Charts of the Week (COWs)

Transcription

1 Charts of the Week (COWs) The latest COWs from local office markets and multiple property types

2 Boston Boston remains #1 life sciences cluster Rank Cluster Weighted Score Rank Cluster Weighted Score 1 GREATER BOSTON AREA Raleigh-Durham San Francisco Bay Area San Diego New York City Los Angeles/Orange County Philadelphia Long Island Minneapolis Seattle Denver New Jersey Suburban Maryland/ Metro DC Westchester County Central & Southern Florida Indianapolis 29.6 The Greater Boston area retained the top ranking in JLL s 2015 Life Sciences Outlook. U.S. cluster scores are weighted on several industry metrics, including employment concentration, employment growth, VC and NIH funding, as well as number of patents. Boston currently has the largest concentration of life science researchers in the United States and is ranked first in patent ownership per capita, second in venture capital funding and second in number of IPOs.

3 Dallas Fort Worth Leader board is clear! The high-demand submarkets remain at top of the standings Class A & B space though 2Q 2015 Lowest current vacancy Most improved vacancy (since YE 2010) Preston Center 9.0% Richardson - Plano 13.0% Uptown 11.2% Uptown 11.0% Far North Dallas 15.0% TIED! Preston Center / Far North Dallas 5.7% Highest current rent (FSG) Highest total s.f. absorption (since YE 2011) Preston Center $34.14 Far North Dallas Uptown $33.53 Richardson / Plano Far North Dallas $24.98 Las Colinas 3,511,000 3,259,000 1,690,000 As Dallas nears a vacancy low point, office tenants continue to favor these top performing submarkets.

4 East Bay East Bay employment conditions on the upswing 1,100,000 1,080,000 1,060,000 1,040,000 1,020,000 1,000, , , , , , % 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Current economic conditions provide a promising outlook for the two-county East Bay. In Alameda and Contra Costa Counties, unemployment is down to 4.6 and 4.8 percent, respectively. Overall the East Bay unemployment rate sits at 4.7 percent. Companies have a growing appetite for the Bay Area, especially in the East Bay, where the cost of living is lower relative to the neighboring cities across the bridge. Additionally, the East Bay has the space to accommodate growing companies, giving them the ability to satisfy their hiring demands in addition to access to an educated and viable labor pool., Bureau of Labor Statistics, Employment data as of May 2015

5 Fort Lauderdale Southwest Broward: Highest overall office occupancy in the suburbs 95.0% 90.0% SWB Occupancy Plantaion Sawgrass Park Suburban occupancy Southwest Broward 89.6% Class A occupancy $29.40 Class A asking rents (f.s.) Occupancy 85.0% 80.0% 75.0% Plantation 89.7% Class A occupancy $32.77 Class A asking rents (f.s.) 70.0% 65.0% Sawgrass Park 87.4% Class A occupancy $29.83 Class A asking rents (f.s.) Since early 2012, Southwest Broward has been the tightest submarket in the county. Currently, total occupancy sits at 89.3 percent, 600 basis points higher than the suburbs overall and up 50 basis points since year-end 2013 despite a slight decline this quarter. Even stronger, Class B occupancy sits at 88.6 percent, 920 basis points higher than the suburbs overall. Beyond that, when comparing Southwest Broward to its most direct competitors, Plantation and Sawgrass Park, it has an occupancy of 540 and 200 basis points higher, respectively.

6 Houston WTI price impact negligible for industrial rents $ $8.00 $ $7.50 Crude Oil Price $/bbl $ $ $80.00 $60.00 $40.00 $7.00 $6.50 $6.00 $5.50 $5.00 Houston Average $ / s.f. Rent $20.00 $4.50 $0.00 $4.00 WTI Spot Market Crude Oil Price ($/bbl) Houston Industrial Market Avg. Rental Rates ($/SF/YR) ($/s.f./yr) The above graph shows an extremely weak correlation (-35.6%) between WTI spot price and Houston s industrial rents, reinforcing that for industrial real estate, even more so than office, oil isn t the sole driver. Over the same time period, industrial leasing activity (43.5% correlation strength) and absorption (27.7% correlation strength) have relatively low correlations to WTI pricing as well. Key drivers for growth in the industrial market in Houston continue to be distribution centers and downstream production facilities focusing on the North American feedstock advantage., Bloomberg

7 Minneapolis St. Paul Twin Cities housing market showing strength $250,000 Median Sales Price - June Closed Sales - June 7,000 $220,000 6,500 6,000 $190,000 5,500 $160,000 5,000 $130,000 4,500 4,000 $100, ,500 Recent data from the Minneapolis Area Association of Realtors revealed that home sales in the Twin Cities reached nearly 7,000 in June, the highest June levels in more than 10 years, and a 74.5 percent increase from June home sales in The median sales price for a home in June rose to $229,900, the highest level reached in June since In addition, pending home sales in June 2015 were up 19.2 percent versus June 2014, an indication that the local housing market will remain active in the coming months. Source: Minneapolis Area Association of Realtors, JLL Research

8 New Jersey Verizon sale/leaseback drives information/ technology sector activity Office leasing activity by sector - Q % 7.9% 7.3% Information/Technology Banking/Financial Services Life Sciences 15.5% 57.5% Business Services Others While professional/business services firms were responsible for most of the office leasing velocity seen in early 2015, the information/technology sector garnered the spotlight three months later. A leading factor behind this uptick in activity by the information/technology sector involved Verizon selling its 1.4 million-square-foot operations complex in Basking Ridge to Mesirow Realty for $650.3 million. The telecommunications provider subsequently leased back the entire facility on a long-term basis. With nearly 1.2 million square feet of potential tenant requirements, the information/technology sector is expected to remain among the most active segments in the Northern and Central New Jersey office market.

9 Philadelphia $140M in recent Market West land sales approach $300 p.s.f. average, unlock challenged sites Garrison Site (July 2015) - Size: 304,920 Price: $93 p.s.f N 19 th (March 2013) - Size: 24,394 Price: $607 p.s.f Block Market (June 2015) - Size: 5,250 sf Price: $533 p.s.f Block Market (June 2015) - Size: 37,000 sf Price: $448 p.s.f Market (September 2014)* - Size: 33,746 sf Price: $486 p.s.f One Riverside site (May 2015)* - Size: 30,832 sf Price: $714 p.s.f Walnut Street (February 2015) - Size: 36,155 sf Price: $1,106 p.s.f. *vertical development already underway 2015 has seen a flurry of land sales throughout Market Street West. Among the most notable are the massive L-shaped site fronting the Schuylkill River and JFK Boulevard (parcel 1 above), the last available lot on Rittenhouse Square (parcel 7), and long-vacant lots on Market Street between 21 st and 23 rd Streets (parcels 3 and 4). Their build-out will go a long way toward unifying Center City and University City as a continuous high-density downtown.

10 Portland Industrial market firing on all cylinders 4,000, % 12.0% 10.0% 8.0% 6.0% 6.7% 8.1% 10.0% 11.6% 8.8% 8.6% 6.8% 5.9% 6.7% 9.1% 9.2% 8.6% 7.4% 5.6% 4.8% 4.2% 3,500,000 3,000,000 2,500,000 2,000,000 1,500, % 1,000, % 500, % Q 2015 Construction Expected Completions Vacancy 0 Vacancy in the market is at its lowest point in over 20 years. Standing at 4.2 percent, vacancy is well below half of the market average over the last 25 years. There is over 2.8 million square feet in 16 projects under construction, putting 2015 deliveries at an estimated 3.3 million square feet. YTD net absorption totals 1.5 million square feet and the market is poised to surpass the annual average absorption for the last 10 years of 2.15 million square feet.

11 Sacramento The state of the state: employment peaks again 120,000 State Government 110,000 Total jobs 100,000 90,000 80,000 Jun-90 Jun-95 Jun-00 Jun-05 Jun-10 Jun-15 Over the past 24 months, the State of California added 5,900 local jobs, pushing state employment to a new historical peak of 116,500 jobs a 3,000 job gain over the previous peak in June 2009., CA EDD *not seasonally adjusted The Departments of Public Health, Conservation, Managed Care, Tourism and Alcohol Beverage Control all expanded during the past 12 months, with most agencies expanding within their respective building downtown. The state is approaching capacity in state-owned buildings and the revised budget indicates expansions for a number of agencies. Eight agencies, totaling over 250,000 square feet are currently in the market in downtown alone.

12 San Francisco Central Soma open for development maybe Top five largest office sites Address s.f. Developer/ owner Stage Dropbox buildings 925 Mission 1,045,000 Forest City Pending approval- 5M Project 725 Harrison 730,940 Boston Properties Pre-application 598 Brannan 700,456 Tishman Speyer Pending approval Office development Residential development Potential development Central subway proposed stops 575 6th 655, Brannan 570,865 Kilroy Realty SKS Properties Pre-application, Flower Mart Pre-application The Central SOMA rezone will create tremendous potential for transformative new development, especially around the new Central Subway line and Caltrain. Unentitled office development must wait until the plan is adopted before getting Prop M allocation. There is currently 5.9 MSF of Central SOMA office development in the Prop M queue, however, only approximately 2.4 MSF is left for allotment. Only four of the 14 office developments shown here are fully entitled, two of which are 100 percent preleased to Dropbox. Other developments can break ground no earlier than late 2016, delivering late 2017 or more likely in 2018/2019. The Board of Supervisors is expected to approve the plan by next year, but without amending Prop M office projects will be stalled further., San Francisco Planning Department

13 San Francisco Mid-Peninsula Where is the office market heading? Scenario 1 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 SF Mid-Peninsula vacancy vs average asking rent (FSG) Sustained growth case 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Vacancy (Base Case) Rental Rate (Base Case) In our model, we ve examined the market from the perspective of sustained growth, in which employment growth maintains its trajectory based on the current cycle and future projections. The high-tech industry continues to expand and promotes additional adoption of technology in non-tech sectors such as finance/wealth management (fintech), retail, on-demand consumer services, hospitality, etc. The result is an average rental rate of nearly $4.50 per square foot (current rate is $4.39) and a overall vacancy rate of 8.4 percent (currently 11.7 percent, with 1.1 million square feet under construction). Based on our research, there is a high probability that current conditions in the market maintain steady growth for the next 24 months., Moody s

14 Seattle-Bellevue The Seattle-Bellevue industrial market has posted strong absorption so far in 2015 Submarket cluster Q Vacancy YTD absorption s.f. Seattle 2.1% 77,921 Kent Valley 3.1% 574,708 Pierce County 6.6% 779,160 Eastside 6.4% -132,810 Northend 5.2% 85,257 Totals 4.3% 1,410,964 Robust leasing activity in 2015 has led to significant year-to-date absorption for the region, especially in the Southend markets (Seattle, Kent Valley, Pierce County). Each of the five submarket clusters had a vacancy rate below 7 percent at mid-year. That, combined with strong tenant demand, has led developers into a construction boom. Over 1.1 million square feet of new product has been delivered in 2015 and an additional 3 million square feet is currently under construction. Demand for warehouse/distribution space has been the main driver in leasing activity. The trade, transportation, utilities and construction industries have added a combined 25,100 regional jobs in the past 12 months alone.

15 St. Louis Three tenants gobbling up suburban space Riverport Tower 90,000 s.f. Riverport Tower 60,000 s.f Riverport Dr 37,000 s.f Mckelvey 47,000 s.f. Northwest Plaza 135,000 s.f. Charter Boeing Centene Timberlake Parkway 120,000 s.f. 424 S Woods Mill 30,000 s.f. 400 S Woods Mill 70,000 s.f. Over the past year, the St. Louis suburban market has had 435,000 square feet of occupancy gains. A large part of that is due to Charter, Boeing, and Centene. The three companies have combined to lease almost 600,000 square feet of office space. With several of the transactions yet to commence, the suburban market should continue to tighten and large blocks of space will remain in short supply. This scarcity pushed Charter to lease 135,000 square feet at a closed Macy s department store at the former Northwest Plaza mall.

16 United States Economy As job creation diversifies, PBS contribution falls despite increasing employment growth 12-month net change Share of growth 800, % 700, % 12-month net change 600, , , , , % 40.0% 30.0% 20.0% Share of growth (%) 100, % Over the past four years, professional and business services has been the largest contributor to the economic recovery in terms of job creation, with a 12-month net change averaging 601,908 jobs. After a period of instability in late 2013 and early 2014, gains have risen to pre-recession highs. As growth diversifies and industries such as construction, manufacturing, health and finance have begun to pick up steam, PBS as a percentage of national growth has fallen from 40.2 percent in 2011 to 22.0 percent in 2015, compared to 24.1 percent in The current share of growth will likely continue throughout the next 12 to 24 months as job creation stabilizes at recent levels of ~2.2 percent per year. Source: Bureau of Labor Statistics 0.0%

17 United States Office Technology alone accounted for more than 4.4 m.s.f. of growing leasing activity in Q2 Technology Finance Other professional services Healthcare Retail and hospitality Telecom Real estate Architecture and engineering Advertising and marketing Government Energy and utilities Media and entertainment Law firm Manufacturing Life sciences Education Associations and non-profits Accounting and consulting Transportation and defense 1,739,047 1,506, , , , , , , , , , , , , , , ,780 53,998 Growing leasing activity (s.f.) 4,409,359 $ Of the 13.8 million square feet of growing leasing activity larger than 20,000 square feet in Q2, 31.9 percent was the result of organic expansion in the technology sector, which remains among the most dominant and aggressive industries in the national economy and office market. Importantly, more and more of this growth is coming from outside of established tech hubs. Leases from ABB, Zywave and Four Winds Interactive occurred in Philadelphia, Milwaukee and Denver during the second quarter, respectively. On the other hand, large deals continue to flourish in tech hubs, even as supply constrains become a serious barrier to entry and affordability.