Office Outlook. United States Q No sign of a slowdown for U.S. office market

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1 Office Outlook United States Q4 215 No sign of a slowdown for U.S. office market

2 WHAT S INSIDE: The bar was set high for market momentum and growth going into 215 and year-end results proved that economic expansion has reached a tipping point in many markets; constricting supply and pushing rental rates to prerecession levels. While expansion activity persists in innovation markets in the West and Northeast, it is also spreading significantly into Sun Belt markets on the heels of demographic, financial and professional business services growth. 2

3 TABLE OF CONTENTS 5 office market trends 4 United States office market 5 United States office clock 8 United States economy 1 United States investment sales 13 Local U.S. office markets Atlanta 16 Austin 17 Baltimore 18 Boston 19 Charlotte 2 Chicago (CBD) 21 Chicago (Suburban) 22 Cincinnati 23 Cleveland 24 Columbus 25 Dallas 26 Denver 27 Detroit 28 East Bay 29 Fairfield County 3 Fort Lauderdale 31 Hampton Roads 32 Greater Hartford 33 Houston 34 Indianapolis 35 Jacksonville 36 Long Island 37 Los Angeles 38 Miami 39 Milwaukee 4 Minneapolis 41 Nashville 42 New Jersey 43 New York 44 Northern Virginia 45 Oakland 46 Orange County 47 Orlando 48 Philadelphia (CBD) 49 Philadelphia (Suburban) 5 Phoenix 51 Pittsburgh 52 Portland 53 Raleigh-Durham 54 Richmond 55 Sacramento 56 Salt Lake City 57 San Antonio 58 San Diego 59 San Francisco (CBD) 6 San Francisco (Mid-Peninsula) 61 Seattle-Bellevue 62 Silicon Valley 63 St. Louis 64 Suburban Maryland 65 Tampa 66 Washington, DC 67 West Palm Beach 68 Westchester County 69 Appendix 71 Contacts 8 3

4 5 OFFICE MARKET TRENDS and what they mean for LOWEST VACANCY IN 8 YEARS 48.9 M.S.F. 4

5 UNITED STATES OFFICE MARKET Activity diversifies across the United States, but remains driven by only a handful of industries Secondary and tertiary markets are gaining speed as economic expansion diversifies across the country. Aside from Washington, DC, which recorded leasing activity at a rate of 2.5 percent of its total inventory (compared to a national average of 1.5 percent), the highest leasing levels made their way outside of typical tech, finance and government heavy markets and into Austin (2.7 percent of inventory), Jacksonville (2.6 percent), Tampa (2.5 percent) Fairfield County (2.3 percent), and Indianapolis (2.1 percent). However, both CBDs and suburbs maintained the same rate of activity at 1.5 percent of total inventory, a reflection of the growing balance between the two markets. Technology and banking and financial services companies are responsible for a combined total of 26.8 percent of leasing activity in the fourth quarter While companies are expanding within their home market, many are also looking to new markets across the country as more than 1.7 million square feet of new-to-market leases were signed during the fourth quarter, bringing total 215 volume to 7.5 million square feet. Buxalta will be opening a new 26,84-square-foot location in the suburban Chicago submarket North while Nationwide plans to open a 246,442-square-foot location in Columbus Grandview/Upper Arlington and SuveryMonkey plans to open a 21,-square-foot location in San Francisco Peninsula s San Mateo submarket. For Buxalta, this is one of two new leases in the Chicago metro area, the second being signed in the CBD s West Loop. Other multi-market expansions during 215 included Brown & Toland s two leases in New Jersey and Oakland, Industrious s leases in Columbus, Minneapolis and Raleigh-Durham and co-working giant WeWork s leases in Portland, Denver, and two in Chicago. More than 1.7 million square feet of new-to-market leases were signed during the fourth quarter While a more diverse group of markets are finally seeing some momentum locally, activity at the industry level remained firmly unchanged with technology and banking and financial services companies responsible for a combined total of 26.8 percent of leasing activity in the fourth quarter and 3.5 percent for 215 distantly followed by healthcare s 6.8 percent annual volume. Individually, these industries are expanding with 7.1 percent of technology and 46.5 percent of banking and financial services leasing activity representing growth. The majority of leasing activity overall has also represented company expansion consistently over the past six quarters, while the rate of occupancy contraction has averaged less than 1. percent during that same time. Tech and finance companies have consistently pushed occupancy growth across markets over the past two years Technology Banking and financial services Government Healthcare Other Law firm Other professional and business services Life sciences Energy and utilities Aerospace and defense Telecom Accounting consulting research strategy Education 8.9% 7.3% 6.4% 6.3% 4.7% 3.6% 3.5% 3.3% 2.8% 2.7% 2.3% 16.8% 15.9% % 5% 1% 15% 2% Share of leasing activity (%) only for leases larger than 2, square feet and industries with more than 2. percent share of activity West Coast markets are ahead in occupancy growth, yet new markets try to take the lead Recording more than 18.7 million square feet of positive net absorption, occupancy gains during the fourth quarter of 215 were the highest on record during this cycle, and 16.5 percent higher than the previous high water mark in the fourth quarter of 214 at 16. million square feet. For the first time in more than two years, occupancy growth was overwhelmingly led by West Coast markets, which contributed to 45.6 percent of net absorption as Los Angeles and Phoenix posted 1.6 and 1.1 million square feet of net absorption, respectively five and three times higher than their five-year average. In Los Angeles, this was the result of expansion by The Honest Company, Facebook and Yahoo; while in Phoenix, State Farm and Isagenix moved into their newly delivered headquarters. Only two West Coast markets, Orange County and San Diego, posted occupancy losses totaling, 188,619 square feet. Occupancy growth was overwhelmingly led by West Coast markets 5

6 Share of quarterly net absorption (%) Meanwhile, on the East Coast, which contributed to 4.9 million square feet of net absorption, Boston and Philadelphia led the pack, each contributing approximately 1.1 million square feet in occupancy growth. On the other hand, Hampton Roads, Jacksonville, Long Island, New Jersey, New York and Westchester County saw occupancy decline by a total of 1.5 million square feet. For the second time this year, New York recorded occupancy losses in the first quarter occupancy declined by 1.6 million square feet and in the fourth quarter fell by 9,5 square feet. Although mid-year activity amounted to 2.3 million square feet of occupancy growth in New York, it wasn t enough to end the year on the positive side, with total year-end absorption coming in at -217,76 square feet. NYC For the second time this year, New York recorded occupancy losses Despite smaller markets that generally record significantly lower occupancy gains, Central U.S. markets contributed to 25.6 percent of total net absorption, with Chicago, Denver and Dallas the latter two being two of the country s hottest secondary markets posting the largest gains at 1.1 million, 839, and 854, square feet, respectively. Some of these gains were seen as a result of Google and Quintessite s expansions in Chicago, Raytheon s move into its newly delivered build-to-suit in Dallas and CoBank s expansion into its new headquarters in Denver. Only three markets (Houston, Indianapolis and Pittsburgh) recorded losses during the quarter for a total of negative 253,7 square feet, with Houston tenants yet to vacate any of the approximately 8. million square feet of sublease space currently on the market. More than 1. million square feet of absorption in Los Angeles, the SF Peninsula and Silicon Valley boosted West Coast in Q4 1% 8% 6% 4% 2% % -2% -4% -6% -8% -1% East Coast Central West Coast Vacancy mostly on the decline, but laggards remain where market drivers are lacking Vacant supply in CBDs remained constricted at 12.1 percent Inching nearer the prerecession low of 13.8 percent, vacancy declined to 14.7 percent by year-end, narrowly missing last year s projection of a 1 basis point decline by just 1 basis points, but affirming the velocity at which markets are moving. Vacant supply in CBDs remained constricted at 12.1 percent as compared to the suburbs 16.3 percent vacancy rate. Within the Class A segment of the market (which captures the most demand) it s even lower, with 12. and 15.3 percent vacancy rates in CBDs and suburbs, respectively, and the suburbs providing approximately 9 million square feet more supply than CBDs. However, with average Class A rental rates in CBDs 59.1 percent higher than those in suburbs, suburban markets are awaiting sharper vacancy reductions as pricing encourages tenants to explore suburban opportunities over the next 12 to 24 months. Suburban markets are awaiting sharper vacancy reductions as pricing encourages tenants to explore suburban opportunities The 18.7 m.s.f. of absorption in Q4 pushed vacancy down sharply by 4bp to 14.7%; first time it has fallen below 15.% this cycle 2.% 18.% 16.% 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% 2.% 18.% 16.% 14.% Within CBDs, urban locales remain the most popular with vacancy rates in Midtown South, Portland Central City, Oakland, San Francisco and Philadelphia CBDs ranging from 6.3 percent to 8.5 percent. In the suburbs, hot markets on the outskirts of CBDs also maintained low vacancy, with Salt Lake City suburbs, Boston-Cambridge, San Francisco Non-CBD, Portland Eastside suburbs and Seattle-Bellevue s Eastside posting vacancy rates ranging from 5.1 percent to 1.2 percent. 6

7 Under construction (s.f.) There remain pockets of stagnancy in local markets lacking industry drivers While vacancy in general is on the decline, there remain pockets of stagnancy in local markets lacking industry drivers as a result of diminishing appeal from the growing millennial workforce. In Central markets, Cleveland, Indianapolis and Houston each saw vacancy increase by 34, 19 and 18 basis points year-over-year, respectively. Plagued with company downsizing, relocations outside of market and a sharply declining oil industry, these markets must also compete with nearby and booming Chicago, Dallas and Austin. Additionally, on the East Coast vacancy in Fairfield and Westchester Counties has continued to mount with year-over-year increases of 26 and 2 basis points, respectively. Meanwhile, in Northern Virginia vacancy has increased by 51 basis points since 21, compared to a national decrease in vacancy of 38 basis points during that same time. Lacking in walkable districts, competing against nearby New York City and Washington, DC for talent and victim of corporate contraction in both the public and private sector, it will be some time before these markets see a real turn around in activity. New supply creating new options, but not impacting vacancy as demand remains strong Fundamentals in supply constrained secondary and tertiary markets continue to constrict and instill confidence in developers to move forward with proposed projects Development volumes declined quarter-over-quarter at the end of the year from 92.8 million square feet in the third quarter (a cycle high) to 88.3 million square feet at year-end. Despite this, more than 7.3 million square feet of new construction starts were recorded during the fourth quarter, a trend that is expected to persist and even grow as fundamentals in supply constrained secondary and tertiary markets continue to constrict and instill confidence in developers to move forward with proposed projects. As leasing demand has largely focused on primary markets and CBDs, 6. percent of the total development pipeline currently resides in just 1 out of 5 U.S. office markets. With the exception of New York and Houston, both of which have recently recorded occupancy losses, the other ten markets had annual occupancy gains that were 1.8 times higher than new deliveries, on average. Chicago s occupancy growth to new supply was the highest at 6.6 times, followed by Philadelphia at 2.3 and Boston at 1.5 times, respectively. A number of large deliveries and groundbreakings in Q1 216 pushed quarterly activity down in Q ,, 9,, 8,, 7,, 6,, 5,, 4,, 3,, 2,, 1,, Meanwhile, eight markets have no construction at all. However, some of these markets include Jacksonville, Oakland/East Bay, Sacramento and West Palm Beach, which are starting to see renewed interest and activity, resulting in above average rent increases within their hottest submarkets. 6. percent of the total development pipeline currently resides in just 1 out of 5 U.S. office markets Looking ahead, 216 will receive an additional 48.9 million square feet of new supply, preleased at a rate of 47.6 percent, with anticipated deliveries including: 1 Hudson Yards in New York s Penn Plaza/Garment District, Phillips 66 headquarters in Houston s Westchase and Moffett Gateway in Silicon Valley s Sunnyvale. For speculative projects only, which total 35.2 million square feet, the prelease rate declines to 32.1 percent, providing tenants with plenty of large-block opportunities for expansion. 216 will receive an additional 48.9 million square feet of new supply 7

8 UNITED STATES OFFICE CLOCK The JLL office clock demonstrates where each market sits within its real estate cycle The JLL office clock demonstrates where each market sits within its real estate cycle. Markets generally move clockwise around the clock. Geographies on the left side of the clock are generally landlord-favorable, while markets on the right side of the clock are typically tenant-favorable. As of the fourth quarter, the vast majority of markets are firmly positioned on the left side of the clock. Posting the largest quarterly gain of the cycle, rental rates during the fourth quarter increased 2.2 percent to reach $31.26 per square foot. While this rate surpasses 28 s peak rent of $3.42 per square foot, when adjusted for inflation rents are still 1.2 percent lower. However, this is expected to change over the next two years as markets prepare to welcome some of the most expensive developments ever delivered and landlords of existing buildings push rents to keep pace with an increasing market. Across the more than 48.9 million square feet of new developments that are expected to deliver in 216, rents average $4.78 per square foot a 3.5 percent premium over the current rate. Further into the development cycle, those rents are even higher with rental rates for 217 and 218 deliveries currently averaging $51. per square foot and $58.67 per square foot 63.2 and 87.7 percent premiums, respectively. Even when compared to average Class A rents only, premiums for 216, 217 and 218 deliveries are 11.7, 39.7 and 6.6 percent respectively. In addition to high-priced developments, strong tenant demand is also encouraging landlords to raise rents where supply and demand have begun to veer apart. Following Uber s building acquisition, and coupled with a 7.5 percent vacancy rate (and no new supply on the horizon), Oakland s CBD posted a 14.1 percent quarterly rent increase during the fourth quarter. Boston s Cambridge market, also in high demand by the metro s innovative and technological tenants, recorded a 6.9 percent increase quarter-over-quarter. With a 6.6 percent vacancy rate, and the addition of a mere 57, square feet of new supply, rents averaged $58.22 per square foot higher than Washington, DC and New York s Downtown market. Other notable increases include Jacksonville suburbs seeing rents jump by 8.4 percent and Tampa Bay suburb growing by 6.5 percent the former a result of increasing demand paired with virtually no new supply and the latter a result of new, high-priced construction as well as growing demand. Overall, Class A rents across the country maintained a significant premium over the market at 16.8 percent, but that premium is even higher when compared to just Class B office, which was 43.3 percent lower than Class A rents at yearend. In urban markets where architecturally unique Class B office is being renovated to meet growing creative space demand, the delta between Class A and B is very narrow, with demand for creative Class B surpassing Class A demand in some cases. In Portland s Central City, Class B rents are 6.8 percent lower than Class A. In San Francisco, the delta is only 12.3 percent, with some Class B buildings in SOMA asking for more rent than Class A buildings in the Financial District. However, in markets with languishing demand, the opposite is true. In Fairfield County s Stamford CBD/Railroad market, where overall demand has long been on the decline (and rents are reflective of that), tenants only want high-quality space. As a result, the difference between Class A and Class B rent is 75.6 percent. The same is also true for the Greenwich CBD/Railroad and White Plains CBDs, which must compete with New York for both companies and talent. Class B rents in these markets are 68.4 and 55.3 percent lower, respectively, than Class A. Looking ahead, sustained tenant demand and tightening fundamentals will continue to place pressure on local markets; giving landlords leverage to raise rents further and creating a competitive negotiating environment for tenants. With the exception of Houston, which will continue to see softening amidst high sublease vacancy and halted demand, U.S. markets in general will remain on the upswing over the next 24 months. San Francisco Peninsula Silicon Valley Dallas, San Francisco Austin Nashville Denver, Minneapolis, Seattle-Bellevue Los Angeles, San Diego New York, Pittsburgh, Portland, Tampa Boston Atlanta, Jacksonville, Miami, Orange County, Richmond, United States Chicago, Phoenix Charlotte, Fort Lauderdale, Kansas City, Oakland-East Bay, Orlando, Salt Lake City Cleveland, Indianapolis, Raleigh-Durham, St. Louis Cincinnati, Fairfield County, Hampton Roads, Milwaukee Long Island, Philadelphia Baltimore, Detroit, Hartford, San Antonio, West Palm Beach, Westchester County Peaking phase Rising phase Falling phase Bottoming phase Houston New Jersey, Washington, DC Columbus, Sacramento 8

9 UNITED STATES CBD OFFICE CLOCK Houston San Francisco Austin, Nashville, New York (Midtown South), Silicon Valley Minneapolis, Tampa Denver, Seattle Dallas, Fort Lauderdale, Los Angeles, Portland Boston, New York (Downtown), Pittsburgh Atlanta Chicago, Miami, San Diego, United States Jacksonville, Oakland, Orlando Charlotte, New York (Midtown), Philadelphia, Raleigh-Durham Salt Lake City Cleveland, Indianapolis Fairfield County Cincinnati, Milwaukee, Phoenix, West Palm Beach Detroit, Hartford, Washington, DC Sacramento, White Plains Columbus, Richmond, San Antonio, St. Louis Peaking phase Rising phase Falling phase Bottoming phase Baltimore, Kansas City UNITED STATES SUBURBAN OFFICE CLOCK Silicon Valley Dallas San Francisco Peninsula Houston San Francisco (non-cbd) Cambridge Austin, Bellevue, Richmond Peaking phase Falling phase Denver Los Angeles, Nashville, San Diego Kansas City Jacksonville, Pittsburgh, Portland, St. Louis Nassau County, Orange County, Tampa Boston, Minneapolis, Phoenix, Seattle, Salt Lake City Atlanta, Baltimore, United States Charlotte, Chicago, Cleveland, East Bay, Indianapolis, Westchester County Cincinnati, Fairfield County, Hampton Roads, Oakland Fort Lauderdale, Orlando, Miami, Milwaukee, Raleigh-Durham Philadelphia Columbus, San Antonio Central NJ, Detroit, Hartford, West Palm Beach Rising phase Bottoming phase Southern NJ Suffolk County Washington, DC Lehigh Valley, Northern DE, Northern NJ, Sacramento 9

10 Year-over-year growth (%) 1-month net change (thousands) Federal funds rate (%) UNITED STATES ECONOMY After more than a year of caution, the Federal Reserve confirmed its more optimistic outlook on the U.S. economy during the fourth quarter by enacting a.25 percent interest-rate hike, the first step in a larger program of tightening. Buoyed by a combination of sustained job growth, declines in unemployment and improvements in personal expenditures and domestic investment, the Federal Open Market Committee sees the risks to the outlook for both economic activity and the labor market as balanced ; despite inflation remaining below the 2. percent threshold due to suppressed oil prices and net exports lagging expectations. The decision comes after an unprecedented streak of near-zero interest rates since 29 and sets the stage for cautious action by the Federal Reserve in future quarters. $ The Federal Reserve confirmed its more optimistic outlook on the U.S. economy during the fourth quarter by enacting a.25 percent interest-rate hike Real GDP is up 2.1 percent year-over-year, higher than nearly all other major developed economies Other economic metrics also demonstrate stability in the U.S. economy, even as the global picture remains patchy. In line with employment growth of more than 2.3 million jobs through November 215, real GDP is up 2.1 percent year-over-year, higher than nearly all other major developed economies, and standing at a nominal total of $18.1 trillion. Even the housing market, which has lagged the overall economy, is seeing a resurgence with year-to-date starts of nearly 1.1 million units, exceeding year-to-date 214 totals by 11.6 percent. Not only has such performance translated to higher consumer confidence, but the office market has responded with 55.5 million square feet of occupancy growth, the highest annual total during the current cycle. The office market has responded with 55.5 million square feet of occupancy growth, the highest annual total during the current cycle Interest rate hike coming after unprecedented time near percent, fueled by improved job growth, Bureau of Labor Statistics Minimal inflation to further improve consumer spending and business investment, driving greater GDP gains and improved earnings mileage Notable over the past 12 months has been the sharp drop in inflation; the consumer price index has increased by only.4 percent over the year, in large part due to a sharp fall in oil prices. The energy and energy commodities components of the CPI are down 21.4 and 33.6 percent respectively from their 214 peaks, a downturn that has particularly impacted resource-intensive office markets such as Houston and Calgary. Aggregate drops in the prices of goods has helped to make the slow but steady rise in wages more meaningful, with average hourly pay up 2.3 percent year-onyear. In turn, personal expenditure growth is outperforming that of the overall economy by 1 basis points (+3.1 percent), concentrated particularly in durable goods. Flat CPI growth is having a meaningful impact on already rising wages, in turn boosting spending and GDP gains 5.% 4.% 3.% 2.% 1.%.% -1.% , 1-month net change (thousands) Federal funds rate (%), Bureau of Labor Statistics 6.% 5.% 4.% 3.% 2.% 1.%.% CPI growth GDP growth Wage growth

11 This level of increased personal consumption has displayed itself in a broader base of business investment as well as a return to higher levels of individual debt and lower savings rates; both signs of a more robust and dynamic economy. As with much of the recovery so far, highly technical and specialized segments of the economy (such as information processing, research and development and software) are surpassing base-line levels of growth, as is investment in the residential sector. Increased personal expenditures are placing upward momentum on retail sales, in turn augmenting demand for transportation and logistics providers and their equipment manufacturers. As year-to-date retail sales remain on the rise at 2. percent, and at 6.9 percent for motor vehicles, so too will profits be reinvested into business and growth. Investment in technical and residential business seeing growth triple that of the overall economy Other information processing Research and development Transportation equipment Arts and entertainment Industrial equipment Other equipment Personal expenditure growth is outperforming that of the overall economy by 1 basis points Residential Software Computers Structures -1.1% -1.2%, Bureau of Economic Analysis 4.% 3.9% 3.3% 2.6% 4.9% 6.5% 9.4% Geographical spread of growth solidified as nearly all markets are adding jobs; unemployment down across the board. Leading markets remain those with a strong tech foundation 1.5% -15.% -1.% -5.%.% 5.% 1.% 15.% 12-month % change Nearly all primary, secondary and even tertiary geographies are contributing to the recovery in the labor and office markets to varying degrees, with declining unemployment pushing employee underutilization below the national average and driving up wages as employers compete for a shrinking talent pool. Leading markets remain those with a strong tech foundation (the Bay Area, Seattle, Austin, Portland and Boston) as well as many parts of the Sun Belt and Mountain West particularly the hyper-diverse Dallas and Atlanta metro areas and smaller powerhouses such as Denver, Charlotte, Raleigh- Durham, Nashville and Salt Lake City. The office-using industries, which include many information and professional services subsectors prominent in tech, are gaining even greater momentum in many of these markets. In Silicon Valley, for instance, office-using gains of 8.2 percent are the highest of any large metropolitan area, with Austin only slightly behind at 6.4 percent. Tech and Sun Belt cities lead office-using job growth; Silicon Valley approaches double-digit increases Silicon Valley Austin Fort Lauderdale San Francisco San Antonio Salt Lake City West Palm Beach Seattle-Bellevue Atlanta Nashville Detroit Portland Washington, DC San Diego Dallas 4.2% 4.2% 4.1% 4.1% 3.9% 3.6% 3.4% 3.4% 3.4% 3.3%, Bureau of Economic Analysis 6.4% 6.3% 5.9% 5.8% Education and healthcare are notably edging out professional and business services (PBS) as the leader in job creation over the course of the year with 638, net new jobs A broader range of markets chipping away at unemployment has also been a boon to most subsectors and industries; with education and healthcare notably edging out professional and business services (PBS) as the leader in job creation over the course of the year with 638, net new jobs. Smaller, but rapidly growing, are areas such as other information services (+7.2 percent), computer systems design (+5.4 percent), management and consulting (+4.1 percent) and motor vehicles and parts (+3.7 percent). On the other hand, turmoil in the energy industry has resulted in a contraction of 123, jobs, or percent. As a result, organic growth is likely to lead to further net absorption across the U.S. office market, even as new space begins to come to the market throughout % 2.% 4.% 6.% 8.% 1.% 12-month % change in office-using jobs Turmoil in the energy industry has resulted in a contraction of 123, jobs, or percent 11

12 A strong 215 will lead to an even stronger 216, although global prospects remain difficult to predict Overall, 215 presented a more robust and resurgent economy, building on the foundations laid in 213 and increased throughout 214. Importantly, consistent employment growth has dwindled underutilization in the labor market in many geographies to the point that employees now have greater advantages and leverage in terms of pay and job choice. For the office market, the need to accommodate larger workforces will mean more expansionary activity, although a dearth of large blocks may lead to additional groundbreakings throughout the year. Similarly, rising wages in an environment of limited inflation will mean stronger consumer spending, pushing up real GDP growth further. Heading into 216, the effects of the Federal Reserve s bump in interest rates, coupled with changes in resource-based emerging markets and variations in net exports (due to a stronger dollar), will play an important role in shaping economic policy and the rate of both the GDP and corporate expansion throughout the remainder of the cycle. The need to accommodate larger workforces will mean more expansionary activity 12

13 Office investment sale volumes (billions of $US) UNITED STATES INVESTMENT SALES 215 transaction volumes up 16.5 percent despite a fourth quarter decline Realized diversification deeper into primary markets, secondary markets and larger transactions spurs 16.5 percent growth in 215 $25. $2. $15. $1. $5. $. Moderate growth forecasted in % 19.6% 32.1% 18.8% Q1 Q2 Q3 Q4 Forecast, Real Capital Analytics (Transactions larger than $5.m) Though a 29. percent decrease in quarterly sales volume was recorded in the fourth quarter, this is from a high base with fourth quarter 214 totaling $38.3 billion of sales. This remains the highest volume of quarterly sales since the prior peak in 27. Fourth quarter investment sales volume of $27.1 billion brought full-year volume for 215 to $131.8 billion, a 9.1 percent increase over 214. Fourth quarter investment sales volume of $27.1 billion brought full-year volume for 215 to $131.8 billion, a 9.1 percent increase over 214 While the fourth quarter was the least active in the year, 215 recorded the highest volume in the office sector since 27. Strong growth in the first three quarters of the year (averaging 29. percent from Q1-Q3) offset declined quarterly figures this quarter. Noteworthy large acquisitions included 1211 Avenue of the Americas in the Plaza district of New York, a 5. percent stake of which was purchased by Ivanhoé Cambridge and Callahan Capital Partners for $895.2 million, and a portfolio of two assets in Boston, 5 Boylston Street and 222 Berkeley Street, acquired jointly by Oxford Properties and JP Morgan for $1.1 billion. Heading into 216, we anticipate stable full year office growth between percent. With interest rate hike, spreads remain stable with modest widening at year-end As we move further into the cycle, overall cap rate compression is being driven by secondary markets. However, secondary markets are still pricing at a discount to the long-term average. Secondary markets driving compression were Atlanta, Charlotte and Phoenix, each of which recorded 5 basis points of yield compression in 215. Primary markets recording stronger yield compression in 215 were San Francisco and Los Angeles, each exceeding 2 basis points. After a highly anticipated increase to the risk-free rate by the Federal Reserve, cap rate spreads to the 1-year Treasury are stable and, in fact, have modestly expanded since year-end 214. Spreads widened from 25 and 27 basis points in primary and secondary markets to 219 and 296 basis points, respectively. With strengthening leasing conditions and robust levels of unplaced capital active or entering the markets, spreads are expected to slowly tighten into 217. As inbound office investment increases 126. percent year-overyear, capital is diversifying deeper into primary markets and into select secondary assets Canada is again the most active country of origin for foreign capital in 215 after Germany and Norway pushed ahead in 214. With $6.3 billion of investment, Canada was more than twice as active as the next largest source of capital, China, with $2.9 billion, led by Ivanhoé Cambridge primarily in New York. A notable transaction was 195 Avenue of the Americas, in which the highest price per square foot in any market was achieved over the year: $2,122 per square foot. The five most active foreign countries of origin Canada, China, Germany, Norway and South Korea in aggregate acquired $15. billion worth of product in the year, accounting for 81. percent of total foreign activity. While smaller in volume, buyers from Brazil, Spain, Australia and the Middle East have become more active this year at varying scales. Canadian and Asian capital continue to dominate inbound capital Most active foreign investors (214) Most active foreign investors (215) 9.% 13.5% 16.4% 15.3% 24.% 21.9% 5.6% 18.5% 9.5% 15.5% 15.8% 35.1% Canada China Germany South Korea Hong Kong Norway Singapore All others European and Middle Eastern groups are present, though did not buy at scale in 215 (Assets larger than 5, s.f.) 13

14 $2,323 $1,935 $1,184 $995 $79 $62 $515 $394 $347 $249 $172 Secondary market investment volumes (millions of $US) Quarterly office investment volume (millions of $US) $11,237 Despite inbound volume gains, foreign activity remains concentrated in primary markets, accounting for over 9. percent of acquisitions in 215 Despite inbound volume gains, foreign activity remains concentrated in primary markets, accounting for over 9. percent of acquisitions in 215. Four markets recorded over $1. billion of investment to foreign groups in the year: New York, Washington, DC, Boston and Seattle. These four markets made up over 51. percent of all inbound capital into the office sector with very little of this capital making its way to suburban assets. In 215, foreign investment into primary suburban assets decreased to 5.5 percent, down from the average of 1.5 percent. While overshadowed by foreign activity in primary markets, secondary market investment nearly doubled in 214, from $442.1 million in 213 to $81.4 million. In 215, the increase was even more substantial, reaching $2.2 billion. The largest secondary markets for foreign activity were Miami, Atlanta and Denver. Miami was the most active secondary market destination for foreign capital, with seven transactions totaling $79.1 million. Of these markets, 89.4 percent was in suburban assets, differing significantly from the profile of assets purchased by foreign groups in primary markets. Of the top destinations for foreign capital, primary markets remain ahead, though secondary markets emerge $12, Foreign activity into Class B increased from $644.5 million in 214 to $4.1 billion, equating to 2. percent of total Trophy A B 1.5% % 33.3% Trophy A B 6.7% % 33.3% 2.% Trophy A B % (Foreign acquisition activity, Assets larger than 5, s.f.) 22.9% With strengthening leasing fundamentals, secondary markets are driving investment sales growth, increasing by 76. percent compared to 4. percent in primary markets this year 16 secondary markets doubled activity in 215 with 11 recording transaction volumes over $1. billion. This represents a near tripling from the four secondary markets which exceeded $1. billion last year. $1, $8, $6, Secondary market momentum realized in 215 with 11 markets exceeding $1.b, led by Atlanta, Dallas/Forth Worth and Philadelphia $4, $2, $ Primary markets Secondary markets (Foreign acquisition activity, Assets larger than 5, s.f.) $4, $3,5 $3, $2,5 $2, $1,5 $1, $5 $ Foreign buyers are also diversifying into Class B space. While Trophy and Class A (as a percentage of total) acquisitions declined slightly, Class B increased from 7.3 percent in 214 to 21.6 percent in 215. This equates to $4.1 billion of Class B acquisitions in 215, up from $644.5 million the prior year. New York has most evidenced this trend, having increased by a multiple of 8. this year to $1.7 billion. Relative to activity in 213 and 214, Class B investments have diversified from the Gramercy Park and Midtown submarkets to Chelsea, Grand Central and Columbus Circle. Outside of New York, diversification of Class B activity across submarkets is not as evident with groups focused on prime submarkets, including Central Loop (Chicago), CBD (Washington, DC), Westside (Los Angeles), Seaport (Boston) and Brickell (Miami) (Assets larger than 5, s.f.) Sixteen secondary markets doubled activity in 215 with 11 recording transaction volumes over $1. billion 14

15 Annual investment sales volume (millions of $US) Annual growth in price per square foot (%) Of secondary markets, Atlanta, Dallas, Philadelphia and Denver recorded the most activity with Atlanta reaching volumes of $3.5 billion and Dallas, Philadelphia and Denver all over $2. billion. Strong leasing fundamentals defined these markets. Dallas, for instance, recorded nearly 5. million square feet of absorption in 215. Atlanta, Philadelphia and Denver recorded an average of 2.5 million square feet of absorption over the year. Other strengthening occupier markets of note include Phoenix and Miami. The largest secondary market transaction of the quarter, Waterford at Blue Lagoon, was a 49. percent interest acquisition from German group, Allianz Real Estate of America, pairing with TIAA-CREF. Waterford at Blue Lagoon has significant value-add potential, a 1-storey office tower is currently in the planning stage, due in 217. In line with U.S. markets at large, institutional investors and advisors have been the most active buyers in these markets, although not by a large margin relative to private investors. While institutional investment remains disciplined outside of the primary markets relative to the prior cycle, expanding secondary market activity continues to provide attractive yields, averaging a 23 basis point discount to primary markets, with lagging yield compression in markets such as Philadelphia and Dallas relative to the prior peak. Activity in Trophy space, while increasing, is lagging peer building classes a result of heightened transaction activity in the latter part of 214. Year-over-year, volume growth in the Trophy space was 2. percent, while growth in Class A and B has increased by 46. and 5. percent, respectively. This is broadly reflecting a capital supply-demand gap for Trophy assets which is pushing pricing appreciation to outperform the markets at large. While Class A and B on average increased by 7. and 11. percent, respectively, Trophy assets recorded an increase in pricing per square foot of 32. percent this year. Of these transactions, five assets traded at per-square-foot pricing in excess of $1, per square foot, all of which were located in New York or Washington, DC. Of buyers, 79. percent were institutional, an increase from 65. percent last year, with foreign capital accounting for 44. percent of overall activity. While defensive, core investors with lower return requirements remain focused on Trophy transactions, the overall pool of higher return, value add and opportunistic capital has and continues to expand, providing a boost to capital growth in markets. As Class A and B assets drive activity, supply-demand gap for Trophy pushing pricing appreciation Trophy investment volume was outpaced by Class A & B However, supply-demand gap for Trophy product spurred leading per-square-foot pricing appreciation in 215 $7, $6, $5, $4, $3, $2, $1, 4.% 35.% 3.% 25.% 2.% 15.% 1.% 5.% $.% Class A Class B Trophy 214 volumes 215 volumes Year-over-year pricing change (Assets larger than 5, s.f.) 15

16 ATLANTA - Ryan Harchar Senior Research Analyst, Atlanta Are landlords and investors letting off on the gas? Rent increases for large Class A blocks slowed substantially in Q4 Over the final months of 215, landlords seemed to be less aggressive relative to previous quarters. On the whole, average asking rates of large, contiguous blocks of Class A space (those 5, square feet and larger) increased by only $1.13 per square foot, much less than in previous quarters. Even more telling is how few blocks actually increased in price over the same period. Landlords of only eight blocks pushed rates. Could this foreshadow a softening in the office market or is it only the calm before landlords again use Q1 to put pressure on large occupiers seeking space options? Modest large available Class A block asking rate increases Average rate increase (p.s.f.) Total blocks which increased Q4 215 $1.13 Q4 8 Q3 215 $1.29 Q3 13 Q2 215 $1.24 Q2 14 Q1 215 $1.5 Q1 31 Q4 214 $1.29 Q4 13 Year-end office demand trends defy analyst projections Declines in the metro unemployment rate, meaningful population increases, a growing GDP and strong corporate cash positions all pointed to substantial increases in annual demand for Atlanta office space. On the contrary, 215 net absorption figures totaled less than in 214. Actual figures fell short of analysts projections of 3. million square feet by about 4, square feet. Diversification trends also moved counter to expectations as demand failed to broaden further into the Class B segment as one would expect in a supplyconstrained market with positive tenant demand. Could this signal a slowing of momentum in Atlanta s landlord-favorable conditions? Weakening Class B net absorption as % of total Class B 2.7% Class B.% Class B 32.5% Class B 19.9% Investors throttle acquisition pace in the year s final months November and December sales activity ended the year with somewhat of a whimper rather than a roar. Investors, presumably, are still digesting the massive buys from earlier in the year as others wait on the sidelines to see if the strong market fundamentals remain durable. Still, in the back of everyone s mind also remains the possibility of new development breaking ground, threatening buyers underwriting assumptions. Projects are increasingly justifiable in several pockets around the metro. Firms seeking space, especially smaller occupiers, would benefit greatly from the additional leverage that new inventory would bring. 215 Office sales dollar volume trails off $8,, $6,, $4,, $2,, $ 133,555, ,841 $ , 17.5% 2,578, % 22.3% 16

17 AUSTIN - Travis Rogers Research Analyst, Austin 215 is one for the record books in Austin Record breaking citywide absorption places Austin in second Austin closed out 215 with the second highest citywide absorption as a percent of inventory in the nation. Coming in first place was the San Francisco Mid- Peninsula region at 4.9 percent (1.4 million square feet), followed by Austin at 4.6 percent (2.3 million square feet) and Silicon Valley at 4.2 percent (2.9 million square feet). Austin has never experienced a greater amount of absorption within a twelve-month period. The submarkets that yielded the greatest absorption include the CBD (722, square feet), Northwest (66, square feet) and Southwest (574, square feet). The first half of 216 will also behold a period of record-high absorption as large leases executed in early 215 will commence. Top performing submarkets by YTD absorption (s.f.) CBD Northwest Southwest Far Northwest Central Southeast 9,272 75,923 26, ,442 66,36 722,319 Austin ranks third in the nation for most construction deliveries The top three markets for new deliveries in 215 are all located within the Lone Star State: Houston with 8.7 million square feet (3.6 percent of inventory), Dallas with 4.7 million square feet (4.7 percent of inventory) and Austin with 2.9 million square feet (4.1 percent of inventory). Two large projects in Northwest Austin expected to deliver during the fourth quarter have now been pushed to the first quarter of 216 (Research Park Plaza V and Domain 1). Fourth quarter deliveries include: Lamar Central (132, square feet), Aspen Lake 2 (129, square feet), Encino Trace II (158, square feet) and Quarry Oaks III (138, square feet). Collectively, these projects are 7. percent leased with the largest tenants being BazaarVoice at Quarry Oaks III (138, square feet) and Q2 Holdings at Aspen Lake 2 (129, square feet). Citywide projected construction deliveries by quarter (s.f.) 1,5, Next Wave 1,9,616 1,, 87, , ,173 5, 66,72 124, Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 One in three tenants are searching in this submarket and it s not the CBD While demand for office space downtown is at an all-time high, tenants during the fourth quarter showed more interest in the Northwest submarket. Of 165 tenants searching for space, 32. percent searched Northwest (53 deals), 26. percent searched downtown (43 deals) and 15. percent searched Southwest (25 deals). While only 2. percent of tenants in the market (3 deals) looked Northeast, these tenants required the largest average size requirement of 11, square feet. Citywide searches boasted the second highest average size requirement at 83, square feet (7 deals) while Central ranked in at third with 53, square feet (11 deals). 49,189, % 724,467 2,253,197 Target submarkets from tenants in the market (%) 4% 2% 4% 4% 7% 15% 26% $ % 32% 165 Tenants In The Market > 5K SF Northwest Southwest East Southeast North South CBD Central Citywide Far Northwest Northeast 2,7,666 32% 17

18 Thousands s.f. BALTIMORE - Patrick Latimer Manager, Baltimore Construction increases as Class A vacancy dips Performance between Class A and Class B continues to diverge Vacancy for Class A space across the Baltimore metro market dipped to 1. percent while the lower segments of the market languished with low leasing velocity and elevated vacancy. In the Central Business District, Class B vacancy has jumped to 23. percent as off-water buildings struggle to backfill tenants who have upgraded to more modern and efficient space. In Howard and Anne Arundel counties, landlords have begun to reinvest in Class B product with extensive renovations: COPT fully renovated 71,99 square feet at 121 Winterson Road and demolished a vacant 56,452-square-foot Class B building at 921 Elkridge Landing Road to make way for retail amenities. Development activity significantly increases Following a record minimum for new deliveries in 215, construction across the market increased as projected deliveries for the coming year are set to be the highest since 211. The largest project scheduled for delivery is Exelon s 42,-square-foot headquarters at Harbor Point in Baltimore City. Several additional projects should break ground in the near term: 32, square feet at 99 Shawan Road for McCormick s consolidation in Hunt Valley and 13, square feet at 4 Wight Avenue for JMT Engineering, also in Hunt Valley. The development has come as large blocks of existing Class A space across the market have become increasingly limited. Select submarkets post Class A rental rate growth Several submarkets from Baltimore City to the suburbs experienced considerable rental rate growth for Class A product over the course of 215. As vacancy for Class A space has fallen below 1. percent in many of these submarkets and blocks of existing availability have dwindled, market leverage has shifted in favor of landlords for many Class A buildings and rental rates have accordingly risen. Rates have risen the sharpest in Columbia Town Center, which offers a mixed-use environment with walkable amenities, where available blocks of just 1, square feet have become scarce. In the CBD, Pratt Street drove rental rate growth as vacancy for Class A product dropped below 6. percent in the upper tiers of the market. Class A and Class B vacancy diverge at rapid pace 2% 15% 1% 5% Development pipeline increases 2, 1,5 1, Year-over-year rental rate growth in select submarkets I-83 North Baltimore Southeast CBD Annapolis Columbia South Columbia Town Center Class A vacancy Class B vacancy Preleased s.f. 4.8% 3.3% 4.2% 5.2% 5.% 6.5%.% 1.% 2.% 3.% 4.% 5.% 6.% 7.% 71,152, % 221, ,456 $ % 1,333,4 62.4% 18

19 Total s.f. of leases signed BOSTON - Lisa Strope Research Manager, New England 215 ends on a high note across all submarkets Q4 hits a high-water mark for leasing activity Boston has become a critical and strategic location for growing global brands and the nearly 1.9 million square feet in organic growth from local tenants this quarter such as Wayfair, HubSpot, Rockport, Bullhorn and LevelUp has pushed fundamentals across the market. s reached above the previous peak for the fifth quarter in a row to $34.4, and total vacancy dipped to its lowest point since 27; dropping 5 basis points over the quarter to 13.8 percent. 215 ended the year with a flurry of leasing activity closing nearly 3.5 million square feet in transactions in the fourth quarter, up nearly 15. percent quarter-over-quarter, and triple the volume of the snowy first quarter. Boston s Downtown and Rt. 128/Mass Pike submarkets were the most active, each closing nearly 1. million square feet in leases over 2, square feet. Spec development sprouting up The tightening market has created a supply-demand imbalance and developers have taken notice. With only 5. percent of the over 5.8 million square feet under construction available for deliveries through 218, speculative developments are sprouting in nearly every submarket. Early in 216, several fully available developments are expected to deliver including: the repositioned former mall in Chestnut Hill, Bulfinch s 286,-square-foot Atrium Center and the brick-and-beam renovation of 9 Channel Center in the Seaport. Tenants in the market now have the option to choose between new and older, existing office space. Tech cycle has room to run and Boston is well positioned Driven by knowledge-intensive industries such as tech and life sciences, Boston s job growth continues to outperform both Massachusetts and the nation. Forecasts through 22 remain optimistic with steady growth expected to continue at nearly 2. percent per year for the next two to three years; keeping the regional unemployment rate below 5. percent through 22. While there is a general consensus that the probability of recession by 217 is low, it will likely be a bumpy ride with a correction early in the next decade. Q4 Leasing transactions by submarket, leases signed over 2, s.f. Forecast deliveries for projects under construction 4,, 3,, 2,, 1,, SF Delivered Forecast Boston MSA unemployment forecast through 22 9.% 7.% 5.% 3.% 1,, 75, 5, 25, 7.9% 17 21, Moody s, Boston MSA CBD Suburbs Cambridge Underway for million sf 4.3% 4.6% F 218 F 22 F 3 165,361, % 1,8,136 3,45,721 $ % 5,573, % 19

20 CHARLOTTE - Patrick Byrnes Research Analyst, Charlotte Development coming on strong New product on the way in CBD For the first time in the past five years, development is surging in the CBD submarket. Highlighting the development in Uptown are three major projects that are underway. First, Portman Holdings is developing 38, square feet of space at 615 South College Street. Second, Spectrum Properties and Mass Mutual are behind the 3 South Tryon development which will total 63, square feet at completion. AvidXchange s new headquarters will be located at 935 Hamilton Street adjacent to the NC Music Factory. The Hamilton Street project is being developed by Red Rock Developments and will total 2, square feet at completion. Rental rates keep climbing Asking rates continued to push higher in the fourth quarter, currently sitting at $23.3 per square foot. The increase in average rental rates is due in large part to the CBD, SouthPark and Highway 51/Ballantyne submarkets that have set the bar above $3. per square foot. In the emerging Midtown submarket, the 1616 Center building is advertising rates above the $3. per square foot mark as well. As new projects capture significant preleasing activity, look for asking rates to hold steady in the foreseeable future. CBD Under Construction 3,,. 2,,. 1,, Asking rates continue to push (p.s.f.) $25. $23. $21. $19. $17. $ Investment sales noticeable to end the year There was plenty of sales activity to finish out 215 in the Charlotte office market. In the CBD, 121 West Trade Street sold for $71.6 million ($216. per square foot) to Lincoln Property Company. The building totals 33, square feet and was previously owned by The Dilweg Companies. In the Highway 51/Ballantyne submarket, Toringdon Office Park sold to American International Group and Trinity Capital Advisors for $114 million ($21. per square foot). The office park consists of six buildings that total 519,62 square feet and was previously owned by Stockbridge Capital Group Madison International Group, and Trinity Capital Advisors. Sales activity finishes out Q4 1,829,16 s.f. Total s.f. traded in Q4 46,615, % Q4 94, ,466 $23.3 Q4 direct average asking rate 6.2% 2,617, % 2

21 CHICAGO (CBD) - Hailey Harrington Research Analyst, Chicago CBD Rising tide lifts market and new developments Incredibly strong market momentum at year end For those watching the long-term leasing patterns in Chicago, 215 looks a lot like 27. Leasing activity, space absorption and vacancy rates are all essentially at their prerecession levels. Although space available for sublease continues to rise, many large blocks have been quickly backfilled; further indicating the positive momentum in the city. While new buildings attract major headlines and expanding tenants, the CBD continues to be a center of value-add investment with owners repositioning older properties, and attracting tenants from within and from outside the metro area. Fortunately for occupiers, rents have risen conservatively across most of the CBD; although tenants should be on the lookout for local rent spikes in 216. Historical Class A, CBD vacancy rates 2.% 15.% 1.% 5.% 16.6% 16.4% 16.2% 13.7% 14.3% 11.2% 11.3% 11.5% 11.4%.% River West (Fulton Market) expanding at an unprecedented pace In 215, all of the stars aligned for the River West submarket. The occupancy of 1K Fulton and surrounding tech office properties drove absorption to the highest levels on record. The continued growth of multifamily and hotel investment in the neighborhood has created a positive feedback loop for owners and investors. The question will be whether or not tenants will still be drawn to the area as rents rise dramatically. Asking office rents in River West now match those of other more established areas. Now, new entrants into the market, such as Tucker Development, are making large bets which will test the long-term strength of the market. All of this activity makes the River West submarket the area to watch in Chicago over 216 for continued growth, or for potential continued growth, or for potential signs of overheating. YTD absorption by submarket (as % of submarket stock) Net absorption vs. new construction ratio New office developments thriving and justified Two large towers currently under construction in the CBD (15 N. Riverside and 444 W. Lake) have seen incredibly strong preleasing demand. In this environment, it appears that limited new development is justified in the market. With year-to-date absorption of more than two million square feet (1.7 percent of inventory), downtown tenants are expanding at a pace that is sufficient to offset the efficiencies and consolidations of others. Well located and properly scaled developments, such as 151 N. Franklin, should be successful as leasing demand remains steady, downtown migrations continue and competing deliveries remain limited. 1:1 For every square foot of space absorbed in the CBD this year, there is one square foot of new inventory currently under construction a sign of a healthy balance for the Chicago office market. 135,843, % 718,676 2,38,24 $ % 2,32,164 64% 21

22 # of blocks CHICAGO (SUBURBAN) - Amy Binstein Research Analyst, Chicago Suburban Midrange leases support strong finish to 215 Leasing activity back on the rise in 215 The suburban market had its second year of improved leasing activity following a slow 213. The largest lease signed this quarter was in the Eastern East-West submarket at 747 E 22 nd Street; a long-vacant building. Quintessite Technology Partners signed a lease for 18, square feet which will be used primarily as a data center. The North submarkets (Cook and Lake counties) combined had the most active year totaling almost 1.3 million square feet in major leasing activity. This number included leases signed by Donlen Corporation, Option Care, Protective Life and Solo Cup. Of major leases over 1, square feet signed year-to-date, 2.6 million square feet was completed in Class A properties. With a lengthy tenants-in-the-market list of over 3.8 million square feet of requirements, 216 looks to be a strong year for leasing activity. Despite high number of large blocks, suburban vacancy rates dip The fate of the suburban office market largely depends on the future use of corporate campuses and large single-tenant office buildings. As described above, the current momentum in the multi-tenant leasing market is very strong, but when factoring in some of the abandoned or under utilized campuses, such as Navistar, Office Max, Lucent and AT&T, the vacancy rate spikes. The suburbs currently have 72 blocks of non-owner occupied spaces totaling 1 million square feet. Looking into 216, companies like Gallagher, Zurich and ConAgra will also be vacating large blocks which will create additional large single-tenant opportunities, or chances for intrepid developers to redefine the use of these properties. Suburban office space remains a great value The suburban office market has continued to be a great opportunity for tenants. Over the past 1 years, rental rates have remained essentially flat; even without accounting for inflation. This makes the suburbs a great deal for tenants. This is especially true in comparison to escalating lease rates in the CBD. The cost savings in the suburbs can be as much as $15 per square foot in base rent for Class A office space. When combined with the savings in taxes and operating expenses, the suburban Chicago market is an incredible value for tenants. 97,371, % 384,742 1,227,749 YTD total net absorption (s.f.) 1,, 8,, 6,, 4,, 2,, Large blocks by class , - 1, s.f. 1, - 2, s.f. Historical Overall Class A direct rental rates Source: BLS, JLL Research $ % Class A Class B 3 8 > 2, s.f. $15. PSF rent savings on a Class A suburban space vs CBD 753, 1% 22

23 CINCINNATI - Ross Bratcher Research Analyst, Great Lakes Leasing accelerates and rents record gains Leasing activity heats up in Midtown, Kenwood The Midtown submarket saw significant leasing activity with CDK Global leasing over 161, square feet in Buildings I and II at Central Parke. CDK s lease in the submarket isn t the only positive sign, with Riverhills Neuroscience signing a 18,-square-foot lease at Linden Pointe on the Lateral. Leasing activity in the Kenwood was led by the Kenwood Collection, the submarket s most recently delivered Trophy office tower. Merrill Lynch and Roundtower Technologies both signed leases at Kenwood Collection combining for over 82, square feet of office space. Q4 office leases >3, square feet 31,599 32,46 81,845 38,517 79,552 42,651 5, CDK Global CDK Global Merrill Lynch Trustaff Tata Consulting Roundtower Process Plus Tenants still prefer high quality office space Class A product continued to outpace Class B product in vacancy. Class A space dipped to 16.5 percent for the quarter while Class B space had a 21.2 percent vacancy rate. The amount of new development delivered over the course of 215 has allowed companies to expand or relocate into Class A space, driving up occupancy rates. This can also be attributed to redevelopment of struggling office space to meet the high quality demands of tenants in today s market place. This trend should reverse in 216 as Class A vacancy tightens and rates rise, forcing tenants to look for Class B space. Class A vacancy for select submarkets 15% 13% 11% 9% Blue Ash / Montgomery West Chester East Midtown Kenwood Rents continue to steadily grow Asking rents in the Cincinnati office market continued their upward trend through the fourth quarter. The average asking rent for Class A space ended the year at $21.91 per square foot, an increase of $.11 from the third quarter. Meanwhile, Class B space averaged $15.94 per square foot, an increase of $.5 from the third quarter. Overall, asking rents across Class A and B space stand at $19.18 per square foot, slightly higher than the year before. The Kenwood office market demanded the highest asking rates in the market, with $27.26 being the average. This growth can be attributed to new development in the long-time sought after suburban submarket. Class A and B asking rent by submarket $3. Class B Class A $2. $1. $. Kenwood Midtown CBD 34,471, % 382,6 763,222 $ % 193, 1.2% 23

24 CLEVELAND - Andrew Batson Manager, Great Lakes Rightsizings persist downtown, vacancy increases Tenant-favorable conditions downtown to continue into 216 Despite renewed interest in the urban core and a roster of new tenants, vacancy downtown increased in 215 amid a number of corporate rightsizings. This market shift was most apparent in the Trophy product type, where vacancy increased 9.2 percentage points year-over-year. Key Bank s renewal and downsizing of roughly 2, square feet was the main driver of this vacancy increase. Class B vacancy was also up in 215, albeit marginally. While this product class will benefit from office-to-residential conversions, absorption gains have been slow to come and elevated vacancy rates are forecasted over the next year as relocations and rightsizings will offset absorption gains. CBD vacancy 25% 15% Class B Class A Trophy 5% Rents are unlikely to move until further vacancy declines are recorded Office rents in Cleveland have historically been less volatile than in primary markets given the relatively fixed levels of supply and demand. Furthermore, with elevated vacancy rates and tenant-favorable conditions, landlords have had limited ability to raise rents. Contrary to rents, landlords have been more active in adjusting concessions such as free rent and tenant improvement allowances based on shifts in market conditions, and in recent years, these concessions have tightened modestly. At the end of 215, Class A rents were recorded at $23.4, up 35 basis points year-over-year while Class B rents were recorded at $17.68, up 99 basis points year-over-year. With primary markets picked over, investors find opportunity in Cleveland Sales activity has been intensifying in Cleveland and investment-grade assets have been making up a larger percentage of trades in recent quarters. With primary markets oversold during the current cycle, investors have turned to secondary markets like Cleveland for opportunities with attractive returns. Both value-add and core assets are available for purchase, including the Key Center complex in downtown Cleveland. One investor who has been particularly active in Cleveland is the Hertz Investment Group, which purchased the 58,- square-foot Fifth Third Center for $53.3 million in April followed by the 321,- square-foot Skylight Office Tower for $35.4 million in September. Asking rents, market averages $24 Class B Class A $2 $ Cumulative sales volumes ($ millions) $6 $3 $ ,121, % 178,99 75,978 $ % 47, 33.3% 24

25 COLUMBUS - Ross Bratcher Research Analyst, Great Lakes Vacancy declines further amid demand gains Vacancy rates continue steady decline in 215 Steady demand across the Columbus office market has led to continued decreases in vacancy across both Class A and Class B assets. Class A vacancy currently stands at 8.4 percent, a product of strong absorption in class A assets during the fourth quarter. Meanwhile, Class B vacancy is 14.4 percent, a decline of six basis points from the prior quarter. Leasing activity was mixed in the fourth quarter as the CBD saw strong positive absorption while suburban absorption was negative. This trend is attributed to companies looking to move into the urban core to lure the millennial workforce. Looking into 216, corporate consolidations in the suburbs will likely increase vacancy rates. Select submarket vacancy rates 2% 1% % Arena District Easton Polaris Grandview Dublin Rent growth is likely to level off in 216 Rents continued to appreciate in Columbus as demand outpaced supply additions. However, due to the consolidation of multiple large office users into corporate campuses, the amount of available space is projected to increase significantly in 216 and likely drive rents down. These users include Nationwide and Verizon, whose suburban departures will have a measurable impact on the market. Currently, the Northwest submarket cluster boasts the highest averaging asking rent, at $18.88 per square foot, driven largely by the in-demand Dublin and Grandview/Arlington submarkets. Office employment trends (12-month change, s) 15.. Professional & Business Services Information -15. Government Financial Activities Mixed-use and owner-occupied projects drive construction Construction remains active in the Columbus market for both speculative and owner occupied buildings. While 25 S. High was delivered in downtown, construction began on Dublin s Bridge Park project which will include 93, square feet of office space, 43, square feet of restaurant space, and 9, square feet of other retail. Amazon continued construction on their two data centers totaling 87,, while Nationwide continued construction on their corporate campus in Grandview. Expedient completed and opened their 6, square foot data center in Dublin. Notable office projects under construction 12, 93, 28,48 75, Nationwide Grandview Yard Amazon Dublin Amazon Hilliard Bridge Park 3,39, % 34, ,287 $ % 93,.% 25

26 DALLAS - Walter Bialas Vice President, Research, Dallas 215 a banner year for demand and rate increases Demand for space closely tied to new construction deliveries The Dallas economy has shown great strength in 215 with 13,5 jobs added over the past 12 months. The improving labor market has resulted in office net absorption running at more than double the 1-year average. Almost 4.8 million square feet were absorbed in 215; while the 1-year average is about 2.2 million square feet. For 215, the vast majority of positive net absorption was directly attributed to recently completed new construction. The Richardson/Plano submarket recorded the most new construction and net absorption, all of which were built-to-suit projects for State Farm and Raytheon, while Far North Dallas and the Downtown area saw more of a mix of built-to-suit and spec projects (FedEx, KPMG, Frost Bank, The Richards Group). Rate pressure remains in place Though a significant amount of new construction has been brought to the market, vacancy did not increase and upward rate pressure remains strong. The 18.7 percent total vacancy rate is not low by national standards, but is low by local, historic standards. The lower vacancy rate has helped push rates higher for all local area submarkets. Year-over-year, overall direct asking rates increased for Class A & B space by 6.6 percent, and ranged from 1.1 percent in Preston Center to 11.5 percent for North Central Expressway. Class A space is outpacing this slightly (6.9 percent) with some of the more value-driven submarkets seeing above average increases (Class A space in North Central Expressway and LBJ Freeway went up 12.9 percent and 14.2 percent, respectively). Majority of net absorption in 215 was in new construction Class A & B rental rates by submarket p.s.f. $4. $3. $2. $1. $. Of the 4.8 million sf of positive net absorption in 215, about 85% was directly attributed to tenants taking occupancy of new construction. 84% In-demand submarkets seeing the most new construction Construction pipeline is large; high absorption needed to keep pace Over the next year about 4.5 million square feet of space is expected to deliver to the market. Of that near term construction pipeline, over 2.6 million square feet is unaccounted for (not built-to-suit or preleased). In addition, a half dozen properties in the West End area of the CBD are in various stages of renovation that will convert them from old industrial properties into office properties. To keep new supply and demand in balance, the Dallas market will have to maintain near record absorption levels over the next two years to match the current construction pipeline. 3.% 2.% 1.% 23.4% 11.6% 14.5% 17.1%.% 27.1% 17.7% 1.1% 14.9% 29.8% 162,54, % 839,434 4,794,274 $ % 7,65,715 57% 26

27 DENVER - Amanda Seyfried Senior Research Analyst, Denver Diversified economy helps sustain overall optimism Technology startups blossom in Denver As Denver escapes its one-trick pony reputation as just an oil town, one of the industries rapidly growing its footprint here is technology. Historically, tech has struggled to succeed locally given, among other factors, its considerable distance from Silicon Valley. Now, skyrocketing prices and tightening regulations in California have companies and investors alike looking to markets like ours. Firms like ProtectWise, Altitude Digital, Four Winds Interactive and Ibotta have all been dubbed Denver Gazelles, or fast growing startups. Other companies are following suit, and the metro is poised for even more such success stories. Aware that tech is both the present and the future, Denver continues to invest in the sector and aims to foster more homegrown and high earning tech talent. Oil price rebound? Don t bet on any time soon Since July, the price of oil has hovered below $5 per barrel its pricing cut nearly in half since year-end 214. The EIA projects crude to stay near $51 per barrel through 216. Given this environment, some energy-related companies have been forced to cut payrolls or even shutter local offices. In 215, the industry brought 652, square feet of sublease space to the CBD with more expected in the months ahead. Approximately 15. percent of currently vacant CBD stock is energy sublease space. So, while tenants thanks to collapsing oil prices may have more options, leverage still largely lies with landlords. Denver technology employment composition Computer Systems Design 57.% Data Processing & Hosting Software Publishers Computer Product Manufacturing 1.% 12.% Other Information Services 3.% E-Retailers 4.% 11.% 12.% Electronic Equipment Manufacturing West Texas Intermediate Spot ($ per barrel) $1. $8. $6. $4. $2. $ , Economy.com Colorado s population second fastest-growing in nation Besting all annual gains made over the last 14 years, and significantly outpacing projections, Colorado s population growth during the 12 months ending this past July was exceptionally strong. In fact, its rate of growth more than doubled the national level. Natural gains are not driving the increase; rather, net migration accounted for two-thirds of growth. Four of every five new residents have made their homes along the Front Range, which may help explain Denver s booming housing market and steady urbanization. The region will have to increasingly invest in infrastructure in order to keep up with such a sizable influx of new residents. Going forward and looking at the office market, expect an even higher premium placed on transit-oriented development and further densification. 17,39, % 854,613 2,142,984 Front Range region sees 221 newcomers every day, U.S. Census Bureau $ % 11, New residents in Colorado in past 12 months 2,739, % 27

28 DETROIT - Aaron Moore Research Analyst, Great Lakes Detroit, attracting outside money and technology Out of bankruptcy, Detroit is coming back strong A little over a year ago people were counting Detroit out. It was on the verge of entering bankruptcy, which it eventually did. Fast forward to a year later and Detroit is emerging from its bankruptcy financially stronger than it was. The city is improving services, enjoying a construction boom, and just gave the police force a raise. As a result, the real estate market is seeing a boost. Comparatively high rates of return on real estate investments continues to attract investors to the region in search of deals. Using capitalization rates to measure returns, investors are opting for Detroit s best investment-grade office properties in prime locations with capitalization rates between 7. to 8.5 percent. Historical office cap rates 11.% 8.5% 6.% Detroit welcomes new technology When reading news articles concerning Detroit and technology one has to ask themselves, when was Detroit ever not tech oriented? The automobile is one of the greatest technological advances of mankind. Detroit has always brought together the heavyweight sectors of transportation, information, and energy. Now the region is leading in creating ubiquitous connectivity, shared-economy willingness, and energy options for the 21 st century. Ford recently announced its joint venture with Google to launch self-driving cars. Count on more infrastructure investments such as RocketFiber to turn Detroit into an elite market in which technology companies naturally and quickly emerge inside its borders. Attracting the high-tech sector Venture capital $4.6M total funding Q314-Q215.% Share of U.S funding Employee cost $84,11 average tech wage % annual tech wage growth 214 Talent pool 28.1% % of population with bachelor s or higher 18.8% share of millennials (work age, 2-34) Detroit s suburbs still have advantages over the CBD With initiatives such as Move Across Troy, which aims to improve pedestrian access between office buildings and businesses in nearby strip malls, suburban submarkets such as Troy and Southfield have shown a willingness to adapt in order to compete for credit worthy tenants. It is hard not to be influenced by all the excitement downtown, but there are attributes about the CBD that either make sense for your company or do not. Contrary to the urban core, the suburbs offer readily available parking, discounted rental rates and shorter commute times. Large tech-oriented tenants will need to closely examine the benefits of an urban versus suburban address before making their next real estate decision. Average office asking rents CBD Southfield Troy $2. $17.5 $ ,651, % 157, ,323 $ % 432, % 28

29 EAST BAY - Katherine Billingsley Research Analyst, Oakland - East Bay Inventory grows as tenants release space Landlords command more rent along BART lines As market fundamentals tighten in San Francisco and Oakland, tenant demand continues to follow the BART lines into the 68 Corridor. Nearly 7, square feet of tenant demand is targeting submarkets along BART lines. These markets have shown a significant increase in rental rates over the past 12 months. For instance, select Class A assets in Pleasant Hill BART are asking near $4. per square foot, a 19.5 percent increase since last year, on par with rates in Oakland- CBD. Overall, weighted rent growth in BART-centric submarkets has increased by 1.1 percent year-over-year, compared to a 2.1 percent increase in non-bart submarkets. The East Bay has experienced lasting effects of the outer-market spillover, and corporate tenants coming from surrounding markets favor BART locations and are willing to pay a premium for access to transportation. BART location drives rent growth (Y-O-Y) Pleasant Hill BART Concord Pleasant Hill Downtown WC Pleasanton-South Pleasanton-North San Ramon-Other Bishop Ranch 4.4% 2.7% 2.6%.4% 9.5% 9.% 8.% 19.2% BART located Non-BART located Title 24 contributes to rising concessions; tenants releasing space to market Construction costs are increasing due to California s energy compliance standards (Title 24); prompting landlords to raise tenant improvement costs in addition to increasing rental rates in select markets. Existing tenants are consolidating their footprint in order to achieve cost efficiency, and moving their operations to markets where costs are lower for rent and labor. As a result, an abundance of space is being released to the market due to large corporate give-backs. EMC, Safeway, Best Buy and Sybase are some of the major contributors to supply growth this year, giving mid-t o large-sized tenants more available options to consider, and alleviating demand pressures from surrounding markets. 68 Corridor anticipates tightening moving into 216 Robust leasing activity in the last stretch of 215 has translated into another quarter of positive net absorption, and will continue to accelerate as tenants occupy their space early next year. In the North 68, a concentration of traditional sectors are dominating demand however large users look to the South 68 corridor area the only market in the East Bay with blocks of space larger than 5, square feet. Major office campuses are developing City Center-like features such as retail and restaurants to create a live-work-play environment in order to attract and retain talent. Coupled with a strong, growing economy and a large inventory of available space, the East Bay will remain a viable overflow market for tenants who seek quality space at lower-cost options. 68 Corridor availability* stratification by submarket, *Spaces include Class A & B Positive net absorption consistent throughout 215 3, 2, 1, 5% 4% 3% Pleasanton-N Bishop Ranch 9% 15% 28% Dublin Concord Downtown WC 15% 21% PH-BART Pleasanton-S San Ramon-Other Q1 215 Q2 215 Q3 215 Q ,533, % 25, ,176 $ %.% 29

30 FAIRFIELD COUNTY - Dayna McConnell Research Analyst, Fairfield County 215 produces greatest leasing velocity in 9 years Leasing activity surges in the fourth quarter Leasing activity accelerated through year end 215; consequently, driving positive net absorption of 846,36 square feet. As new demand remains limited in many submarkets; rental rates stayed at steady levels throughout the county. The one exception to this trend is the South Stamford submarket which has seen rents rise steadily for the past 18 months. Many tenants who had lease expirations during the quarter also chose to execute renewals rather than relocate. The overall vacancy rate, as a result, declined to 24.4 percent. The market is poised to receive more activity in 216 with market fundamentals remaining stable. Leasing velocity in 215 3,664,998 s.f. Leasing velocity in 215 Renewals dominate large leases Absorption was positive in the quarter; however, more than half of the leases signed in 215 larger than 2, square feet were renewals. There is a scarce availability of large block space; especially in transit-oriented submarkets. With just six class A buildings being able to accommodate a 5, square foot tenant in contiguous space, large block options are limited. With such a small number of large block spaces available, it helps to explain why so many of the larger tenants are choosing to renew their leases rather than test the market. Lease type on transactions over 2, square feet 2.2% Renewal Relocation 17.8% 62.% New to Market Millennials migrating to Stamford 215 started with the suburban markets outperforming the traditional business hubs of Stamford and Greenwich. As the year progressed, that trend has flipped in rather dramatic fashion. With the exception of Danbury/Bethel submarket, Stamford and Greenwich accounted for over 6. percent of leasing velocity in the fourth quarter. The largest deal signed in the quarter was in Stamford as GE Capital inked a deal at 21 High Ridge Road. It seems as though the national trend of flight to transportation has finally caught on in Fairfield County. Absorption in 4 th quarter Westport Trumbull Route 7 Stamford CBD Greenwich CBD -1, -5, 5, 1, 15, 2, 25, 48,491, % 846,36-413,97 $ % % 3

31 CBD Cypress Creek Plantation Sawgrass SWB s.f. in Mil. FORT LAUDERDALE - Marc Miller Research Manager, Florida Fort Lauderdale 215 a banner year for capital markets Record high year for office investment in Broward County Investor confidence in the Broward County office market continues to grow as there have been 39 major building sales year-to-date in 215 following 19 trades in 214. In total, this amounts to 29.9 percent of the county s total stock, or 5.6 million square feet in transactions. The suburbs has seen the majority of this activity as a joint venture led by Starwood purchased nearly 1.4 million square feet in the western suburbs through a number of portfolio purchases; making them the largest multi-tenant office owner in the Broward County. In total, investment in Broward County exceeded $65 million in 215 the highest year on record. Further, while there has been no year-to-date investment in the CBD, there are a few major trades expected for early 216. Plantation has a number of large blocks which may loom on the market Plantation still remains one of the strongest suburban submarkets in the South Florida metro area with vacancy at 15.2 percent; however, the future is uncertain as the submarket has recorded a growing number of large blocks on the market and several more expected to come online. Currently there are five large blocks over 2, square feet, of which two are sublet spaces. In addition, the submarket maintains the largest variance between direct and total vacancy as sublet vacancy ticked up this quarter to 2.5 percent. The largest availability is the 118,7-square-foot sublet block in Jacaranda Park of Commerce. However, the American Express building could surpass that block once they move into their new facility in Sawgrass Park; therefore, potentially bringing a 388,4-squarefoot block to market. Growing office development pipeline The office development pipeline in Broward is growing for the first time since the downturn, and the majority of proposed development is in Southwest Broward. Pembroke Pointe was delivered late in the fourth quarter and is the first major office delivery in more than seven years. While no major leases have been announced, the building s performance over the next four to six months will likely be an indicator of how soon the next major project will break ground. Investment in the county peaks since the start of Plantation sublet vacancy grows in the fourth quarter 5.% 4.% 3.% 2.% 1.%.% s.f. traded Submarket s.f First multi-tenant delivery in seven years Name Submarket RBA Building Status Pembroke Pointe A SW Broward 143,535 Complete NSU Center for Collaborative Research Plantation/Davie 215, Under Construction American Express Sawgrass 4, Under Construction Pembroke Pointe B SW Broward 143,535 Proposed Monarch Lakes II SW Broward 15, Proposed Two Financial Plaza Downtown 5, Proposed 22,86, % 87, , $ % 27,388.% 31

32 SF in Millions s.f. (in thousands) $ Millions HAMPTON ROADS - Geoff Thomas Senior Research Analyst, Richmond Office investment sales volume reaches historic level Investors flock to Hampton Roads for greater yields The closing window of near-zero interest rates and cap rate compression in core markets left investors seeking investment opportunities in tertiary markets. With cap rates ranging from 7. to 8. percent for Class A assets with vacancy rates of 1. percent or less, Hampton Roads became an attractive option over primary and secondary markets where cap rate averages ranged from 3.7 percent (San Francisco, CA) to 6.6 percent (Charlotte, NC). In comparison, core assets in Hampton Roads such as The Concourse Building, fully leased to Amerigroup, and the Fulton Bank Building, 95.3 percent leased, were under contract with 7. percent cap rates. Investment office sale s volume (excludes medical) $259.1 $78.3 $62. $52.2 $26.9 $ Shift in demand takes focus away from recently delivered Class A space Three major influences have shifted demand away from new construction in Hampton Roads: the 33.3 percent premium for new construction over existing Class A rental rates, the increased popularity of teleworking in Hampton Roads and the numerous, but now less frequent, downsizes that occurred between 29 and present. Additionally, growing demand from call centers created the largest active requirements in market, but focused solely on low-cost options with generous parking ratios. This criteria made the conversion of aging shopping malls to call center operation facilities an alternative to traditional office space. Repurposing and renovating office buildings shrinking the inventory Downtown Norfolk has been the epicenter of redevelopment in the Hampton Roads market. Most recently, 1 Commercial Place (Bank of America Center) was slated for multifamily conversion while 2 Commercial Place, a circa 1978, 287,858-square-foot office building, went under renovation and will absorb most tenants displaced by the conversion. Once complete, the redevelopment will remove a circa 1968 office building that has maintained an average vacancy rate of 52. percent (18,156 square feet) since 21. Office space delivered by year and current vacancy 96.4 Office vs mid-rise and high-rise multifamily inventory s.f. delivered Current s.f. vacant Pre 197's office Multifamily ,57, % -4,756 59,394 $ % 287,858 Total under construction(s.f.).% 32

33 Total s.f. of leases signed GREATER HARTFORD - Wes Simon Research Analyst, Boston Leasing in the West and CBD sales lead the way Q4 caps off year of high sales volume Amidst a revitalization of downtown, the Hartford CBD was highlighted by particularly strong sales activity in 215, including four high profile Class A Towers. Paradigm Properties led the charge, purchasing the state s tallest building at CityPlace I for $113.3 million. New York-based BHN Associates also acquired Constitution Plaza, a six-building office campus downtown, for $71.1 million earlier this year. This trend carried over to the suburbs where there were multiple office sales in each submarket throughout the year. This was underscored in Q4 with the sale of the I-91 Tech Center in the South market. The five-building office complex in Rocky Hill sold to Capstone Partners for $11-per square foot. West market drives up leasing activity High sales transactions downtown were complemented by strong leasing activity in the suburbs, particularly in the West. Webster Bank signed a lease for 86, square feet at 2 Executive Boulevard in Southington, representing a renewal and expansion within the market. Blum Shapiro also retained 47, square feet in West Hartford. These leases, amongst others, contributed to over 15, square feet of positive absorption in the West, driving vacancy down to 11. percent in the submarket. However, the largest lease of the quarter was in the North and belonged to SS&C Technologies. The financial services tech company renewed for 93, square feet at 8 Lamberton Road in Windsor, helping contribute to a suburban vacancy rate of 17.7 percent. Leasing activity increased over the year, and is expected to continue in 216. New developments in the CBD lead revitalization The unemployment rate in the Greater Hartford metropolitan has reached a seven-year low, currently at 5.9 percent. Under the vision of the CRDA, it was a newsworthy year for development projects and urban revival. This ranged from new residential buildings coming onto the market to UConn committing to an urban campus in the CBD. It continued in the Downtown North, or DoNo, where the city s new minor league baseball stadium broke ground and will be complemented by New England s first Hard Rock Hotel come 218. There is much to look forward to in 216 and beyond. 215 Leasing transactions by submarket, leases signed over 15, s.f. Greater Hartford Class A total vacancy 25.% 2.% 22.2% 21.2% 22.1% 2.2% 15.% 16.8% 17.8% 18.6% 11.8% 13.7% 15.4% 1.% 5.% Hartford MSA unemployment rate 1.% 8.% 6.% 4.% 2.% 4, 3, 2, 1, 8.% 2 3 CBD North East West South.% , Moody s, Hartford MSA 3 9.2% 8.8% 8.4% 6 7.% 6.6% 3 5.9% 25,263, % 138,234 14,83 $ % 25,484.% 33

34 SF of leasing HOUSTON - Eli Gilbert Research Director, Houston 215 closes in the red as oil volatility catches up Limited pockets of activity not enough to offset significant losses in concluded as an uneven but eventful year for Houston s office market with positive events in the fourth quarter that helped lessen the impact of the decelerating Houston office market. After a 37 basis point jump in vacancy yearover-year resulting in the first annual net occupancy loss since 21, asking rental rates saw growth of 1.7 percent and several large leases were signed during the quarter. Additionally, despite the infusion of over 8.7 million square feet of new inventory, vacancy remained in the mid-teens. Whether silver linings such as these continue into 216 remains to be seen, as oil prices are to remain under $5. a barrel and Houston s job growth is forecasted to be weak. Houston major submarket leasing activity Q4 5, 4, 3, 2, 48,82 Class A Class B 253,336 1, 233,914 83,427 74,739 31,771 CBD Galleria Greenway Katy Freeway Westchase Woodlands The spigot is turned off on the construction faucet As M&A activity and right-sizing by companies contribute to a dramatic slowdown in leasing, a secondary (and welcome) result is the abrupt halt of new construction starts within Houston both on a build-to-suit and speculative basis. This time last year, Houston accounted for nearly 2. percent of all the office buildings under construction within the United States; today that number is roughly half. To further illustrate how dramatic construction has halted, when completions slated for 216 are removed, less than 1.6 million square feet remain in the pipeline to be delivered in 217 and 218; making them the lightest delivery years since the recession. Looking ahead, with the inventory of direct and available sublease space growing, the likelihood of new office projects breaking ground in 216 is slim, barring those tenants who opt for the build-to-suit route. Building sales activity gives some positive momentum to 215 Prices for West Texas Intermediate oil, the benchmark for American oil production, fell by roughly 31. percent during 215. With Houston so deeply tied to the energy sector, the impact has been far-reaching. However, 215 remained a solid year for office sales transactions. By year-end, nearly $2. billion in building sales were inked in 38 transactions. Notably, the fourth quarter saw a few Class A buildings trade over $5 per square foot including 22 Post Oak in the Galleria submarket ($527 per square foot) and 935 N. Eldridge in the Energy Corridor ($53 per square foot). Investors still have a steady appetite for well-tenanted office buildings in Houston despite volatility in the energy market. Less than 2M s.f. of construction set to deliver after 216 6,, 4,, 2,, More than $2.B in office sales in N. Eldridge and 22 Post Oak sold for greater than $5/p.s.f. 173,679, % 38,427-89,748 $ % 6,36, % 34

35 # of active tenants INDIANAPOLIS - Mike Cagna Senior Research Analyst, Indianapolis Leasing activity and new construction on the rise Tenant demand remains solid heading into 216 Today s strong business climate has several local companies in expansion mode. This is driving the need for additional office space. Nearly 15 office transactions totaling almost 2.5 million square feet closed this year (this data includes leases of 5, square feet or greater). Of this total, 45. percent of companies are growing, 39. percent remain stable and only 16. percent are shrinking. Currently, there remain approximately 12 tenants actively in the market for 2.2 million square feet of space. Of this total, 44. percent are looking to expand their footprint while only 8. percent plan to downsize; which will continue to tighten fundamentals in the commercial real estate market in Indianapolis. Active office requirements by industry Professional and business services Creative Shrinking Stable Growing Science and technical Nonprofit Finance More office construction on the horizon Phase II of Milhaus mixed-use Artistry project in downtown Indianapolis was the only new speculative office construction completed in 215. Much more is on the way with over 2, square feet of speculative office development due for delivery in 216. Roughly 2. percent of this total is preleased. This will mark the highest level of speculative construction since the recession. We are likely to see even more speculative construction in 217 as the first buildings of the Midtown Carmel office project are completed. Approximately 25, square feet will be delivered, although most or all of that is expected to lease prior to completion. Investment activity continues Investors remained high on Indianapolis in 215 as several significant transactions closed this year. The biggest of which was also the only one that involved a foreign investor. Group RMC, based out of Canada, closed on a Castleton Park portfolio comprised of approximately 7, square feet of primarily Class B office and flex product on the northeast side of Indianapolis. Meanwhile, Minneapolis-based Onward Investors completed three separate transactions in Indianapolis this year acquiring College Park Plaza, Disciples Center and most recently River Road I & II. All told, 19 investment transactions closed in 215. Speculative office projects currently under construction Project Size Delivery River North at Keystone 9, Q1 216 Lakeside Green Business Center 61,5 Q2 216 Fidelity Keystone II 29,2 Q1 216 Marietta on Mass 25,5 Q3 216 Several office properties traded this year $221 million Total dollar amount of office investment sales that occurred in Indianapolis in ,845, %* -33,682 15,27 $ %* 318, % *Significant alterations to our tracked inventory and methodology were made in the first quarter, rendering statistical results that diverge from the recent historical trend. 35

36 Employment Unemployment Rate Direct Vacancy JACKSONVILLE - Drew Gilligan Research Analyst, Central Florida Market fundamentals remain strong Despite a weak fourth quarter annual absorption strong Jacksonville continues to experience strong annual net absorption with both major submarkets occupancy increasing. Butler Boulevard has now recorded six straight years of positive absorption, totaling over 1.2 million square feet during that time and accounting for more than 1. percent of the total inventory. The CBD market has experienced similar growth in recent years; totaling over 67, square feet over the past four years, and making up over 1. percent of the total inventory. Jacksonville is currently a neutral market, but moving in favor of landlords; especially if positive absorption continues in 216 as expected. CBD market conditions catching up to Butler Boulevard Butler Boulevard has consistently had stronger market conditions than downtown Jacksonville, with lower vacancy and higher rental rates. As space has gotten tighter over the past year and quality large blocks are becoming scarce, tenants are beginning to look to the CBD where multiple large blocks exist at competitive rental rates. Downtown also remains a popular place for companies new to the Jacksonville market, where multiple large, back-office locations of large Fortune 5 financial companies are already located. The Jacksonville area will remain a popular place for new companies because of the favorable business tax climate and the large, qualified workforce. Annual net absorption Jax CBD & Butler Boulevard 3, 1, -1, -3, Jax CBD Butler Boulevard Declining vacancy across the market 3.% 25.% 2.% 15.% 1.% Jax CBD Butler Boulevard Jacksonville economy showing strong growth Many factors are working in Jacksonville s favor; which has led to positive job creation for the seventh consecutive year and a growing population. The unemployment rate recently dropped to 4.8 percent 2 basis points below the national average. As larger markets such as New York continue to get more expensive, Jacksonville will remain a popular relocation option for companies. Outside of the office market, the Jacksonville Port is planning on investing a large amount of money to rehabilitate the facility and expand local operations to support more traffic through the port; consequently, helping to grow the local economy for years to come. Strong local economy 7, 65, 6, 55, 5, Total Employment Unemployment Rate, BLS 15.% 1.% 5.%.% 2,11, % -54, ,1 $ %.% 36

37 LONG ISLAND Demand in Class A office space drives market activity - Sarah Bouzarouata Research Analyst, Long Island Nassau County leads office market with Class A absorption As Class A space remains the product of choice for tenants, the Western Nassau submarket represented more than 6. percent of the 473,844-square-feet Class A space absorbed in Nassau County and elevated Long Island absorption totals to 148,677 square feet. Much of the major leasing activity in the fourth quarter was focused in the top-performing Eastern Nassau submarket, which posted 5,816 square feet absorption. Contributing to this absorption was South Nassau Communities Hospital s lease of nearly 61, square feet at 22 Wantagh Ave. and Arthur J. Gallagher s lease of 21, square feet at 1 Jericho Plaza. Total net absorption by Class (s.f.) 6, 45, 3, 15, -15, -3, Nassau 473,844-18,392 Suffolk Class A Class B -59, ,34 Class A direct asking rental rates escalate toward the end of the year While the Long Island Class A vacancy rate trended lower, the average asking rental rate for Class A space escalated in the last quarter. The average asking Class A rental rate for direct space was approximately $31.15 per square foot in the fourth quarter; a 2.7 percent increase from the previous year. The Eastern Nassau submarket maintains the highest Class A rents in the Long Island office market with an asking rental rate of $ As flight-to-quality continues to increase, space absorption and asking rents will follow suit. Class A direct asking rental rate trends (p.s.f.) $32. $31.77 $31. $3.13 $3. $3.15 $3. $29. Q1 215 Q2 215 Q3 215 Q4 215 Nassau County office vacancy rate falls to lowest level in four years The Nassau County office market vacancy rate has fallen to its lowest level in more than four years despite a slight decrease in leasing activity this quarter. The sharp decline in vacancy year-over-year is in large part due to the strong demand in the health care industry. North Shore-LIJ Health System leading the way for occupancy of large blocks of space after their leasing of 252, square feet at 6 Community Drive in Manhasset. Vacancy rate trends (%) 25.% Nassau Suffolk 2.% 15.% 17.% 16.8% 16.2% 15.9% 1.% 14.2% ,537, % -33, ,677 $26.35 (p.s.f.) -1.% 116,545 1% 37

38 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 LOS ANGELES - Henry Gjestrum Senior Research Analyst, Los Angeles Strong finish due to improving fundamentals Rents continue to rise across all major markets The Los Angeles market has seen significant rental rate growth across the entire metro area. As local economic conditions improve and tenants continue to expand, landlords in both urban and suburban markets have remained bullish; pushing asking rates and pulling back on discounts and concessions. While rents have increased in dynamic markets with high-growth technology and media tenants located primarily on the Westside, Mid-Wilshire and Hollywood, we are also seeing rent growth in more traditional markets like the CBD which is home to high concentrations of professional services and legal firms. Playa entices tenants from neighboring Westside micro markets Playa Vista has quickly positioned itself as the new capital of Southern California s Silicon Beach. The Los Angeles technology and new media scene which originally migrated from Venice Beach to Santa Monica has now slowly migrated back south to Playa Vista. Enticed by new, creative development, tech giants and smaller startups alike have shown up in droves. The micro market witnessed 35 new entrants to the area since the start of 214. The large volume of deals, coupled with ground breaking and plans for future development signal continued strength for the area. Investment market heats up as cap rates decline Los Angeles is currently seeing strong investment activity and has recorded growth in sales volume. A number of high profile assets have recently hit the market for sale. The most notable being the assets from the Blackstone/Equity Office Portfolio in Westwood which consists of four low risk, well performing Class A office properties. This trade will likely fetch a market-high price per square foot, and trade at a cap rate in line with current market rates. The market is expecting to see a number of other portfolios come to market in 216, likely of the same asset grade and quality, proving that Los Angeles has plenty of opportunity and is a viable place for investment dollars. Almost all markets see significant year over year rent growth $5 Q4 214 Q4 215 $4 $3 $2 $1 $ San South Bay Mid- Tri-Cities CBD Westside Gabriel Wilshire Valley Playa Vista continues to see large volume of new entrants Cap rates continue to compress - further declines projected 8.% 6.% 4.% 2.% % 6.1% 5.8% 5.2% 5.% 4.8% 4.7% 4.5% 4.5%.% , NCREIF Q Q Q3 188,241, % 1,554,764 2,557,26 $ % 1,881,54 26.% 38

39 MIAMI - Tim Powers Research Analyst, Miami Pricing adjustments in preparation for 216 Transaction activity diverges with landlord attitudes Miami-Dade County s fourth quarter office market leasing activity slowed slightly as 16 lease contracts were signed across the market (down from an average of 18 transactions through the previous three quarters). The marginal slowdown was driven largely by suburban submarkets, where leased space decreased to 25, square feet from an average of 435, square feet through the first three quarters of 215. Activity in Miami's CBD, in contrast, remained largely unchanged at 275, square feet; compared to an average of 28, square feet through the previous three quarters. Suburban rents begin to rise as CBD rents remain stagnant to end 215 Suburban landlords appear unperturbed by the downturn in lease transactions; however, as average direct asking rates across these submarkets continue to increase (up 3.8 percent year-on-year) led by Miami Beach at an 8.6 percent annual increase. Downtown and Brickell landlords have begun exhibiting signs of a shift in attitudes toward pricing; however, and while growth in these submarkets direct average asking rates remains robust on a year-on-year basis (up 4.8 percent), quarter-on-quarter rates remained relatively stable in the fourth quarter due perhaps to the recent increase of availabilities in the urban core. Current and future availabilities drive CBD price adjustments Across the CBD submarkets, availabilities currently represent 19. percent of inventory and are set to increase to 2.2 percent with the delivery of Brickell City Centre s two mid-rise (12 story) office towers in the first half of 216. Of the CBD s available spaces, more than two-thirds have been listed for more than one year (and 48. percent listed for longer than two years). Further, within the CBD Class A submarket, the anticipated 1.2 million square feet of first quarter 216 total available space represents 2.2 percent of the submarket s Class A inventory, of which nearly 4. percent will have been on the market for more than three years. Nearly 83. percent of this CBD Class A availability is on or below the 3 th floor; a further indication of a competitive Class A market over the medium term. Submarket transaction trends diverge s.f. leased, thd CBD Airport Coral Gables Other Suburbs CBD rates slip slightly as Suburban rates strengthen $ p.s.f. CBD Suburban Q 2Q 3Q 4Q Large amount of Class A availabilities linger on the market s.f., thd year 1-2 years 2-3 years 3+ years 35,535, % 315,17 666,36 $ % 664, % 39

40 s.f. MILWAUKEE - Christian Beaudoin Research Director, Chicago CBD Milwaukee activity continues to drive leasing market Spurred activity in Milwaukee comes with desire for flexibility Recent residential developments such as The Moderne, MKE Lofts, and The North End in Milwaukee, along with promised infrastructure developments such as the Lakefront Gateway Project and Streetcar, have identified the potential for growth for Milwaukee. This has left landlords and tenants alike to speculate about the short- to mid-term future of Milwaukee, and whether it is best to commit to long-term leases amidst the evolving environment. This, in part, is evident through slightly shorter average lease terms in office transactions between 214 and 215. As uncertainty builds around future lease rates, availability of space, and inflation, flexibility through shorter lease terms may be desirable. Large leases in first three quarters leave fewer options in CBD A strong first and third quarter in terms of both size and number of office lease transactions throughout the Milwaukee market, within the CBD in particular, had filled some of the remaining large availabilities of space. While the suburbs again observed positive total net absorption of nearly 5, square feet, it was almost completely offset by negative total net absorption within the CBD. It will become a question of whether current availabilities paired with near completions such as 833 E. Michigan will be able to accommodate firms looking to be a part of the activity downtown. Class A office space to be delivered in 216 continues to add up Irgens 18-story office tower at 833 E. Michigan has remained in the spotlight throughout 215 as a large deliverable for the CBD, but Irgens has invested in the suburbs as well. A 15,-square-foot office building is under construction in Wauwatosa. The Corridor, offering up to 18, square feet of office space, is planned for Brookfield. In terms of renovations, two skyline buildings (33 Kilbourn and Two-Fifty) have announced delivery of luxury office space as early as 216, which make them viable options for tenants looking to move or grow in the CBD. Average lease term (months) by quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Total net absorption: Suburbs vs CBD Construction activity broken ground in 215 1,, 8, 6, 4, 2, 49,69 s.f. of positive absorption in suburbs is offset by Under Construction CBD -49,18 s.f. of negative absorption in CBD Under Renovation Suburban 27,116, % ,983 $ % 56, % 4

41 MINNEAPOLIS - Carolyn Bates Senior Research Analyst, Minneapolis Suburban submarkets heating up faster than CBDs West submarket now the most expensive The first quarter of 215 was the first time that the average rental rate in the West surpassed any other submarket including the Minneapolis CBD. This quarter has seen a marked cost increase in the West as more premium space is being listed for lease. Over 5, square feet of Class A space has re-entered the market in recent quarters; therefore, drastically raising average asking rates in an already tight market. For instance, the 61 Tower at Carlson Center with 19. percent vacancy now has gross lease rates nearing $4. per square foot. The economic moment is right for new office construction in the I-394 corridor, and in October it was announced that Ryan Cos. and Artis REIT plan to build a 14-story office tower at 81 Carlson Parkway. West rental rates have been increasing at a rapid clip $35 $3 $27.89 $26.29 $27.25 $27.93 $28.4 $28.8 $25.27 $25.5 $25 $22.15 $22.42 $22.79 $23.59 $2 Class A rental rate $32.48 $ Class B rental rate Minneapolis & St. Paul CBDs: a tale of two cities It is unusual for the St. Paul CBD to experience more activity than the Minneapolis CBD, but large employer moves within St. Paul, including Pioneer Press and financial services firm Green Tree, have created significant churn. Absorption of high quality space drove down the average Class A rental rate this quarter, while a number of less-attractive Class B spaces continually sit vacant. The St. Paul CBD currently has the smallest difference in class asking rates (only an 11. percent premium for Class A) out of all the office submarkets. Meanwhile, the Minneapolis CBD is accommodating more rightsizing and costaware moves; especially among law firms. Plenty of Class A space in Northeast despite a growing demand for Class B This was a challenging quarter for the Northeast submarket as it saw exceptionally large negative absorption totals. Be the Match finally relocated to their new build-to-suit headquarters in the North Loop and opened up substantial contiguous Class A space. Unfortunately, Class B space moves much more quickly in the Northeast submarket and is even highly prized in the Arts District with its renovated warehouses that host creative agencies, boutique retailers and expanding breweries. To capitalize on the shift towards more aesthetic and historic office space, Ackerberg is redeveloping the 48,5-square-foot Miller Textile Building at 861 Hennepin Ave. in the heart of Northeast Minneapolis. Population growth year-over-year by city 2.%.% -.8% -.9% -1.1% -2.% annual absorption in Northeast by class 15, 5, -5, -15, Minneapolis St. Paul -.2% Class A -144, % 1.1%.5% 1.% 2.5% 2.3% 1.6% 11,394 Class B.4% 69,299, % 365,61 89,898 $ % 464, % 41

42 NASHVILLE - Hensley Loeb Research Analyst, Nashville A historic quarter for an historic year Property sales soar past the crane-filled horizon Over $82 million in office investment transactions closed in Nashville in 215, making it the most active year ever and representing a 35.4 percent increase from last year. In this 18-hour city, outside investors are driving local real estate investment base prices upward. Prices per square foot are also hitting new highs, which is pricing local investors out of the market. During the fourth quarter a historical investment was made by San Diego-based Southwest Value Partners: the purchase of the nearly 15-acre, one millionsquare-foot Downtown Lifeway campus for $125 million. These high price tags, combined with historically low vacancy rates, have pushed rental rates to unforeseen highs. Citywide, investment base prices have increased and rents have been pushed upwards with no relief in sight. Historical transactions (average price per square foot) $2 $15 $1 $5 $ $117 $13 $131 $14 $138 $148 $134 $141 $ Traffic congestion, a marker for population and economic growth As a commuter, congestion usually lends itself to large scale frustration. According to the U.S. Census Bureau, the average commuter in Nashville spends over 26 minutes en route to and from work. Reframe those minutes and that frustration: congestion as tight as Nashville is experiencing affirms its place as a NERDS city. Nashville s population growth is well above national average, and its vacancy rates and rental rates are well below. In the short term, congestion speaks to the fact that Nashville is rapidly growing. In fact, by 24, between one and two million people will move to the area. Music City s population expansion drives the economy upward. Congestion in this sense can be termed a positive marker for growth. If transportation challenges are not addressed now, tenants will face a long-term tradeoff between amenities usually associated with the Downtown submarket or the convenience usually associated with the suburban markets. Mobility is critical for ensuring Nashville s future. 217 leasing activity may be the barometer for market outlook For the fifth consecutive quarter, vacancy rates hit an all time low, landing at 6.7 percent compared to last quarter s 7.3 percent. Vacancy rates are expected to continue declining until new product arrives in 217. With over 2.5 million square feet of office under construction, Nashville is experiencing a building boom. Product delivering in 216 is 73.4 percent preleased, whereas product delivering in 217 is roughly 41.3 percent preleased. Over the course of the next year, 217 preleasing activity will be indicative of what Nashville can expect for the future growth of the market. If leasing activity in new construction stays as tight as it currently is, vacancy rates will most likely continue to decline, despite the arrival of new product to the market. Daily commute time for the Nashvillian continues to rise Source: Thomson Reuters, JLL Research 26m 3s Average Nashville commute Office construction pipeline (first 7 of 15 under construction) Project SF Delivery Leased Submarket Onec1ty (Building 6) 11, Q % Midtown Mallory Park Phase 1 8, Q % Cool Springs 35 MSE 95, Q % Midtown Seven Springs West 23,884 Q % Brentwood Hill Center Brentwood B 114, Q % Brentwood 121 Demonbreun 285, Q % Downtown Capitol View HCA 475, Q % Downtown 33,784, % 119,651 1,2,216 $ % 2,84, % 42

43 NEW JERSEY - Steve Jenco Vice President, Research, New Jersey Class A market poised for continued growth Employment growth on pace for biggest gain in 15 years After adding less than 3, jobs in 214, the New Jersey employment market registered signs of growth during the past year. With the exception of a brief downturn during June and July, when 23, jobs were shed, the New Jersey employment market posted monthly job gains in 215. With 7,9 jobs added in November, approximately 55, jobs have been created in the Garden State since the beginning of the year. This represented the largest gain since 78,4 jobs were created in 2. Accelerating gains in the employment market will help to position the office market on the road to recovery in the coming year. Class A vacancy rate slides to lowest level since mid-213 Class A space emerged as the product of choice for office users during the past year. Companies increasingly promoted their Class A work environments to help retain as well as recruit new employees. After registering 691,5 square feet of negative net absorption during 214, rebounding demand led to nearly 1.4 million square feet absorbed in the Class A office market one year later. The Class A vacancy rate declined one percentage point from 214 to 24.1 percent its lowest level since mid-213. This was in contrast to the 1.1 million square feet of negative absorption recorded in the Class B office market; where the vacancy rate approached 26. percent its highest level in three years. New Jersey employment changes by month (215) 2, 15,5 16,8 5,6 8,6 9,8 1,9 3,9 8, 7,9 1, -1, -12,5-1,5-2, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Source: NJ Dept. of Labor & Workforce Development Northern and Central New Jersey vacancy rate trends 26.% Class A Class B 25.% 24.% 23.% Q1 215 Q2 215 Q3 215 Q4 215 Broad spectrum of commuting options attract tenants to Metropark Since nearing 25. percent in 214, the Metropark Class A vacancy rate trended lower during the past year in the wake of persistent leasing velocity. One year later, the Class A vacancy rate had fallen below 19. percent, which represented the lowest vacancy rate in Central New Jersey. Among the largest transactions recently signed in this submarket involved the New Jersey Turnpike Authority s lease of the 25,-square-foot former Hess headquarters building in Woodbridge. The Turnpike Authority will be relocating its operations from 581 Main Street, also in Woodbridge. With its superior highway access and commuter rail service via Metropark Train Station, this submarket is poised to remain on the radar screen for office tenant requirements. Metropark Class A vacancy rate trends 3.% 25.% 24.9% 22.3% 2.% 2.2% 15.% 18.7% 1.% ,359,182 Total inventory (s.f.) 24.6% -8, ,92 $25.17 (p.s.f.) -1.9% 44,445 1% 43

44 1,+ s.f. leases m.s.f. NEW YORK - Tristan Ashby Vice President, Research, New York City Rents end year higher, but leasing activity slows Midtown Trophy index outperforms While New York s banking sector continues to struggle, high-end financial services private equity, sovereign wealth and hedge funds have driven demand for Manhattan s premier space. The Midtown Trophy Index a subset comprised of New York City s most exclusive office buildings has outperformed the rest of the Midtown market; with the Midtown Trophy average asking rent increasing 6.5 percent in 215 to $99.43 per square foot. The average Midtown Class A asking rent has grown 4.1 percent to $8.24 per square foot during the same time period. Since the market bottom in 21, the Midtown Trophy asking rent has recorded some of the highest growth rates in Manhattan at 38.9 percent. Rent growth since market bottom (21) Midtown Trophy 38.9% Midtown Class A 24.9% Midtown Class B 23.5%.% 1.% 2.% 3.% 4.% 5.% Tech leasing levels off in 215 After steadily rising over the last five years, tech leasing leveled off in 215. A record number of large block leases (1, square feet or greater) helped push overall activity to blockbuster levels in 214 as companies looked to establish or expand their operations and tap NYC s creative talent pool. The city s maturing tech scene has come at a cost: asking rents in Midtown South the preferred tech location are at an all-time high and available space is limited. As a result, some tenants are considering short-term options at co-working space providers like WeWork while others are looking to adjacent markets or Brooklyn. Large block leasing velocity slows in Lower Manhattan At just 4.6 million square feet, Downtown leasing activity dropped 5.2 percent in 215 from 214; a watermark year for the market. Strong rent growth in Downtown versus the larger market may have contributed to the slowdown the discount between Downtown and Midtown overall asking rents fell to nearly 2 percent throughout 215, among the least since 2. Increasing asking rents, up 5.8 percent year-over-year, may have also slowed early renewal activity. Net effective rents in the Class B sector nearly matched Class A levels due to an increased desirability for loft-style office space, resulting in fewer leases by pricesensitive tenants. Manhattan tech leasing activity by year Number of large-block leases in Lower Manhattan ,774,9 9.6% -9, ,759 $ % 13,666, % 44

45 NORTHERN VIRGINIA - Robert Sapunor Research Analyst, Northern Virginia Expansion activity driving market rebound Big leases return to the market Nine leases over 1, square feet were signed in the fourth quarter in Northern Virginia. While the largest four deals were renewals by government agencies and contractors, there was also significant growth by tenants within other industries. Capital One signed a 137,-square-foot lease at the recently renovated 79 Westpark Drive in Tysons. This lease was signed the same quarter as the bank moved into 136, square feet at 175 Tysons Boulevard. AECOM signed a 116,511-square-foot lease at 311 Wilson Boulevard that included about 25, square feet of growth. Carfax also signed a 13,789- square-foot renewal with expansion at 586 Trinity Parkway in Route 28 South. 1,+ square foot leases Carfax AECOM Fairfax County Public Schools Capital One LMI Government Consulting Booz Allen Hamilton Inc. U.S. Department of Defense U.S. Department of Defense Raytheon 13, , , , 161,641 28, ,1 558,187 6, Tenants growing as budget clarity allows forward planning After years of rightsizing, tenants are beginning to expand, which has contributed to the third straight quarter of positive net absorption. While the Northern Virginia tenant base is diversifying, the majority of tenants are still dependent on the federal government. The new $1.1 trillion spending bill provides clarity to government agencies and contractors as well as a $24. billion increase in defense spending. Tenants grew their footprint in 15 of the 3 largest deals this quarter in Northern Virginia. Construction activity ramps up Two new projects broke ground during the fourth quarter, bringing the total amount of space under construction to over 4. million square feet. Reston Station began construction on a 368,413-square-foot spec office connected to the Wiehle Metro station. The building will be the first to deliver along the Toll Road since N Glebe Road also broke ground. Marymount University will occupy 66. percent of the 166,767-square-foot building in Ballston. While only three buildings totaling 114,774 square feet delivered in 215, there is 1.1 million square feet scheduled to deliver in 216. Half of all 2, s.f. or greater deals involved growth Growing 46.7% 5.% 3.3% Shrinking Stable Office construction will increase each of the next three years 2,, Preleased Available 425,44 195,7 1,, 351,913 1,5,136 1,332,81 79, ,478, % 42,6 817,86 $ % 4,63, % 45

46 OAKLAND - Katherine Billingsley Research Analyst, Oakland - East Bay Rising tide; a pivotal year for Oakland Economy flourishes in 215; office market reaping benefits Strong and steady economic growth in Oakland metro has translated into a growing interest from tenants and institutional investors over the past year. As a result, demand, leasing and sales activity remain on the upswing, with no expectation of the market softening in the next months. Oakland metro recognized over 2.5 million square feet of leasing activity year-to-date, a 25.8 percent increase in the last 12 months. Notable leases this quarter include Aduro Biotech, Union Bank and Dentons US totaling over 1, square feet. Furthermore, year-to-date net absorption has reached well over 1. million square feet; nearly doubling last year s figures. Positive net absorption to continue into 216 8, 6, 4, 2, CBD Suburbs -2, Companies chase scarce availabilities into the new year Oakland is buzzing with activity; characterized by a diverse tenant base with a wide size range of requirements. Currently there are over 3. million square feet of active requirements targeting Oakland metro with over 7. percent focused on the CBD alone. However, tenants are chasing scarce availabilities while existing tenants are negotiating renewals and expansions in reaction to the demand-supply dynamic and declining vacancy rate in the CBD. Overall rental rates have increased by 33.1 percent year-over-year as a result of demand pressures; therefore, causing tenants to consider viable options in Alameda, Berkeley and Emeryville where full floors can be found. Demand exceeds supply with no relief in sight for the CBD 19% Active requirements Current Available Space 81% Capital markets in full swing; investor interest remain strong Over $1.2 billion of sales volume occurred in the Oakland market in 215 with a high-water mark price of $349 per square foot. Among these trades are the purchases of 1221 City Center by UBS, th Street and 13 Clay Street by Rubicon Point Partners this quarter; a strong indication that interest from core investors has significantly increased in the East Bay. Additional buildings are expected to come to the market as owners come to the end of their holding periods, giving investors a promising outlook. Furthermore, Oakland metro should continue to flourish as a number of housing, retail and restaurant projects contribute to the economic boom, and position the East Bay as a fundamentally sound market for institutional investment. 29,94,85 Total inventory Oakland metro (s.f.) 11.6% Oakland metro 62,181 1,461,139 Sales activity by building class $4,, $3,, $2,, $1,, $ $2,, $45.5 CBD direct average asking rent 33.1% $247,, $334,27,5 Trophy A B.% 46

47 ORANGE COUNTY - Jared Dienstag Senior Research Analyst, Orange County Market fundamentals grow heading into 216 Annual positive net absorption streak hits five consecutive years Despite the Orange County office market recording slightly negative net absorption during Q4 of -114,776 square feet, 215 was the fifth consecutive year that experienced annual positive net absorption. This feat has not been accomplished since the period of A primary reason the market recorded negative net absorption during the fourth quarter was that previously owner-occupied buildings of Bandai and Emulex were sold and became subsequently vacant. This added a total of 16,595 square feet of unoccupied space to the market. While the Airport Area accounted for 49.6 percent (587,33 square feet) of the total net absorption for the year, several large occupancies from throughout the market contributed to the positive trend. The significant occupancy gains include, St. Joseph Heritage Medical Group (191,556 square feet), Hyundai Capital (177, square feet), Ingram Micro (176, square feet), Carrington Mortgage (127,75 square feet) and the County of Orange (111,69 square feet). Local technology sector grows with influx of venture capital funding Following the recession, the Orange County economy has become significantly more diverse. A large portion of this transformation has stemmed from the quickly growing Orange County technology industry. As of Q3 215, high-tech venture capital funding had a year-to-date total of $467.6 million up 12.1 percent from the same time last year. Traditional technology markets such as Silicon Valley and San Francisco have become increasingly competitive and expensive which has resulted in companies looking elsewhere to open new offices. Orange County s highly educated and talented labor pool, along with lower costs compared to other California markets, provide for conditions that are favorable for the local technology sector to grow. Rising rents and a tightening market drive up sales prices Prices of investment sales have grown to the highest point since the peak of the market in 27. Investors are attracted to the fact that rents are increasing while still below prerecession levels, and leaving room for further growth. With positive demand projected to continue and new construction deliveries adding to the base in 216, rents and sales prices should remain on this current path of growth. Class B rental rate appreciation year-over-year South County Airport Area Central County West County North County Expected office deliveries (SF) 3,, 2,, 1,, Class A Vacancy , % 4.3% 7.5% 2,16, 11.4% 12.% 14.3% 14.9% 17.1% 18.4% 19.4% 17.1% 14.5% 9.8% 7.1% 15.9% 825, 75, % 5.% 1.% 15.% 2.% 25.% 95,634, % -114,776 1,183,53 $ % 573,387.% 47

48 ORLANDO - Valerie Mnayarji Research Analyst, Central Florida Class A leases drive record high tenant absorption Orlando s economic conditions support continued growth for tech firms Technology continues to be a growing local industry driver; comprising nearly 46, employees and an annual contribution of $22. billion to the economy. This year the local market experienced greater leasing velocity from these firms; primarily through relocations and expansions. Specific deals include Booking.com (which expanded by 18, square feet in their Southwest location), and Paylocity (which expanded to 61, square feet in Lake Mary). Supported by Orlando s low cost of business operation, high quality of life, strong labor pool and inflow of over 4, college graduates annually, Orlando should remain attractive to these firms. 215 tenant activity by leading tenant industries 24% 4% 5% 16% Tech firms 41% 11% Source: Orlando EDC, JLL Research Law firms Professional & business services Healthcare Banking Construction firms Large blocks of quality space are decreasing This year, the most active submarkets (CBD, Southwest and Lake Mary) all saw large blocks of quality space decrease as major tenants like CVS Pharmacy, CNA Insurance and Webster University leased over 255, square feet of Class A space. In the CBD, Class A large block vacancies have dropped 14.3 percent year-over-year. In the suburbs, Lake Mary saw significant large block activity with a 5.6 percent year-over-year vacancy drop in quality space. With a limited office construction pipeline, Orlando will continue to experience tightening among large blocks of quality space, which should put upward pressure on rental rates. Orlando s suburban submarket leasing remains strong, but CBD leasing continues minimal growth This year alone, the suburbs captured 1.1 million square feet of leases, taking 8.3 percent of the total stock off the market. In comparison, the CBD saw only 41,3 square feet of leases, representing about 6.6 percent of total stock. This trend will likely continue as financial service firms, which represent a major driver of tenant activity and generally prefer the downtown, show a marginally flat yearover-year local job growth of 1.6 percent while life science tenants and technology firms, located in Lake Nona and Lake Mary, respectively, expect strong future job growth. Tenant leases reflect large block demand Tenant Location Square feet Deal type Synchrony Economic Maitland Center 15, New Deloitte Lake Mary 74, New Akerman CBD 54, Renewal Diamond Resorts International Tourist Corridor 52, New Orlando s leasing activity by major submarkets Southwest 6,9 University Area 338,1 Maitland 388,2 Lake Mary 18,4 CBD 41,3-2, 4, 6, 8, 29,13, % 27, ,1 $ % 271, 39.8% Total under construction preleased 48

49 # of blocks PHILADELPHIA (CBD) Year end absorption rent growth, and vacancy demonstrate historically tight market conditions - Clint Randall Research Analyst, Philadelphia Market West absorption helps drive CBD vacancy to new low of 8.5 percent Philadelphia s CBD has spent all of 215 in single-digit vacancy, but major absorptions in both Class A and Class B buildings, including 19 Market (Independence Blue Cross) and 2 Hamilton (Free Library), helped to drive vacancy down further. Q4 also saw robust leasing activity with numerous inmarket expansions such as MakeOffice at Seven Penn Center (56, square feet), Comcast at Two Logan (44, square feet), Azavea at 99 Spring Garden (22, square feet) and AdaptImmune s new build-to-suit at 351 Rouse Boulevard (47,4 square feet). University City and The Navy Yard also constricted past their previous lows to levels below 2. percent (spaces under construction are not included in this statistic). Leasing activity at the forthcoming FMC Tower and 12 Intrepid will determine whether each of these submarkets may see some relief in mid-216. Overall rental rate increases year over year CBD Overall 1.% Navy Yard 2.7% Market East 2.8% University City 3.8% Market West 4.8% Current and future available blocks (now through 217) Strong market performance fueling developer confidence in office space The development pipeline is responding to the CBD s strong performance. One Franklin Tower at 2 N 16 th Street is now listing over 4, square feet of potential office (up from 2, square feet last quarter). Pre-development work is underway at 24 Market and 3. University Place, and preliminary plans emerged for a Brandywine-led mixed use development on the 21 block of Market with a major office component. The scarcity of quality large blocks in the existing inventory makes these speculative locations attractive to large tenants circling the market or facing lease expirations in Meanwhile, plans for entire new office districts at the Science Center (ucity Square) and behind 3 th Street Station (Innovation Neighborhood) are making progress. Rents continue growth across submarkets Landlords are asking more for available space as recent deals set new highwater marks. On a weighted average, full service basis, Market West Class A broke the $3-per-square-foot mark this quarter (a year-over-year increase of 3.3 percent). Market East continued to lead with 7.3 percent Class A year-over-year growth; fueled in part by unprecedentedly high rents at boutique and new creative spaces in Midtown Village. 44,571, % 48, , , - 1, s.f. 1, - 2, s.f. > 2, s.f. Proposed office pipeline: BTS and speculative projects 2 Build to suit: 1.56 msf 41% of pipeline $ % Class A Class B Speculative: 2.2 msf 59% of pipeline 2,272, % 49

50 # of blocks PHILADELPHIA (SUBURBAN) -Lauren Gilchrist Research Director, Philadelphia Liberty sells Horsham, continues suburban exodus Liberty Property Trust sells Horsham portfolio Liberty Property Trust continued its exodus from the Suburban Philadelphia office market this quarter by selling a 41-property portfolio to a joint venture between Rizk Ventures, EverWatch Capital, Forum Partners and the JMP group. Collectively, this is the first real estate purchase for the joint-venture known as Workspace Property Trust. At the time of the sale, the portfolio was 84.3 percent leased. Workspace Property Trust is expected to raise rents across the portfolio. This is similar to how Brookwood Financial Partners raised rents after purchasing Brandywine Realty Trust s 29-property-portfolio in Horsham and Fort Washington in August of 215. Ultimately the ownership change in Horsham and Fort Washington will increase rents and create new competition in the market. Investment sales in King of Prussia / Wayne this quarter $245,3, Total value of 41 property portfolio Liberty Property Trust sold in the 4 th quarter The curious case of Philidor RX Located within the aforementioned Horsham portfolio sale is the curious case of Philidor RX Services. In October, the mail-order pharmacy leased almost 145, square feet of expansion space at 57 Prudential Road and Lakeside Drive in Horsham. Shortly after signing those leases, the U.S. Securities and Exchange Commission shut down Philidor for altering doctors prescriptions to boost sales of Valeant Pharmaceutical s brand name drugs. Philidor has announced they will cease operations in the next 3 to 9 days, and Workspace Property Trust will soon have an additional 27,123 square feet of availabilities to lease in 216. Contiguous blocks of available space in the PA Suburbs 4 3 Class A Class B , - 1, s.f. 1, - 2, s.f. > 2, s.f. Delaware County will experience large positive absorption in 216 After back to back years with rising vacancies, Delaware County experienced 366,282 square feet of leasing activity this quarter as three major deals scattered across Delaware County accounted for 82.7 percent of leasing activity. Wilmington-based biopharmaceutical company Incyte Corporation signed two leases for 111,5 square feet at Painter s Crossing Office Campus in Chadds Ford. At 251 Seaport Drive in Chester, Power Windows and Siding agreed to an expanded 14,661 square feet in the former Wells Fargo space. In Newtown Square, Main Line Health agreed to lease 87, square feet at Ellis Preserve, where they already occupy 13, square feet. Based on these thee large deals, Delaware County is poised to experience large positive absorption in ,148, % 55,935 1,268,416 Leasing activity in Delaware County 366,282 s.f. Square footage leased in Delaware County during $ % the 4 th quarter 651, % 5

51 s.f. PHOENIX - Kiana Cox Senior Research Analyst, Phoenix Largest absorption gains in Phoenix since recession Central Business District encouraging tech migration with redevelopments Despite having many of the live-work-play elements that attract tech companies and the millennials that often make up their workforce, the CBD has not attracted nearly as many of the tech companies that have propelled the economies of suburban submarkets in the East Valley. Traditional office space still prevalent throughout the CBD has been one of the key issues deterring new tech companies, and developers have responded with several key redevelopment projects. While older office buildings are overhauled with more collaborative space and higher ceilings, the Phoenix Warehouse District is also emerging as an urban center with new live-work-play opportunities. Tech tenants relocating to the CBD Tenant name Building HQ WebPT software 515 E Grant Street Phoenix, AZ Galvanize tech education 515 E Grant Street Denver, CO Inspire Data Solutions software 111 W Monroe Street Scottsdale, AZ Yazamo marketing software 112 N Central Avenue Phoenix, AZ Construction boosts net absorption gains as tenants take new space A majority of the largest positive net absorption gains in the fourth quarter have been from new construction, with over 1. million square feet of absorption concentrated in just eight buildings. While 729, square feet of the positive absorption stemmed from completed build-to-suit projects, the majority of new deliveries have been speculative projects with significant pre-leasing success, already 47. percent leased on average. With the help of these new deliveries, the market recorded the largest single-quarter net absorption gain since the second quarter of 26, reaching 1.7 million square feet in the fourth quarter (2.9 million square feet total in 215). More options for large tenants available within Tempe submarket Just a few months ago, Tempe s Class A vacancy rate reached as low as 3.2 percent, with few options for tenants that required 2, square feet of space or more. Still one of the Valley s most popular submarkets, more options have become available for large tenants willing to pay a premium, including a large sublease availability in the newly delivered Hayden Ferry III. Only five Class A buildings in the Tempe submarket are able to accommodate a tenant of at least 2, feet, and due to the high demand for these spaces, some landlords are refusing to divide floors or will only entertain multi-floor deals. Phoenix metro 215 speculative deliveries per quarter 6, Leased Available 4, 2, Q1 Q2 Q3 Q4 Tempe Class A vacancy sees slight increase 8.% 6.% 6.1% 6.5% 6.4% 4.% 4.8% 4.8% 3.9% 3.8% 2.% 3.2%.% 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 82,28, % 1,756,453 2,965,982 $23.49 $27.22 Class A average asking rent 2,582,53 66.% Under construction total preleased 51

52 PITTSBURGH - Andrew Batson Research Manager, Great Lakes U.S. Steel s HQ reversal alters Skyline forecast The Skyline s vacancy forecast is contained by U.S. Steel s decision In November of 214 U.S. Steel announced plans for a new 268,-square-foot headquarters in the Lower Hill District. Clayco would act as the developer on the project, completing construction within 22 months and then leasing it to U.S. Steel for 18 years. However, in a stunning reversal, U.S. Steel announce in November of this year that they were abandoning their new headquarter plans and instead had signed a short-term extension at U.S. Steel Tower while the reevaluate their long-term options. This announcement has a dramatic effect on the long-term outlook for the Pittsburgh Skyline as U.S. Steel was set to vacate 425, square feet at the Class A office tower. Skyline vacancy forecast 15% 11% 7% 3% Crossings development in the Strip District tops headlines in 215 The mixed-use project with an estimated price tag of $16 million will include four office buildings totaling 363, square feet along with 3 apartment units, retail, and a parking garage. The first office building totaling 53, square feet delivered in the fourth quarter and is fully leased with Rycon Construction as the anchor tenant. Construction is underway on the second office building which will total 77, square feet. That building is scheduled to deliver in July of 216 and has been leased to Robert Bosch. In the spring construction will begin on the third office building which will total 11, square feet. That building is scheduled to deliver in March of 217 and has been leased to Burns White. Signed office tenants at 3 Crossings Tenant Building Leased s.f. Burns White Riverfront East 8, Robert Bosch 2555 Smallman 52, Rycon Construction 251 Smallman 25, With downturn in energy, office demand in Southpointe subsides Pittsburgh has long been an energy hub. First it was coal, then nuclear and most recently natural gas. Each of these sectors however, is in the midst of a downturn, and as a result, office demand from energy tenants has subsided. This is particularly true in the Southpointe submarket where energy companies associated with the natural gas industry have concentrated. Vacancy in this submarket neared 5 percent a few years ago and is now north of 1 percent. This has caused a shift in leverage from a purely landlord favorable position to one of a more neutral position. Southpointe negotiating leverage Tenant favorable market Neutral market Landlord favorable market 49,748, % -13,287 22,591 $ % 835, 74.4% 52

53 Hundreds PORTLAND - Geoff Falkenberg Research Analyst, Portland Absorption and deliveries are up Does class matter? As vacancy in Portland s CBD stays at a record-setting low, limiting options for large tenants and tenants with special needs alike, the amenities that tenants demand are also moving into new territory. Demand for the creative feel is increasing among non-creative companies, producing an environment where Class B and C office space can pull in increasingly commanding rents. A landscape has been formed where creative Class B office space, in specific buildings, can bring in higher rents than traditional office space in Class A buildings. These trends are leading to a shift in thinking about what defines Class A space in Portland and pushing owners of Class A space to evaluate significant renovations of their buildings/lobbies to compete for tenants. Absorption on the rise After a tepid third quarter, market absorption ended the year with a commanding 368,818 square feet in the fourth quarter; over a third of which took place in the CBD. Leasing activity, however, has not been limited to the CBD. The Westside suburbs saw a flurry of action, and ended the quarter with over 1, square feet of absorption. The Eastside suburbs saw over 5, square feet absorb during the fourth quarter; with special note on Treehouse moving into 14,268 square feet at 1 N Fremont -West. With over 6, square feet of new office space forecasted to deliver in the first quarter of next year alone, expect absorption to remain elevated as tenants move into delivering buildings with leases signed in Metro construction begins to grow After five years of lower than average office deliveries, Portland has crossed the 1-year average of 444,399 square feet with 477,49 square feet of new or renovated office space delivered in 215. Though a casual step forward in 215, the metro area will see over 1.5 million square feet delivered in 216 representing a 248 percent increase from the 1-year average. JLL is currently forecasting over 5, square feet to be delivered in 217. For all development currently under construction, approximately 55 percent is preleased. The relocation of some larger tenants will lead to a growing amount of shadow space in the tight Portland office market. 58,699, % 368, ,626 Annual net absorption (s.f.) CBD Class A vs CBD Class B asking rents $31 $29 $27 $25 $23 $21 $19 $17 $24.43 $21.77 $19.87 $ CBD asking rents and absorption $32 CBD Absorption CBD Rents $3 $28 $26 $24 $22 $2 Q2 213 Q4 213 Q2 214 Q4 214 Q2 215 Q4 215 Metro deliveries and forecast 1,3, 1,5, 8, 55, 3, 5, -2, $26.38 $ % Class B Class A $25.59 Deliveries Estimated Forecast $31.26 $ , ,1 1,567, % 53

54 RALEIGH-DURHAM - Ashley Lewis Senior Research Analyst Raleigh-Durham 215 sales volume hits record high 215 unemployment round up Although North Carolina s unemployment rate declined to 5.3 percent during first quarter; it slowly escalated back up to a high point of 5.9 percent. Down from its August 215 high point; unemployment is now remaining steady at 5.7 percent. Overall in 215, North Carolina has added over 91, jobs in the non-farm sector. A majority of these jobs were created within the education and health services industry. Taking an even closer look, Durham-Chapel Hill is consistently adding more jobs to the area than Raleigh-Cary metro. North Carolina landed the 1 th spot for job growth in the United States through the first three quarters. Raleigh-Durham expects to continue to see this unemployment percentage decrease in 216. Disregarding Manufacturing industries, two-thirds of companies expect to increase employment in 216 according to the Duke University/CFO Global Business Outlook Survey. Unemployment rates Raleigh MSA vs. Durham MSA 9.% 8.% 7.% 6.% 5.% 4.% Preleased square footage for Midtown construction Breaking ground in Midtown district once again Construction continues as the third tower in a series at North Hills Business Park breaks ground fourth quarter. Known as Midtown Plaza, the 3,-square-foot 12-story office tower is planned for a third quarter 217 delivery. It is already preleased 74. percent anchored by Allscripts, which is consolidating in the market. Midtown Plaza joins the 18-story Bank of America Tower being constructed only a few feet away in the newly minted Midtown district. Both buildings developed by Kane Realty and owned in a joint venture with KBS Realty Advisors, offer a plethora of amenities and easy access to the 44-beltline. 215 saw the highest in sales volume for Raleigh-Durham since 27 In 215, Raleigh-Durham recorded over 4.5 million square feet of office space trades at an average of $157 per square foot. This year sets a record in sales with major happenings in first and fourth quarters including the Duke Realty portfolio sale of 24 buildings consisting of 2.7 million square feet at $185 per square foot. These record-setting numbers top the past eight years of office sales. 215 being the year for Wake County Revenue Department to reappraise all properties, commercial properties assessed values increased 19. percent county-wide since the last octennial appraisal completed in % 74.3% 51.2% 5.%.% Bank of America Tower Midtown Plaza Sales volume best in past eight years s.f. 5,, 4,, 3,, 2,, 1,, ,634, % 389,54 1,76,866 $2.53.9% 629, % 54

55 Dollar volume in Millions RICHMOND - Geoff Thomas Senior Research Analyst, Richmond Upside potential for Downtown draws investors Investment sales volume inflated by tower trades in the CBD After a year of nearly anemic investment sales volume Downtown, several core, core-plus and value added transactions fueled total dollar volume for the entire Richmond market in 215. Clayco s recently delivered Gateway Plaza, the newest trophy tower in the CBD, traded for roughly $14 million, or $335 per square foot, to Lexington Realty Trust with an 8. percent cap rate. At the time of the sale, only two floors remained available equating to a vacancy rate of 16. percent. Value added opportunities also fueled dollar volume with the sale of Riverfront Plaza to Hertz Investment Group. The two late-198s, Class A towers, totaling 951,897 square feet and 72. percent leased, traded with a price of $155 per square foot and a rumored pro-forma cap rate of 11.6 percent. Limited new construction may limit expansions in the suburbs Richmond suburbs nearly reached the lowest prerecession Class- A vacancy rate of 8.3 percent recorded in 28; however, total square feet delivered in the past three years equated to 1.4 percent of the square feet delivered between With only one Class A availability over 5, square feet, a result of Capital One consolidating several leased offices to their West Creek campus, mid-size firms seeking expansion space in the Richmond suburbs may have no other choice than new construction. In the fourth quarter, several proposed projects totaling over 56, square feet were marketed with pre-lease requirements of percent, but no future tenants have signed on. Suburban vs Downtown investment sale volume $4 Downtown Suburban $335 $2 $138 $145 $146 $64 $61 $4 $7 $2 $2 $ NWQ and SWQ total Class A vacancy rate 8.8% Suburban Class A vacancy Tenants growing their footprints in over half of all leases signed Expansionary activity was the recurring theme in 215 with 66. percent of all deals signed as a result of expanding tenants. For firms increasing in size, their footprint increased by an astounding 44.6 percent. The two largest expansions this year were completed by Minacs at 143 Cummings Drive in Scotts Addition (which increased in their footprint by 72.4 percent in the Richmond market) and Kaleo (formerly Intelliject) which increased their footprint by 71.5 percent in the Turning Basin Building in the CBD. Conversely, several firms that contracted this year averaged a relatively modest 15.7 percent foot print reduction. Tenant footprint growth year to date 28% 6% 66% Growing Shrinking Stable 24,888, % 189, ,96 $ % 44,378 1% 55

56 s.f. SACRAMENTO - John Sheaffer Research Analyst, Sacramento Market closes out year with strong gains Office market beginning to fire on all cylinders Year-over-year average asking rates are rising across the board among all submarkets and all but one of those submarkets posted positive net absorption, driving down the overall vacancy rate to 16. percent, the lowest figure since 27. State agencies, insurance groups and regional healthcare systems continue to absorb large available blocks. While professional and business services, especially architecture and design firms, are chipping away at vacancy from the opposite end of the size spectrum. Rising demand for healthcare services, a balanced California state budget and continued spillover from the Bay Area will help carry market momentum through 216. Market-wide YTD total net absorption (% of inventory) Rocklin Point West Midtown Campus Commons Folsom -3.1% 2.3% 2.2% 1.1% 1.1%.4%.2% 4.1% 6.5% 5.8% South Natomas rental rates closing gap on the CBD Contiguous space availability downtown has dwindled to a single block over 5, square feet and the average asking rate rose again for the 9 th consecutive quarter. Located directly across the river from the grid, South Natomas has benefited from an increasingly competitive landscape downtown, with over 2, square feet of positive net absorption to date. Landlords are capitalizing on this trend the average asking rate shot up by 15.1 percent yearover-year, to $2.2 full service. Cost-conscious tenants will increasingly look to the Point West Submarket where rents sit well below the market average as the only viable option within close proximity to downtown. Tech presence growing, organically and by way of Bay Area spillover After a few relatively quite years, the local technology sector is showing signs of building momentum. Folsom, Sacramento s mini tech hub, experienced a late flurry of activity with three tech companies taking a total of 97, square feet in November alone. Two companies, both new to the market, cited Folsom s relative affordability, favorable demographics and STEM labor pool as determining factors in relocating. Other Bay Area tech companies, like Google, have expanded their local footprint as well. Sacramento is beginning to emerge as a cost-effective destination for back-office, Bay Area tech operations. Activity spilling over into neighboring South Natomas $2.8 $2.6 $2.4 $2.2 $2. $1.8 Q1 Q2 Q Leasing activity by tech firms in Folsom 4, 2, CBD Q4 213 Q , ,732 Q2 214 South Natomas Q ,428 Q4 214 Q ,862 Q ,312 Q3 215 Q , ,791, % 416,72 985,947 $ %.% 56

57 Square feet SALT LAKE CITY - Christian Forbes Research Analyst, Salt Lake City Salt Lake City now synonymous with robust demand Office-using employment gains remain remarkably strong Salt Lake City office-using payrolls continued to swell beyond all-time highs during the last quarter, adding 3,7 jobs over the last three months alone. Perhaps most promising, these gains have been sustained; in the last five years, office-using industries have shed jobs in only 13 months, while white-collar employment during this time has increased by 21.3 percent. The commercial office market continued to reap the rewards of this historically exceptional demand. Using a 225-square-foot-per-employee average, the metro s year-todate job-adds equated to users in need of an additional 1.8 million square feet of office space. Nearly 5, square feet of new office demand, every day 22 net new office-using jobs added to the market each and every day during the past 12 months, Bureau of Labor Statistics Can red-hot construction pipeline keep pace with tenant demand? To illustrate just how desirable the office market has become, witness the pairing of record levels of new construction and net absorption measuring north of one million square feet for the year. Year-to-date, the 1.2 million square feet of newly completed properties represented a six-fold increase over 214 s amount. Developers have struggled to build quickly enough; for every four new square feet added to inventory during the past 12 months, three square feet were leased prior to actual delivery. Looking ahead, another 2.7 million square feet of product is currently being developed, of which, nearly 6. percent is already spoken for. Asking rents continue to rise; further escalations expected Over the last several quarters, the availability of large block options has diminished significantly. Sizable users have been driven to act quickly, should they be fortunate enough to even find space that sufficiently meets their needs. Until new supply can adequately catch up to seemingly insatiable user demand, the market will continue to tighten as landlords push asking rents higher. Across the metro, rates have climbed by 7.2 percent in the last 12 months, with greater gains recorded in suburban markets. As new, more expensive product delivers, expect rents to increase by no less than 3. percent annually through at least year-end 217. Unprecedented run-up in levels of newly built properties 3,, 2,, Historical completions 1,, sees rents climb across geographies and asset classes Suburbs, B 12.4% Suburbs, Totals 7.1% Suburbs, A 6.% CBD, Totals 4.3% CBD, B 3.1% CBD, A 1.8% metro = 7.2%.% 2.% 4.% 6.% 8.% 1.% 12.% 14.% 45,889, % 259,598 Q3 215 net absorption (s.f.) 1,51,935 $ % 2,695, % 57

58 SAN ANTONIO - Travis Rogers Research Analyst, Austin Huge deliveries, mammoth sales, great 215 Fourth quarter closes with strong year of construction deliveries Two speculative projects, WestRidge Two at La Cantera (129, square feet) and Heritage Oaks III (19, square feet), delivered during the fourth quarter. Collectively, these properties delivered 1 percent vacant, however, if we look at total preleased square footage at the time of delivery during the past 12- months, the average prelease rate was 56. percent. The top three projects to deliver in 215 were all build-to-suit. These properties are 95 Westover Hills (18, square feet), 81 Potranco (16,5 square feet), and WestRidge One at La Cantera (129, square feet). In total, San Antonio added over 1.1 million square feet of new inventory during 215. Recent and projected construction deliveries (s.f.) 6, 537,515 5, 4, 282,24 238,15 27, 3, 2, 132, , 19, 1, - Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Over 1.2 billion in annual sales volume San Antonio has experienced over 2 transactions larger than 5, square feet during the course of 215. Even with a handful of undisclosed sales prices, San Antonio has cleared $1.2 billion in annual sales volume. Class A product averaged $197 per square foot with a 7.1 percent cap rate. Over 97. percent of this activity took place in the suburbs. The top three transactions in the last 12- months were Ridgewood Park Office Campus, The Forum and Promenade at Eilan I & II. Annual average Class A sales price per square foot ($) $197/s.f. Citywide annual average Class A sales price per square foot Where is the largest spread between Class A & B rents? Market rents can vary anywhere from $19.2 per square foot for Class B space downtown or as high as $29.99 per square foot for Class A space in Far North Central. The largest gap between Class A and B space is found downtown with an almost $7. per square foot difference. Following downtown is Northwest with a $6.-per-square-foot difference. The smallest spread between office product can be found in Far North Central at $3.59 per square foot. Looking at the market as a whole, spreads are the lowest in northern San Antonio and highest in the south or downtown. This is a result of newer or higher quality Class B office product in a booming northern corridor. Class A & B average full service rental rates by submarket ($) $33 $28 $23 $18 $25.87 $19.2 $29.99 $13 Downtown Far North Central $26.4 $26.22 $25.77 $26.29 $22.51 North Central $2.14 $2.25 $23.3 Northeast Northwest South Class A Class B 26,366, % 84,67 523,7 $ % 526, 7.% 58

59 SAN DIEGO - Josh Brant Senior Research Analyst, San Diego Developers add new offices with little pre-leasing New speculative office deliveries add vacancy In 215, the San Diego office market delivered the first significant speculative office building since 21 with Irvine Company s 36,-square-foot One La Jolla Center. Other speculative office construction delivered in 215 included American Assets Trust s two 19,-square-foot additions to Torrey Reserve in Del Mar Heights, Kilroy Realty s 73,-square-foot The Heights Del Mar project, in Del Mar Heights, and Cruzan s 177,-square-foot office conversion MAKE, in Carlsbad. At the end of 215, these properties were 81.6 percent vacant, comprising nearly half a million square feet of vacant office space, or 4.3 percent of the county s 11.3 million square feet of vacancy. Vacancy rate in recent speculative office developments The vacancy rate for speculative office properties which delivered in 215 was eight-two percent at year-end. 82% ViaSat rapidly expanding and driving occupancy growth in Carlsbad Carlsbad posted the largest positive net absorption in the fourth quarter for any submarket in the county, a total of 133,266 square feet. ViaSat, a Carlsbad based broadband services and technology company, is a major driver in the Carlsbad office market. ViaSat s recent growth comes from multiple factors including new contracts with the U.S. Navy and Virgin America airline along with the pending launch of ViaSat s newest satellite. Levine Investments completed a 74, build-to-suit office for ViaSat in the fourth quarter with a neighboring build-to-suit for ViaSat still under construction. Additionally, ViaSat purchased 23 acres from HCP in the fourth quarter to accommodate future growth. Q4 215 Net Absorption for Carlsbad 133,266 s.f. Carlsbad lead the county in the 4 th quarter Private colleges continue to see enrollment decline 215 saw the continued decline of many large for-profit colleges across the nation. Locally, Bridgepoint Education vacated 4, square feet of office space downtown in the fourth quarter, on the heels of vacating nearly 15, square feet of office space in Rancho Bernardo to start the year. Overall, local enrollment in (non-religious) private colleges decreased 9.2 percent from 214, with National University s large gains offsetting some of the losses. Of private colleges in San Diego13 out of 15 reported year-over-year enrollment losses. Webster University closed their San Diego location in the fourth quarter and we anticipate a further contraction for this sector of office users as enrollment continues to trend downward. 78,536, % 237, ,415 Local private colleges reporting decreased enrollment 87% Number of private non-religious colleges reporting year-over year enrollment losses in San Diego Source: San Diego Business Journal, JLL Research $ % 156,832.% 59

60 SAN FRANCISCO Major sublease availabilities, cause for concern or mere happenstance Large availabilities drive sublease space Sublease availabilities increased to over two million square feet, the highest since Q4 29, largely due to major subleases from Charles Schwab, Dropbox, Twitter, and LinkedIn. Tech companies represent the overwhelming majority of sublease space at more than 41. percent. While LinkedIn and Dropbox availabilities were expected upon relocation to their respective headquarters, other tech subleases are the result of firms failing to grow into leased space for a variety of reasons. However, with strong tenant demand and rapidly declining vacancy, the increase in sublease space presents new opportunity for tenants looking to enter or expand into the market. Drastic increase in sublease space 49.4% Sublease space since Q3 - Jack Nelson Research Analyst, San Francisco 215 deliveries not providing raw supply Four projects delivered in 215: 35 Mission, 222 Second, 333 Brannan, and 345 Brannan. Despite adding 1.2 million square feet to the inventory, at 1 percent pre-leased these new deliveries are no relief to active tenants in the market. However, of the buildings currently under construction for delivery over the next two years only 35. percent is pre-leased, but this available space will come at a cost. Average pricing for projects under construction is $79 per square foot, a 15. percent premium over the market s current asking rate, with some space surpassing the $1-mark where premium views are available. Highest square foot delivery since ,21, ,53,655-5, 1,, 1,5, 2,, 2,5, Investment sales cool, but looking to heat up 215 marked a relatively quiet year with only 15 investment sale transactions greater than $25 million completed. These transactions total approximately $3 billion in aggregate value, roughly half of the $6 billion which was recorded in 214. With near historic levels of investment activity in 212 and 214, a substantial portion of the city s institutional office buildings have already traded hands this cycle, with many of these assets being acquired by investors with long-term investment strategies. Foreign capital flows into San Francisco are likely to increase in 216 with the recent reform to the Foreign Investment in Real Property Tax Act of 198 (FIRPTA). Decline in total volume sold in 215 $8,,, $6,,, $4,,, $2,,, $ ,43,27 8.2% 634,896 2,149,79 $ % 3,664, % 6

61 # of blocks SAN FRANCISCO MID-PENINSULA - Christan Basconcillo Research Manager, Silicon Valley Tenants target new development, tightening market Development on the horizon; concerns of infrastructure strain The overspill of Silicon Valley tenants is pushing rents to levels high enough to justify future speculative office construction. Recent large block transactions are stoking a development race that will help to relieve Class A supply constraints; especially in Downtown micromarkets. However, the ramp up in office construction is creating concern from city officials. Some office proposals have recently been reduced or revised to include space uses other than pure office. Additionally, traffic congestion and transportation management have become a growing concern. The strain on the region s infrastructure created by the inflow of tenants could limit future new development and offer little relief to supply constrained submarkets. Supply crunch for large tenants seeking campus expansion 3 Class A Class B , - 1, s.f. 1, - 2, s.f. > 2, s.f. Heated markets see tighter conditions Overall vacancy continues to decline as tenants look to the Mid-Peninsula, especially within transit-oriented, amenities-rich areas. This has prompted developers to bet on second generation office buildings with value add potential; especially in areas serviced by Caltrain. Hot submarkets like Redwood City and San Mateo are experiencing a flurry of tenant demand; consequently, sparking the redevelopment of older buildings into mid-rise, mixed-use and new generation space. As a result, young tech companies are flocking to downtown micromarkets and prompting significant rent growth. As conditions begin to tighten, tenant movement will push north toward softer submarkets of the Mid- Peninsula unless additional suburban development breaks ground to ease supply constraints. Macroeconomic factors increase the pool of investors for assets Recent easing of a 35-year-old real estate tax on foreign institutional investors has opened the door for a significant source of funds that will likely land on assets in the Mid-Peninsula. Foreign investors have been very active in the Mid- Peninsula and looking for a safe haven for funds that otherwise could suffer deteriorating conditions overseas. The lift of the real estate tax on foreign investors comes amid an environment of depreciating foreign currencies and gradually increasing interest rates by the Federal Reserve; which provide stronger arguments to land foreign funds locally in the Bay Area. 29,141, % 1,98,5 1,436,729 Slow and steady-vacancy continues decline 25.% 15.% 5.% Investors increase their bets on Mid-Peninsula assets $5,M $4,M $3,M $2,M $4,176.9 $1,M $188.5 $137.5 $5.3 $62.3 $318.5 $219.8 $M $ % Class A Class B $1,354.5 $2,94.6 1,33, % 61

62 SEATTLE-BELLEVUE - Alex Muir Research Manager, Seattle-Bellevue Market momentum shows no signs of slowing down Development activity hits prerecession levels Seven major office projects delivered this year; totaling more than 2.2 million square feet. This makes 215 the most active year for development since prior to the recession. The largest project, 929 Office Tower, is the first office building to be delivered in downtown Bellevue since 29. With more than 5.9 million square feet scheduled to deliver in the next two years, construction activity will continue to dominate the conversation. Tenants will have ample opportunity to acquire premier space and continue migrating to, and growing in, Puget Sound; as just 35.1 percent of the space is currently preleased. Average asking rents for new construction space being marketed stand at $48.5 per square foot, full service, and represent a 42.7 percent premium over the regional average. Sales volume nearly matches the combined total of 213 and 214 More than $4.4 billion in office investment transactions have occurred in Puget Sound this year. This represents a percent increase over all of 214. The most active submarkets for sales have been the Seattle CBD and Lake Union, with year-to-date volumes of $1.3 billion and $849.9 million, respectively. In the fourth quarter, an influx of foreign capital helped drive sales volume close to the region s 212 level, when Amazon purchased its headquarters. Three of the 1 buyers were foreign and accounted for 5.2 percent of quarterly volume. Additionally, the two largest office sales in the region this year Columbia Center and Amazon Phase VI were purchased by foreign investors. Net absorption surpasses 2. million square feet For the third consecutive year, net absorption has surpassed 2. million square feet. In Q4, 551,591 square feet of space was taken down, bringing the 215 total to nearly 2.5 million square feet. in Seattle-Bellevue remains at 1.2 percent and is as low as the market has seen in the last 1 years. Subsequently, average asking rents are up 7.5 percent year-over-year and have hit a 1-year peak. Fourth quarter leasing activity was driven primarily by technology tenants; however, Safeco s deal at Safeco Plaza was far and away the largest. Other tenants that signed major leases include Intellectual Ventures, DocuSign, Salesforce and Juno Therapeutics. 91,83, % 551,591 2,461,44 Square feet of office product delivered 3,, 2,, 1,, Historical sales volume ($mil) $6,M $4,M $2,M $M 826,75 $1,2. Net absorption in the last three years $ % 128,94 $1,7. 283,545 $4,9. 462,312 48, $2,8. $1,759.5 $4, ,138,496 s.f. Net absorption in the region ,251, ,912, % 62

63 SILICON VALLEY - Christan Basconcillo Research Manager, Silicon Valley Tenants continue to expand more activity inbound Level of demand expected to stay its course Silicon Valley experienced yet another solid quarter of net absorption. Based on the level of touring activity, more tenants are expected to land in 216. There are at least one million square feet of preleased, under construction space coming online in early 216 to kick start the new year with positive occupancy gains. Meanwhile, with several major tech tenants finally planting their flag in North San Jose, the region will be well poised to be the next hot core submarket of the Valley. Given the steady decline in newer space availability combined with the current preleasing trend; tenants with future growth or relocation plans will consider targeting space options earlier to avoid missed opportunities. Net absorption continues its positive run 1,5, 5, -5, Q4 1 Q4 11 Q4 12 Q4 13 Q4 14 Q4 15 Tenants targeting well-located new space, including rehabs Although vacancy rates have yet to reach single digit levels, the market for tenants in need of 1, square feet and larger has become much tighter when compared to 12 months ago. The aggressive expansion of large tech companies in core submarkets continues to push leasing activity further along 11 through Santa Clara into North San Jose. However, while there are still some Class A under construction options available, rents for new development are rising in response to demand. For this reason, renovated second-generation space is becoming more attractive as it offers similar Class A finishes at relatively less expensive rents. Several tenants with larger requirements have yet to land. It is expected that North San Jose will capture some of this activity and help to push overall vacancy levels closer to single digit levels. VC money continues to flow into the Valley, but fewer IPO s on deck Confidence in the venture capital community toward the tech sector remains bullish. Investors are still pouring capital toward expansion and late-stage companies as the number of Valley unicorns have increased. However, despite VC sentiment, recent tech IPO s have failed to impress Wall Street, and have caused some high-flying startups to reduce their offer price or postpone their public debut. It is expected that 216 will see even fewer IPOs as the public market is showing some volatility; potentially causing a correction in private valuations and high-tech VC funding over the next 12 months. 68,545, % 1,68,581 2,891,738 Class A vacancy on the decline 4.% 3.% 2.% 1.%.% 3.7% 28.6% 24.7% 27.1% 2.% 19.4% 17.2% 16.1% 13.9% 11.9% Valley companies still attracting VC dollars $3,. $2,. $1,. $. Q3 12 Q2 13 Q1 14 Q4 14 Q3 15, RCA $ % Funding volume ($M) 3,276, % 63

64 ST. LOUIS - Blaise Tomazic Senior Research Analyst, St. Louis New development is on the horizon Startup and tech employment is going strong Over 1, new information technology jobs are coming to St. Louis. Boeing is hiring 7 engineers, technicians and staff to build commercial airplanes and military systems. KPMG already has 27 employees in downtown St. Louis and is expanding IT by 175 new positions. Locker Dome is expanding its operations and adding 3 new positions over the next several years after nearly tripling its office space. Pandora will be Square s new neighbor in Cortex; where Square is hiring 2 to open its fourth U.S. office. Growth is expected to continue as local startups secure more funding to expand business operations. St. Louis dominates startup funding in Missouri $135+ million Startup funding by St. Louis companies, PwC Moneytree The construction drought is ending After several years of occupancy growth, a new speculative office building is finally under construction. Delmar Gardens III, in West County along I-64, will be 125, square feet and has Rabo Agrifinance as the lead tenant (75, square feet). The new property is expected to be completed in the summer of 217. A Clayton office building was also announced. The 233,-square-foot Apogee office tower will be located along Forsyth Boulevard. The new office building joins four others on the same block. Forsyth Boulevard is the most expense street for office space in the region. Class A asking rates $3. $25. $2. $15. $26.23 Clayton $24.48 West County $23.1 South County $2.84 $2.32 St. Charles County Northwest County $18.97 CBD Suburban markets fuel growth Suburban occupancy growth dropped vacancy in the five submarkets to 12.6 percent a 23 basis point improvement from a year ago. The reduced vacancy has led some landlords to begin increasing asking rates. In Clayton and West County, several buildings increased asking rates by $.5-$1.. As tight conditions in the suburban submarkets drive up rental rates; it only makes sense for cost conscience tenants to begin looking downtown. With many large blocks of space available, large occupiers have many options in the CBD. Absorption concentrated in the suburbs CBD -38,153 Suburbs 737,74-2, 2, 4, 6, 8, 42,628, % 1,172 Q2 215 net absorption (s.f.) 698,921 $ % 125, 6.% 64

65 SUBURBAN MARYLAND - Sara Hines Senior Research Analyst, Suburban Maryland Restrained new construction limiting available supply Limited supply relief to come in the near-term A restrained development pipeline has provided limited new supply for tenants. Although subdued tenant demand has not yet tightened overall market conditions, proposed projects and new master plans could change the future landscape of the market. Recently, it was announced that both Rock Spring Park and White Flint would receive new master plans. In the Rock Spring plan, it was suggested to change one office building in the park to associate with the nearby school. In the I-27 Corridor, 4 Research Place, phases I and II, will be repurposed into to a storage facility holdings has planned for 2 and 4 Choke Cherry to be demolished and changed to mixed-use. Suburban Maryland historical and planned deliveries (s.f.) 3,, 2,, 1,, Leasing activity remains choppy Large block leasing activity started slow at the beginning of 215, but gained velocity over the past two quarters. The market ended the fourth quarter with 45,3 square feet of deal volume among transactions over 2, square feet. Annual leasing activity totaled 3.6 million square feet at the end of the fourth quarter. That is 39.7 percent below the yearly average since 2 and a 9.4 percent drop from 214. Large tenants continued to gravitate to Metro proximate submarkets such as Rockville Pike and Bethesda-CBD. Class A office buildings lead sales in Suburban Maryland Class A assets captured 97.7 percent of the total sales volume and 77.9 percent of total square footage in 215; which is a new trend compared to the previous year. In 214, Class A assets accounted for only 36.4 percent of the sales by total building size. Class A assets sold for an average of $298. per square foot; an increase of 18.7 percent from last quarter. The increase was due in large part by the sale of the Apex building, 7272 Wisconsin Avenue in Bethesda. A deal was announced that Carr Properties would buy the asset for $15.5 million and transfer the American Society of Health System Pharmacists into approximately 68, square feet at Carr Properties 45 East West Highway in Bethesda. Carr Properties has plans to demolish the building and redevelop it into a 935,-square-foot office, housing and hotel project. Suburban Maryland leasing activity (s.f.) 8,, 6,, 4,, 2,, Sales activity by building class A $543,96, B $5,8, C $7,1, $ $2,, $4,, $6,, 65,95,827 2.% 139,86-411,42 $ % 288, % 65

66 Unemployment Rate Total Jobs Total Square Feet Delivered Direct Vacancy TAMPA - Drew Gilligan Research Analyst, Central Florida Strong market conditions heading into 216 Outlook bright for suburban submarkets Vacancy dropped to 11.3 percent in the CBD and to 1.5 percent in Class A space in CBD markets. Vacancy is now at an all-time low in both Tampa CBD and St. Pete CBD, and tenants are seeing rents grow rapidly as large blocks have become rare. Companies looking for space downtown are finding options limited; especially if groups require a high parking ratio. Space in Trophy assets downtown is even more difficult to come by, with only five full floors available between the three buildings. More than half of the Class A buildings have traded in downtown Tampa since 214, which is already leading to increased rental rates, and forcing some potential tenants to consider the suburban submarkets. Historical CBD Vacancy 25.% 2.% 15.% 1.% 5.%.% Tampa CBD St. Pete CBD New construction on the horizon potentially Numerous groups around Tampa are actively identifying opportunities to break ground on new developments. Over the past year, numerous large industrial and multi-family speculative developments were delivered. However, there have yet to be any speculative office developments to break ground in recent years. Multiple groups have announced approval for office or mixed-use construction around Tampa, but replacement costs still tower above current building costs. Only one office building is currently under construction, but it is a build-to-suit for a single user. Two Trophy buildings sold downtown in the past two quarters for new market highs; which goes to show that it is still cheaper to buy a building than break ground on a new one. Annual deliveries in Tampa Bay (square feet) 1,, 8, 6, 4, 2, Local economy continues to grow Strong growth continues in Tampa Bay economy Local market conditions continue to strengthen as highlighted by new jobs added for the seventh consecutive year in the Tampa Bay MSA. In 215 alone, over 4, new jobs were added with the majority in the education and health services,, and professional and business services sectors. There are multiple companies touring the market that do not currently have a presence in the Tampa Bay area and are considering expanding into the local market; which should contribute to continued job growth. 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% Unemployment Rate, BLS Total Employment 1,3, 1,25, 1,2, 1,15, 1,1, 1,5, 1,, 34,25, % 471,869 1,166,157 $ % 175,998 1% 66

67 WASHINGTON, DC - Carl Caputo Research Analyst, Washington, DC Strong leasing activity closes out 215 Private and public sector leasing activity closed out the year strong Leasing activity among private sector tenants larger than 2, square feet totaled.9 million square feet in the fourth quarter. Most notably, Steptoe & Johnson and Epstein Becker & Green decided to renew and renovate their spaces at 133 Connecticut Avenue, NW and th Street, NW, respectively. Activity among federal, local and quasi-government tenants surged to end the year; comprising 65. percent of deals signed during the quarter. Six of the eight federal agencies that finalized large leases during the quarter signed long-term deals; in comparison to only three of 12 over the same period last year. Large tenant leasing activity totaled 2.4 m.s.f. in Q ,, Private sector Public sector 2,, 1,, Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215, deals greater than 2, s.f. Both core and non-core submarkets seeing large tenant leasing activity In the core of the market, law firms and government affairs entities continued to generate occupancy gains in the Trophy and Class A market, and nonprofits drove leasing activity in the Class B segment. Overall asking rents in the core increased 5.4 percent over 215; averaging $59.23 p.s.f. gross at the end of the fourth quarter. Demand in the core remained strong; however, during the fourth quarter the non-core submarkets captured a majority of large tenant deals. The uptick in federal activity drove demand in Southwest as U.S. Federal Mediation and Conciliation Service and DC Department on Disability Services both relocated to the submarket from the CBD. Non-core submarkets captured a third of leasing activity 29.1% CBD, East End, Capitol Hill (core) West End, Georgetown, Uptown (non-core) 3.9% 67.% NoMa, Southeast, Southwest (non-core), total s.f. of deals greater than 2, s.f. signed in 215 Tightening market conditions generating spec development As the local and regional economy continues to improve and new construction achieves increasingly higher rents in some cases extending into the $6s NNN in the core new spec development and redevelopment activity has increased. Construction activity in the District totaled 2.5 million square feet at the end of 215 reaching a six-year high. Of the 1.5 million square feet actively under construction in the core, 43.2 percent was preleased. Outside the core, preleasing remained in the single digits as spec development of projects such as 99 M Street, SE, 8 Maine Avenue, SW and rd Street, NE continued. Construction activity is up 22. percent from year-end 214 3,, Under construction (s.f.) Preleased (s.f.) 2,, 1,, ,358, % 2, ,55 $ % 2,481, % 67

68 WEST PALM BEACH - Ilyssa Shacter Research Analyst, Florida Fort Lauderdale Trophy assets remain on top through county recovery Palm Beach County fundamentals tighten in 215 Of the three major South Florida markets, Palm Beach County has the highest overall vacancy at 17.5 percent. However, the county has seen considerable growth over the past 12 months as vacancy has declined 16 basis points three times more than the 5 basis point decline seen in Broward County. Further, key indicators are positive as investment, rental rates and the development pipeline continue to grow concurrently. Notably, CityPlace announced plans for a 3,-square-foot Class B office building in downtown West Palm Beach, and with the recent $24 million acquisition of a full city block, Jeff Greene has proposed plans for a new mixed use center (which would likely include office); however, the development program is still in its infancy. Growth continues in the fourth quarter $32. Rent Vacancy $3. $28. $26. $24. 3.% 2.% 1.%.% Investment in Boca Raton North reaches record high Boca Raton North saw record high investment this quarter as four multi-tenant buildings (totaling 4, square feet) and two single-tenant buildings (totaling 131, square feet) traded. The largest property, 9 Broken Sound, traded for $28.3 million when Main Street Capital purchased the property from Siemens. The fully leased Class A property is anchored by CLS Plasma, which occupies 42,5 square feet in the building. As the submarket continues to recover towards prerecession levels, the recent infusion of investment shows growing investor confidence in future growth. With more than half a million square feet changing hands, this quarter marked a historic high for office investment in Boca Raton North which totaled $123 million. Trophy properties in West Palm Beach continue to thrive While the Core CBD in West Palm Beach continues to strengthen, Trophy properties remain on top. Class A vacancy overall has declined 1 basis points to 15.1 percent; however, the majority of growth is being seen within the submarket s Trophy Assets. Overall, Trophy vacancy hit a historic low this quarter as it dipped 17 basis points quarter-over-quarter and 38 basis points year-over-year to 5. percent. Comparably, vacancy among the Class A non- Trophy set actually increased 15 basis points over the past year to 23.9 percent. Boca Raton North surpasses peak investment this quarter Name Buyer Seller Price 9 Broken Sound Mainstreet Capital Partners 11 Yamato Adler Kawa 999 Yamato Adler Kawa 15 E. Palmetto Park Dividend Capital Siemens Detroit Firefighters Detroit Firefighters Clarion Partners Class A and Trophy vacancy spread grows 4.% 2.%.% Trophy Class A $28.3M ($138/p.s.f.) $1.9M ($124/p.s.f.) $21.3M ($259/p.s.f.) $35.8M ($326/p.s.f.) ,57, 17.5% 49, 343,8 $ %.% 68

69 WESTCHESTER COUNTY - Dayna McConnell Research Analyst, Fairfield County Large leases drive velocity in 4 th quarter Several large leases lead Westchester activity Westchester experienced a slow year in terms of leasing velocity and recording the lowest total since 29. There were two deals specifically that drove the leasing total this quarter over the 42,-square-foot mark. Central National- Gottesman signed a 62,888-square-foot expansion at Centre of Purchase and Pentegra Services inked a 29,-square-foot deal at 71 Westchester Avenue. Westchester can offer more large blocks of space than neighboring Fairfield and should continue to attract some larger tenants looking in the area because of the plethora of choices. Leasing activity by submarket I-287 East 46.3% White Plains East 19.6% White Plains CBD 16.% I-287 West 12.% Westchester South 5.3% Westchester North.%.% 1.% 2.% 3.% 4.% 5.% Growth potential in Westchester in the form of Biotech BioMed Realty Trust at the Landmark at Eastview has now leased 99. percent of the campus to Regeneron; totaling roughly 1.1 million square feet. Though the office park is nearly at capacity, Regeneron recently purchased a plot of land next to the Landmark to ensure that it can maintain its presence in Westchester County as the company s extraordinary growth continues. Because of its demographic makeup, Westchester is a natural landing place for industry like biotech. Westchester has a great opportunity for growth by attracting companies such as Regeneron. Regeneron s footprint 1.1 m.s.f. Regeneron has leased at the Landmark at Eastview 216 will be a good year for White Plains CBD While White Plains CBD has some large leases expiring in 216, tenants looking in the market have a demand for space that totals over 25, square feet. An overwhelming majority of those companies looking for space in the CBD are either financial services or law firms, which is on par with the traditional demographic in White Plains. Renovations at some of the premier Class A buildings such as 1 N Lexington, 445 Hamilton and 1 Bank Street will be sure to attract some of the more prestigious firms looking to move into the area. Tenant demand for White Plains CBD 29.3% Increase in tenants targeting White Plains CBD since this time last year 32,333, % -83,73-37,934 $ % 228,69.% 69

70 APPENDIX: Stats Employment Rankings Leases Sales Developments 7

71 UNITED STATES OFFICE STATISTICS Market totals (CBD and Suburban) Inventory (s.f.) Quarterly total net absorption (Including Subleases) YTD total net absorption (Including Subleases) YTD total net absorption (% of Inventory) Direct vacancy (%) Total vacancy (%) Current quarter direct average marketed rent ($p.s.f.) Quarterly percent change YTD Completions / deliveries (s.f.) Under Under construction construction as % of (s.f.) inventory Atlanta 133,555, ,841 2,578, % 16.7% 17.5% $ % 885,.7% Austin 49,189, ,467 2,253, % 11.2% 12.4% $ % 2,86,242 2,7, % Baltimore 71,152,35 221, ,456.5% 12.5% 12.9% $ % 486,354 1,333,4 1.9% Boston 165,361,95 1,8,136 3,45, % 11.5% 13.8% $ % 2,54,99 5,573, % Charlotte 46,615,285 94, ,466 1.% 11.9% 12.3% $23.3.4% 79,119 2,617, % Chicago 233,214,51 1,13,418 3,585, % 14.% 15.% $ % 538,735 3,55, % Cincinnati 34,471, ,6 763, % 17.2% 18.1% $ % 881, ,.6% Cleveland 28,121,38 178,99 75,978.3% 18.4% 19.6% $ % 47,.2% Columbus 3,39,64 34, , % 12.8% 13.1% $ % 77, 93,.3% Dallas 162,54, ,434 4,794,274 3.% 17.9% 18.7% $ % 4,693,713 7,65, % Denver 17,39,87 854,613 2,142,984 2.% 12.3% 13.1% $ % 1,342,155 2,739,79 2.6% Detroit 61,651, , , % 19.1% 19.% $ % 432,48.7% Fairfield County 48,491,42 846,36-413,97 -.9% 22.1% 24.4% $ %.% Fort Lauderdale 22,86,374 87, ,29 1.1% 15.4% 16.1% $ % 183,535 27,388.1% Hampton Roads 18,57,57-4,756 59,394.3% 14.2% 14.5% $ % 5, 287, % Hartford 25,263, ,234 14,83.6% 17.2% 18.2% $2.48.% 19, 25,484.1% Houston 173,679,885 38,427-89, % 14.5% 16.5% $ % 8,728,41 6,36,18 3.6% Indianapolis 31,845,766-33,682 15,27.5% 15.6% 15.9% $ % 2,22 318,25 1.% Jacksonville 2,11,117-54, ,1 2.3% 14.3% 14.7% $ %.% Kansas City 48,354,53 N/A 738, % 14.7% 15.% $18.29.% 67,924.% Long Island 42,537,977-33, ,677.3% 15.4% 16.8% $ % 174,4 116,545.3% Los Angeles 188,241,725 1,554,764 2,557,26 1.4% 14.7% 15.5% $ % 1,12,968 1,881,54 1.% Miami 35,535, ,17 666,36 1.9% 12.% 12.3% $ % 664, % Milwaukee 27,116, , % 17.7% 19.4% $ % 56, % Minneapolis 69,299, ,61 89, % 13.7% 14.6% $ % 74,56 464,236.7% Nashville 33,584, ,651 1,2, % 6.7% 6.7% $ % 315, 2,84, % New Jersey 159,359,182-8, ,92.2% 22.% 24.6% $25.17.% 93,7 44,445.3% New York 446,774,9-9, ,759.% 8.1% 9.6% $ % 1,173,14 13,666,64 3.1% Oakland-East Bay 56,474,281 87,558 1,8, % 12.7% 13.1% $ %.% Orange County 95,634, ,776 1,183,53 1.2% 11.2% 11.8% $ % 67, ,387.6% Orlando 29,13,699 27, , % 15.3% 15.8% $ % 177, 271,.9% Philadelphia 13,348,46 1,137,652 2,453, % 12.% 12.6% $23.74.% 1,78,35 3,183, % Phoenix 82,28,551 1,756,453 2,965, % 2.2% 2.9% $ % 2,57,73 2,582,53 3.1% Pittsburgh 49,748,464-13,287 22,591.4% 13.3% 15.% $ % 632, 835, 1.7% Portland 58,699, , , % 8.5% 8.9% $ % 477,49 1,567, % Raleigh-Durham 44,634, ,54 1,76, % 11.5% 11.9% $ % 1,394, , % Richmond 24,888, , ,96 1.9% 12.8% 14.1% $ % 359,158 44,378.2% Sacramento 43,791, ,72 985, % 15.8% 16.% $ %.% Salt Lake City 45,889, ,598 1,51, % 5.9% 6.4% $ % 1,192,799 2,695, % San Antonio 26,366,851 84,67 523,7 2.% 15.% 14.8% $ % 1,138, , 2.% San Diego 78,536, , ,415.4% 13.3% 14.4% $ % 987,657.% San Francisco 75,43,27 634,896 2,149,79 2.9% 7.1% 8.2% $ % 1,21,418 3,664, % San Francisco Peninsula 29,141,986 1,98,5 1,436, % 9.1% 1.4% $ % 345,335 1,33, % Seattle-Bellevue 91,83, ,591 2,461,44 2.7% 9.6% 1.2% $ % 2,251,966 5,912, % Silicon Valley 68,545,489 1,68,581 2,891, % 1.4% 12.2% $ % 2,71,388 3,276,66 4.8% St. Louis 42,628,94 1, , % 14.% 14.7% $ % 128,5 125,.3% Tampa Bay 34,25, ,896 1,166, % 13.5% 14.1% $ % 84, ,998.5% Washington, DC 33,742,519 58,148 1,237,721.4% 16.2% 17.% $ % 1,115,942 6,833, % West Palm Beach 2,574,72 48, , % 17.2% 17.5% $ %.% Westchester County 32,333,229-83,73-37,934-1.% 2.9% 22.9% $24.28.%.% United States totals 4,6,351,343 18,743,496 55,481,58 1.4% 13.7% 14.7% $ % 44,153,555 88,328, % 71

72 UNITED STATES EMPLOYMENT Market Total nonfarm jobs 12-month net change (s) Total nonfarm jobs 12-month percent change Office jobs* 12- month net change (s) Office jobs* 12- month percent change Unemployment (215) Unemployment (214) 12-month unemployment change (bp) Atlanta % % 5.4% 6.5% -11 Austin % % 3.3% 3.8% -5 Baltimore % % 5.4% 5.7% -3 Boston % % 4.1% 4.6% -5 Charlotte % % 5.3% 5.5% -2 Chicago % % 5.1% 6.% -9 Cincinnati % % 3.8% 4.6% -8 Cleveland % % 4.2% 5.3% -11 Columbus % % 3.6% 4.2% -6 Dallas-Fort Worth % % 4.% 4.5% -5 Denver % 2.5.6% 3.1% 3.9% -8 Detroit % % 6.3% 7.9% -16 Fort Lauderdale % % 4.7% 5.5% -8 Hampton Roads 5.4.7% % 4.7% 5.2% -5 Hartford % % 4.8% 6.1% -13 Houston % % 5.3% 5.9% -6 Indianapolis %.9.4% 4.% 5.4% -14 Jacksonville %.8.5% 4.8% 5.8% -1 Kansas City % % 4.2% 4.9% -7 Long Island % 1.8.7% 4.1% 4.6% -5 Los Angeles % 5.6.5% 5.9% 8.% -21 Miami % % 5.9% 6.3% -4 Milwaukee % % 4.2% 5.2% -1 Minneapolis-St. Paul % % 2.9% 3.% -1 Nashville % % 4.3% 5.1% -8 New Jersey % % 5.% 6.1% -11 New York % % 4.8% 6.5% -17 Oakland-East Bay % % 4.6% 5.6% -1 Orange County % 1.8.4% 4.3% 5.2% -9 Orlando % % 4.6% 5.5% -9 Philadelphia % 1.9.3% 4.9% 5.5% -6 Phoenix % % 5.2% 5.8% -6 Pittsburgh % 1.1.4% 4.6% 4.6% Portland, OR % % 5.% 6.% -1 Raleigh-Durham % % 4.7% 4.4% 3 Richmond.2.%.3.2% 4.4% 5.% -6 Sacramento % % 5.5% 6.6% -11 Salt Lake City % % 3.1% 3.4% -3 San Antonio % % 3.8% 4.2% -4 San Diego % % 5.% 6.% -1 San Francisco % % 3.4% 4.1% -7 San Jose (Silicon Valley) % % 4.% 5.% -1 Seattle-Bellevue % % 4.5% 5.% -5 St. Louis 9.7.7% % 4.6% 5.2% -6 Stamford, CT (Fairfield County) % % 4.7% 6.% -13 Tampa % % 4.8% 5.7% -9 Washington, DC % % 4.3% 4.7% -4 West Palm Beach % % 4.9% 5.4% -5 White Plains, NY (Westchester County) % % 4.3% 4.7% -4 United States 2, % % 5.% 5.8% -8 72

73 UNITED STATES OFFICE RANKINGS Inventory New York Washington, DC Chicago Los Angeles Houston Boston Dallas New Jersey Atlanta Philadelphia Denver Orange County Seattle-Bellevue Phoenix San Diego San Francisco Baltimore Minneapolis Silicon Valley Detroit Portland Oakland-East Bay Pittsburgh Austin Fairfield County Kansas City Charlotte Salt Lake City Raleigh-Durham Sacramento St. Louis Long Island Miami Cincinnati Tampa Bay Nashville Westchester County Indianapolis Columbus San Francisco Peninsula Orlando Cleveland Milwaukee San Antonio Hartford Richmond Fort Lauderdale West Palm Beach Jacksonville Hampton Roads 2 4 Square feet (millions) rates (including sublease) Salt Lake City Nashville San Francisco Portland New York Seattle-Bellevue San Francisco Peninsula Orange County Raleigh-Durham Silicon Valley Miami Charlotte Austin Philadelphia Baltimore Columbus Denver Oakland-East Bay Boston Tampa Bay Richmond San Diego Hampton Roads Minneapolis Jacksonville St. Louis San Antonio Chicago Kansas City Pittsburgh Los Angeles Orlando Indianapolis Sacramento Fort Lauderdale Houston Long Island Washington, DC West Palm Beach Atlanta Cincinnati Hartford Dallas Detroit Milwaukee Cleveland Phoenix Westchester County Fairfield County New Jersey % 5% 1% 15% 2% 25% 3% Vacancy rate (%) 73

74 UNITED STATES OFFICE RANKINGS YTD total net absorption (including sublease) Dallas Chicago Boston Phoenix Silicon Valley Atlanta Los Angeles Seattle-Bellevue Philadelphia Austin San Francisco Denver Oakland-East Bay Raleigh-Durham San Francisco Peninsula Washington, DC Nashville Orange County Tampa Bay Salt Lake City Sacramento Detroit Minneapolis Portland Cincinnati Columbus Kansas City St. Louis Miami Orlando San Antonio Richmond Jacksonville Charlotte Baltimore West Palm Beach San Diego New Jersey Fort Lauderdale Pittsburgh Indianapolis Long Island Hartford Cleveland Hampton Roads Milwaukee Houston New York Westchester County Fairfield County -1, 1, 3, 5, Square feet (thousands) Marketed rents New York San Francisco San Francisco Peninsula Silicon Valley Washington, DC Los Angeles Miami Boston Seattle-Bellevue Austin Fairfield County Oakland-East Bay West Palm Beach Chicago San Diego Orange County Houston Fort Lauderdale Long Island Denver New Jersey Minneapolis Portland Dallas Westchester County Philadelphia Phoenix Sacramento Charlotte Tampa Bay San Antonio Baltimore Pittsburgh Atlanta Orlando Salt Lake City Raleigh-Durham Hartford Nashville St. Louis Cincinnati Jacksonville Cleveland Indianapolis Richmond Detroit Kansas City Milwaukee Columbus Hampton Roads $. $2. $4. $6. $8. $ per square foot 74

75 UNITED STATES OFFICE RANKINGS Under construction New York Dallas Washington, DC Houston Seattle-Bellevue Boston San Francisco Silicon Valley Philadelphia Chicago Nashville Denver Salt Lake City Charlotte Phoenix Austin Los Angeles Portland Baltimore San Francisco Peninsula Atlanta Pittsburgh Miami Raleigh-Durham Orange County San Antonio Milwaukee Minneapolis New Jersey Detroit Indianapolis Hampton Roads Orlando Cincinnati Tampa Bay St. Louis Long Island Columbus Cleveland Richmond Fort Lauderdale Hartford San Diego Fairfield County Oakland-East Bay West Palm Beach Westchester County Sacramento Jacksonville Kansas City Under construction as % of inventory Nashville Seattle-Bellevue Salt Lake City Charlotte San Francisco Silicon Valley Dallas San Francisco Peninsula Austin Houston Boston Phoenix New York Portland Denver Philadelphia Washington, DC San Antonio Baltimore Milwaukee Miami Pittsburgh Hampton Roads Raleigh-Durham Chicago Los Angeles Indianapolis Orlando Detroit Minneapolis Atlanta Orange County Cincinnati Tampa Bay Columbus St. Louis New Jersey Long Island Richmond Cleveland Fort Lauderdale Hartford San Diego Fairfield County Oakland-East Bay West Palm Beach Westchester County Sacramento Jacksonville 5,, 1,, 15,, Kansas City Square feet.% 2.% 4.% 6.% 8.% 1.% 75

76 SELECT LARGE LEASES > 1, SQUARE FEET Sorted by lease size and completed during Q4 215 Market Tenant Address Size (s.f.) Lease type Charlotte Bank of America 9 W Trade Street 922,684 Renewal Washington, DC U.S. Department of Justice 175 N Street NE 839, Relocation within market Houston Apache Post Oak Boulevard 55,526 Renewal Seattle-Bellevue Safeco 11 4th Avenue 5, Relocation within market Pittsburgh U.S. Steel 6 Grant Street 47, Extension (< 36-month term) Pittsburgh PNC 1 S Commons 395, Renewal New Jersey Vonage 23 Main Street 35, Renewal Denver Anadarko Petroleum th Street 343,8 Renewal Northern Virginia U.S. Department of Defense 2521 S Clark Street 335,1 Renewal Chicago CNA 151 N Franklin Street 275, Relocation within market Denver DaVita 16 Chestnut Place 265,322 Expansion in market New York Morgan Stanley 1633 Broadway 26,829 Expansion in building Boston BNY Mellon 1 Boston Place 25, Renewal Indianapolis AT&T 22 N Meridian Street 224,28 Renewal Washington, DC Steptoe & Johnson 133 Connecticut Avenue NW 212, Renewal Northern Virginia Booz Allen Hamilton 8285 Greensboro Drive 28,221 Renewal New Jersey New Jersey Turnpike Authority 1 Hess Plaza 25, Relocation within market New York Boston Consulting Group 1 Hudson Yards 193,36 Relocation within market New York Teachers' Retirement System of the City of New York 55 Water Street 191,138 Renewal Silicon Valley Silver Springs Networks W Tasman Avenue 189,766 New to market Houston Bracewell & Giuliani 711 Louisiana Street 189,61 Renewal Raleigh-Durham Duke University 22 W Main Street 188, Expansion in building Boston Boston Medical Group 529 Main Street 171,8 Relocation within market New Jersey Lowenstein Sandler 56 Livingston Avenue 17, Relocation within market Chicago ConAgra 222 W Merchandise Mart Plaza 168,419 New to market Cleveland Dealer Tire 712 Euclid Avenue 166, Relocation within market Northern Virginia LMI Government Consulting 794 Jones Branch Drive 161,641 Renewal Jacksonville Southeastern Grocers 8928 Freedom Commerce Parkway 159,81 Relocation within market Denver CH2M Hill 9191 S Jamaica Street 155,29 Renewal Seattle-Bellevue Intellectual Ventures th Avenue SE 152,633 Renewal Charlotte Moore & Van Allen 1 N Tryon Street 149,18 Renewal Denver Colorado Department of Regulatory Agencies 156 Broadway 144,543 Renewal Los Angeles IPG 184 Century Park East 143,296 Relocation within market Houston St. Luke's Episcopal Health 31 Main Street 139,424 Renewal Los Angeles One West Bank 75 N Fair Oaks Avenue 136,194 New to market Northern Virginia Capital One 79 Westpark Drive 136, Expansion in market Baltimore CSC 6721 Columbia Gateway Drive 131,451 Expansion in building Chicago GrubHub 111 W Washington Avenue 128,467 Renewal New York Indeed.com 112 Avenue of the Americas 126, Relocation within market Northern Virginia Fairfax County Public Schools 827 Willow Oaks Corporate Drive 122,948 Renewal New York Gensler 17 Broadway 119,44 Relocation within market Seattle-Bellevue Docusign 999 3rd Avenue 118,83 Relocation within market Washington, DC Overseas Private Investment Corporation 11 New York Avenue NW 117,769 Renewal Phoenix Santander 155 W Southern Avenue 116,982 New to market Northern Virginia AECOM 311 Wilson Boulevard 116,511 Renewal Boston Mercury Systems 5 Minuteman Road 114,1 Relocation within market New York WeWork 3 Park Avenue 19,361 Expansion in market Houston Texas Children's Hospital 245 Holcombe Road 18,84 Expansion in market Chicago Quintessite Technology Parnters 747 E 22nd Street 18, New to market Denver CH2M Hill 9189 S Jamaica Street 17,638 Renewal 76

77 SELECT LARGE SALES > 1, SQUARE FEET Sorted by total sales price and completed in Q4 215 Market Building RBA (s.f.) Sale price $ Price per square foot Buyer Seller ($ p.s.f.) New York 1211 Avenue of the Americas 2,14,62 $895,2, $913 Ivanhoe Cambridge JV Callahan Capital Partners Beacon Capital Partners Boston 5 Boylston Street 77, $755,3, $1,68 Oxford Properties JV JP Morgan Asset Management Blackstone Group Chicago 2 E Randolph Street 2,777,187 $712,, $ W Companies Piedmont Office Realty Trust San Francisco 333 Bush Street 546,182 $382,327,4 $7 Tishman Speyer DivcoWest/Mass PRIM Miami 52 Blue Lagoon Drive 1,48,267 $374,5, $266 Allianz Real Estate of America (49.%) TIAA-CREF (49.%) New York 12 W 45th Street 443,956 $365,, $796 Kamber Management SL Green Dallas 5215 N O Conner Boulevard 1,395,98 $33,, $236 Apollo Global RE JV Vanderbilt Capital Advisors Brookdale Group Chicago 333 W Wacker Drive 867,821 $32,5, $369 PNC Realty Investors JV AFL CIO, Sumitomo JV, GM Investment Management JV Hines Boston 2 Channel Center 51,65 $316,5, $397 Tishman Speyer ARES Management, LLC Boston 222 Berkeley Street 553,321 $316,5, $966 Oxford Properties JV JP Morgan Asset Management Blackstone Group Chicago 115 S LaSalle Street 1,296,839 $316,, $244 Samsung SRA Commonwealth Partners Boston 131 Dartmouth Street 371, $315,, $849 TA Associates Realty New England Teamsters & Trucking Industry Pension Fund New York 51 Astor Place 4, $3,, $1,531 FG Asset Management Edward J Minskoff Equities JV Rockwood Capital Silicon Valley 3333 Scott Boulevard 45, $299,, $664 Clarion Partners JV Oregon PERS Beacon Capital Partners JV Menlo Equities Seattle-Bellevue 515 Westlake Avenue N 394,578 $299,, $758 Union Investment Real Estate (9%) JV Metzler Vulcan (1%) Washington, DC 71 / 81 Pennsylvania Avenue NW 687,997 $291,55, $865 Columbia Property Trust JV Blackstone Property Partners Columbia Property Trust Boston 5 Post Office Square 779,241 $29,, $372 LaSalle Commonwealth Ventures JV Bentall Kennedy Houston 935 N. Eldridge Parkway 546,64 $275,, $53 ConocoPhillips Trammell Crow JV Principal Real Estate Investors Boston 225 Binney Street 36,212 $271,571,429 $887 TIAA-CREF Alexandria Real Estate Equities Seattle-Bellevue 4 Fairview Avenue N 341,876 $261,, $763 TIAA-CREF (9.%) Skanska (9.%) Orlando 2 S Orange Avenue (3 Properties) 1,87,552 $259,1, $238 Piedmont Office Realty Trust The Brookdale Group Atlanta 754 W Peachtree Street 794,11 $248,733,333 $313 CBRE Global Investors VEREIT JV MacFarlan Capital Partners New York 37 Lexington Avenue 261, $247,, $794 JOWA Holdings JP Morgan JV Sherwood Equities Philadelphia 41 Property Portfolio 2,379,626 $245,3, $13 Workspace Property Trust Liberty Property Trust SF Mid Peninsula 7-8 Gateway Boulevard 284, $238,47,881 $839 Blackstone BioMed Realty Trust Washington, DC 355 / 375 / 395 E Street SW 981,116 $233,93, $486 MEPT JV Genesis International MEPT / New Tower Trust Company Silicon Valley Junction Avenue 417, $23,753,917 $553 NYSCRF MetLife New York 31 W 52nd Street 786,647 $224,86,335 $881 Paramount Group JP Morgan Asset Management San Francisco 58 California Street 39,932 $219,255,12 $68 JP Morgan LaSalle Davidson Kempner Capital Management JV Northern Virginia 221 Loudoun County Parkway 1,8, $212,5, $118 Verizon American RE Partners New York 114 Fifth Avenue 388,557 $21,, $614 Allianz L&L Holdings JV Lubert-Adler Silicon Valley Zanker Road 574, $27,, $361 Broadcom Boston Properties Chicago 1 N Dearborn Street 94, $25,, $218 Beacon Capital Partners Joseph Chetrit Tampa Bay 11 E Kennedy Boulevard 787, $193,5, $246 Oaktree JV Banyan Street Capital MetLife Oakland Metro 1221 Broadway 521,177 $182,, $349 UBS Westcore Properties Houston 22 Post Oak Boulevard 326,2 $172,, $527 Masaveu Inmobliaria Stream JV Redstone Chicago 2 W Adams Street 683,129 $168,, $246 Gerding Edlen Development Sterling Equities / Lincoln Property Atlanta 1175 Peachtree Street NE 732, $165,, $225 North American Properties Tishman Speyer JV Lennar Corporation 77

78 SELECT DEVELOPMENTS UNDERWAY > 1, SQUARE FEET Sorted by square feet and underway as of Q4 215 Market Submarket Building Construction type RBA s.f. Preleased % Expected delivery year New York World Trade Center 3 World Trade Center Speculative 2,861,42 31.% 218 New York Penn Plaza/Garment 3 Hudson Yards Speculative 2,6, 1.% 219 New York Penn Plaza/Garment 1 Manhattan West Speculative 2,3, 32.5% 219 Dallas Far North Dallas Toyota HQ BTS 2,1, 1.% 217 New York Penn Plaza/Garment 1 Hudson Yards Speculative 1,725, % 216 Phoenix Tempe Marina Heights BTS 1,698, 1.% 217 New York Penn Plaza/Garment 55 Hudson Yards Speculative 1,556, % 218 San Francisco South Financial District Salesforce Tower Speculative 1,42,81 5.3% 217 Philadelphia Market Street West Comcast Innovation and Technology Center BTS 1,334, 1.% 218 Chicago West Loop 15 N Riverside Plaza Speculative 1,229, % 217 Houston Westchase Phillips 66 HQ BTS 1,1, 1.% 216 Chicago West Loop 444 W Lake Street Speculative 1,73,1 56.4% 217 Houston CBD 69 Main Street Speculative 1,56,658.% 216 Northern Virginia Tysons Corner Capital One Tower BTS 975, 1.% 218 New York Grand Central 39 Madison Avenue Speculative 858,71.% 217 Boston North Partners Healthcare HQ BTS 85, 1.% 217 Seattle Seattle CBD The Mark Speculative 766, % 217 Chicago Northwest Zurich Insurance HQ BTS 753, 1.% 216 San Francisco South Financial District Park Tower Speculative 751,.% 218 Houston CBD 8 Capitol Street Speculative 75,.2% 218 Seattle Seattle CBD Madison Centre Speculative 746, 5.4% 217 Seattle Bellevue CBD 4 Lincoln Square Speculative 724, % 216 New York Hudson Square One SoHo Square Speculative 7, 7.7% 216 Northern Virginia Eisenhower Avenue 2415 Eisenhower Avenue BTS 7, 1.% 217 San Francisco Mission Bay/China Basin 18 Owens Street Speculative 68,.% 217 Denver West CBD th Street Speculative 64, % 218 Philadelphia University City FMC Tower BTS 635, 54.4% 216 Charlotte CBD 3 S Tryon Street Speculative 63, 31.7% 216 Charlotte University Red Ventures HQ BTS 63, 1.% 217 Silicon Valley Sunnyvale Moffett Gateway Speculative 6,864.% 216 Houston Galleria BHIP Billiton HQ BTS 6, 1.% 216 Philadelphia Markest Street West 24 Market Street Speculative 559, % 217 Northern Virginia Rosslyn Central Place Speculative 552, % 218 Columbus Easton 31 Easton Square Drive BTS 55, 1.% TBD Dallas Uptown McKinney & Olive Speculative 53, 4.5% 216 San Francisco South Financial District 375 Beale Street Speculative 529, % 216 Houston Energy Corridor Energy Center V Speculative 524,328.% 216 Boston 495/Mass Pike 1 Boston Scientific Place (Building 3) BTS 51, % 216 Austin CBD 5 W 2nd Street Speculative 5, % 217 Atlanta Buckhead Three Alliance Speculative 5,.% 216 Boston Seaport District 1 Northern Avenue BTS 5, 72.% 216 Dallas Richardson/Plano State Farm Campus (Building D) BTS 499,992 1.% 216 Northern Virginia Tysons Corner 1775 Tysons Boulevard Speculative 476, % 216 Milwaukee Downtown East 33 E Kilbourn Avenue Speculative 469, % 216 Houston Westchase Millenium Tower II Speculative 445, 1.% 216 Salt Lake City CBD 111 S Main Street Speculative 44, % 216 Los Angeles Hollywood Columbia Square Speculative 437, % 216 Orange County Irvine Spectrum 2 Spectrum Center Speculative 425,44.% 216 Boston Back Bay 888 Boylston Street BTS 425, 62.4% 216 Seattle Lake Union Troy Block (North Tower) Speculative 423, 1.% 217 Baltimore Baltimore Southeast 1 Block Street BTS 42, 1.%

79 CONTINUED RESURGENCE: Posting some of the largest numbers in both leasing and investment sales of the cycle, the U.S. office market is poised for further pricing appreciation and occupancy growth in 216 as expansionary tenant leases completed in 215 realize absorption gains in 216. And as tenants seek opportunity from both a cost and talent perspective, secondary and tertiary markets will enjoy a continued resurgence. 79

80 For more information, please contact: Julia Georgules Director Office Research Phil Ryan Research Analyst Office and Economy Research phil.ryan@am.jll.com Sean Coghlan Director Investor Research sean.coghlan@am.jll.com Rachel Johnson Research Analyst Capital Markets rachel.johnson@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. A Fortune 5 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 23 corporate offices, operates in 8 countries and has a global workforce of approximately 58,. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 214. Its investment management business, LaSalle Investment Management, has $56. billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit 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 4 global research professionals track and analyze economic and property trends and forecast future conditions in over 6 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. 216