Office Outlook. United States Q3 2014

Transcription

1 Office Outlook United States Q3 2014

2 JLL forecasts rent increases of 13.0 to 14.0 percent nationally over the next 27 months driven by a new wave of developments delivering, priced at 20.0 to 25.0 percent premiums, which will trickle down to a reset in market pricing across the board. 14% rent growth JLL United States Office Outlook Q

3 Table of contents Key highlights 4 United States office market 5 United States office property clocks 9 United States economy 11 United States office capital markets 14 Local United States office markets Atlanta 18 Austin 19 Baltimore 20 Boston 21 Charlotte 22 Chicago (CBD) 23 Chicago (Suburban) 24 Cincinnati 25 Cleveland 26 Columbus 27 Dallas 28 Denver 29 Detroit 30 East Bay 31 Fairfield County 32 Fort Lauderdale 33 Hampton Roads 34 Houston 35 Indianapolis 36 Jacksonville 37 Kansas City 38 Long Island 39 Los Angeles 40 Miami 41 Milwaukee 42 Minneapolis-St. Paul 43 New Jersey 44 New York 45 Oakland 46 Orange County 47 Orlando 48 Philadelphia (CBD) 49 Philadelphia (Suburban) 50 Phoenix 51 Pittsburgh 52 Portland 53 Raleigh-Durham 54 Richmond 55 Sacramento 56 San Antonio 57 San Diego 58 San Francisco 59 San Francisco Mid-Peninsula 60 Seattle-Bellevue 61 Silicon Valley 62 St. Louis 63 Tampa 64 Washington, DC 65 Westchester County 66 West Palm Beach 67 Appendix 68 JLL United States Office Outlook Q

4 Key highlights Recent fluctuations in global public equity markets, due to increased economic and geopolitical tensions in Europe, the Middle East and Hong Kong, have upset recent viewpoints around the global outlook. However, momentum in the United States continues to build across nearly every economic indicator tracked besides stock market performance, driven largely by a well-fortified domestic private sector. In the second quarter alone corporate earnings jumped 8.4 percent compared to 12 months ago, with 68.0 percent of S&P 500 companies exceeding analysts expectations. This helped turn every indicator surrounding corporate profits upward since flattening at the end of and also helped fuel the highest CEO confidence levels since 2011 (coinciding with levels preceding the domestic debt ceiling crisis) and the strongest small business and consumer confidence levels since the October In addition to that, GDP growth in the second quarter was revised upward largely as a result of businesses re-investing through acquisitions, new products and even people, with the number of job openings up 19.0 percent since year-end and the number of job quits up nearly 5.0 percent over that time frame, signaling a confident employer and employee. This broad-based domestic economic expansion is leading to substantial levels of net new demand and expansion across industry types in the United States office sector, creating the tightest fundamentals in eight years, leaving tenants with dwindling leverage heading into 2015 and investors with increased difficulty in competing for product: Lease expansion activity soared in the quarter with nearly half of all closed lease transactions larger than 20,000 square feet involving expansionary activity, the highest of the recovery so far. Quarterly occupancy trounced the prior high with net absorption totaling 15.7 million square feet, topping last quarter s total (which had been the highest of the recovery so far) by 13.0 percent. Vacancy dipped below 16.0 percent for the first time since Rents increased in the quarter, fueling rent growth nationally in 14 of the last 15 quarters. A dwindling supply of quality space options, combined with enhanced confidence in the economic outlook, has fueled a surge in development activity over the past nine months. JLL United States Office Outlook Q

5 United States office market Percent of expansionary leasing up widely; yet leasing activity levels consistent with Q2 levels The frequency of tenant expansion activity within closed leases increased incrementally in the third quarter. Of the 10 largest leases signed across the country in the third quarter, five involved expansions and just one involved a tenant giving back space. That same trend held true on a broader basis: Of the 502 leases larger than 20,000 square feet JLL tracked during the quarter, 43.0 percent involved tenants taking more space and just 6.0 percent of those leases involved tenants contracting. Markets that demonstrated a high frequency of tenant lease expansion activity included many of the tech- and energy-rich economies such as Austin, Boston, Chicago, Dallas, Houston, New York, the entire Bay Area, Portland, Raleigh-Durham and Seattle-Bellevue. Tech comprised about 27.0 percent of those expansions with Google alone accounting for three of the largest expansions signed during the quarter in San Francisco, Silicon Valley and New York, respectively, while Box.net, Amazon and Sonos also took down additional space in the Bay Area, Seattle-Bellevue and Boston, respectively. Financial services also demonstrated momentum, accounting for 15.0 percent of expansionary leases, followed by health care with 9.0 percent of those growth leases. Overall, third quarter 2014 leasing activity finished at just under 61.1 million square feet, equating to a 0.4 percent decline from second quarter levels and a 6.6 percent decline compared to third quarter levels. Leasing levels inched down from second quarter levels mainly as a result of fewer large leases closing during the quarter and slower activity in tertiary markets: Only nine leases larger than 300,000 square feet closed in the second quarter, compared to 14 in the second quarter, and smaller markets like Fairfield County, CT, Hampton Roads, VA and Indianapolis, IN, demonstrated quarterly declines exceeding 50.0 percent. Quarterly occupancy gains hit another recovery high for the second quarter in a row In the third quarter of 2014, nearly 15.7 million square feet of office space was absorbed, and through the first nine months of 2014, occupancy levels jumped by 38 million square feet, 44.0 percent higher than gains at this time last year. Forecasted full-year 2014 occupancy gains are projected to top totals by more than 20.0 percent. Not only is growth escalating, but it is dispersing. Ninety percent of markets displayed increased occupancy levels compared to year-end levels and 88.0 percent of markets posted quarterly occupancy gains for the second quarter in a row. Further, the rate of growth across the CBDs and suburbs has been similar, with growth equating to 1.0 percent of overall inventory levels through September, compared to 2012 levels of 0.5 percent. For the past three years, tech- and energy-centered markets have dominated expansion activity with those geographies accounting for more than 56.0 percent of occupancy gains from 2011 through the second quarter. As the recovery has diversified, tech and energy markets are still exhibiting vitality, but many other markets are beginning to top those growth numbers. As we forecasted some 24 months ago, the Sunbelt markets would not just be part of the recovery, but a substantial part of it ahead as migration trends returned to historic norms and that trend has played out, with markets in the Southwest and Southeast contributing heavily to national momentum of late. Market and 2014 absorption as a percent of inventory ratios: Raleigh-Durham: 3.1% Silicon Valley: 2.9% West Palm Beach: 2.7% San Francisco Peninsula: 2.3% Charlotte: 2.3% Fort Lauderdale: 2.1% Phoenix: 2.1% Miami: 2.0% Houston: 2.0% Seattle-Bellevue: 1.6% In addition to the Southwest and Southeast, the Northeast has begun to display enhanced signs of activity and expansion. Manhattan, which demonstrated quite stagnant conditions from 2011 through, apart from Midtown South, has seen momentum pick up this year, with net absorption levels equating to 1.4 percent of total inventory, 40.0 percent higher than the U.S. average, giving landlords the opportunity to raise rents, especially at the high-end of the market in and around the Plaza District. Boston too is seeing enhanced demand as the cycle elongates. Boston absorption levels through three quarters are similar to full year JLL United States Office Outlook Q

6 levels with total year projections expected to be the highest since 2007, causing rent surges in the increasingly tight Cambridge and CBD markets. Vacancy levels drop below 16.0 percent for the first time since 2008 Vacancy levels closed the quarter at the lowest point in six years, finally dipping below the 16.0 percent mark. Increased expansion activity resulted in fewer blocks of space, and thus, vacancy levels dropped 40 basis points to 15.9 percent during the quarter and have fallen 90 basis points from 12 months ago. In the current and forward-looking environment, tenants will encounter the biggest challenges in the quality segment of the market, principally in urban environments, but increasingly, in well-located suburban product also. Across Class A CBDs, occupancy level increases have tripled in CBD Class B product, causing vacancy rates for Class A CBD product to drop from 16.2 percent in the beginning of 2010 to 12.7 percent at the end of the third quarter, below historical equilibrium levels, which tends to cause rents to increase above long-term averages and construction starts to more aggressively begin. In the suburbs, especially of late, that trend is even more exaggerated: Class A occupancy gains have quadrupled in Class B product since 2010 with vacancy levels falling from 18.7 percent to 15.0 percent. Class A destination suburbs with either high levels of amenities, walkability or transit are performing best. High-amenity, walkable and/or transit-served suburban submarkets with below-average Class A vacancy levels: Southpark (Charlotte): 9.2% Preston Center (Dallas): 7.9% Boulder (Denver): 2.3% Galleria/West Loop (Houston): 11.9% Reston Town Center (Northern Virginia): 5.6% Radnor (Philadelphia): 1.7% Palo Alto (Silicon Valley): 2.1% Clayton (St. Louis): 11.3% As the Class A market has tightened in both CBDs and suburbs, owners of Class B product have enjoyed some, but little reward, of that increased activity. As a result of that, many owners across geographies with second- and-third-generation Class B and C buildings are increasingly looking to reinvest in these aging assets, repositioning and even fully redeveloping these properties to take advantage of the flight to quality and efficiency the market has experienced over the past 40 months. Tightening fuel landlord confidence and thus rent levels Rents across the United States office sector have now increased in 14 of the last 15 quarters, growing 10.9 percent during that span. Due to the tight nature of the urbanized Class A market, that segment has posted rent growth of 16.5 percent in the past 15 quarters, followed by the suburban Class A segment growing at 10.8 percent. Class B rents are growing, but due to more limited tenant demand, Class B buildings have posted increases equating to nearly half the increases Class A buildings have experienced. Rents are not just increasing across different scales of quality, but also throughout locations. In the third quarter, 88.0 percent of markets posted quarterly rent growth and more than 85.0 percent of markets have displayed consistent rent increases over the past four quarters. A gap of another 15 to 18 months until the next cycle of developments deliver in late 2015 will yield consistent rent growth exceeding 13.0 percent around the country through the end of While tenants will face rent increases in nearly all segments of the market moving forward, the greatest opportunity for leverage remains with more price-sensitive tenants in the Class B segments of the market, particularly in the suburbs, as well as CBD buildings that will undergo repositioning efforts as the rent discount in those repositioned Class A buildings compared to new development will likely be in the 7.0 to 12.0 percent range. Construction continues to increase, and not just in core markets Supply constrains across the United States have prompted another quarterly increase in construction with a total of 71.2 million square of office space under development, which is 41.5 percent higher than this time last year, equating to roughly 25 Empire State Buildings under construction. The total development under way is expected to grow yet again as a number of proposed developments break ground over the next six to nine months across markets. Importantly, a majority of development is now speculative rather than build-to-suit (BTS), signaling both improving sentiment in not only the office sector, but also the overall economy. Different from prior periods, some of the increase in construction is coming from outside of the BTS-heavy markets such as Houston, Dallas, Silicon Valley and Boston. Unlike the previous cycle, however, preleasing is strong: Only 45.8 percent of space under development remains available. Large preleases from tech, energy and creative companies such as Salesforce, Comcast, ConocoPhillips, Google, State Farm, LinkedIn and Coach, among others, may temper potential oversupply concerns and keep rent growth extended through late 2016 and early 2017, when the overall office market is likely to peak. This will coincide with the delivery of some of the larger blocks of available space currently under construction from developments such as 609 Main Street in Houston, Wilshire Grand in Los Angeles and 151 N Riverside Plaza and 444 W Lake Street in Chicago; these alone contain more than 2.9 million square feet of vacant space. The approximately two-year delay between groundbreaking and delivery for mid-size projects means that developments that begin in the fourth quarter of 2014 and early 2015 will come to the market at a similar time. Future supply additions and how much of the proposed pipeline will begin construction during the current cycle, will be determined based on prevailing macroeconomic factors and lenders increasing willingness to start projects on a speculative basis, escalating construction costs, and currently low interest rates, which will certainly uptick ahead. JLL United States Office Outlook Q

7 Looking ahead: a. U.S. GDP levels are forecasted to grow by 3.0 to 3.5 percent in 2015 and 2016, driven by an energized corporate and consumer. This will trickle down into an increased expansion of leasing momentum across the office sector. b. The market will move from an environment that absorbed +/- 0.8 percent to 1.0 percent of inventory levels annually over the past few years to a market that likely hits the 1.2 percent to 1.5 percent levels over the next 24 to 30 months, on par with highs experienced in the past couple of cycles. c. Vacancy levels in many CBDs will approach single-digits over the next two years with overall U.S. levels expected to dip below 15.0 percent by the early part of d. JLL forecasts over the next 27 months call for rent increases nationally of 13.0 to 14.0 percent, driven largely by a new wave of developments delivering, priced at 20.0 to 25.0 percent premiums, which will trickle down to reset market pricing. e. Exactly half of all markets are now posting under construction levels equating to 1.0 percent of inventory levels. With many developers increasingly thinking about commencing construction on proposed sites, the market over the next 36 months will likely shift from an under-supplied market to an over-supplied one by late 2016, with many of the buildings that lead to the environment breaking ground over the next nine months. If this transpires, this will provide a shift in fundamentals from a landlord-favorable market to more of a neutral or tenant-favorable one. Geographies with substantial amount of construction under way already (Texas, Bay Area), could see momentum turn a year earlier for tenants. JLL United States Office Outlook Q

8 After a recovery high in Q2, Q3 demonstrated even more gains in occupancy, with 15.7 million square feet of net absorption Demand for creative office space is strengthening Class B in many submarkets across the United States Quarterly net absorption (as % of inventory) 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% YTD CBD Class B net absorption (% of inventory) 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 7.3% 5.9% 5.6% 4.7% 3.3% 2.6% U.S. average The rise of the Sunbelt: Los Angeles, South Florida, Phoenix and Atlanta bring Sunbelt share of absorption to near-tech levels As office-using employment increases by 212,000 net new jobs, vacancy declines to 15.9 percent Office-using employment (thousands) (%) NYC and DC (*excludes Midtown South) Tech markets (*includes Midtown South) Energy markets Sunbelt All other markets 2014 Office-using employment (thousands) 30,500 30,000 29,500 29,000 28,500 28,000 27,500 27,000 26,500 26, % 18.5% 18.0% 17.5% 17.0% 16.5% 16.0% 15.5% 15.0% 14.5% (%) 4.8x as much Trophy and Class A space has been absorbed than Class B and C during the same time period from Trophy and Class A net absorption m.s.f Class B and C net absorption 26.7 m.s.f Lack of CBD quality keeping average rents in-check, while suburban segments record 2.0 percent or more Average asking rents ($ p.s.f.) $55.00 Class A (CBD) Class A (suburban) Class B (CBD) Class B (suburban) Class C (CBD) Class C (suburban) $45.00 $35.00 $25.00 $ Yet, quarterly Class B absorption over the past four quarters is taking place 3.4x faster than from 2010 to Q3 Class B net absorption (s.f.) 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, ,658 s.f. per quarter 14,049,878 3,172,248 s.f. per quarter 12,688, Q3 Past four quarters Year-to-date construction starts are 53.5 percent higher than, a clear sign of improving economies, driven by Texas Construction starts (s.f.) 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000, ,843,789 18,490,244 17,558,896 22,251,850 34,154, YTD 2014 Source for all above: JLL Research JLL United States Office Outlook Q

9 United States overall office clock Reading the 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 landlordfavorable, while markets on the right side of the clock are typically tenant-favorable. While overall metro totals reflect a quarterly rental rate increase of just 0.1 percent, the slowdown in rent appreciation in many cases is the result of declining availability of high-priced, Class A space rather than declining demand, most noticeably in CBDs. With year-to-date net absorption in the Class A segment of CBDs already more than two times higher than this time last year at 11.5 million square feet versus 3.4 million square feet there are simply fewer high-priced options on the market today. Conversely, Class A absorption in suburban markets is actually 10.0 percent lower than this time last year, but new deliveries total more than 12 million square feet versus the CBDs 3.5 million square feet. Despite flat rent growth overall, individual CBD and suburban segments of Boston, Silicon Valley, Milwaukee and Oakland recorded quarterly increases in excess of 3.5 percent a testament to the geographical diversity of the economy s recovery. As economic expansion intensifies in markets across the country and ignites further occupier growth and development activity, it s expected that this slowdown in rent growth will actually begin to reverse as markets move upward along the clock. Houston, San Francisco, San Francisco Peninsula, Silicon Valley Dallas relative to its position at the bottom of the clock, is also a reflection of the unwavering premium commanded for the country s top-tier office markets. The minimal increase in overall rental rates has resulted in equally minimal changes to concessions, but the shifting balance in conditions over the next four years will likely result in a reduction in both tenant improvement (TI) allowances and free rent, although rising construction costs across the country could actually keep TI allowances elevated to offset out-of-pocket costs for tenants. As growth industries like technology, financial and professional business services make bigger plays in more markets across the country and office-employment gains continue to take hold, markets in the rising phase of the real estate cycle will continue to see rental rates increase as market fundamentals tighten upon increased landlord confidence. Additionally, the imbalance of new construction between CBDs and suburbs, with suburbs capturing nearly 57.0 percent of current activity, may give way to further tightening in CBDs as demand increases. Nonetheless, it is a certainty that rents will continue to rise over the next 12 to 18 months across the vast majority of markets. Peaking phase Falling phase Although markets across the country are seeing improvements in officeemployment and signs of expansion among local tenants, more than 55.0 percent, or 33 million square feet, of all leasing activity occurred in just 10 markets. Unsurprisingly, many of those 10 markets also recorded the highest average annual asking rate. New York, the San Francisco Bay Area, Washington, DC and Los Angeles top the list of highest rental rates in that order, although the difference in New York s rate is almost twice that of Los Angeles at $64.91 per square foot versus $33.78 per square foot, highlighting the deep variance in economics despite their relative position on the office clock. Additionally, Washington, DC s cost, Austin, Pittsburgh, Seattle-Bellevue New York, Portland Boston, Miami Denver, Los Angeles, United States Fort Lauderdale, Kansas City, Orange County, Salt Lake City, Tampa Atlanta, Fairfield County, Indianapolis, Jacksonville, Phoenix Cleveland, Minneapolis, Raleigh-Durham Charlotte, Detroit, Milwaukee, Oakland- East Bay, Philadelphia, Richmond, San Diego Chicago, Cincinnati, San Antonio, St. Louis, Westchester County Baltimore, Hampton Roads, Long Island, Sacramento Rising phase Bottoming phase New Jersey Columbus, Orlando, Washington, DC, West Palm Beach JLL United States Office Outlook Q

10 United States CBD office clock Midtown South (New York), San Francisco Peaking phase Falling phase Austin, Houston Miami, Portland, San Jose CBD, Seattle CBD Boston, Pittsburgh Denver, United States Fort Lauderdale, Greenwich CBD, Midtown (New York) Atlanta, Jacksonville, Philadelphia, Tampa Chicago, Downtown (New York), Indianapolis, Minneapolis, Stamford CBD Salt Lake City Charlotte, Cleveland, Detroit, Kansas City, Los Angeles, Oakland CBD, Raleigh-Durham Dallas, Milwaukee, Orlando Cincinnati Phoenix, Richmond, San Antonio, Washington, DC, West Palm Beach Rising phase Bottoming phase United States suburban office clock St. Louis Baltimore, Sacramento Columbus, San Diego, White Plains CBD Silicon Valley Dallas Cambridge, Houston, San Francisco, San Francisco Peninsula Peaking phase Falling phase Bellevue CBD Suffolk County (Long Island) Pittsburgh Los Angeles Austin, Kansas City Boston, Phoenix Orange County, Richmond, Salt Lake City Denver, Indianapolis, Portland, Nassau County (Long Island), Tampa, United States Cleveland, Fairfield County, Jacksonville, Miami, Milwaukee, Seattle-Bellevue, St. Louis, Westchester County Atlanta, Baltimore, Charlotte, East Bay, Fort Lauderdale, Lehigh Valley, Philadelphia, San Diego Chicago, Cincinnati, Detroit, Minneapolis, Oakland, Raleigh-Durham, Sacramento, San Antonio, Southside (Hampton Roads) Peninsula (Hampton Roads) Rising phase Bottoming phase Southern New Jersey Orlando, Washington, DC Northern and Central New Jersey West Palm Beach Columbus, Northern Delaware JLL United States Office Outlook Q

11 United States economy Over the course of 2014, the U.S. economy has demonstrated notable signs of growth across geographies, sectors, industries and indicators. During the third quarter, activity and gains have ramped up, moving even farther away from the few markets that had for the most part driven economic growth. The current recovery is now more diversified by most measures, and the majority of indicators are consistently pointing up rather than faltering. There are still potential shocks to the system stagnation in the Eurozone, conflicts in the Middle East and recent political protests in Hong Kong although more robust and solid growth seen recently may help to insulate the U.S. economy somewhat from external geopolitical issues. Among metrics, confidence is growing considerably. The consumer confidence index reached a recovery high of 93.4 points in July, and while dropping somewhat in August, remains strong at 86.0 points. Since bottoming in 2009, the consumer confidence index has more than tripled, and is expected to improve further heading into Still, this is below earlier peak levels, and confidence needs to grow considerably to reach its 2007 high of points, but these improvements mirror gains in other fundamentals. From the corporate side, the ISM index is also ramping up to pre-recession levels, suggesting more expansion within the manufacturing industry, a sector that was inconsistent earlier in the recovery. This confidence is finally beginning to translate into organic growth in the office sector. Investor sentiment in markets has only risen throughout the year, and particularly in the third quarter. Expansionary and new-tomarket activity that is gradually reducing vacancy has improved the viability of new investment, not only in the form of new construction, but also in repositioning second-generation assets, as well as tenants proactively looking for space, while factoring in the potential for increasing hiring in the near future. Job creation is occurring throughout industries and metros at more sustained rates Since the beginning of the year, the U.S. economy has added roughly 1.9 million jobs, of which 30.3 percent have been office-using. Although office-using jobs represent only around one-fifth of total employment, their share of growth has gradually decreased as other sectors begin to reap the benefits of a diversifying recovery, but made a comeback in September. Construction employment over the past year has risen by 230,000 jobs, or 3.9 percent, as sustained momentum in the housing market becomes more apparent throughout the country. Similarly, 5.9 percent job growth in mining and logging and 9.5 percent year-onyear gains in information are reflective of the continued strength of the energy and tech sectors. More importantly, however, has been the rapid increase in job creation across almost all geographies throughout the United States. Outside of Texas, employment is increasing in Raleigh-Durham (+4.7 percent), South Florida (+3.3 percent), Denver (+3.2 percent), Portland (+3.1 percent) and Charlotte (+3.0 percent), among markets. Secondary, and even, tertiary markets, have been solid performers in recent months and quarters and are significantly outperforming the national average across subsectors. Many of these metros are benefiting from the relocation of back-office jobs to lower-cost markets as a means of cost-cutting and has led to even more efficiency in core markets. Law firms such as White & Case recently opened up a back-office business center in Tampa, while Orrick and Wilmer Hale have employed variations of such relocations in the past, but continue to grow those headcounts in West Virginia and Ohio, respectively. Major financial firms such as Deutsche Bank and Goldman Sachs are also expanding satellite offices in Jacksonville and Salt Lake City, respectively, which offer lower costs of labor, occupancy and living, and overall satisfaction from employees. While labor conditions are improving, there are still structural concerns in the longer term. Office-using jobs, whose growth has largely been driven by professional and business services (PBS), have slowed in both actual and percentage terms for a variety of reasons. Additionally, temporary help services is still a major contributor to PBS gains; despite improving corporate confidence, employers are still wary to some degree of longterm hiring more so than during the previous cycle. Of the 639,000 PBS jobs gained over the past year, slightly more than one-third have been temporary. For corporates, some of these indicators point to potential labor saturation, as the white collar unemployment rate continues to encroach on 3.0 percent. On the other hand, labor force participation remains in freefall and currently rests at a record low of 62.8 percent. Over the past two years, it has declined by 70 basis points with very few months posting an increase. Additionally, teleworking, growth in selfemployment and startups and incubators are all changing the nature of workplaces, but may not be fully counted in current methodology. Despite a blip earlier in the year, output forecast looking up GDP grew by a healthy 4.6 percent during the second quarter to $17.3 trillion, increasing by $284.2 billion from the first quarter and easily countering the previous period s drop-off. Year-on-year, output has JLL United States Office Outlook Q

12 grown by almost 4.3 percent, or 2.4 times faster than the labor market. With the exception of government consumption, most components of GDP are firmly in recovery mode and contributing to the gains seen of late. Business investment was by far the largest contributor to this growth at 2.9 percent, boosted by a surge in private inventories and the equipment segment of nonresidential investment. As with hiring growth, business investment is an important contributor to the improvements seen in the office sector in recent months. Driving improvements in GDP has been personal consumption expenditures. By far the largest piece of national output, personal spending has always been a net contributor to change in real GDP since the first quarter 2010 and will remain so for the foreseeable future. Across the board, consumer spending is up year-on-year, from motor vehicles (+7.4 percent) to food services and accommodation (+5.2 percent) to health care (+3.8 percent). This is reflected in growing, albeit somewhat unsteady, consumer confidence, which month-after-month now scores above 85.0 points. As mentioned earlier, domestic private investment is shining, jumping a whopping 9.6 percent in the past 12 months as companies put increasing amounts of capital into equipment, software and other intellectual property products. Residential investment is also on the rise, with an additional $35.3 billion over the year. Much of this activity has occurred due to interest rates still near record lows, as corporate bond issuance will likely surpass a record, which saw $1.4 trillion in bonds issued. On the other hand, government consumption at federal, state and local level is holding back GDP from growing at even greater rates. Since 2011, government contributions to GDP growth have averaged -0.4 percent due to a combination of spending freezes and lack of clarity surrounding future budgeting. Washington, DC in particular has seen its office market suffer from having no clear federal guidance: in 2014 alone, occupancy losses have totaled 2.1 million square feet, compounded by rising vacancy and concessions as landlords fight for tenants who are largely renewing in shorter terms due to the uncertainty around contracts and hiring. A light at the end of the tunnel? More and more indicators are positive Outside of employment and output statistics, indicators across segments have confirmed the stability of the recovery. Corporate profits stand near record levels after a sharp drop during the first quarter and currently rest at $2.1 trillion. As with other segments of the economy such as employment, non-traditional sectors are catalyzing growth. Non-financial firms reported year-on-year gains of 16.1 percent as tech, media and other creative companies remained at the forefront of IPO and venture capital activity: information-related corporate profits have bounced 24.7 percent since the second quarter of, for instance. During the same time period, financial firms witnessed corporate profits fall by $11.0 billion, or 2.1 percent. Even so, companies are sitting on large sums of cash, which may potentially be used to invest even more in the private sector as the economy expands further. the housing market, particularly in core, multifamily property, but many markets still have somewhat of an oversupply from the previous cycle. This has become a benefit, as many companies actively seek lower-cost options for their current or new employees. Investors are taking advantage of lower interest rates and the rising sentiment to start construction on new units. Year-to-date, 689,800 units have been authorized, a 3.9 percent increase compared to this time last year. As has been the case throughout this construction cycle, multifamily is disproportionately adding to new units, representing more than one-third of new starts throughout 2014 and 13.6 percent higher in terms of starts than year-to-date. The ability for multifamily starts to occur 3.5 times faster than the overall market is due to a combination of higher oversupply of single-family homes throughout the United States, a marked preference for multi-unit buildings and residential development in core submarkets, which continue to post high occupancy rates. This trend will likely continue until the market reaches equilibrium in regard to single-family housing. Overall, an upbeat intro to the end of 2014 and into 2015 We expect that market conditions will continue to firm up going into the fourth quarter of 2014 and entering The U.S. economy s expansion in numerous geographies and industries has been much greater over the past three months than at any point during the recovery, which is in turn helping tighten the office market. Confidence is key: as corporates have a more positive outlook through the next few years, they will be able to invest cash into their business, as well as being able to fund permanent rather than temporary employees. More employment is leading to greater personal spending, improved tax receipts for the federal government and greater demand for goods and services, all of which will benefit GDP and help federal and state fiscal issues to a degree. The economic forecast is not completely rosy as there are still structural issues that need to be addressed for a more comprehensive and holistic recovery to take place. Lower workforce participation, a total unemployment double the official rate of 6.1 percent and the transition into digital operations previously done by hand all present challenges for the economy to overcome. That said, our outlook is more optimistic entering the last three months of 2014 than at any other point in the recovery, and we expect growth to come from an even greater number of geographies and industries than it is now over the coming years. As a result, the office market will see higher tour velocity, leasing activity, asking rents and construction as vacancy and space options decline. The housing sector remains below-average, but is still growing in segments. The Case-Shiller Index, which measures home sale prices, is slowly recovering from its severe depression in the late 2000s. Since bottoming in early 2012, the index is up 23.4 percent, but is 17.9 percent below its previous peak. Tightening conditions do exist in many parts of JLL United States Office Outlook Q

13 After consistent monthly gains of more than 200,000 jobs, employment growth has slowed somewhat 1-month net change (thousands) month net change Unemployment rate 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Unemployment rate (%) Corporate bond issuance on track to surpass a record as companies take advantage of record-low interest rates Corporate bond issuance ($ billions) $1,600.0 $1,400.0 $1,200.0 $1,000.0 $800.0 $600.0 $400.0 $200.0 $0.0, Bureau of Labor Statistics Total job openings are approaching 2.7 million, a seven-year high Job openings (thousands) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, , Bureau of Labor Statistics GDP is likely to see a boost at the end of 2014 and into 2015, but growth will probably remain below pre-recession rates Annualized % change in real GDP 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% GDP growth will remain in the ~3.0% range over the next five years, Bureau of Economic Analysis, Oxford Economics Both ISM indices are on the upswing at near-peak levels, suggesting momentum in business expansion, SIFMA M&A activity is also on track to exceed levels; recovery has seen $3.3 trillion in mergers since 2010 $1,600.0 Q M&A volumes already $1, percent $1,200.0 of levels $1,000.0 $800.0 $600.0 $400.0 $200.0 $ , Mergermarket (YTD) Domestic M&A activity ($ billions) A tale of two sectors: personal consumption expenditures drive GDP growth, while government is pulling it down Contributions to % change in real GDP 4.0% 2.0% 0.0% -2.0% Government consumption and investment Personal consumption expenditures -4.0% , Bureau of Economic Analysis 1.4% 2011-present average PCE contribution -0.4% 2011-present average government contribution Although dropping slightly in August, consumer confidence remains at recovery highs, but below pre-recession peaks ISM Index Manufacturing Non-manufacturing Consumer confidence index , ISM, Conference Board JLL United States Office Outlook Q

14 United States office capital markets Volatile global markets not enough to slow down investment sales activity during third quarter The recent economic and geopolitical tensions in Europe, the Middle East and Hong Kong have not been enough to slow down the pace of overall investment sales volume growth during the third quarter, as most property sectors experienced robust trading activity and posted doubledigit annual increases. Real estate fundamentals continue to tighten and a steadily improving domestic economy still adds to the momentum of the essential recovery from the leasing side. The overall U.S. economy continues to grow, exemplified by an upward revision to last quarter s GDP. Meanwhile, the cyclical recovery continues to broaden and strengthen across a greater number of geographies, prompting more real estate investment trades among the various property sectors. Specifically for the office sector, trading activity remained robust. Based on preliminary totals, estimated sales volume for office transactions nationally came in above $36 billion during the third quarter. This represents a continued upward trajectory with volumes reaching the highest third quarter level since the 2007 peak year. For the third quarter and year-to-date through the end of September, office investment sales activity is tracking annually at over 49.0 percent and 38.0 percent, respectively. We attribute this strength partly to significant office property sales in major gateways, particularly as trades in New York, San Francisco and Boston helped hold primary market share steady at 60.0 percent for the quarter. Despite any volatility that may be experienced during the fourth quarter, we expect the momentum to continue through year-end and estimate growth in office investment sales volume to likely come in the 20.0 to 25.0 percent range. Both the further broadening of secondary market activity and increased foreign capital flows to the real estate asset class could provide potential upside. Continued strength in New York, San Francisco driving primary CBD volumes New York and San Francisco continue to demonstrate signs of growth, with the markets collectively accounting for 38.3 percent of investment sale volumes in the third quarter. In the largest deal of the quarter, David Werner acquired 150 E 42nd Street in the Grand Central submarket of New York from Japan-based Hiro Real Estate for $900 million, or $563 per square foot. The largest buyer of the quarter, Blackstone, made big buys in both markets. The firm acquired 65 E 55th Street in Midtown Manhattan and One Market Plaza in the San Financial District of San Francisco from Shorenstein and Morgan Stanley, respectively. These transactions comprise three of 18 transactions, larger than $200 million, which collectively drove 44.0 percent of investment sales activity nationally this quarter. As a result, continued investment sale gains in San Francisco, Boston and New York are driving primary CBDs to see year-over-year growth of 25.0 percent this quarter. These markets are seeing select core Class A assets trade at sub-4.0 percent cap rates. San Francisco, notably, has seen the highest growth in 2014 with the market transacting 9.5 percent of its CBD inventory alone this quarter. However, this trend is not exclusive to the technology hub; secondary CBDs Minneapolis, Indianapolis and Raleigh-Durham additionally saw high turnover this quarter as a result of large transactions, evidenced in CBD turnover rates of 9.8, 9.1 and 8.4 percent, respectively. Germanybased Union Investment Real Estate acquired 50 S 10th Street in Minneapolis, Nightingale and Zeller Realty made opportunistic acquisitions in Indianapolis and Highwoods acquired One Bank of America Plaza in Downtown Raleigh. Suburban liquidity expanding in select secondary markets While select secondary markets are seeing high turnover rates in their CBDs, secondary CBD transaction volumes are down 6.9 percent yearover-year this year. As a result, market gains are being driven by increased suburban activity. While primary markets have driven 66.3 percent of suburban transaction volumes over the past four quarters, the secondary suburbs edged out the primary markets for the first time postrecession, demonstrated by $3.7 billion of trades accounting for 54.0 percent of national suburban deal flow. Fifty percent of this was driven by activity in the Atlanta, Orlando, New Jersey, Raleigh-Durham and Austin suburbs. Piedmont and Atlanta Property Group acquired properties in the Central Perimeter submarket of Atlanta, AEW acquired Southpark Center I & II a 12-building, 1.6 million-square-foot suburban complex in Orlando and Vision Properties acquired 1 Meadowlands Plaza from KBS for $257 per square foot in New Jersey. America s Capital Partners, Hines and Cornerstone additionally were active in this segment this quarter. Healthy lending environment remains supportive of real estate markets, even with end of QE on the horizon Even as the Federal Reserve is expected to wind down by the end of October its remaining $15 billion for the current asset purchase program in place, the 10-year Treasury yield has remained relatively stable, closing in at 2.48 percent by the end of September compared to 2.53 JLL United States Office Outlook Q

15 percent the end of June. Credit spreads, while still tightened, have only increased modestly since the end of the second quarter. During the third quarter, highly rated AAA CMBS spreads widened by just eight basis points, coming in at 83 over swap (still down from 90 at the beginning of 2014). All in all, new CMBS issuance has gained momentum and experienced its busiest month in September since In total, new issuance volume of $28 billion and $69 billion for third quarter 2014 and year-to-date through the end of September, respectively, surpasses the $17 billion and $61 billion for the same year-ago periods. Healthy levels of new issuance continue to fund office investment activity. As overall Treasury yields, credit spreads and interest rates remain historically low, we can expect the cost of capital to remain favorable across all lending categories, with competitive product being offered surrounding any volatility and still supportive of real estate markets. Expect investment sales market to remain on par with leasing market As we move further along into the recovery, the U.S. economy and office sector continue to show consistent and steady growth across a greater number of geographies and industry sectors. Along the way, both domestic and international investors are taking note of this growth and are increasingly actively trading in both primary and new secondary markets. Given steady rising economic growth prospects that we expect to still outweigh any near-term market volatility, coupled with the added support of a favorable lending environment, we remain optimistic and expect both investment sales and leasing momentum to continue across an expanding number of U.S. geographies. JLL United States Office Outlook Q

16 U.S. office transaction volumes up 49 percent in Q3, and 38 percent YTD; expect continued strength for Q Total transaction volume ($ billions) $210 $180 $150 $120 $90 $60 $30 $ * Q1 Q2 Q3 Q4 Q Projection, Real Capital Analytics Estimated Q Increase: 49% Projected 2014 Full-Year Increase: 20%-25% Large deal flow heavily concentrated in NYC, SF San Francisco: $1.7b / 4 transactions Los Angeles: $0.2b / 1 transaction Chicago: $1.1b / 2 transactions Boston: $0.6b / 1 transaction New York City: $3.5b / 8 transactions Charlotte: $0.2b / 1 transaction Orlando : $0.3b / 1 transaction Transaction volume activity remains strong in primary markets YTD, with San Francisco and Boston significantly ahead of last year levels $25,000 $20,000 $15,000 $10,000 $5,000 $0 Manhattan San Francisco Boston Los Angeles Chicago DC Dallas Houston San Jose Atlanta Denver Philadelphia Northern NJ Seattle San Diego Minneapolis Phoenix Miami Austin Charlotte, Real Capital Analytics 2012 YTD 2014* Canadian REITs and pension funds, and SWFs out of Norway and Hong Kong have been most active during first nine months of 2014 High sales velocities in CBDs driving select markets to see high downtown sales as a percentage of inventory this quarter 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 9.8% 9.5% 9.1% United 8.4% States: 6.9% 1.9% 5.6% 5.4% 5.4% 4.9% 4.7% 3.9% 2.1% 1.9%, Excludes markets which saw less than 2 trades this quarter Activity in secondary suburbs reaches post-downturn high with $3.7b of trades in the third quarter, relative to $3.1b in primary markets Source of capital Volume in $US Bil. # of properties Canada $ Norway $ Hong Kong $ Singapore $ China $ South Korea $ Germany $ Israel $ Japan $ Other $ Total $ , Real Capital Analytics Market destination Volume in $US Bil. # of properties Manhattan $ Boston $ Los Angeles $ DC $ San Francisco $ Chicago $ Houston $ Dallas $ Denver $ Other $ Total $ % 80% 60% 40% 20% 0% 33% 35% 30% 34% 39% 32% 54% 67% 65% 70% 66% 61% 68% 46% Q1 Primary Q2 Q3 Secondary Q Q Q Q3 Most active suburban markets: Atlanta, Orlando, New Jersey, Raleigh, Austin New CMBS issuance of $28 billion for Q and $69 billion YTD, surpasses $17 billion and $61 billion for the same respective periods a year ago US $ billions $100 $80 $60 $40 $20 $0 $86 $17 Q3 $61 YTD, Commercial Mortgage Alert $28 Q $69 YTD 2014* Five most active suburban markets accounting for nearly 50.0 percent of national suburban investment sale activity Suburban investment sale volumes ($) $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $0 Class A Class B JLL United States Office Outlook Q

17 Local United States office markets JLL United States Office Outlook Q

18 Atlanta - Ryan Harchar Senior Research Analyst, Atlanta New deliveries set the bar for future office development After four years of stagnant new supply to Atlanta s office market, third quarter will be the last period of this prolonged dry spell. Three projects worth of new and redeveloped space will all deliver over these last months of the year. Ponce City Market, Buckhead Atlanta and Avalon s 5000 & 6000 are just under 80.0 percent preleased, and will contribute significantly to year-end absorption figures. All mixed use, these properties offer tenants a unique set of amenities and represent a departure from prototypical multitenant office buildings in the city. We expect this approach to both inform future office design and the leasing successes to underwrite the same. Total square feet expected to deliver in fourth quarter 788,000 s.f. Three office developments to deliver in fourth quarter, following a four-year dry spell Space options are increasingly limited; demand is strong Active tenant requirements for space in the city remain robust, currently totaling approximately 7.4 million square feet. Other indicators of demand have proven equally positive, especially in the Buckhead, Central Perimeter and North Fulton submarkets. Contrast this activity against a remarkably limited number of quality large block availabilities, and combined with a nascent development cycle, one can understand why landlords are feeling confident. Expect asking rental rates to continue ratcheting up in response. Class A large block availabilities Northwest Midtown Downtown Central Perimeter Buckhead North Fulton Northeast *Contiguous blocks 50,000 s.f. and greater Small leases drive activity over the quarter Smaller firms, many within the health care and professional business services sectors, were responsible for a majority of leases signed during the period. As the economy improves, we re seeing more scenarios of smaller tenants vacating temporary office space, opening regional offices, and striking out on their own to start new ventures underscoring confidence felt at the grass roots level of Atlanta s business community. Also contributing to recent small deal activity are several expansions by larger firms requiring additional space another indicator of future office demand. Leasing volume by tenant size 15.2% < 15,000 s.f. 29.8% 15,000 to < 25,000 s.f. 21.5% 25,000 to < 50,000 s.f. 50,000 to < 100,000 s.f. 14.9% 18.6% 100,000 s.f. 19.8% 2,016, , % 788, % JLL United States Office Outlook Q

19 Austin - Brittany Maki Research Analyst, Austin Tenant demand pushes vacancy rates to historic lows Intense demand from tenants has pushed downtown vacancy rates to historic lows. With Class A vacancy approaching 5.0 percent, and Class B space vacancy levels just above 3.0 percent, the lack of availability in downtown Austin has not been this low in more than a decade. New construction in the CBD is set to deliver almost one million square feet this year, representing an 11.0 percent increase in the CBD office inventory. However, almost 90.0 percent of this new construction is already spoken for, spurring a trend toward creative reuse. CBD vacancy rate 30.6% Drop in CBD vacancy since Q New wave of development on the horizon With the leasing success of the buildings currently under construction, a new wave of development is undoubtedly on the way. However, Austin s long permitting process and environmental barriers to entry create long lead times for new construction. Of all the proposed new developments downtown, the two most likely candidates to come out of the ground are Green Water, a mixeduse project anchored by a 490,000-square-foot office tower, and 5th & Colorado, a smaller office tower with 19,000-square-foot floor plates totaling approximately 179,000 square feet. Inventory under construction ,875,800 1,470, , , , ,000,000 2,000,000 3,000,000 4,000,000 Large blocks remain limited with no relief in sight Large blocks of space to accommodate growing companies are few and far between. Tightening vacancy and rising costs downtown have pushed companies seeking large blocks and expansion options to the suburbs. However, the battle for talent is fierce, and being downtown is a competitive advantage for recruitment and retention. As a result, we are beginning to see urbanized, mixeduse projects that re-create a downtown atmosphere, with walkable amenities, entertainment and housing options, notably in the techheavy Northwest submarket. Contiguous blocks > 25,000 square feet 2 2 Central Business District Cedar Park 2 Central 4 4 East Far Northwest North/Northwest Northeast 12 South/Southwest Southeast 11.6% Total market wide vacancy 460, , % 2,875, % JLL United States Office Outlook Q

20 Baltimore - Patrick Latimer Senior Research Analyst, Baltimore Tenants look across submarkets as large blocks dwindle Ongoing flight to quality, coupled with limited speculative development over the past two years, has resulted in only 12 Class A vacant blocks larger than 50,000 square feet, which were primarily concentrated in Harford County and Owings Mills. With only five large Class A blocks in Columbia and Anne Arundel County, tenants have increasingly looked outside their current submarkets when searching for options. The trend has benefited the Baltimore City market, where two relocations larger than 50,000 square feet from the southern suburbs have landed recently. Vacant Class A blocks > 50,000 square feet 2 1 Baltimore City 3 Northwest Baltimore County Harford County 3 BWI North 1 3 Columbia BWI Anne Arundel Select submarkets see appreciable rental rate growth While overall rental rate growth for Baltimore was flat, the upper segments of the market have seen significant growth. Across Columbia and the I-83 Corridor, market dynamics have moved in favor of landlords with vacancy for Class A space falling below 10.0 percent. As tenants have increasingly put a premium on walkable and nearby amenities, Columbia Town Center has emerged as a leader with vacancy at just 6.9 percent and Class A rental rates posting nearly an 8.0 percent gain over the past year. Annual Class A asking rental rate growth of select submarkets Harford County -3.3% CBD -0.5% Baltimore City Southeast 1.2% I-83 North 3.5% Columbia Town Center 7.9% Columbia South 3.5% -6% -4% -2% 0% 2% 4% 6% 8% 10% Development pipeline cautiously increases After falling to zero in the second quarter, construction activity increased with limited speculative development outside of the area immediately surrounding Fort Meade. The pipeline, however, is still well below the 10-year average of 1.3 million square feet. In Baltimore City at Exelon s new headquarters building at Harbor Point, Beatty Development cut back the number of speculative floors to just two, totaling approximately 50,000 square feet. The move is indicative of the hesitation by developers to move forward on construction without preleasing. Construction activity ticks upward, but still below historical norms 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 2,478,621 2,153,451 1,822,141 1,314, ,419 1,041, , , , % 829,449 11, % 793, % JLL United States Office Outlook Q

21 Boston - Lori Mabardi Vice President, Research, Boston Strong total absorption across market Third quarter absorption eclipsed 1.2 million square feet, bringing yearto-date levels to multiyear highs (2.5 million square feet in total absorption). What is particularly interesting about these levels is that they are equally spread between the CBD and the Suburbs (particularly the Fortress markets 128/MP). Cambridge saw the lowest level of absorption this quarter because of the dwindling availability. Cambridge demand well outpaces available options and thus, average asking rents continued to rise at 2.0 percent over the quarter and 7.9 percent yearover-year as landlords maintain a bullish outlook. Average asking rents, by region $60.00 CBD Cambridge Suburbs $50.00 $40.00 $30.00 $20.00 $ Sales activity: buyer composition evolving Foreign investors continue to have an eye for Boston s CBD. Oxford Properties closed on their five-asset portfolio and already have 100 High under agreement to CBRE Investors. Norges Bank made a splash in the CBD as they announced that they will own 45.0 percent of Atlantic Wharf and 100 Federal with Boston Properties. This follows their purchase of One Beacon Street with MetLife, in July. In the Fortress markets (Burlington/Waltham), well-leased properties garnered a lot of attention this quarter by local buyers, and value-add sales took place along the Route 3/495 corridor. Buyer composition, Greater Boston 100% 80% 60% 40% 20% 0% 2014 (YTD), RCA Institutional Cross-Border Public Listed/REITs Private User/Other Development activity: The renovation story counts too JLL is tracking nine projects under way, totaling 2.3 million square feet in new construction, and just two of those projects are speculative (in Cambridge and Burlington) and are on the smaller side. But the renovation pipeline tells a different story. Of the seven projects accounting for 1.1 million square feet of buildings we are tracking that are undergoing significant renovations, six are repositioning their building on a speculative basis. When we merge the new and renovation story, just 55.5 percent of space is preleased, indicating that speculative development is here, but hiding within existing shells. Number of BTS vs. speculative projects 10 BTS Speculative New development Rehab/renovation 14.9% 2,549,446 1,153, % 2,249, % JLL United States Office Outlook Q

22 Charlotte - Taylor Allison Research Analyst, Charlotte Investment sales driving capital to the market Demand from investors has been the main driving force in an otherwise tepid summer in Charlotte s office market. As leasing transactions tapered, office investment sales transactions generated $520 million in new capital for the region in the month of August alone. Nine separate office investment sales occurred this quarter, with Fifth Third setting a Charlotte record in price per square foot. YTD Office Investment Sales comparison $- $162,702,576 $122,924,204 $233,326,287 $684,648,500 $710,252,643 $987,948,544 $1,072,836,000 $- $500,000,000 $1,000,000,000 $1,500,000,000 Lack of available space spurring build-to-suits As interest in Charlotte continues to grow for out-of-market and expanding local tenants, large blocks of quality space have been nearly depleted in the Charlotte market. Because of this, Charlotte has seen a surge in build-to-suit transactions to accommodate tenants looking for substantial amounts of space. Just this quarter, LPL Financial, Lash Group, AvidXchange and Sealed Air Corp. have announced plans to move forward on build-to-suit projects, totaling more than 1,000,000 square feet. Large block availability 1 Block of space greater than 200,000 square feet Strong absorption in Airport and CBD Even with slow leasing activity, the third quarter saw substantial positive absorption in the Charlotte Airport and CBD submarkets. Airport s absorption was comprised of several 10,000- to 40,000- square-foot deals, meanwhile a large portion of the CBD s absorption came from Bank of America s decision to backfill the nearly 100,000 square feet of remaining space within Bank of America Corporate Center. Airport and CBD comprise 67.0 percent of third quarter absorption -8% 2% -5% 3% 4% 2%-4% 3% 39% 28% Airport CBD Midtown SouthPark Highway 51 / Ballantyne University Northeast I-77 Southeast Charlotte East Charlotte 12.3% 1,078, , % 240,000 0% JLL United States Office Outlook Q

23 Chicago (CBD) - Joe Klosterman Research Analyst, Chicago CBD Market conditions continue to tighten Leasing activity surpassed the 2.0 million threshold for the third consecutive quarter. Meanwhile, at 13.6 percent, vacancy is at a post-recession low and 1.8 percent from full recovery. The Central Loop, West Loop and East Loop experienced the bulk of absorption activity that triggered a 30-basis-point decline in vacancy. The overall average gross asking rent increased $0.54 to $33.84 per square foot with the Class A average increasing $0.60 to $38.41 per square foot and at the highest end of the market, Viewspace is commanding $40.18 per square foot. With the recent acceleration in leasing activity, we expect to see Chicago s CBD clock a trend of strong positive absorption in the coming quarters and into Q Total gross absorption by submarket (s.f.) 11,322 31, ,409 Central Loop East Loop 57, , ,635 River North South Loop River West West Loop CBD building sales continued to post solid gains Year-to-date sales increased to $2.2 billion, just 30.0 percent below the total sales volume for. In July, the sale of 300 N LaSalle closed and at $652 per square foot, the fully leased, amenity-rich Trophy asset broke the Chicago record for highest sales price. As a result, the current average price per square foot in Chicago s CBD is $291 this year, up 12.8 percent over. With a number of buildings under contract or on the market for sale, we see 2014 s forecasted annual sales volume surpassing s total of $3.3 billion. Total building sales volume - Chicago CBD $0.06 $1.1 $2.0 $2.2 $2.6 $2.7 $3.3 $3.3 $5.1 $ $ billions Tech continues to drive demand With nearly 75,000 high-tech service employees in Chicago and an 8.0 percent annual growth rate, it is clear that local tech firms are growing and as they do, they are requiring more space. Technology and information firms total 685,000 square feet of current demand in the market, 20.9 percent of estimated demand, surpassed only by law firms. Indeed, a number of the quarter s largest leases were for tech tenants, including Uber, which will be taking 58,000 square feet at 111 N Canal and 1871 and Matter, both of which signed leases at the Merchandise Mart for 26,000 and 25,000 square feet, respectively. High-tech services employment growth, year-over-year 18.0% 13.0% 8.0% 3.0% -2.0% 18.1% 13.6% 8.6% 8.0% 8.0% 6.5% 6.1% 5.7%, Bureau of Labor Statistics 2.4% -1.3% 13.6% 896, , % 2,785, % JLL United States Office Outlook Q

24 Chicago (Suburban) -Amy Binstein Research Analyst, Chicago Suburban Large lease transactions boost leasing activity Thanks to several large leases being finalized this quarter, suburban leasing activity grew to 1.6 million square feet, bringing the year-todate total up to 4.6 million square feet, already higher than s total. Among these large transactions was Zurich American Insurance Company s build-to-suit lease, which totaled 750,000 square feet. The insurance giant signed a term for 26 years, commencing in December of Besides Zurich, Houghton Mifflin Harcourt Publishing Co. signed a 106,000 square-foot lease at 1 Pierce Place in Itasca. The 12-year lease will begin in October 2015 when an estimated 340 employees will move from its current location in Rolling Meadows. Leasing activity ,622,256 4,507,842 6,708,869 5,548,651 5,152,813 3,593,939 6,821,411 6,879,909 8,649,579 9,229,396-2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 Large blocks keep vacancy elevated in select submarkets While overall suburban vacancy dropped 30 basis points this quarter, reaching its lowest level since 2008, certain submarkets are still inundated by large blocks of vacant space. In particular, the Western East-West, Northwest and North Lake County submarkets have a number of entire buildings that are vacant. Class A rents in these submarkets have remained flat, which will help attract tenants; however, as the economy picks up and landlords gain confidence, these rates may rise, as witnessed in other suburban submarkets. by submarket 26.1% 19.3% Eastern East-West Western East-West 22.8% 26.1% North Cook County North Lake County O'Hare 16.4% 28.7% Northwest Metro unemployment rate continues steady decline Chicago s local unemployment rate has been declining steadily the last two quarters and fell below the 7.0 percent threshold for the first time since November 2008 in August. Chicago s office-using sectors dominated hiring in the third quarter, hiring 55.6 percent of the 12- month total employment growth. While a majority of this growth has positively impacted the real estate market in the CBD, select companies in the suburbs are expanding: AbbVie, Latisys and AJ Gallagher are all adding new employees, while RestorGenex Corp and SKF Group both announced new headquarters in the suburbs during the third quarter. Metro Chicago s unemployment rate 6.8% 12.0% 10.9% 10.9% 10.0% 10.9% 10.1% 8.0% 9.6% 6.0% 6.7% 7.1% 4.0% 4.7% 5.4% 2.0% % 879, , % 0 0% JLL United States Office Outlook Q

25 Cincinnati - Cody Brooks Research Analyst, Great Lakes Demand shifts in favor of urban market Demand shifted in favor of Cincinnati s urban market during the third quarter, which saw nearly 35,000 square feet of net absorption. Meanwhile, the suburban market fell into the red, posting a loss of 13,000 square feet. The uptick in demand for the urban side can be attributed largely to a number of relocations and expansions from a variety of industries, including business and financial services, government and education all of which prize the urban market s centralized location and high volume of activity. Urban vs. suburban vacancy Urban vacancy Suburban vacancy 26.0% 23.2% 23.8% 23.9% 24.0% 22.6% 21.5% 22.0% 20.0% 22.3% 21.5% 21.3% 18.0% 20.2% 19.3% 16.0% Capital markets activity on the rise Capital markets activity remained lively through the third quarter; since the beginning of 2014, more than $1.0 billion in Cincinnati commercial real estate has been acquired, a rate which is on pace to match, or possibly beat, the pre-recession high of $2.2 billion sold in No longer local bargain shoppers, today s investors are national players and investment trusts, seeking solid performing assets. These buyers are attracted to Cincinnati s rising rental rates as well as declining vacancies. High-value transactions ($2.5 million and over) $M $377 $631 $1,000 $1,000 $218 $396 $949 $1,400 $1,500 $2,200 $0 $500 $1,000 $1,500 $2,000 $2,500 Construction activity heating up Construction activity has begun to increase across the Queen City as development figures through the third quarter now equal that of pre-recession levels. The urban submarkets have enjoyed the bulk of this activity as the continued revitalization and renewed interest of the CBD and Midtown have done much to spark interest from tenants and developers alike. Construction numbers are only expected to increase in the near future, particularly upon the commencement of GE s global operations center at The Banks, a $90.0 million development which will house 338,000 square feet of office space. Construction activity reaches pre-recession levels (s.f.) , , , , ,000 1,233,000 1,389,000 1,308,000 1,247,000 1,702, ,000 1,000,000 1,500,000 2,000, % 214,538 21, % 1,389, % JLL United States Office Outlook Q

26 Cleveland - Andrew Batson Senior Research Analyst, Great Lakes Leasing velocity holds steady through the summer months Law firm and health-related companies drove leasing activity through the nine months of 2014, comprising more than 55.0 percent of total square feet leased. During the third quarter, the largest lease completed downtown was by Brown Gibbons Lang & Company, a middle market investment bank, which relocated to 20,000 square feet at the Class A One Cleveland Center. In the suburbs, the largest lease was signed by the Hylant Group, a corporate insurance provider, which signed a renewal for 25,000 square feet at the Class B Freedom Square Two in the South submarket leasing activity by industry 6.2% 6.7% 7.1% 7.6% 9.4% 21.7% 33.7% Law firms Health care High-tech Other services Business services Financial services Manufacturing Media and entertainment Construction Government Investment sales streak continues, mostly downtown Capital markets activity surged in the third quarter, with a number of transactions involving out-of-town investors. After months of talk, the 615,0000-square-foot former Eaton headquarters at 1111 Superior Avenue downtown was officially acquired by American Landmark Properties. The property is estimated to have transferred in the $30 million dollar range. Also changing hands downtown was the 298,000-square-foot Leader Building at 530 Superior Avenue, which was acquired by the K&D Group for $5.4 million, or $18 per square foot. Office sales volume (millions) 2014 $60 $ $ $ $86 $0 $20 $40 $60 $80 $100 $120 $140 Construction still rampant, mostly redevelopment plays Construction crews has been bustling downtown over the last couple of years, ushering in a new convention center, several hotels and the first multitenant office building in two decades. Like many metros across the Midwest, Cleveland has also observed office to residential conversions as demand for urban living mounts. In total, more than a dozen Class B and C office buildings totaling more than 1.6 million square feet have been converted into residential. Over the course of the third quarter an additional 450,000 square feet of office space was identified for future residential conversion. Construction activity 1,600,000 s.f. Office space recently converted to residential 16.8% 9,729 11, % 57, % JLL United States Office Outlook Q

27 Columbus - Cody Brooks Research Analyst, Great Lakes Strong tenant demand driving rent growth Demand across the Columbus metro was distributed relatively evenly over the third quarter as the CBD posted net absorption gains of roughly 26,000 square feet, while the suburban submarkets enjoyed just under 36,000 square feet of net absorption. Absorption trends have alternated between the CBD and suburbs since the beginning of 2014, and with this quarter s even split, year-to-date net absorption in the CBD sits at 142,189 square feet while year-todate net absorption in the suburbs clocks in at 138,300 square feet. Vacancy by submarket cluster Northwest 14.7% North 11.9% Northeast 17.5% CBD 14.5% 0.0% 5.0% 10.0% 15.0% 20.0% CBD vacancy on the decline Columbus CBD continues to enjoy an increase in interest with vacancy falling nearly 200-basis points from a recession-high of 16.3 percent to its current level of 14.5 percent. Increasing demand and a shortage of Class A supply has sparked a number of new developments as just over 500,000 square feet of construction is currently under way in the CBD roughly 80.0 percent of which is preleased. CBD vacancy rate 22.0% 20.0% 18.0% 16.0% 17.5% 17.9% 14.0% 16.2% 16.3% 15.5% 13.8% 14.7% 15.1% 15.1% 12.0% 14.5% 10.0% Columbus economy firing on all cylinders Columbus employment levels remain a highly esteemed aspect of the local economy as BLS releases have consistently named Columbus one of the top large metropolitan areas with lowest unemployment rates. In the office employment realm, Columbus private employers continue to lead the way, and continued organic growth within the office market is expected to originate from these tenants seeking larger space whether through upgrading current facilities or relocating. Columbus unemployment rate 4 Rank among large metropolitan areas with lowest unemployment rate, BLS 14.6% 280,489 61, % 929, % JLL United States Office Outlook Q

28 Dallas - Walter Bialas Vice President, Research, Dallas Market sentiment is high, with strong job growth and high demand for office space Over the past few years, Dallas has added, on average, over 100,000 jobs per year. This strong job growth is among the top in the nation and has translated into robust demand for office space, equaling approximately 3.0 million square feet per year over the past couple of years. The growth is being spurred by a combination of corporate relocations, driven by strong state surpluses, which in turn, creates robust incentives, and thus, organic company expansions. Market fundamentals continue to tighten with lower vacancy and increasing average asking rates. Sustained job growth over past several years translating to tight office market fundamentals from a historic perspective Source: BLS, JLL Research 405,000 Net job growth since 2010 Higher rates prompting tenants to get more dense, higher parking ratios becoming more important Upward pressure on rates has spread to almost every submarket, forcing tenants to seriously consider reconfiguration and taking less space to mitigate rising rates. Overall asking rates are up almost 6.0 percent over the past year. As a result, higher parking ratios have become an important factor, along with flexibility in lease terms. Overall, the Dallas market is in a strong growth mode and increasingly favoring landlords. Class A rates have been rising rapidly and are forecasted to increase higher over the next few years $30.00 $25.00 $20.00 $20.84 $22.51 $23.91 $24.06 $23.12 $ $22.66 $22.71 $23.24 $23.75 $25.38 $26.89 $27.98 Current construction pipeline seems justified, but announced projects not yet under way are creating concern of over exuberance The construction pipeline, growing in recent quarters, currently stands at 4.7 million square feet. While this may appear high, more than 60.0 percent of the space is build-to-suit or preleased. Given the 7.7 million square feet of net absorption since 2012 and the known commitments for space, the new supply seems appropriate to accommodate near-term growth projections. Under construction by submarket; northern suburbs lead the pack 32.4% 12.1% 9.6% Dallas CBD 23.4% 4.0% 3.5% 9.8% 5.0% Far North Dallas Las Colinas LBJ N Central Preston Center Richardson/Plano Uptown 19.1% 1,751,967 1,029, % 4,679, % JLL United States Office Outlook Q

29 Denver - Amanda Seyfried Research Analyst, Denver Sustained economic expansion driving tenant demand Outsized exposure to the energy, health care and technology sectors has driven Denver s economic recovery, leading to employment and population expansion that has been among the nation s strongest. Further, consistent in-migration has provided companies a large pool from which to fill their workforce. And thus, hiring has followed: up 12.9 percent the past five years, local officeusing job growth has outpaced the United States (11.1 percent) and hit a record high in August Payroll gains and improved business confidence have led to increased leasing and demand for space expansions. Office-using employment gains propel leasing 32 Average number of office-using jobs created every day over the past two years in Denver-Boulder metro, BLS.gov Tighter fundamentals push rents to record highs Moderate but steady leasing activity, coupled with minimal new construction during the preceding several years, has driven vacancies to pre-recession lows. Employment forecasts suggest further tightening through at least Growing demand has placed upward pressure on asking rents, which reached a new record high this quarter. Until the next wave of speculative construction is delivered and large, contiguous blocks become more readily available, asking rents have nowhere to go but up, and the balance of power will remain firmly with landlords. Asking rent sets new record; up 3.0% per year since 2009 $25.00 $24.15 $20.00 $15.00 $10.00 $5.00 $ Speculative development eases back into the market Tenants will eventually see some measure of leverage return to them as supply ramps up. Mostly inactive for a number of years, developers are increasingly re-entering the market. Most product in the pipeline already has anchor tenants lined up, but a number of new spec projects have recently been announced: th, One Belleview Station, 1601 Wewatta and the Triangle Building are examples. A majority of construction will continue to be placed in the LoDo/Union Station area and Southeast Suburban areas of higher energy, technology and health care sector concentrations. Construction starts increase; just above 10-year average ,700 1,539, ,000,000 2,000,000 3,000,000 3,070, % 1,151, , % 1,539, % JLL United States Office Outlook Q

30 Detroit - Andrew Batson Senior Research Analyst, Great Lakes Leasing activity up; expansions outweigh contractions Demand is on the upswing across the metro with the highest concentration of growth in the CBD. With minimal supply additions in recent years, increased demand has translated almost entirely into vacancy compression. The largest lease recorded downtown in the third quarter was signed by ad agency Commonwealth/McCann, which will relocate to 50,000 square feet at One Detroit Center. In the suburbs the largest lease was signed by the Millennium Medical Group, which plans to consolidate multiple offices into 100,000 square feet at the Tri-Atria Building in the Farmington submarket. Office vacancy 35% CBD Suburban 30% 28.2% 28.7% 29.3% 28.2% 27.1% 25% 28.9% 24.1% 22.2% 19.3% 20% 17.5% 15% YTD 2014 Capital markets hot streak continues through the third quarter Several high-profile transactions closed in the third quarter continuing a run up of sales activity. The Old Wayne County Building at 600 Randolph Street officially transferred to a private New York investment group under the legal entity 600 Randolph SN LLC. The vacant 226,000-square-foot building sold for $13.4 million ($59 per square foot). Meanwhile, General Motors completed the largest office transaction in the suburbs, acquiring the 150,000- square-foot former Lowe Campbell Ewald headquarters for $2.0 million ($13 per square foot). Office sales volume (millions) 2014 $430.9 $ $ $ $215.4 $100.0 $200.0 $300.0 $400.0 $500.0 New office construction returns after a two year hiatus A total of 251,000 square feet split between three office developments is currently under construction. All three projects are scheduled for completion in The largest development under way is the 100,000-square-foot Lake Trust Credit Union headquarters in the Brighton submarket. In the Birmingham submarket, the 85,000-square-foot multitenant, mixed-use development known as the Balmoral is 85.0 percent leased. And lastly, construction continues downtown on Rock Companies 66,000-square-foot Quicken Loans Tech Center. New office deliveries (square feet) , , , , , , , % 860, , % 251, % JLL United States Office Outlook Q

31 East Bay - Hailey Harrington Research Analyst, Oakland - East Bay Strong job growth driving tenant demand The year-end uptick in leasing activity that typically follows the summer months occurred in the third quarter, strengthened by strong gains in employment. The two-county region s unemployment rate is down 140 basis points year-over-year, to 6.1 percent. Health care tenants are the largest driver of active requirements, which coincides with education & health services, posting the largest job growth year-over-year. As the local economy continues to show signs of expansion, businesses will begin to hire more employees, and in turn, expand their real estate presence in the East Bay market. Job growth / loss by sector (12-month change) Education & Health Services Trade, Transportation, & Utilities Construction Leisure & Hospitality Services Government Professional & Business Services Manufacturing Other Services Financial Services Information Services-100 2,200 2,000 1,900 1, ,900 4,900 3,800-1,000 1,000 3,000 5,000 7,000 Tri-Valley tenants make long-term commitments Leasing activity was strong in both the large and small user market. Two Tri-Valley anchor tenants renewed their commitment to the East Bay market: Ellie Mae leased more than 100,000 square feet at Rosewood Commons in Pleasanton-North and 24 Hour Fitness renewed its headquarters in Bishop Ranch. In addition, Veeva Systems purchased a building in Hacienda Business Park, signaling their commitment to the market. Furthermore, multiple full-floor deals were signed in the third quarter by tenants either expanding in their current space or relocating within the Tri-Valley market to high-quality space. Top 25 leasing transactions by square footage 12.0% 24.0% 4.0% 8.0% 24.0% 28.0% 2,500-4,999 5,000-9,999 10,000-19,999 20,000-49,000 50,000-99, ,000 + Increased landlord leverage driving rent growth Competition for high-quality space is increasing, with small- to mid-size tenants driving leasing activity in the North 680 Corridor. In turn, rental rates have increased to the $3.00 per square foot high watermark and higher in Downtown Walnut Creek and Pleasant Hill BART. Landlords are offering fewer concessions in these two submarkets as office availability declines. In the South 680 Corridor, large leases activity drove landlords to push rental rates and they will continue as long as tenant demand remains strong. Currently there are more than 1.0 million square feet of active requirements. North 680 vs. South 680 rental rates $2.50 $2.30 $2.10 $1.90 $1.70 North 680 $1.50 South 680 Q Q Q Q1 Q % -322, , % 0 0% JLL United States Office Outlook Q

32 Fairfield County - Kevin Interlicchio Research Analyst, Fairfield County Weak labor market yields low leasing velocity So far in 2014, the weak labor market recovery has led to an office market with limited tenant demand. While this problem has seen improvements in the last two quarters, Fairfield County is still a step behind the majority of the nation in terms of its market recovery. In the Fairfield County Business Climate Survey, businesses cited access to talented employees as the number one problem. Fairfield s faltering push back to economic stability is demonstrated through its third quarter drop in total leasing velocity. Leasing velocity in the third quarter is just under 675,000 square feet, which was down 20.0 percent from last quarter. Fairfield County leasing activity (s.f.) 1,500,000 1,250,000 1,000, , , ,000 0 Q2 Q Q Q1 Q2 Q3 Q4 Q Q Q Decrease in leasing activity doesn t produce a bleak outlook Despite a decrease in leasing activity from the previous quarter, market indicators have remained positive. It remains to be seen if this lack of activity is associated with the typical summer slowdown or if businesses are truly struggling in the stymied Fairfield market, but there is reason to believe that business confidence is growing in the area. Approximately 70.0 percent of Fairfield businesses noted that their firms are predicting growth in the next 12 months compared to only 18.0 percent in The difference between those outlooks shines a promising light on Fairfield s leasing activity ahead. Business growth outlook 52.0% Change in business growth outlook since 2011 Financial services dominate the quarter The financial services industry dominated the third quarter in terms of square footage leased. The Stamford Central Business District (CBD) and Greenwich CBD are traditional financial services hubs, but the recent emergence of Merritt 7 has provided the industry another home in Fairfield County. Another promising indicator of potential growth in the area is the increasing number of technology firms. The nation s booming technology industry reported a 2.8 percent rise in tech jobs available in Fairfield County from July to August alone. Q3 leasing activity by industry 4.9% 8.7% 2.4% 2.2% 15.8% 3.3% 46.0% Financial Services Health Services Professional and Business Services Technology Media/Entertainment Consumer Products Insurance 21.7% 549, , % 0 0% JLL United States Office Outlook Q

33 Fort Lauderdale - Marc Miller Research Manager, Florida Fort Lauderdale Downtown has officially shifted into a landlord s market Tenants that signed large leases earlier in 2014 have taken occupancy and have significantly impacted market fundamentals downtown. Downtown vacancy is nearing historic lows and the market has fully recovered from the effects of the recession. Tenants are finding quality options limited downtown, and with no significant new construction on the horizon, rents will exponentially rise alongside a tightening market. Rents have already reached historic highs, and with four properties trading this year (and another one currently for sale), rents will push upward. Class A CBD vacancy down to pre-recession levels 30.0% 25.0% 20.0% 15.0% 10.0% 23.8% 24.2% 22.0% 21.8% 17.6% 14.4% 14.1% 14.2% 15.4% 14.5% 5.0% Class A suburban options are limited for large users Similar to downtown, quality space in the suburbs is becoming scarce. There are only three spaces larger than 70,000 square feet on the market and only 13 spaces larger than 30,000 square feet. While this size tenant is uncommon in the market, large headquarter operations looking to relocate to Broward do not have quality options. However, smaller users and the market s typicalsized tenants have plenty of choices. Nearly 64.0 percent, or 207 availabilities, of all suburban Class A space on the market is smaller than 5,000 square feet. Large Class A suburban blocks have dwindled 70K+ 3 50K to 70K - 40K to 50K 3 30K to 40K 7 20K to 30K 10 10K to 20K Development activity abound; just not for office There is only one small suburban office building currently under construction; however, residential construction in Fort Lauderdale is booming, and the economic activity associated with one of the region s largest economic drivers is certainly benefiting the office market, as local companies involved in real estate development have been expanding and opening (though these users generally have very small requirements). In addition to residential development, the construction of a new courthouse, airport and seaport terminal, cultural institutions, and various infrastructure projects are well under way. There is a flurry of construction activity downtown 4,100 Number of residential units under construction Downtown 16.0% 473, , % 40,000 0% JLL United States Office Outlook Q

34 Hampton Roads - Geoff Thomas, Senior Research Analyst, Richmond Construction has returned despite limited new leasing Limited Class A space has pushed tenants seeking modern product into new construction, all of which has been located in the suburban submarkets. Hampton Roads CBD, Downtown Norfolk, has not produced any new office developments since 2010, when the Wells Fargo Tower delivered in the second quarter that year. In the suburban submarkets, most construction has been located in South Hampton Roads in the Virginia Beach CBD and South Independence submarkets on a square footage basis. While prelease requirements have fallen to the 50.0 percent range, no speculative development has commenced. Historic office space deliveries (s.f.) 800, , , , , , , , , , ,000 59, , Leasing activity dominated by renewals and relocations Net absorption in averaged 2.5 percent of total leasing volume in Hampton Roads and 0.2 percent year-to-date. As a benchmark, the U.S. office market averaged 16.6 percent in. This indicates a smaller percentage of leasing volume has been attributed to new leases or expansions. While this metric is trending upward for Hampton Roads, it still lags behind U.S. office markets collectively. Annual net absorption as a percentage of annual leasing volume % 0.2% 1.1% 0.9% 0.7% 0.8% 2.5% 2.6% 2.6% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Hampton Roads single largest office-using sector is shrinking Professional and business services employment comprises 24.9 percent of the total office-using employment sectors in Hampton Roads and its base declined by 4.4 percent over the past 12 months. This sector produced a similar decline in the state of Virginia with a 1.7 percent reduction in the same time period. Conversely, Hampton Roads finance and health care payroll bases have increased by 2.5 percent annually and comprise 36.8 percent of the total office-using employment sectors. Professional and business services annual payroll growth -4.4% Professional and business services employment 15.0% 36,245-42, % 50, % JLL United States Office Outlook Q

35 Houston - Graham Hildebrand Research Manager, Houston Energy growth, large and small, continues Houston energy companies occupy roughly 38.0 percent of the office inventory and recent trends have found that they are occupying more space by creating smaller subsidiaries within the parent company that require unique spaces. Along the Gulf Coast, the shale gas boom has launched a new era of expanded ethane cracker plants. This growth is bringing more white collar activity to the market, resulting in greater demand for office space. The demand caused by energy tenants is a key component of singledigit vacancy rates in many of Houston s key submarkets. Energy tenant leasing 1,000,049 s.f. Energy tenant leasing activity this quarter Development hot spots spread The Energy Corridor continues to lead the market in under construction and proposed projects, but other submarkets are also seeing growth in inventory. Notably, the West Belt North has 1.0 million square feet of Class A office product under construction and 1.2 million square feet proposed. The CBD is also seeing activity; 2.1 million square feet of Class A product has broken ground, which could cause a giant shift in the CBD landscape. New, Class A vacancy will give tenants more options and could slow the climbing rents. Square feet under construction by submarket Energy Corridor CBD Woodlands Westchase Galleria West Belt North Greenway Plaza 2,064,268 2,003,945 1,817,000 1,133,145 1,029, , ,000,000 4,000,000 6,000,000 5,815,969 Job growth fuels continued optimism Houston s 4.0 percent annual job growth rate, from July to July 2014 is leading the nation s major metros. Sectors of the economy with the fastest annual growth rates are construction, engineering and oil field services. High oil prices have supported employment growth in related fields, which has brought a population boom that feeds into other job sectors. If growth continues at the same rate, Houston could hit a milestone of 3.0 million jobs in Owners and developers are hoping that this will be enough to absorb the market s new inventory. Jobs added since January , ,000 50, ,700 81,200 82,000-47,600 59,200 (50,000) 19,500 (100,000) (150,000) (107,600) YTD 14.6% 3,069, , % 15,635, % JLL United States Office Outlook Q

36 Indianapolis - Robert Kramp Senior Vice President, Research, Chicago Improving employment drives office market Continued growth in the local employment market, where unemployment has declined by 150 basis points in the last 12 months, is driving demand in the office-using sectors. As a result, almost 200,000 square feet have been absorbed in the market since the start of the year. Tenants have shown the most interest in Class A spaces in the CBD and North Meridian/Carmel submarkets, and Class B products in Northwest. The market is also benefiting from its second office delivery this year with Concourse Two coming online in the Northeast submarket. Historical unemployment rate 6.9% 10.0% 8.0% 8.7% 9.0% 6.0% 7.8% 7.6% 4.1% 4.0% 5.1% 5.3% Jul-14, Bureau of Labor Statistics New tenants showing interest in the CBD Much of this activity has been stoked by creative, media and tech firms that desire loft-style Class B spaces with historic character. But there is also interest from employers like Cummins, which is building a $30 million building for its division headquarters and Rolls Royce, which leased 450,000 square feet. All of these firms have a shared reason for relocating to the CBD, which is to attract young professionals who have chosen to live downtown to take advantage of the amenities that the urban environment has to offer. CBD office vacancy 20.0% 18.0% 17.7% 17.7% 16.0% 17.0% 16.8% 17.5% 14.0% 14.6% 14.1% 13.8% 12.0% Q Q2 Q4 Q Large-tract vacancies declining The market s 2.0 million square feet of large-tract space is diverse in building quality and location (as seen in the chart to the right). At 756,000 square feet, the CBD has the greatest amount of large block availabilities, yet by share of inventory, the Northeast has the most; 9.3 percent of its inventory is vacant large tract space. The number of large blocks of space has declined in recent quarters, suggesting that supply and demand of the large availabilities has leveled out. These conditions might encourage developers to show interest in starting new construction. Large tract vacancies by submarket (s.f.) 163, , ,144 CBD Northeast 317,000 Keystone 423,391 Merridian Northwest 14.2% 196, , % 0 0% JLL United States Office Outlook Q

37 Jacksonville - Drew Gilligan Research Analyst, Central Florida Suburban vacancy at historic lows Space options are limited for suburban tenants touring the market, as vacancy is approaching historic lows, particularly among Class A product in the popular Butler Boulevard submarket. The Jacksonville office market is attractive to large, back-office users for the low cost of real estate and access to a workforce associated with the military bases in the area. These types of tenants generally gravitate to the suburbs, but finding large blocks larger than 50,000 square feet in the suburban markets is becoming a challenge, as many of these tenants are currently looking to expand, such as JP Morgan. Historic Class A suburban total vacancy 20.0% 15.0% 18.8% 15.3% 15.5% 10.0% 12.6% 13.0% 11.3% 9.1% 5.0% 11.2% 10.6% 10.1% 0.0% Downtown is struggling, but interest is picking up Considering the dominant tenant base in the area, Downtown Jacksonville has not historically been a target market for tenants. This is despite the fact there is virtually no difference between rental rates in the suburbs and downtown and, in fact, suburban rents surpassed those in the CBD this quarter. The largest barrier for tenants has been their unwillingness to pay for parking, but as of late, more professional and business services firms have been touring downtown to distance themselves from back-office tenants in the suburbs. CBD vs. suburban rents (Class A) Rental rate per s.f. $21.50 $21.00 $20.50 $20.00 $19.50 $19.00 $18.50 $18.00 $17.50 CBD rents Suburban rents Jacksonville economy is on the move The Jacksonville economy has been performing strongly over the previous 12 months, and currently boasts an unemployment rate of only 5.4 percent, the lowest of major metropolitan areas in Florida and far below that of the U.S. overall. Office-using employment has led the way, with professional and business services employment increasing 8.2 percent year-over-year. Job growth like this will likely continue, as Citizens Insurance is consolidating locations across the state to bring 150 new jobs to the area, and multiple companies have announced plans to hire along with office expansions. Employment growth in Jacksonville has been strong Net new jobs Net new jobs Job growth (%) % 2.0% 0.0% -2.0% 18.1% -9,586 20, % 0 0% JLL United States Office Outlook Q

38 Kansas City - Gary O Dell Vice President, Brokerage Kansas City Lack of availability in South Johnson County driving rent growth Class A tenants looking for large blocks of space in Johnson County continue to struggle for leverage. Landlords are beginning to push rents and reduce offered concessions. The vacancy rate for Class A space fell from 6.0 percent to 5.1 percent as the submarket experienced nearly 60,000 square feet of positive net absorption. This trend is limited to South Johnson County as other submarkets still reflect conditions with favorable lease terms for tenants. Class A overall vacancy rate 20.0% 15.0% 15.7% 16.9% 10.0% 14.0% 12.3% 10.6% 10.1% 10.5% 5.0% 0.0% Asset sale activity gaining momentum Demand has increased for investment sale activity for office product with multiple transactions occurring in the third quarter. Given the increased occupancy and lease rates being achieved by Class A and Class B assets, investment sale transactions will continue to increase over the next 12 months. In the third quarter, multiple institutional owners have begun the process of testing the waters to evaluate the marketability of their holdings. As cap rates in larger markets continue to compress, the Kansas City market receives more interest as an alternative for investors seeking higher yields. South Johnson County Class A vacancy rate 20.0% 15.0% 16.2% 17.7% 10.0% 13.8% 13.6% 5.0% 10.4% 9.0% 5.1% 0.0% Speculative office construction is back The most telling sign of the tightness of the South Johnson County submarket is the announcement of the first speculative office building in five years. Pinnacle V is a 67,500-square-foot Class A office building that is set to deliver in the first quarter of 2015 along Tomahawk Creek Parkway. Other developers have been active with pre-development activity and it is highly likely that other additional speculative projects will follow. Speculative construction returns 67,500 s.f. Class A speculative construction begun first new construction since % $21.09 Class A asking rents (f.s) $17.24 Class B asking rents 4.3% Class A 67, % JLL United States Office Outlook Q

39 Long Island - Margaret Heavey Senior Research Analyst, Long Island Lease renewals indicate a stable Long Island economy Media and technology industries comprised most of the leasing activity in the third quarter, with two large renewals signed. The largest transaction of 2014 was Cablevision s 310,000-square-foot lease renewal at 200 Jericho Quadrangle in Eastern Nassau and Dealertrack Technologies announced that its new headquarters in North Hills is being built to accommodate future growth. The local economy is growing with private sector job count at an all-time high. As a result of this dynamic, we expect to see real estate fundamentals, which have been stable in 2014, to pick up in Long Island office leasing activity (million square feet) Flight to quality in Nassau and Suffolk The flight to quality and efficiency is driving momentum, lowering Class A options and thus fueling rents to grow into In Central Nassau, there are only three blocks of Class A space larger 25,000 square feet available, down from six blocks last year, and hence, rents have increased 2.5 percent year-over-year to $30.75 per square foot with our forecasts indicating average rents could jump close to 2008 peak levels of $32.00 per square foot in The flight to quality is spreading to Suffolk as well as VHB upgraded to 100 Motor Parkway in Hauppauge in the third quarter, contributing to a 2.2 percent decline in the Suffolk Class A vacancy rate. Nassau and Suffolk County Class A vacancy rate 18.0% 17.0% 16.0% 17.4% 16.9% 16.3% 16.2% 15.0% 15.3% 14.0% Investors plan capital improvements Due to lack of vacant land, developers are in search of value-add redevelopment projects and assets are being redeveloped into larger office buildings. One recent example of this is Fairfield Properties purchase of the former Melville headquarters of Adecco Group at 175 Broadhollow Road with the building likely to be repositioned for multitenant occupancy. Overall, sales activity was down 5.3 percent year-over-year; however, pricing on a per square foot basis has increased about 30.0 percent, demonstrating the demand for product on Long Island. Year-over-year change in sales volume 400.0% 328.0% 300.0% 200.0% 141.2% 100.0% 82.4% 136.5% -5.3% 0.0% % -17.2% -13.2% -2.3% -67.9% -94.2% % , RCA 16.9% -28, , % 113, % JLL United States Office Outlook Q

40 Los Angeles - Henry Gjestrum Senior Research Analyst, Los Angeles Institutiona l Institutional ownership pushes rental rates The third quarter not only witnessed a handful of institutional grade building trades, but also brought about significant rental rate increases, as new ownership introduced their bullish mentality to the market. Much like the rental increases stemming from Brookfield's acquisition of the MPG portfolio in Downtown earlier this year, recently traded or recapitalized assets on the Westside have seen significant rental rate increases. As an example, since Tishman Speyer s acquisition of Murdock Plaza in Westwood this quarter, asking rental rates have already increased by 15.0 percent. Rental rate increase 5-15% Asking rate increases since acquisition on recently sold properties Westside rising rents Pricing differentials can be seen throughout Los Angeles, with accelerated increases in submarkets which house growing industry sectors. Strong employment gains in technology and creative media are translating to robust Westside occupancy gains and rental rate increases. Rent growth in Downtown and the Tri-Cities, with a concentration of FIRE tenants, have been more tempered. The South Bay, which could benefit from spillover demand from the neighboring Westside, is currently positioning itself as a relative bargain, and is attempting to provide creative product to further entice tenants southward. Submarket rents Westside $3.76 Downtown $3.01 Tri-Cities $2.67 South Bay $2.25 Los Angeles North $2.24 Mid-Wilshire $2.22 San Gabriel Valley $1.97 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 Development activity ramping up Cranes have finally returned to the skyline of Los Angeles, all of them in concentrated areas. Roughly1.3 million square feet of construction is in the pipeline, with another 22 projects awaiting approval. Outside of the mixed-use Wilshire Grand Tower in Downtown, which is on track to deliver in 2017 and will add 400,000 square feet of Class A office product to the market, the majority of construction is centered in the revitalized office market of Hollywood. Creative projects, aiming to pull new media and tech tenants inland from the beach communities of Santa Monica, Venice and Playa Vista, will begin hitting the market in New development 1,048,900 s.f. New office product hitting the market in % 1,499, , % 1,345, % JLL United States Office Outlook Q

41 Miami - Roberta Steen Senior Research Analyst, Miami Miami sustaining positive economic momentum Local employment was up 3.5 percent from the previous year, along with increased labor force participation. Positive gains continue among office-using sectors with financial services up by 5.4 percent and professional business services growing 3.0 percent over the 12-month period. With the exception of government, all industry sectors were up, with strong advances correlating to tightening office market fundamentals. While overall performance is upgraded, Miami s unemployment still remains above Florida s and the nation s rate both at 6.2 percent, as of this writing. Strengthening economy sees declining unemployment 15.0% 10.0% 11.3% 12.5% 11.2% 9.5% 8.4% 5.0% 6.2% 6.8% 4.6% 4.1% 4.1% 0.0% Higher demand for office space and a desire to secure it now With demand for office space continuing to increase in Miami, and the CBD and several suburban submarkets experiencing escalating rental rates, tenants are eager to renew, expand and lock-in space today. Landlords continue to gain leverage, particularly in Trophy CBD buildings. Business confidence and tour activity are picking up with tenants inquiring about expansion space. International real estate investors, shoppers and tourists continue to fuel this market s vigorous economic growth and development activity. CBD: finance and legal tenants comprise 81.0% of occupiers Law Firms Government Insurance Accountants Real Estate 3.2% 5.0% 5.5% 2.7% 2.6% 1.9% 1.9% 29.7% 47.6% 0% 10% 20% 30% 40% 50% Financial services and law firms demanding the most space requirements While these two business sectors comprise the CBD s most premier and high-volume occupiers, the suburbs also benefited from these industry groups. One of the nation s top law firms and one of the largest office occupiers in the state, Greenberg Traurig, renewed its suburban office in the Airport for 28,600 square feet. The suburbs also dominated investment sales activity over the last few months with all under contract and closed transactions occurring here, with half of the total square footage located in established core office product. Top five requirements by industry led by Finance and Legal 5.8% Financial services 8.7% 24.1% Law firms Education 16.8% Healthcare 18.9% Business services 15.4% 712, , % 168,580 0% JLL United States Office Outlook Q

42 Milwaukee - Robert Kramp Senior Vice President, Research, Chicago Urbanization picks up A growing preference among office tenants is for a live-work-play environment with walkable amenities. As downtown continues to attract new residents, the downtown Milwaukee office market is gaining momentum, particularly Downtown East and the Third Ward. Tenants are increasingly demanding more open, collaborative office space, with exposed beams and fewer dropped ceilings versus compartmentalized, heavy office. Adaptive reuse of buildings is occurring in locations such as the Third Ward where former warehouse space, containing exposed brick and timber, is being converted to office. Vacancy by submarket Downtown West Downtown East Third Ward / Walker's Point Southeast Northwest Mayfair/Wauwatosa Brookfield North Shore Southwest Ozaukee Pewaukee/Waukesha West Allis 1.6% 27.8% 18.3% 12.0% 19.9% 26.4% 29.4% 42.1% 19.5% 13.6% 17.4% 18.4% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% CBD development spreading eastward Development activity in the Milwaukee CBD is spreading eastward toward Lake Michigan as two notable projects are now underway. Construction recently commenced on a 1.1 million-square-foot build-to-suit for Northwestern Mutual at 815 E Mason Street. The 32-story building is expected to be completed in Just two blocks to the south, construction continues on the 358,000-squarefoot 833 East, an 18-story property expected to deliver in The building is 47.0 percent preleased and notable tenants will include law firm Godfrey & Kahn SC, Irgens, and Colliers International. Downtown East development 1,458,000 s.f. Under construction in Downtown East Milwaukee home to an emerging water technology cluster The Water Council s Global Water Center is a 98,000-square-foot research and business accelerator located in the burgeoning Walker s Point neighborhood. The converted warehouse opened in and has been successful in attracting tenants focused on the emerging water technology sector. Companies such as A.O. Smith Corporation and Badger Meter occupy space in the property; currently more than 80.0 percent leased. The project s success is expected to help spur the development of Reed Street Yards, a planned 1 million-square-foot water research and technology zone. Milwaukee s water industry $10.5 billion 4.0 percent of the total worldwide water business Source: Choose Milwaukee 19.3% 301,028-16, % 1,458, % JLL United States Office Outlook Q

43 Minneapolis-St. Paul - Abel Balwierz Senior Research Analyst, Minneapolis Development activity creating a spike in construction costs Development activity is quite strong throughout the metro area and it s occurring across multiple product types. This includes the ongoing construction of the new Vikings stadium, numerous buildto-suit office projects, multiple repurposing projects, and substantial industrial, multifamily and hotel development activity. This has led to an extremely tight labor market within the construction sector and a significant rise in construction costs. As a result, the local office market is experiencing rising tenant improvement packages and a desire by tenants to sign longer-term leases. Construction cost index January 2009= (through Source: Mortenson Construction Cost Index June) Investor interest in the Twin Cities intensifies Investor demand for office product in the Twin Cities is gaining momentum and transaction volume is already nearing the $1 billion level through just three quarters of Investors have shown growing interest in the Twin Cities market due to attractive yields, its talented workforce, growing population, high quality of life, diverse and dynamic economy and the strong presence of Fortune 500 companies. A prime illustration is the recent sale of 50 South 10 th Street. The property sold for $330 per square foot, a record sales price for the Twin Cities on a per-square-foot basis. Office investment sales volume In millions of $ s $2,000 $1,500 $1,000 $500 $1,498 $1,558 $1,152 $379 $ YTD $87 $372 $742 $986 $1,175 $981 Southwest light rail line likely to have positive impact A new 15.8-mile light rail line, scheduled to open in 2019, will stretch from Eden Prairie and connect with the two existing light rail lines at Target Field Station on the west end of the Minneapolis CBD. More than 200,000 jobs and more than 60,000 residents are located within a half mile of the 17 planned stations and the Metropolitan Council forecasts an additional 80,000 jobs along this corridor by Office product in the Minneapolis CBD and pockets of the vast Southwest submarket will likely benefit over the long term, as the transit line will serve as a key link between major employment nodes and a large residential population. Future employment growth along Southwest Light Rail Source: Metropolitan Council 41.5% Forecasted employment gains along Southwest Light Rail corridor through % 556, , % 452, % JLL United States Office Outlook Q

44 New Jersey - Steve Jenco Vice President, Research, New Jersey Inconsistent job growth provides headwinds to the market A lack of accelerating monthly employment gains overshadowed the New Jersey economy, and thus, has kept the office market in neutral gear since the beginning of the year. Following a gain of 5,500 new jobs in July, preliminary estimates indicated a loss of 900 jobs three months later. The state s unemployment rate subsequently increased 10 basis points from July to 6.6 percent. New Jersey was among 24 states posting higher unemployment rates during August. The closing of four Atlantic City casinos is expected to exert upward pressures on the state s unemployment rate in the coming months. New Jersey job gains/losses by month 10,000 8,200 7,300 5,500 4,200 5,000 1, ,000-4,800-10,000 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Source: New Jersey Department of Labor Economic incentives create demand in Hudson Waterfront The Hudson Waterfront submarket continues to benefit from the state s use of economic incentives programs to attract corporate investments. With more than 375,900 square feet of positive net absorption, the Waterfront posted the largest volume of absorption in the office market during the third quarter. Contributing to this absorption was JPMorgan Chase s leasing of 226,250 square feet at 480 Washington Boulevard, while RBC Capital Markets absorbed nearly 190,100 square feet at 30 Hudson Street. The banks were awarded grants of $225.0 million and $78.8 million, respectively. Hudson Waterfront overall net absorption 600, , , , , , ,000-44, , , , , ,332 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Banking/financial services drive recent office requirements While the life sciences and tech sectors were responsible for a large portion of leases signed during the first half of the year, banking and financial services companies stepped up to the plate during the third quarter. This sector accounted for nearly 40.0 percent of the transactions completed in the Northern and Central New Jersey office market. With nearly 2.0 million square feet of potential office requirements, banking and financial services companies are expected to remain among the most active segments in the office market ahead. Office leasing activity by sector- Q % 4.0% 5.8% 9.5% 11.7% 27.4% 36.8% Banking/Financial Services Information/Technology Transportation/Utilities Others Life Sciences Business Services Legal Services 25.1% -168, , % 1,322, % JLL United States Office Outlook Q

45 New York - Tristan Ashby Vice President, Research, New York City New leases drive activity year-to-date Most large transactions were renewals during the recovery period as tenants hesitated to spend capital to relocate and landlords sought to keep anchor tenants in uncertain times. That changed in 2014 when 14 of the top 20 leases were new leases compared to only five through the third quarter. This signifies that confidence is building. Tenants even if they are choosing to consolidate to a new location in order to reduce costs have clearer visions of their futures and business models, while landlords believe they will be able to land large tenants at higher rents. Number of large leases by lease type New Renewal Renewal/ Expansion Sublease *leases 100,000 square foot and greater TAMI leasing activity surges New York s creative industries are having an outsized impact on the city s office market, driving both demand and pioneering new markets. Rising creative employment has led to surges in office leasing activity, with TAMI (technology, advertising, media and information) tenants committing to more than 6.6 million square feet to date. Midtown South has been the desired location for many in the innovative economy, where office vacancy rates are some of the lowest in the nation and asking rents have reached new highs. More recently, Downtown and Brooklyn have emerged as alternatives, capitalizing on where the creative class lives and plays. TAMI s share of total square feet leased YTD % 27.7% 22.5% 22.6% 19.7% 27.2% 24.4% 32.7% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% Nontraditional tenants propel Downtown leasing Relocations from the considerably more expensive Midtown and Midtown South markets have helped drive vacancy to two-year lows in the Downtown market (10.6 percent). TAMI companies have spearheaded this movement, representing 33.4 percent of migrations since. Hudson Bay (Saks Fifth Avenue) committed to 405,000 square feet at Brookfield Place, following the major commitment from Time, Inc. to move there from Midtown in the spring. Also of note, MediaMath signed a 106,000-square-foot lease at 4 World Trade Center in Q3. Relocations as a percentage of new Downtown leasing activity YTD % 61.5% % % % % 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%, Alliance for Downtown New York 9.7% 6,361,997 3,816, % 5,424, % JLL United States Office Outlook Q

46 Oakland - Hailey Harrington Research Analyst, Oakland - East Bay Nonprofit industry driving tenant demand requirements Tenant demand remains strong with more than 2.6 million square feet of requirements and 75.0 percent of those requirements looking for space in the Emeryville and Oakland-CBD submarkets. Health care, nonprofit, and professional services tenants are the top three industries looking for space in the market. Touring activity among San Francisco tenants increased this quarter with 70.0 percent stemming nonprofits looking for more affordable options. Tenant spillover translating into leases could continue in the fourth quarter and moving into Tenant requirements by industry (in s.f.) Healthcare Professional Services Non-Profits Technology Financial Services Other Services Manufacturing Education Government Legal Architecture/Engineering 100,000 95,000 91,000 85,000 55,000 40, , , , , , , , , , ,000 Vacancy rate declining as contiguous large blocks dwindle The Clorox building landed two San Francisco tenants, Parson s and WCRIB, leasing up a total of 51,000 square feet, as well as removing two more large blocks options in the CBD. The Lake Merritt district has three large blocks compared to City Center, which only has one option of Class A space larger than 30,000 square feet. With the signage of major leases in the fourth quarter, the City Center district may see a single-digit vacancy rate by year end, the lowest since Oakland Metro CBD vs. Suburban vacancy rate 25.0% 20.0% 15.0% CBD Suburbs 18.4% 18.4% 19.0% 18.3% 22.2% 18.0% 18.4% 13.3% 13.7% 14.9% 13.5% 14.2% 14.1% 11.5% 10.0% Increased occupancy levels driving rent growth Leasing activity during the third quarter was strong in both the small- and mid-size user range. Activity in the smaller sector is a good sign for future growth within the market. Landlords continue to push asking rates more aggressively in the City Center district of the CBD. The City Center district remains attractive to San Francisco tenants due to proximity to BART, an urban environment with vast amenities, and affordable rental rates. Oakland Metro CBD vs. Suburban rental rates $3.00 $2.50 $2.00 $1.50 $2.25 $2.00 CBD Suburbs $2.18 $2.12 $1.82 $1.91 $1.97 $2.20 $2.25 $2.12 $2.36 $1.96 $2.73 $ % 100,857 63, % 0 0% JLL United States Office Outlook Q

47 Orange County - Ryan Pires Research Analyst, Orange County Local economy continues to grow stronger Despite seasonal layoffs in the local government and education sectors this summer, Orange County has been able to add 17,900 jobs year-over-year. Unsurprisingly, construction once again led the way, increasing its total labor force by 5.7 percent year-over-year. Construction support from the commercial sector will remain steady throughout the year as The Irvine Company recently broke ground on a speculative office tower in the Irvine Spectrum area. Meanwhile, the professional and business services sector has also added 4,000 jobs year-over-year, and the technology sector continues to build momentum in Orange County Orange County unemployment rate, CA EDD 5.4% OC unemployment continues to compress at a faster pace than California and the United States Diminishing vacancy driving rent growth As vacancy continues to drop below 2008 levels, many landlords are becoming less flexible in lease negotiations as they pass on deals they would have jumped at a year ago. As a result, year-overyear rent growth is at its highest level since However, a plethora of options are still available to tenants, which is keeping a number of landlords from increasing rates as much as they would like. Even so, outliers such as the Newport Center submarket, are receiving limited pushback in rent growth as the area s Class A product has seen year-over-year rent growth of 43.8 percent. Year-over-year rent growth 20.0% 10.0% 15.2% 0.0% 8.2% 9.2% 6.6% -10.0% -4.1% -4.5% -20.0% -12.5% -11.4% -2.6% 1.3% Net absorption remains strong after a record Q2 Following a record second quarter of net absorption with the PIMCO and Hyundai headquarter completions, Orange County has continued to show stable positive growth. With no major outliers, a majority of the activity stemmed from medical and insurance firms relocating to the Irvine or Irvine Spectrum submarkets. Of the total net absorption activity that occurred this quarter, more than half of occupancy gains derived from deals of 10,000 square feet and larger. Q New deal industry type composition Medical/Health care Insurance Financial Services Real Estate Leisure Business Services Construction Banking Energy & Utilities NonProfit 2.3% 3.5%4.8% 4.8% 6.6%7.9% 13.4% 16.8% 17.5% 13.1% 0.0% 5.0% 10.0% 15.0% 20.0% 14.0% 1,014, , % 425,000 0% JLL United States Office Outlook Q

48 Orlando -Austin Carter Research Analyst, Central Florida Leasing activity picking up among large users Leasing activity among large users took off during the third quarter, outpacing the first and second quarters of Out of the 17 deals inked so far in 2014 larger than 20,000 square feet, almost half were signed in the third quarter. These deals were mainly concentrated in suburban areas as a lack of larger blocks of space in the downtown metro continues to push these tenants to the suburbs. However, Red Lobster inked a deal in the CBD for around 90,000 square feet. The largest deal signed during the quarter was a 130,000-square-foot lease signed by Deloitte s IT Operations division in Lake Mary. Leases signed in 2014 > 20,000 square feet 47.1% 29.4% Q1 Q2 Q3 23.5% Lack of demand puts downward pressure on Class B rents Although Class A rents have been on the rise in recent quarters, rents have not recovered to pre-recession levels; therefore, tenants continue to shift toward more quality spaces, creating lessfavorable conditions for landlords of older, less-desirable product. This bifurcation in the market is most evident in suburban areas, as an overall shift of demand toward the downtown area has disproportionately impacted Class B suburban area landlords. Suburban Class B rents have declined on a year-over-year basis in the past six out of seven quarters. Year-over-year change in asking rates 2.0% 1.0% 0.0% Class A Class B -1.4% -2.0% Q3 Q4 Q Q Q Company expansions driving job growth in metro area Orlando s local economy continues to experience growth in a diverse group of industry sectors. Leading the way in 2014 has been the business services sector, which has made up 47.9 percent of new jobs added by expansions so far this year. One example, BPA Quality International, a provider of call center services, is expanding in to the Orlando area, and adding 300 new jobs. With that expansions, there have been a total of 19 companies that have announced plans to grow in the area. Together, these companies will add a total of 1,507 new jobs to the local economy. Company expansions number of new jobs added (2014 YTD) 9.0% 10.3% 13.0% Advanced Tech & Manufacturing Aviation, Aerospace & Defense 7.2% Business Services 12.6% Film & Digital Media Life Sciences & Health care 47.9% Other, Orlando EDC 18.2% , % 30, % JLL United States Office Outlook Q

49 Philadelphia (CBD) - Geoff Wright Senior Research Analyst, Philadelphia Class A rents continue to increase Despite University City asking rental rates declining 3.6 percent over 2014, rents have risen $0.84 per square foot for the Philadelphia market as a whole. Market fundamentals continue to tighten in Market Street West, having absorbed 421,683 square feet through the first nine months of the year. With year-to-date absorption for the CBD at 606,619 square feet, the CBD has absorbed more space through three quarters than the last two years combined. This increased occupancy, combined with a lack of large Trophy blocks, is leading to upward pressure on Class A rents. Class A asking rents $30.00 $25.00 $23.85 $29.29 $28.15 $27.71 $27.89 $27.66 $27.01 $26.87 $26.73 $24.81 $ New tenants continue to enter Philadelphia Philadelphia continues to support growing startup companies and has attracted new tenants to the market as 13 of the 33 leases signed this quarter were new locations. The scope of these deals drastically range in size as vxchnge, a next-generation data center services company, will take 70,000 square feet at 1500 Market Street. The Science Center continues to be an incubator for startup companies as seven deals were signed from as small as 500 up to several thousand square feet at 3401 Market Street. Class A vacancy YTD % 8.6% 11.0% 10.9% 12.3% 11.4% 12.9% 10.9% 11.3% 10.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Development activity ramping up Media conglomerate Comcast Corporation has begun construction on its 1.5-million-square-foot Comcast Innovation and Technology Center. The $1.2 billion project will become Comcast s global headquarters and home to +/- 4,000 employees dedicated to developing new apps, software and business services for the company. Expected to be completed by the end of 2017, the project will have a major economic impact on Philadelphia as the project will create 20,000 temporary construction jobs in the city, as well as produce $21.5 million in annual tax revenue. New tenants continue to enter Philadelphia 39.4% Percentage of new deals to the Philadelphia market signed in Q3 11.4% 606, , % 2,049, % JLL United States Office Outlook Q

50 Philadelphia (Suburban) - Geoff Wright Senior Research Analyst, Philadelphia Development activity ramping up The Suburban Philadelphia construction pipeline has continued to strengthen over the last two quarters. Speculative office construction was replaced several years ago with major renovation projects that focus on upgrading building systems, enhancing building exteriors, common areas, bathrooms, landscaping and upgrading amenity packages. These projects have had tremendous success preleasing before completion of the project, and often offer tenants better amenity packages and efficient works spaces in modern offices. Revamping 30-year-old stock has proved fruitful for value-add owners along the Route 202 Corridor. Construction activity in Malvern / Exton 552,570 s.f. Under construction / renovation (s.f.) New large blocks recently added For several years there were only two large blocks of existing space available that were larger than 200,000 square feet; these two blocks have recently progressed to large-scale renovation projects. With the departure of Wachovia and Synygy from 2501 Seaport Drive in Delaware County, the market once again has a 200,000- square-foot block available. In addition to the lone 200,000-square foot-block of space, there are currently 10 available blocks of 100,000 to 199,999 square feet. For corporations searching for new headquarters, opportunities will arise from renovation projects before existing Class A availabilities. Class A total vacancy YTD % 15.0% 13.7% 15.4% 11.3% 12.8% 13.2% 16.3% 17.3% 17.1% 0.0% 5.0% 10.0% 15.0% 20.0% Rents continue upward trend Class A rents in Suburban Philadelphia have continued to rise since bottoming out in The Trophy markets of Radnor, Conshohocken and Bala Cynwyd demand $30.00-plus per square foot rents with those rents continuing to climb. In King of Prussia, 1000 Continental and CrossPoint are driving Class A rents over $30.00 per square foot. The Route 202 Corridor continues to be beacon for rent growth as well-capitalized owners have created new projects that are catching the attention of expanding companies and corporations looking to make long-term decisions. Class A asking rental rates $30.00 $28.00 $26.00 $26.80$28.05 $27.31$26.36 $26.69 $27.44$27.95$28.45 $26.12 $24.00 $24.53 $ YTD % -78, , % 908, % JLL United States Office Outlook Q

51 Phoenix - Matt Kolano Senior Research Analyst, Phoenix Financial activities are driving office demand Phoenix employment has been on the road to recovery, but has yet to recover all the jobs that were lost during the 2008 recession. The financial activities sector, however, has already recovered all lost jobs and is continuously adding new jobs on a monthly basis. Employment growth across financial service firms has been almost double of overall employment growth in Phoenix, and as a result, has been driving most of the office demand in the Valley. Tenants such as GM Financial and Silicon Valley Bank are just two recent examples that have expanded their footprints. 12-month job growth 2.3% Total Nonfarm 4.5% Financial Activities Class A rents seeing consistent growth After experiencing years of incremental decreases, Class A asking rents in Phoenix have been increasing at an accelerated pace over the last 18 months. Tenants are seeking dense, amenity-rich locations and owners that can offer modern options are capturing this new demand. Properties in the Camelback Corridor and Tempe are starting to ask for rents upward of $30.00 per square foot full service 50.0 percent above the overall Phoenix market average. Leverage is slowly shifting away from tenants, and landlords are beginning to limit the concessions they are willing to offer to secure deals. Rent growth 5.8% Increase in Class A rents since 2012 Development activity ramping up in the Southeast The Southeast Market Area, which includes the South Tempe, Airport, Chandler and Tempe submarkets, is a hotbed of construction activity. Tempe alone is adding 1.2 million square feet to its current 2.4 million square feet of existing inventory. Much of this new activity is comprised of build-to-suit projects. Companies such as GoDaddy and General Motors have decided to secure brand new buildings for their operations as opposed to moving into second-generation space that is available for lease. Development pipeline 169, , , ,207 1,279, ,733 Scottsdale Airpark South Scottsdale South Tempe Airport Area Chandler Tempe 22.9% 1,632, , % 2,410, % JLL United States Office Outlook Q

52 Pittsburgh - Andrew Batson Senior Research Analyst, Great Lakes Demand strongest in the CBD and Southpointe submarkets Demand continues to be focused in the CBD and Southpointe, where Class A vacancy rates remain in the single digits, despite recent supply additions. Among top leases in the third quarter, Michael Baker International signed a seven-year lease for 22,000 square feet at the Class A BNY Mellon Center. The engineering and architecture firm will take occupancy of the space in December. Meanwhile, in the suburbs, EQT Corporation leased 30,000 square feet at the recently completed Class A Zenith Ridge Two in Southpointe. Both leases represented relocations and expansions. Select Class A vacancies Southpointe CBD 9.0% 7.3% 7.7% 7.5% 9.0% 7.0% 8.0% 6.9% 7.2% 7.1% 5.0% 5.9% 5.9% Sales slow during the summer months, but listings are up Capital markets activity slowed during the summer months in Pittsburgh, typical of this time of year. However, overall listings are up, including several assets downtown, which will have investors closely watching the Pittsburgh market through the end of the year. Through the first nine months of 2014, the largest office transaction was the purchase of the Parkway Center portfolio. A joint venture formed by Market Street Real Estate Partners of Miami and JDI Realty of Chicago purchased the seven-building complex totaling 623,000 square feet for $39.2 million ($61 per square foot). Average office sales price (per square foot) $150 $120 $116 $111 $95 $100 $61 $ Spec and BTS construction under way across the metro Construction teams across the Pittsburgh market are hard at work trying to keep pace with office demand. Already this year, 726,000 square feet of office space has been delivered, with another 1.3 million square feet currently under construction. Roughly half of this 2.1 million square feet is speculative space. The majority of construction activity is taking place downtown and in Southpointe. The largest project currently under way is the 800,000-square-foot Tower at PNC Plaza downtown, which will be fully occupied and owned by PNC when it is competed in third quarter of Construction activity (square feet) 2014 Deliveries 726,000 Under Construction 1,344,000 Development Pipeline 877, ,000 1,000,000 1,500, % 71,571 91, % 1,344, % JLL United States Office Outlook Q

53 Portland - Patricia Raicht Vice President, Research, Portland CBD Class A & B rental rates up Rents for Portland s Central City Class A and B properties have increased substantially in the past eight quarters as availability has steadily decreased. Demand for the best spaces has been driven largely by high-tech employment growth and accompanying business expansions; however, financial companies and law firms still hold a strong stake in the CBD. A tightening market has pushed many tenants to explore options in the Lloyd District and Close-in Eastside, both of which have also seen rents increase, particularly in Class B space, which includes a majority of the creative class. CBD Class A Average Asking Rent $30.00 $29.00 $28.00 $27.00 $26.00 $ Q 2012 $27.16 $27.05 $ Q Q 2Q $29.28 $29.47 $28.86 $27.73 $ Q 4Q 1Q Q Q 2014 Construction pipeline filling Portland is experiencing a surge of office construction and redevelopment activity in response to strong tenant demand and tightening real estate fundamentals. Currently, construction is clustered in the Central City, including the Close-in Eastside, where many of the projects focus on redeveloping underutilized or obsolete buildings into functional, unique spaces occupiers can utilize to accommodate their space needs. Mixed-use projects containing a mix of office, multifamily and/or retail are becoming increasingly common. RBA Under Construction Q , , ,560 62, , , , , , , , ,000 1,000,000 CBD vacancy reflecting robust tenant demand Vacancy in Portland s CBD has decreased dramatically, hitting its lowest level in over 10 years. CBD Class A availability has fallen markedly, as occupiers continue to grow with almost no new supply delivered. As vacancy falls to levels rarely seen in secondary markets, CBD office assets are becoming progressively more attractive to institutional investors, who seek stability and higher returns than those found in flooded primary markets. Leverage remains in the hands of landlords, who are investing in capital improvements to capture demand and increase rents. CBD Total Vacancy 10.0% 9.0% 8.0% 7.0% 9.8% 6.0% Q3 Q % 8.7% 8.5% 8.7% Q1 Q2 Q3 9.2% 9.0% 8.4% Q4 Q Q % Q % 899, , % 782, % JLL United States Office Outlook Q

54 Raleigh-Durham - Mehtab Randhawa Research Manager, Carolinas Biotechnology and e-commerce firms driving tenant demand Increased investments in the technology and the biotech industries continued to drive tenant demand through the summer. Multiple small- to mid-sized companies executed new leases larger than 30,000 square feet. Firms like Argos Therapeutics, ChannelAdvisor and Merz Pharmaceuticals committed to making Raleigh-Durham their headquarters, and leased a combined 294,000 square feet in the quarter. Due to a lack of available space in existing buildings, tenants were forced to expand their searches in other submarkets or neighboring assets to accommodate employee growth. Leasing activity by industry type Banking/ Financial Services Education/ Nonprofits Law Firms Life Sciences (bio/pharma) Other Professional & Business Services Retail/ e-commerce Technology Investment sales market robust Sales activity in high-profile Class A properties in both the CBD and suburban submarkets was robust this quarter. One Bank of America Plaza in CBD Raleigh fetched the highest dollar per square foot value at $225, purchased by locally headquartered Highwoods Properties. As leasing activity remains stable, there is a surge in interest from the seller's side to liquidate well-leased asset portfolios with credit-worthy tenants. Improvement in the lending environment coupled with a rise in out-of-market buyers will likely result in an increased appetite for real estate assets moving forward. Sales volume $ Million YTD $69.00 $ $ $ $ $ $ $0.00 $ $ $ $ $1, Development activity ramping up Two new speculative Class A projects, North Hills Tower II and Wade III, broke ground in the quarter. Combined, these two projects total nearly 400,000 square feet in Six Forks Road/Fall of Neuse and West Raleigh. Perimeter Three, the second speculative project delivered in RTP/RDU this year was 71.0 percent preleased at completion. Tenants seeking newer Class A spaces will have options to choose from as multiple speculative assets are added to the inventory in Development pipeline 1,450,048 s.f. Total under construction 12.8% 1,347, , % 1,450, % JLL United States Office Outlook Q

55 Richmond - Geoff Thomas, Senior Research Analyst, Richmond Investment sale activity revitalizing pricing In the past two years, few investment sales transactions have created challenges in valuing assets in the Richmond market, but recent trades have set some pricing guidelines, specifically in the Innsbrook submarket. Westdale Capital and Lingerfelt Development have been the most active purchasers, acquiring more than 500,000 square feet of office product this year with an allocated value of $61.9 million. Pricing for Class B shifted from $80 to $90 per square foot in 2012 to nearly $130 per square foot in The fully leased, Class A office set a suburban milestone this year with Westgate I trading for $17.5 million or $191 per square foot. Investment sales volume in millions $800 $628 $606 $600 $400 $354 $369 $260 $200 $155 $135 $0 $12 $ Relocations absorbing Richmond s large blocks Richmond can expect some major footprint shifts going into 2015 with McKesson possibly relocating to Deep Run III, Elephant Insurance expanding into deep Run I, and Virginia Community College Systems consolidating into Arboretum III. These deals have eliminated all but one Class A block larger than 100,000 square feet, which is located in the CBD. Due to the lack of construction, this will inhibit the market s ability to create new leasing volume from a large deal and produce positive net absorption in the Class A market. Total Class A vacancy 20.0% 18.6% 18.6% 15.0% 14.1% 10.9% 10.0% 15.6% 13.7% 5.0% 10.0% 8.7% 8.5% 10.0% 0.0% Suburban construction has returned, in small amounts Following Gateway Plaza s construction in the CBD, demand has produced two new suburban office developments: Libbie Mill, and 6627 W Broad in the Reynolds Office Park. Tightening fundamentals in the Class A market has also generated preleasing initiatives for Brandywine Realty Trust s Alterra development in the West Creek submarket. However, interest in these developments is still strongest from medical users, an industry accustomed to paying 15.0 to 30.0 percent premiums over the average Class A rental rate of $20.92 per square foot full service. Suburban buildings under construction 600, , , , ,161 40,628 44,378 82, % -117, , % 361, % JLL United States Office Outlook Q

56 Sacramento - John Sheaffer Research Analyst, Sacramento Professional services drive economic recovery With nearly every office-using sector recording positive annual job growth, the local economy expanded by 2.0 percent, in line with California s job growth rate. Employment gains were largely as a result of the sustained resurgence of professional and business services, which has added 8,700 jobs over the number of jobs regained from the downturn, and reached a new employment peak. Additionally, educational services grew by 7.4 percent since August, a trend reinforced in third quarter occupancy gains. Professional services employment takes off 125, , , , , , Professional and Business services employees Trophy buildings giving CBD rents a lift Suburban asking rents held steady with a number of long-standing, vacant, large blocks offsetting increases elsewhere. However, CBD rents are beginning to rebound after a sustained decline through. Over the past 12 months, nearly 50.0 percent of the Class A inventory saw rents increase, compared to only 8.0 percent among Class B buildings. Escalations were most notable among trophy buildings like 1415 L Street, where vacancy is now under 10.0 percent. Future Class A growth will also get a boost from 555 Capitol Mall, where new ownership plans to upgrade existing offices and ground floor retail. CBD exhibiting slow, but consistent rent growth $2.60 $2.50 $2.40 $2.30 $2.20 $2.55 $2.54 Q Q $2.39 $2.39 $2.38 Q1 Q2 Q3 $2.32 $2.36 Q4 Q $2.45 $2.46 Q Q Leasing activity is down, but tenant mix more diverse Leasing activity tapered off in the third quarter following two consecutive solid quarters. Large energy and financial services users focused on suburban submarkets where quality large blocks remain comparatively affordable. State Street Bank signed the largest lease of the quarter and will relocate over 68,000 square feet from the CBD to the South Natomas submarket. Demand in the Roseville submarket remains strong, where SolarCity plans to relocate offices and expand into 60,000 square feet at 1000 Enterprise. Activity will likely ramp up in the fourth quarter, when deals deferred during the summer are executed. Financial services and energy dominate leasing volume 15% 1% Financial Services 24% Energy Insurance 16% Government 24% Legal 20% Healthcare 19.1% 270, , % 55,140 0% JLL United States Office Outlook Q

57 San Antonio - Brittany Maki Research Analyst, Austin Trend toward speculative projects San Antonio has seen an increase in speculative office projects. RL Worth & Associates recently broke ground on the third building in the Heritage Oaks at Inwood office project without securing an anchor tenant. Currently, there are over 720,000 square feet under construction, concentrated in the Northwest and North Central submarkets. Of this new stock, just under 50.0 percent has been leased. Square feet under construction 672,141 Class A square feet under construction Lack of quality space Part of what is driving the boom in new construction is an inadequate supply of quality inventory. Currently, Class B space makes up over 64.0 percent of office inventory marketwide. It is no surprise then that of all of the space currently under construction, 92.5 percent is high-quality, Class A space. Once delivered, this will represent a 7.5 percent increase in Class A stock. The average asking rate for new construction is $29.09 per square foot, a 33.0 percent premium over the market average. Under construction buildings command significant premiums Class A $25.19 UC Class A $31.40 Class B $20.12 UC Class B $22.15 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 Government sector drives leasing activity The U.S. government leased 160,500 square feet at the currently under construction Sentry Gateway, located in San Antonio s Northwest submarket. The government sector employs 162,500 individuals 17.5 percent of total nonfarm jobs in the city. Trade, transportation and utilities leads local employment 4.7% 6.7% Government 17.5% Trade, Transportation & Utilities 5.0% Education & Health Services 8.2% Leisure and Hospitality 17.1% Professional & Business Services 12.2% Financial Activities Manufacturing 13.4% 15.3% Construction Other Source: Bureau of Labor Statistics 16.5% 97, , % 740, % JLL United States Office Outlook Q

58 San Diego - Eileen Turnalad Senior Research Analyst, San Diego Record investment sales driving rent growth Office sales in San Diego reached record levels over the past year. At year-end, the average price per square foot was $264, the highest level since Additionally, first quarter 2014 sales volume ($678.3 million) reached its highest level in the past two years. In order to obtain a return on these investments, owners have therefore been increasing rents across the board, with the largest gains in tightening submarkets, such as UTC and Del Mar Heights. The 5.9 percent year-over-year increase in rent is the largest gain since before the recession. San Diego office sales volume (in millions) Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 $155 $148 $215 $248 $242 $298 $462 $496 $544 $678 $0 $100 $200 $300 $400 $500 $600 $700 $800 Emergence of creative office space The creative office product type is emerging in San Diego. Some owners are beginning to reposition existing product, which is decreasing the supply of cost-effective office alternatives. This, in turn, is driving rents farther up and forcing some tenants into less attractive opportunities and locations. With very few transactions for this emerging product type, it remains to be seen whether creative office will be successful in San Diego. Millennial workplace preferences drive trend for creative office 50.0% Gen Y share of workforce by 2020 Biotechnology/life sciences driving demand for space The biotechnology/life sciences industry continues to grow and is driving much of the demand for office space as employment has increased 2.7 percent year-over-year. Moreover, a strong IPO market and healthy venture capital funding environment have aided in the growth of this industry and pushed demand for additional space. Polaris Pharmaceuticals, Celenova Biosciences, and Mast Therapeutics are a few of the companies that signed deals this quarter. Biotechnology/life sciences employment concentration 5.8% Biotech/life science share of private employment 14.4% 623, , % 646, % JLL United States Office Outlook Q

59 San Francisco - Ruby Bolaria Research Analyst, San Francisco No near-term end in sight for tech growth in the market Despite fear that growth in the tech industry is too good to be true, the industry continues to surprise the office market with large lease transactions and expansion. Google, in addition to purchasing 188 Embarcadero, signed an additional lease for more than 270,000 square feet at One Market Plaza during the quarter, and Uber announced its partnership with Alexandria Real Estate to build its new HQ location in Mission Bay. With employment in tech now topping the dot-com era, San Francisco can no longer be considered a finance-dominated market. Technology comprises largest share of office-using employment 6.9% Legal Services 7.7% Business Services 27.9% Management Consulting 8.5% Government Financial Institutions 12.2% Technology 13.3% Competitive leasing pushes rents higher Growing an astonishing 81.5 percent since the first quarter of 2010, rents continued on their upward trajectory, increasing 8.6 percent year-over-year as the supply of large blocks, creative space, and high-end space continued their steep decline. While there remain pockets of value and opportunity in lower-demand submarkets outside of the CBD and SOMA, as well as in older office space across the market, tenants that signed five-year terms in 2009 and 2010 now face a significantly higher market rate coupled with far less negotiating leverage as they renew or relocate. Average asking rents across San Francisco Mission Bay South Financial North Financial South of Market Showplace Square Jackson Square North Waterfront Union Square Mid-Market Van Ness Corridor $47.15 $63.25 $60.72 $58.77 $54.56 $54.29 $54.02 $52.80 $52.78 $75.46 $35 $40 $45 $50 $55 $60 $65 $70 $75 $80 Fears of Proposition M weighing heavily on developers Although the skyline is littered with cranes and more than 1.0 million square feet are near ground-breaking, fears over the city s development limitations have led many to wonder which of the more than 11 million square feet of proposed projects will be approved for construction. While the city is set to add an additional 875,000 square feet to the allocation pool in October, that hasn t assuaged fears of a tough competition among developers that may likely be vying for the same Prop M approval sometime in 2015 or early Some projects may wait years for approval under Prop M 11,215,000 s.f. Total square feet of projects filed with the City of San Francisco s Planning Department 10.4% 1,196, , % 3,477, % JLL United States Office Outlook Q

60 San Francisco Mid-Peninsula - Christan Basconcillo Senior Research Analyst, San Francisco Peninsula More investors look to the Mid-Peninsula for core assets The consistent flow of tenant activity for Class A space has investors looking to the Mid-Peninsula for fully leased, stabilized core assets. Investment activity was strong during the third quarter of 2014 with over $300 million in transaction volume. This was highlighted by the sales of 701 Gateway Boulevard in South San Francisco and Bay Center in San Mateo, two prominent Class A properties. With asking rents for high-image Class A space on a steady upward swing, acquisition activity is expected to continue its strong trend throughout the remainder of the year and into 2015, which will drive rents higher for tenants. Historical sales volume ($M) $5,000.0 $4,098.4 $4,000.0 $3,000.0 $2,000.0 $1,365.8 $1,000.0 $205.8 $406.1 $247.6 $373.7 $651.8 $343.9 $ YTD, RC Analytics 2014 Overspill demand for Class A space Transaction volume in the Mid-Peninsula is not nearly as robust as Silicon Valley; however, over the past 12 months, single-floor tenant transactions have carved away at larger-block availability, making it difficult for users in the market looking for contiguous space options larger than 60,000 square feet in core submarkets. The overspill of tenants leaving pricier Silicon Valley submarkets like Palo Alto is expected to continue and the tightening of the market will eventually work its way through the Mid-Peninsula s South County and continue north along Highway 101. Historical Class A vacancy 20.0% 18.0% 17.7% 17.7% 17.9% 16.0% 17.4% 14.0% 15.6% 14.7% 12.0% 14.5% 13.7% 14.1% 10.0% 11.9% Tipping point: additional development in the pipeline Developers have been hesitant to break ground on large-scale office construction. However, Box.com s recent 305,000-squarefoot lease transaction at Kilroy/Hunter Storm s Crossing 900 office development could be the catalyst that finally prompts additional construction. Meanwhile, Sobrato is already preparing to start site work on his 275,000-square-foot Class A office campus at 151 Commonwealth in Menlo Park. There are several tenants already negotiating on space in the project, supporting evidence that there is pent-up demand for large blocks of high-image space. Non-owner occupied development 9.6% 332,425 s.f. 90.3% % Preleased % Available 14.7% 664, , % 332, % JLL United States Office Outlook Q

61 Seattle-Bellevue - Patricia Raicht Vice President, Research, Portland Competition among landlords heats up The market experienced significant demand during the quarter with vacancy trending toward 10.0 percent and the tipping point where it has historically experienced substantial rent growth. While market fundamentals continue to shift in favor of landlords, tenant needs are evolving and landlords have not been content to sit back and wait for deals. Many prominent downtown buildings have recently seen or are planning capital improvements to provide the amenityrich buildings that tenants desire. Downtown Seattle total vacancy 25.0% 20.0% 15.0% 20.1% 19.3% 18.4% 10.0% 14.5% 11.4% 10.9% 5.0% , RC Analytics Development activity ramping up The development pipeline is the most full it has been since Trammell Crow recently started construction on the 19-story 929 Office Tower scheduled to deliver 462,000 square feet of Class A space to the Bellevue CBD in late Additionally, Amazon submitted proposals to build additional buildings on its four-block site; a 24-story and a six- to eight-story tower, adding more than 800,000 square feet of space. If all four blocks are developed, Amazon would occupy as much as 8.8 million square feet, which would be enough to accommodate more than 40,000 employees ,602 1,290,992 3,045, , , ,013 1,812,532 3,907,704 4,454,005 5,437, ,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 Large blocks remain limited, especially in downtown core There are currently six 100,000-square-foot and larger blocks of available space in the market, only one of which is in the Seattle CBD and none of which are in the Bellevue CBD. Urban leasing activity is driven primarily by tech and the farther you get away from the downtown core, the more challenging lease-up becomes. However, 2014 has been noteworthy because several of the largest deals have been completed at suburban buildings; eight leases have been signed this year larger than 100,000 square feet and none of them occurred in the CBDs. Total leasing activity Q % 9.1% 67.1% Seattle CBD Bellevue CBD Suburban 11.1% 1,421, , % 3,045, % JLL United States Office Outlook Q

62 Silicon Valley - Christan Basconcillo Senior Research Analyst, San Francisco Peninsula Venture capital fueling growth The rapid expansion of technology across multiple industries, including non-tech is generating more attention from the venture capital community, resulting in a favorable funding environment. Investors continue to funnel capital toward the mobile and software sectors. However, more VC firms are also investing capital in consumer-facing products, such as wearable technology and ondemand services. Investment toward later-stage companies has grown rapidly, and many startups are using the funds to expand their capabilities by way of headcount growth and footprint expansion. High-tech venture capital funding $3.1 billion Silicon Valley YTD high-tech venture capital funding, PwCMoneytree Class A large blocks in short supply Large blocks of available space in core submarkets are in short supply and demand levels remain heated. Tenants chasing 20,000 square feet and larger in Palo Alto, Mountain View and Sunnyvale have very few options to choose from. In many cases, future availabilities are backfilled immediately, especially in downtown micro urban hubs. Tenants have been turning their focus toward Santa Clara and San Jose, where the number of competitive Class A options and more flexible landlords allow greater opportunity when compared to more northern core submarkets. Existing Class A blocks of space 40 Q Q ,000-50,000 s.f. 50, ,000 s.f. 100, ,000 s.f. > 200,000 s.f. Development activity up, but can t keep pace with demand Despite the volume of development under construction, it has not been enough to satiate current levels of demand. A majority of speculative construction has broken ground in prime submarkets, where tenant leasing activity has been the highest, but much of the Valley s future available supply is being preleased prior to completion. While Santa Clara is beginning to see additional construction activity, most developers are in a holding pattern, waiting for tenant overspill to run full stride. Non-owner occupied development 51.8% 4.1 msf 48.9% % Preleased % Available in active negotiations 14.1% 1,840, , % 4,366, % JLL United States Office Outlook Q

63 St. Louis - Blaise Tomazic Senior Research Analyst, St. Louis Office-occupying employment growth is accelerating Nearly six years after peaking in May 2008, office-occupying employment has finally recovered to its pre-recession level. While financial activities have been increasing since 2010, professional and business services, which represents 45.0 percent of the officeoccupying employment, has increased by 19,800 jobs since January. Those two sectors have made up for shrinking government employment, which has been trending down since the hiring spike in 2010 for the U.S. Census. Year-over-year change in office-occupying employment 4% 2.4% 1.4% 1.5% 2% 1.2% 1.2% 0.5% 2.2% 0% -2% -0.4% -0.6% -4% -3.2% , BLS Large blocks continue to shrink for now With office vacancy steadily declining for several years, one thing that has not occurred in St. Louis in this cycle is new multitenant office construction. Combine this with a trend of tenants moving toward quality, St. Louis has had a drop in large, Class A blocks of space, particularly in the suburbs. This will change in 2015 as at least four companies will be vacating more than 75,000 square feet in the suburbs, two of which are full buildings. There is a lot of tenant activity among large users in the market, which could help fill these options up. Class A suburban blocks of space >25,000 square feet Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14 Large tenant requirements may bring new development With 38 tenants in the market larger than 25,000 square feet and several large spaces coming to market in the next 12 months, tenants will have more options than in the past 24 months. The strong activity could even attract developers to move forward on new construction projects; one is already being marketed in West County and several sites in Clayton may attract interest. Tenant requirements by size , ,000-99,999 25,000-49,999 15,000-20,000 10,000-14,999 5,001-9,999 5, % 209, , % 128, % JLL United States Office Outlook Q

64 Tampa - Drew Gilligan Research Analyst, Central Florida Increased investment activity leading to rent growth The investment activity in the downtown markets of St. Petersburg and Tampa has picked up considerably from last quarter. Most notable, Parkway Properties purchase of the 1.0-million-squarefoot Class A Corporate Center at International Plaza complex, which was part of a 22-property portfolio worth $475 million. In addition, the Fifth Third Bank Building downtown traded recently, and the Wells Fargo Building is scheduled to close shortly. This increased investment activity has led landlords across the market to increase asking rents, which are now exceeding pre-crash levels. Downtown asking rents (full-service gross) $26.0 $24.0 $22.0 $20.0 $18.0 $19.79 $20.36 $23.76 $22.09 $21.89 $21.76 $22.42 $22.87 $22.85 $22.09 $ Large blocks remain limited with no relief in sight No new buildings have been delivered to the market in the past couple of years, so tenants are finding limited options for large blocks of space. There are currently at least 10 tenants touring with requirements of 70,000 square feet or larger in size, but there are only eight available options. This scenario is becoming beneficial for landlords as they are able to dictate the rental rates to new and existing tenants. This upward momentum in rents will continue until developers begin building again, creating supply relief. Number of spaces available by size 70K+ 8 50K to 70K 7 40K to 50K 5 30K to 40K 7 20K to 30K 36 10K to 20K Lots of activity in surrounding submarkets There continues to be a high level of interest in the Westshore submarket with a number of tenants looking to relocate into the area. The CBD of Tampa continues to be a sought-after spot as well. The suburban markets show continued interest, which is a good sign for future growth moving out of the summer months, which have been slow in the past. A large portion of tenants in the market are seeking space in the 15,000- to 55,000-squarefoot range. Activity by submarket 12.5% 16.7% Tampa CBD 8.3% Westshore North West Tampa 16.7% I-75/I-4 Corridor 33.3% St. Pete CBD 12.5% Gateway/Bayside 18.8% 216, , % 0 0% JLL United States Office Outlook Q

65 Washington, DC - Scott Homa Senior Vice President, Research, Washington, DC Resurgence in private-sector office employment Since the start of 2014, a total of 21,200 private sector office jobs have been added to the Metro DC economy. Total private sector office-using employment is now at its highest point in history. Although substantial declines in federal payrolls continue to offset this private sector growth, regional unemployment (5.4 percent) remains significantly below the national average (6.1 percent) and strong population growth among a highly educated workforce demographic suggests that continued, sustainable employment growth is likely on the horizon. Private-sector office employment (in thousands) Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Federal budget deficit falls to lowest level in six years The federal budget deficit has fallen to its lowest level in six years ($679.5 billion) and the midterm elections have the potential to create more policy debate and legislative action geared around issues such as tax inversions, immigration reform, ISIS and the Keystone Pipeline, among others. Considering that legislative action and federal spending are the key drivers of office demand in Metro DC, the prospect of increased activity under the 114 th Congress has the potential to reignite tenant demand in the region. Federal budget deficit (% shortfall in revenue vs. spending) % -24.6% % % % % -80.0% -70.0% -60.0% -50.0% -40.0% -30.0% -20.0% -10.0% 0.0% Innovative industries helping to offset the contraction within the law firm, GSA and contractor segments Robust expansion activity among startup and high-technology tenants has helped fill a gap in an otherwise-tepid demand environment. Creative industries such as digital media, software engineering, advertising and consumer technology represent a relatively small portion of the overall Metro DC tenant base, but incremental growth has helped offset contractions elsewhere. For example, Palantir Technologies recently expanded into 61,000 square feet at 1025 Thomas Jefferson Street, NW in Georgetown. Composition of Metro DC tenant base 10.0% Federal government 22.0% 10.0% Law firms Associations/NFP 8.0% Government contracting 15.0% General professional services 25.0% Healthcare-education 10.0% Innovative segments 17.2% -2,069,130-1,346, % 4,619, % JLL United States Office Outlook Q

66 Westchester County - Kevin Interlicchio Research Analyst, Fairfield County Slow-recovering economy creates solutions for improvement The labor market finally saw an increase in activity as the unemployment rate fell to 5.2 percent in August from 5.8 percent at the start of the year. This is a promising sign for a market struggling to attract tenants, primarily a result of its high taxes. White Plains officials announced that they plan to improve the quality of life in the downtown area to attract more Millennials. The city was recently ranked the 48th best city to live in in the United States, among cities with a population between 30,000 and 250,000 residents. Westchester County unemployment rate 7.0% 6.0% 5.0% 5.8% 6.2% 5.3% 5.6% 4.0% 5.1% 4.5% 5.0% 5.0% 5.4% 5.2% 3.0% 2.0% A new submarket powerhouse The recovering labor market has lent to a subtle turnaround in the office market. Overall vacancy closed the quarter a 20.7 percent, while rents remained unchanged from the second quarter to the third quarter. On a positive note, there has been sustained strength in select submarkets along the I-287 Corridor, with the I-287 East Corridor remaining a desirable location for tenants. Surprisingly, the I-287 West Corridor continued to emerge as a strong locational preference of local businesses and dominated leasing activity in the quarter. Westchester County leasing activity by submarket 2% 7% 10% White Plains CBD White Plains East 19% I-287 East Corridor I-287 West Corridor 49% 12% Westchester North Westchester South What s the play? Getting Westchester over the hump Westchester is traditionally dominated by the law firm and financial services industries; however, health care has become the fastest growing industry in the county, finishing right behind the financial services industry for most leasing activity in the third quarter. In order to see increased leasing activity in some other industries, Westchester needs to take a more serious look at installing an incentives program to attract more diverse businesses. A step in the right direction is exemplified by the planned North 60 at the Grassland s Reservation, where 60 acres of biotech/medical space is scheduled to be constructed. Health Services leasing 16.2% Increase in Health Services leasing since last quarter 21.1% -244,078-57, % 494,500 0% JLL United States Office Outlook Q

67 West Palm Beach - Marc Miller Research Manager, Florida Fort Lauderdale Health-related companies drive absorption gains The Palm Beach County office market experienced another quarter of positive absorption, attributed mostly to health care and healthrelated companies expanding in the suburbs, an industry that is a cornerstone of the local economy. Health-related companies were responsible for 56.8 percent of suburban absorption in the third quarter. Overall, the market has experienced positive absorption in all three quarters this year. Numerous large tenants signed leases toward the end and early 2014 to stay ahead of the inevitable upward push in rental rates, which have been on the rise this year. Suburban vs. CBD absorption 250, , , ,000 50,000 0 (50,000) Q 3Q Q 1Q 2Q 3Q 4Q Q Q 3Q While rents are rising, they aren t moving very fast Overall, asking rents have been trending upward; however, movement has not been monumental, despite increased demand among local tenants. Rents have risen 3.3 percent since last year, despite vacancy dropping 300 basis points countywide. Certain pockets, such as the Glades/I-95 corridor in West Boca and quality product along PGA Boulevard in North Palm Beach, are outperforming the market and seeing solid rent growth. Though demand has increased, more substantial touring and leasing activity is needed for landlords to feel comfortable to raise rents. Vacancy inches down, while rents inch up $30.00/fs Asking rents (fs) Vacancy $25.00/fs $20.00/fs Q Q Q Q1 Q2 Q3 Q4 Q Q Q % 20.0% 10.0% 0.0% Investment activity on the rise So far this year, nearly $279 million worth of office space has traded, most notably the Trophy CityPlace Tower, which sold for a record $507 per square foot. In the suburbs, One Boca Place, a Class A office building in the Glades/I-95, node was also purchased, and the cap rate for both properties was reportedly below 6.0 percent, demonstrating market sentiment moving forward. While movement in occupancy and rents has not been monumental, the real estate community feels the market is prime for growth as the economy continues to improve. Investment activity picking up again (in millions) 2010 $ $ $122.7 $282.9 YTD 2014 $277.8 $0.0 $100.0 $200.0 $300.0 $400.0 $500.0 $ % 547, , % 0 0% JLL United States Office Outlook Q

68 Appendix JLL United States Office Outlook Q

69 United States employment statistics 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 (July 2014) Unemployment (July ) 12-month Recovered all unemployment jobs during change (bp) recession? Difference from peak (000s) Atlanta % % 8.0% 8.3% -30 Yes 9.0 Austin % % 4.6% 5.6% -100 Yes Baltimore % % 6.9% 7.2% -30 Yes 31.8 Boston % % 5.5% 6.7% -120 Yes 78.8 Charlotte % % 6.8% 8.5% -170 Yes 24.7 Chicago % % 6.8% 9.4% -260 No Cincinnati % % 5.6% 7.2% -160 No -9.8 Cleveland % % 7.2% 7.8% -60 No Columbus % % 4.9% 6.5% -160 Yes 34.3 Dallas-Fort Worth % % 5.5% 6.5% -100 Yes Denver % % 5.2% 6.7% -150 Yes 71.3 Detroit % % 9.8% 10.6% -80 No Fort Lauderdale % % 5.7% 6.4% -70 No Hampton Roads % % 5.8% 6.2% -40 No Hartford % % 7.0% 8.3% -130 No -7.7 Houston % % 5.5% 6.5% -100 Yes Indianapolis % % 5.3% 6.8% -150 Yes 39.3 Jacksonville % % 6.6% 7.3% -70 No -1.5 Kansas City % % 6.6% 6.9% -30 No Long Island % % 5.3% 6.3% -100 Yes 33.1 Los Angeles % % 8.7% 10.7% -200 No Miami % % 6.8% 8.6% -180 Yes 21.5 Milwaukee % % 6.6% 7.6% -100 No Minneapolis-St. Paul % % 4.2% 5.0% -80 Yes 29.1 New Jersey % % 7.1% 8.6% -150 No New York % % 6.9% 8.1% -120 Yes Oakland-East Bay % % 6.4% 7.8% -140 No -2.7 Orange County % % 5.7% 6.7% -100 No Orlando % % 6.3% 7.2% -90 Yes 20.9 Philadelphia % % 6.7% 8.3% -160 No Phoenix % % 6.3% 7.2% -90 No Pittsburgh % % 5.8% 7.1% -130 Yes 13.5 Portland, OR % % 6.3% 7.3% -100 Yes 24.6 Raleigh-Durham % % 5.6% 6.8% -120 Yes 41.6 Richmond % % 5.7% 6.1% -40 Yes 9.9 Sacramento % % 7.4% 8.9% -150 No Salt Lake City % % 3.8% 4.4% -60 Yes 39.5 San Antonio % % 5.2% 6.4% -120 Yes 77.5 San Diego % % 6.6% 8.0% -140 Yes 24.4 San Francisco % % 4.9% 6.0% -110 Yes 94.2 San Jose (Silicon Valley) % % 5.9% 7.3% -140 Yes 69.3 Seattle-Bellevue % % 5.2% 6.0% -80 Yes 52.3 St. Louis % % 7.1% 7.7% -60 No Stamford, CT (Fairfield County) % % 6.3% 7.6% -130 No -3.2 Tampa % % 6.8% 7.6% -80 No Washington, DC % % 5.4% 5.7% -30 Yes 81.9 West Palm Beach % % 6.6% 8.0% -140 No White Plains, NY (Westchester County) % % 5.5% 6.4% -90 No United States % % 5.9% 7.2% -130 Yes 1,070.0 JLL United States Office Outlook Q

70 United States office statistics Current Quarterly total YTD total net YTD total net Market totals YTD Direct Total quarter Quarterly Under Inventory net absorption absorption absorption (CBD and completions vacancy vacancy average percent construction (s.f.) (inc. sublease) (inc. sublease) (as % of Suburban) (s.f.) (%) (%) marketed rent change (s.f.) (s.f.) (s.f.) inventory) ($ p.s.f.) Atlanta 133,201, ,109 2,016, % 18.9% 19.8% $ % 788,420 Austin 45,969, , , % 10.0% 11.6% $ % 2,875,800 Baltimore 68,302, ,000 11, , % 14.0% 14.7% $ % 793,568 Boston 159,694, ,749 1,153,447 2,549, % 13.0% 14.9% $ % 1,866,000 Charlotte 46,737, , ,625 1,078, % 11.7% 12.3% $ % 240,000 Chicago 232,428, ,300 1,775, % 15.6% 17.8% $ % 2,785,000 Cincinnati 34,931, ,000 21, , % 19.5% 20.3% $ % 1,389,000 Cleveland 29,010, ,638 9, % 16.3% 16.8% $ % 57,000 Columbus 30,785, ,000 61, , % 13.8% 14.6% $ % 929,000 Dallas 157,945,142 1,625,479 1,029,163 1,751, % 18.4% 19.1% $ % 4,679,044 Denver 104,582, , ,662 1,151, % 13.0% 14.1% $ % 1,539,784 Detroit 62,022, , , % 24.3% 24.9% $ % 0 Fairfield County 48,494, , , % 19.2% 21.7% $ % 0 Fort Lauderdale 22,348, , , % 15.2% 16.0% $ % 40,000 Hampton Roads 18,682, ,600-42,853 36, % 14.8% 15.0% $ % 50,000 Houston 155,181,762 3,101, ,747 3,069, % 12.9% 14.6% $ % 15,635,602 Indianapolis 36,746, , , , % 13.3% 14.2% $ % 0 Jacksonville 20,583, ,437-9, % 17.5% 18.1% $ % 0 Kansas City 47,966, , , % 14.7% 15.0% $ % 67,500 Long Island 42,449,874 87, ,166-28, % 15.5% 16.9% $ % 113,947 Los Angeles 193,398, , ,948 1,499, % 15.9% 16.6% $ % 1,640,803 Miami 35,469,797 80, , , % 15.2% 15.4% $ % 168,580 Milwaukee 27,683,272 42,000-16, , % 17.6% 19.3% $ % 358,000 Minneapolis 68,214, , , , % 15.7% 16.6% $ % 0 New York 443,523,324 58,200 3,816,637 6,361, % 8.0% 9.7% $ % 5,424,890 New Jersey 158,848,227 57, , , % 22.5% 25.1% $ % 1,322,500 Oakland-East Bay 54,771, , , % 14.1% 14.8% $ % 0 Orange County 93,139, , , , % 13.5% 14.0% $ % 751,121 Orlando 28,583, ,000 31, % 17.8% 18.2% $ % 30,000 Philadelphia 131,411,355 1,168, , , % 14.6% 15.5% $ % 3,335,450 Phoenix 79,567, , ,258 1,632, % 22.2% 22.9% $ % 2,020,062 Pittsburgh 48,791, ,000 91,489 71, % 13.8% 15.0% $ % 1,680,000 Portland 59,121, , , , % 9.6% 10.0% $ % 662,190 Raleigh / Durham 43,867, , ,995 1,347, % 12.2% 12.8% $ % 1,450,048 Richmond 24,740, , , % 13.5% 15.4% $ % 361,036 Sacramento 44,198, , , % 18.7% 19.1% $ % 0 Salt Lake City 36,124, , , % 10.7% 11.7% $ % 991,924 San Antonio 25,241,468 38, ,192 63, % 15.5% 16.5% $ % 740,141 San Diego 77,807, , , , % 13.5% 14.4% $ % 646,967 San Francisco 75,256,361 1,224, ,513 1,196, % 9.4% 10.4% $ % 3,477,201 San Francisco Peninsula 28,579,958 27, , , % 12.8% 14.7% $ % 332,425 Seattle 88,065, , ,359 1,421, % 10.5% 11.1% $ % 2,431,570 Silicon Valley 63,446,091 1,011, ,042 1,840, % 12.4% 14.1% $ % 4,135,920 St. Louis 42,854, , , % 15.4% 16.1% $ % 128,250 Tampa Bay 34,654, , , % 18.4% 18.9% $ % 0 Washington, DC 331,511,064 2,693,935-1,346,328-2,069, % 16.3% 17.2% $ % 4,619,612 West Palm Beach 20,432, , , % 19.9% 20.0% $ % 0 Westchester County 31,851, , , % 19.4% 21.1% $ % 0 United States 3,889,220,495 16,648,460 15,858,896 38,164, % 14.7% 15.9% $ % 70,558,355 JLL United States Office Outlook Q

71 United States office rankings Inventory New York Washington, DC Chicago Los Angeles Boston New Jersey Dallas Houston Atlanta Philadelphia Denver Orange County Seattle Phoenix San Diego San Francisco Baltimore Minneapolis Silicon Valley Detroit Portland Oakland-East Bay Pittsburgh Fairfield County Kansas City Charlotte Austin Sacramento Raleigh / Durham St. Louis Long Island Indianapolis Salt Lake City Miami Cincinnati Tampa Bay Westchester County Columbus Cleveland Orlando San Francisco Peninsula Milwaukee San Antonio Richmond Fort Lauderdale Jacksonville West Palm Beach Hampton Roads Square feet (millions) rates (including sublease) New Jersey Detroit Phoenix Fairfield County Westchester County Cincinnati West Palm Beach Atlanta Milwaukee Dallas Sacramento Tampa Bay Orlando Jacksonville Chicago Washington, DC Long Island Cleveland Minneapolis Los Angeles San Antonio St. Louis Fort Lauderdale Philadelphia Miami Richmond Hampton Roads Pittsburgh Kansas City Boston Oakland-East Bay San Francisco Peninsula Baltimore Columbus Houston San Diego Indianapolis Silicon Valley Denver Orange County Raleigh / Durham Charlotte Salt Lake City Austin Seattle San Francisco Portland New York 0% 5% 10% 15% 20% 25% 30% Vacancy rate (%) JLL United States Office Outlook Q

72 United States office rankings YTD total net absorption (including sublease) New York Houston Boston Atlanta Silicon Valley Chicago Dallas Phoenix Los Angeles Seattle Raleigh / Durham San Francisco Denver Charlotte Portland Philadelphia Detroit Baltimore Orange County Miami Kansas City San Francisco Peninsula San Diego Minneapolis Fairfield County West Palm Beach Salt Lake City Fort Lauderdale Austin St. Louis Milwaukee Columbus Sacramento Tampa Bay Cincinnati Indianapolis Oakland-East Bay Pittsburgh San Antonio Hampton Roads Cleveland Orlando Jacksonville Long Island Richmond New Jersey Westchester County Washington, DC -4, ,000 8,000 Square feet (thousands) Marketed rents New York San Francisco San Francisco Peninsula Silicon Valley Washington, DC Los Angeles Fairfield County Miami Seattle Austin Houston Boston West Palm Beach Chicago Oakland-East Bay San Diego Fort Lauderdale Long Island Westchester County New Jersey Philadelphia Minneapolis Orange County Denver Pittsburgh Dallas Baltimore Charlotte Sacramento Tampa Bay Portland San Antonio Phoenix Raleigh / Durham Atlanta St. Louis Orlando Cleveland Salt Lake City Hampton Roads Cincinnati Detroit Richmond Jacksonville Kansas City Indianapolis Columbus Milwaukee $0.00 $20.00 $40.00 $60.00 $80.00 $ per square foot JLL United States Office Outlook Q

73 United States office rankings Under construction Houston New York Dallas Washington, DC Silicon Valley San Francisco Philadelphia Austin Chicago Seattle Phoenix Boston Pittsburgh Los Angeles Denver Raleigh / Durham Cincinnati New Jersey Salt Lake City Columbus Baltimore Atlanta Orange County San Antonio Portland San Diego Richmond Milwaukee San Francisco Peninsula Charlotte Miami St. Louis Long Island Kansas City Cleveland Hampton Roads Fort Lauderdale Orlando Westchester County West Palm Beach Tampa Bay Sacramento Oakland-East Bay Minneapolis Jacksonville Indianapolis Fairfield County Detroit 0 10,000,000 20,000,000 Square feet Under construction as % of inventory Houston Silicon Valley Austin San Francisco Cincinnati Pittsburgh Raleigh / Durham Columbus Dallas San Antonio Seattle Salt Lake City Phoenix Philadelphia Denver Richmond Washington, DC Milwaukee New York Chicago Boston San Francisco Peninsula Baltimore Portland Los Angeles New Jersey San Diego Orange County Atlanta Charlotte Miami St. Louis Long Island Hampton Roads Cleveland Fort Lauderdale Kansas City Orlando Westchester County West Palm Beach Tampa Bay Sacramento Oakland-East Bay Minneapolis Jacksonville Indianapolis Fairfield County Detroit 0.0% 4.0% 8.0% 12.0% JLL United States Office Outlook Q

74 Select large leases > 100,000 square feet Sorted by lease size and completed during Q Market Tenant Address/building Size (s.f.) Lease type Chicago Zurich Insurance Zurich Insurance HQ 750,000 Relocation Northern Virginia U.S. Department of Defense 200 Stovall Street 606,575 Renewal Houston NOV Millennium Tower II 417,000 Relocation New Jersey John Wiley & Sons, Inc. 111 River Street 383,128 Renewal Northern Virginia Corporate Executive Board 1201 Wilson Boulevard 350,000 Relocation Long Island Cablevision 200 Jericho Quadrangle 310,632 Renewal Northern Virginia Northrop Grumman Federal Systems Park Drive 309,000 Renewal San Francisco Peninsula Box.net 900 Middlefield Road 300,425 Relocation Seattle-Bellevue Amazon 1915 Terry Avenue 274,358 Expansion in building San Francisco Google 1 Market Plaza 270,706 New to market Washington, DC Morgan Lewis 1111 Pennsylvania Avenue NW 270,060 Renewal Chicago Arthur J Gallagher 2850 W Golf Road 252,266 Relocation Charlotte Aon 7201 IBM Drive 235,000 Renewal New Jersey JPMorgan Chase & Co. 480 Washington Boulevard 226,249 Relocation Washington, DC Venable 600 Massachusetts Avenue NW 220,000 Relocation Los Angeles Universal Music Group 2220 Colorado Avenue 201,006 Renewal Silicon Valley Google 3400 Hillview Avenue 200,000 Relocation New York Paul Hastings 200 Park Avenue 190,914 Relocation New Jersey RBC Capital Markets 30 Hudson Street 190,067 New to market New York Google 85 10th Avenue 180,000 Expansion Chicago Wintrust Financial Corp. 231 S LaSalle Street 179,332 Relocation Seattle-Bellevue Costco Sammamish Park Place (Building E) 176,656 Relocation Seattle-Bellevue Weyerhaeuser 200 Occidental Avenue S 175,000 Relocation New York R/GA Media Group 5 Manhattan West (450 W 33rd Street) 173,000 Relocation Boston Sonos 500 Washington Street 170,000 Relocation San Antonio U.S. Government Sentry Gateway 160,500 New to market Chicago Enova 175 W Jackson Boulevard 160,000 Relocation Houston Universal Pegasus International Loop Central Two 153,844 Renewal Indianapolis Republic Airways 8909 Purdue Road 150,000 Renewal Minneapolis Barr Engineering 4300 MarketPointe Drive 147,000 Relocation Los Angeles Universal Music Group Burbank Boulevard 146,636 Renewal Milwaukee Johnson Controls 801 S 60th Street 140,000 Relocation Raleigh-Durham ChannelAdvisor 3025 Carrington Mill Boulevard 136,538 Relocation Dallas State Farm 8222 N Belt Line Road 135,200 Renewal Los Angeles Verizon/Edgecast W Jefferson Boulevard 135,182 New to market San Francisco Peninsula Bristol-Myers Squibb 700 Bay Road 132,726 Renewal Los Angeles Edmunds 2401 Colorado Avenue 132,000 Relocation Orlando Deloitte (IT operations) 901 Heathrow 130,461 New to market Houston JGC America Inc Briarpark Drive 129,546 Expansion in building Baltimore Undisclosed Columbia Town Center 128,000 Relocation Boston Osram Sylvania 200 Ballardvale Street 125,000 Relocation Chicago Valance Health 540 W Madison Street 125,000 Relocation Dallas Active Network KPMG Centre 123,240 Relocation Dallas Omnitracs KPMG Centre 123,000 Relocation Washington, DC DC Dept of Human Services & Mental Health 64 New York Avenue NE 120,255 Relocation Chicago NORC 55 E Monroe 118,000 Renewal Minneapolis Briggs & Morgan 80 South 8th Street 116,827 Renewal New Jersey United Water Management & Services 461 From Road 116,360 Relocation Boston Genzyme 1 Research Drive 114,151 Relocation New York Jane Street Capital 250 Vesey Street 114,000 Relocation Atlanta AMEC E&I Services 1979 Lakeside Parkway 111,919 Renewal San Francisco Dodge & Cox 555 California Street 111,388 Renewal Boston CDM Smith 75 State Street 109,964 Relocation Chicago Centene 77 W Wacker Drive 109,140 Relocation Boston Care.com 77 Fourth Avenue 108,700 Relocation Fairfield County United HealthCare 4 Research Drive 107,688 Relocation New York MediaMath 4 World Trade Center 106,000 Relocation Chicago Houghton Mifflin Harcourt 1 Pierce Place 105,000 Relocation Denver SCL Healthcare 500 Eldorado Boulevard 105,000 Expansion in building Charlotte Snyder's-Lance Ballantyne Corporate Place 104,368 Relocation Washington, DC O'Melveny & Myers 1625 Eye Street NW 100,087 Renewal Seattle-Bellevue Amazon 5th & Bell Building 100,080 Expansion in building Charlotte Bank of America 100 N Tryon Street 100,000 Relocation JLL United States Office Outlook Q

75 Select large sales > 100,000 square feet Sorted by total sales price and completed in Q Market Building RBA (s.f.) Sale price $ Price per square foot ($ p.s.f.) Buyer Seller San Francisco One Market Plaza 1,632,653 $600,000,000 $750 Blackstone Morgan Stanley New York 150 E 42nd Street 1,600,000 $900,000,000 $563 David Werner Hiro Real Estate Orlando Southpark Center I &II (12 buildings) 1,600,000 $261,000,100 $163 AEW Flagler Development Chicago 70 W Madison Street 1,439,369 $375,000,000 $261 Hearn Company/GEM/Farallon GAW Capital Partners Dallas 1700 Pacific Avenue 1,340,481 $103,217,037 $77 Olymbec Corporate Group Berkeley Investments Chicago 300 N LaSalle Street 1,302,901 $850,000,000 $652 Irvine Company KBS Minneapolis 20, 100 & 111 Washington 1,071,540 $103,000,000 $96 Shorenstein CommonWealth Partners Miami Airport Corporate Center 1,021,822 $132,300,000 $129 CBRE Global Investors Hines Boston 1 Beacon Street 1,017,168 $561,500,000 $552 MetLife/Norges Beacon San Francisco Peninsula 300 Constitution Drive 1,000,000 $101,600,000 $102 Facebook TE Connectivity Indianapolis Precedent Office Park 999,355 $102,665,000 $103 LaSalle Investment Management CBRE Global Investors St. Louis Cityplace Portfolio (7 buildings) 872,724 $142,000,000 $163 Redico New Boston/Koman Dallas Merit Drive 845,919 - PIMCO Parmenter Realty Partners Oakland-East Bay The Towers Emeryville 815, LBA Realty Chicago 55 W Monroe Street 804,214 $245,000,000 $305 Hearn Company Boston 280 Congress Street 780,000 - Norges Boston Properties New York 222 Broadway 773,460 $500,000,000 $646 Deutsche Asset & Wealth Mgmt Beacon Raleigh-Durham Portfolio of 12 properties 772,870 $89,500,000 $116 The Dilweg Companies Beacon Tampa Tampa City Center 749,035 $130,000,000 $174 Shidler Group Mainstreet Capital Partners Boston 495 Business Center 722,000 $13,000,000 $18 Rubenstein/Genesis Baupost/Capital Commerical Investments Atlanta 3200 Windy Hill Road SE 716,484 $118,500,000 $165 America's Capital Partners CBRE Global Investors Charlotte Fifth Third Center 697,817 $215,000,000 $308 Cousins Properties Parmenter Realty Partners Minneapolis 180 E 5th Street 676,809 $40,000,000 $59 Talon Real Estate SWERVO Development Corporation San Francisco 50 Beale Street 662,000 $395,000,000 $597 Paramount Group The Rockefeller Group/Mitsubishi Indianapolis Regions Tower 662,000 $65,000,000 $98 The Nightingale Group Todd Maurer/Michael S. Maurer/Robert Schloss/McKnight Group Chicago 230 W Monroe Street 623,524 $122,000,000 $196 Beacon Investment Properties Lincoln Property Co/PIMCO Chicago 5600 N River Road, W Bryn Mawr Avenue 620,210 - Raleigh-Durham Meridian Corporate Center Cleveland 1111 Superior 615, ,882 $84,100,000 $137 Investcorp Pearlmark/White Oak Realty Partners - American Real Estate Partners Management American Landmark Properties Sovereign Capital New York 77 Water Street 600,000 $235,200,000 $392 Principal Real Estate Travelers Insurance Chicago 101 N Wacker Drive 599,503 $210,000,000 $350 LIM/BVK Hines New York Maiden Lane 590,000 $210,000,000 $356 Kushner/Normandy Real Estate Partners Chetrit Group New York 65 E 55th Street 585,653 $789,473,685 $1,348 Blackstone Shorenstein Houston Energy Crossing I & II 567,570 $170,000,000 $300 Invesco Licoln/State of Illonois Atlanta 55 Park Pl NE 557,629 - Board Of Regents of the University System of GA Georgia State University Foundation Boston 100 High Street 546,336 $280,000,000 $513 CBRE Global Investors Oxford Properties Atlanta th Street NW 533,259 $132,500,000 $248 KBS REIT III JP Morgan Chase & Co San Francisco 405 Howard Street 521,555 $390,000,000 $748 TIAA-CREF/Norges - Indianapolis Market Tower 517,500 $52,000,000 $100 Zeller Realty MT Acquisitions Group Chicago 125 S Clark Street 507,920 $30,475,200 $60 Bluestar Chicago Board of Education Portland PeaceHealth Building 488,808 $25,700,000 $53 PeaceHealth PacTrust Minneapolis 50 S 10th Street 486,723 $164,500,000 $338 Union Investment Real Estate Franklin Street Properties San Francisco 650 California Street 478,392 $309,000,000 $646 Columbia Tishman Speyer Atlanta 575 Morosgo Drive NE 477,500 - Columbia Property Trust Columbia Property Trust JLL United States Office Outlook Q

76 Select developments > 100,000 square feet Sorted by square feet and under way as of Q Market Submarket Building RBA s.f. Preleased % New York World Trade Center 1 World Trade Center 3,038, % New York Penn Plaza/Garment District 10 Hudson Yards 1,700, % Dallas Richardson/Plano 3521 W Plano Road 1,500, % San Francisco South Financial District 415 Mission Street 1,370, % Philadelphia Market Street West 1800 Arch Street 1,334, % Chicago West Loop 150 N Riverside Plaza 1,200, % Milwaukee Downtown East 800 E Wisconsin Avenue 1,100, % Houston Westchase Phillips 66 HQ 1,100, % Houston CBD 609 Main Street 1,057, % Chicago West Loop 444 W Lake Street 1,050, % Silicon Valley Sunnyvale 1152 Bordeaux Drive 945, % Silicon Valley Santa Clara 2685 Augustine Drive 838, % Pittsburgh CBD 306 Fifth Ave 800, % Chicago Northwest Zurich Insurance HQ 753, % Northern Virginia Eisenhower Avenue 2401 Eisenhower Avenue 720, % Philadelphia University City FMC Tower 630, % Phoenix Tempe Marina Heights (Building B) 600, % Houston CBD 6 Houston Center 600, % Houston Energy Corridor Energy Center IV 600, % Houston Galleria BHP Site Post Oak 600, % Atlanta Midtown Ponce City Market 557, % Houston Woodlands Anadarko HQ 550, % Houston Energy Corridor Energy Center III 546, % Chicago River West 1000 W Fulton Street 535, % New Jersey Hudson Waterfront Waterfront Corporate Center 3 520, % Houston Woodlands Southwestern Energy 515, % Houston Energy Corridor Energy Center V 505, % Boston Seaport 100 Northern Avenue 500, % Northern Virginia Tysons Corner 1775 Tysons Boulevard 476, % New York Penn Plaza/Garment District 7 Bryant Park 473, % Cincinnati Midtown 4590 Beech Street 470,000 - Seattle-Bellevue Bellevue CBD 929 Office Tower 462, % Washington, DC East End 601 Massachusetts Avenue NW 460, % Houston FM 1960/249 Noble Energy Center II 456, % San Francisco South Financial District 222 Second Street 452, % Houston Energy Corridor 9811 Katy Freeway 452, % San Francisco South Financial District 350 Mission Street 451, % Dallas Dallas CBD 2323 Ross Avenue 450, % Orange County Irvine Spectrum 200 Spectrum Center 450, % Boston Seaport 101 Seaport Boulevard 440, % Minneapolis Minneapolis CBD 600 Hennepin Avenue 434, % Raleigh-Durham Cary Weston Parkway 427, % Baltimore Baltimore Southeast 100 Block Street 420, % Houston Westchase Millennium Tower II 417, % San Francisco South Financial District 181 Fremont Street 416, % Phoenix Tempe Marina Heights (Building D) 415, % Houston CBD Hilcorp Energy Tower 406, % Dallas Far North Dallas Lebanon North Dallas Tollway 400, % Los Angeles CBD Wilshire Grand 400, % JLL United States Office Outlook Q

77 50% of markets Half of all markets are now posting under construction levels equating to 1.0 percent of inventory levels. With many developers increasingly thinking about commencing construction on proposed sites, the market over the next 36 months will likely shift from an under-supplied one to an over-supplied one by late 2016, providing more neutral or tenantfavorable market conditions in the medium run. Geographies with a substantial amount of construction already under way (Texas, Bay Area) could see momentum turn up to a year earlier for tenants. JLL United States Office Outlook Q

78 For more information, please contact: Benjamin Breslau Director Americas Research ben.breslau@am.jll.com Julia Georgules Associate Director Office Research julia.georgules@am.jll.com Marisha Clinton Director Capital Markets Research marisha.clinton@am.jll.com John Sikaitis Director Office Research john.sikaitis@am.jll.com Phil Ryan Research Analyst Office and Economy Research phil.ryan@am.jll.com Sean Coghlan Research Manager Office Capital Markets sean.coghlan@am.jll.com 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. With annual revenue of $4.0 billion, JLL operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 3.0 billion square feet. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management. For further information, visit 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. 2014