Mid-Year 2017 Avison Young Office Market Report
North America and Europe
Partnership. Performance. Disclaimer The information contained in this report was obtained from sources that we deem reliable and, while thought to be correct, is not guaranteed by Avison Young (Canada) Inc. All opinions expressed and data provided herein are subject to change without notice. This report cannot be reproduced, in part or in full, in any format, without the prior written consent of Avison Young (Canada) Inc.
2 Avison Young Mid-Year 2017 Office Market Report Contents
Overview 05 Canada Office Market Overview 43 Hartford Mexico 11 U.S. Office Market Overview 44 Houston 74 Mexico City 45 Indianapolis Canada 46 Jacksonville United Kingdom 17 Calgary 47 Las Vegas 76 Coventry 18 Edmonton 48 Long Island 77 London 19 Halifax 49 Los Angeles 20 Lethbridge 50 Miami Germany Montreal 21 51 Minneapolis 79 Berlin 22 Ottawa 52 Nashville 80 Duesseldorf 23 Regina 53 New Jersey Frankfurt 24 Toronto 81 54 New York 25 Vancouver 82 Hamburg 55 Oakland 26 Waterloo Region 83 Munich 56 Orange County 27 Winnipeg 57 Orlando Romania 58 Philadelphia United States 85 Bucharest 59 Phoenix 29 Atlanta 60 Pittsburgh More from Avison Young 30 Austin 61 Raleigh-Durham 31 Boston 88 Company Overview Reno 32 Charleston 62 90 Publications and Social Media 63 Sacramento 33 Charlotte 91 Contact Us 34 Chicago 64 San Antonio 35 Cleveland 65 San Diego County 36 Columbus, OH 66 San Francisco 37 Dallas 67 San Mateo 38 Denver 68 St. Louis 39 Detroit 69 Tampa 40 Fairfield County 70 Washington, DC 41 Fort Lauderdale 71 West Palm Beach 42 Greenville 72 Westchester County
avisonyoung.com 3 4 Avison Young Mid-Year 2017 Office Market Report Canada Office Market Overview
Evolving trends and varying fundamentals challenge stakeholders to adapt
Trends prevalent in 2016 continued to play out in the first half of 2017 – and will likely shape Canada’s office market in the foreseeable future as the sector adjusts to the changing dynamics.
The prevailing trends include urban intensification, transit-oriented development, consolidation, workplace design and millennials’ live-work-play preferences. In addition, Alberta’s battered energy sector underscores regional differences in performance, especially in Calgary and Edmonton where new supply has resulted in soaring vacancy rates, negative absorption and depressed rents. Elsewhere, though demand from traditional sectors has been patchy, technology and the co-working craze are transforming the marketplace, garnering an increasing share of the leasing pie.
Co-working space providers have expanded rapidly due to the need to cater to startups, entrepreneurs and the increasing demand for affordable workplaces on flexible lease terms. Notably, U.S.-based WeWork has leased big blocks of space in Vancouver and Toronto after opening its first Canadian location in Montreal in 2016. Meanwhile, e-commerce is another ubiquitous driver, prompting firms such as Amazon (in Toronto) and home-grown Shopify (in Toronto and Ottawa) to grow their real estate footprints.
These trends will challenge owners and occupiers to adapt to evolving circumstances and varying fundamentals in markets from coast to coast.
avisonyoung.com 5 Notable Mid-Year 2017 Canadian Office Market Highlights
Canada recorded 12-month absorption of more than Developers added almost 10 msf of new office space in 3.7 million square feet (msf). Losses in some western the past year, increasing Canada’s inventory to more than markets, largely in Calgary and Edmonton and, to a lesser 527 msf. Almost two-thirds of the supply was added to extent, in Winnipeg, were offset by gains in Toronto, the nation’s downtown markets. Exacerbating vacancy Montreal and Vancouver. levels, Calgary saw the most deliveries overall and downtown, slightly ahead of Toronto. Negative absorption in Calgary and Edmonton and new development in most markets raised the national office Undeterred by supply-demand imbalances across vacancy rate 70 basis points (bps) year-over-year to 12.1%; markets and taking a long-term view, developers had vacancy increased in five of 11 markets. Not surprisingly, almost 13 msf under construction (48% preleased) at Calgary had the highest vacancy (23.5%); Winnipeg once mid-year 2017, as downtown construction outpaced the again had the lowest (6.6%), while Edmonton saw the suburbs by more than a two-to-one margin. Toronto biggest change (+530 bps to 17.2%). had the most space under construction overall (6.4 msf), as well as the most downtown space (5.3 msf) being Due to disproportionate negative absorption and new built, while Montreal had the most suburban space supply, downtown markets posted an 11.3% vacancy rate underway (1.3 msf). Year-over-year, Toronto saw the at mid-year 2017 – up 160 bps in the past 12 months. largest development pipeline increase (+1.8 msf), while Vacancy was higher in seven of 11 downtown markets; the greatest decrease took place in Calgary (-3.9 msf) as four remained in single-digits, while six were below the the city’s construction cycle draws to a close. national downtown average. Toronto’s record low of 3.3% was the lowest downtown vacancy in Canada – and the Average downtown class A gross rents increased $0.52 lowest among major markets in North America. per square foot (psf) year-over-year to $41.42 psf at mid- year 2017 – led by Vancouver ($53.50 psf) and Toronto Owing to robust positive absorption (led by Toronto ($49.16 psf). Regina ($39.50 psf) edged out Vancouver and Montreal), suburban markets combined for a 13.6% ($37.25 psf) to boast the highest suburban class A gross vacancy rate at the midway point of 2017 – marginally rents. Suburban class A gross rents jumped an average of lower than the midway mark of 2016. Apart from $1.48 psf year-over-year. Winnipeg (4%), double-digit vacancy prevails across Canada’s suburban markets. However, vacancy declined in seven of 11 markets year-over-year, with five markets below the national suburban average.
6 Avison Young Mid-Year 2017 Office Market Report Canadian Office Market Snapshot
3.3% VACANT 527 MILLION SF Toronto’s downtown Canada's office footprint vacancy rate is 3.3% – totals 527 msf – Toronto (34%) the lowest among major and Montreal (18%). markets in North America.
OFFICE NEW SUPPLY Completions + New Construction
EDMONTON 2 MSF CALGARY 4.2 MSF
WINNIPEG MONTREAL 474 KSF 3.1 MSF LET BRIDGE REGINA VANCOUVER 20 KSF 44 KSF 1.5 MSF TORONTO 9.4 MSF ALIFA 578 KSF WATERLOO REGION OTTAWA SF COMPLETIONS (LAST 12 MOS) = 9.7 MSF 604 KSF 506 KSF SF UNDER CONSTRUCTION (Q2 2017) = 12.8 MSF
$31 PSF 12.8 MILLION SF Average downtown class A Office construction in Canada asking net rent in Vancouver amounts to 12.8 msf – – the highest in Canada and 8.6 msf in Toronto (50%) above the national average and Montreal (18%) alone. of $20.81 psf.
avisonyoung.com 7 Canada Overall Office Vacancy Rate Mid-Year 2017
25%
20%
15%
10%
5%
0%
CANADIAN AVERAGE
Canada Downtown & Suburban Office Vacancy Rates Mid-Year 2017
30%
25%
20%
15%
10%
5%
0%
DOWNTOWN SUBURBAN
Canada Office Absorption 12 Months Ending Mid-Year 2017
4 MSF
3
2
1
0
-1
-2
8 Avison Young Mid-Year 2017 Office Market Report Canada Downtown Class A Average Asking Gross Rental Rates* Mid-Year 2017
$60
$50
$40
$ PER SQUARE FOOT $30
$20
$10
$0
AVG. ASKING NET RENTAL RATE AVG. ADDITIONAL RENT CANADIAN AVG. GROSS ASKING RENTAL RATE
Canada Suburban Class A Average Asking Gross Rental Rates* Mid-Year 2017
$50
$40
$30 $ PER SQUARE FOOT
$20
$10
$0
AVG. ASKING NET RENTAL RATE AVG. ADDITIONAL RENT CANADIAN AVG. GROSS ASKING RENTAL RATE
*RENTAL RATES SHOWN IN CAN$
avisonyoung.com 9 10 Avison Young Mid-Year 2017 Office Market Report United States Office Market Overview
Mid-year results positive
The trends shaping the Canadian office market are mirrored in the U.S. with tenants displaying a preference for transit-oriented development and with co-working and flexible-office-space operators gaining market share. Landlords are responding by retrofitting common areas to include tenant amenities and social- gathering spaces. This preference for plug-and-play leasing options has contributed to the rise of speculative office suites in buildings' available vacancy.
Building renovations and repurposing continue as class B buildings are upgraded to be competitive and obsolete buildings are redeveloped as apartments, schools and even self-storage facilities. Suburban markets with a sense of place — walkable, accessible to transit and with amenity, entertainment or destination retail — are emerging as their own urban centers.
The U.S. office market tracked by Avison Young comprised 5 bsf of office space at mid-year 2017. Approximately 3.3 bsf was in the suburban markets — dominating market share with twice as much inventory as downtown markets.
avisonyoung.com 11 Notable Mid-Year 2017 U.S. Office Market Highlights
Seventeen markets represented 77% of the 5-bsf Of the major markets, Houston had one of the U.S. office inventory. Eleven of those had lower country’s highest mid-year 2017 total vacancy vacancy rates at mid-year 2017 compared with the rates (16.8%), yet continues to stabilize. Its same point in 2016. recovery is hampered by a glut of sublease space and tenants giving space back, keeping market Although overall U.S. vacancy remained the conditions softer longer. Meanwhile, Dallas, same at 12.2% year-over-year, the disparity in where vacancy remains above 14%, had 4.7 msf market performance between the suburbs and of absorption (the highest in the country) and downtowns is clearly evident in net absorption. enjoyed corporate expansion and build-to-suit The suburbs finished the 12-month period ending construction activity. mid-year 2017 with 30.5 msf of absorption, compared with 33.4 msf one year earlier. Among the downtown markets, New York again Conversely, 2.4 msf of occupancy was lost in the led the country in class A average asking gross downtown markets compared with 13.6 msf of rent at mid-year 2017 ($83.77 psf), with six other positive absorption in the prior 12-month period. markets (San Mateo, San Francisco, Boston, Washington, DC; Austin and Fairfield County) also At mid-year 2017, the downtown markets had exceeding the national average of $53.94 psf. 43.4 msf under construction (49% preleased), and the suburban markets had 47.7 msf under In suburban markets, the national class A average construction (61% preleased). Taken together, asking gross rent was $30.88 psf at mid-year projects under construction were 55% preleased 2017. Notably, when the top seven downtown at mid-year 2017. submarkets were excluded, the delta between suburban class A and downtown class A national Of the 91 msf underway in the U.S., 47% is in five average rent was reduced to 10%. markets: Washington, DC (12.7 msf), Dallas (9.9 msf), New York (9.4 msf), Los Angeles (5.7 msf) and San Francisco (5.6 msf).
12 Avison Young Mid-Year 2017 Office Market Report U.S. Office Market Snapshot
12% U.S. VACANCY 5 BILLION SF Nashville's 6% vacancy U.S. office footprint is the lowest reported totals 5 bsf across among U.S. markets. 44 markets.
OFFICE NEW SUPPLY Completions + New Construction CLEVELAND 1.6 MSF
MINNEAPOLIS 4.2 MSF
BOSTON 6 MSF CHICAGO 6.1 MSF NEW YORK 11.2 MSF
NEW JERSEY 1.8 MSF SAN FRANCISCO 6.6 MSF ST. LOUIS COLUMBUS DENVER 1.8 MSF 1.9 MSF 6.8 MSF PHILADELPHIA 5.9 MSF
WASHINGTON, DC 15 MSF OAKLAND 1.3 MSF
SAN MATEO 2.5 MSF NASHVILLE RALEIGH-DURHAM 2.8 MSF DALLAS 5.1 MSF CHARLOTTE 3.7 MSF LOS ANGELES 8.6 MSF 15.4 MSF
PHOENIX ATLANTA ORANGE CO. 2.8 MSF 3.6 MSF 4.6 MSF
SAN DIEGO CO. 2.1 MSF AUSTIN 3.2 MSF HOUSTON 5.7 MSF SAN ANTONIO 1.7 MSF SF COMPLETIONS (LAST 12 MOS) = 48.3 MSF MIAMI 1.5 MSF SF UNDER CONSTRUCTION (Q2 2017) = 91.1 MSF *U.S. OFFICE MARKETS WITH TOTAL NEW SUPPLY EXCEEDING 1 MSF.
$83.77 PSF 91 MILLION SF Average downtown class A Office construction in the asking net rent in New York is U.S. amounts to 91 msf – nearly $84 psf – the highest 55% preleased and 47% downtown rent in the U.S. concentrated in five The national average is $53.94 psf. markets.
avisonyoung.com 13 U.S. Overall Office Vacancy Rate Mid-Year 2017
20%
15%
10%
5%
0%
U.S. AVERAGE
U.S. Downtown & Suburban Office Vacancy Rates Mid-Year 2017
25%
20%
15%
10%
5%
0%
DOWNTOWN SUBURBAN
U.S. Office Absorption 12 Months Ending Mid-Year 2017
5 MSF 4 3 2 1 0 -1 -2 -3 -4 -5 -6
14 Avison Young Mid-Year 2017 Office Market Report U.S. Downtown Class A Average Asking Gross Rental Rates* Mid-Year 2017
$90 $80 $70 $60 $50 $ PER SQUARE FOOT $40 $30 $20 $10 $0
AVG. ASKING NET RENTAL RATE AVG. ADDITIONAL RENT U.S. AVG. GROSS ASKING RENTAL RATE
U.S. Suburban Class A Average Asking Gross Rental Rates* Mid-Year 2017
$60
$50
$40
$ PER SQUARE FOOT $30
$20
$10
$0
AVG. ASKING NET RENTAL RATE AVG. ADDITIONAL RENT U.S. AVG. GROSS ASKING RENTAL RATE
*RENTAL RATES SHOWN IN US$
avisonyoung.com 15 Canada
17 Calgary 18 Edmonton 19 Halifax 20 Lethbridge 21 Montreal 22 Ottawa 23 Regina 24 Toronto 25 Vancouver 26 Waterloo Region 27 Winnipeg
16 Avison Young Mid-Year 2017 Office Market Report Calgary Office Market
No new projects anticipated in coming years Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Overall vacancy in Calgary’s office market rose to 23.5% from 19.5% in the 12-month period SUBURBAN ABSORPTION (12 MOS) VACANCY ending mid-year 2017. The increase was anticipated, as it is largely attributable to the addition 1,500 30% of 3.4 msf of new inventory to the market. Vacant space in Calgary’s office market totalled 17.7 msf, with head lease space accounting for 12.2 msf (69%) and sublease space accounting 1,000 25% for 5.5 msf (31%). It is anticipated that some sublease availability will continue to transition to 500 VACANCY RATE (%) head lease availability over the course of the year as sublease terms expire. 0 20%
Absorption for the 12-month period ending mid-year 2017 was negative 949,000 sf. This ABSORPTION (THOUSANDS SF) -500 15% level is a noticeable improvement compared with the negative 3.8 msf of absorption -1,000 recorded in the previous 12-month period. Smaller tenants’ leasing activity grew noticeably -1,500 10% as demand for spaces less than 5,000 sf continued to be high. An abundance of existing options in this size range, combined with pressure on landlords and sub-landlords to -2,000 5% demise large blocks of space that are not attracting tenants, is keeping rental rates -2,500 competitive. Inducements, such as free rent and improvement allowances, are substantial -3,000 0% Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 in many cases. Meanwhile, the market for large blocks of contiguous space will have Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 significant competition beyond 2017, maintaining downward pressure on rental rates.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
6,000
-0.9 MSF 23.5% 0.8 SF 3.4 MSF 5,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
4,000 SQUARE FEET (THOUSANDS) No new construction is anticipated to be announced in the city for several years given 3,000 widespread availability across the entire Calgary office market. At least four office projects totalling 1.3 msf have halted construction in the last 12 months. Approximately 810,000 sf of 2,000 new office space remains under construction across Calgary. The majority of this new space is in Downtown (57%) followed by the Suburban North (31%), Beltline (8%), and Suburban 1,000 South (4%) submarkets.
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 105,000 sf 1 Meredith Block Benevity New $ PER SQUARE FOOT $40 75,000 sf 2 150 - 9th Avenue S.W. RocketSpace New $30 73,500 sf 3 Eighth Avenue Place East Ridgeback Resources New $20
55,000 sf 4 Eau Claire Tower Solium Capital Sublease $10
48,000 sf $0 5 Gulf Canada Square Geologic Systems Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Sublease Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 17 Edmonton Office Market
Stantec Tower expected to boost vacancy Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Several high-profile sales transactions and new construction were highlighted in a flurry of SUBURBAN ABSORPTION (12 MOS) VACANCY activity in Edmonton’s office market between mid-year 2016 and mid-year 2017. In the 12 400 20% months ending mid-year 2017, more than 1.2 msf of office space was delivered in the downtown core, 89% of which was preleased. The increase in downtown inventory will continue into 300 18% 2018 with the addition of Stantec Tower, a 660,000-sf, mixed-use building that is nearly 100% 200 16% VACANCY RATE (%) preleased. As part of its Alberta portfolio disposition, Dream Office REIT sold five downtown 100 14%
office towers. Highfield Place was sold to Cidex Holdings; Alberta Investment Management 0 12% ABSORPTION (THOUSANDS SF) Company (AIMCo) purchased HSBC Bank Place and Enbridge Place; and the Milner Building and -100 10% HSBC Building were sold to Crescent Star Holdings. In addition to the Dream assets, the Bank of -200 8% Montreal Building was also sold. -300 6%
Downtown vacancy rose to 18.4% in the second quarter of 2017 – an increase of 6 percentage -400 4%
points year-over-year. The office market recorded absorption of negative 643,400 sf in the -500 2%
12-month period ending mid-year 2017. Vacancy is expected to climb once again when the -600 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 completed construction of the Stantec Tower adds more inventory to the market. Landlords Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 with large pockets of backfill space will look to entice tenants whose expiries are approaching
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
2,000
1,800
-0.6 MSF 17.2% 0.8 MSF 1.2 MSF 1,600 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 1,400
SQUARE FEET (THOUSANDS) 1,200 from lower-quality buildings. As tenants move up the quality ladder, landlords of older, dated 1,000 buildings will struggle to compete, renewing the urgency to reinvest or redevelop properties. 800
New office development has been spurred by growing populations in Edmonton’s suburban 600
southeast and southwest neighbourhoods. Concentrated in Windermere, Summerside and 400 Ellerslie, much of the new office construction was built to serve owner-occupiers with full-floor 200 opportunities available for lease. Vacancy across all suburban markets rose to 15.4% at mid- 0 year 2017 (up 4.1 percentage points year-over-year). The increase was driven primarily by the Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 Eastgate and Sherwood Park submarkets, as many office tenants there continue to struggle to 2013 2014 2015 2016 2017 cope with the fallout from weak energy markets. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $45 Address / Complex Tenant Lease Type $40
90,000 sf $35 1 Telus Plaza North PWGSC Renewal $ PER SQUARE FOOT $30 74,200 sf 2 Commerce Office Park Building D WorleyParsons Renewal $25
$20 290,000 sf 3 Cityview Business Park Building 12 Emkade Distribution Renewal $15
24,400 sf $10 4 Commerce South 2 Telecon Group New $5
22,000 sf $0 5 Manulife Place Deloitte Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Expansion Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
18 Avison Young Mid-Year 2017 Office Market Report Halifax Office Market
Landlords remain vigilant amidst delayed projects Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Unforeseen delays have held up the construction of major office and mixed-use projects SUBURBAN ABSORPTION (12 MOS) VACANCY that had been set to come on stream in 2017; however, notable developments such as the 300 16% new World Trade and Convention Centre complex should be completed by the end of the year. Landlords with office assets within Halifax’s central business district remained vigilant, 200 14% offering attractive lease rates and tenant incentives to defend against rising vacancy in
100 12% VACANCY RATE (%) the city and leasing campaigns launched by suburban landlords. Downtown vacancy increased to 14.8% at the end of the second quarter of 2017, up from 14.2% one year earlier. 0 10% ABSORPTION (THOUSANDS SF) Overall vacancy is expected to increase slightly in the second half of 2017 as new projects -100 8% are delivered. Despite the rise in vacancy, asking net rental rates have increased slightly to compensate for inflation and growing tenant-improvement allowance offerings. -200 6%
-300 4% With the completion of two large, high-end multi-residential projects and commencement of additional mixed-use developments planned for late 2017 or early 2018, the downtown -400 2% core continues to become more attractive to working-class consumers and residents. This -500 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 re-urbanization, whereby people, especially millennials, want to live in the downtown core Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 again, is likely to help slow the increasing office vacancy during the next 12 months.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
700
-0.2 MSF 14.7% 0.6 MSF 0 SF 600 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 500 SQUARE FEET (THOUSANDS) Overall suburban vacancy rose to 14.6% at the end of the second quarter of 2017, but 400 is expected to remain flat for the balance of 2017 with no new projects scheduled for 300 completion and the stabilized migration of tenants into the downtown core. Average net rental rates for class A suburban office space remained flat year-over-year at $15.82 psf as of 200 mid-2017, while operating costs increased only slightly, averaging $11.60 psf. Suburban rental rates are expected to remain flat through the balance of 2017. 100
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $40 Address / Complex Tenant Lease Type $35 31,000 sf 1 84 Chain Lake Drive Fleetway New $30 $ PER SQUARE FOOT
7,000 sf $25 2 99 Wyse Road Fisheries and Oceans Canada New $20
4,000 sf $15 3 99 Wyse Road Desjardins Financial Security New
$10 3,900 sf 4 237 Brownlow Avenue Crawford Adjusters Renewal $5
2,900 sf $0 5 1741 Brunswick Street Flight Shops Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 19 Lethbridge Office Market
Redeveloped call centre spells positive absorption Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Lethbridge’s office market went through an expected transition between mid-year 2016 and SUBURBAN ABSORPTION (12 MOS) VACANCY mid-year 2017. In 2016, a major tenant relocated its call centre operations to the U.S., pushing 140 30% office vacancy to an all-time high of 18.7%. That vacancy was filled, bringing the overall rate
to 14.9% at the end of the second quarter of 2017. Positive net absorption of 106,051 sf was 120 25% recorded in the 12-month period ending mid-year 2017, largely due to the lease-up of the VACANCY RATE (%) 50,000-sf call centre that was redeveloped to accommodate several new users. 100 20%
80 There is a trend in Lethbridge’s office market toward creating small, efficient spaces. ABSORPTION (THOUSANDS SF) 15% Landlords are dividing large spaces into smaller suites to attract smaller office users. With 60 paperless strategies, collaborative workspaces and efficient space design, tenants are 10% finding they need less square footage to get the job done. By creating small finished spaces, 40 landlords provide potential tenants with the opportunity to visualize what the space will 5% look like, outfit it and be fully operational within 60 days. This is a huge advantage for 20
tenants compared with a raw space, where timelines can often exceed six months. Small, 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 built-out space options are proving popular with a diverse range of tenants. Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
35
0.1 MSF 14.9% 0 SF 20 KSF 30 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 25 SQUARE FEET (THOUSANDS) Potential tenants still have a variety of options to choose from and are in a position to ask 20 for incentives and/or discounts. Asking net rent has decreased slightly as landlords have 15 become more competitive in efforts to secure quality tenants. The outlook for the office
market is positive for the remainder of 2017 and into 2018. Lethbridge is expected to be 10 Alberta’s strongest municipal economy in 2017, according to ATB Financial’s chief economist, Todd Hirsch – no small feat considering the downturn that the province’s economy has 5 experienced in recent years. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 15,000 sf 1 450 31 Street N. Red Crow Community College New $ PER SQUARE FOOT $25
10,200 sf 2 3688 32 Avenue N. AltaLink Management LP New $20
9,100 sf $15 3 550 W. T. Hill Boulevard S. Awin Insurance Brokerage New $10 8,100 sf 4 550 W. T. Hill Boulevard S. Laurie, Kenna & Associates New $5
3,100 sf $0 5 550 W. T. Hill Boulevard S. Dominion Lending Centres Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
20 Avison Young Mid-Year 2017 Office Market Report Montreal Office Market
Nearly 1 msf of office space under construction downtown Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Greater Montreal Area (GMA) office market remained stable with vacancy decreasing to SUBURBAN ABSORPTION (12 MOS) VACANCY 12.5% at the end of the second quarter of 2017, down 20 bps year-over-year. Nonetheless, 2,000 18% landlords in Downtown Montreal are still facing challenges as vacancy increased 50 bps year- over-year to 9.7% at mid-year 2017. 16% 1,500 14% Class A rental rates also increased when compared with mid-year 2016. The average net asking VACANCY RATE (%) rent rose to $20.08 psf from $19.30 psf and average additional rent grew to $21.94 psf from 1,000 12%
$21.28 psf at the end of the second quarter of 2017. Despite high vacancy, landlords remain ABSORPTION (THOUSANDS SF) 10% 500 positive looking towards year-end as the province’s unemployment rate hit its lowest level on 8% record, at 6% as of May 2017. 0 6%
Midtown is one of the city’s most active submarkets as outdated light-industrial buildings have 4% -500 been converted into plug-and-play, tech-friendly, loft-style offices during the past several years. 2% This trend is not expected to slow due to a significant increase in demand for non-traditional -1,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 workspace. With 14.4% vacancy, Midtown holds the second-largest office inventory in Montreal, Q2 Q2 Q2 Q2 Q2 after the Downtown area. 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
2,500
1.7 MSF 12.5% 2.2 MSF 0.9 MSF 2,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
SQUARE FEET (THOUSANDS) 1,500 Nearly 1 msf of office space is currently under construction in Downtown Montreal. Broccolini Construction will start construction of the new Maison de Radio-Canada by the end of the year, adding nearly 450,000 sf of office space (including multimedia studios) to the inventory upon 1,000 the project’s scheduled completion in 2020. Radio-Canada will be the sole tenant under a 30- year lease. 500
The highlight of the first half of 2017 was the sale-leaseback of SNC-Lavalin’s headquarters 0 located at 455 René-Lévesque Boulevard West. The 21-storey building was purchased by Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 GWL Realty Advisors for $173 million and will be renovated into a more dynamic and efficient 2013 2014 2015 2016 2017 workspace that will bring most of SNC-Lavalin’s Montreal-based employees under one roof. The engineering and construction firm signed a 20-year lease for the 331,402-sf building. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $45 Address / Complex Tenant Lease Type $40
331,400 sf $35 1 455 René-Lévesque Boulevard West SNC- L avalin Sale / Leaseback $ PER SQUARE FOOT $30 86,700 sf 2 5445 De Gaspé Ubisoft Divertissements Expansion $25
$20 86,700 sf 3 Maison Manuvie EY New $15
81,500 sf $10 4 5455 De Gaspé Studios Framestore Renewal $5
73,500 sf $0 5 5 Place Ville Marie Cogeco Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 21 Ottawa Office Market
Forthcoming LRT system whets investor appetite Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Ottawa office market overall can be characterized as in recovery going into the second SUBURBAN ABSORPTION (12 MOS) VACANCY half of 2017. As of mid-year, the city continued to experience increased construction 500 16% activity on its light-rail-transit (LRT) system. With the first phase of the LRT system slated to 400 commence operating in 2018, the promise of a renewed investor appetite for the downtown 14% core is being realized. The infrastructure spending boost, coupled with Shopify leasing 300
12% VACANCY RATE (%) upwards of 325,000 sf of class A space, has certainly spurred a turnaround in Ottawa’s core 200 10% office market. Class AA buildings had sub-6% vacancy at mid-year 2017, with large-block 100 ABSORPTION (THOUSANDS SF) space a rare commodity. While the class B market continued to struggle, it will not be long 0 8% before these buildings get pulled along with the low-vacancy wave, mirroring the rise in -100 class A rental rates as tenants realize the benefits of proximity to LRT stations in the core. 6% -200 4% The Ottawa East submarket continues to be adversely affected by one significant vacancy -300 2% that skews the occupancy picture. As late as fourth-quarter 2014, this market had sub-5% -400
vacancy, but has since struggled, with vacancy rising above 17% as of mid-year 2017. The -500 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Blair Road LRT station, opening in summer 2018, is expected to boost the appeal of Ottawa’s Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 eastern markets.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,000
900
0.1 MSF 12.7% 0 SF 0.5 MSF 800 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 700
SQUARE FEET (THOUSANDS) 600
The Ottawa West and technology-heavy Kanata submarkets have had their prospects 500 boosted by the aggressive funding announcement made by the provincial and federal 400 governments, extending an additional $3.6 billion in funding for the phase 2 western and 300
eastern extensions of the LRT system. The LRT will be extended east to Orleans and west to 200
Moodie Drive with work to be completed by 2023. Net effective rental rates in the Kanata 100 submarket are approaching $12 psf, after having languished in the $8-psf range for the last 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 several years. It would seem that market, like the downtown core, has started to turn the Q2 Q2 Q2 Q2 Q2 corner. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 325,500 sf 1 234 Laurier Avenue Shopify New $ PER SQUARE FOOT $40 120,000 sf 2 353 Preston Street Infrastructure Ontario Renewal $30 107,000 sf 3 400 Maplegrove Road Honeywell Renewal $20
63,300 sf 4 3001 Solandt Road Flextronic New $10
53,700 sf $0 5 150 Slater Street PWGSC Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
22 Avison Young Mid-Year 2017 Office Market Report Regina Office Market
Soft market continues to impact absorption Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Regina’s office market has plateaued and will continue to be viewed as soft with little chance SUBURBAN ABSORPTION (12 MOS) VACANCY of reaching the below-national-average vacancy of the past 20-plus years. As of mid-year 150 18% 2017, the vacancy rate for all competitive office space was 12.8%. The provincial economy has cooled, particularly in the resource sector, impacting leasing activity. The higher-than-average 16% 100 vacancy rate is expected to continue into the foreseeable future, changing the way industry 14% VACANCY RATE (%) stakeholders conduct their development and transactional business. Construction of new 12% space has ceased downtown, while more efficient floorplates and space planning in newer 50 product continue to impact absorption. The amount of space occupied by government and ABSORPTION (THOUSANDS SF) 10% the resource sector continues to contract and expansion plans are being deferred. As a result 8% 0 of these trends, owners and occupiers of office space are adjusting their respective plans, while 6% owners consider reducing net asking rates or increasing inducements to attract and/or retain 4% tenants. -50 2%
The market recorded positive net absorption of almost 12,000 sf during the 12-month period -100 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 ending mid-year 2017, largely due to a single swing-space lease by the University of Regina. Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 Class A vacancy rose to 11.2% from 10% year-over-year, class B space vacancy dropped from
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
450
400 12 KSF 12.8% 44 KSF 0 SF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 350
300 SQUARE FEET (THOUSANDS) 250
18.7% to 7.1% (the notable drop was the result of a re-classification of some buildings, not 200 absorption), and class C rose to 20.4% from 19.7% at mid-year 2016. Average asking rental rates 150 for vacant downtown and suburban space were stable or moderately lower year-over-year. As of mid-year 2017, the average class A net asking rate was $25 psf, while class B and class C space 100 averaged $21 psf and $15 psf, respectively. 50
0 In the suburbs, Eastgate Alliance Centre, a four-storey medical office building located on Prince Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 of Wales Drive, remained on schedule for completion in October 2017. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $45 Address / Complex Tenant Lease Type $40
24,000 sf $35 1 2500 Victoria Avenue Kanuka Thuringer Renewal $ PER SQUARE FOOT $30 22,000 sf 2 1919 Saskatchewan Drive FCAA Renewal $25
$20 17,000 sf 3 2151 Scarth Street University of Regina New $15
10,000 sf $10 4 2401 Saskatchewan Drive Merchant Law Group Renewal $5
3,500 sf $0 5 4545 Parliament Avenue PearsonVUE Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 23 Toronto Office Market
Big development and lease announcements define market Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY As the first half of 2017 came to an end, the Greater Toronto Area (GTA) office leasing market SUBURBAN ABSORPTION (12 MOS) VACANCY could best be described as a tale of two distinct markets: the robust and landlord-favouring 1,800 14% downtown and the inconsistent and tenant-favouring suburbs. Despite an ongoing spread 1,600 in relative performance between the two markets, there is a similar trend across the region: 12% continued development. Almost 3 msf was completed in the 12-month period ending at 1,400 VACANCY RATE (%) mid-year 2017, and another 6.4 msf was under construction (46% preleased and equating to 1,200 10%
3.6% of existing stock) – with 5.3 msf located downtown. GTA vacancy trended lower year-over- 1,000 8% ABSORPTION (THOUSANDS SF) year (-60 bps) to 7.2% – a six-year low. Though demand has been broad-based, the region’s 800 attraction for technology companies and knowledge workers is growing. 6% 600
The catalyst for the entire region remains Toronto’s Downtown market, which has displayed 400 4% historically low vacancy (3.3%), robust demand, diminishing large blocks of contiguous available 200 2% space, rising rental rates and steady new construction. The first half of 2017 featured big 0
development and lease announcements. Ivanhoé Cambridge and Hines announced that CIBC -200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 has leased up to 1.75 msf as the anchor tenant in the $2-billion, 2.9-msf, two-tower complex Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 (branded CIBC Square) at 81 and 141 Bay Street, scheduled for completion in 2020 and 2023,
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
6,000
3.1 MSF 7.2% 6.4 MSF 3 MSF 5,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
4,000 SQUARE FEET (THOUSANDS)
respectively. CIBC’s lease-up followed the announcement of a speculative construction project 3,000 from Cadillac Fairview (with the Ontario Pension Board): a $479-million, 879,000-sf office tower 2,000 at 16 York Street, slated for completion in 2020.
Although suburban vacancy declined 80 bps year-over-year to 11.1%, tenants enjoy ample space 1,000 options at favourable rental rates. Transit-oriented development continued to gain traction as 0 the Greater Toronto Airports Authority announced plans for the Pearson transit hub. Along with Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 improvements facilitating future commercial development around the hub itself, this endeavour 2013 2014 2015 2016 2017 bodes well for the existing airport-area office market and the overall suburban West market. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 1,750,000 sf 1 CIBC Square CIBC New $ PER SQUARE FOOT $40 175,000 sf 2 161 Bay Street TD Bank Renewal $30 125,000 sf 3 145 King Street West Home Capital Renewal $20
112,000 sf 4 Scotia Plaza Amazon New $10
102,000 sf $0 5 5000 Yonge Street Franklin Templeton Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
24 Avison Young Mid-Year 2017 Office Market Report Vancouver Office Market
Suburban leasing tightens regional vacancy Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Metro Vancouver office vacancy tightened year-over-year – slipping to 9.1% at mid-year SUBURBAN ABSORPTION (12 MOS) VACANCY 2017 from 10.4% – as absorption of suburban office space offset moderate leasing activity 1,000 14% in the downtown core due in part to a lack of CBD options. More than 500,000 sf has been absorbed regionally since mid-year 2016 with the vast majority – 497,000 sf – located in the 800 12% suburbs. This absorption followed more than 2 msf of regional absorption recorded from
600 VACANCY RATE (%) mid-year 2014 to mid-year 2016. Despite delivery of more than 4.1 msf of new inventory 10% since mid-2013, Metro Vancouver’s nearly 50.6-msf office market was stable and balanced at 400 8% ABSORPTION (THOUSANDS SF) mid-year 2017. 200 6% Even with the addition of almost 1.9 msf of new downtown office space since mid-year 0 2014, downtown vacancy declined to 6.8% at mid-year 2017 from 7.8% one year earlier. With 4% -200 almost no new office space scheduled for delivery downtown until late 2019/early 2020, vacancy will tighten as large blocks of contiguous space grow increasingly scarce. The next -400 2% wave of downtown development will break ground in the second half of 2017. Suburban -600 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 vacancy declined – sliding to 11.5% at mid-year 2017 from 13% a year earlier – as office Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 space was absorbed and two new high-profile office buildings that delivered vacant in 2016
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
2,000
1,800
0.5 MSF 9.1% 1.1 MSF 0.4 MSF 1,600 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 1,400
SQUARE FEET (THOUSANDS) 1,200 were leased. Downtown office rental rates continue to register upward pressure in 2017 as 1,000 suburban rates resumed an upward trajectory after a slight retrenchment in 2016. If vacancy tightens further in 2017, rents are expected to continue rising. 800 600
Even with slightly more than 1 msf of office construction (37% downtown, 63% suburban) 400 underway in Metro Vancouver (33% preleased), significant new suburban office 200 developments will likely launch in the next six to 18 months. Developers are already at the 0 starting gate to kick off the next wave of new downtown office towers that would complete Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 in late 2019 to 2021. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 77,000 sf 1 Bentall 3 WeWork New $ PER SQUARE FOOT $40 53,000 sf 2 Cathedral Place Lawson Lundell LLP Renewal $30 53,000 sf 3 Robson Court WSP Global New $20
49,500 sf 4 2920 Virtual Way BC Emergency Health Services New $10
49,000 sf $0 5 268 Keefer Street BC Artscape Society Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 25 Waterloo Region Office Market
Higher vacancy reduces lease rates Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The robust Waterloo Region office market continued to see expansion with more than SUBURBAN ABSORPTION (12 MOS) VACANCY 300,000 sf currently under construction and a number of significant projects planned. The 150 16% 14.5-msf office market, which comprises Kitchener, Waterloo, Guelph and Cambridge, is
situated 45 minutes west of the Greater Toronto Area. 100 14%
12% VACANCY RATE (%) Included in the new projects is Evolv1, an office development in the Waterloo market by 50
Cora Group, a local developer with close ties to the community. The building will be the 10% 0 region’s first net-zero commercial multi-tenant office structure. Waterloo Region’s TextNow ABSORPTION (THOUSANDS SF) 8% and EY have both completed leases in the building. -50 6%
With the continued construction and availability of larger blocks of space, regional vacancy -100 increased 110 bps year-over-year to 13.5% at mid-year 2017. This rise has led to slightly lower 4%
average lease rates in both the downtown and suburban markets. The technology sector, -150 2% with startups steadily growing and expanding or completing mergers and acquisitions, -200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 continued to be a major driver. (The market is primarily driven by the tech, insurance and Q2 Q2 Q2 Q2 Q2 financial sectors.) 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
300
11 KSF 13.5% 0.3 MSF 0.3 MSF 250 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
200 SQUARE FEET (THOUSANDS) Companies from outside the region continue to come to the area to set up branches or relocate operations. The attraction is based on the region’s economic growth, quality of life 150 for employees and infrastructure – including the anticipated completion of ION LightRail 100 Transit (the region’s LRT system), the expansion of Highway 401 through the area from six to 10 lanes, and a technology corridor (which boasts 15,000 tech companies with 200,000 tech 50 workers) connecting Waterloo Region with the GTA.
0 Vacancy rates are expected to remain flat in many areas of Waterloo Region, with continued Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 absorption as the LRT is completed and tenants take occupancy in some of the new 2013 2014 2015 2016 2017 buildings coming to market. The area has significant growth projections, and tenants and landlords continue to invest in the market. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $30 Address / Complex Tenant Lease Type $25 130,000 sf 1 137 Glasgow Street, Kitchener Miovision New $ PER SQUARE FOOT $20 100,000 sf 2 451 Phillip Street, Waterloo GHD New $15 60,000 sf 3 451 Phillip Street, Waterloo MCAP New $10
40,000 sf 4 57 Erb Street West, Waterloo Shopify Expansion $5
22,500 sf $0 5 160 King Street East, Kitchener Sortable Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
26 Avison Young Mid-Year 2017 Office Market Report Winnipeg Office Market
More than 45,000 sf of inventory added Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Winnipeg’s future remains bright as the employment rate rises after a slight decline in SUBURBAN ABSORPTION (12 MOS) VACANCY 2016. This improvement comes despite announcements from Great-West Life cutting 40 10% 450 positions, the provincial health authorities cutting their labour forces by a combined 15%, and layoffs by Investors Group that will return more than 18,000 sf of office space 20 9% 8% to inventory. Despite negative absorption in early 2017, the office market is expected to 0 VACANCY RATE (%) rebound later in the year as startup firms and Winnipeg’s IT sector start absorbing vacant 7% -20 spaces left by larger firms that downsized. Think Shift – an advertising agency – recently 6%
ABSORPTION (THOUSANDS SF) -40 announced plans to lease up to 10,000 sf in the former James Avenue pumping station. 5% This deal is part of the $17-million revitalization plan that will eventually turn the pumping -60 4% station into a mixed-use commercial and residential complex. -80 3% -100 More than 45,000 sf of office inventory was added in the second quarter of 2017 as Building 2%
2 in the Tuxedo Business Park was completed. An additional 380,000 sf (True North Square) -120 1% was under construction as of mid-year 2017 with a further 140,000 sf in future planned -140 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 projects – including SkyCity, a 45-storey mixed-use parkade, residential and commercial Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 development.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
450
400 -25 KSF 6.6% 0.4 MSF 0 SF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 350
300 SQUARE FEET (THOUSANDS) Downtown class A and C vacancy rates, while elevated, are still well within an acceptable 250 range. However, class C vacancy has risen in each of the past five quarters, as historical 200 buildings are becoming more expensive to maintain. With parking becoming a luxury, 150 tenants are looking for cheaper alternatives with efficiencies, open office and some telecommuting being offered. At mid-year 2017, downtown class A vacancy was 3.3% – 100 down from 4.7% one year earlier, while downtown class B vacancy increased 80 bps year- 50 over-year to 8%. As more Canadian companies look to expand within Winnipeg rather than 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 the more expensive Vancouver and Toronto markets, Winnipeg’s highly skilled workforce, Q2 Q2 Q2 Q2 Q2 historically low rents, and constant rejuvenation continue to solidify its position as a highly 2013 2014 2015 2016 2017 attractive choice. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $40 Address / Complex Tenant Lease Type $35 68,000 sf 1 360 Main Street Canada Revenue Agency New $30 $ PER SQUARE FOOT
42,000 sf $25 2 220 Portage Avenue Marwest New $20
Canadian International Grain 30,000 sf $15 3 303 Main Street Institute Renewal
$10 30,000 sf 4 333 Main Street Wawanesa Sublease $5
17,500 sf $0 5 400 Ellice Ministry of Transportation Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 27 United States
29 Atlanta 30 Austin 31 Boston 32 Charleston 33 Charlotte 34 Chicago 35 Cleveland 36 Columbus, OH 37 Dallas 38 Denver 39 Detroit 40 Fairfield County 41 Fort Lauderdale 42 Greenville 43 Hartford PLACEHOLDER 44FOR Houston 45 Indianapolis 46 Jacksonville U.S. DIVIDER47 Las Vegas 48 Long Island 49 Los Angeles 50 Miami 51 Minneapolis 52 Nashville 53 New Jersey 54 New York 55 Oakland 56 Orange County 57 Orlando 58 Philadelphia 59 Phoenix 60 Pittsburgh 61 Raleigh-Durham 62 Reno 63 Sacramento 64 San Antonio 65 San Diego County 66 San Francisco 67 San Mateo 68 St. Louis 69 Tampa 70 Washington, DC 71 West Palm Beach 72 Westchester County Atlanta Office Market
Market should continue to favor landlords Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Atlanta’s office market remains tight, with vacancy declining despite 1.4 msf of new SUBURBAN ABSORPTION (12 MOS) VACANCY inventory delivered to the market during the first half of 2017. As of mid-year 2017, a total 2,500 25% of 3.1 msf of office product was under construction with 1.5 msf preleased. After a sluggish start to 2017, strong leasing activity pushed absorption back to positive territory in the 2,000 second quarter as 559,280 sf was absorbed – the most in a single quarter since the fourth 20% VACANCY RATE (%) quarter of 2015, representing an increase of 324% compared with the second quarter of 1,500 2016. 15% ABSORPTION (THOUSANDS SF) 1,000 Following a slight increase in the first quarter of 2017, vacancy decreased to 16% at mid-year and was down 30 bps year-over-year. As vacancy declined, asking rental rates continued 10% 500 to break records. Average asking rental rates rose 5.8% year-over-year, ending the second quarter at $24.71 psf. Since 2013, office rents have grown 21% – an unprecedented increase 5% 0 in the Atlanta market. In one of the largest new leases of second-quarter 2017, Serta
Simmons preleased 210,000 sf at the Assembly campus, a new construction project on the -500 0% Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 site of the former Doraville General Motors plant. The project will break ground later in 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 and comprise more than 3 msf of office, retail and residential space.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
2,500
0.7 MSF 16% 3.1 MSF 1.5 MSF 2,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
SQUARE FEET (THOUSANDS) 1,500 The Atlanta office market should remain in landlords’ favor, as new product entering the market is heavily preleased and desirable existing space remains limited. These two factors will also lead to rising rental rates as new construction demands a higher rental rate to cover 1,000 increased construction costs. Leasing activity is expected to continue at a strong pace as companies continue to select Atlanta based on its low cost of living and doing business. 500 Overall, the Atlanta office market should remain positive through the rest of 2017.
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 210,000 sf 1 Assembly Serta Simmons New $ PER SQUARE FOOT $25
194,000 sf 2 400 Northpark WestRock New $20
104,800 sf $15 3 Three Alliance CBRE New $10 66,100 sf 4 One Glenlake Cotiviti New $5
60,800 sf $0 5 2300 Defoor Hills Reliance Worldwide Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 29 Austin Office Market
Downtown average rent reaches all-time high Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Demand from office-using employers relocating to the Austin market remained healthy SUBURBAN ABSORPTION (12 MOS) VACANCY despite suggestions that the local economy may be slowing. Rental-rate growth persisted 1,800 14% with a year-over-year increase of nearly $5 psf at mid-year 2017 in both the downtown and 1,600 suburban market segments. Average class A gross asking rates reached an all-time high of 12% $56.06 psf downtown and $40.76 psf in the suburbs. Higher operating expenses are largely 1,400 VACANCY RATE (%) responsible for such marked increases with rising building valuations commanding higher 10% 1,200 taxes. 8% ABSORPTION (THOUSANDS SF) 1,000 Construction deliveries that were slow to come online during the first quarter of 2017 made 800 6% a dramatic rebound during the second quarter. As a result, nearly 1.3 msf of office product 600 was delivered to the market between the third quarter of 2016 and the second quarter of 4% 2017. Developers’ confidence in the Austin office market is made apparent by continued new 400 2% development, even in the face of a diluted market-wide preleasing rate of 27%. Moreover, 200
weakened preleasing activity in suburban markets may also signal demand trending away 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 from Austin’s urban core into less-saturated submarkets that offer lower rates and less Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 competition for space.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
3,000
1.5 MSF 8.7% 1.9 MSF 1.3 MSF 2,500 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
2,000 SQUARE FEET (THOUSANDS) While lower than the 2015-2016 interval, market-wide absorption was positive between mid- year 2016 and mid-year 2017 as the delivery of new construction helped temper high levels 1,500 of demand. Downtown absorbed 372,019 sf between mid-year 2016 and mid-year 2017 while 1,000 Austin’s suburban markets absorbed nearly 1.2 msf during that time. Overall office vacancy remained low, though marginally higher than it was in the second half of 2016. Downtown 500 continued to boast lower vacancy (7.3%) than its suburban counterparts (9%).
0 As 2017 progresses and class A supply grows, rental rates are expected to remain high. Vacancy Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 and absorption are expected to be kept in check as Austin employment continues its gradual 2013 2014 2015 2016 2017 expansion. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 298,800 sf 1 Domain 11 HomeAway New $ PER SQUARE FOOT $40 87,900 sf 2 Northview Business Center Rackspace New $30 65,200 sf 3 500 W. 2nd Google Expansion $20
60,000 sf 4 Springdale General The Center for Social Innovation New $10
56,500 sf $0 5 Ladera Bend Asure Software Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
30 Avison Young Mid-Year 2017 Office Market Report Boston Office Market
GE Effect comes to fruition Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY During the first half of 2017, the Greater Boston office market recorded robust occupancy SUBURBAN ABSORPTION (12 MOS) VACANCY growth while leasing velocity remained strong to support a healthy construction pipeline. 2,500 16% Year-over-year, the market absorbed more than 1.9 msf that contributed to overall vacancy of 11% at mid-year 2017. While a modest 318,000 sf was absorbed in downtown Boston, the 14% suburbs, which include Cambridge, absorbed more than 1.6 msf. 2,000
12% VACANCY RATE (%)
Market asking rents remained steady in most urban submarkets, although select areas had rent 10% 1,500 spikes due to single-digit vacancy and influential developments such as Boston Properties’ ABSORPTION (THOUSANDS SF) 8% mixed-use North Station development and General Electric’s Fort Point project, now dubbed 1,000 Innovation Point. In the suburbs, asking rents increased slightly with notable rent yields 6% growing significantly for office space in single-story flex buildings. 4% 500 The “GE Effect” is now coming to fruition as notable market entrants commit to areas near 2% Innovation Point. Specifically, Red Hat moved into approximately 40,000 sf at 300 A Street while 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Amazon committed to a large footprint at 253 Summer Street, simultaneously announcing Q2 Q2 Q2 Q2 Q2 plans to hire 900 people in Boston. Technology and life-science tenants continue to drive 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
4,500
4,000 1.9 MSF 11% 3.2 MSF 2.8 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 3,500
3,000 SQUARE FEET (THOUSANDS) leasing velocity in both the city and suburbs, while more traditional companies are downsizing 2,500 or consolidating in search of rent relief and efficiency. Most notably, Wells Fargo consolidated 2,000 its downtown operations in the first half of 2017, and the Boston Consulting Group signed up to 1,500 consolidate into a new building in Boston’s booming Seaport district. 1,000 Looking ahead, Greater Boston is projected to add more than 3 msf of office space in the next 500 two years. Approximately 40% of construction space still is in need of leasing commitments. 0 Compared with mid-year 2016, preleasing activity decreased slightly in the suburbs while Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 increasing in the city. With a strong group of companies external to Boston currently looking 2013 2014 2015 2016 2017 for space in the city, current developments are expected to be further leased by year-end 2017. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $70 Address / Complex Tenant Lease Type $60 233,000 sf 1 301 Binney Street, Cambridge Ironwood Pharmaceuticals Renewal $ PER SQUARE FOOT $50
220,000 sf 2 21-25 Drydock Avenue, Boston Reebok New $40
144,500 sf $30 3 253 Summer Street, Boston Amazon New $20 99,800 sf 4 45 Sidney Street, Cambridge BluePrints Medicine New $10
97,500 sf $0 5 4 Tech Park Drive, Westford Sonus Networks Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 31 Charleston Office Market
Local employment exceeds national average Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Known for its historic architecture, charm and numerous church steeples, Charleston is quickly SUBURBAN ABSORPTION (12 MOS) VACANCY being discovered as a highly livable city. Employers have taken note of this trend as well as the 600 12% booming population and growing employee base, and are increasingly choosing to locate in or near the Holy City. 500 10%
Swedish automaker Volvo is constructing what will be its only North American manufacturing 400 VACANCY RATE (%) 8% site in Berkeley County just west of Charleston. The $500-million, 2.3-msf plant is due for 300
completion in 2018 and will produce the newly redesigned V60 sports wagon. Meanwhile, ABSORPTION (THOUSANDS SF) 200 6% Boeing is increasing production of its 787 Dreamliner at its North Charleston facility, which has flourished since opening in 2009 and employs approximately 6,000 people. Finally, Mercedes- 100 4% Benz Vans is expanding its $500-million manufacturing site at the Palmetto Commerce Park, 0 which will now house logistical processes associated with the production of its Sprinter van. 2% -100 Even taking just these employers and their numerous ancillary suppliers and vendors into -200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 consideration, it is little wonder the local workforce is expanding. Between 2010 and 2016, Q2 Q2 Q2 Q2 Q2 the local civilian labor force grew four times faster than the U.S. average, growing by 14.5%, 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
600
0.4 MSF 7.2% 0.5 MSF 0.1 MSF 500 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
400 SQUARE FEET (THOUSANDS) compared with the state and national averages of 7.3% and 4.7%, respectively. Currently pegged at 761,000, the Charleston region’s population is growing at three times the national 300 average, making it the 24th-fastest growing metro area in the U.S. 200 These factors add up to a growing demand for office properties. Developers have responded to what had been a sustained shortage of class A office space, and an accompanying spike 100 upward in rental rates. A variety of office projects have been brought to market with many 0 more proposed and/or under development. The developments are increasingly in non- Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 traditional submarkets as the boundaries of the office market expand to meet burgeoning 2013 2014 2015 2016 2017 demand. As the new projects are occupied, absorption will increase, and remain elevated in the coming year. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $45 Address / Complex Tenant Lease Type $40
25,300 sf $35 1 5935 Rivers Avenue Benefitfocus.com New $ PER SQUARE FOOT $30 19,800 sf 2 2431 Aviation Avenue Southeastern Institute New $25
$20 19,500 sf 3 6209 Rivers Avenue The Salvation Army New $15
19,100 sf $10 4 4400 Leeds Avenue Blue Cross Blue Shield New $5
10,600 sf $0 5 1483 Tobias Gadson Boulevard CareAlliance Health Services Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
32 Avison Young Mid-Year 2017 Office Market Report Charlotte Office Market
Ballantyne development sale sets all-time record Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Charlotte’s office market continued to experience robust activity from both tenants SUBURBAN ABSORPTION (12 MOS) VACANCY and investors in the first half of 2017 thanks to strong job growth and healthy leasing 1,800 25% fundamentals. The biggest story in the first half was the sale of the Ballantyne development – the largest real estate transaction in Charlotte’s history. Northwood Investors paid more 1,600 20% than $1 billion to purchase the majority of the development, located in the South/485 1,400 VACANCY RATE (%) submarket, from The Bissell Companies. The acquisition included 4.1 msf of office space as 1,200 well as four hotel properties and land for future development. 15%
ABSORPTION (THOUSANDS SF) 1,000
An uptick in construction deliveries drove vacancy to 13.1% from 11.6% in the 12 months 800 ending at mid-year 2017. Completions totaled nearly 1 msf during this time, almost double 10% 600 what was recorded in the previous 12-month period. Another 2.7 msf remained underway 400 as of mid-year 2017 with a mix of both build-to-suit and speculative projects in urban 5% and suburban locations. Demand for the new space has been strong with 52% preleased. 200
Landlord-favorable conditions, combined with the higher price point of new construction, 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 continued to place strong upward pressure on rental rates. The average class A asking rate Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 rose 7% year-over-year, while the average class B rate increased 4% during the same period.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,800
1,600 0.6 MSF 13.1% 2.7 MSF 1 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 1,400
1,200 SQUARE FEET (THOUSANDS) In the largest office lease of the first half, Bank of America committed to take 541,584 sf in 1,000 an 850,000-sf tower under construction at the former Charlotte Observer site in the CBD. 800 Additional new construction will likely push vacancy higher during the next 12 months, 600 but market fundamentals are expected to remain strong. Despite the recent increase in development activity, new supply remained below historical levels. Healthy job growth 400 in the Charlotte metro area is fueling strong tenant demand. The addition of new leasing 200 options is a welcome development for tenants faced with limited choices and stiff 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 competition for space. Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 541,600 sf 1 620 South Tryon Bank of America New $ PER SQUARE FOOT $25
194,000 sf 2 525 North Tryon Bank of America Renewal $20
92,300 sf $15 3 2401 Sardis Road North Verizon Wireless New $10 Cardinal Innovations 69,300 sf 4 NASCAR Plaza Healthcare New $5
51,500 sf $0 5 615 South College Street WeWork Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 33 Chicago Office Market
CBD continues to outperform suburbs Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Chicago’s office market continued to register positive growth throughout the first half SUBURBAN ABSORPTION (12 MOS) VACANCY of 2017. Overall market vacancy stood at 13.8% as of mid-year 2017, a 110-bps uptick from 2,500 20% mid-2016. The CBD continued to outperform suburban markets, with downtown vacancy 18% at 11.1% compared with suburban vacancy of 17.6% (up 200 bps year-over-year). Strong 2,000 tenant demand spurred leasing activity within the CBD with 4 msf leased in the first half of 16%
1,500 VACANCY RATE (%) 2017. Much of the activity was centered in the West and Central Loop submarkets. Demand 14% 1,000 prompted net absorption to spike within the suburban O’Hare submarket, which increased 12% ABSORPTION (THOUSANDS SF) to 243,960 sf during the first half of 2017 – up from negative 152,659 sf in first-half 2016. 500 10%
8% Bank of America’s 533,201-sf lease prompted the anticipated construction of an additional 0 trophy class A tower to be built within the CBD. The 1.2-msf development is expected to 6% -500 break ground in early 2018. Neilson has announced a major consolidation of several area 4% -1,000 offices and is expanding into 215,000 sf in the West Loop. Continuing with the recent trend 2%
of corporate migrations to the market, Caterpillar has leased 116,071 sf with the intention -1,500 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 of relocating its headquarters to suburban Deerfield from Peoria. Bringing 300 employees Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 to the market, the company chose the suburbs over the CBD based on easy access to
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
4,000
3,500 0.4 MSF 13.8% 2.4 MSF 3.7 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 3,000
2,500 SQUARE FEET (THOUSANDS) O’Hare International Airport, commuter rail service to downtown and the diversity of living options for employees. The CBD has recently recorded an uptick in construction activity 2,000 – predominantly within the West Loop and River West submarkets – with nearly 2.5 msf 1,500 delivered from fourth-quarter 2016 to second-quarter 2017. Eight properties totaling 2.4 msf 1,000 were under construction as of mid-year 2017. 500 Chicago’s economy continued to record substantial improvement. As of June 2017, 0 unemployment stood at 4.9%, a 110-bps drop year-over-year. With no large deliveries Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 expected until 2018 and strong leasing demand, the CBD and suburban office markets 2013 2014 2015 2016 2017 should post declining vacancy rates. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
$50 Address / Complex Tenant Size Lease Type $45
533,200 sf $40 1 110 N. Wacker Drive Bank of America New $ PER SQUARE FOOT $35
385,100 sf $30 2 515 N. State Street Outcome Health New $25
164,000 sf $20 3 3100 Sanders Road Old World Industries New $15
148,500 sf $10 4 The Willis Tower Schiff Hardin LLP Renewal $5
143,000 sf $0 5 200 W. Jackson Boulevard Nielsen NV Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
34 Avison Young Mid-Year 2017 Office Market Report Cleveland Office Market
Net absorption soars in the suburbs, falls downtown Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Cleveland’s suburban office market remained strong in the first half of 2017, while activity SUBURBAN ABSORPTION (12 MOS) VACANCY in the downtown market plateaued. The downtown market posted negative absorption of 1,400 25% 23,187 sf for the 12-month period ending mid-year 2017, marking the first time since 2012 that CBD absorption was in the red. However, downtown vacancy decreased 30 bps year- 1,200 over-year to 19.8% at mid-2017 due in part to redevelopment of office space into apartments. 20%
1,000 VACANCY RATE (%) Meanwhile, the suburban office market continued to tighten, posting a 10.3% vacancy rate 800 (down 80 bps year-over-year). Net absorption in the suburbs (1.3 msf) more than doubled 15% ABSORPTION (THOUSANDS SF) between mid-year 2016 and mid-year 2017 from the prior 12-month period (541,047 sf). This 600 increase has spurred development of several east-side class A projects – such as Pinecrest, 10% Link 59, 3900 Park East and the Van Aken Project, all slated for delivery by early 2018. Thus far, 400
60% of the 606,304 sf of space under construction has been preleased. 200 5% Downtown development continued to be focused around multi-residential projects that 0 look to centralize the population and create a live-work-play environment. The most notable -200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 proposed CBD development is Stark Enterprises’ 45-story, mixed-use nuCLEus project that Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 would deliver 200,000 sf of office; however, the project has been stalled due to public
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
2,500
1.3 MSF 13.1% 0.6 MSF 1 MSF 2,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
SQUARE FEET (THOUSANDS) 1,500 financing issues. Benesch, a Cleveland-based law firm, is committed to taking more than half of the office space upon delivery of the building. 1,000 Notable first-half 2017 sale transactions included two of Cleveland’s well-known office buildings. Key Tower (1.4 msf) and Terminal Tower (585,000 sf) have both been acquired 500 by local investors within the past year. Gradual tightening of vacancy in the downtown market is expected given the continued redevelopment of old office space into apartments. 0 The short-term outlook for the suburban office market remained positive with consistent Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 demand for class B office space from budget-minded tenants. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $25 Address / Complex Tenant Lease Type
147,800 sf $20 1 127 Public Square Forest City New $ PER SQUARE FOOT
100,000 sf $15 2 200 Public Square Benesch Renewal
55,000 sf $10 3 388 S. Main Street Homeside New
45,100 sf $5 4 127 Public Square Millennia Companies New
41,300 sf $0 5 1228 Euclid Avenue The NRP Group Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 35 Columbus Office Market
Mixed-use buildings coming to the Short North Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Columbus workforce continued to thrive and expand in the first half of 2017, particularly SUBURBAN ABSORPTION (12 MOS) VACANCY with local startups, forcing a shift in the office market toward creative environments and 1,000 12% open floorplates. Culture and the desire to differentiate themselves from competition are top priorities for these growing companies. This approach is creating demand for class A 800 10% office space with unique amenities. In response to these trends, new investment in areas VACANCY RATE (%) such as Dublin and the CBD is growing, whether creating new space or improving existing 600 8% inventory. Notable purchases in the first half of 2017 included One Columbus in the CBD and ABSORPTION (THOUSANDS SF) a broad portfolio totaling 1.1 msf in Dublin. There are also many new mixed-use buildings 400 6% coming to the Short North arts district that offer class A office space within the vibrant
neighborhood of shops and restaurants. 200 4%
Office vacancy, both downtown and in the suburban markets, declined year-over-year 0 2% with mid-year 2017 rates of 6.2% and 7.8%, respectively. Net absorption for the 12-month
period ending at mid-year 2017 for all classes in the CBD was 321,794 sf, while the suburban -200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 market was negative 4,302 sf. Construction remained steady with 257,900 sf under Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 construction downtown and more than 1 msf in the suburbs as of mid-year 2017. This level
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,200
0.3 MSF 7.2% 1.3 MSF 0.6 MSF 1,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
800 SQUARE FEET (THOUSANDS) of construction accurately reflects the demand for new space to meet the needs of new and evolving companies. 600
Leasing activity also remained strong with average asking rents for class A office space in 400 the CBD at $10.41 psf NNN and class A suburban office at $11.65 psf NNN as of mid-year 2017. Gross rents averaged $19.91 psf and $18.22 psf, respectively. The biggest transaction in the 200 first half of 2017 was a 164,900-sf lease deal for United HealthCare at 5900 Parkwood Place. 0 Following that deal was the lease of two floors to Pillar Technology Group at 711 N. High Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 Street, the newest office building coming to the Short North. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $25 Address / Complex Tenant Lease Type
164,900 sf $20 1 5900 Parkwood Place United HealthCare New $ PER SQUARE FOOT
25,000 sf $15 2 711 N. High Street Pillar Technology Group New
22,000 sf $10 3 900 N. High Street Serendipity Labs New
20,000 sf $5 4 10 W. Broad Street US Bank Renewal
18,200 sf $0 5 2780 Airport Drive ARC Industries Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
36 Avison Young Mid-Year 2017 Office Market Report Dallas Office Market
Speculative space should alleviate tight conditions Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Dallas-Fort Worth (DFW) office market has sustained a historically high level of activity SUBURBAN ABSORPTION (12 MOS) VACANCY for the past three years, resulting in falling vacancy, rising asking rates and a booming 6,000 30% construction pipeline. Dallas has a low cost of living and a favorable business climate, which continued to attract employers to the metro area. In the first half of 2017, vacancy rose 5,000 25% only 20 bps to 14.6% from a decade-low 14.4% at mid-year 2016 – despite almost 5.6 msf VACANCY RATE (%) being delivered to the market during the 12-month period. An additional 9.9 msf was under 4,000 20% construction at mid-year 2017 with 66% preleased. Large corporations continue to announce 3,000 ABSORPTION (THOUSANDS SF) expansion plans in the Dallas market, keeping build-to-suit construction activity high. In the 15% past year, speculative construction activity has increased to address the growing demand 2,000 for new product. As of mid-year 2017, speculative space under construction was only 20% 10% preleased, which should help alleviate tight market conditions upon delivery. 1,000
5% Office tenants in the Dallas market continue to make real estate decisions based on 0 recruiting and retention with an increased emphasis on improved amenities. Many tenants -1,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 are leaving existing buildings to expand into new construction. In an effort to compete with Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 the substantial amount of new product being delivered to the market, many older buildings’
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
12,000
4.7 MSF 14.6% 9.9 MSF 5.6 MSF 10,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
8,000 SQUARE FEET (THOUSANDS) landlords are either offering concessions or renovating. New construction is, in large part, 6,000 driving rental-rate appreciation. In the 12 months ending at mid-year 2017, average class A rates appreciated by 2.6% while class B rates remained relatively unchanged. Strong demand 4,000 is expected to place continued upward pressure on rents throughout the remainder of 2017.
Employment in the DFW metropolitan area increased 3.3% year-over-year. The remainder 2,000 of 2017 is expected to spell further progress for the DFW market with financial services, 0 technology and health care employment sectors leading the way. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 216,000 sf 1 The Sound at Cypress Waters Brinker International New $ PER SQUARE FOOT $25
127,000 sf 2 One Legacy West NTT DATA New $20
88,000 sf $15 3 Three Galleria Tower Ansira Partners Expansion $10 80,000 sf 4 Granite Park Five Altice USA New $5
Akin Gump Strauss Hauer & 68,000 sf $0 5 The Union Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Feld LLP New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 37 Denver Office Market
Demand is not keeping up with large new supply Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Millennials and young families continue to migrate to the Denver region for employment SUBURBAN ABSORPTION (12 MOS) VACANCY opportunities and the area’s enviable quality of life. Even though Denver is benefitting from 2,000 16% additional residents, the low unemployment rate of 2.3% at mid-year 2017 indicated that recruiting and retaining a talented workforce will continue to be a top priority for employers, 14% 30% of whom planned on increasing their workforce in the third quarter of 2017, according 1,500
12% VACANCY RATE (%) to the Metro Denver Economic Development Corporation. As occupancy costs rose between 10% mid-year 2016 and mid-year 2017, companies increased telecommuting and shared workspace 1,000 ABSORPTION (THOUSANDS SF) initiatives while balancing employee desire for centralized locations and building amenities. 8%
500 To meet demand, 4.4 msf was under construction at mid-year 2017 with 47% preleased. Overall 6% vacancy increased to 12% from 9.9% at mid-year 2016 due to the downturn in the energy 4% industry. Demand is not keeping pace with the new supply coming online. Vacancy is expected 0 to tighten through the second half of 2017. Asking rents have leveled off downtown due to the 2%
large amount of available space, but continue to grow in the suburbs. Average asking rental -500 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 rates increased 3.3% year-over-year to $26.55 psf gross at mid-year 2017. At mid-year 2016, asking Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 rates had increased by 5.8% from mid-year 2015.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
3,000
27 KSF 12% 4.4 MSF 2.4 MSF 2,500 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
2,000 SQUARE FEET (THOUSANDS) Net absorption in the 12-month period ending mid-year 2017 was a mere 27,038 sf compared with 2.1 msf absorbed in the prior 12-month period. New vacancies caused by energy industry 1,500 issues have started to abate, while increased rig counts indicate the sector is recovering. Due to 1,000 Denver’s diversified economy, the energy downturn did not have an undue impact on the office market as health care, finance and tech companies were able to sublease and fill much of the 500 vacant space. Despite slower rent growth and large projects in the pipeline, the Denver market is expected to continue to exhibit strong fundamentals through the second half of 2017. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $40 Address / Complex Tenant Lease Type $35 333,900 sf 1 Republic Plaza Encana Oil & Gas Renewal $30 $ PER SQUARE FOOT
257,700 sf $25 2 Granite Place at Village Center Charter Communications New $20
90,200 sf $15 3 Denver Place Vertafore New
$10 72,600 sf 4 Atrium III U.S. Government Renewal $5
51,400 sf $0 5 City Center Marketo Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
38 Avison Young Mid-Year 2017 Office Market Report Detroit Office Market
Q-Line spurs investment northward Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Detroit’s office market continued to demonstrate positive trends in the first half of 2017. SUBURBAN ABSORPTION (12 MOS) VACANCY Downtown office vacancy dropped to 10.5% at mid-year 2017 from 12.3% a year earlier. 2,000 25% This drop in downtown vacancy is anticipated to continue as more companies relocate downtown from the suburbs. Despite this trend, the suburban vacancy rate recorded a slight 1,800 drop to 15.8% at mid-year 2017 from 16.2% a year earlier. 1,600 20% VACANCY RATE (%) 1,400 Detroit’s new streetcar system, known as the Q-Line, launched in May 2017. Aside from 1,200 15% expected early operational hiccups, the line provides a connection between New Center, ABSORPTION (THOUSANDS SF) 1,000 Midtown and the CBD and has been a catalyst for new development along the Woodward Avenue corridor. Local and international investors have spent more than $1 billion acquiring 800 10% property along the Q-Line, including properties to its north, with the expectation that the 600 system will be extended northward to suburban Detroit. Little Caesars Arena, future home 400 5% of the NHL’s Detroit Red Wings and the NBA’s Detroit Pistons, is set to open in September. 200
Development in the CBD included the 234,000-sf Little Caesars headquarters that will deliver 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 in 2018. Bedrock Detroit is preparing to break ground in December on a 1.2-msf mixed-use Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 skyscraper at the former site of J.L. Hudson’s department store. Bedrock also announced the
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
700
2.1 MSF 14.6% 0.9 MSF 0.1 SF 600 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 500 SQUARE FEET (THOUSANDS) Monroe Blocks development, which includes 814,263 sf of office space slated for delivery 400 in 2020. A 130,000-sf mixed-use development has broken ground in Royal Oak and will be 300 delivering in late 2018. The office space is 50% preleased. 200 The largest sale transaction in the first half of 2017 occurred in Troy. Osprey Management Company sold a four-property office complex comprising 731,915 sf to a joint-venture of The 100 Hayman Company and Torchlight Investors for $55 million ($75 psf). Average suburban class 0 A gross rental rates declined slightly year-over-year to $21.22 psf from $21.37 at mid-year 2017, Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 while downtown saw a strong jump to $23.28 psf from $21.33 psf during the same period. 2013 2014 2015 2016 2017 The outlook for the remainder of 2017 is optimistic as vacancy is anticipated to decline. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $25 Address / Complex Tenant Lease Type
90,000 sf $20 1 16630 Southfield Road Ford Motor Company New $ PER SQUARE FOOT
58,100 sf $15 2 200 Galleria Officentre Adient US LLC New
40,300 sf $10 3 400 W. Maple Road 24G Renewal
40,000 sf $5 4 1 Campus Martisu Avenue Microsoft New
36,200 sf $0 5 200 Renaissance Center General Motors Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 39 Fairfield County Office Market
Local market demand drives transactions in first half Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Fairfield County office market demonstrated resilience in the first half of 2017 amid the SUBURBAN ABSORPTION (12 MOS) VACANCY persistent challenges of a struggling state economy, corporate attrition and job losses, as 1,200 25% well as uncertainty in matters of fiscal policy and health care. 1,000
As of mid-year 2017, vacancy had increased by only 30 bps to 17.8% from the close of 2016 – 800 20% a negligible change compared with the latter half of 2016 when vacancy climbed to 17.2% 600 VACANCY RATE (%) from 15.7%. That increase was largely attributable to the return of more than 740,000 sf of 400 15%
office space to the market by UBS at 677 Washington Boulevard in the Stamford CBD. The ABSORPTION (THOUSANDS SF) 200 first half of 2017 registered a continued slightly upward trajectory in vacancy, both in the 0 10% CBD and suburban markets, which closed at 21.5% and 16.6%, respectively. -200
-400 Leasing velocity was 21% lower in the first half of 2017 compared to the first half of 2016. -600 5% Relative to some big wins recorded in 2016, transactions in the first half of 2017 were driven -800 by local market demand. Notable suburban market deals included the expansion of Yale- -1,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Haven for 101,000 sf at 99 Hawley Lane in Stratford, the leasing of 64,850 sf by Epsilon Q2 Q2 Q2 Q2 Q2 at 10 Westport Road in Westport, and the renewal by Blue Sky Studios of 146,675 sf at 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
90
80 -0.5 MSF 17.8% 0 SF 46 KSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 70
60 SQUARE FEET (THOUSANDS) 1 American Lane in Greenwich. In the Stamford CBD, insurance firm PartnerRe leased 59,674 50
sf at 200 First Stamford Place. 40
A slight year-over-year uptick of 1.8% was recorded in the overall average asking rental 30
rate, which reached $35.79 psf as of mid-year 2017. The rise was driven by a 10% increase 20 in rental rates for class A office space in the CBD markets, where asking rents remained 10 elevated despite high vacancy in a number of key buildings. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 146,800 sf 1 1 American Lane Blue Sky Studios Renewal $ PER SQUARE FOOT $40 101,000 sf 2 99 Hawley Lane Yale New Haven Expansion $30 64,900 sf 3 10 Westport Road Epsilon New $20
59,700 sf 4 200 First Stamford Place PartnerRe New $10
45,000 sf $0 5 333 Ludlow Avenue Daymon Worldwide Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Sublease Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
40 Avison Young Mid-Year 2017 Office Market Report Fort Lauderdale Office Market
Developers pursue projects inside and outside core Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Broward County, which includes Fort Lauderdale, continued to lead the South Florida SUBURBAN ABSORPTION (12 MOS) VACANCY market in non-agricultural employment growth, as demonstrated by the 35,100 jobs that 1,000 25% were added in the year ending in June 2017. The county also enjoyed a non-seasonally adjusted unemployment rate of 4% as of June 2017, an 80-bps drop year-over-year. This 800 economic prosperity has driven the local office market into a time of unprecedented 20% VACANCY RATE (%) growth with strong leasing activity and absorption in many of the county’s suburban 600 areas. Furthermore, development activity continued to take place in first-half 2017, with 15% ABSORPTION (THOUSANDS SF) many projects expected to break ground within the next 12 months. 400
While absorption is taking place in most of Broward’s suburban office submarkets, 10% 200 Downtown Fort Lauderdale continued to register increasing availability in small blocks of space. This trend can be attributed primarily to more affordable space attracting 5% 0 tenants to Broward County’s suburbs, as demonstrated by the 291,896 sf of suburban office absorption recorded during the 12-month period ending in June 2017 – contrary -200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 to negative absorption of 76,826 sf within the urban core. This shift to suburban markets Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 is further evidenced by the relative lack of lease renewals that have taken place in recent
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
200
180
0.2 MSF 11.5% 0.1 MSF 0.1 MSF 160 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 140
SQUARE FEET (THOUSANDS) 120 quarters and the increase in sublet opportunities within Downtown Fort Lauderdale. This 100 shift has also led developers to pursue projects both inside and outside the urban core. 80
One of the most notable projects currently in development is TPA Group’s 335,000- 60 sf office park in Pembroke Pines. The Edison will consist of two class A buildings with 40 ample parking as well as covered indoor and outdoor collaboration areas. The project 20 is currently in the site-plan-approval process and is projected to be delivered in the 0 first quarter of 2019. The market’s strong employment figures are expected to lead to Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 continued strength in both the county’s leasing and investment markets. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $45 Address / Complex Tenant Lease Type $40
60,000 sf $35 1 Royal Palm I Virgin Voyages New $ PER SQUARE FOOT $30 40,000 sf 2 Royal Palm I Brookfield Asset Management New $25
$20 27,300 sf 3 Radice Corporate Center I MassMutual Renewal $15
24,800 sf $10 4 Broward Financial Center Garrett Laughlin LLC Sublease $5
Cable & Wireless 24,700 sf $0 5 Sawgrass Technology Park Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Communications New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 41 Greenville Office Market
Rents continue to move upward, vacancy remains low Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Greenville-Spartanburg office market registered near-record increases in lease rates SUBURBAN ABSORPTION (12 MOS) VACANCY while maintaining low vacancy rates during the first half of 2017. This trend is attributed 400 18% to the Upstate’s numerous accolades bringing significant job growth and citizen pride to the region's superb quality of life. Rents for both Greenville and Spartanburg stayed on an 300 16%
upward trajectory during the 12 months ending at mid-year 2017. The average gross asking 200 14% VACANCY RATE (%) rate for the Greenville market was $17.44 psf while vacancy remained low. 100 12%
While Greenville’s suburban market is thriving, its CBD may see a slight correction in the near ABSORPTION (THOUSANDS SF) 0 10%
term. The Greenville News and Upstate Business Journal have described the hotel and multi- -100 8% residential sectors as being overbuilt and the office market, with class A vacancy of 15%, may -200 6% soon merit a similar description. The CBD’s elevated vacancy provides an opportunity for market leverage to shift from landlord to tenant. -300 4% -400 2% Spartanburg has spent the last few years setting itself up as a downtown area primed -500 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 for outside investment. Professional and business-service jobs have helped reinvigorate Q2 Q2 Q2 Q2 Q2 the local economy. The city has worked with developers to ensure that there are enough 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
450
400 0.3 MSF 8.2% 0.2 MSF 0.2 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 350
300 SQUARE FEET (THOUSANDS) residential units to support the commercial workforce. The area is attracting future tenants 250
because of low lease rates and new opportunities. While lease rates are low, they have 200 increased every year since 2013 – a trend that is a significant benefit for investors. 150
As Greenville continues to garner national attention, people will keep relocating to 100 the Upstate. The second half of 2017 will likely see rental rates increase while vacancies 50 decrease – with the CBD being the only possible exception. Landlords in the CBD will look 0 to offer longer lease terms at current market rates, providing opportunities for wise tenants. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 Development in Greenville will remain steady while interest rates remain low. Spartanburg 2013 2014 2015 2016 2017 will also continue to grow as investors identify development opportunities. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 2000 Wade Hampton Boulevard, 55,700 sf 1 Greenville Concentrix Corporation New $ PER SQUARE FOOT $25
38,700 sf 2 110 E. Court Street, Greenville Erwin Penland New $20
33,100 sf $15 3 1310 Union Street, Spartanburg The Merit Group Renewal $10 12,300 sf 4 281 Fairforest Way, Greenville CIA Properties New $5
10,200 sf $0 5 215 N. Pine Street, Spartanburg Land & Sea Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
42 Avison Young Mid-Year 2017 Office Market Report Hartford Office Market
With no significant construction in sight, vacancy remains at Absorption and Vacancy 10-year low DOWNTOWN ABSORPTION (12 MOS) VACANCY SUBURBAN ABSORPTION (12 MOS) VACANCY
The Greater Hartford office market is gaining momentum, although a speed bump has 400 16% arisen with the pending market departure of insurance juggernaut Aetna. Currently at 12.4%, Hartford’s overall vacancy rate is at a 10-year low with rental rates increasing in both the city 200 14%
and suburbs. Although occupancy growth had a flat start to 2017, heavy first-half leasing 12% VACANCY RATE (%) 0 activity influenced a pricing increase. 10% -200 ABSORPTION (THOUSANDS SF) The overall downtown vacancy rate of 12.5% is expected to rise in 2018 when Aetna moves 8% its headquarters to New York City. In order to backfill the space, Hartford will need large -400 commitments from companies outside the city. With city rents comparable to the suburbs, 6% -600 companies outside of the city may view this situation as an opportunity as Hartford’s 4% downtown area continues to improve. At 12.4%, the suburban vacancy rate decreased -800 2% slightly (50 bps), yet remained above the five-year average of 11%. -1,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Downtown Hartford asking rents averaged $23.38 psf with little discrepancy between Q2 Q2 Q2 Q2 Q2 the suburbs, which averaged $22.66 psf. Albeit small, the price difference was larger than 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
160
140 -0.1 MSF 12.4% 0.1 MSF 0 SF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 120
100 SQUARE FEET (THOUSANDS) historical norms – due mainly to a general tightening of space in the city with no significant 80 office construction efforts in sight. 60 Moving forward, the downtown Hartford market is expected to tighten further until Aetna’s departure to the Big Apple, while suburban vacancy is expected to remain static. With 40 leasing velocity increasing in the city, Aetna’s footprint is expected to be backfilled quickly. 20 The largest lease transactions during the first half of 2017 occurred downtown. Most notably, 0 Connecticut Children’s Medical Center leased 111,500 sf at 10 Columbus Boulevard Similarly, Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 United Bank signed a new lease in the city for approximately 70,000 sf. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $25 Address / Complex Tenant Lease Type
Connecticut Children's 111,600 sf $20 1 10 Columbus Boulevard Medical Center New $ PER SQUARE FOOT
68,800 sf $15 2 225 Asylum Street United Bank New
46,700 sf $10 3 755 Main Street Conning & Co. Renewal
29,700 sf $5 4 755 Main Street Reid & Riege Renewal
25,500 sf $0 5 90 State House Square Axxin Veltrope & Harkrider Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 43 Houston Office Market
Sublease inventory posts third straight quarterly decline Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY At mid-year 2017, the economic recovery that began in Houston a year earlier continued SUBURBAN ABSORPTION (12 MOS) VACANCY to gain traction. Although Houston is in recovery mode, indicators in the office market will 10,000 18% take additional time to reflect the current economic outlook. The office market was hard hit by the downturn in the energy industry with tenants vacating sublease space just as 16% 8,000 large construction projects delivered additional available space to the market. This situation 14% VACANCY RATE (%) caused vacancy to hit record highs. Vacancy increased by 270 bps to 16.8% at mid-year 2017 6,000 12% from mid-year 2016. This rise in vacancy was expected in the near term, since many leasing
ABSORPTION (THOUSANDS SF) 10% decisions made during the downturn are just now taking effect. However, available space in 4,000 Houston has a tendency to disappear quickly given favorable market conditions. A renewed 8%
sense of optimism is leading to an increasing number of deals that will boost absorption 2,000 6% later in the year. 4% 0 The rate of new supply hitting the market has abated in the last year. The construction 2%
boom is nearly over, with the majority of remaining space set to deliver in 2017. New -2,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 construction deliveries, which have contributed greatly to Houston’s oversupply concerns, Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 will have less of an impact going forward. The aforementioned sublease space glut
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
14,000
-1.4 MSF 16.8% 2.3 MSF 3.4 MSF 12,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 10,000 SQUARE FEET (THOUSANDS) continued to weigh down the market. However, on a bright note, available sublease 8,000 inventory fell for the third consecutive quarter to 10.7 msf at mid-year 2017. 6,000 Going forward, vacancy will likely rise slightly during the next few quarters before abating as 4,000 the construction boom winds down and the dust from the energy industry upheaval settles. Direct average asking rental rates have held steady throughout the downturn and are 2,000 projected to remain relatively flat in 2017 while the office market catches up with Houston’s 0 brightening economic outlook. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
$50 Address / Complex Tenant Size Lease Type $45
524,000 sf $40 1 Post Oak Central Apache Renewal $ PER SQUARE FOOT $35
127,000 sf $30 2 811 Louisiana Targa Resources Expansion $25
90,000 sf $20 3 1401 Enclave IHS Markit Expansion $15
86,000 sf $10 4 Jones at Main WeWork Expansion $5
73,000 sf $0 5 Air Liquide Center North Archrock Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Sublease Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
44 Avison Young Mid-Year 2017 Office Market Report Indianapolis Office Market
Construction projects get smaller as vacancy increases Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Indianapolis office market is showing signs of a slowdown in leasing demand except in SUBURBAN ABSORPTION (12 MOS) VACANCY small pockets of development in sectors such as Carmel and the Fishers/I-69 corridor. Specific 400 25% signals of the slowdown include the diminishing scale of developments compared with historical projects. At mid-year 2017, projects under construction ranged in size from 40,000 sf 300 to 60,000 sf compared with speculative buildings larger than 100,000 sf in the past. Demand 20%
200 VACANCY RATE (%) is being driven by local service providers and continually expanding cloud-based technology 100 companies. 15% ABSORPTION (THOUSANDS SF) 0 Overall vacancy increased 100 bps year-over-year to 15.7% at mid-year 2017. The CBD vacancy 10% rate was 17.1% – a 120-bps improvement compared with one year earlier. The consolidation -100 and expansion of Salesforce set the tone for positive absorption in this submarket, as related -200 vendors and cloud-based spin-off companies have driven demand in all classes of CBD 5% inventory. The suburban markets have been impacted by several tenant relocations to walkable -300 urban environments that follow the millennial workforce trend. The other key trends are flexible -400 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 work hours and environments, which impact space demand. As a result, absorption was Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 negative, and suburban vacancy increased 200 bps year-over-year to 15.2% in first-half 2017.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
300
-0.2 MSF 15.7% 0.1 MSF 0.2 MSF 250 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
200 SQUARE FEET (THOUSANDS) Despite the vacancy increase, class A asking rental rates continued to climb due to newer 150 product in the suburbs requiring higher face lease rates and increasing demand in the CBD from the technology sector. Suburban class A average asking rents climbed to $23.48 psf at 100 mid-year 2017, while CBD class A asking rents averaged $21.33 psf.
The second half of the year is shaping up to be more active as businesses focus on what they 50 can control via new product development and delivery of services. Local elected officials have 0 turned their sights toward developer-backed bond programs to spur development in the CBD, Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 led primarily by hospitality-related projects. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $30 Address / Complex Tenant Lease Type $25 95,000 sf 1 Parkwood West Ascension Health New $ PER SQUARE FOOT $20 80,000 sf 2 Market Square Center Marion County Prosecutor Renewal $15 70,000 sf 3 Capital Center North Indiana Supreme Courts New $10
36,000 sf 4 Market Tower USA Funds New $5
36,000 sf $0 5 OneAmerica Tower INFOSYS Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 45 Jacksonville Office Market
Office fundamentals remain stable as vacancy declines 390 bps Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Jacksonville’s economic fundamentals are strengthening, as indicated by a 60-bps drop in the SUBURBAN ABSORPTION (12 MOS) VACANCY unemployment rate to 3.8% during the 12-month period ending in May 2017. More than 29,000 1,000 30% new jobs were added during the same period, accompanied by healthy leasing activity and slow but steady rental-rate growth. The greatest non-farm employment growth occurred within 800 25% the professional and business services sector, which was up 6.1% year-over-year as of May 2017. VACANCY RATE (%) At mid-year 2017, office fundamentals remained stable with a 390-bps year-over-year decline in 600 20% the overall vacancy rate to 13%, along with 12-month net absorption of more than 945,000 sf, ABSORPTION (THOUSANDS SF) and a solid uptick in asking rental rates for well-positioned class A and B office properties. 400 15%
New class A space is underway in the Deerwood Park area as VanTrust Real Estate LLC (VanTrust) 200 10% has broken ground on Town Center One, a 160,000-sf office building on Gate Parkway. Availity LLC, a health care IT company, has leased 100,000 sf in the building, which is slated for delivery 0 5% in late summer 2018. A little further south, in northern St. Johns County, VanTrust is also
preparing to begin work on Park Place at Nocatee, a 60-acre office park in the master-planned -200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Nocatee development. The first building, named Park Place One, will offer 120,000 sf of class A Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 space.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
180
160 0.9 MSF 13% 0.2 MSF 0.1 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 140
120 SQUARE FEET (THOUSANDS) Investment activity for the remainder of 2017 is expected to continue at a healthy pace as 100
the growing economy supports business fundamentals, including rising rents, occupancies 80 and cash flows. The I-95/9A submarket is expected to continue to post incremental rental- 60 rate gains throughout the remainder of the year. Larger blocks of imminent vacated space, resulting from tenant rollover, will begin to be absorbed as the still restrained speculative 40
development environment aids in tightening vacancy. 20
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $25 Address / Complex Tenant Lease Type
100,000 sf $20 1 Town Center One Availity New $ PER SQUARE FOOT
76,100 sf $15 2 Butler Plaza III Formativ (Northwell Health) New
56,500 sf $10 3 6680 Southpoint Parkway CSX New
42,700 sf $5 4 Capital Plaza at Deerwood Genpact New
36,300 sf $0 5 9000 Southside Boulevard Arizona Chemical Company Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
46 Avison Young Mid-Year 2017 Office Market Report Las Vegas Office Market
Asking rates for existing product become more competitive Absorption and Vacancy
The Las Vegas office market continued to flourish as 75 medical and professional office SUBURBAN ABSORPTION (12 MOS) VACANCY leases were signed in the second quarter of 2017, slightly less than the 80 leases signed 900 20% in the second quarter of 2016. Asking lease rates for existing product have become more competitive with several new projects underway. Professional office vacancy dropped 800 18% 16% slightly to 15%. This trend is expected to continue through the end of the year as demand 700 VACANCY RATE (%) continues to show signs of significant improvement. 14% 600 12%
The Nevada School of Medicine is developing a 10-acre campus in the West submarket ABSORPTION (THOUSANDS SF) 500 10% at 625 Shadow Lane that will create a world-class center of excellence and innovation for 400 medical education, patient care and research. This medical school will provide Nevada’s 8% 300 physicians with the most advanced knowledge of treatments and technologies while 6% 200 serving the health care needs of the city’s diverse urban community. An additional 150,000 4% sf of new on-campus medical office buildings were under construction as of mid-year 2017. 100 2%
These projects include 80,000 sf located in the Southeast submarket at Henderson Hospital 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 and another 70,000 sf located in the Northwest submarket at Mountain View Hospital. Both Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 projects are scheduled for completion in 2017.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
700
0.8 MSF 15% 0.4 MSF 0.2 MSF 600 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 500 SQUARE FEET (THOUSANDS) Meanwhile, two professional office projects of more than 50,000 sf were also underway. The 400 60,000-sf Building 1 at St. Rose Corporate Center is expected to deliver in August, and the 300 58,195-sf Building 2 at Marnell Airport Center is scheduled for completion in November. 200 While medical office occupancy is on the rise due to competitive and attractive lease rates, investment purchases of large, privately owned medical practices are being sought out and 100 purchased by investment groups. Medical office sales are expected to increase in the years 0 ahead as health care properties offer solid investment opportunities in the local market. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $40 Address / Complex Tenant Lease Type $35 37,800 sf 1 6605 Grand Montecito Parkway Alverson Taylor Mortenson New $30 $ PER SQUARE FOOT
20,000 sf $25 2 6230 S. Decatur Boulevard Game Changers Sports New $20
16,900 sf $15 3 101 Convention Center CML Media New
$10 15,100 sf 4 1635 Village Center Circle Akermann LLP New $5
11,000 sf $0 5 4035 N. Rancho Drive Founders Academy LV Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 47 Long Island Office Market
Low unemployment, improving market conditions boost Absorption and Vacancy
leasing activity SUBURBAN ABSORPTION (12 MOS) VACANCY
The Long Island office market registered a noticeable increase in leasing activity 1,000 14% during the first half of 2017. This predicted rise has been fueled by a combination of factors, including the low unemployment rate on Long Island and improving economic 800 12%
conditions in the office sector. The most visible sign of this uptick is the disappearance VACANCY RATE (%) 600 10% of large blocks of available space that had been on the market for several years. Further 400 8% proof is the decrease in the vacancy rate in class A and class B properties, which was ABSORPTION (THOUSANDS SF) 9.8% as of mid-year 2017. This is a dramatic decrease from the 13.2% vacancy at the end 200 6% of 2016. Despite the recent activity, the general slowing trend in Manhattan’s office
market may limit further strengthening beyond current levels. 0 4%
Long Island’s strongest submarkets continue to be in western Nassau, Queens and -200 2% Brooklyn, as well as western Suffolk, and this trend is expected to continue throughout -400 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 the remainder of the year. The most active sectors continue to be health care, insurance Q2 Q2 Q2 Q2 Q2 and legal services. 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
250
0.1 MSF 9.8% 0 SF 0.2 MSF 200 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
SQUARE FEET (THOUSANDS) 150 Average class A asking rental rates have dropped slightly; however, the typical incentives, such as free rent, continue to diminish at a faster pace than the asking rents, and are down significantly from the relatively high levels of the past few years. The 100 average asking rent for class A buildings edged down slightly to $30.58 psf full-service gross (FSG) at mid-year 2017 – down $0.18 psf year-over-year. In the broader picture, 50 overall space (classes A and B) have average asking rents of $26.28 psf FSG. There are no new scheduled construction deliveries or starts on Long Island that would drastically 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 affect this situation during the rest of 2017 or in early 2018. Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 233,000 sf 1 3400 New Hyde Park Road Dealertrack Holding New $ PER SQUARE FOOT $25
108,000 sf 2 225 West Main Street Eisen Busch Beer New $20
22,000 sf $15 3 1660 Walt Whitman Road Power Windows New $10 9,300 sf 4 1979 Marcus Avenue The Caring Group New $5
7,500 sf $0 5 201 Old Country Road Wagners Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
48 Avison Young Mid-Year 2017 Office Market Report Los Angeles Office Market
Stable fundamentals and leasing activity expected to persist Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Los Angeles County unemployment rate decreased to 4% in the first half of 2017 SUBURBAN ABSORPTION (12 MOS) VACANCY compared with 5.4% one year earlier. Business growth continued to come from a broad 3,000 25% range of industry sectors, including technology, media/entertainment, finance, professional services, education and health care. Office vacancy ticked down 10 bps year-over-year to 2,500 15% as of mid-year 2017 and is expected to decline further given continued job and business 20%
2,000 VACANCY RATE (%) growth. Average asking rental rates have increased by double-digit percentages year-over- 1,500 year in some submarkets due to increased demand and new creative office development 15% ABSORPTION (THOUSANDS SF) that commands higher rates. As of mid-year 2017, the Santa Monica and Culver City office 1,000 submarkets had registered significant asking-rental-rate increases year-over-year (10% and 10% 23%, respectively). With rental rates increasing, Los Angeles County tenants are expected 500 to continue to right-size and/or pursue less expensive markets. To that end, steady leasing 0 activity is anticipated for the near term – especially for media, entertainment and tech 5% -500 companies curating media content. -1,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Los Angeles’ creative office space remained in high demand. The bulk of the office product Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 under construction possesses some level of creative design as tenants focus more on
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
4,000
3,500 -43 KSF 15% 5.7 MSF 2.9 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 3,000
2,500 SQUARE FEET (THOUSANDS) workspace build and efficiency. While developers continue to seek preleasing opportunities 2,000 prior to project delivery, well-established areas, including activated retail corridors and those with residential development in place, have allowed office and mixed-use developers to 1,500 commence construction prior to some level of lease-up. 1,000
Stable fundamentals and office leasing activity are expected to persist throughout the 500 remainder of the year. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $45 Address / Complex Tenant Lease Type $40
99,300 sf $35 1 222 West 6th Street, San Pedro Molina Healthcare New $ PER SQUARE FOOT $30 3340 Ocean Park Boulevard, Santa 88,400 sf 2 Monica Snapchat New $25
$20 Marsh & McLennan 71,100 sf 3 633 West 5th Street, Los Angeles Companies New $15
61,800 sf $10 4 1299 Ocean Avenue, Santa Monica Wilshire & Associates New $5
2425 Ocean Park Boulevard, Santa 60,800 sf $0 5 Amazon Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Monica New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 49 Miami Office Market
Employment growth drives leasing activity in array of business Absorption and Vacancy sectors DOWNTOWN ABSORPTION (12 MOS) VACANCY SUBURBAN ABSORPTION (12 MOS) VACANCY
Miami-Dade County’s local economy continued to record growth in areas such as tourism and 1,400 25% retail sales driven largely by the live-work-play environment found in many urban pockets throughout the region. More notably, employment growth continued to thrive. In the 12 1,200 20%
months ending June 2017, non-agricultural employment grew by 26,900 jobs and the non- VACANCY RATE (%) 1,000 seasonally adjusted employment rate fell by 50 bps to 4.7%. Such employment growth has 15% driven new leasing activity in a diverse array of sectors such as transportation, media, law, 800 ABSORPTION (THOUSANDS SF) technology and financial services. In addition, many projects slated to come online later in 600 2017 are expected to have a substantial impact on the local office market. 10%
While most recent lease transactions have been for 30,000 sf or less, many Latin America- 400 based firms and global companies are considering Miami as a regional headquarters site or 5% 200 initial footprint in North America. There is also strong demand for quality office assets outside 0 0% Miami’s urban core as market fundamentals drive historically high average asking rental Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 rates and vacancy sits below pre-recession levels. The market’s strength has also prompted Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
900
800 1.2 MSF 10.2% 1.1 MSF 0.4 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 700
600 SQUARE FEET (THOUSANDS) developers to pursue large projects in the urban core and suburban market alike. The largest 500
project delivered in the past few years was Two and Three Brickell City Centre, a massive 400 mixed-use development located in the heart of Brickell. 300
Also, MiamiCentral is expected to come online within the next few months. The project, 200 which will be complete in late 2017, will span six downtown city blocks and serve as one of 100 the many stations connecting the state’s largest metropolitan areas through Brightline, All 0 Aboard Florida’s high-speed rail system spanning Miami to Orlando. Miami-Dade County’s Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 strengthening office market is expected to foster continued development and leasing activity 2013 2014 2015 2016 2017 over the next few years. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 88,000 sf 1 The Village of Merrick Park Bayview Financial Renewal $ PER SQUARE FOOT $40 53,400 sf 2 Douglas Entrance - West University of St. Augustine New $30 27,700 sf 3 The Davenport Building Everest Business Funding New $20
23,900 sf 4 355 Alhambra Cosentino North America New $10
23,500 sf $0 5 Citigroup Center Harvard Maintenance Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
50 Avison Young Mid-Year 2017 Office Market Report Minneapolis Office Market
Wells Fargo move creates ripple effect in downtown area Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Twin Cities, Minneapolis and St. Paul, make up the second-largest economic center in the SUBURBAN ABSORPTION (12 MOS) VACANCY Midwest. The broader metropolitan area, encompassing seven counties, is the 15th largest 2,000 12% in the U.S., with 3.8 million people. The Minneapolis-St. Paul and suburban office inventory combine for a total of 151 msf with an overall vacancy rate of 7.7% as of mid-year 2017 – down 1,500 10% 30 bps year-over-year. Downtown class A rental rates continued to push upward, averaging VACANCY RATE (%) $26.69 psf full-service at mid-year 2017, and reflected a robustly growing CBD. 1,000 8%
Despite decreasing overall vacancy, the Minneapolis CBD registered a 140-bps jump in vacancy ABSORPTION (THOUSANDS SF) 500 6% to 10.2% at mid-year 2017 from mid-year 2016. The Minneapolis downtown core is still feeling the ripple effect of Wells Fargo vacating 804,029 sf in the Wells Fargo Center and moving 0 4% into new headquarters at the end of 2016. This move could create significant opportunities for tenants looking for large blocks of space in a competitive environment. Some notable -500 2% redevelopment projects in the downtown market include Baker Center, 801 Marquette, 5th
Street Towers, the former YMCA building, Art Institute Building, Minneapolis Macy’s and -1,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Riverplace (following Code42’s departure to Washington Square). Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
3,000
-0.6 MSF 7.7% 1.6 MSF 2.6 MSF 2,500 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
2,000 SQUARE FEET (THOUSANDS) The Northloop, a submarket within the Minneapolis CBD, has exploded with both construction 1,500 and the repurposing of older buildings. Once factories and warehouses, the new office environments are attracting tenants of all types from various metropolitan-area markets. The 1,000 new 225,000-sf, all-wood office building built on spec by Hines has several signed tenants, including Amazon for more than 140,000 sf. Creative build-to-suit office buildings are attracting 500 a young talent base looking for a balance of work, life and community.
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $30 Address / Complex Tenant Lease Type $25 93,000 sf 1 6000 Clearwater Drive Associated Financial Group New $ PER SQUARE FOOT $20 37,000 sf 2 5995 Opus Parkway UGH New $15 Flying Cloud Corporate Campus 33,500 sf 3 Arcserve Building E New $10
31,800 sf 4 Apple Valley Commons II Wings New $5
16,100 sf $0 5 Northwestern Building Brite Health Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Expansion Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 51 Nashville Office Market
Asking rental rates hit record highs as demand remains strong Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY According to federal census figures released in May 2017, Nashville now ranks as the 24th- SUBURBAN ABSORPTION (12 MOS) VACANCY largest city in the country, overtaking Memphis as Tennessee’s largest city. This momentum 1,200 18% shows no signs of slowing down with recent data published by the Wall Street Journal stating that employment in Nashville grew by 23% between 2010 and 2016. 16% 1,000 14% As of mid-year 2017, Nashville’s office vacancy rate was 6%, a 90-bps increase year-over-year. VACANCY RATE (%) Market-wide asking rental rates have risen to record highs and will continue to face upward 800 12%
pressure in the near term as demand remains strong and construction prices rise. The overall ABSORPTION (THOUSANDS SF) 10% 600 average asking rate rose to $25.51 psf at mid-year, up 5.7% compared with mid-year 2016. 8% Following a slow start to the year, activity began to rebound with absorption totaling more 400 6% than 300,000 sf during second-quarter 2017. Despite the large vacancy left by health care giant HCA earlier this year, the overall market’s absorption for the 12 months ending at mid- 4% 200 year 2017 was 1.3 msf, similar to the prior 12-month period. Downtown continued to register 2%
the strongest tenant demand, posting two of the largest leases during the quarter. The 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 largest was signed by Bank of America, which will occupy more than 65,000 sf in Hines’ 222 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 2nd Avenue development.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
3,000
1.3 MSF 6% 2.6 MSF 2.6 MSF 2,500 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
2,000 SQUARE FEET (THOUSANDS) Three buildings totaling 252,018 sf were completed during the second quarter, bringing total completions for the 12 months ending at mid-year 2017 to nearly 2.6 msf. A further 2.6 1,500 msf was underway at mid-year, including speculative projects and four large single-tenant 1,000 buildings, with more than 60% of the space preleased. As space has started to deliver, tenants are beginning to see more large blocks of space become available; however, the 500 market is poised to remain strongly in favor of landlords throughout the remainder of the year. Developers have exercised discipline in the office sector and continue to see strong 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 preleasing activity. Tenants will continue to face rising rental rates but may find additional Q2 Q2 Q2 Q2 Q2 leverage with concessions in select submarkets as new space is delivered. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 224,000 sf 1 Ovation Mars Petcare New $ PER SQUARE FOOT $25
110,600 sf 2 Highland Ridge III VF Imagewear Renewal $20
67,000 sf $15 3 Capitol View - Block E HealthStream New $10 65,200 sf 4 222 2nd Avenue South Bank of America New $5
65,000 sf $0 5 Brentwood Commons III Universal Health Service Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
52 Avison Young Mid-Year 2017 Office Market Report New Jersey Office Market
State economy demonstrates continued improvement amid Absorption and Vacancy lower unemployment SUBURBAN ABSORPTION (12 MOS) VACANCY
New Jersey’s office market has displayed signs of generating momentum as vacancy, 2,000 18% absorption and rental rates have improved during the past year. The vacancy rate dropped 16% 30 bps year-over-year to 15.9% at mid-year 2017, while 12-month absorption increased 1,500 14%
significantly compared with the prior 12-month period. Average asking gross rental rates VACANCY RATE (%) have also improved – up more than 7% since mid-year 2013. The state economy also 12% demonstrated continued improvement as the unemployment rate dropped 100 bps year- 1,000
ABSORPTION (THOUSANDS SF) 10% over–year to 4.1% in June 2017. 8% 500 The first half of 2017 was highlighted by three key events: the first was the resurgence 6% and redevelopment of the city of Newark – most notably the 22-acre Mulberry Commons 4% redevelopment and the restored Hahne building. The second was the influx of live-work- 0 play concepts, as demonstrated by the success of Bell Works in Holmdel. The third was 2% -500 0% the strategic realignment of Mack-Cali’s office portfolio to higher-class buildings with its Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 purchase of RXR Realty’s Short Hill/Madison portfolio. All three of these events emphasize Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
3,000
1.7 MSF 15.9% 1.3 MSF 0.5 MSF 2,500 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
2,000 SQUARE FEET (THOUSANDS) tenants’ tendency to place a high value on quality space that can attract employees across 1,500 the generational spectrum, from baby boomers to Generation Z.
The office market will be influenced by two major themes as 2017 moves forward. The 1,000 first one will be tenants' continued push to find quality space. Secondly, landlords and tenants alike will continue their attempts to navigate the changing political landscape 500 in Washington, DC and, more notably, in Trenton with the upcoming election of a new 0 governor in November 2017. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 320,000 sf 1 700 Sylvan Avenue, Englewood Cliffs Unilever Sale / Leaseback $ PER SQUARE FOOT $25
252,500 sf 2 30 Knightsbridge Road, Piscataway AT&T Renewal $20
160,100 sf $15 3 2 Gateway Center, Newark Broadridge Financial Solutions New $10 137,600 sf 4 506-508 Carnegie Center, Princeton Otsuka Renewal $5
100,500 sf $0 5 765-769 Broad Street, Newark Newark Public Schools Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 53 New York Office Market
Healthy demand driven by increased tenant diversity Absorption and Vacancy
Office leasing in New York City is comprised of three distinct markets – Midtown, Midtown DOWNTOWN ABSORPTION (12 MOS) VACANCY South and Downtown. Off to a slower start than in 2016, leasing volume for the first half of 8,000 14% 2017 was down 10% year-over-year. While large deals (greater than 100,000 sf) through this
period were weighted more toward sizable renewals and expansions by financial services, 6,000 12% insurance and real estate (FIRE) and technology, advertising, media and information (TAMI)
4,000 VACANCY RATE (%) tenants, significant transactions became more varied with lease signings commenced 10% largely by notable government/public administration entities. This newer mix of diversified 2,000 8% ABSORPTION (THOUSANDS SF) transactions has helped keep the Manhattan office leasing market in equilibrium, and there 0 are plenty of suitable space options to meet this healthy tenant demand. 6% -2,000 Midtown’s overall vacancy rate rose 90 bps year-over-year to 11% at mid-year 2017 with 4% -4,000 most of the increase recorded in the Plaza District submarket as more class A space became available. Vacancy in Midtown South also rose 90 bps year-over-year to 7.7%, while -6,000 2%
Downtown registered a 170-bps annual increase to 12.1% at mid-year 2017 due largely to -8,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 space at 3 World Trade Center becoming available. The office construction pipeline for Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 New York City is quite active. The most significant deliveries are scheduled to occur in 2018
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE
DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
16,000
14,000 -5 MSF 10.7% 9.4 MSF 1.8 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 12,000
10,000 SQUARE FEET (THOUSANDS) and 2019 with more than 6 msf scheduled for completion in the Hudson Yards area alone. Currently, 66% of this 6 msf is already committed – more recently, in large part, by sizable 8,000 finance and legal services entities. 6,000
While rising vacancies are impacting some areas of Manhattan, diverse leasing activity 4,000
undoubtedly helped to support volume levels through mid-year 2017. A growing tenant mix 2,000 is expected to take advantage of the many space options that are available. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT
Size $90 Address / Complex Tenant Lease Type $80
777,000 sf $70 1 1211 Avenue of the Americas 21st Century Fox Expansion $ PER SQUARE FOOT $60 548,000 sf 2 452 Fifth Avenue HSBC Renewal $50
$40 444,000 sf 3 1211 Avenue of the Americas News Corp. Renewal $30
402,000 sf $20 4 200 Vesey Street Royal Bank of Canada Renewal $10
378,000 sf $0 5 4 World Trade Center Spotify Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
54 Avison Young Mid-Year 2017 Office Market Report Oakland Office Market
Available large floorplates could bring more tenants downtown Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Tenants looking for space in the East Bay/Oakland market are now, more than ever, paying SUBURBAN ABSORPTION (12 MOS) VACANCY close attention to where their employees live. Downtown Oakland, with its multiple BART 1,000 18% transit stations and central location, currently has a number of large-floor and multi-floor availabilities to accommodate tenants of 50,000 sf and greater. A number of multi-residential 800 16% highrises are currently under construction and could induce more tenants to locate in 14%
600 VACANCY RATE (%) downtown Oakland. 12% 400
While the City Center submarket has two projects starting construction in 2017, the Lake ABSORPTION (THOUSANDS SF) 10% 200 Merritt submarket is emerging as a tenant focal point. A former AT&T facility at 2150 Webster 8% Street can offer up to 230,000 sf over 10 floors for lease by the second quarter of 2018. 0 6% Uptown Station could bring up to 150,000 sf to the market by early 2018. Asking rents -200 continued to climb throughout the market in the first half of 2017. In the Oakland CBD, the 4% current supply of vacant office space has fueled rent growth and, with new and upcoming -400 2% full-floor availabilities coming to the market, average asking rents are expected to grow -600 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 steadily – but not nearly as quickly as a year ago. Office investment slowed throughout the Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 market during the first half of 2017. With the majority of class A and well-positioned class
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
700
-0.2 MSF 7.8% 1.2 MSF 27 KSF 600 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 500 SQUARE FEET (THOUSANDS) B buildings having already changed hands during the current cycle, investors have had to 400 broaden their approach in this market. 300
The uptick in multi-residential and, now, office construction has led to an optimistic outlook 200 on 2017 within the commercial real estate market. More cranes are expected to dot the Oakland skyline in the coming months. Asking rents continue to rise and investors continue 100 to look to place money in the market. Leasing activity should also benefit from the growing 0 number of availabilities coming to the market. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 200,000 sf 1 601 City Center Blue Shield New $ PER SQUARE FOOT $40 130,000 sf 2 1100 Broadway UCOP New $30 125,200 sf 3 1650 65th Street Zymergen New $20
110,800 sf 4 Waterfront at Harbor Bay Exelixis New $10
81,500 sf $0 5 1111 Broadway WeWork Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 55 Orange County Office Market
Unemployment rate stays below state and national averages Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The Orange County office market exhibited strong fundamentals at the close of first-half SUBURBAN ABSORPTION (12 MOS) VACANCY 2017. Rental rates continued to increase as vacancy remained relatively flat. The county’s 2,000 16% ideal geography, high quality of life and growing population helped maintain this thriving hub of financial services, information technology, logistics and health care. The county’s 14% 1,500 unemployment rate remained considerably lower than state and national averages,
12% VACANCY RATE (%) dropping to 3.2% in the second quarter of 2017 from 3.7% one year earlier. 1,000 10%
Orange County office vacancy has registered a slowdown in the pace of contraction over ABSORPTION (THOUSANDS SF) 500 8% the past two years, as compared to the steeper year-over-year contraction that had taken place after 2010. At mid-year 2017, vacancy was 10.1%, little changed from 10.2% one year 6% 0 earlier. New development has gained momentum throughout the past year and may 4% maintain vacancy at current levels for the remainder of 2017. In the second quarter of 2017, -500 the average asking rental rate for all classes was $30.24 psf full-service gross (FSG), up from 2%
$28.44 psf FSG one year earlier. The highest rents remained in the Airport Area at $35.04 -1,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 psf FSG, followed by South County at $32.64 psf FSG. Central County exhibited the most Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 affordable rental opportunities at $24.48 psf FSG, followed by North County at $25.44 psf
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
2,500
0.4 MSF 10.1% 2.5 MSF 0.3 MSF 2,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
SQUARE FEET (THOUSANDS) 1,500 FSG. Total net absorption for the 12-month period ending at mid-year 2017 was 411,095 sf, slightly less than half of the 828,822 sf absorbed in the prior 12-month period. 1,000 Investment-grade office sales are experiencing a slowdown in transaction volume while pricing approaches pre-recession highs. In the first half of 2017, sale prices were sustained 500 above $260 psf following a sharp rise in second-half 2016. At mid-year 2017, six investment- grade office projects were under construction, amounting to more than 2.5 msf of new 0 inventory. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $45 Address / Complex Tenant Lease Type $40
133,300 sf $35 1 400 Spectrum Center Drive Cylance New $ PER SQUARE FOOT $30 101,800 sf 2 3333 Susan Street The Los Angeles Chargers New $25
$20 96,000 sf 3 5231-5241 California Avenue Toshiba America New $15
65,000 sf $10 4 15253 Bake Parkway Blizzard Entertainment New $5
64,000 sf $0 5 6561 Irvine Center Drive LoanDepot Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
56 Avison Young Mid-Year 2017 Office Market Report Orlando Office Market
Resurgence of development and leasing in urban core Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Orlando's economic engine continued to perform in the first half of 2017, as demonstrated SUBURBAN ABSORPTION (12 MOS) VACANCY by the sustained decline in the unemployment rate, which stood at 3.6% as of May 2017 – a 1,000 25% 60-bps decrease from the previous year. Economic fundamentals remain solid. Job growth continued to impress with more than 55,000 new jobs added in the trailing 12-month 800 period, and there is a resurgence of development and leasing activity in the urban core. 20% VACANCY RATE (%) 600 By mid-year 2017, office fundamentals remained strong with 12-month net absorption of 15% 400 1 msf and continued incremental gains in asking rents. Despite significant tenant rollover ABSORPTION (THOUSANDS SF) during the first half of 2017, strong leasing activity resulted in a 210-bps year-over-year 200 decrease in vacancy to 10.9%. Vacancies are tightest in the Winter Park, Lake Mary/Heathrow 10% and Maitland submarkets. Rental rates have risen significantly since mid-year 2016 by $1.07 0 to $21.95 psf full-service gross (FSG) at mid-year 2017, with class A rates up $1.05 during 5% the same period to $25.66 psf. Landlords continue to ratchet up asking rates even as they -200 recapture spaces that temporarily lower their occupancy levels, demonstrating a clear -400 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 confidence in the overall market. Leasing was brisk during the first half of 2017 with several Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 key deals signed in primary areas.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
700
1 MSF 10.9% 0.2 MSF 0.3 MSF 600 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 500 SQUARE FEET (THOUSANDS) Orlando's speculative office development pipeline remained restrained. Healthy 400 employment gains continued to support business expansion. Larger blocks of space made 300 available by tenant rollover do not remain on the market for extended periods of time. Rates continue to inch upward. Moving forward, it is expected that the new space underway 200 will only partly mitigate the pent-up demand as tenant interest remains steady and strong economic fundamentals support continued business expansion. 100
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $30 Address / Complex Tenant Lease Type $25 75,200 sf 1 6039 S. Rio Grande Avenue U.S. Army New $ PER SQUARE FOOT $20 66,900 sf 2 Colonial Center 600 Ellucian New $15 60,000 sf 3 Science One ServiceNow New $10
40,000 sf 4 Chase Plaza Kimley-Horn New $5
31,700 sf $0 5 Colonial Center 100 CardWorks Servicing Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 57 Philadelphia Office Market
Vacancy falls in both the CBD and suburbs Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Thanks to FMC Tower’s delivery in west Philadelphia and the impending completion of SUBURBAN ABSORPTION (12 MOS) VACANCY the Comcast Innovation and Technology Center at year-end 2017, the CBD office market is 3,500 12% undergoing a transformation. Class A office space represented more than 132 msf, with the Philadelphia CBD encompassing 39.4 msf of class A space. Suburban Philadelphia has the 3,000 10% largest concentration of class A space (93 msf). 2,500 VACANCY RATE (%) 2,000 Stretching into central Pennsylvania, northern Delaware, southern New Jersey and the I-81 8% 1,500
corridor leading into northeast Pennsylvania, the Philadelphia region comprises nearly 412 ABSORPTION (THOUSANDS SF) 1,000 6% msf of office space. As of mid-year 2017, vacancies were down year-over-year in both the Philadelphia CBD and suburban markets. Across all classes, CBD vacancies decreased 50 bps to 500 4% 8.7% – despite the delivery of more than 600,000 sf of space in third-quarter 2016, including 0 Brandywine Realty Trust’s aforementioned FMC Tower. Meanwhile, suburban vacancy dropped -500 2% to 8.4% from 9.2% year-over-year. Given similar vacancy trends, average class A rents are up in -1,000
the region. Bolstered by FMC Tower and new property assessments that have raised taxes, CBD -1,500 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 gross rents grew 3.6% year-over-year to $32.47 psf at mid-year 2017. Rent growth also occurred Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 in the suburban market with gross rents increasing 4.5% to $26.82 psf.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
3,000
2.8 MSF 8.4% 3.9 MSF 1.9 MSF 2,500 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
2,000 SQUARE FEET (THOUSANDS) Construction activity in downtown Philadelphia has slowed following the substantial delivery of office space during the past year; however, almost 1.7 msf was still under construction at 1,500 mid-year 2017. Of that, 1.3 msf is expected to hit the CBD market in late 2017 and early 2018 1,000 as the Comcast Innovation and Technology Center fully opens. In the suburbs, space under construction increased more than 500,000 sf year-over-year to 2.3 msf. With new class A office 500 space redefining downtown Philadelphia and tenants showing strong appetites for suburban office space, the regional office market is poised for a strong second half of 2017. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 230,000 sf 1 1600 Market Street PNC Bank Renewal $ PER SQUARE FOOT $25
86,600 sf 2 785 Arbor Way, Blue Bell Cotiviti Corporation New $20
80,700 sf $15 3 1600 John F. Kennedy Boulevard Elsevier Renewal $10 76,500 sf 4 1100 Virginia Drive, Fort Washington AON Insurance Services New $5
74,500 sf $0 5 FMC Tower at Cira Centre S. Spark Therapeutics Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
58 Avison Young Mid-Year 2017 Office Market Report Phoenix Office Market
Tech and financial services companies play increasing role Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Fundamentals in the Phoenix metropolitan office market remain strong due to robust SUBURBAN ABSORPTION (12 MOS) VACANCY demographic and economic factors. U.S. Census Bureau data (released in March 2017) 3,500 25% shows that Maricopa, the principal county in the region, is the fastest-growing in the nation, exceeding 4.2 million people. In-migration has primarily been driven by 3,000 employment expansions in the manufacturing, bioscience, health care and aerospace 20%
2,500 VACANCY RATE (%) industries, and a low cost of living. According to the Brookings Institute, the Phoenix area 2,000 has the highest gross metropolitan product growth in the nation. Employment grew by 15% ABSORPTION (THOUSANDS SF) more than 3.1% in 2016 and is projected to grow 3% in 2017, outpacing the rest of the 1,500 western United States. On average, the Phoenix Metropolitan Statistical Area has much 10% higher absolute projected job growth (24%) than the rest of the country (7%) through 1,000
2024. 500 5% The Phoenix regional office market has grown to nearly 175 msf and ended the second 0 quarter of 2017 with a vacancy rate of 14.9%, lower than the mid-year 2016 mark of 15.7%. -500 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Average full-service gross rental rates have increased steadily, to $23.82 psf at mid-year Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 2017 from $22.71 psf one year earlier. Technology and financial services have played an
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
4,500
4,000 3.1 MSF 14.9% 1 MSF 2.6 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 3,500
3,000 SQUARE FEET (THOUSANDS) increasing role in the office market with Quicken Loans, Web.com, Freedom Financial, 2,500
Amazon.com and Wells Fargo all committing to large blocks of space. 2,000
Absorption remained strongly positive with more than 3 msf absorbed in the 12-month 1,500 period ending at mid-year 2017, up from 1.9 msf during the prior 12-month period and 1,000 continuing a positive quarterly trend extending back to first-quarter 2015. Increasing rental 500 rates, declining vacancy and positive absorption are still driving construction, although it 0 has declined since peaking in 2015. Demand for new space is high in both the suburbs and Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 downtown as 42% of space under construction at mid-year 2017 was preleased. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 150,000 sf 1 2100 E. Rio Salado Parkway Freedom Financial New $ PER SQUARE FOOT $25
149,300 sf 2 1 N. Central Avenue Quicken Loans New $20
Department of Economic 148,000 sf $15 3 4000 N. Central Avenue Security Renewal $10 115,400 sf 4 2501 S. Price Road Wells Fargo New $5
Endurance International 71,600 sf $0 5 1500 N. Priest Drive Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Group Expansion Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 59 Pittsburgh Office Market
Law firms using space more efficiently Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Vacancy in Pittsburgh’s CBD increased 170 bps year-over-year to 12.9% at mid-year 2017. Class A SUBURBAN ABSORPTION (12 MOS) VACANCY asking rental rates remained stable as a number of high-quality blocks of sublease space were absorbed in lieu of higher-priced space available directly from landlords – a trend that is also 1,200 14% emerging in suburban markets. Notable subleases included RoadRunner Recycling, Industrious 1,000 12% and SDLC Partners, each leasing one full floor (a total of 70,000 sf formerly occupied by the
800 VACANCY RATE (%) Kraft Heinz Company) at One PPG Place. 10%
600 8% Downtown, the Union Trust Building completed high-end renovations resulting in a number ABSORPTION (THOUSANDS SF) of law firms (Frost-Brown, Marshall Dennehey, Blank Rome and Pepper Hamilton) executing 400 leases totaling 121,000 sf. These relocations continue the trend of law firms adopting more 6% 200 efficient occupancy measures – including open planning and lower space-per-employee 4% ratios – to reduce their footprints. Elsewhere, the Strip District remains the most active fringe 0
submarket with nearly 1 msf of proposed new development and office-space conversions set -200 2% to deliver in 2018-19. Demand is driven by the expanding technology sector, primarily software -400 0% engineering and artificial intelligence serving the autonomous-driving-vehicles sector. In the Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 suburbs, the Parkway West and South submarkets continue to encounter headwinds due 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,400
0.8 MSF 11.8% 0.6 MSF 0.1 MSF 1,200 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 1,000 SQUARE FEET (THOUSANDS) to rising sublease availability. In Southpointe, significant blocks for sublease will likely result 800 from EQT’s proposed acquisition of Rice Energy in addition to Noble Energy’s sale of its oil 600 and gas holdings, bringing 135,000 sf to market. In March, Westinghouse Nuclear Energy filed
for bankruptcy protection – the company occupies more than 1 msf in the North Suburban 400 submarket. 200 The remainder of 2017 will be viewed with caution as investors and developers weigh the 0 impact of pending federal policy and regulatory changes that have delayed corporate hiring Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 and capital expenditures. Users and occupiers may elect to take advantage of this opportunity 2013 2014 2015 2016 2017 by right-sizing and upgrading their office premises while locking in reasonable and stable occupancy costs for the longer term. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $30 Address / Complex Tenant Lease Type $25 54,000 sf 1 210 6th Avenue Evoqua New $ PER SQUARE FOOT $20 40,000 sf 2 501 Grant Street Pepper Hamilton LLP New $15 23,400 sf 3 40 24th Street Argo AI Sublease $10
23,300 sf 4 1 PPG Place RoadRunner Sublease $5
21,000 sf $0 5 4420 Baynard Street Oculus Research Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
60 Avison Young Mid-Year 2017 Office Market Report Raleigh-Durham Office Market
Asking rental rates surge above previous record highs Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Conditions in Raleigh-Durham’s office market continue to favor landlords. Tenants are faced SUBURBAN ABSORPTION (12 MOS) VACANCY with rapidly increasing occupancy costs and a scarcity of quality space. Vacancy ended the 1,400 18% second quarter of 2017 at 12.1%, down from 13% one year earlier. Asking rental rates remain on a steep upward trajectory, surging past previous record highs. The average class A asking rate 1,200 16% 1,000 rose 5% between June 2016 and June 2017, and the average class B rate increased 12% during 14% VACANCY RATE (%) the same period. 800 12% 600
Fortunately for tenants, speculative development activity has also surged in the last year. ABSORPTION (THOUSANDS SF) 10% 400 Deliveries totaled 733,775 sf in the 12 months ending at mid-year 2017, up 21% compared 8% with the prior 12-month period. The 2.1 msf underway at mid-year 2017 represented the most 200 6% construction activity recorded in the market since the second quarter of 2008. With large 0 4% blocks of class A space in short supply within existing building stock, strong preleasing activity -200 has given developers the confidence necessary to move forward with long-planned projects. -400 2%
-600 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 In the largest lease transaction during the first half of 2017, GlaxoSmithKline sold its 1.8-msf Q2 Q2 Q2 Q2 Q2 campus to a California investor, leasing back 700,000 sf on a long-term basis. The balance of the 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,800
1,600 1.1 MSF 12.1% 2.1 MSF 0.7 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 1,400
1,200 SQUARE FEET (THOUSANDS) space, a mix of lab and office, is being marketed for lease as the new owner finalizes plans for 1,000
$80 million in improvements to the property. With local job growth strong, tenant demand is 800 expected to remain robust through the remainder of 2017. Raleigh-Durham has enjoyed a flurry 600 of economic development wins in recent months, thanks in part to the repeal of the state’s controversial House Bill 2. Among the most recent announcements, Infosys chose the region 400 for a technology hub that will add 2,000 jobs, Credit Suisse announced a 1,200-job expansion, 200 INC Research announced a 550-job expansion, and MetLife committed to a third building at its 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 recently constructed 427,000-sf campus. Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 700,000 sf 1 Parmer RTP GlaxoSmithKline New $ PER SQUARE FOOT $25
213,500 sf 2 Weston Lakefront III MetLife New $20
214,500 sf $15 3 Perimeter Five INC Research New $10 189,800 sf 4 Parmer RTP Credit Suisse New $5
73,900 sf $0 5 Captrust Tower at North Hills Captrust Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal / Expansion Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 61 Reno Office Market
Positive absorption pushes rental rates upward Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Reno broke through its historic average vacancy of 15% to 13% as of mid-year 2017. This SUBURBAN ABSORPTION (12 MOS) VACANCY occupancy growth was led by the class A market with vacancy of 11.4%. Positive absorption 120 25% has also translated into the first rental-rate growth in eight years with the overall average
asking rate rising $3 psf year-over-year to $24 psf at mid-year 2017. Two years ago, Tesla 100 announced plans to bring its battery production plant to Reno. Since that time, the company 20% VACANCY RATE (%) has added a car line and its facility has 10 msf under one roof. This development has drawn 80
technology firms to Reno. The latest is Google, which acquired 1,210 acres earlier this year 15% 60 to begin construction of its driverless-car technology plant. A projected 30% population ABSORPTION (THOUSANDS SF)
expansion over the next five years has turned Reno into a boom town for all real estate sectors. 40 10%
The prevailing trend in office vacancy can best be seen by looking at the past four years. 20 The overall vacancy rate decreased to 13% at mid-year 2017 from 18.4% at mid-year 2013. 5% Meanwhile, only 186,398 sf of new inventory was added to the market during the same period 0
– almost all build-to-suit. The strengthening market performance has led to new speculative -20 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 construction, as the first speculative building in Mountain View Corporate Center broke Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 ground earlier in the year, with 41,000 sf total and 16,500 sf preleased.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
90
80 0.1 MSF 13% 42 KSF 28 KSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 70
60 SQUARE FEET (THOUSANDS) At mid-year 2017, only one other shovel-ready project was being advertised for lease. 50
Developers have been wary about speculative building as rental rates had not warranted new 40 construction, but with class A space drying up and rents rising accordingly, market conditions 30 have become favorable for new office development. Reno is headed towards an office-space bottleneck with vacancy at less than 10% and average rental rates above $28 psf anticipated in 20
the next 12 months. 10
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $30 Address / Complex Tenant Lease Type $25 43,300 sf 1 6100 Neil Road Microsoft Renewal $ PER SQUARE FOOT $20 42,100 sf 2 900 Sandhill Bally Technologies Renewal $15 26,900 sf 3 887 Trademark Video Game Technology New $10
17,100 sf 4 887 Trademark Everi Games Holding New $5
12,500 sf $0 5 675 Moana Amplify Relations Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
62 Avison Young Mid-Year 2017 Office Market Report Sacramento Office Market
Recent successes benefit almost every submarket Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY During the 17 quarters ending at mid-year 2017, the Sacramento Valley office market recorded SUBURBAN ABSORPTION (12 MOS) VACANCY nearly 3.4 msf of positive net absorption – with 1.2 msf occurring in the past year alone. The 1,400 18% valley’s recent successes are benefitting nearly every submarket in the region. With vacancy in the valley’s core submarkets tightening, suburban submarkets are starting to see an uptick 1,200 16% 1,000 in activity. The Sacramento Valley recorded a 5% unemployment rate at mid-year 2017, down 14% VACANCY RATE (%) 100-bps year-over-year. Health care jobs in the valley increased by 4%, representing the largest 800 12% increase of any industry in the region. 600
ABSORPTION (THOUSANDS SF) 10% 400 Downtown Sacramento’s 11.4-msf office inventory registered the greatest occupancy gains 8% in the valley from third-quarter 2016 to mid-year 2017. During the same four quarters, this 200 6% submarket recorded a 270-bps vacancy decrease, reaching 10.3% at mid-year 2017 – the lowest 0 4% rate since second-quarter 2003. The opening of the Golden 1 Center, located in the Downtown -200
Commons district, has been an important recruiting tool for building owners in this submarket. -400 2%
-600 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Average asking rental rates have remained relatively flat despite record occupancy growth in Q2 Q2 Q2 Q2 Q2 this region during the past few years, ending the first half of 2017 at $22.32 psf full service gross 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
800
700 1.2 MSF 11.1% 0.1 MSF 0.7 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 600
500 SQUARE FEET (THOUSANDS) (FSG) – up 4.5% year-over-year. This situation is mainly due to quality product coming off the 400 market as vacancy has decreased. High-quality spaces, especially in core markets, have seen an increase in asking rates during this recent surge. 300
Although more companies outside of government and the health care industry are starting 200 to move into the Sacramento Valley, it remains to be seen whether this is a trend that will gain 100 momentum over the next couple of years. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $40 Address / Complex Tenant Lease Type $35 106,600 sf 1 10391 Peter A. McCuen Boulevard Sutter Health Renewal $30 $ PER SQUARE FOOT
104,000 sf $25 2 10811 International Drive Centene Corporation New $20
54,700 sf $15 3 600 Coolidge Drive TaxAudit.com New
$10 39,900 sf 4 3735 Placer Corp. Drive JLM Energy New $5
36,100 sf $0 5 830 Stillwater Road ACS State Healthcare Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 63 San Antonio Office Market
Strong demand enables market to digest new supply without a Absorption and Vacancy hiccup DOWNTOWN ABSORPTION (12 MOS) VACANCY SUBURBAN ABSORPTION (12 MOS) VACANCY
San Antonio enjoyed a year of healthy growth in office construction and absorption in 700 16% 2016, and that momentum has continued into 2017. The IH-35 corridor between Austin and 600 San Antonio continued to record substantial growth and urbanization. San Antonio’s office 14% 500
rates offer competitive, attractive options for companies when compared with average 12% VACANCY RATE (%) rates in Austin. Affordability, coupled with a quality workforce, has ramped up demand in 400 10% San Antonio’s office market.
ABSORPTION (THOUSANDS SF) 300 8% More than 1.3 msf was under construction at mid-year 2017 – the most development to 200 6% occur in more than a decade. Construction began on the 462,000-sf Frost Tower this year. 100 It is the first new highrise to be built in 30 years. With 68% of its space preleased, this tower 4% 0 is revitalizing San Antonio’s urban core and has kicked off a wave of new development that 2% is fostering a live-work-play atmosphere. Demand for office product is keeping pace with -100 -200 0% the new supply as the market digests what is being built. This situation has led to declining Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 vacancy even as new space continues to be delivered. Vacancy decreased by 50 bps to Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,000
900
0.5 MSF 9.1% 1.3 MSF 0.4 MSF 800 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 700
SQUARE FEET (THOUSANDS) 600 9.1% at mid-year 2017 from mid-year 2016. Leasing has been active in existing product as 500 well. Hulu expanded by 59,000 sf at Fountainhead Business Park – a move that is expected to relocate 500 employees to Northwest San Antonio in late 2017. 400 300
Asking rental rates, particularly for class A space, continued to rise steadily in the city’s 200 high-growth submarkets and are expected to keep rising through year-end 2017. Average 100 asking rates increased 2.5% year-over-year to $21.59 psf at mid-year 2017. Vacancy will likely 0 hold relatively steady through the end of the year as demand balances out the new supply Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 coming online. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 59,000 sf 1 Fountainhead Business Park Hulu Expansion $ PER SQUARE FOOT $25
20,000 sf 2 Travis Park Plaza MCCI Medical Group Expansion $20
Southwest 16,000 sf $15 3 Ashford Oaks Office Building Immunodiagnostics Expansion $10 15,000 sf 4 Tower West Global Project Support Renewal $5
11,000 sf $0 5 Forum Offices GM Financial Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Expansion Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
64 Avison Young Mid-Year 2017 Office Market Report San Diego County Office Market
Available spaces vacant for shorter periods Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The San Diego office market was robust and continuing to strengthen in the first half SUBURBAN ABSORPTION (12 MOS) VACANCY of 2017. Tightening vacancy persisted across the county, while rents continued to 1,800 18% increase quarter-over-quarter. Along with a desirable geography, the market benefited from strong demand for space from health care innovators, independent research 1,600 16% institutes and sectors that work closely with the U.S. military. San Diego County’s 1,400 14% VACANCY RATE (%) unemployment rate dropped 60 bps year-over-year to 3.6% in the second quarter of 1,200 12% 2017.
ABSORPTION (THOUSANDS SF) 1,000 10%
Vacancy in the county contracted to 10.8% as of mid-year 2017 compared with 12% one 800 8% year earlier. San Diego’s office market has been able to sustain competitive vacancy levels 600 6% even after the uptick in new deliveries during the past few years added more space. Available office space continued to spend less time on the market and fewer months 400 4% vacant. Rental rates reached $32.76 psf full-service gross (FSG) as of the second quarter 200 2% of 2017, up from $30.72 psf FSG at the same time in 2016. The highest rents were found 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 in the Central Coast submarket at $39.84 psf FSG with the next highest in the Downtown Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 submarket at $30.60 psf FSG, followed by the North County Coastal area at $30 psf FSG.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,800
1,600 1.2 MSF 10.8% 0.8 MSF 1.3 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 1,400
1,200 SQUARE FEET (THOUSANDS) Increases in Central Coast rents are driven largely by the strong demand from the life- 1,000 science sector, which is among the most prominent in the U.S. 800
San Diego County recorded net positive absorption of 1.2 msf for the 12-month period 600 ending at mid-year 2017. The San Diego office market had six investment-grade office 400 projects under construction in the second quarter, including life-science projects 200 amounting to 764,622 sf of new inventory that is expected to be delivered in 2017 and 2018. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $45 Address / Complex Tenant Lease Type $40
13112 Evening Creek Drive, Rancho 109,800 sf $35 1 Bernardo LabCorp Renewal $ PER SQUARE FOOT $30 8954 Rio San Diego Drive, Mission 51,400 sf 2 Valley Union Bank Renewal $25
$20 5353 Mission Center Road, Mission 30,800 sf 3 Azusa Pacific University Valley Renewal $15
29,400 sf $10 4 4921 Directors Place, Sorrento Mesa Covance Sublease $5
3611 Valley Centre Drive, Del Mar 26,400 sf $0 5 Acadia Pharmaceuticals Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Heights Sublease Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 65 San Francisco Office Market
Rents increase despite reduced absorption Absorption and Vacancy
San Francisco’s office market continued to demonstrate signs of slow but sustained growth DOWNTOWN ABSORPTION (12 MOS) VACANCY at the end of the first half of 2017. Overall vacancy was up 110 bps year-over-year to 6.6%; 2,000 10% however, strong leasing activity and city-wide rental-rate growth indicated that tenant 9% demand for San Francisco office space remained robust. In the 12 months ending at mid-year 1,500 2017, 11 tenants had signed leases for 100,000 sf or more in the city. However, because many 8% VACANCY RATE (%) of these leases were renewals or preleases on new developments, absorption stagnated. 1,000 7%
Absorption was recorded as slightly more than negative 1 msf in the 12-month period 6% 500 ABSORPTION (THOUSANDS SF) ending mid-year 2017, an even greater contraction than in the previous 12-month period. 5% 0 Despite the negative absorption, average asking gross rental rates increased by $0.97 psf 4% year-over-year to $72.62 psf at mid-year 2017. In popular neighborhoods such as the North -500 3% Financial District, the South Financial District and SOMA, average direct class A rates rose to 2% -1,000 $77.70, $72.57 and $83.00 psf, respectively. These rents, well above national averages, have 1%
forced tenants to become more efficient in their use of space. Tenants often took slightly -1,500 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 smaller spaces than in previous years, and the trend continued toward increasing the density Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 of workers within office premises.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE
DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
6,000
-1.1 MSF 6.6% 5.6 MSF 1.1 MSF 5,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
4,000 SQUARE FEET (THOUSANDS) Demand for larger blocks of space from tech tenants continued during the past year. In the 3,000 second quarter of 2017, 52% of all deals larger than 25,000 sf were done by tenants in the tech sector. While significant deals by Facebook and Ancestry.com were still pending as of 2,000 mid-year 2017, the largest confirmed tech-sector office deals in the first half of 2017 were Slack’s 227,000-sf lease at 500 Howard and Google’s 180,000-sf deal at 121 Spear. 1,000 Looking to 2018, there may be a slight uptick in vacancy as major new developments come 0 to market in early 2018; however, with strong tenant demand and continued rental-rate Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 growth, San Francisco looks poised for a year of tempered, but sustainable growth. 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT
Size $80 Address / Complex Tenant Lease Type $70 227,600 sf 1 500 Howard Street Slack New $60 $ PER SQUARE FOOT
179,000 sf $50 2 1 Front Street First Republic Bank Renewal / Expansion $40
166,500 sf $30 3 121 Spear Street Google New
$20 160,000 sf 4 Pier 70 Otto New $10
148,900 sf $0 5 415 Mission Street Salesforce Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
66 Avison Young Mid-Year 2017 Office Market Report San Mateo Office Market
County’s southern region commands highest rents Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY The San Mateo County office market recorded nearly 400,000 sf of absorption during the SUBURBAN ABSORPTION (12 MOS) VACANCY 12-month period ending at mid-year 2017, continuing a trend that has registered positive 700 12% absorption for nine consecutive quarters. Year-over-year, office vacancy increased 20 bps to 7.9% overall; downtown markets were at 2.8% compared with 8.6% in suburban markets. 600 10% Asking rates for all classes within the county increased 3% year-over-year, ending the first 500 VACANCY RATE (%) half of 2017 at $54.72 psf full-service gross (FSG). The county’s southern region, which 400 8% includes Menlo Park, Redwood City, San Carlos and Belmont, continued to command the 300 ABSORPTION (THOUSANDS SF) highest rents with an average asking rate of $68.28 psf FSG. Moving into the second half of 200 6% 2017 and 2018, average asking rates are expected to increase further, but at a slower pace 100 than during the past three years. 4% 0
Despite a year-over-year increase in available existing sublease space on the market, the -100 2% amount of existing sublease square footage on the market is not a huge cause for concern. -200
While sublease square footage certainly needs to be watched closely in the second half of -300 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 2017, strong demand from growing tenants throughout the peninsula and Silicon Valley is Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 expected to absorb a large portion of the space.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,400
0.4 MSF 7.9% 1.7 MSF 0.8 MSF 1,200 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 1,000 SQUARE FEET (THOUSANDS) Developers continue to be extremely active on the peninsula, especially in locations 800 near public transit. Nearly 756,000 sf of new product was delivered to the market in the 600 12 months ending at mid-year 2017. In addition, more than 1.7 msf of speculative office development was under construction in San Mateo County at mid-year 2017 with 26% 400 preleased. Proposed projects within walking distance of Caltrain stations were 59% preleased, while the two office projects in suburban markets had no signed commitments. 200
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $90 Address / Complex Tenant Lease Type $80
135,300 sf $70 1 164 Jefferson Facebook New $ PER SQUARE FOOT $60 66,500 sf 2 777 Mariners Island Boulevard IXL Learning Renewal / Expansion $50
$40 54,600 sf 3 150 Shoreline Drive Auris New $30
50,500 sf $20 4 1800 Bridge Parkway Nevro Renewal $10
50,000 sf $0 5 1600 Bridge Parkway Nevro Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Expansion Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 67 St. Louis Office Market
Suburban markets continue to garner most of the growth Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Availability in the 132-msf St. Louis metropolitan office market continued to decline at mid- SUBURBAN ABSORPTION (12 MOS) VACANCY year 2017 as vacancy decreased 100 bps year-over-year to 8%. However, vacancy rates varied 1,600 16% widely by submarket. Downtown vacancy was 9.7% with 1.2 msf set to come to market in the third quarter as AT&T vacates one of its office towers. Vacancy in Clayton, the county 1,400 14% seat, was only 4.4%, with Centene building an additional 500,000-sf tower for expansion. The
1,200 12% VACANCY RATE (%) class A average asking rent for Downtown was $20.14 psf full-service gross (FSG) at mid-year, while the suburban average was $23.54 psf FSG – both stable year-over-year. Almost 1.4 1,000 10% ABSORPTION (THOUSANDS SF) msf of office space was under construction at the end of the second quarter with 198,000 800 8% sf fully leased in the downtown market and the balance of the space in the suburbs (94% preleased). 600 6%
400 4% The National Geospatial-Intelligence Agency is relocating to a new $1-billion campus north of downtown, which will greatly impact this now-abandoned area. Nestlé announced that 200 2%
it would be moving its IT operations to St. Louis from California, occupying an additional 0 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 60,000 sf downtown. Cortex Innovation Community, located between Clayton and Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 downtown, continues to see new developments attracting millennials to the area. Microsoft
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
1,400
1.5 MSF 8% 1.4 MSF 0.4 MSF 1,200 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 1,000 SQUARE FEET (THOUSANDS) is set to relocate to this area from the suburbs. Overall, the suburban market continued to 800 garner most of the growth; however, Clayton, Chesterfield and West Port are seeing existing 600 companies building for expansion.
400 The outlook for the metropolitan market in the second half of 2017 is that vacancy will continue to decrease and rents will push higher. There will be differences and divergences in 200 the submarkets, especially in the CBD when the AT&T tower comes on the market for lease. 0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $25 Address / Complex Tenant Lease Type
188,500 sf $20 1 13655 Riverport Drive United Health Care Services Renewal $ PER SQUARE FOOT
103,300 sf $15 2 12443 Olive Boulevard Centene Corporation New
87,000 sf $10 3 3300 Rider Trail TriZetto New
53,000 sf $5 4 800 Market Street PwC Renewal
47,500 sf $0 5 7701 Forsyth Boulevard St. Louis Club Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
68 Avison Young Mid-Year 2017 Office Market Report Tampa Office Market
Consumer confidence, other fundamentals remain strong Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Economic momentum continues in Tampa Bay as demonstrated by a steadily declining SUBURBAN ABSORPTION (12 MOS) VACANCY unemployment rate, which at 3.8% in May 2017 was 50 bps below the rate recorded one year 1,600 25% earlier. Job growth continued with more than 55,000 new jobs added in the trailing 12-month period. Healthy leasing activity continued, consumer confidence remained strong and the 1,400 20% housing market continued to outperform expectations. There is a rising sense of an urban 1,200 VACANCY RATE (%) renaissance in the downtown core accompanied by enthusiasm among developers and 1,000 business leaders. 15%
ABSORPTION (THOUSANDS SF) 800
At mid-year 2017, office fundamentals remained solid with a 150-bps year-over-year decline in 600 vacancy to 12.4%, 12-month net absorption of more than 500,000 sf, and a surge in the asking 10% 400 rental rates to $22.71 psf full-service gross (FSG) at mid-year 2017 from $21.24 psf FSG at mid- 200 year 2016. Nearly every submarket recorded positive net absorption during the same period 5% with the exception of Downtown St. Petersburg, where the acquisition of a tower resulted in 0 a large amount of previously unavailable space being marketed. (Downtown St. Petersburg is -200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 part of the Tampa regional market.) Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
500
450
0.5 MSF 12.4% 0.1 MSF 0 SF 400 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 350
SQUARE FEET (THOUSANDS) 300 Development interest is surging in Tampa Bay's downtown areas as tenant migration slowly 250 shifts toward the urban core. Millennial preferences and shrinking square footage requirements are driving much of this trend. Businesses and residents alike are attracted to the growth 200 prospects and potential being created in both of the Tampa Bay Area's CBDs. 150 100 Looking forward, net office-space absorption is expected to continue to post incremental gains 50 within Tampa's CBD; however, a scarcity of parking will continue to present challenges that 0 must be addressed before the downtown core can achieve its full potential. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $35 Address / Complex Tenant Lease Type $30 148,800 sf 1 Renaissance Center VI AAA New $ PER SQUARE FOOT $25
124,700 sf 2 Corporate Center I Amgen New $20
99,000 sf $15 3 3020 Highway 301 S. General Dynamics Renewal $10 60,000 sf 4 Pinebrook Business Park United Healthcare New $5
45,000 sf $0 5 Grand Central at Kennedy Quality Distribution Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 69 Washington, DC Office Market
Occupiers show preference for amenity-rich areas Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Surprisingly, Washington’s 376-msf metropolitan office sector has experienced little SUBURBAN ABSORPTION (12 MOS) VACANCY change in major market indicators during the past five years. During this period, the overall 2,000 20% market has recorded modest net absorption as private-sector tenants right-size and seek 18% efficiencies and as some federal government agencies move from competitive inventory to 1,500 owned, secure facilities. Nevertheless, select submarkets and micro markets are benefitting 16%
1,000 VACANCY RATE (%) from occupancy growth and rental-rate increases as occupiers show a preference for 14% 500 amenity-rich areas. Mass transit and its surrounding amenities are key drivers of desirable 12% ABSORPTION (THOUSANDS SF) locations. As owners build more tenant conveniences into new properties and retrofit older 0 10% spaces, operating expenses could also tick upward. In a prevalent trend, landlords have 8% ready-to-lease spec suites to better compete with the co-working model and accommodate -500 6% tenants needing space quickly. And since build-outs across the region can cost more than -1,000 $50 psf, pre-built suites can offer shorter-term leases or serve tenants who do not want to 4% -1,500 navigate the construction process. 2% -2,000 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 During the 12-month period ending at mid-year 2017, most of the strong suburban take-up Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 occurred in the second half of 2016. While the region’s top lease transactions for first-half
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
8,000
7,000 1.9 MSF 14.4% 12.7 MSF 2.3 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 6,000
5,000 SQUARE FEET (THOUSANDS) 2017 were again dominated by federal and local government renewals, two deals were notable because they represent expansion. Amazon’s office-using Web Services division 4,000 took 400,000 sf in Herndon, VA for a new East Coast corporate campus, which will bring 3,000 up to 1,500 new jobs. Meanwhile, Nestlé agreed to move its headquarters location from 2,000 Glendale, CA to 206,000 sf in Rosslyn, VA, creating 750 new jobs. 1,000 Looking forward, both the suburban and downtown markets have a considerable pipeline 0 (12.7 msf total) of new construction underway, including entire-building renovations and Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 ground-up development. While buildings under construction are 65% preleased, overall 2013 2014 2015 2016 2017 regional vacancy will likely increase slightly during the next 24 months – unless meaningful absorption occurs. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $70 Address / Complex Tenant Lease Type $60 400,000 sf 1 13200 Woodland Park Road Amazon Web Services New $ PER SQUARE FOOT $50
314,000 sf 2 550 12th Street, SW U.S. Department of Education Renewal $40
U.S. DHS, Citizenship and 261,000 sf $30 3 20 Massachusetts Avenue, NW Immigration Services Renewal $20 235,000 sf 4 2200 Clarendon Boulevard The County Board of Arlington Renewal $10
206,000 sf $0 5 1812 North Moore Street Nestlé Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
70 Avison Young Mid-Year 2017 Office Market Report West Palm Beach Office Market
Economic gains spell prosperity and absorption throughout Absorption and Vacancy county DOWNTOWN ABSORPTION (12 MOS) VACANCY SUBURBAN ABSORPTION (12 MOS) VACANCY
Positive economic conditions and improving employment growth continue to strengthen 800 25% the Palm Beach County office market. According to recent figures published by the Bureau of Labor Statistics, Palm Beach County had a non-seasonally adjusted unemployment rate 700 20%
of 4.9% as of June 2017, a 70-bps drop year-over-year. These economic gains have led to 600 VACANCY RATE (%) prosperity in the local office market and significant absorption throughout the county. 500 Investment activity has also continued as national and local investors seek to expand their 15% ABSORPTION (THOUSANDS SF) portfolios to include property within Palm Beach County. 400
10% In response to rising lease rates in class A office space, significant absorption has been 300 recorded among class B assets throughout the county. In the 12-month period ending 200 at mid-year 2017, a total of 275,026 sf of class B space was absorbed in the market, while 5% 100 absorption in class A space was virtually non-existent. Not only is this trend further 0 0% evidenced by the general lack of new class A development, but also by the increase Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 in investment activity among class B assets. Two major properties changed hands in Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
180
160 0.3 MSF 12.9% 0 SF 0.1 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 140
120 SQUARE FEET (THOUSANDS) the 12 months ending at mid-year 2017, highlighting this trend of investors seeking 100 redevelopment opportunities. 80
The first of these transactions was Butters Real Estate’s acquisition of the Arvida Executive 60 Center for $21 million. The complex was acquired with capital improvement plans to 40 increase its competitiveness among top class B buildings in the area. The second major 20 deal was W.C. & A.N. Miller Development Company’s acquisition of Professional Centre 0 at the Gardens Mall, which realized a 42% gain in slightly less than two years after the Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 occupancy was increased to 98.5% at the point of sale from 50% in 2015. Continued 2013 2014 2015 2016 2017 positive absorption among class B assets throughout the county is expected along with continued investment activity among value-add properties. Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $60 Address / Complex Tenant Lease Type $50 37,000 sf 1 Boca Raton Innovation Campus Shoes for Crews New $ PER SQUARE FOOT $40 21,600 sf 2 North 40 Biotest Pharmaceutical Corp. New $30 15,100 sf 3 Boca Raton Innovation Campus Twin Labs New $20
13,600 sf 4 Waterfront Clematis Wm. Wrigley Co. New $10
9,800 sf $0 5 The Park at Broken Sound Mas Tec Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Renewal Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 71 Westchester County Office Market
Pace of adaptive reuse increasing as suburbs undergo change Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY A weakening in Westchester’s office market was evident in the overall vacancy rate, SUBURBAN ABSORPTION (12 MOS) VACANCY which increased 290 bps year-over-year to 19.5% at mid-year 2017. In the White Plains 400 25% CBD, vacancy was 14% compared with 21% in the suburban submarkets. The return of 1.1 msf to the market at the former IBM campus at 294 Route 100 in Somers in the Northern 200 submarket was largely responsible for the vacancy increase. The pace of adaptive reuse is 20%
0 VACANCY RATE (%) increasing as the suburban office market undergoes structural change. -200 15%
At mid-year 2017, leasing velocity was estimated to be 37% lower than that of second- ABSORPTION (THOUSANDS SF) -400 half 2016. In a marked trend towards increased preference for urban, transit-oriented 10% communities versus suburban locations, the first half of 2017 saw two prominent lease -600 signings in the White Plains CBD. These deals were the lease of 101,000 sf at 1 Lexington -800 Avenue by Sumitomo Banking Corporation and an 80,000-sf take-up by global food- 5% products company Danone for its headquarters at 1 Maple Avenue. Meanwhile, some -1,000
notable deals occurred in the Northern suburbs, including Ascensia Diabetes Care’s lease -1,200 0% Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 of 65,000 sf at 100 Summit Drive in Valhalla. There is a considerable draw in Valhalla from Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 the life-sciences and biotech sectors with a $1.5-billion project called the Westchester
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
450
400 -1.1 MSF 19.5% 0 SF 29 KSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 350
300 SQUARE FEET (THOUSANDS) BioScience & Technology Center planned for a vacant site next to the Westchester Medical 250
Center. 200
Growth in the overall asking rate remained fairly flat in the first half of 2017. The average 150 gross asking rent of $27.55 psf represented a 1.5% decrease year-over-year. Marginal 100 decreases were seen in both class A and B office product; and as expected, the steepest 50 decline in the average class A asking rent – a 13% year-over-year drop – occurred in the 0 Northern submarket. Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $40 Address / Complex Tenant Lease Type $35 101,000 sf 1 1 N Lexington Avenue, White Plains Sumitomo Mitsui Banking Corp. New $30 $ PER SQUARE FOOT
80,000 sf $25 2 1 Maple Avenue, White Plains Danone North America New $20
65,000 sf $15 3 100 Summit Lake Drive, Valhalla Ascensia Diabetes Care US New
$10 32,000 sf 4 100 Summit Lake Drive, Valhalla USI, Inc. New $5
16,639 sf $0 5 500 Summit Lake Drive, Valhalla Exelon Generation Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
72 Avison Young Mid-Year 2017 Office Market Report Mexico
74 Mexico City Mexico City Office Market
Vacancy low in suburban district Absorption and Vacancy
DOWNTOWN ABSORPTION (12 MOS) VACANCY Mexico City’s class A-plus and A office market closed the second quarter of 2017 with SUBURBAN ABSORPTION (12 MOS) VACANCY a total inventory of 62 msf within its 10 submarkets, representing a 3.2% increase from 4,000 16% year-end 2016 and an increase of 21% compared with mid-year 2016. Santa Fe is the largest submarket at 12.6 msf, followed by Polanco with 11.2 msf. 3,500 14%
As of mid-year 2017, the market’s overall vacancy rate was 12.9% – up from 10.1% one year 3,000 12% VACANCY RATE (%)
earlier. The 12.9% figure represents 8 msf of vacant space, of which 33% is located in the 2,500 10%
Norte corridor and a further 16% in the Polanco submarket. By contrast, the Interlomas, ABSORPTION (THOUSANDS SF) 2,000 8% Lomas Altas and Bosques submarkets (in the suburban business district) accounted for only 4.3% of vacant space in Mexico City. Gross absorption in the second quarter of 2017 alone 1,500 6% was 1.2 msf, with 51% occurring in the alternative business district submarket (Insurgentes, 1,000 4% Norte and Periférico Sur). Total absorption for the 12-month period ending at mid-year 2017 was more than 4.6 msf; however, this figure was down from almost 6.5 msf recorded 500 2%
in the prior 12-month period. Many buildings that are under construction have had their 0 0% Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 delivery dates postponed until later in 2017 (some until 2018) as a result of oversupply in Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 the marketplace, but more than 4.8 msf is scheduled to be completed by year-end 2017.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
SUBURBAN COMPLETIONS (12 MOS) UNDER CONST.
14,000
4.6 MSF 12.9% 17.6 MSF 2.7 MSF 12,000 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 10,000 SQUARE FEET (THOUSANDS) Average asking rental rates showed a decrease of just 1% compared with mid-year 2016, 8,000 closing the second quarter of 2017 at US$24.70 per square metre (sq. m) per month – the 6,000 lowest average rate since first-quarter 2012. The most expensive average rental rate in Mexico City is the CBD submarket (including Polanco, Reforma and Lomas Palmas) at US$30 4,000 per sq. m per month, although this level represents a 6% decrease compared with mid-year 2016. 2,000
0 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN ASKING NET RENT ADDITIONAL RENT SUBURBAN ASKING NET RENT ADDITIONAL RENT
Size $40 Address / Complex Tenant Lease Type $35 105,000 sf 1 ARTZ Pedregal Janssen de México New $30
99,000 sf $25 2 The Tower Park Plaza WeWork New $ PER SQUARE METRE / MONTH $20
93,300 sf $15 3 Toreo AT&T Expansion
$10 Creel, Garcia-Cuellar, Aiza y 66,100 sf 4 Virreyes Enriquez New $5
49,300 sf $0 5 Torre Mapfre Aeromexico Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
74 Avison Young Mid-Year 2017 Office Market Report United Kingdom
76 Coventry (Midlands) 77 London Coventry (Midlands) Office Market Absorption and Vacancy Speculative development likely to be limited DOWNTOWN ABSORPTION (12 MOS) VACANCY Coventry and Warwick remained popular office locations with occupiers due to excellent road and rail connections that link the region with London and the rest of the 600 7%
U.K., together with the wide range of international destinations served by the nearby 6% 500 Birmingham International Airport. 5% VACANCY RATE (%) The first half of 2017 registered continued demand for office space in Coventry and 400 4% Warwick. This situation is highlighted by historically low vacancy, which decreased 30 bps ABSORPTION (THOUSANDS SF) 300 year-over-year to 3.9% at mid-year 2017. The region has a total office stock of slightly less 3% than 12 msf. 200 2% In Coventry, Financial Ombudsman Services Limited leased 22,500 sf on a 10-year 100 sublease from Coventry City Council at Friargate, a new class A office development in 1% the city centre. Meanwhile, Baldwins Accountants took 8,589 sf on a 10-year lease at 0 0% Middlemarch Office Park. This office scheme has recently been extensively refurbished Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 with rents expected to move upwards to reflect the current market. Elsewhere, Pixel 2013 2014 2015 2016 2017 Studios Limited recently leased 6,805 sf on Regent Street in Leamington Spa. One New Supply
ARROWS INDICATE YEAR-OVER-YEAR CHANGE DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
160
140
0.2 MSF 3.9% 0.1 MSF 0.1 MSF 120 ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 100 SQUARE FEET (THOUSANDS)
Warwick Technology Park (38,950 sf) and space at Kingmaker Court (16,184 sf) have come 80
back to the market, but are already receiving strong occupier interest. 60
With the continued cautiousness from developers and funds alike as a result of Brexit and 40
political uncertainty, speculative office development will likely be limited. This situation, 20 coupled with the lack of good-quality office stock in the region, means that the office 0 market should remain buoyant, with low vacancy rates promoting growth in rental rates. Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
DOWNTOWN GROSS RENT Notable Office Lease Transactions by Size - First Half 2017 £18
Size £16 Address / Complex Tenant Lease Type £14 PER SQUARE FOOT £
One Friar Gate, Station Square, 22,500 sf 1 Financial Ombudsman Services Coventry New £12
£10 8,600 sf 2 Middlemarch Office Park, Coventry Baldwins Accountants New £8
Regent Square House, Leamington 6,800 sf £6 3 Pixel Studios Spa New £4
6,200 sf £2 4 329 - 333 Broadgate House, Coventry Escape Ultima New £0 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 5,100 sf Q2 Q2 Q2 Q2 Q2 5 Rye Hill Office Park, Coventry Duo Equipment New 2013 2014 2015 2016 2017
76 Avison Young Mid-Year 2017 Office Market Report London Office Market
Domestic investors reduce debt for future investment purposes Absorption and Vacancy
The general election and Brexit negotiations have dominated the headlines; however, their DOWNTOWN ABSORPTION (12 MOS) VACANCY impact on the London office market has, to date, been muted. In the wider economy, the 18,000 8% interest rate outlook remains unchanged with the Bank of England taking a wait-and-see approach depending on the outcome of Brexit negotiations and the strength of the U.K. 16,000 7% economy. 14,000
6% VACANCY RATE (%) 12,000 Compared with 2016, the property cycle has turned. Economic growth is slowing; demand is 5% reducing; rental growth is largely non-existent and leasing incentives are increasing. The outlook ABSORPTION (THOUSANDS SF) 10,000 4% for the next 12 months is for market rents to fall by up to 5%, depending on the submarket. 8,000 Despite this outlook, anecdotal evidence indicates that the occupier market still feels busy with 3% 6,000 business as usual in the technology and media sectors. At mid-year 2017, the local property 2% tax (the ‘rates’) revaluation, which came into effect in April, had not affected the market visibly. 4,000 Middle Eastern and Asian property investors have supported current price levels for properties 2,000 1% let on long-term leases. Domestic investors, particularly the publicly listed companies, have 0 0% Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 made much of how they have reduced the level of debt in relation to equity capital to Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 historically low levels to be able to buy opportunities ahead of the next development cycle.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE
DOWNTOWN COMPLETIONS (12 MOS) UNDER CONST.
16,000
14,000 13 MSF 6.3% 11 MSF 0.7 MSF ABSORPTION VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 12,000
10,000 SQUARE FEET (THOUSANDS) A key plank to the domestic investors’ thesis is the lack of future office supply. Some 8,000 commentators estimate that it could be as low as 20 msf during the next five years – with core West End supply being as low as 0.6% of stock per annum. Overall, from a low level of vacant 6,000 space across the submarkets, the expectation is that the office market will hold steady during 4,000 the next 12 months. 2,000
0 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN GROSS RENT
Size £60 Address / Complex Tenant Lease Type
284,900 sf £50 1 2 Southbank Place WeWork
New PER SQUARE FOOT £
£40 Freshfields Bruckhaus 249,600 sf 2 100 Bishopsgate Deringer LLP New £30 140,000 sf 3 125 Shaftesbury Avenue WeWork New £20
133,600 sf £10 4 80 Charlotte Street Arup Group New
£0 111,600 sf Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 5 54-56 Brushfield Street NEX Group Sublease Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 77 Germany
79 Berlin
80 Duesseldorf
81 Frankfurt
82 Hamburg
83 Munich
78 Avison Young Mid-Year 2017 Office Market Report Berlin Office Market
Low vacancy driving new construction activity Take-Up and Vacancy
The Berlin office market continued to perform at full throttle in the first half of 2017. TAKE-UP (12 MOS) VACANCY Approximately 399,000 square metres (sq. m) of space was let – just shy of the record first-half 900 7% 2016 result. Berlin was the top German market in terms of large-scale deals in the first half 800 of 2017. Five deals larger than 10,000 sq. m were closed, generating 152,000 sq. m of take- 6% up (37% of total market activity). Deals between 2,000 sq. m and 5,000 sq. m contributed a 700 VACANCY RATE (%) further 18%. More than 150 transactions involved spaces of less than 500 sq. m, highlighting 5% 600 Berlin’s growing startup scene. TAKE-UP (THOUSANDS SQ. M) 500 4% Online retailer Zalando alone closed four deals with a total area of 93,000 sq. m. These deals 400 3% pushed the commerce sector’s share of letting activity to 31%. The traditionally strong public 300 sector was responsible for another 21%. Berlin’s office market boasts a diverse tenant base with 2% eight industries each generating 3% to 8% of market share. Nationally, Berlin had the lowest 200 1% vacancy rate, at 2.7% as of mid-year 2017 – a decrease of 120 bps year-over-year. Low vacancy 100 is driving new construction activity with 60,000 sq. m completed in the first half of 2017 and 0 0% Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 another 100,000 sq. m set to deliver in the second half (68% preleased). Total space under Q2 Q2 Q2 Q2 Q2 construction rose 39% year-over-year to 419,000 sq. m with 60% preleased as of mid-year 2017. 2013 2014 2015 2016 2017
ARROWS INDICATE YEAR-OVER-YEAR CHANGE New Supply
COMPLETIONS (12 MOS) UNDER CONSTRUCTION
500
0.4 MSqM 2.7% 0.4 MSqM 60 KSqM 400 TAKE-UP VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
300
Meanwhile, class A rents rose 8% year-over-year to €28 per sq. m per month. With supply SQUARE METRES (THOUSANDS) limited, it is expected that class A rents will soon surpass the €30 mark for the first time. Berlin’s office market is forecasted to keep thriving and full-year letting volume greater than 200 800,000 sq. m is feasible in 2017. However, restricted supply may hinder an even stronger result. Vacancy is expected to remain very limited with rent levels moving up across all 100 submarkets.
0 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN
Size 30 € Address / Complex Tenant Lease Type 25 € Bundesanstalt für 47,300 sq. m 1 Puschkinallee 52 Immobilienaufgaben (Bima) New 20 € 42,500 sq. m 2 Koppenstrasse 8 Zalando AG PER SQUARE METRE / MONTH € New 15 € 34,000 sq. m 3 Cuvry Campus Zalando AG New 10 €
GSG9 / Bundesanstalt für 13,000 sq. m 5 € 4 Schöneberger Ufer 1 Immobilienaufgaben (Bima) New
10,800 sq. m 0 € 5 Anschutz Quartier Zalando AG Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 79 Duesseldorf Office Market
Rent levels remain stable across various submarkets Take-Up and Vacancy
After a strong start to 2017, leasing activity kept its momentum, increasing to 113,000 TAKE-UP (12 MOS) VACANCY square metres (sq. m) in the second quarter of 2017 and pushing the first-half total to 500 12% 208,000 sq. m. Accordingly, take-up rose almost 14% year-over-year. In the first half, three deals of 10,000 sq. m or more were closed. These large-scale deals had a market share 10% of 27%. Leasing activity soared in the 1,000-to-2,000 sq. m segment with 29 completed 400 VACANCY RATE (%)
deals accounting for a 19% market share. Overall demand was high, underscoring the local 8% economy’s stability. 300 TAKE-UP (THOUSANDS SQ. M)
6% The most active tenant group was banking and finance, responsible for 21% of take-up. Large deals by HSBC (22,000 sq. m) and Bankhaus Lampe (15,000 sq. m) were the main 200 4% drivers of this positive result. Public administration contributed almost 14% of take-up 100 and IT/telecommunications companies generated another 11%. The HSBC deal pushed 2% the market share of Duesseldorf’s West/linksrheinisch submarket to 18%. The City and
Kennedydamm submarkets ranked second and third with market shares of 18% and 16%, 0 0% Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 respectively. Vacancy decreased moderately year-over-year, to 8.3% at mid-year 2017. Total Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 inventory was 9.3 million sq. m, while construction (198,000 sq. m with 70% preleased) was
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE
COMPLETIONS (12 MOS) UNDER CONSTRUCTION
300
0.2 MSqM 8.3% 0.2 MSqM 38 KSqM TAKE-UP VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
200
comparable to that of the previous year. While 38,100 sq. m of new space was delivered SQUARE METRES (THOUSANDS) during the first half of 2017, a further 74,000 sq. m is set for completion in the second half.
CBD class A asking rates held firm year-over-year at €26.50 per sq. m per month. Rent 100 levels have proven stable across the various submarkets, but are showing signs of upward movement in select locations. Office demand is forecasted to hold firm, and total letting volume greater than 350,000 sq. m is on the horizon for 2017. Vacancy is likely to decrease 0 moderately with rent levels remaining under upward pressure. Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN
Size 30 € Address / Complex Tenant Lease Type 25 € 22,000 sq. m 1 Hansaallee HSBC New 20 € 20,300 sq. m PER SQUARE METRE / MONTH
2 Konrad-Adenauer-Platz 1 City of Duesseldorf € New 15 € 15,000 sq. m 3 Schwannstrasse 10 Bankhaus Lampe New 10 €
7,600 sq. m 5 € 4 Am Seestern 1 Atos New
0 € 5,400 sq. m Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 5 Parsevalstrasse 7-9 Sparkasse (RSGV) New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
80 Avison Young Mid-Year 2017 Office Market Report Frankfurt Office Market
For the first time in 15 years, vacancy falls below 9% Take-Up and Vacancy
Frankfurt’s office market, comprising nearly 12 million square metres (sq. m), recorded one of TAKE-UP (12 MOS) VACANCY its strongest first-half results of recent years during the first six months of 2017. Some 232,000 500 14% sq. m was taken up – an increase from 218,000 sq. m one year earlier. Ironically, the higher letting volume was achieved without several large-scale deals. Only one involved more than 12% 10,000 sq. m. Leasing activity increased noticeably across all size segments; however, the 400 VACANCY RATE (%) strongest rise was recorded among deals greater than 5,000 sq. m, which accounted for 27% 10% of total first-half take-up. 300 TAKE-UP (THOUSANDS SQ. M) 8% Frankfurt is poised to be one of the greatest beneficiaries of the U.K.’s Brexit process, and the 6% traditionally strong Frankfurt Banking District submarket was once more the centre of leasing 200 activity. Almost 25% of take-up was generated in this submarket, which features skyscrapers 4% and prominent highrise buildings. Tenants favoured the CBD, which accounted for 45% of 100 2% letting volume.
0 0% For the first time in 15 years, vacancy fell below 9%. Year-over-year, vacancy decreased 60 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 bps to 8.8% at mid-year 2017. Meanwhile, new construction brought 45,000 sq. m of space 2013 2014 2015 2016 2017
ARROWS INDICATE YEAR-OVER-YEAR CHANGE New Supply
COMPLETIONS (12 MOS) UNDER CONSTRUCTION
500
0.2 MSqM 8.8% 0.3 MSqM 45 KSqM 400 TAKE-UP VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
300 to the market. A further 114,000 sq. m is scheduled for completion in the second half of the SQUARE METRES (THOUSANDS) year, with 92% pre-let as of mid-year 2017. In total, 253,000 sq. m was under construction. Class A asking rental rates in Frankfurt’s Banking District rose 2.7% year-over-year to €38.50 200 per sq. m per month. Rent levels are trending upwards across all submarkets. 100 Several large lease deals are expected to close in the second half of the year and demand is generally high. On the back of a growing economy, a full-year letting volume greater than 0 600,000 sq. m is likely. Office vacancy is expected to decrease further with rent levels rising. Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN
Size 45 € Address / Complex Tenant Lease Type 40 €
13,000 sq. m 35 € 1 Junghofstrasse 14-16, Junghof Plaza Clifford Chance Deutschland LLP New 30 € 7,200 sq. m 2 Mainzer Landstrasse 185-189 Deutsche Bahn PER SQUARE METRE / MONTH € 25 € New
20 € 7,000 sq. m 3 Mainzer Landstrasse 16 Deutsche Bundesbank New 15 €
6,800 sq. m 10 € 4 Taunustor 2, Japan Tower Europäische Zentralbank (ECB) New 5 €
6,700 sq. m 0 € 5 Speicherstrasse 53, Hafenbogen Dentsu Aegis Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 81 Hamburg Office Market
With several large-scale deals in pipeline, record take-up looms Take-Up and Vacancy
Office take-up reached a record high in Hamburg at mid-year 2017. Approximately 285,000 TAKE-UP (12 MOS) VACANCY square metres (sq. m) was taken up in the first half – an increase of 26% compared with the 500 14% same period in 2016. With a market share of 30%, large-scale deals (greater than 5,000 sq. m)
contributed noticeably to the strong result. The largest deal of the first half was the 34,500-sq. 12% m lease by Olympus. Another 20% of activity was generated by medium-sized deals between 400 VACANCY RATE (%) 1,000 sq. m. and 2,000 sq. m. Driven by the Olympus deal, manufacturing companies were 10% the most active tenant group in the first half of the year, followed by consultancy and public 300 TAKE-UP (THOUSANDS SQ. M) 8% administration firms. 6% Demand was strongest in Hamburg’s CBD and the City Süd submarket. The latter – which 200 is in proximity to the CBD – has slowly developed from a clear back-office submarket into a 4% more vibrant urban area. Overall vacancy decreased 100 bps year-over-year to a 15-year low 100 2% of 5% at mid-year 2017, representing approximately 750,000 sq. m of a total office inventory
approaching 15 million sq. m. New construction is ongoing as a result of strong demand. 0 0% Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Nearly 91,000 sq. m was completed in first-half 2017. As of mid-year 2017, a further 307,000 sq. Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017 m was under construction with 57% preleased.
New Supply ARROWS INDICATE YEAR-OVER-YEAR CHANGE
COMPLETIONS (12 MOS) UNDER CONSTRUCTION
500
0.3 MSqM 5% 0.3 MSqM 91 KSqM 400 TAKE-UP VACANCY RATE UNDER CONSTRUCTION COMPLETIONS
300
Class A rents rose 4% year-over-year to €26 per sq. m per month at mid-year 2017. The SQUARE METRES (THOUSANDS) noticeable supply decrease puts upward pressure on rental rates in all submarkets – especially the centrally located ones. With several large-scale deals in the pipeline, take-up is likely to 200 reach 600,000 sq. m by year-end 2017. This total would be a local record. Although speculative construction increased in first-half 2017, available space is expected to decrease further. This 100 reduction will, in turn, lead to rental-rate growth.
0 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN
Size 45 € Address / Complex Tenant Lease Type 40 €
34,500 sq. m 35 € 1 Wendenstrasse 14-18 Olympus New 30 € 19,700 sq. m PER SQUARE METRE / MONTH
2 Ueberseering 35 University of Hamburg € 25 € New 20 € 8,400 sq. m 3 Amsinckstrasse 28 Supervisory School Authority New 15 €
10 € 7,800 sq. m 4 Axel-Springer-Platz 3 WeWork New 5 €
0 € 6,400 sq. m Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 5 Amsinckstrasse 35 Supervisory School Authority New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
82 Avison Young Mid-Year 2017 Office Market Report Munich Office Market
Major corporations and startups alike contribute to strong Take-Up and Vacancy letting activity TAKE-UP (12 MOS) VACANCY
Munich’s office market is on its way to recording another very strong year. In the second 800 8% quarter of 2017, a total of 155,000 square metres (sq. m) was let, pushing the first-half 2017 total to 400,000 sq. m. – a 6% year-over-year increase that has already surpassed the 10- 700 7% year annual average. Leasing activity was high across all size segments in first-half 2017 600 6% VACANCY RATE (%) as 14 deals larger than 5,000 sq. m represented almost 30% of take-up. A further 25% was 500 5%
generated by deals between 2,000 sq. m. and 5,000 sq. m, underscoring the strength and TAKE-UP (THOUSANDS SQ. M) growth of Munich’s medium-sized companies. The most active tenant group was the IT/ 400 4% telecommunications sector with take-up of almost 100,000 sq. m. Major corporations as well 300 3% as small startups contributed to this very strong leasing activity. 200 2% As the office supply within Munich’s city boundaries is limited, the number of tenants 100 1% looking for alternative locations has risen noticeably. Almost 30% of take-up was generated 0 0% in Munich’s fringe locations outside the city itself. At mid-year 2017, overall vacancy was Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 3.9% – down 70 bps year-over-year and representing 795,000 sq. m of a total office stock of Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
ARROWS INDICATE YEAR-OVER-YEAR CHANGE New Supply
COMPLETIONS (12 MOS) UNDER CONSTRUCTION
500
450
0.4 MSqM 3.9% 0.4 MSqM 0.1 MSqM 400 TAKE-UP VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 350
300
20.5 million sq. m. Construction activity increased in first-half 2017. Approximately 439,000 SQUARE METRES (THOUSANDS) 250 sq. m was under construction at mid-year 2017 with 54% preleased. However, completed construction (99,000 sq. m) was comparable to that of the previous year. 200 150
Driven by strong leasing activity and the noticeable decrease in supply, CBD class A rents 100 rose €1.50 per sq. m per month year-over-year to €36 per sq. m per month at mid-year 2017. 50 However, rent levels are facing upward pressure across all submarkets. Backed by solid 0 economic growth, office leasing activity is forecasted to remain high. A full-year result of Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 750,000 sq. m is likely, with limited office supply hindering an even stronger result. Rent 2013 2014 2015 2016 2017 levels are expected to continue to rise. Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN
Size 40 € Address / Complex Tenant Lease Type 35 € 20,000 sq. m 1 Neue Hopfenpost Equinix New 30 €
13,000 sq. m 25 € PER SQUARE METRE / MONTH
2 Werksviertel, Atlas Publicis Group € New 20 €
12,900 sq. m 15 € 3 Dennisstrasse 2 City of Munich New 10 € 8,300 sq. m 4 Werksviertel, Atlas Design Offices GmbH New 5 €
0 € 8,000 sq. m Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 5 Leuchtenbergring Office Scout24 GMbH New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
avisonyoung.com 83 Romania
85 Bucharest
84 Avison Young Mid-Year 2017 Office Market Report Bucharest Office Market
High absorption spells low vacancy in Barbu Vacarescu / Take-Up and Vacancy
Floreasca area TAKE-UP (12 MOS) VACANCY
Backed by strong demand for new, high-quality space, Bucharest's office market registered 450 16% almost 170,000 square metres (sq. m) in total leasing activity during the first half of 2017. 400 More than 100 relevant transactions were recorded, with an average of approximately 1,600 14% 350 sq. m. Of the total activity, 43% comprised medium-sized transactions between 1,000 and 12% VACANCY RATE (%) 5,000 sq. m and another 43% involved transactions greater than 5,000 sq. m. Affirming strong 300 10% demand for high-quality buildings, 88% of transactions took place in class A office stock. The TAKE-UP (THOUSANDS SQ. M) 250 main driver of leasing activity continues to be the growth of the information technology and 8% 200 communications sector, which accounted for almost half of the total area leased in the first 6% 150 half of 2017. The North area attracted 45% of the demand and confirmed tenants' interest in 4% the region. 100 50 2% The supply and demand fundamentals indicate a transition towards a landlords’ market in 0 0% certain areas of the city, particularly in the Barbu Vacarescu / Floreasca submarket, where Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q2 Q2 Q2 Q2 Q2 high net absorption of 31,000 sq. m in first-half 2017 pulled the class A vacancy rate below 2013 2014 2015 2016 2017
ARROWS INDICATE YEAR-OVER-YEAR CHANGE New Supply
COMPLETIONS (12 MOS) UNDER CONSTRUCTION
350
0.4 MSqM 10.2% 0.3 MSqM 0.2 MSqM 300 TAKE-UP VACANCY RATE UNDER CONSTRUCTION COMPLETIONS 250
200 3%. Demand is at a high level, with tenants drawn to the excellent property quality and SQUARE METRES (THOUSANDS) diverse products as well as the proximity of a successful shopping mall, metro station and 150 the airport. The area is ripe for new developments as tenants of more than 1,000 sq. m lack alternatives and net effective rental rates are expected to increase significantly, both for new 100 leases and renewal/renegotiation deals. 50 A relatively modest 150,000 sq. m pipeline of deliveries scheduled for the remainder of 0 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 2017, paired with strong leasing activity, is expected to bring the overall vacancy rate down Q2 Q2 Q2 Q2 Q2 further, to less than 10% by year's end, closing 2017 with a total stock of class A and B office 2013 2014 2015 2016 2017 space of around 2.8 million sq. m. Avg. Gross Asking Rent - Class A
Notable Office Lease Transactions by Size - First Half 2017 DOWNTOWN
20 € Address / Complex Tenant Size Lease Type 18 €
20,000 sq. m 16 € 1 North Center Renault Renewal 14 €
12,000 sq. m 12 € 2 The Bridge IBM PER SQUARE METRE / MONTH € New 10 €
10,000 sq. m 8 € 3 City Gate Rompetrol Renewal 6 €
8,300 sq. m 4 € 4 Europe House Orange Renewal 2 € 6,700 sq. m 0 € 5 Globalworth Tower Huawei Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 New Q2 Q2 Q2 Q2 Q2 2013 2014 2015 2016 2017
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