0.1% 12.8% 14.3% $18.84 0.6% 44,378 0 0.0%

Sacramento 43,791,678 260,541 260,541 0.6% 15.1% 15.4% $22.92 -0.5% 0 0 0.0%

Salt Lake City 45,865,424 15,110 15,110 0.0% 6.0% 6.5% $20.66 0.0% 51,600 2,765,312 6.0%

San Antonio 26,513,851 395,164 395,164 1.5% 15.5% 15.7% $23.09 0.5% 147,000 529,735 2.0%

San Diego 79,312,880 442,206 442,206 0.6% 12.6% 13.5% $30.00 0.4% 65,500 451,841 0.6%

San Francisco 75,553,912 153,135 153,135 0.2% 7.2% 8.2% $72.04 4.8% 0 4,669,927 6.2%

San Francisco Peninsula 27,335,762 121,596 121,596 0.4% 10.7% 12.7% $56.41 4.5% 280,614 1,121,229 4.1%

Seattle–Bellevue 92,656,684 838,562 838,562 0.9% 8.5% 9.1% $34.77 2.3% 320,000 6,755,651 7.3%

Silicon Valley 69,004,122 824,960 824,960 1.2% 10.6% 12.4% $49.04 15.8% 1,912,031 3,483,727 5.0%

St. Louis 42,125,546 -74,190 -74,190 -0.2% 14.3% 14.9% $19.05 -3.4% 0 125,000 0.3%

Tampa Bay 34,348,959 170,908 170,908 0.5% 14.0% 14.6% $23.18 0.8% 175,998 0 0.0%

Washington, DC 329,824,434 92,220 92,220 0.0% 16.4% 17.3% $36.93 0.1% 618,855 6,486,237 2.0%

West Palm Beach 20,573,002 -47,791 -47,791 -0.2% 17.1% 17.4% $30.20 -0.2% 0 0 0.0%

Westchester County 32,333,229 98,326 98,326 0.3% 20.6% 19.1% $27.26 2.9% 0 0 0.0%

United States totals 3,950,820,312 7,666,904 7,666,904 0.2% 13.7% 14.8% $32.28 3.2% 10,635,374 96,773,145 2.4%

UNITED STATES OFFICE STATISTICS


72

Market

Total 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

(2015)

Unemployment

(2014)

12-month

unemployment

change (bp)

Atlanta 88.4 3.5% 16.6 2.3% 5.2% 6.2% -100

Austin 43.4 4.7% 8.8 3.7% 3.2% 3.8% -60

Baltimore 24.1 1.8% 5.8 1.9% 5.1% 6.1% -100

Boston 37.2 1.4% 13.5 1.9% 4.3% 5.1% -80

Charlotte 30.6 2.8% 9.8 3.4% 5.3% 5.8% -50

Chicago 68.2 1.5% 2.3 0.2% 6.7% 6.9% -20

Cincinnati 11.7 1.1% 1.9 0.8% 5.2% 5.5% -30

Cleveland 11.7 1.1% 0.7 0.3% 4.9% 5.8% -90

Columbus 20.2 2.0% 4.6 1.7% 4.8% 5.1% -30

Dallas–Fort Worth 113.7 3.4% 30.0 3.3% 3.8% 4.5% -70

Denver 34.8 2.6% 11.7 3.0% 3.0% 4.6% -160

Detroit 35.2 1.9% 20.5 4.0% 5.7% 7.2% -150

Fort Lauderdale 28.3 3.6% 9.5 4.5% 4.7% 5.5% -80

Hampton Roads 4.2 0.6% -0.2 -0.1% 5.1% 5.7% -60

Hartford 4.1 0.7% 1.5 1.1% 6.0% 6.7% -70

Houston 16.4 0.6% -9.8 -1.5% 4.8% 4.6% 20

Indianapolis 23.2 2.4% 2.1 0.9% 4.6% 5.7% -110

Jacksonville 28.1 4.5% 2.7 1.6% 4.9% 5.9% -100

Long Island 18.7 1.5% 3.0 1.2% 4.5% 5.3% -80

Los Angeles 93.3 2.2% 27.3 2.7% 6.0% 7.9% -190

Miami 23.3 2.1% 6.1 2.4% 5.6% 6.2% -60

Milwaukee 5.7 0.7% -3.4 -1.8% 5.3% 5.5% -20

Minneapolis–St. Paul 33.1 1.8% 5.4 1.1% 3.9% 4.2% -30

Nashville 35.4 4.0% 15.6 7.2% 3.7% 5.2% -150

New Jersey 72.0 1.8% 14.8 1.5% 4.7% 6.9% -220

New York 111.6 2.7% 37.9 2.9% 5.3% 6.3% -100

Oakland-East Bay 29.6 2.8% 1.9 0.8% 4.4% 5.5% -110

Orange County 40.1 2.7% 10.1 2.4% 5.5% 7.2% -170

Orlando 55.5 4.9% 9.3 3.3% 4.7% 5.7% -100

Philadelphia 58.2 2.1% 21.6 3.1% 4.8% 6.1% -130

Phoenix 67.1 3.6% 26.9 5.2% 4.6% 5.8% -120

Pittsburgh 0.2 0.0% -0.1 0.0% 5.5% 6.0% -50

Portland, OR 34.0 3.1% 10.9 4.3% 4.7% 5.8% -110

Raleigh–Durham 23.5 4.2% 8.4 5.5% 4.8% 4.9% -10

Richmond 26.7 4.2% 10.7 6.7% 4.4% 5.3% -90

Sacramento 24.4 2.7% 3.0 1.7% 5.5% 6.7% -120

Salt Lake City 16.9 2.6% 5.9 3.2% 3.4% 3.8% -40

San Antonio 27.6 2.9% 5.5 2.4% 3.7% 4.2% -50

San Diego 38.2 2.8% 9.0 2.8% 4.7% 5.9% -120

San Francisco 43.7 4.3% 22.8 6.0% 3.2% 4.0% -80

San Jose (Silicon Valley) 38.6 3.8% 19.7 6.2% 3.9% 4.9% -100

Seattle–Bellevue 54.6 3.0% 19.2 4.3% 5.6% 5.1% 50

St. Louis 15.8 1.2% 5.1 1.6% 5.2% 5.8% -60

Stamford, CT (Fairfield County) 0.1 0.0% -1.4 -1.2% 6.0% 6.6% -60

Tampa 44.3 3.6% 15.6 4.6% 4.8% 5.8% -100

Washington, DC 70.6 2.3% 17.9 1.9% 4.2% 5.0% -80

West Palm Beach 19.7 3.4% 6.0 3.9% 4.9% 5.3% -40

White Plains, NY (Westchester County) 16.3 2.4% 2.8 2.1% 4.5% 5.3% -80

United States 2,802.0 2.0% 656.0 2.2% 5.0% 5.5% -50

UNITED STATES EMPLOYMENT



* Office jobs include professional and business services, information and financial activities sectors

* United States totals represent national employment, not sum of markets above

* Data as of March 2016 (national) and February 2016 (local)

UNITED STATES

OFFICE RANKINGS

Total vacancy rates (including sublease)

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

New JerseyFairfield County

PhoenixDetroit

ClevelandDallas

Westchester CountyMilwaukee

HoustonWest Palm Beach

CincinnatiWashington, DC

AtlantaHartford

PittsburghFort Lauderdale

San AntonioIndianapolisJacksonvilleLong IslandSacramentoLos Angeles

OrlandoMinneapolis

St. LouisTampa Bay

ChicagoRichmond

Hampton RoadsBostonDenver

San DiegoMiami

ColumbusBaltimore

San Francisco PeninsulaSilicon ValleyPhiladelphia

Oakland-East BayRaleigh-DurhamOrange County

CharlotteAustin

New YorkSeattle-Bellevue

PortlandSan FranciscoSalt Lake City

Nashville

Vacancy rate (%)

Inventory

0 100 200 300 400 500

Hampton RoadsWest Palm Beach

JacksonvilleFort Lauderdale

RichmondHartford

San AntonioSan Francisco Peninsula

MilwaukeeCleveland

OrlandoColumbus

IndianapolisWestchester County

NashvilleTampa Bay

CincinnatiMiami

St. LouisLong IslandSacramento

Raleigh-DurhamSalt Lake City

CharlotteFairfield County

AustinPittsburgh

Oakland-East BayPortland

DetroitSilicon Valley

MinneapolisBaltimore

San FranciscoSan Diego

PhoenixSeattle-BellevueOrange County

DenverPhiladelphia

AtlantaNew Jersey

HoustonDallas

BostonLos Angeles

ChicagoWashington, DC

New York

Square feet (millions)


Marketed rents

$0.00 $20.00 $40.00 $60.00 $80.00

ColumbusDetroit

Hampton RoadsRichmond

IndianapolisMilwaukee

St. LouisClevelandCincinnati

JacksonvilleSalt Lake City

HartfordRaleigh-Durham

OrlandoNashville

SacramentoAtlanta

BaltimorePittsburgh

San AntonioCharlotte

Tampa BayPhoenix

PhiladelphiaDallas

PortlandNew JerseyMinneapolis

DenverLong Island

Westchester CountyFort Lauderdale

ChicagoHouston

San DiegoWest Palm Beach

Orange CountyFairfield County

AustinBoston

Oakland-East BaySeattle-Bellevue

MiamiLos Angeles

Washington, DCSilicon Valley

San Francisco PeninsulaSan Francisco

New York

$ per square foot

YTD total net absorption (including sublease)

-2,000 -1,000 0 1,000 2,000

New YorkNew Jersey

HartfordDenver

MiamiSt. Louis

DetroitRaleigh-Durham

West Palm BeachRichmond

IndianapolisHampton Roads

JacksonvilleSalt Lake City

PittsburghBaltimore

Fort LauderdaleWashington, DC

ClevelandWestchester County

San Francisco PeninsulaOakland-East Bay

San FranciscoDallas

Tampa BayPortland

MinneapolisNashville

ColumbusOrlandoHouston

Orange CountyMilwaukee

BostonSacramento

CincinnatiCharlotte

Long IslandAtlanta

San AntonioFairfield County

PhoenixLos Angeles

San DiegoPhiladelphia

AustinSilicon Valley

Seattle-BellevueChicago

Square feet (thousands)


UNITED STATES

OFFICE RANKINGS

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%12.0%


JacksonvilleWestchester County

Oakland-East BayTampa Bay

SacramentoFairfield County

HartfordCleveland

New JerseySt. Louis

Fort LauderdaleMilwaukeeSan DiegoCincinnati

DetroitMinneapolisLong Island

OrlandoIndianapolis

Orange CountyPittsburgh

Los AngelesHampton Roads

ChicagoMiami

ColumbusAtlanta

Washington, DCSan Antonio

BaltimorePhoenixPortlandDenver

PhiladelphiaNew York

BostonHouston

Raleigh-DurhamSan Francisco Peninsula

AustinCharlotte

Silicon ValleyDallas

Salt Lake CitySan Francisco

Seattle-BellevueNashville

Under construction Under construction as % of inventory


0 10,000,000 20,000,000


JacksonvilleWestchester County

Oakland-East BayTampa Bay

SacramentoFairfield County

HartfordCleveland

Fort LauderdaleSt. Louis

MilwaukeeCincinnati

OrlandoHampton Roads

IndianapolisLong Island

DetroitNew JerseySan Diego

MinneapolisSan Antonio

ColumbusPittsburgh

MiamiOrange County

San Francisco PeninsulaBaltimorePortland

Raleigh-DurhamAustin

PhoenixCharlotte

Los AngelesAtlanta

Salt Lake CityDenver

NashvilleSilicon ValleyPhiladelphia

ChicagoSan Francisco

BostonHouston

Washington, DCSeattle-Bellevue

DallasNew York

Square feet

UNITED STATES

OFFICE RANKINGS

76

Market Tenant Address Size (s.f.) Lease type

New York McGraw Hill 55 Water Street 900,027 Renewal

Boston Kronos 900 Chelmsford Street 370,812 Relocation within market

Chicago CNA Financial 151 N Franklin Street 275,000 Relocation within market

Suburban Maryland 2U 7900 Harkins Road 252,952 Relocation within market

Boston Putnam Investments 100 Federal Street 252,000 Relocation within market

Houston United 609 Main Street 225,000 Relocation within market

Northern Virginia CACI 14360/14370 Newbrook 220,551 Renewal

Silicon Valley Toshiba55 W Trimble/2610–2630 Orchard

Parkway218,645 Relocation within market

New York Salesforce 1095 Avenue of the Americas 202,678 Relocation within market

New York Citadel 425 Park Avenue 200,000 Relocation within market

New York DLA Piper 1251 Avenue of the Americas 199,140 Renewal

Austin Home Depot 13011 McCallen Pass 198,000 Expansion in market

Orange County Volt 2401–2421 N Glassell Street 190,000 Relocation within market

Charlotte Duke Energy 400 S Tryon Street 184,358 Renewal

Boston Shire 45–55 Hayden Avenue 177,000 Expansion in market

Austin YETI 7601 Southwest Parkway 175,000 Expansion in market

New York Omnicom Group 220 E 42nd Street 167,003 Renewal

Chicago Cars.com 300 S Riverside Plaza 158,000 Relocation within market

Orlando Axium 3200 Lake Emma Road 157,000 N/A

Detroit ZF TRW 34605 W 12 Mile Road 155,898 New

Salt Lake City Solar City 12832 S Frontrunner Boulevard 155,000 Expansion in market

Dallas Securus 4000 International Parkway 154,298 Relocation within market

Miami Telemundo 12400 NW 25th Street 150,000 New

Chicago Constellations Brands 131 S Dearborn Street 150,000 Relocation within market

Phoenix CVS 444 N 44th Street 138,240 Expansion in market

New York ING 1133 Avenue of the Americas 132,400 Relocation within market

Boston Optum 1325 Boylston Street 126,004 Relocation within market

Minneapolis ECMC 111 Washington Avenue 125,010 Relocation within market

Dallas Fannie Mae 15601 Dallas Parkway 123,652 Renewal

Los Angeles Netflix 5808 W Sunset Boulevard 123,221 Expansion in building

New York UBS 299 Park Avenue 120,000 N/A

Salt Lake City Wells Fargo 299 S Main Street 118,970 Renewal

Washington, DC WeWork 655 15th Street NW 117,000 Expansion in market

Washington, DC Cleary Gottlieb 2112 Pennsylvania Avenue NW 114,958 Relocation within market

Suburban Maryland U.S. Food and Drug Administration 7500 Standish Place 113,730 Renewal

Washington, DC U.S. Bureau of Prisons 370 L'Enfant Plaza SW 113,301 Relocation within market

Boston WeWork 31 Saint James Avenue 113,067 Expansion in market

New Jersey Linde 200 Somerset Corporate Boulevard 112,720 New

Chicago WeWork 125 S Clark Street 112,000 Expansion in market

Chicago Beam Sunatory 222 Merchandise Mart 112,000 New

Orange County Mazda 200 Spectrum Center Drive 110,628 Expansion in market

Indianapolis Allied Solutions Midtown Carmel 109,600 Expansion in market

Dallas Multiview 7701 Las Colinas Ridge 109,000 Renewal

Los Angeles ICM 10250 Constellation Boulevard 108,259 Expansion in building

Austin Accenture 3110 Esperanza Crossing 105,000 Relocation within market

Chicago Holland & Knight 131 S Dearborn Street 104,376 Extension (< 36-month term)

Washington, DC Universal Services Administrative Company 701 13th Street NW 102,348 Relocation within market

Denver Urban Lending Solutions 11802 Ridge Parkway 101,678 Renewal

Northern Virginia Sinclair Broadcasting 1100 Wilson Boulevard 100,000 Renewal

New Jersey Newell Brands 221 River Street 99,960 New

SELECT LARGE LEASES

> 100,000 SQUARE FEET Sorted by lease size and completed during Q1 2016


77

Market Building RBA (s.f.) Sale price $

Price per

square

foot

($ p.s.f.)

Buyer Seller

New York 388–390 Greenwich Street 2,634,670 $2,000,000,000 $759 Citigroup SL Green

New York 787 Seventh Avenue 1,761,781 $1,932,900,000 $1,097 CalPERS AXA Investment

New York 5 Times Square 1,101,779 $800,000,000 $1,452 RXR Realty (50%) David Werner

Boston 3 Blackfan Circle 702,940 $630,424,951 $897 Blackstone BioMed Realty Trust

Los Angeles 10960 Wilshire Boulevard 576,018 $476,500,000 $827

Douglas Emmett Realty (60%) JV Qatar

Investment Authority (40%) Blackstone




Philadelphia Multiple 3,900,000 $398,100,000 $102 Och-Ziff Capital Management Brandywine Realty Trust

Seattle-Bellevue 2001 Eighth Avenue 516,985 $370,000,000 $716 Deutsche Bank AEW Capital Management

Philadelphia 2970 Market Street 862,692 $354,000,000 $410 Korea Investment Holdings Brandywine Realty Trust

Boston 500 Kendall Street 349,325 $313,288,753 $897 Blackstone BioMed Realty Trust

Northern and

Central NJ 70 & 90 Hudson Street 857,940 $299,000,000 $349 Spear Street Capital CBRE Global Investors

New York 63 Madison Avenue 815,000 $290,376,334 $727 Jamestown (49%)

George Comfort & Sons JV

Loeb Partners Realty

New York 200 Madison Avenue 750,000 $273,123,317 $743 Jamestown (49%)

George Comfort & Sons JV

Loeb Partners Realty

Boston 675 Kendall Street 302,919 $271,669,980 $897 Blackstone BioMed Realty Trust

Los Angeles 1100 Glendon Avenue 334,000 $271,000,000 $811



San Diego 7525–7555 Torrey Santa Fe Road 465,812 $262,300,000 $563 Intuit Kilroy Realty Corp

San Diego 7525–7555 Torrey Santa Fe Road 465,812 $262,300,000 $563 Intuit Kilroy Realty

Los Angeles

55 S Lake Ave and 800 E Colorado

Boulevard 439,650 $257,000,000 $585 CBRE Global Investors Beacon Capital Partners

Washington, DC 1615 L Street, NW 417,852 $229,000,000 $548 Carr Properties Spitzer Enterprises

Atlanta 600 Peachtree Street NE 1,294,590 $220,000,000 $168 Shorenstein Properties CW Capital Asset Management

SF Mid Peninsula 1111 Bayhill Drive 515,000 $215,000,000 $417 Google

Hudson Pacific Properties JV

Farallon Capital Partners

San Francisco 800 Gateway Boulevard 284,000 $203,871,581 $718 Blackstone BioMed Realty Trust

SF Mid Peninsula 1601 Willow Road 1,024,090 $202,358,000 $198 Facebook RREEF OBO SWIB

Northern and

Central NJ 190 Wood Avenue S 918,656 $200,000,000 $218 Metropark Investor LLC Tishman Speyer

Chicago 180 North LaSalle Street 781,670 $198,000,000 $253

Ivanhoe Cambridge JV Callahan Capital

Partners Beacon Capital Partners

Philadelphia 1700 Market Street 841,172 $198,000,000 $235 Shorenstein Properties Nightingale Properties

East Bay 300 Lakeside Drive 811,005 $197,000,000 $243 Rockpoint Group (75%) Swig Company

San Francisco 499 Illinois Street 455,069 $189,672,759 $1,042 TIAA-CREF JV Alexandria Real Estate (40%) Alexandria Real Estate

Seattle 1124 Columbia Street 228,000 $185,682,833 $814 Heitman JV NexCore Group

Trammell Crow JV Washignotn

Capital Management

San Francisco 180 Montgomery Street 304,162 $182,497,200 $600 Sidra (HNW) CBREI

Washington, DC 733 10th Street, NW 170,813 $180,000,000 $1,053 Investcorp Group JV ScanlanKemperBard Jamestown

Boston 200 Sidney 191,904 $172,107,249 $897 Blackstone BioMed Realty Trust




San Francisco 580 California Street 313,000 $165,000,000 $703 JP Morgan

LaSalle Investment

Management JV Prudential

New York 142 West 57th Street 240,000 $162,073,041 $675 GreenOak JV Mitsubishi (99%) BlackRock JV L&L Holding

Northern Virginia 7555-7574 Colshire Drive 574,588 $158,000,000 $276 Northrop Grumman

Dividend Cap Diversified

Property Fund

Northern and

Central NJ

100, 989, 993, 997, 1000, 1009,

1200, 2000 Lenox Drive 800,546 $156,000,000 $195 JFR Global Investments Prism Capital Partners

Pittsburgh 301 Grant Street 1,011,000 $148,752,900 $147 Shorenstein Properties

Oxford Development

Company

SELECT LARGE SALES

> 100,000 SQUARE FEET Sorted by total sales price and completed in Q1 2016


78

Market Submarket Building Construction type RBA s.f. Preleased %Expected

delivery year

New York World Trade Center 3 World Trade Center Speculative 2,861,402 37.0% 2018

New York Penn Plaza/Garment 30 Hudson Yards Speculative 2,600,000 100% 2019

New York Penn Plaza/Garment 1 Manhattan West Speculative 2,300,000 32.5% 2019

Dallas Far North Dallas Toyota HQ BTS 2,100,000 100% 2017

New York Penn Plaza/Garment 10 Hudson Yards Speculative 1,725,250 92.8% 2016

Phoenix Tempe Marina Heights BTS 1,698,000 100% 2017

New York Penn Plaza/Garment 55 Hudson Yards Speculative 1,556,136 5.4% 2018

San Francisco South Financial District 415 Mission Street Speculative 1,420,081 57.8% 2017

Philadelphia Market Street West Comcast Innovation and Technology Center BTS 1,334,000 100% 2018

Chicago West Loop 150 N Riverside Plaza Speculative 1,229,064 89.4% 2017

Dallas Far North Dallas Liberty Mutual Campus BTS 1,100,000 100% 2017

Houston Westchase Phillips 66 HQ BTS 1,100,000 100% 2016

Chicago West Loop 444 W Lake Street Speculative 1,073,100 94.0% 2017

Houston CBD 609 Main Street Speculative 1,056,658 28.3% 2016

Northern Virginia Tysons Corner Capital One HQ BTS 975,000 100% 2018

New York Grand Central 390 Madison Avenue Speculative 858,710 0.0% 2017

Boston North Partners Healthcare HQ BTS 850,000 100% 2017

Chicago West Loop 151 N Franklin Street Speculative 825,000 48.5% 2018

Seattle-Bellevue Seattle CBD The Mark Speculative 766,779 32.2% 2017

Seattle-Bellevue Seattle CBD Madison Centre Speculative 764,000 1.3% 2017

Chicago Schaumburg Zurich HQ BTS 753,000 100% 2016

San Francisco South Financial District 250 Howard Street Speculative 751,000 0.0% 2018

Seattle-Bellevue Renton/Tukwila Southport Office Campus Speculative 730,000 0.0% 2018

Seattle-Bellevue Bellevue CBD 400 Lincoln Square Speculative 724,693 6.3% 2016

New York Hudson Square One SoHo Square Speculative 700,000 7.7% 2016

Northern Virginia Eisenhower Avenue 2415 Eisenhower Avenue BTS 700,000 100% 2017

San Francisco Mission Bay 1800 Owens Street Speculative 680,000 0.0% 2017

Denver West CBD 1144 15th Street Speculative 670,000 5.7% 2018

New York Plaza District 425 Park Avenue Speculative 670,000 29.9% 2018

Charlotte CBD 300 S Tryon Street Speculative 638,459 54.4% 2016

Philadelphia University City FMC Tower Speculative 635,000 54.4% 2016

Houston Galleria BHP HQ BTS 600,000 100% 2016

Philadelphia Market Street West 2400 Market Street Speculative 559,740 38.6% 2017

Northern Virginia Rosslyn 1201 Wilson Boulevard Speculative 552,781 64.6% 2018

Columbus North Central 3100 Easton Square Drive BTS 550,000 100% 2016

Orange County Irvine The Boardwalk Speculative 537,224 0.0% 2017

Dallas Uptown McKinney & Olive Speculative 530,000 40.5% 2016

San Francisco South Financial District 375 Beale Street Speculative 529,232 73.9% 2016

Houston Katy Freeway Energy Center V Speculative 524,328 0.0% 2016

Milwaukee Downtown East 330 E Kilbourn Avenue Speculative 520,900 69.7% 2016

Nashville Downtown Bridgestone BTS 514,000 100% 2017

Boston 495/Mass Pike 1 Boston Scientific Place (Building 3) BTS 510,878 70.6% 2017

Austin CBD 500 W 2nd Street Speculative 500,436 41.6% 2017

Atlanta Buckhead Three Alliance Speculative 500,000 0.0% 2016

Boston Seaport District 100 Northern Avenue BTS 500,000 72.0% 2016

Atlanta Midtown NCR HQ BTS 485,000 100% 2018

Northern Virginia Tysons Corner 1775 Tysons Boulevard Speculative 476,913 26.2% 2016

Nashville Downtown Capitol View - HCA BTS 475,000 100% 2016

Chicago Clybourn Corridor 4000 W Diversey Avenue Speculative 450,000 0.0% 2018

Salt Lake City CBD 111 S Main Street Speculative 440,452 39.7% 2016

New York World Trade Center 3 World Trade Center Speculative 2,861,402 37.0% 2018

SELECT DEVELOPMENTS UNDERWAY

> 100,000 SQUARE FEET Sorted by square feet and underway as of Q1 2016


TENANT-

FAVORABLE BY

2017?

79

High levels of preleasing activity paired

with sustained tenant demand for both

new and expansionary office space will

continue to encourage landlords to

increase rental rates across most U.S.

office markets. However, with economic

momentum expected to slow over the

next 12 to 18 months at the same time

that new, vacant supply settles into the

market, conditions are expected shift

moderately more toward neutral

conditions in 2017.


For more information, please contact:

About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased

value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4

billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients,

the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and

completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management,

has $56.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For

further information, visit www.jll.com.

About JLL Research

JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real

estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic

and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise,

fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful

strategies and optimal real estate decisions.

This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means,

either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc.

COPYRIGHT © JONES LANG LASALLE IP, INC. 2016

Julia Georgules

Director

Office Research

+1 415 354 6908

[email protected]

Phil Ryan

Research Analyst

Office and Economy Research

+1 202 719 6295

[email protected]

Sean Coghlan

Director

Investor Research

+1 215 988 5556

[email protected]

Rachel Johnson

Research Analyst

Capital Markets

+1 312 228 3017

[email protected]

http://www.jll.com/

mailto:[email protected]



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