national office report

Transcription

2015
NATIONAL OFFICE REPORT
Real Estate Investment Research
Research Services
2398 E. Camelback Road | Suite 550 | Phoenix, AZ 85016
(602) 687-6700
www.MarcusMillichap.com
2015 National Office Report
To Our Valued Clients:
Economic and investment conditions throughout commercial real estate are the healthiest they have been in years. The significant acceleration of GDP growth last year set the economy on a course of self-sustaining expansion, broadly led by uptrends in
business and residential investment, exports and consumption. Payroll expansion hit a 15-year high, supporting hints of emerging
wage growth, and equity returns lifted consumer confidence to its highest level since the early 2000s. Household wealth now
measures 17 percent above the 2007 peak and corporate profits stand near record levels. Risks to economic momentum remain,
however. Weakened international economic growth, particularly in Europe, may detract from U.S. exports, and the rapid fall of oil
prices could stall or reduce business investment as uncertainty once again edges higher. A counterbalance is the positive impact
lower oil pricing will likely have on consumer spending.
The Federal Reserve concluded its quantitative easing program last year amid the positive coalescence of sustained economic
improvement, strengthened hiring trends, and surging consumer and business confidence. Going forward, the Fed will walk a
tightrope as the accelerating economy builds momentum. Lower energy costs will restrain inflation, reducing pressure on the Fed
to raise rates. Nonetheless, it’s probable the Fed will begin to tap the brakes this year, nudging the Federal Reserve rates upward,
but that is unlikely to occur before midyear and the actions will not be dramatic. With demand for U.S. Treasurys surging, particularly from international investors, interest rates once again plunged at the start of the year. This will likely influence Fed policies,
but a host of forces other than Fed rate hikes and inflation will influence the trajectory of interest rates and cap rates, including
investor sentiment, income growth and global cash flows.
Office properties have begun to post significant operational gains as the modest supply growth over the last few years meets
steady hiring gains. The accelerating momentum in tenant expansions and new leasing activity, together with the rapid reduction
in the number and quality of space options available to tenants, presents a compelling theme for office investment. Further, new
business formations and the reemergence of more cost-conscious tenants will drive demand for Class B/C space, particularly in
Central Business Districts and suburban locales with desirable amenities.
To help you with planning and executing your investment strategies in the coming year, we present the 2015 National Office Report. Included is our National Office Property Index (NOPI), a forward-looking ranking of 46 major metros that factors in emerging
trends and forecasts. We hope the included information offers insights and information that will help you generate exceptional
results this year.
Sincerely,
Al PontiusJohn Chang
Senior Vice President, National Director
First Vice President,
National Office and Industrial Group
Research Services
page 1
National Perspective
Executive Summary
National Office Property Index
Specialty Indexes
National Economy
National Office Overview
Capital Markets
Office Investment Outlook
Medical Office Outlook
3
4-5
6-7
8
9
10
11
12-13
Market Overviews
Atlanta
Austin
Baltimore
Boston
Charlotte
Chicago
Cincinnati
Cleveland
Columbus
Dallas/Fort Worth
Denver
Detroit
Fort Lauderdale
Houston
Indianapolis
Jacksonville
Kansas City
Las Vegas
Statistical Summary
Los Angeles
Louisville
Miami
Milwaukee
Minneapolis-St. Paul
Nashville
New Haven
New York City
Northern New Jersey
Oakland
Orange County
Orlando
Philadelphia
Phoenix
Pittsburgh
Portland
Riverside-San Bernardino
Sacramento
Salt Lake City
San Antonio
San Diego
San Francisco
San Jose
Seattle-Tacoma
St. Louis
Tampa-St. Petersburg
Washington, D.C.
West Palm Beach
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32-33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
Client Services
Office Locations62-63
Contacts, Sources and Definitions
64
Developed by Hessam Nadji, Senior Vice President, Chief Strategy Officer, and John Chang, First Vice President, Research Services. The Capital Markets section was co-authored by William E. Hughes,
Senior Vice President, Marcus & Millichap Capital Corporation. Additional contributions were made by Marcus & Millichap market analysts and investment brokerage professionals nationwide.
page 2
Executive Summary
National Office Property Index (NOPI)
■■ Software and tech firms clinched rankings for San Francisco (#1), San Jose (#2) and Seattle-Tacoma (#3), which edged out
New York City (#4). Los Angeles (#14) slid from fifth place and momentum markets dislodged San Diego (#8) by one. Plunging
vacancy and limited supply lifted Orange County (#5) three spots.
■■ Forecast vacancy declines exceeding 100 basis points and 3.0 percent-plus job growth propelled West Palm Beach (#28),
Fort Lauderdale (#35) and Jacksonville (#38) each seven places; Tampa-St. Petersburg (#24) and Orlando (#34) advanced
six and five places, respectively; and Miami (#7) improved four. Synergistic tech, energy and healthcare industries launched
Denver (#6) three places and Nashville (#9) six spots. Austin (#11) rose six places and Dallas/Fort Worth (#20) leveled up
five rungs.
■■ Supply risk relative to demand muted rankings for Phoenix (#21) and Washington, D.C. (#26). Northern New Jersey (#41),
Cincinnati (#43) and Detroit (#46) posted large declines. Improved Midwestern rankings include Kansas City (#29) and Indianapolis (#30). Suburban vacancy clipped three spots from Chicago (#22). Columbus (#27) and Philadelphia (#25) stayed
relatively stable.
National Economy
■■ Employers added 2.95 million jobs in 2014, the strongest pace in 15 years. GDP growth surged 5.0 percent as of third quarter
2014, following 4.6 percent in the prior quarter. Nominal retail sales stand 18 percent higher than the prior peak, or 6.6 percent
adjusted for inflation.
■■ Accelerated consumer spending, manufacturing and trade, parallel with an improved fiscal outlook, will energize business and
residential fixed investment. Consensus estimates are 3.1 percent GDP growth in 2015 and an estimated 2.9 million to 3.1
million new jobs created. Upward pressure on wages will follow.
■■ The Federal Reserve concluded its quantitative easing program. Inflation remains in check, but liquidity creates upward pressure. Moderate rate increases are expected by midyear.
National Office Market Overview
■■ Robust job creation in office-using business segments along with the renaissance in demand from small to midsize businesses
bolstered leasing activity in less expensive Class B/C office space.
■■ Net absorption of 104 million square feet forecast in 2015 eclipses nearly 54 million square feet of completions. A diverse group
of 15 markets comprise nearly 81 percent of expected new supply and 50 percent of demand.
■■ Strong dynamics in office fundamentals will reduce the national vacancy rate by 80 basis points to 14.5 percent, resulting in
4.1 percent asking rent growth.
Capital Markets
■■ Investors assume more leasing and development risk and expand into more secondary markets despite ongoing cap rate
compression. The 500-basis point spread over 10-year Treasurys remains higher than the long-term average. CBD assets
command at least a 120-basis point yield premium relative to suburban assets.
■■ CMBS loans comprised nearly three-quarters of single-tenant loans in 2014 and dominated originations across all market tiers.
Investment Outlook
■■ Limited supply in most metros has contributed to a tangible shift in market dynamics, with late-recovery markets poised for
significant operational improvement, particularly in Florida.
■■ Office sales volume grew 18 percent, or approximately $126 billion, marking a seven-year high. Overall office values of $213
per square foot remain 9 percent below the 2007 peak and cap rates measure 7.1 percent.
page 3
Highest 2015 Completions
Highest 2015 Emp. Growth
12,000,000
10,000,000
Square Feet
8,000,000
6,000,000
4,000,000
2,000,000
Da
l
C
ity
Ph
oe
ni
Lo
x
s
An
ge
le
s
Nonfarm Employment (Y-O-Y Change)
De
nv
er
0
4%
Yo
rk
3%
Au
st
in
2%
N
ew
1%
H
ou
st
la
on
s/
Fo
rt
W
or
th
Sa
n
Se
Jo
at
se
tle
-T
ac
om
Sa
n
a
Fr
an
ci
sc
o
Austin
Dallas/Fort Worth
Portland
Fort Lauderdale
Denver
Las Vegas
Miami
Jacksonville
Nashville
Orlando
United States
0%
Lowest 2015 Emp. Growth
2015 National Office
Property
Index
Highest
2015 Net
Absorption
10,000,000
Coastal and Tech Markets Dominate Top Ranking
8,000,000
7.5% 10.0% 12.5% 15.0%
Vacancy Rate
16%
18%
Vacancy Rate
page 4
20%
a
nt
la
a
on
At
st
Bo
om
-T
ac
Se
at
tle
C
hi
ca
go
s
le
o
ge
An
s
Fr
n
Sa
Lo
an
ci
sc
se
Jo
th
n
rt
Sa
W
or
ity
C
k
s/
Mid-Tier Metros Bypassed by Strongest Employment Markets
Highest 2015 Vacancy Rates
Phoenix
Detroit
Las Vegas
Washington D.C.
Northern New Jersey
Dallas/Fort Worth
New Haven
Chicago
West Palm Beach
Cincinnati
United States
14%
lla
Da
N
Lowest 2015 Vacancy Rates
San Francisco
Nashville
New York City
San Jose
Portland
Salt Lake City
Louisville
Seattle-Tacoma
Columbus
Austin
United States
5.0%
Yo
r
ew
H
ou
st
on
Nonfarm Employment (Y-O-Y Change)
Fo
0.75% 1.50% 2.25% 3.00%
With few
exceptions, the top-ranked markets include barriers to entry, low
6,000,000
vacancy and above-average benefit from office-using employment growth.
These4,000,000
markets reflect an expanding spectrum of economic activity, including
technology,
trade, healthcare, professional and business services, and hos2,000,000
pitality. High-visibility locations for Google, LinkedIn, SalesForce.com and
Uber clinched0 repeat top rankings for San Francisco (#1) and San Jose (#2).
Seattle-Tacoma’s (#3) stellar growth in office-using jobs and dynamic tech
firms edged out New York City (#4), despite perennial low vacancy and high
demand from media and technology tenants. Plunging vacancy and surging
Class A rents boosted Orange County (#5) three spots, and Denver’s (#6)
economic diversity and outstanding job and population growth created an
three-rung surge that dislodged San Diego (#8) by one place. Synergistic
effects of tech and healthcare launched Nashville (#9) six rungs higher. Trade
and robust growth in financial and business services lifted Miami (#7) four
places. Austin (#11) picked up another six spots, ranking highly across most
economic and commercial real estate performance metrics. Despite healthy
market conditions, Portland (#10) and Boston (#12) slipped four and two
positions, respectively, bested by more dynamic markets. Ranked fifth last
year, Los Angeles (#14) tumbled due to comparatively less market vigor.
Troubled by the uncertainty of oil prices, Houston (#15) dropped one spot.
Square Feet
Cleveland
Washington, D.C.
New Haven
Cincinnati
Chicago
Kansas City
Philadelphia
Pittsburgh
Detroit
Northern New Jersey
United States
0%
22%
Despite significant improvement in space fundamentals, markets with stronger job forecasts surpassed many of the markets in this tier, such as Minneapolis-St. Paul (#16), Oakland (#17) and Charlotte (#18). Enormous spillover
tenant demand from San Francisco lifted Oakland’s rent gains. Corporate
expansions by regional and midsize firms nudged Atlanta (#19) up and kept
Columbus (#27) stable as rents begin to achieve traction. Dallas/Fort Worth
(#20) gained five positions, supported by remarkably high office-using job
growth and tenant demand. Tampa-St. Petersburg (#24) and West Palm
Beach (#28) also raced up the Index by six and seven spaces, respectively,
poised for much stronger rent gains as momentum builds across Florida.
Short-term supply risk relative to forecast demand muted rankings for Phoenix (#21) and Washington, D.C. (#26). Continued high vacancy in Chicago
Sq
4,000,000
2,000,000
De
nv
er
C
ity
Ph
oe
ni
Lo
x
s
An
ge
le
s
Yo
rk
Au
st
in
N
ew
H
ou
Da
st
lla
on
s/
Fo
rt
W
or
th
Sa
n
Se
Jo
at
se
tle
-T
ac
om
Sa
n
a
Fr
an
ci
sc
o
0
MSA
Highest 2015 Net Absorption
10,000,000
Square Feet
8,000,000
6,000,000
4,000,000
2,000,000
At
la
nt
a
N
ew
H
ou
st
on
Yo
rk
Da
C
lla
ity
s/
Fo
rt
W
or
th
Sa
n
Jo
Sa
se
n
Fr
an
ci
sc
Lo
o
s
An
ge
le
s
C
hi
ca
Se
go
at
tle
-T
ac
om
a
Bo
st
on
0
(#22) suburbs clipped three rungs from its ranking. Extremely low levels of
supply strengthened market conditions for Kansas City (#29) and Indianapolis (#30), both advancing two places.
Recovering Housing Markets Dominate Lower Rankings
Late-recovery Florida markets made huge strides in the Index as forecast for
vacancy declines in excess of 100 basis points and job growth greater than
3.0 percent propelled Orlando (#34), Fort Lauderdale (#35) and Jacksonville
(#38) five to seven places. Similar dynamics fueled Las Vegas’ (#39) ascent
from last place, but still-soft performance restrained Midwestern markets
St. Louis (#36), Cincinnati (#43) and Detroit (#46) which each tumbled six to
eight rungs. Cleveland fared better, climbing three places as significant redevelopment attracts more healthcare firms. Limited development tightened
vacancy in Northern New Jersey (#41) and New Haven (#45), but tepid job
growth pressured their rankings. Low supply and healthy office-using job
growth advanced Baltimore (#37) four spots.
Index Methodology
The NOPI ranks 46 major office markets based upon a series of 12-month,
forward-looking economic and supply and demand variables. Markets are
ranked based on their cumulative weighted-average scores for various indicators, including forecast employment growth, vacancy, construction,
housing affordability and rents. Weighing both the forecasts and incremental
change over the next year, the Index is designed to indicate relative supply
and demand conditions at the market level.
Users of the Index are cautioned to keep several important points in mind.
First, the NOPI is not designed to predict the performance of individual investments. A carefully chosen property in a bottom-ranked market could
easily outperform a poor choice in a top-ranked market. Second, the NOPI
is a snapshot of a one-year time horizon. A market facing difficulties in the
near term may provide excellent long-term prospects, and vice versa. Third,
a market’s ranking may fall from one year to the next even if its fundamentals are improving. The NOPI is an ordinal index, and differences in rankings
should be carefully interpreted. A top-ranked market is not necessarily twice
as good as the second-ranked market, nor is it 10 times better than the
10th-ranked market.
Rank
2015
Rank 14-15
20141 Change
San Francisco
1
1
n
San Jose
2
2
n
Seattle-Tacoma
34
s
New York City
4
3
t
Orange County
5
8
s
Denver
69
s
Miami
711
s
San Diego
8
7
t
Nashville
915
s
Portland
106
t
Austin
1117
s
Boston
1210
t
Salt Lake City
13
12
t
Los Angeles
14
5
t
Houston
15
14
t
16
13
t
Oakland
1716
t
Charlotte
1818
n
Atlanta
1920
s
Dallas/Fort Worth
20
25
s
Phoenix
2122
s
Chicago
2219
t
San Antonio
23
21
t
24
30
s
Philadelphia
2523
t
Washington, D.C.
26
24
t
Columbus
2727
n
West Palm Beach
28
35
s
Kansas City
29
31
s
Indianapolis
3032
s
Riverside-San Bernardino 31
33
s
Louisville
3226
t
Pittsburgh
3329
t
Orlando
3439
s
Fort Lauderdale
35
42
s
St. Louis
36
28
t
Baltimore
3741
s
Jacksonville
3845
s
Las Vegas
39
46
s
Cleveland
4043
s
Northern New Jersey
41
34
t
Sacramento
4238
t
Cincinnati
4336
t
Milwaukee
4444
n
New Haven
45
37
t
Detroit
4640
t
0
0
1
1
3
3
4
1
6
4
6
2
1
9
1
3
1
0
1
5
1
3
2
6
2
2
0
7
2
2
2
6
4
5
7
8
4
7
7
3
7
4
7
0
8
6
page 5
Specialty Indexes
High-Yield Index
MSARank
Las Vegas
1
High-Yield Markets
San Antonio
2
Las Vegas
Cleveland3
San Antonio
Baltimore4
Cleveland
Baltimore
Detroit5
Detroit
Louisville6
Louisville
Orlando7
Orlando
Jacksonville
Jacksonville8
Riverside-San
Bernardino
9
Pittsburgh
Pittsburgh10
0%
3%
6%
9%
12%
Three-Year
Average
Cap Rate
High-Yield
Markets
Las Vegas
Pricing
Discount From Peak
Price per Square Foot
0%
$0
3%
Price Decline
80%
60%
40%
6%
20%
9% 0%
12%
s
Ve
cr ga
Ri am s
ve
rs ent
o
id
eS.
At B.
la
Ta
n
m Ph ta
pa o
e
-S ni
t. x
Pe
te
.
Ba
lt
M imo
ilw re
au
k
O ee
ak
la
nd
le
da
er Cap Rate
Three-Year Average
d
u
La
rt
o
F
Pricing Discount
From Peak
Sa
La
Decline From Prior Peak
San Antonio
AverageCleveland
Baltimore
$250
Detroit
Louisville
$200
Orlando
$150
Jacksonville
$100
Riverside-San
Bernardino
Pittsburgh
$50
per Square Foot
Square Price
Feet (thousands)
La
Fo
s
r S V
Lo t W ac ega
r
o
s R rt am s
An ive h e
ge rs nt
Se
le id o
at A s e-S
tle u
.
-T sti Atl B.
Taac n an
t
o P
Sa Sa mpma ho a
n n J a-S en
Fr os t. ix
an e P
et
ci
e.
sc
o
Ba
lti
Sa D
lt en Mi mo
La v lw re
ke er au
C O kee
ity a
kl
M
an
ia
d
m
i
Yield-seeking investors frequently pursue secondary and tertiary markets.
While these smaller metros carry additional risk, their superior returns often
warrant buyer attention. As the economy builds momentum, many of these
smaller cities can expect performance gains that have yet to be factored into
pricing, offering investors unique opportunities. Although the Index highlights
markets with average cap rates that exceed other metros, premier submarkets within these cities often carry premium pricing. Limited appreciation potential and reduced liquidity can be a risk factor in high-yield markets, lending
greater weight to property operations when considering investment strategies.
This year’s Yield Index is led by Las Vegas, where the slow-to-recover housing market has stifled larger improvements in the office market. Local economic gains are drawing companies to the metro and will support increased
absorption this year. Still, vacancy rests near the nationwide high, second
only to Detroit, which sits in the No. 5 spot in this Index. Detroit’s supply of
large floorplates available in suburban office parks is spurring new suppliers
to establish offices in the area as the auto industry prospers. San Antonio,
the High-Yield Index’s second-place market, has suffered from defense cutbacks in prior years but is benefiting from rising spending in the healthcare
and government sectors, prompting local companies to expand payrolls in
the quarters ahead. Rising office-using employment in Cleveland and Baltimore, third and fourth positions, respectively, will bolster demand for office
space going forward.
Tempered Optimism Among Developers Places Downward Pressure
on Office Vacancy
As the economy builds momentum, development will re-emerge, lifting supply-side risks. Still, several markets remain insulated from overbuilding — at
least over the next year. The Supply-Risk Index identifies markets with the
lowest anticipated office completions as a percent of total inventory in 2015.
The reasons for restraint vary, but the limited deliveries of new properties offer owners and prospective investors the opportunity to build value as tenant
demand recovers in these markets.
Da
lla
s/
Change
Y-O-Y
Prior Peak
FromVacancy
Decline
Supply-Risk
Index Price Decline
Average Price
per Square Foot
Developer Confidence Markets
MSARank
$250
80%
Speculative Construction
2015 Decline in Vacancy
Oakland1
$200
60%
2,000
1802
St. Louis
$150
40%
Tampa-St.
1,500 Petersburg
1353
$100
Philadelphia4
20%
$50
1,000
90
Kansas
City
0% 5
$0
500
45
Cleveland6
le
da
r
Orange 0County
0 7
de
o
au
West Palm Beach
8
eg
i
tr L
D
n
Detroit9
Fo
Sa
Orlando10
Yield-Seeking Investors Venture Away
From Primary Markets For Greater Returns
ak
rt
St lanLdo W
pa . L s A ort
-S ou
ng h
i
el
Ph t. PSe s
e
ila eatet A s
t.le u
d
Ka el
s
ns phi Tac tin
as a S om
C SCai n an a
le ty
ve Fr Jos
W
a
la
es
nd nci e
tP
sc
al
o
m
BeS
aca De
De hlt La nv
k e
t
O roit e C r
rla
nd M ity
o
ia
m
i
Square
FeetFeet
(millions)
Square
(thousands)
180
2015 % Change to Inventory
135
0.16%
90
0.12%
45
0.08%
0
o
0.04%
g
e
Di
n
0%
Sa y
t
n
ou
C
e
g
an
Ta
m
O
Da
lla
s/
Fo
0
r
O of New Supply
Limited Risk
quare Feet (millions)
210
0.12%
page140
6
0.08%
70
0.04%
0%
Inventory Annual Growt
Office Inventory
Sources: CoStar Group, Inc., Real Capital Analytics
280
0.16%
0
Growth
Inventory
Change
VacancyAnnual
Y-O-Y
Limited Risk of New Supply
2,000
Office Inventory
1,500
280
1,000
210
500
140
0
70
Oakland tops the year’s Supply-Risk Index for the second year in a row
as developers concentrate their efforts in the other Bay Area markets. St.
Louis takes the No. 2 spot this year, joined by fellow Missouri metro Kansas City at No. 5. A slow recovery in these markets has limited the need for
new space and developers are reluctant to begin new projects without a
tenant in place. With office vacancy well below the national average in both
markets, an uptick in office-using employment should backfill additional
dark space this year, generating future supply constraints. On the East
Coast, construction remains low in third-ranked Tampa-St. Petersburg;
nonetheless, a recovery of all of the jobs lost during the recession in the
primary office-using sectors last year will boost demand for traditional office space. In Philadelphia, a brief pause in construction earned the metro
the fourth position in the Index. However, developers will resume construction with two large build-to-suit projects underway that will significantly
boost deliveries over the next two years.
Specialty Indexes
Values Significantly Below Pre-Recession Peak
In Many Markets
The economic recovery has not favored all markets equally, and advances
in property performance have yet to achieve their potential in some metros.
The Opportunity Index highlights markets that offer the widest pricing discount from their pre-recession peak but have strong ofice-using employment
forecast for 2015. These markets offer the potential for rapid appreciation as
significant occupancy gains manifest. Although risks tend to run higher, these
metros could offer outsized returns as pricing moves toward pre-recession
levels.
Opportunity Index
High-Yield Markets
MSARank
Las Vegas
Las Vegas
1
San Antonio
Sacramento2
Cleveland
Riverside-San Baltimore
Bernardino
3
Detroit
Atlanta4
Louisville
Phoenix5
Orlando
6
Jacksonville
Riverside-San
Bernardino
Fort
Lauderdale
7
Pittsburgh
Baltimore8
0%
3%
6%
9%
12%
Milwaukee9
Oakland10
Three-Year Average Cap Rate
Price Decline
80%
$200
60%
40%
20%
0%
Sa
La
s
Ve
cr ga
Ri am s
ve
rs ent
o
id
eS.
At B.
la
Ta
nt
P
m
a
pa ho
-S eni
t. x
Pe
te
.
Ba
lt
M imo
ilw re
au
k
O ee
ak
la
nd
le
a
rd
e
ud
a
tL
r
0%
Fo
3%
6%
9%
12%
Da Price Square
per Square
FeetFoot
(thousands)
l
La las/
Fo
s
Sa Ve
r
c gL t W
Ri ram asos or
An th
ve
rs ent
ge
id S o
le
e- ea
S t A s
At .Bt.le-T ust
la
a in
Ta
n
m Ph S ta S com
pa o a an a
-S eni n F J
t. x ra os
Pe
nc e
te
is
.
co
Ba
lt S
M imoalt De
ilw re L nv
ak e
au
e r
k
C
O ee
ity
ak
M
la
ia
nd
m
i
Three-Year
Average CapMarkets
Rate
Developer
Confidence
Speculative
Construction
2015 Decline
Developer
Confidence
Indexin Vacancy
Pricing Discount From Peak
2,000
180
MSARank
Average Price per Square Foot
Price Decline
Dallas/Fort
Worth
1,500
1351
Los$250
Angeles
80%2
1,000
90
$200
Austin3
60%
500
45
Seattle-Tacoma4
$150
40%
San$100
Jose
0 5
0
20%6
go
San Francisco
$50
e
Di
San Diego
n
0% 7
$0
Sa e
l
Denver8
a
d
er
Salt Lake City
9
ud
a
L
Miami10
rt
Limited Risk
Fo of New Supply
0.16%
0.12%
180
0.08%
135
0.04%
90
0%
y
45
nt
Fo
ak
r
Lo tTW
am S lan
d
t
o
s
An rptah- . Lo
ge St uis
Se
lPe . P
at A shila et
tle u
d e
-T sKtia elp .
ac nns h
o
a ia
Sa Sa maC s C
n n J le ity
FrW os ve
ane e
la
nd
csti
sPc
aol
m
Be
Sa D
ac
lt en
La v De h
e
ke r
tr
C Orl oit
ity an
do
M
ia
m
i
O
0
ge
ou
C
go
n
ra
O
n
Sa
0
e
Di
Da
lla
s/
Square Feet
(thousands)
Square
Feet (millions)
Office Inventory
280
210
2,000
140
1,500
70
1,000
0
500
Growth Change
AnnualVacancy
InventoryY-O-Y
Sources:
CoStar
Group,
Inc., Real
Capital Analytics
Limited
Risk
of New
Supply
Office Inventory
280
Inventory Annua
High-tech markets, most notably in Texas and California, will dominate this
years’ Developer Confidence Index. Significant speculative construction in
Dallas/Fort Worth and Austin positioned these Texas markets in the top 5 of
the Index. Sizable employment gains fueled by corporate expansions and relocations in Dallas/Fort Worth and space demand driven by the thriving technology sector in Austin have developers progressing on a number of speculative
projects this year, though this space will pose little threat to vacancy. Growth
in the technology sector is also encouraging speculative development in San
Jose and Seattle-Tacoma. Several speculative projects are currently under
construction in both markets, yet vacancy is expected to contract more than
50 basis points in both metros. Developers are more confident in Southern
California as well. Builders in Los Angeles will meet an expected rise in space
demand with more than 1.5 million square feet of speculative development
underway. Still, vacancy during 2015 is expected to tumble in Los Angeles.
Other noteworthy markets with a growing technology presence that appear
on the Index include San Francisco, Salt Lake City and Denver.
High-Yield Markets
Las Vegas
San Antonio
$150
Cleveland
Baltimore
$100
Detroit
$50
Louisville
$0
Orlando
Jacksonville
Pittsburgh
Feet (millions)
As the national economy gains momentum, many companies are expanding headcounts and reevaluating their space requirements, anticipating future growth. Demand is particularly strong for buildings with large blocks of
contiguous space and Class A amenities. Capitalizing on elevated space
demand, developers are gaining confidence and breaking ground on speculative projects in several markets. The Developer Confidence Index highlights
markets with the highest increase in speculative office space as a percentage of overall inventory while projected net absorption is forecast to reduce
vacancy this upcoming year.
$250
Change
VacancyFrom
Y-O-Y Decline
Prior Peak
Speculative Building Reflects Developer Confidence
Pricing Discount From Peak
Decline From Prior Peak
After recording steep declines during the housing crisis, the top 4 markets
in this year’s Opportunity Index are continuing to gain ground, albeit slowly.
Soft rent growth since the end of the recession has hindered NOI improvement. Limited construction and rising office-using employment will create
additional demand for office space, prompting operators to lift rents for available space in the quarters ahead. Still, the average price per square foot of
office properties in the top two markets of this Index is less than half of the
pre-recession peak. Las Vegas tops this year’s Opportunity Index, with prices 59 percent below the prior peak, while Sacramento and Riverside-San
Bernardino follow at 52 percent and 48 percent, respectively. Atlanta and
Phoenix round out the top five. Overall tenant demand in Atlanta will enable
operators to increase rents in the near term, directly impacting the financial
performance of many office properties.
210
0.16%
page 7
0.12%
140
0.08%
National Economy
Economic Performance Confirms a Self-Sustaining
Expansion that Looks to Extend Through 2015
Employment Trends
Total Employment
Office-Using Employment
Y-O-Y Change
6%
3%
0%
-3%
-6%
Annualized Quarterly Change in GDP
90 92 94 96 98 00 02 04 06 08 10 12 1415**
U.S. GDP
10%
5%
0%
-5%
-10%
90
95
00
05
10 14* 15**
Household Wealth Distribution
Value of Assets (trillions)
Stocks/Bonds/Mutual Funds
Checking/Saving/Money Market
Owner Occupied Real Estate
60%
45%
15%
0%
88 90 92 94 96 98 00 02 04 06 08 10 12 14
Unemployment Rate vs. Treasury
10-Year Treasury Rate
12%
16%
9%
12%
6%
8%
3%
4%
85
90
95
00
05
10
* Estimate** Forecast v Through Third Quarter
page 8
14
0%
Unemployment Rate
Unemployment Rate
80
The sharp decline in oil prices in the second half of last year will boost consumption and lift business performance, but it also creates some new risks.
Increased uncertainty and prospects that oil prices could fall too much
merge with broader risks such as inflation, weaker global growth, and instability in the Middle East and Ukraine. Some of these appear to be more
transitory effects that will be partially offset by stronger domestic economic
performance. Nominal retail sales now measure 19 percent higher than the
prior peak, or 5.2 percent adjusted for inflation. In addition, corporate profits
stand 27 percent above their 2006 peak and 69 percent above the 2009
trough. The Federal Reserve concluded its bond purchase program, but
downward pressure on inflation, the longer term impact of depressed oil
prices, and signs of slack in the labor market remain concerns.
2015 National Economic Outlook
30%
0%
Steady consumption gains, accelerated hiring and rising business investment kept the U.S. economic recovery on point throughout 2014, despite
copious headwinds. Third-quarter GDP measured 5.0 percent growth, on
the heels of 4.6 percent in the prior quarter, and payrolls continued to build
momentum, with 2.95 million jobs added in 2014. Not only has the U.S.
more than regained the jobs lost during the recession, but this expansionary cycle now exceeds the 8.2 million jobs added in the first decade of the
2000s. As of year-end 2014, job gains for the last six months have averaged
nearly 264,000, and unemployment ticked down 110 basis points from last
year to 5.6 percent. Moreover, the increase in the number of hours worked,
decrease in the number of workers in part-time jobs for economic reasons,
and sharp decline in the unemployment rate for workers with less than a
high-school diploma reflect improvement at a deeper structural level.
■■ Consumer Spending, Housing and Manufacturing Will Propel Growth:
GDP is forecast for 3.1 percent growth and the U.S. should add an estimated 3.1 million to 3.5 million jobs in 2015. Further declines in oil prices
could potentially tamp down near-term investment and hiring in energy-related business until global demand rises to meet ramped up production. The silver lining is that lower gasoline prices will expand capacity
for discretionary consumer spending. Efforts to subdue the downtrend in
homeownership by reducing the minimum required downpayment could
boost single-family housing. Lofty sales of autos and durable goods will
expand the manufacturing sector.
■■ Office-Using Job Growth Accelerates Across Most Metros: The primary
predictor of office demand, office-using jobs will continue to recover well
ahead of total non-farm employment. Hiring by small to midsize businesses,
which lagged in the current recovery cycle, has recently accelerated and will
ensure greater depth and breadth of office sector recovery in the coming year.
■■ Fed Walks a Tight Rope Flanked by Debt Ceiling and Budget Debates:
Long-term inflation remains tethered to the Federal Reserve target, but
the liquidity injected into the system creates potential for rapid economic
acceleration and inflationary pressures. This may be offset by falling energy costs that could introduce deflationary pressure. Congress passed
legislation to fund the government through September 2015, but debt
ceiling and other budgetary items remain a wild card for the coming year.
National Office Overview
Increased demand for concentrated amenities and urban office locations favored Class A buildings, which captured more than 60 percent of absorption
last year, creating a pivotal 80-basis point slide in vacancy to 16.4 percent
and asking rent growth of 2.9 percent. Class B/C demand, particularly in
urban locations, surged 25 percent, resulting in a 60-basis point decline in
vacancy to 14.8 percent and asking rent growth of 3.7 percent. The overall
national vacancy rate receded 60 basis points to 15.3 percent. New hires
and rising rents have catalyzed momentum in office expansions and new
leases, as well as significant pre-leasing activity, shifting the dialogue toward
an accelerating reduction in space options available to tenants.
■■ Metro Office NOIs Reflect Convergence in Regional Economic Performance: Generally, this is good news. However, the Texas and Colorado
markets face higher risks from declining oil prices and the potential contraction in energy-related economic activity, particularly given the significant new office construction underway. Fortunately, many of these metros
have diversified well since the 1980s oil bust.
Square Feet Completed (millions)
22%
135
18%
90
14%
45
10%
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 1415*
6%
200
Class A
Class B/C
100
0
-100
-200
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
Office Asking Rent Trends
Asking Rent per Square Foot
$30
$28
$26
$24
$22
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
Office Vacancy by Class
Class A
Class B/C
20%
Average Vacancy Rate
■■ Financing Options Lift Construction, Rehab and Repositioning Opportunities: Higher rents across most product segments, fully priced CBD
space, and the reemergence of more cost-conscious tenants in the Class
B/C market will induce repositioning efforts in the CBD. These factors will
also spur speculative construction in job-centric, high-amenity suburban
locales. Tech, energy and medical industries drive markets with construction pipelines exceeding 1 million square feet, including Houston, Dallas/
Fort Worth, the San Francisco Bay Area, New York City and Boston. Just
15 markets account for 81 percent of forecast supply for 2015 and about
50 percent of forecast demand.
Vacancy Rate
Net Absorption by Property Class
2015 National Office Market Outlook
■■ Operational Gains Accrue to Broader Swath of Markets: Office operations have lagged the overall recovery in commercial real estate, but vacancies will finally descend below the 15 percent threshold in 2015, lifting
rent growth to 4.1 percent. Forecast demand for 104.1 million square feet
will outstrip 56 million square feet of new supply slated to deliver this year.
Rent growth is forecast across all 46 markets, with only four expecting flat
vacancy or a modest increase. Early-recovery markets continue to post
healthy rent growth; late-recovery markets reap strong rent and occupancy gains, particularly in Florida. Improved revenue growth is also expected
in Riverside-San Bernardino, Atlanta and Phoenix.
Completions
180
Vacancy Rate
The U.S. economy added 2.95 million jobs in 2014, the strongest growth
in 15 years. Office-using business segments have consistently represented
more than one-third of job creation, accelerating office demand and eroding
much of the space overhang that predated the recovery. Further, the renaissance of demand from small to midsize businesses helped broaden overall
demand to less expensive Class B/C office space. Limited supply growth in
all but the largest primary metros has contributed to a shift in market dynamics, with late-recovery markets poised for significant operational improvement. A five-year supply deficit has helped stabilize fundamentals despite
workspace efficiency and collaborative spaces shaving nearly 30 percent
from the footprint of office tenants.
Office Construction and Vacancy
Square Feet Absorbed (millions)
Office Performance Accelerating
As Limited Construction Meets Rising Demand
16%
12%
8%
4%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
* Forecast
Source: CoStar Group, Inc.
page 9
Capital Markets
Broad Capital Availability and Exceptionally
Low Interest Rates Boost Investor Appetite
U.S. CMBS Issuance
CMBS Issuance (billions)
$240
$180
$120
$60
$0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15**
Office Mortgage Originations
by Lender
Percent of Total
100%
Private/Other
Financial
Insurance
CMBS
Reg'l/Local Bank
Int'l Bank
Nat'l Bank
75%
50%
25%
0%
10 11 12 13 14*
Office Cap Rate Trends
Office Cap Rate
Average Rate
12%
Cap Rate Long-Term Avg.
9%
490 bps
530 bps
500 bps
230 bps
10-Year Treasury
3% Long-Term Avg.
630 bps
94 96 98 00 02 04 06 08 10 12 14
Note: Sales $1M and above
10-Year Treasury Vs. Core Inflation
Core Inflation
Average Rate
6.0%
Avg. 10-Year Treasury
4.5%
3.0%
1.5%
Avg. Core Inflation
0%
04
06
Note: Sales $1M and above
* Estimate ** Forecast
page 10
Office mortgage originations grew 11 percent year over year as of third
quarter 2014, measuring 6.0 percent year to date. CMBS conduits stole
market share from most other segments, originating nearly one-third of office loans, followed by 28 percent through national and regional banks, and
life companies at 13 percent. CMBS loans comprised nearly three-quarters
of single-tenant loans in 2014 and, more generally, dominated originations
across all market tiers. CMBS issuance continues to climb at a steady pace,
advancing to a post-crisis high watermark of $90.4 billion in 2014.
480 bps
6%
0%
Sustained economic momentum, robust investor demand and lender optimism have created a healthy and diverse marketplace for U.S. commercial
real estate investment as a compelling alternative asset in a low-yield global
environment. Low interest rates remain a key driver of the abundant capital in the market and equity spreads over mortgage and Treasury rates are
still wide from an historical perspective. This will cushion investments from
an eventual rise in interest rates. As the liquidity impact of Fed intervention
begins to fade, other forces that influence the trajectory of interest rates will
take on renewed importance, including the timing and magnitude of rate
changes, investor sentiment, income growth, inflation and global capital
flows. Heated competition among lenders has resulted in a modest easing
in underwriting standards, although no evidence has yet emerged to signal
undue risk-taking. Loan-to-value measures remain below peak levels and
have changed little over the past year. Similarly, investors’ confidence and
appetite for risk have increased, and they are assuming more leasing and
development risk and expanding into a greater number of secondary markets despite ongoing cap rate compression.
08
10
12
14
2015 Capital Markets Outlook
■■ Debt and Equity Markets Remain Healthy; Interest Rate Risk Likely Nominal: Favorable macroeconomic conditions will emerge, with lower energy
costs and an accommodative Fed to mitigate possible upticks in interest
rates. Debt terms should stay favorable, supporting liquidity and reducing
risk of an abrupt change in cap rates. Another round of debt ceiling discussions could pose risks to the pace of economic growth early in 2015.
■■ The Office Cap Rate Spread Over 10-Year Treasuries Remains Higher
than Long-Term Average: The 500-basis point spread is little changed
from one year ago but 100 basis points tighter than 2012. The premium
paid for a CBD location narrows the spread to 340 basis points, compared with a suburban asset at 460 basis points. Higher financing costs
for riskier investments could erode some of the cap rate arbitrage of assets in suburban, secondary/tertiary markets, and value-add assets, but
lender competition will help contain financing costs and the pace of occupancy and rent growth in these segments is forecast to accelerate over
the next few years as many Class A properties in core markets are fully
priced and leased.
■■ Capital Flows to Broader Market Segments: Institutional and foreign
capital will maintain steady demand for core assets in primary markets.
Robust investor demand will compress going-in yields for assets in secondary and tertiary markets, but increased lending activity by national
banks and CMBS conduits supports property values.
Office Investment Outlook
Performance Gains and Ready Access to Capital
Support Accelerating Investor Activity
■■ Improved Operations and Increased Acquisitions Push Values: Total
sales activity could potentially set a new high tidemark in 2015, then remain robust for several years. The decline in commercial lending rates has
lifted both the current debt and equity spreads to 210 basis points. Investments today remain better positioned to absorb moderately higher rates
compared with the 2007 peak when spreads narrowed to 60-80 basis
points. Low yields and scarcity of product on the market will shift greater
demand to secondary and tertiary markets.
■■ Development and Renovation Offer Heightened Risk-Adjusted Returns
in Supply Constrained Markets: Existing Class A assets may be priced
at a premium to replacement cost. Late-recovery markets may offer superior leasing momentum and competitive operational metrics that support
higher yield potential.
■■ Minimal Construction and Accelerating Demand Lead to Improved NOI
Growth: The lag in office NOI growth in this recovery cycle resulted from
leases set at the bottom of the recession. As these leases expire and
space overhangs burn off, rent growth will accelerate, particularly in popular urban centers.
Average Price per Sq. Ft.
10%
$200
9%
$150
8%
$100
7%
$50
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
6%
Primary
Secondary
Tertiary
Average Cap Rate
10%
9%
8%
7%
6%
04 05 06 07 08 09 10 11 12 13 14
Office Transactions
by Price Category
$1M-$10M
Total Transactions
2015 Investment Outlook
Cap Rate
Office Cap Trends by Market Type
$11M-$20M
$21M+
2,400
1,800
1,200
600
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Office Buyer Composition
100%
Percent of Total
Office sales volume year to date through November 2014 measured $101.3
billion, nearly 15 percent higher than the previous year, with CBD sales surging
19 percent and suburban properties lifting 10.3 percent. December closure
of pending transactions would represent an 18 percent increase in annualized sales volume to $126 billion, marking a seven-year high. Cap rates compressed across all market tiers, with the sharpest contraction in CBDs and
secondary markets. Although CBD pricing remains relatively flat at $359 per
square foot over the past year, cap rates contracted another 50 basis points to
5.7 percent. Cap rates paid for suburban assets also declined 50 basis points
to 6.9 percent, although the price per square foot declined 7.3 percent to
$166 per square foot. Overall office values remain 19 percent below the 2007
peak of $295 per square foot, and cap rates measure 6.6 percent.
Price per Sq. Ft.
$250
Average Cap Rate
Although office valuations have accelerated ahead of NOI growth, investors
are increasingly focused on opportunities in the sector as improved fundamentals across a broader and deeper swath of asset tiers and markets
portend sustainable momentum. International investors still favor the safety and liquidity of CBD assets, particularly in high-profile gateway markets;
moreover, U.S. office space remains competitively priced relative to other
countries. Increasingly, improvements in suburban space fundamentals, particularly in amenity-laden urban-style hubs, and the significant arbitrage in
prices and cap rates have many investors seeking assets outside the CBD.
Measured on a per square foot basis, prices for CBD assets are more than
double that of suburban office assets, and cap rates are 120 basis points
lower. Preferred metros, including New York City, Chicago, San Francisco
and Washington, D.C., still account for the lion’s share of sales, but select
secondary markets, particularly those with major employment hubs in addition to the city center such as Atlanta, Houston and Dallas/Fort Worth, have
generated significant upticks in velocity.
Office Property Price Trends
75%
User/Other
Private
Public/REITs
Inst'l/Eq. Fund
Foreign
50%
25%
0%
10 11 12 13 14*
* Estimate v Through Third Quarter
page 11
Insured Non-Elderly Pop. (millions)
Healthcare Consolidation Bifurcating
Medical Office Market
Effects of Affordable Care Act (ACA)
on Health Insurance Coverage*
With ACA
Without ACA
260
245
230
215
200
14 15 16 17 18 19 20 21 22 23 24
Annual Physician Office & Hospital
Outpatient Visits
Hospital Outpatient
Physician Office
Visits per Capita
8
6
4
2
0
Under 18 Years 18-44 Years 45-64 Years
65+ Years
Expanded insurance coverage and the aging of the U.S. population support
a bright outlook for the medical office sector. Over the next 10 years, the 65plus age cohort, who average 2.5 times the number of physician-office visits
than the rest of the population, will grow by 17 million people. During the same
period, greater utilization of the insurance exchanges and Medicaid expansion
will help provide coverage to an additional 27 million non-elderly individuals.
These trends will undoubtedly boost healthcare needs in years to come, but
their impact on space demand has become difficult to quantify due to a growing physician shortage, proliferation of in-store clinics, telemedicine, evolution
of the care delivery model, and healthcare industry consolidation.
Already, the shift toward a more consumer-centric delivery model is encouraging hospitals and health systems to expand outpatient services. Major
providers, which, due to consolidation, account for a growing share of all
leasing decisions, tend to favor modern medical office properties. As a result, the lion’s share of new space demand is being funneled into late-vintage
buildings. While many earlier-vintage buildings will continue to fare well, outdated multi-tenant assets leased to small independent practices are likely to
bear the brunt of tenant attrition due to accelerating physician retirements
and hospital acquisitions of private practices.
Major Providers Drive Medical Office Development
U.S. MOB Supply and Demand Trends
Vacancy Rate
Completions
12%
28
11%
21
10%
14
9%
7
8%
08
09
10
11
12
13
14
15*
0
2014 MOB Completions
by U.S. Region
W.S. Cntrl
Square Feet Completed (millions)
Vacancy Rate
An estimated 8.8 million square feet of medical office space is currently targeted for delivery in 2015. Last year, 7.1 million square feet was completed.
Hospitals and health systems remain the driving force behind new construction — both on and off hospital campuses. Nationally, off-campus buildings account for a growing share of development activity, but multiple large
on-campus projects have recently come online or will be delivered this year.
Aside from the form and function of medical office space, healthcare providers increasingly rely on real estate to enhance their visibility within communities and create recognizable brands. From a marketing perspective, healthcare tenants are favoring properties that improve the patient experience,
be it through aesthetics, convenient parking or on-site diagnostic services.
Catering to consumer preferences will only become more critical in years
to come as providers compete for a share of the newly insured population.
Tenant Demand Focused on Late-Vintage Assets
SE
CA
Cntrl Plains
Pac NW
MW
NE
Mtn
U.S. medical office vacancy dipped modestly in 2014, ending the year at
9.7 percent. The tightest conditions can be found in the Pacific Northwest,
where vacancy hovers around 6.6 percent, followed by the Central Plains,
Southeast and California regions, which post vacancy rates in the mid- to
high-8 percent range. Mountain states report the softest conditions, with
vacancy in the region averaging approximately 13.7 percent.
Regional shares based on preliminary U.S. total of 7.1 million square feet
* Forecast
Sources: Congressional Budget Office, CDC/NCHS, CoStar Group, Inc.
page 12
At the national level, newer medical office buildings continue to capture the
vast majority of new tenant demand, with expanding hospitals and health
systems leading the charge. Net absorption among properties built since
Medical Office Vacancy Rates
4Q13
16%
10%
Cap rate compression in recent quarters can be attributed in part to the
favorable lending climate and more crowded buyer pool, but also reflects
healthcare industry consolidation. Hospital and health system mergers and
acquisitions, and overall expansion, have effectively raised the credit characteristics of the U.S. medical office sector, drawing more REIT and institutional
capital into the space. Based on preliminary estimates, REITs accounted for
30 percent of total dollar volume, more than twice their share in 2013.
tn
W
.S
.C
M
nt
rl
W
E
M
N
C
C
$20
$15
C
Pa
c
N
W
A
C
E
N
S
U
tn
rl
M
nt
SE
W
.S
.C
W
rl
Pl
M
ai
ns
$10
nt
Average Asking Rent per Sq. Ft.
$25
100%
75%
Institutional
Cross-Border
Public REITs
Private
User/Other
50%
25%
0%
12
13
14*
Based on trans. of $2.5M+ (excludes entity-level and partial-interest sales)
Medical Office Sales Trends
Price per Sq. Ft.
Cap Rate
$200
10%
$185
9%
$170
8%
$155
7%
$140
08
09
10
11
12
13
14*
Average Cap Rate
In 2014, cap rates edged down to an estimated 7.6 percent, which is within
20 basis points of the pre-recession average. On-campus properties with
credit tenants traded in the mid-6 to mid-7 percent range, while similar-credit
off-campus assets changed hands roughly 30 to 40 basis points higher. Cap
rates for buildings lacking credit tenants, on the other hand, were concentrated between 7.0 and 8.5 percent.
$30
MOB Buyer Composition
Percent of Total Dollar Volume
The favorable outlook for the medical office sector will continue to attract
more investors to the marketplace, supporting another uptick in transaction
velocity. Last year, sales accelerated roughly 15 percent, while the average
price advanced 5 percent to $193 percent square foot, which closely aligns
to the 2007 level. Prices varied dramatically by asset quality, location and
tenants’ credit. Properties with credit tenants, for example, traded at a nearly
40 percent premium to the overall market.
2014 Medical Office Asking Rents
Average Price per Sq. Ft.
Investment Trends
SE
Looking forward, the growing involvement of hospitals and health systems in
lease negotiations likely will inhibit rent growth, as major providers have both
scale and credit working in their favor. From an owner’s perspective, leasing
a sizable share of a building to a single high-credit tenant versus multiple
small providers not only lowers management costs but may also elevate the
value of a property itself. During 2014, asking rents remained fairly stable at
approximately $22.29 per square foot. By region, rents spanned a broad
spectrum, starting at less than $18.00 per square foot in the Central Plains
and approaching $29.00 per square foot in the Pacific Northwest.
N
W
nt
rl
Pl
ai
ns
4%
A
7%
Modern Buildings Commanding Premium Rents
While the age of a building, in and of itself, may not be central to tenants’
leasing decisions, it has become a relatively reliable indicator of an asset’s
desirability. Newer medical buildings, for example, tend to offer features
most coveted by today’s healthcare providers, such as flexible floorplans,
energy-saving designs and systems, and the digital infrastructure necessary
to fully integrate technology into their operations. Not surprisingly, late-vintage assets often command notable premiums. On average, asking rents
for properties constructed within the past five years currently run 35 percent
higher than rents for 1970s-vintage buildings.
4Q14
13%
Pa
c
Vacancy Rate
2009 reached 6.6 million square feet during the most recent 12-month period, which equates to 96 percent of the marketwide total. Nonetheless, there
is still plenty of room in the market for earlier-vintage buildings, particularly
those that are well managed and maintained. In fact, the tightest conditions,
by vintage, can be found among 1990s buildings, which collectively report
vacancy of 8.7 percent. That said, properties built in earlier decades generally post higher vacancy rates and are more likely to soften in years to come.
6%
* Estimate
page 13
Atlanta
Up 1 Place
Year-over-Year Change
Office-Using
4%
3%
2%
1%
0%
11
12
13
14*
15**
Office Supply and Demand
Absorption
Vacancy
4
24%
3
21%
2
18%
1
15%
0
11
12
13
14
15**
Vacancy Rate
Square Feet (millions)
Completions
12%
Rent Trends
Y-O-Y Rent Change
$22
4%
$20
2%
$18
0%
$16
-2%
$14
11
12
13
14
15**
-4%
|
2014 Rank: 20
Positive trends — strong employment growth, technology and healthcare
driven leasing activity, and subdued new development — will lower vacancy
and raise rents in the Atlanta office market this year. Job creation will accelerate as nearly every sector adds to payrolls. Lured by the talented workforce
and large corporate presence, companies will continue to announce expansions, boosting demand for office space across the metro. In Buckhead,
Salesforce plans to double its footprint to 50,000 square feet and healthcare
information provider Sharecare will lease 30,000 square feet, as both companies add room for new employees. Strong space demand in Buckhead
motivated developers to break ground on a 500,000-square foot speculative
office tower, which is scheduled for completion in 2016. Nearby in North Fulton, a growing technology corridor, General Motors is searching for a larger
floor print as the company reached capacity at its Roswell Innovation Center
and anticipates to add up to 400 IT jobs. Furthermore, the new Gwinnett
Technical College in North Fulton, which will be completed next year, will
attract additional technology companies to the area.
A growing pool of buyers will compete for a limited and diverse number of
office assets in the Atlanta metro, supporting sales activity this year. Optimism in the local economy and consistently improving property performance
are attracting out-of-state capital. These investors are often willing to pay
premiums for office assets, which is boosting competition and driving property values. This will excite more owners who were considering divesting
over the next few years. Properties in the Central Perimeter, Buckhead and
along Georgia State Route 400 will capture strong interest from REITs and
institutional buyers. Cap rates for best-in-class assets will remain in the low6 percent range. Buyers searching for higher yields will target properties in
west Midtown and in the Cumberland Galleria area.
2015 Market Outlook
■■ 2015 NOPI Rank: 19, Up 1 Place. Atlanta inched up 1 spot in the Index,
supported by a strong vacancy improvement forecast.
■■ Employment Forecast: Metro employers will generate 68,000 jobs this
year, expanding payrolls 2.7 percent. Office-using positions will account
for 25,000 new hires.
Sales Trends
$130
■■ Construction Forecast: Developers will finish 626,000 square feet in
2015, down from the 1.4 million square feet completed last year.
$120
■■ Vacancy Forecast: Vacancy will reduce 120 basis points to 16.4 percent
by year end. Last year, vacancy fell 110 basis points.
$110
$100
$90
Asking Rent
2015 Rank: 19
Speculative Office Project Reflects Confidence in Atlanta;
Health and Tech Sectors Fuel Space Demand
Employment Trends
Nonfarm
|
■■ Rent Forecast: Average asking rents will reach $20.12 per square foot
this year, a 1.9 percent increase. In 2014, rents advanced 3.3 percent.
10
11
12
13
14*
■■ Investment Forecast: A shallow pool of quality inventory will cause some
investors to stretch their preferences to include Class B assets with
lengthy leases in place.
* Estimate** Forecast
Market Forecast
page 14
Employment: 2.7% s Construction: 277K t
Vacancy: 120 bps t Asking Rents: 1.9% s
Austin
Up 6 Places
|
2015 Rank: 11
|
2014 Rank: 17
Austin’s Thriving Tech Sector Driving Job Creation,
Elevating Demand for High-Quality Office Space
■■ 2015 NOPI Rank: 11, Up 6 Places. The nation’s highest office-using employment growth forecast propelled Austin’s six-position rise in the NOPI.
6%
4%
2%
0%
11
Completions
■■ Rent Forecast: Asking rents will advance 4.8 percent in 2015 to $29.43
per square foot. Last year, rents increased 4.3 percent.
■■ Investment Forecast: Efforts to create a life sciences hub around the new
Dell Medical School could yield some strong value-add plays in north Austin. Just recently, Allergan committed to 90,000 square feet in an existing
vacant building in the submarket.
14*
Absorption
15**
Vacancy
18%
3
16%
2
14%
1
12%
0
11
12
13
14
15**
10%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$32
8%
$29
6%
$26
4%
$23
2%
$20
11
12
13
14
15**
0%
Sales Trends
■■ Vacancy Forecast: Austin’s vacancy rate will decline 20 basis points this
year to 12.0 percent. In 2014, vacancy ticked up 20 basis points.
13
4
■■ Employment Forecast: Employment growth will accelerate to 4 percent
in 2015 with the addition of 36,500 jobs. Office-using sectors will record
a 5.7 percent gain, accounting for 12,800 of the metro’s new positions.
■■ Construction Forecast: Approximately 2.9 million square feet of office
space will come online in 2015, up from 1.1 million square feet last year.
12
2015 Market Outlook
Office-Using
After holding steady last year, sales velocity should accelerate in 2015 as
listing activity rises. A growing share of Class B asset owners who purchased
at the previous cyclical peak will find themselves positioned to sell at healthy
profits. High Class A rents have already started to push tenant demand
across the quality chain, particularly in the CBD, which has prompted private investors to target small to midsize Class B/C assets for repositioning.
Overall, though, institutional investors and REITs will remain the dominant
players in Austin’s office market; last year, the former accounted for more
than 60 percent of overall dollar volume. On average, cap rates in Austin
dipped 30 basis points in 2014 to 7 percent but started in the low-6 percent
range for well-located Class A deals and net-leased, credit-tenant medical
office buildings.
Nonfarm
8%
Vacancy Rate
Austin’s office market remains poised for improvement in 2015 as the metro
leads the nation in job growth. A well-educated workforce and relatively affordable living and moderate business costs continue to lure high-tech firms
to the market. The elevating demand for Class A office space is supporting
significant rent growth this year. While strong leasing activity has renewed
speculative development, most projects are pre-leasing prior to delivery. The
374,000-square foot Colorado Tower and 195,000-square foot IBC Bank
Plaza in the CBD, for example, broke ground with minimal pre-leasing but
were recently delivered with commitments for more than 90 percent of the
space. To the north, a speculative building underway at The Domain recently
landed Amazon as a primary tenant. In other parts of the metro, including
the north/northwest suburbs, the introduction of speculative buildings may
cause notable upticks in vacancy this year, but tenant demand should catch
up quickly as the delivery of thousands of housing units elevated the need
for services in the area.
Employment Trends
$220
$190
$160
$130
$100
10
11
12
13
14*
Employment: 4.0% s Construction: 1.8M s Vacancy: 20 bps t Asking Rents: 4.8% s
Market Forecast
page 15
Baltimore
Up 4 Places
Office-Using
8%
6%
4%
2%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
18%
3
16%
2
14%
1
12%
0
11
12
13
14
15**
Vacancy Rate
Completions
10%
Rent Trends
Y-O-Y Rent Change
$22
8%
$21
4%
$20
0%
$19
-4%
$18
11
12
13
14
15**
-8%
Sales Trends
|
2014 Rank: 41
The Baltimore metro office market will make headway this year as biomedical and technology companies expand payrolls and their office footprints.
Cisco Systems Inc. signed a 10-year lease on 100,000 square feet of Class
A space in Maple Lawn to consolidate five buildings and expand operations.
The company expects to add 200 staff to its current 350 employees over
the next few years in Howard County. To the east, the nonprofit East Baltimore Development Inc. is initiating an 88-acre mixed-use project that will
include residential and retail, along with lab and office space for companies
affiliated with Johns Hopkins University. To the South of Baltimore, office
construction projects are multiplying, including the 133,000-square foot Annapolis Corporate Park in Annapolis and 120,000-square foot Corporate
Park Arundel Preserve in Hanover. Traffic flow to office complexes from the
northeast of the metro will improve with two new ramps on the White Marsh
Boulevard and the JFK Memorial Highway interchange, which took seven
years to complete.
Overall transaction velocity will remain stable in 2015, as deal volume expands slightly. While the number of trades remains relatively steady, the price
per square foot will continue to rise as investor interest in this market exceeds available supply. Properties in Columbia, Annapolis, Baltimore and
along Highway 83 will stay in high demand, creating bidding competition.
Local investors and high-net-worth individuals from out of state will seek out
assets in the 50,000-square foot range, near amenities attractive to employees. The minimal yet steady decline in cap rates over the past three years
will endure, allowing new buyers to find leased-up properties with sustained
yield-growth potential.
2015 Market Outlook
■■ 2015 NOPI Rank: 37, Up 4 Places. Mild rent growth limited Baltimore’s
four-place rise in the ranking.
■■ Employment Forecast: In 2015, employers will add 22,000 positions,
representing a 1.6 percent rise. This includes 12,000 office jobs, a boost
of 3.7 percent, after fostering a 2.9 percent climb last year.
■■ Construction Forecast: Completions will total 805,000 square feet this
year, moderating slightly from last year’s deliveries of nearly 1 million
square feet.
$140
■■ Vacancy Forecast: As space needs decline per worker and signed leases
are geared toward newly built spaces, the vacancy rate will ease 20 points
to 14.5 percent. This comes after a 60-basis point jump up a year ago.
$130
$120
$110
$100
Asking Rent
2015 Rank: 37
Bioresearch and Technology Companies Hiring,
Boosting Office Absorption
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Asking rents will increase 0.9 percent to $21.28 per
square foot, aligning with a modest ebb in the vacancy rate. This comes
after a 0.1 percent lift in the 2014 average rent.
■■ Investment Forecast: The metro will continue to appeal to individual buyers seeking higher yields and smaller properties compared with other cities in the Eastern U.S.
Market Forecast
page 16
Employment: 1.6% s Construction: 57K t Vacancy: 20 bps t Asking Rents: 0.9% s
Boston
Down 2 Places
|
2015 Rank: 12
|
2014 Rank: 10
Biopharmaceutical and Corporate Expansion —
The Right Medicine For Boston Office Vacancy
■■ Employment Forecast: Metro employment will rise 1.7 percent this year
with the addition of 43,000 jobs. In the traditional-office using sector,
16,200 workers will be hired.
■■ Construction Forecast: After completing 2.3 million square feet of office
space last year, developers will deliver 2.2 million square feet in 2015.
■■ Vacancy Forecast: In 2015, vacancy will retreat 60 basis points on net
absorption of 3.8 million square feet to 13.5 percent. Vacancy fell 50 basis
points last year.
■■ Rent Forecast: Tightening conditions will enable operators to lift asking
rents. Average rents will reach $31.84 per square foot, a 4.8 percent gain,
slightly down from the 5.1 percent jump in the previous year.
■■ Investment Forecast: The thriving healthcare sector will fuel additional demand for a limited number of medical-office properties, pushing up property values and motivating owners to test the market.
3%
2%
1%
0%
11
12
13
14*
15**
Completions
Absorption
Vacancy
6.0
16%
4.5
15%
3.0
14%
1.5
13%
0.0
11
12
13
14
15**
12%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 12, Down 2 Places. Three other markets outpaced
Boston’s forecasts in the NOPI, pulling the metro out of the top 10.
4%
Y-O-Y Rent Change
$32
12%
$30
8%
$28
4%
$26
0%
$24
11
12
13
14
15**
-4%
Sales Trends
2015 Market Outlook
Office-Using
Boston’s strong demand drivers and consistent performance gains will sustain heightened investor interest this year. More foreign capital will enter the
Boston market, particularly from Canada and Europe, widening the pool of
motivated buyers. Institutional investors will continue to search for best-inclass properties in established employment hubs, though the limited number
of listings is bolstering competition and driving up property values. Office
values in the metro will closely align with peak levels, and some buyers may
move their search to other markets. Opportunistic buyers will strongly target
properties with re-tenanting and upside potential within dense urban areas
on either side of Interstate 93.
Nonfarm
Vacancy Rate
Boston office demand will be fueled by biomedical, finance and tech company expansions and relocations. Though several biopharmaceutical companies may scale back global operations, several plan to expand their footprints in the Boston metro, lured by a growing number of startups and the
proximity to teaching hospitals and research institutions. One of these companies is Novartis, which will add 550,000 square feet of lab and office space
to its Cambridge campus, the largest project due for completion this year.
Another major development to be delivered this year is the 450,000-square
foot Boston headquarters for PricewaterhouseCoopers in the vibrant Seaport District, which will house an additional 500 employees. Companies are
locating outside the core as well. GE Healthcare will move its U.S. headquarters from New Jersey to a 160,000-square foot renovated building in Marlborough. Overall, developers will remain focused on build-to-suits, though
a few speculative projects are expected to come online in the second half
of the year. Nevertheless, elevated demand will surpass deliveries in 2015,
slicing vacancy and contributing to another year of respectable rent growth.
Employment Trends
$240
$220
$200
$180
$160
10
11
12
13
14*
Market Forecast
page 17
Charlotte
No Change
Office-Using
4%
3%
2%
1%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
18%
3
16%
2
14%
1
12%
0
11
12
13
14
15**
Vacancy Rate
Completions
10%
Rent Trends
Y-O-Y Rent Change
$22
4%
$21
2%
$20
0%
$19
-2%
$18
11
12
13
14
15**
-4%
Sales Trends
Asking Rent
2015 Rank: 18
|
2014 Rank: 18
Rising Income Trends Stir Investor Demand;
Waning Construction Lifts Occupancy
Employment Trends
Nonfarm
|
Strong job gains will help generate demand for office space as a broad selection of companies expand in the market. Gains in the financial activities
and the professional and business services sectors in particular will push office-using employment up 11 percent above the prior peak this year. Space
demand is rising as vendors catering to the banking industry and technology
companies expand. For instance, AvidXchange will create 600 jobs by 2018
and build an 115,000-square foot headquarters at the N.C. Music Factory
in Uptown. Meanwhile, Cognizant Technology Solutions and RingCentral Inc.
plan to hire 150 and 100 workers, respectively. Developers are responding to
improving occupancy by breaking ground on speculative office projects this
year. The largest building is the first phase of Capitol Towers in SouthPark.
The 10-story, 240,000-square foot speculative development is scheduled for
completion in the second half of the year. Overall, construction deliveries will
slow in 2015, enabling vacancy to slip below 13 percent for the first time since
mid-2008. Tightening vacancy will enable operators to increase rents for the
fourth consecutive year.
Rising net operating incomes, a growing economy and high returns for stable assets will attract the attention of a wide array of investors this year.
Institutional buyers will remain dominant in Uptown Charlotte, searching for
Class A properties. In this submarket, initial yields for upper-tier properties
can dip into the low-6 percent range. Investors looking for additional yield in
stable assets will target both the Midtown and South Park areas, where cap
rates can average 50 to 100 basis points higher. Sales in the $1 million to $5
million range will increase as loosening financing restrictions on office assets
provide more private buyers with access to capital.
2015 Market Outlook
■■ 2015 NOPI Rank: 18, No Change. Charlotte maintained a stable ranking
due to employment and rent outlooks in line with the national average.
■■ Employment Forecast: Employers are on track to boost hiring 2.4 percent this year with the creation of 22,000 positions, 10,000 of which will
be in primary office-using sectors.
■■ Construction Forecast: Office deliveries will slow slightly this year as
500,000 square feet is placed into service. Two large office buildings are
due in Uptown in 2016 and 2017. Last year, developers brought online
525,000 square feet.
$200
$175
■■ Vacancy Forecast: Strong leasing activity, especially in Uptown and South
Park, will move vacancy down 80 basis points to 12.9 percent this year. In
2014 vacancy recorded a 90-basis point decline.
$150
$125
$100
10
11
12
13
14*
■■ Rent Forecast: Average asking rents will rise 2.5 percent this year to
$21.45 per square foot, building off a 1.8 percent jump last year to reach
a new high.
■■ Investment Forecast: Demand for medical office assets will outpace the
supply of listings at cap rates in the 7 percent range.
Market Forecast
page 18
Chicago
Down 3 Places
|
2015 Rank: 22
|
2014 Rank: 19
Cranes Returning to Downtown Skyline
As Tech Hiring Bolsters Chicago Office Market
■■ Employment Forecast: Employers will boost payrolls by 1.3 percent in
2015 with the creation of 60,000 jobs. Office-using employment will expand 3.0 percent, generating office demand.
■■ Construction Forecast: Of the more than 4.6 million square feet of office
space under construction, developers will complete 1 million square feet
this year. This is up significantly from the 570,000 square feet that came
online in 2014.
■■ Vacancy Forecast: Rising tenant demand for office space in 2015 will
lower vacancy 90 basis points to 17.0 percent. Vacancy fell 50 basis
points last year.
■■ Rent Forecast: Tightening conditions and the leasing of new space will
move up asking rents 1.8 percent this year to $22.90 per square foot. In
2014, rents dipped 1.1 percent.
■■ Investment Forecast: In the Central and East Loop submarkets, investors
are targeting older and/or obsolete office buildings for apartment and hotel conversions.
1%
11
12
13
14*
15**
Completions
Absorption
Vacancy
6.0
20%
4.5
19%
3.0
18%
1.5
17%
0
11
12
13
14
16%
15**
Rent Trends
Asking Rent
Asking Rentper Square Foot
■■ 2015 NOPI Rank: 22, Down 3 Places. Chicago lost ground in the Index
due to anticipated soft employment and rent growth.
2%
Y-O-Y Rent Change
$24
2%
$23
1%
$22
0%
$21
-1%
$20
11
12
13
14
15**
2015 Market Outlook
Office-Using
3%
0%
-2%
Sales Trends
The strengthening economy is attracting investors to Chicago. Private buyers are moving off the sidelines, favoring stabilized assets. Listings for these
properties remain limited as owners who have refinanced are reluctant to
forgo cash flows to sell at current valuations, creating a competitive bidding
environment. At the other end of the spectrum, a large number of opportunistic investors are seeking value-add assets. Highly vacant properties near
transit stations or employment hubs are especially targeted, as are older
office buildings that can be repurposed. This leaves many assets, especially
suburban buildings with vacancies between 20 to 40 percent, trading slowly
in the middle.
Nonfarm
4%
Vacancy Rate
Construction is ramping up in Chicago as developers have approximately
4.6 million square feet of office space underway, nearly a quarter of which will
come online this year. The West Loop and River West submarkets, which are
heavily favored by tech firms, will receive the bulk of the new space. Vacancy
in these areas is tight and rising rents have many firms searching in nearby
submarkets for bigger space. Buildings that can offer large floorplates and
amenities to attract tech companies will benefit. In the suburbs, vacancy is
still high in most submarkets, restricting construction to mainly build-to-suit
projects. In Schaumburg, Zurich North America has broken ground on a
735,000-square foot headquarters, and in Arlington Heights, vacant buildings on the former Nokia Siemens campus have been demolished to make
way for a major site redesign to attract new tenants. Despite rising construction, improving tenant demand marketwide during 2015 will allow office
operators to implement the largest rent growth in six years.
Employment Trends
$160
$140
$120
$100
$80
10
11
12
13
14*
Employment: 1.3% s Construction: 430K s Vacancy: 90 bps t Asking Rents: 1.8% s
Market Forecast
page 19
Cincinnati
Down 7 Places
Office-Using
4%
3%
2%
1%
0%
11
12
13
14*
15**
Absorption
Vacancy
2
20%
1
18%
0
16%
-1
14%
-2
11
12
13
14
15**
Vacancy Rate
Completions
12%
Rent Trends
Y-O-Y Rent Change
$16
4%
$15
2%
$14
0%
$13
-2%
$12
-4%
11
12
13
14
15**
Asking Rent
|
2014 Rank: 36
Office demand will strengthen in the Cincinnati metro as office-using tech and
medical employers announce elevated hiring for 2015. Cincinnati Bell will fill
180 positions this year, and Time Warner Cable plans to expand after merging
with Comcast. Amazon is expected to hire 400 workers at its Hebron fulfillment center. Additionally, if federal aviation rules are adjusted to allow it, the
Cincinnati metro will be an early adopter of Amazon’s drone-based Prime Air
delivery service, driving office demand for engineers and pilots. In the health
services sector, Cincinnati Children’s Hospital Medical Center is hiring for its
Liberty Township opening and is expected to generate 300 full-time positions.
To meet these growing space demands, developers are boosting construction. Deliveries will eclipse last year’s, as the 300,000-square foot Dunnhumby
Centre and the 260,000-square foot second phase of the Kenwood Collection
come online with a number of pre-lease commitments. These two projects
alone will account for more than half of the new construction this year. Older
office buildings in downtown are also being renovated as mixed use with office
components to meet the rising employer demand in the area. The drop in the
market’s vacancy rate is luring investor’s from outside of the metro who are
seeking higher yields with stable operations.
The market competition for office assets is heating up as prominent out-ofstate buyers demonstrate a willingness to pay a premium for office properties. These investors bid higher because their first-year yield hurdles tend to
be lower than they are for local high-net-worth individuals. Yet, these returns
are still above what can be found in most primary markets. Investors are also
attracted to this market for stable medical office buildings both within the
urban and suburban submarkets. A major proportion of deals will be made
in the Blue Ash and Northern Kentucky suburbs where a number of available
listings of Class A and B office buildings are available.
2015 Market Outlook
■■ 2015 NOPI Rank: 43, Down 7 Places. Rent growth will fall short of inflation this year, pulling Cincinnati seven places lower in the NOPI.
■■ Employment Forecast: Payrolls will rise 1.5 percent with the addition of
16,000 positions, including 7,200 office-using jobs.
Sales Trends
■■ Construction Forecast: Completions will amount to 830,000 square feet
this year, increasing supply by 1.0 percent and exceeding last year’s deliveries of 278,000 square feet.
$140
$120
■■ Vacancy Forecast: In 2015, the vacancy rate will trim 30 basis points to
16.8 percent, after dropping 250 points over the previous four years.
$100
■■ Rent Forecast: Asking rents will rise 0.7 percent to $15.48 per square
foot in 2015, following a 0.8 percent increase in 2014.
$80
$60
2015 Rank: 43
Cincinnati Office Operations Move Forward;
Investors Target Blue Ash and Northern Kentucky
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Investment Forecast: Investors will look to the Cincinnati metro for stronger yields and will find more suburban office properties listed, as institutions sell to place capital in coastal markets.
Market Forecast
page 20
Employment: 1.5% s
Construction: 552K s Vacancy: 30 bps t Asking Rents: 0.7% s
Cleveland
Up 3 Places
|
2015 Rank: 40
|
2014 Rank: 43
Limited Office Construction Aids In Market Recovery;
Downtown Activity Draws National Interest
■■ Employment Forecast: Office users will expand headcounts 2.0 percent
this year, or by 4,500 jobs. Total employment will rise 1.6 percent as employers hire 16,500 workers.
■■ Construction Forecast: New development will be limited to 71,000 square
feet in 2015, down from the 292,000 square feet completed last year.
■■ Vacancy Forecast: Restrained construction and rising office demand will
pull vacancy down 40 basis points this year to 16.3 percent. In 2014, vacancy ticked up 20 basis points.
■■ Rent Forecast: In 2015, average rents will advance 0.8 percent to $17.18
per square foot, building on the 0.2 percent growth recorded last year.
■■ Investment Forecast: Increased CMBS and life company lending activity
in secondary markets will drive additional demand for local office assets.
2%
1%
11
12
13
14*
15**
Completions
Absorption
Vacancy
2.0
18%
1.5
17%
1.0
16%
0.5
15%
0
11
12
13
14
15**
14%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 40, Up 3 Places. Only modest improvements in the
local office market kept Cleveland near the bottom of the ranking.
3%
0%
Y-O-Y Rent Change
$18
4%
$17
2%
$16
0%
$15
-2%
$14
11
12
13
14
15**
-4%
Sales Trends
2015 Market Outlook
Office-Using
Lured by comparatively higher yields than available in coastal markets, investors with long-term hold strategies will search for office properties in the
Cleveland market. Average cap rates vary widely, ranging from the high-8 to
10 percent area. Despite yield-driven buyer demand, sales velocity has been
limited to a narrow supply of quality inventory over the past few years as
owners held their assets awaiting further economic gains. As fundamentals
and access to acquisition financing improve, more owners who were reluctant to list will consider testing the market this year. Stabilized properties in
the CBD and established employment hubs will garner the strongest interest. Local buyers will continue to scour downtown and suburban office parks
for value-add deals, though the number of these properties has diminished.
Nonfarm
4%
Vacancy Rate
Developers will hold back on new office construction during 2015, while
professional and business services and healthcare companies boost hiring,
leasing new space and tightening operations. This year’s completions are
substantially pre-leased and minimal, positioning the volume of new deliveries well below the five-year annual average. In addition to the slowdown
in the development cycle, more conversion projects of functionally obsolete
office buildings to apartment complexes are planned downtown, relieving
competition among existing office space. The revival of the downtown area
and the selection of Cleveland to host the 2016 National Republican Convention have brought positive national attention to the region. This upswing
of good news has motivated executives to continue relocating or expanding
their companies in the metro. As newly hired workers backfill space and
businesses move into larger facilities anticipating future growth, metrowide
vacancy will lower. The modest reduction in vacancy this year will be enough
to bring the market’s office operations back to its pre-recession level. As a
result of tightening conditions, owners will have sufficient leverage to lift rents
for a fourth year.
Employment Trends
$100
$80
$60
$40
$20
10
11
12
13
14*
Market Forecast
page 21
Columbus
No Change
Office-Using
6%
4%
2%
0%
-2%
11
12
13
14*
15**
Absorption
Vacancy
1.00
14%
0.75
13%
0.50
12%
0.25
11%
0
10%
11
12
13
14
15**
Vacancy Rate
Completions
Rent Trends
Y-O-Y Rent Change
$18
4%
$17
2%
$16
0%
$15
-2%
$14
-4%
11
12
13
14
15**
|
2014 Rank: 27
Hiring will accelerate during 2015 as logistics, energy and healthcare companies expand in the metro, boosting demand for office space. Rising demand
and limited new supply will contribute to a drop in vacancy this year, though
companies moving out of large blocks of space will curb more significant improvement in Columbus. Tenants anticipating future growth and those who
have already outgrown their facilities are developing new buildings as large
office complexes offering Class A amenities are challenging to find. Over
the next several years, Columbia Gas and Nationwide Insurance will vacate
approximately 1 million square feet in the suburbs. Last year, Columbia Gas
moved employees to its new facility in the Arena District. Another large move
will unfold over a four-year period starting next spring, allowing ample time
for the space to re-lease. Nationwide will relocate 3,400 workers from Dublin
and Westerville to the Nationwide Realty Grandview Yard project and to its
existing downtown headquarters. The space left behind by these companies
will moderately boost vacancy in the suburbs over the near term. Nevertheless, tenants will fill available space as developers hold back on speculative
projects and hiring accelerates, putting downward pressure on vacancy.
Improved access to acquisition financing and a brighter economic outlook
will support transaction velocity in the Columbus market. Out-of-state investors will continue searching for Class A office assets above $5 million.
Properties near the airport or established employment hubs in Dublin and
Westerville with quality tenants, particularly in the healthcare or medical sector, will garner the strongest interest. Investor demand will be focused almost
entirely on less management-intensive properties to achieve returns, leaving
lower-quality assets on the market. Owners of stabilized properties with long
lease commitments may increasingly consider exit strategies amid strong
buyer demand.
2015 Market Outlook
■■ 2015 NOPI Rank: 27, No Change. Columbus is Ohio’s highest-ranked
market again this year due to relatively tight vacancy.
■■ Employment Forecast: During 2015, metro employers will create 19,000
jobs, a 1.9 percent rise. Office-using employment will increase 2.5 percent
with the addition of 6,300 positions.
Sales Trends
■■ Construction Forecast: The pace of construction will slow this year. In
2015, 138,000 square feet will be completed, expanding inventory 0.2
percent. Last year, 473,000 square feet was delivered.
$120
$110
■■ Vacancy Forecast: Restrained construction will support a 60-basis point
drop in vacancy this year to 11.5 percent. Vacancy fell 50 basis points
one year earlier.
$100
$90
$80
Asking Rent
2015 Rank: 27
Tenants Relocate to Newer Offices In Columbus;
Vacancy Edges Lower Amid Restrained Development
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: In 2015, average rents will rise 2.0 percent to $16.30 per
square foot, building on the 1.1 percent gain last year.
■■ Investment Forecast: The well-performing healthcare sector will fuel investor demand for single-tenant medical office properties.
Market Forecast
page 22
Dallas/Fort Worth
Up 5 Places
|
2015 Rank: 20
|
2014 Rank: 25
Corporate Campuses Set to Headline
Metroplex Office Deliveries in 2015
■■ Employment Forecast: Slumping oil prices will ease employment momentum, but the diversified economy will nonetheless generate 113,900 new
positions, a gain of 3.5 percent. The forecast includes 40,000 office jobs.
■■ Construction Forecast: Developers will deliver 6 million square feet of
office space this year, up from 3.7 million square feet in 2014.
■■ Vacancy Forecast: In 2015, Metroplex office vacancy will decline 40 basis
points to 18.9 percent. Last year, vacancy ticked up 30 basis points.
■■ Rent Forecast: Rents will continue rising at healthy pace through 2015. On
average, asking rates will advance 4.5 percent to $22.50 per square foot.
■■ Investment Forecast: The high-vacancy Stemmons Freeway submarket
appears positioned for an uptick in tenant and investor demand in coming
years. Restrictions limiting nonstop flights out of Love Field to destinations
in Texas or nearby states were recently lifted, which will support significant
airport expansion and increased economic activity in the broader area.
4%
2%
11
12
13
14*
15**
Completions
Absorption
Vacancy
8
22%
6
20%
4
18%
2
16%
0
11
12
13
14
15**
14%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 20, Up 5 Places. Strong payroll gains fueled the Metroplex’s seven-position jump in the NOPI.
6%
0%
Y-O-Y Rent Change
$24
6%
$22
4%
$20
2%
$18
0%
$16
11
12
13
14
15**
-2%
Sales Trends
2015 Market Outlook
Office-Using
Sales velocity slowed modestly last year in Dallas but ticked up in Fort Worth,
where small deals accounted for an outsized share of activity. Throughout
the Metroplex, cap rates compressed roughly 20 basis points to 7.6 percent.
The average, however, was weighed down by sales of Class A properties in
core submarkets and single-tenant medical offices, which can start in the
low-6 percent range. Class B cap rates, on other hand, have been concentrated between 8.5 and 9.5 percent, though assets in prime locations, such
as Preston Center or Turtle Creek, often trade at significant premiums.
Nonfarm
8%
Vacancy Rate
Corporate expansion abounds in the Metroplex, driving well-above-average
job creation and a sizable increase in office development. Collectively, State
Farm and Raytheon’s campuses in Richardson, coupled with FedEx’s Plano
headquarters and the FAA’s Fort Worth facility, will account for half of 2015’s
new supply. Other build-to-suits slated for delivery include the Monitronics
building in Farmers Branch and The Richards Group’s headquarters at CityPlace in Uptown. While these projects are entirely spoken for, their delivery
will spark some sizable moveouts, causing fluctuations in vacancy. State
Farm, for example, will vacate 1 million square feet of temporary office space
in Richardson, while FedEx will leave behind 200,000 square feet in the East
LBJ Freeway submarket. In recent years, the latter area recorded notable
softening due to reconstruction of the LBJ Freeway, but with the project now
in its home stretch, office leasing has started to pick up. Moving north along
the North Dallas Tollway into West Plano and Frisco, office development
has spiked. In the Far North, build-to-suits for Toyota, FedEx and the Dallas
Cowboys are underway, and developers are progressing on several speculative buildings. Although many of these projects report significant availability,
tenant demand in the fast-growing submarket is likely not far behind.
Employment Trends
$160
$145
$130
$115
$100
10
11
12
13
14*
Market Forecast
page 23
Denver
Up 3 Places
Office-Using
8%
6%
4%
2%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
18%
3
17%
2
16%
1
15%
0
11
12
13
14
15**
Vacancy Rate
Completions
14%
Rent Trends
Y-O-Y Rent Change
$26
6.0%
$24
4.5%
$22
3.0%
$20
1.5%
$18
11
12
13
14
15**
Asking Rent
0%
Sales Trends
|
2014 Rank: 9
Rapid economic growth, rising tenant demand and falling vacancy are amplifying developer confidence in the Denver metro, prompting speculative
development. Expanding companies will generate additional office demand
in the market, particularly in the technology and energy sectors, as will new
employers relocating to Denver this year. Developers are responding optimistically to the elevated demand and adding speculative projects. The largest speculative project currently underway is the 300,000-square foot 1601
Wewatta building in Lodo. In the second quarter of 2015, a 640,000-square
foot speculative building, 1144 Fifteenth, will break ground. This development will enhance the downtown skyline, as it will be the largest office tower
built in nearly three decades. High office tenant demand will limit any negative impact construction has on vacancy, enabling the rate to dip below 15
percent for the first time since mid-2007. As tenants compete for available
space, average asking rents will post gains above 4 percent for the third year
in a row.
The strong economy and improving operations will draw a wide array of
buyers to the Denver metro. Institutional investors and high-net-worth individuals will continue to target office properties in downtown Denver; however, buyers seeking additional yield will largely be drawn to listings in the
Denver Technology Center. These areas will also attract significant attention
from out-of-state buyers, primarily those from the West Coast. Class B office
assets downtown begin in the low- to mid-6 percent cap rate range while
those in the Denver Technology Center can average 25 to 50 basis points
higher. Local buyers will search for properties in the suburbs, many exchanging from assets in the core office submarkets.
2015 Market Outlook
■■ 2015 NOPI Rank: 6, Up 3 Places. Denver solidified its position within the
top 10 behind one of the country’s healthiest employment markets and
elevated rent increases.
■■ Employment Forecast: Employers will expand headcounts 3.2 percent
during 2015 with the addition of 43,000 workers. Office-using payrolls will
increase by 14,000 jobs, or 3.6 percent.
■■ Construction Forecast: Developers will bring online 2.2 million square feet
of office space this year. Construction will be heavily concentrated downtown and near the Denver Technology Center. Last year, 1.3 million square
feet was placed into service.
$160
$145
■■ Vacancy Forecast: Vacancy will fall 70 basis points this year to 14.6 percent, after declining 160 basis points in 2014.
$130
$115
$100
2015 Rank: 6
Speculative Office Towers Rise
Amid Mile-High Builder and Investor Confidence
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Average asking rents will increase 5.0 percent in 2015 to
$24.38 per square foot, following a 5.4 percent gain last year.
■■ Investment Forecast: Demand for medical office properties in the Denver
metro will remain high. However, listings will be limited, creating an intense
bidding environment for properly priced assets.
Market Forecast
page 24
Detroit
Down 6 Places
|
2015 Rank: 46
|
2014 Rank: 40
A Brighter Economic Outlook Will
Rev Up Detroit Office Market This Year
■■ 2015 NOPI Rank: 46, Down 6 Places. A combination of elevated vacancies and modest rent gains placed Detroit at the bottom of the ranking.
■■ Employment Forecast: During 2015, 15,000 workers will be added to
payrolls, a 0.8 percent increase. Office-using employment will account for
8,000 of these positions, expanding 1.6 percent.
6%
4%
2%
0%
11
Completions
■■ Investment Forecast: In downtown, assets with convenient access to
parking will be highly sought after.
14*
15**
Absorption
Vacancy
4
26%
3
24%
2
22%
1
20%
0
11
12
13
14
15**
18%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$20
4%
$19
2%
$18
0%
$17
-2%
$16
11
12
13
14
15**
-4%
Sales Trends
■■ Rent Forecast: As vacancy contracts, owners will raise asking rents 1.8
percent to $18.33 per square foot in 2015. Rents remain 9 percent below
the pre-recession level.
13
■■ Construction Forecast: Developers will finalize 200,000 square feet of
office space this year, following the completion of 90,000 square feet in
2014. The majority of new space is in suburban submarkets.
■■ Vacancy Forecast: Restrained construction output coupled with increased tenant demand will cut vacancy 80 basis points to 20.0 percent
this year, the lowest annual rate since 2008. In 2014, vacancy slipped 50
basis points.
12
2015 Market Outlook
Office-Using
8%
Vacancy Rate
Detroit’s redevelopment efforts and emergence from bankruptcy are attracting worldwide attention from investors. Although vacancy throughout
the metro has improved significantly in the past five years, rent growth has
lagged, keeping many investors saddled with large debt loads and making
it difficult to refinance. As a large portion of conduit debt matures over the
next several years, some of these assets are likely to be offered for sale,
increasing listings. In the suburbs, businesses are taking advantage of the
delay in rent growth and the availability of large blocks of space to move
into better-quality space. This will benefit Class A operators, especially in
properties with updated amenities near transit. Throughout the metro, higher
initial yields than are available in many other markets will draw more investor
attention to stabilized properties in high-demand areas such as downtown,
Birmingham and Bloomfield this year.
Nonfarm
The metro’s highly skilled labor force along with incentives available through
the Michigan Strategic Fund are attracting office-using businesses to the metro. In downtown Detroit, long-vacant office buildings are being renovated while
others are repurposed into apartments and hotels. These efforts are transforming the area into a vibrant community and luring companies and young
professionals who desire an urban lifestyle. The underway light rail and new
hockey arena developments will further enhance the vitality of the area. In the
suburbs, the availability of large floorplates, attractive rents and a sizable labor
pool are drawing new businesses. Restrained construction and a higher rate
of office absorption will contribute to diminished vacancy in most submarkets
this year, allowing operators to increase rents and improve NOI.
Employment Trends
$120
$100
$80
$60
$40
10
11
12
13
14*
Market Forecast
page 25
Fort Lauderdale
Up 7 Places
Office-Using
6.0%
4.5%
3.0%
1.5%
0%
11
12
13
14*
15**
Absorption
Vacancy
2
20%
1
18%
0
16%
-1
14%
-2
11
12
13
14
15**
Vacancy Rate
Completions
12%
Rent Trends
Y-O-Y Rent Change
$26
6%
$24
4%
$22
2%
$20
0%
$18
11
12
13
14
15**
-2%
|
2014 Rank: 42
Illustrating the overall upswing in office property operations throughout
South Florida, the Broward County market enters 2015 riding bright prospects for an additional decline in vacancy and hike in rents. The strength of
the market through last year is properties built since 2000. In this segment,
physical vacancy is roughly half the level posted immediately following the
recession and much less than the average countywide rate. Strong demand
for newer space is most pronounced in Downtown Fort Lauderdale, where
large property owners continue to employ the power of deep balance sheets
to lure tenants from other submarkets. Space demand for assets built prior
to 2000, though, is gaining traction, and further rises in occupancy will ensue
this year and beyond as tenants continue to grow and add staff. Office-using
sectors are expanding steadily, with professional and business services, and
education and health services headcounts eclipsing pre-downturn levels.
Restrained construction is enabling property owners to boost occupancies
and firm rents, in turn raising NOIs and making more assets presentable for
sale. Transactions are occurring at a sustainable pace in the private buyer
pool, which represents the largest active contingent of investors in the county. Cap rates in Broward sit in the high-6 to low-7 percent range, reflecting
sales involving stabilized Class A assets that are highly sought after. Higher
yields are attainable in Class B assets with secure long-term mixes of credit
tenants; cap rates in this segment can approach 8.5 percent. Regardless of
asset class, the number of investors in the market exceeds the amount of
properties listed for sale, thereby raising the likelihood that property owners
can execute a transaction that meets price objectives. In addition to Downtown Fort Lauderdale, key submarkets to follow in 2015 include eastern
Broward communities Hollywood and Pompano Beach, where constraints
on adding new supply exist.
2015 Market Outlook
■■ 2015 NOPI Rank: 35, Up 7 Places. One of the highest employment forecasts in the nation boosted Fort Lauderdale seven spots in the NOPI.
■■ Employment Forecast: Gains in professional and business services will
fuel a 3.2 percent increase in payrolls this year, an addition of 25,000 jobs.
During 2014, 20,500 new hires were made.
Sales Trends
■■ Construction Forecast: Only 120,000 square feet of space will come online this year, following completions of 405,000 square feet in 2014.
$180
$160
■■ Vacancy Forecast: Tenants will occupy an additional 1 million square feet
of space this year to slice vacancy 110 basis points to 15.4 percent.
$140
■■ Rent Forecast: The average rent in Broward County will advance 3.2 percent during 2015 to $24.74 per square foot, marking a moderation from
the robust 5.3 percent increase posted last year.
$120
$100
Asking Rent
2015 Rank: 35
Development Subdued in Broward County,
Shifting Space Demand to Existing Properties
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Investment Forecast: Well-located older assets in sound physical condition are seeing an upswing in tenant interest and will offer investors potential upsides through re-tenanting and raising rents.
Market Forecast
page 26
Houston
Down 1 Place
|
2015 Rank: 15
|
2014 Rank: 14
Houston’s Growth Outlook Tempered
By Oil Price Slide
■■ Employment Forecast: Payrolls are expected to rise 2 percent in 2015, or
by 60,000 jobs. The forecast, though, remains subject to revisions this year,
due to uncertainty regarding the depth and duration of the oil price slump.
■■ Construction Forecast: Developers will deliver 11.5 million square feet of
office space this year, up from 8.1 million square feet in 2014.
■■ Vacancy Forecast: Houston’s vacancy rate will tick up 50 basis points
this year to 16.1 percent, as several speculative buildings enter lease-up.
■■ Rent Forecast: In 2015, asking rents will rise 4.6 percent to $28.74 per
square foot. Last year, asking rents increased 6.0 percent.
■■ Investment Forecast: Healthcare-sector expansion has driven medical office vacancy below 10.5 percent, elevating competition for available deals.
This year, medical office deliveries will total an estimated 500,000 square
feet, which should yield more investment opportunities in coming quarters.
6%
4%
2%
11
12
13
14*
15**
Completions
Absorption
Vacancy
12
18%
9
17%
6
16%
3
15%
0
11
12
13
14
15**
14%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 15, Down 1 Place. Potential risks to the metro’s economy associated with lower oil prices and a tick up in vacancy dropped
Houston one spot in the NOPI.
8%
0%
Y-O-Y Rent Change
$32
8%
$29
6%
$26
4%
$23
2%
$20
11
12
13
14
15**
0%
Sales Trends
2015 Market Outlook
Office-Using
Sales velocity remained fairly steady in 2014 and will continue apace in 2015.
Investors will be cautious as they await the impact of the slide in oil prices.
Yet, Houston’s ability to attract major corporate office tenants, diversifying
the market, will keep buyers scouring the market for office assets. Recent
cap rate trends reflect investors’ optimism, with the average in 2014 edging
down 30 basis points to 6.8 percent, the lowest on record since at least
2000. Cap rates in Houston, however, vary dramatically. Class B cap rates,
for example, start around 8 percent but can push north of 10 percent in
non-core areas. Multi-tenant Class A assets, on the other hand, often trade
at notably lower cap rates, particularly those with a credit-tenant presence
and a location in one of the metro’s more desirable submarkets, such as the
Energy Corridor, Medical Center or Westchase.
Nonfarm
Vacancy Rate
This year, office completions will rise to levels last seen in the mid-1980s, but
the impact on vacancy should be moderate as build-to-suits and pre-leased
towers account for a sizable share of deliveries. The largest project slated to
come online is in the relatively tight Spring/The Woodlands submarket. Exxon
Mobil’s 3 million-square foot campus in the area is nearing completion, and
the company also has pre-leased nearly 500,000 square feet at the nearby
Hughes Landing development. The greatest concentration of new offices this
year, though, will be delivered to the also-tight Katy Freeway submarket, home
to Shell’s expanding Woodcreek campus and new headquarters for Academy
Sports and Air Liquide. While low oil prices, if sustained, would slow Houston’s
economy, they are unlikely to derail it. Over the past few decades, expansion
of downstream energy operations has reduced the metro’s dependence on oil
exploration and extraction. Further, when oil prices plunged more severely in
the late 1990s, Houston still posted above-average job growth and vacancy
held near historical lows.
Employment Trends
$200
$175
$150
$125
$100
10
11
12
13
14*
Employment: 2.0% s Construction: 3.4M s Vacancy: 50 bps s Asking Rents: 4.6% s
Market Forecast
page 27
Indianapolis
Up 2 Places
Office-Using
8%
6%
4%
2%
0%
11
12
13
14*
15**
Absorption
Vacancy
2
18%
1
16%
0
14%
-1
12%
-2
11
12
13
14
15**
Vacancy Rate
Completions
10%
Rent Trends
Y-O-Y Rent Change
$18
4%
$17
2%
$16
0%
$15
-2%
$14
11
12
13
14
15**
Asking Rent
-4%
Sales Trends
|
2014 Rank: 32
During the last five years, the Indianapolis metro has added more than
100,000 jobs, including nearly 40,000 in office-using sectors. Solid employment growth has backfilled office space, resulting in many companies expanding their footprints and instigating construction. Interactive Intelligence,
Meyer Najem and Lids are among the companies with new facilities underway. Also, Cummins will break ground this spring on a $30 million global
distribution headquarters that will house up to 400 employees. The building,
which is due for completion in 2016, is part of the Market East District redevelopment in downtown Indianapolis. Although little speculative office space
has broken ground, vacancy improvements will be hindered by these companies moving out of leased space through 2016. This year, vacancy will fall
70 basis points, allowing operators to continue to post annual rent gains for
the third consecutive year.
Investors have been lured by the relative stability of the Indianapolis office
market. Out-of-state buyers are largely targeting stabilized properties that
typically trade at cap rates beginning in the 8 percent range. Although single-tenant medical assets are also highly attractive to many of these investors, a lack of available properties and compressing cap rates have many
buyers moving toward traditional office assets for higher yields. Properties
in Carmel as well as downtown, northeast and northwest Indianapolis are
heavily sought after. As competition intensifies in these areas, buyers will
expand their criteria to include a broader array of well-performing assets in
good locations. The completion of the Highway 31 upgrade through Hamilton County this year will improve access to Westfield, a location primed for
future growth, and should attract investors to properties along the route.
2015 Market Outlook
■■ 2015 NOPI Rank: 30, Up 2 Places. Tight vacancies offset weak rent
growth forecasts to boost Indianapolis two places in the Index.
■■ Employment Forecast: During 2015, employers will create 23,000 jobs,
a 2.4 percent increase. Office-using sectors will expand at a pace of 3.9
percent with the addition of 9,000 positions.
■■ Construction Forecast: Developers will complete 150,000 square feet of
office space in 2015, from 133,000 square feet last year. A 112,500-square
foot building for Interactive Intelligence is the largest project slated for delivery this year.
$120
$105
■■ Vacancy Forecast: Rising demand for office space and a restrained construction pipeline will move vacancy down 70 basis points to 12.3 percent
this year. Vacancy has fallen 270 basis points in the past five years.
$90
$75
$60
2015 Rank: 30
Build-to-Suit Projects Keep Developers
Active in Indianapolis
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Less available office space is allowing operators to boost
rents. Asking rents will rise 2.4 percent to $17.66 per square foot in 2015,
following a 2.1 percent gain last year.
■■ Investment Forecast: Private investors seeking garden-style office assets
for less than $10 million will find properties available throughout the metro.
Market Forecast
page 28
Jacksonville
Up 7 Places
|
2015 Rank: 38
|
2014 Rank: 45
Jacksonville Market Gaining Momentum;
Investors Set to Step Up the Pace
■■ 2015 NOPI Rank: 38, Up 7 Places. Office vacancy will fall at one of the
fastest rates in the nation, pulling the market up seven spots in the NOPI.
8%
6%
4%
2%
0%
11
■■ Rent Forecast: Improving space demand will support a 3.1 percent gain
in the average rent this year to $18.59 per square foot. Last year, a 2.9
percent rise was recorded.
■■ Investment Forecast: The completion of the University of Florida Health North
heralds a new era for the Northside, where access to healthcare has been lacking. New space demand and additional medical office development will ensue.
14*
15**
Absorption
Vacancy
2
20%
1
18%
0
16%
-1
14%
-2
11
12
13
14
15**
12%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$20
4%
$18
2%
$16
0%
$14
-2%
$12
11
12
13
14
15**
-4%
Sales Trends
■■ Vacancy Forecast: The vacancy rate will slip 170 basis points to 14.3
percent following a drop of 100 basis points in 2014.
13
■■ Employment Forecast: Jacksonville employers will add 20,100 workers to payrolls this year, including 6,000 employees in office-using posts.
Staffing expanded 3.1 percent, or by 19,000 jobs, during 2014.
■■ Construction Forecast: Office inventory increased nominally in 2014, and
developers will bring online a mere 250,000 square feet this year.
12
Completions
2015 Market Outlook
Office-Using
Additional improvement in property operations will enable more owners to
test the transaction market in the year ahead. Thus far in the office sector
recovery, transaction velocity has been light, partly reflecting a lack of quality
inventory for sale. Cap rates in the limited number of recent deals vary from
the low-8 to mid-9 percent range. Institutions have shed assets in the Jacksonville metro over the past three years to free capital for purchases in larger markets, while sales in the private-investor dominated $1 million to $10
million range are only beginning to gain traction. A deep and diverse inventory, and attractive tenant mixes will fix the attention of these buyers on the
Southside this year. Buildings in Ponte Vedra will also garner consideration.
Wealth management firms and medical practices provide stable, long-term
tenancies in properties here.
Nonfarm
Vacancy Rate
The First Coast office sector is receiving a lift from positive economic trends,
and momentum will accelerate in 2015 as space demand grows and restrained construction persists. Speculative supply pressure will not appear
this year, leaving substantially pre-leased buildings as the only projects capable of progressing through the development pipeline. The primary project
slated for delivery this year, the fully pre-leased medical office component of
the University of Florida Health North, exemplifies the limitations on speculative construction. Demand trends, meanwhile, continue to adapt, with the
growing Southside population drawing office employers closer to neighborhoods. As a result, office vacancy has sharply declined on the Southside
over the past four years and demand is growing. However, a combination of
corporate consolidations and lease expirations left downtown with a drop in
occupied space over the same stretch. Large Class A properties, including
EverBank Tower and the SunTrust Tower, are weighed down with high vacancy in early 2015.
Employment Trends
$160
$140
$120
$100
$80
10
11
12
13
14*
Market Forecast
page 29
Kansas City
Up 2 Places
Office-Using
4%
3%
2%
1%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
18%
3
16%
2
14%
1
12%
0
11
12
13
14
15**
Vacancy Rate
Completions
10%
Rent Trends
Y-O-Y Rent Change
$18
4%
$17
2%
$16
0%
$15
-2%
$14
-4%
11
12
13
14
15**
Asking Rent
|
2014 Rank: 31
Robust job creation by office-using employers over the past few years is
supporting the office market in Kansas City, encouraging construction and
bolstering operations. Developer confidence is evident in the new Class A
speculative office complex, Pinnacle V, coming to Leewood. This will be the
final building in the Pinnacle Corporate Center and is slated to open in the
fall of 2015 as a part of the financial center of Johnson County. Pre-leases
penned include accounting firms, legal practices and additional professional
service businesses. In a neighboring southern office complex, the engineering firm Burns & McDonnell is currently expanding its headquarters and will
add 470,000 square feet of office space in two phases. The company expects to generate 2,100 positions for its 17.5-acre campus over the next
decade. Another south Kansas City project is by Cerner, one of the larger
employers in the area, which has been expanding its footprint over the past
few years. Last November, the company broke ground on the Trails Campus
Project, a 237-acre campus at the former Bannister Mall site, announcing
the creation of 16,000 jobs in the coming years.
The Kansas City office market offers a bifurcated approach as the interest
of investors from primary markets strengthens. Submarkets in south Kansas
City, particularly those with new construction, are drawing institutional interest, while many high-net-worth individuals target outlying suburbs. In highly
sought-out locations of southern Johnson County such as Overland Park,
properties trade with cap rates in the mid-7 to mid-8 percent range. Buyers
seeking assets in the $1 million to $10 million range with higher yields are
scouring suburban settings in eastern Jackson County, near Blue Springs and
Lee’s Summit. In these submarkets owners are able to push up rents faster
than the overall metro pace. Class B/C properties in these areas trade hands
with cap rates in the 9 percent range.
2015 Market Outlook
■■ 2015 NOPI Rank: 29, Up 2 Places. Low vacancy and strong payroll gains
supported a two-spot rise in the ranking for Kansas City.
■■ Employment Forecast: Employment will tick up 0.9 percent, or 8,000
positions, of which 6,000 will be in office complexes. This will accelerate
office job growth by 2.2 percent, after the 2.1 percent increase in 2014.
Sales Trends
■■ Construction Forecast: Nearly 175,000 square feet will be completed this
year, allowing time for the 446,200 square feet from last year to be leased.
$140
$125
■■ Vacancy Forecast: Vacancy will drop another 70 basis points to 12.5
percent, after falling 90 basis points in the previous year to 13.2 percent.
$110
■■ Rent Forecast: The average asking rent will improve 2.6 percent to
$17.64 a square foot after increasing 1.8 percent in 2014, as users vie for
well-located Class A and B office space.
$95
$80
2015 Rank: 29
Kansas City Employers Fill Offices,
Drive Vacancies Lower
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Investment Forecast: Investors will look to this centrally located U.S.
metro for higher yields as startups and technology-focused companies
expand throughout the city.
Market Forecast
page 30
Employment: 0.9% s
Construction: 271K t Vacancy: 70 bps t Asking Rents: 2.6%s
Las Vegas
Up 7 Places
|
2015 Rank: 39
|
2014 Rank: 46
Improving Office Absorption
Welcomes Investors to Las Vegas
■■ Employment Forecast: Local employers will add 28,000 jobs this year,
up 3.2 percent. Office-using employment will grow 4.3 percent as 7,500
positions are generated.
■■ Construction Forecast: Office completions totaling 530,000 square feet
are slated for 2015, including portions of the Centennial Hills Center, which
will comprise 290,000 square feet of retail and office space. Last year
201,000 square feet was delivered.
■■ Vacancy Forecast: An uptick in deliveries will be moderated by rising
office-using employment, as the vacancy rate will fall another 90 basis
points to 19.9 percent after a 90-basis point tumble last year.
■■ Rent Forecast: Asking rent growth in the metro will lift a modest 1.2 percent to $20.16 per square foot on average, an acceleration from 1.4 percent one year prior.
■■ Investment Forecast: Coastal investors will take advantage of relatively
low prices and high yields while interest rates are still low early in the year.
4.5%
3.0%
1.5%
11
12
13
14*
15**
Completions
Absorption
Vacancy
2.0
24%
1.5
22%
1.0
20%
0.5
18%
0
11
12
13
14
15**
16%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 36, Up 7 Places. Vacancy will dip below the 20 percent
threshold, supporting a seven-spot rise in this year’s ranking.
6.0%
0%
Y-O-Y Rent Change
$22
2%
$21
0%
$20
-2%
$19
-4%
$18
11
12
13
14
15**
-6%
Sales Trends
2015 Market Outlook
Office-Using
Investors will find nominally decreasing cap rates in the market as the local
economy grows. Slow yet consistent annual increases in rental rates and
price per square foot for office space also bode well for this product type as
the marketplace corrects. Individual buyers will seek the stability of smaller
properties near amenities, while institutions will target assets near redevelopment downtown, along the 215 Beltway and Class A buildings in Summerlin. Owner-users will pay a premium for smaller assets with favorable SBA
financing. California investors will continue to be prominent in the metro,
seeking exchanges into higher-yield assets with improving absorption.
Nonfarm
Vacancy Rate
Local economic development plans and corporate expansions will support
job growth in the Las Vegas metro this year. While the area is known for
hospitality, gaming and retail, conferences are also a big draw to the area. To
facilitate more business activity, the city has a 1 million-square foot expansion and renovation on the books for the Las Vegas Convention Center just
south of downtown. There is also talk of plans for a new office park, allowing businesses to permanently locate near the conference center. Another
growth initiative, the Downtown Project, will continue to create new jobs as
businesses open offices downtown, redeveloping the center of the city. To
date 300 businesses have been opened in the CBD. Traveling west of the
Las Vegas core, 200,000 square feet of Class A offices in One Summerlin
will come online this year. This space is just a small portion of the 2.1 million square feet planned for offices in the 22,000-acre mixed-use Downtown
Summerlin community. South of the city in Henderson, Barclaycard is hiring
up to 1,000 positions in its new 91,000-square foot customer contact center
in the Green Valley Corporate Center.
Employment Trends
$140
$130
$120
$110
$100
10
11
12
13
14*
Market Forecast
page 31
2015 National Office Report Statistical Summary
MSA Name
Office Employment Growth1
Atlanta
Austin
Baltimore
Boston
Charlotte
Chicago
Cincinnati
Cleveland
Columbus
Dallas/Fort Worth
Denver
Detroit
Fort Lauderdale
Houston
Indianapolis
Jacksonville
Kansas City
Las Vegas
Los Angeles
Louisville
Miami
Milwaukee
Nashville
New Haven
New York City
Northern New Jersey
Oakland
Orange County
Orlando
Philadelphia
Phoenix
Pittsburgh
Portland
Sacramento
Salt Lake City
San Antonio
San Diego
San Francisco
San Jose
Seattle-Tacoma
St. Louis
Washington, D.C.
West Palm Beach
U.S. Metro Total
3.4%
6.5%
3.4%
1.7%
1.4%
3.5%
2.4%
1.5%
4.9%
3.7%
4.2%
4.5%
3.4%
5.6%
2.6%
2.2%
3.2%
4.3%
4.7%
4.0%
5.6%
2.1%
0.7%
5.7%
0.9%
2.7%
1.2%
5.6%
6.0%
2.9%
1.9%
4.5%
2.3%
3.2%
1.1%
4.8%
5.6%
5.3%
4.2%
6.6%
8.1%
3.4%
1.1%
3.6%
1.3%
3.5%
2.3%
12
* Estimate
page 32
** Forecast
1
13
3.0%
6.3%
2.8%
2.2%
3.8%
2.0%
1.6%
0.9%
0.4%
2.2%
2.8%
2.0%
0.4%
1.8%
3.9%
4.2%
1.4%
4.4%
1.7%
3.6%
3.4%
0.3%
0.6%
5.3%
1.7%
1.6%
1.0%
0.4%
0.6%
3.6%
0.4%
4.3%
0.8%
2.7%
6.2%
2.4%
3.0%
1.7%
0.5%
4.6%
4.7%
2.9%
3.1%
3.4%
-0.7%
6.0%
2.6%
14*
15**
3.3%
5.6%
2.9%
2.0%
2.8%
2.0%
1.6%
1.3%
-0.4%
4.9%
2.9%
1.6%
4.9%
3.9%
3.6%
5.8%
2.1%
3.6%
4.4%
0.7%
3.6%
2.7%
2.0%
5.5%
1.0%
1.6%
1.1%
2.5%
2.0%
2.6%
1.5%
2.5%
1.5%
3.0%
4.2%
2.5%
3.5%
4.0%
4.4%
4.2%
4.5%
3.2%
2.8%
3.0%
0.6%
0.7%
2.8%
3.5%
5.7%
3.7%
2.3%
4.0%
3.0%
2.9%
2.0%
2.5%
4.6%
3.6%
1.6%
4.2%
2.4%
3.9%
3.4%
2.2%
4.3%
3.9%
2.5%
4.1%
3.7%
2.2%
5.0%
1.7%
1.7%
1.2%
4.2%
3.4%
2.9%
1.7%
3.7%
2.0%
3.4%
4.5%
4.3%
3.9%
2.2%
4.4%
4.5%
5.0%
4.0%
3.7%
3.3%
1.5%
3.7%
3.7%
See Statistical Summary Note on page 64.
Completions (000s of Sq. Ft.)1
12
13
14
15**
1,040
640
900
630
350
240 1,070 2,900
1,050 1,070
860
805
960 3,240 2,330 2,200
1,320
270
520
500
850 1,010
570 1,000
210
190
230
830
920
880
290
70
560
220
470
140
1,590 2,310 3,660 6,000
970
930 1,130 2,200
470
60
90
200
0
30
410
120
2,100 4,010 8,070 11,500
310
510
130
150
930
50
10
250
610 1,110
450
180
550
282
200
530
1,170 1,260
770 2,400
230
250
470
80
290
170
120
400
280
200
140
300
570
340 1,540 1,800
520
30
800
210
400
40
10
580
690 5,590 3,870 2,800
460 1,260
660
950
320
130
0
10
210
350 1,350
160
140
350
400
190
1,020
860
690
360
1,350
270 1,080 2,500
310
750 1,080 1,400
520
30
80
400
190
110
340
370
320
250
90
180
1,170
890 1,220
530
1,160
600
720
650
740
810
870
910
650
370
950 3,500
940 2,300 1,610 5,000
1,000 1,230
560 3,800
420
230
420
100
360
670
110
90
3,120 2,970 4,090 1,600
80
40
210
50
37,840 40,500 48,350 54,000
Net Absorption (000s of Sq. Ft.)1
12
2,810
2,370
1,990
1,730
2,270
230
1,370
1,140
990
4,860
1,730
2,740
-390
5,210
1,180
1,150
1,470
1,260
1,950
-100
610
320
-430
930
140
3,370
-940
1,310
350
800
490
3,850
-130
1,080
870
1,310
1,220
520
1,410
2,520
1,660
630
-230
100
-2,740
-150
57,890
13
14
15**
3,460 3,490 3,620
1,400
750 2,710
1,330
20
930
3,860 5,060 3,820
880 1,490 1,160
2,570 2,480 4,680
1,460
-80
940
680
100
460
550
820
640
3,900 2,080 6,090
920 3,210 2,920
940
910 1,490
20 1,370
750
480 8,410 8,280
1,100
-90
710
650
140 1,050
1,990 1,690
970
490
610
870
2,250 1,350 5,160
480
420
460
900 1,730 1,770
510
240
500
190 2,540 2,580
-290 1,750
790
80 -780
910
7,260 10,430 6,300
-880 1,640 1,490
-1,090 2,660 1,360
2,890 2,660 1,950
580
930 1,080
2,060
220 1,880
2,120 1,040 1,850
810
710 1,100
770
990 1,030
1,120
630
530
1,010 1,080
940
1,560 2,330 1,320
1,230 1,160
750
580 2,750 2,000
1,930 4,090 5,460
3,290 2,690 5,590
3,110 2,890 4,360
1,580 1,020
320
1,680 1,680 2,050
-1,640 -1,890
380
1,160 1,020
810
64,070 83,530 104,640
2015 National Office Report Statistical Summary
Vacancy per Sq. Foot1
12
19.7%
13.5%
14.5%
14.8%
15.7%
18.8%
18.2%
16.5%
13.1%
19.7%
16.9%
22.1%
18.3%
15.0%
13.6%
17.5%
15.3%
22.3%
15.6%
12.1%
17.1%
16.8%
14.6%
11.1%
18.6%
11.4%
19.2%
15.7%
18.0%
17.8%
16.7%
22.3%
14.0%
12.4%
18.4%
18.8%
14.0%
15.4%
16.2%
12.9%
13.3%
14.5%
15.6%
18.1%
17.8%
21.6%
16.3%
13
18.5%
12.0%
14.1%
14.6%
14.7%
18.4%
16.6%
16.6%
12.7%
19.0%
16.8%
21.6%
18.3%
16.1%
12.8%
16.2%
14.3%
21.8%
15.3%
11.6%
16.2%
16.2%
14.6%
11.6%
18.6%
10.9%
20.0%
16.9%
16.2%
17.3%
16.3%
20.7%
13.8%
11.5%
16.6%
17.9%
12.8%
14.4%
16.3%
12.0%
12.0%
13.2%
14.5%
17.0%
18.7%
19.2%
15.9%
14
17.6%
12.2%
14.7%
13.8%
13.7%
17.9%
17.1%
16.7%
12.1%
19.3%
15.3%
20.8%
16.5%
15.6%
13.0%
16.0%
13.2%
20.8%
15.1%
11.5%
14.7%
15.6%
13.8%
9.9%
19.4%
9.8%
19.7%
14.1%
15.1%
16.5%
16.1%
20.6%
14.0%
10.5%
15.9%
16.7%
11.3%
13.6%
14.2%
10.0%
10.6%
11.8%
13.8%
15.4%
19.7%
18.5%
15.3%
Asking Rent (Year End)1
Average Price per Sq. Foot1
15**
12
13
14
15**
11
12
13
14*
16.4%
12.0%
14.5%
13.2%
12.9%
17.0%
16.8%
16.3%
11.5%
18.9%
14.6%
20.0%
15.4%
16.1%
12.3%
14.3%
12.5%
19.9%
14.2%
10.6%
13.1%
15.2%
13.2%
9.0%
18.9%
9.2%
19.3%
12.7%
13.8%
15.2%
15.5%
20.7%
14.1%
9.7%
15.5%
15.8%
10.2%
13.3%
13.0%
8.6%
9.5%
11.2%
13.6%
13.5%
19.9%
16.9%
14.5%
$18.95
$25.05
$21.16
$26.55
$19.89
$22.66
$15.27
$17.03
$15.68
$19.78
$20.88
$17.84
$22.90
$24.78
$16.81
$17.19
$16.66
$19.71
$28.68
$15.19
$28.04
$16.29
$16.69
$19.27
$28.50
$50.44
$24.99
$23.51
$22.50
$18.60
$22.32
$19.83
$18.78
$19.92
$18.33
$20.72
$17.52
$18.82
$25.45
$39.62
$31.27
$26.93
$17.47
$18.71
$35.29
$25.57
$25.31
$19.14
$27.02
$21.06
$28.92
$20.62
$22.76
$15.26
$17.03
$15.76
$20.59
$21.73
$17.63
$22.76
$25.89
$16.93
$17.46
$16.89
$19.66
$29.67
$15.76
$28.61
$16.06
$17.34
$20.19
$29.19
$52.18
$24.66
$24.13
$23.40
$18.81
$22.57
$20.77
$19.65
$20.24
$18.88
$20.69
$17.75
$18.87
$26.05
$43.70
$33.11
$28.15
$17.58
$19.24
$35.31
$25.62
$26.03
$19.74
$28.08
$21.09
$29.42
$20.92
$22.49
$15.37
$17.05
$15.98
$21.61
$23.21
$18.01
$23.97
$27.48
$17.24
$18.03
$17.19
$19.93
$31.33
$15.56
$28.90
$15.99
$18.00
$20.95
$28.50
$55.75
$25.28
$25.42
$24.73
$19.07
$22.87
$21.24
$19.87
$21.14
$19.10
$20.73
$17.53
$19.17
$27.39
$48.28
$36.31
$29.12
$17.84
$19.72
$35.98
$26.30
$27.06
$20.12
$29.43
$21.28
$30.83
$21.45
$22.90
$15.48
$17.18
$16.30
$22.58
$24.38
$18.33
$24.74
$28.74
$17.66
$18.59
$17.64
$20.16
$32.77
$15.87
$30.03
$16.07
$18.70
$21.81
$28.65
$59.65
$24.21
$27.10
$26.04
$19.64
$23.21
$21.64
$20.07
$22.09
$19.50
$20.94
$17.61
$19.38
$28.65
$52.38
$39.11
$30.40
$18.05
$20.31
$36.02
$27.22
$28.17
$95
$155
$125
$201
$163
$119
$99
$81
$104
$136
$122
$62
$138
$147
$99
$104
$115
$114
$259
$90
$211
$74
$98
$135
$151
$486
$178
$182
$216
$155
$134
$107
$101
$135
$128
$130
$80
$150
$232
$299
$264
$241
$92
$142
$302
$189
$179
$97
$173
$119
$211
$169
$126
$114
$88
$106
$143
$126
$81
$138
$155
$110
$137
$119
$106
$260
$95
$197
$108
$110
$145
$160
$583
$195
$177
$205
$126
$150
$128
$114
$151
$122
$114
$88
$157
$241
$331
$272
$250
$94
$135
$316
$190
$188
$114
$198
$128
$227
$176
$136
$117
$86
$113
$153
$137
$95
$152
$165
$114
$144
$122
$112
$283
$105
$226
$112
$117
$154
$178
$657
$199
$193
$226
$116
$164
$138
$118
$174
$130
$116
$110
$165
$262
$362
$316
$277
$102
$151
$325
$203
$196
$125
$216
$134
$236
$180
$142
$119
$85
$117
$159
$144
$105
$161
$171
$116
$148
$124
$115
$298
$112
$242
$114
$122
$159
$189
$705
$201
$203
$234
$110
$173
$144
$121
$189
$134
$117
$127
$170
$274
$382
$346
$295
$108
$162
$331
$212
$209
* Estimate
** Forecast
1
Atlanta
Austin
Baltimore
Boston
Charlotte
Chicago
Cincinnati
Cleveland
Columbus
Dallas/Fort Worth
Denver
Detroit
Fort Lauderdale
Houston
Indianapolis
Jacksonville
Kansas City
Las Vegas
Los Angeles
Louisville
Miami
Milwaukee
Nashville
New Haven
New York City
Northern New Jersey
Oakland
Orange County
Orlando
Philadelphia
Phoenix
Pittsburgh
Portland
Sacramento
Salt Lake City
San Antonio
San Diego
San Francisco
San Jose
Seattle-Tacoma
St. Louis
Washington, D.C.
West Palm Beach
U.S. Metro Total
See Statistical Summary Note on page 64.
page 33
Los Angeles
Down 9 Places
Office-Using
6.0%
4.5%
3.0%
1.5%
0%
11
12
13
14*
15**
Absorption
Vacancy
6.0
18%
4.5
16%
3.0
14%
1.5
12%
0
11
12
13
14
15**
Vacancy Rate
Completions
10%
Rent Trends
Y-O-Y Rent Change
$34
6%
$31
4%
$28
2%
$25
0%
$22
11
12
13
14
15**
-2%
|
2014 Rank: 5
The Los Angeles office market will make strides this year after struggling to
gain traction since the onset of the recovery. Office vacancy has languished
in a narrow range since the middle of 2009, when the national economy
began to emerge from the recession. However, some of the weakness over
the past few years can be attributed to leases that were signed during the
latter stages of 2006 and 2007. This year, with most companies in expansion
mode, space commitments inked during 2008 and 2009 will be insufficient
to support higher staffing levels. As a result, several firms are expected to
widen their footprints, pulling vacancy below the 15 percent threshold for
the first time since the recovery. Developers are moving in step with the projected increase in space demand, which will keep the pace of operational
improvement sluggish. More than 1.5 million square feet of space is slated
for completion this year without pre-leasing commitments.
A wide range of opportunities will greet investors in Los Angeles this year,
lifting transaction velocity. At the institutional level, the presence of new construction and profit-taking by buyers who purchased at the bottom of the
market will facilitate a few Class A deals. Average cap rates for these properties can dip below 6 percent for best-in-class assets. Private investors
will also find potential acquisitions across the county, though elevated due
diligence will be required when deals are considered. First-year returns in the
lower tiers range widely based on location and tenant rosters. Well-located
Class B listings can change hands at cap rates in the 6 to 7 percent range.
Investors with a tenant-in-tow or strong background in the local office market will be the predominate players on the rung below institutional-grade
properties. Capital is also moving into the office sector from other commercial property types. Although the upside potential is significant, investors will
need to practice a heightened level of caution as lower-tier assets could be
more than two years away from seeing significant tenant demand.
2015 Market Outlook
■■ 2015 NOPI Rank: 14, Down 9 Places. A surge in speculative construction dragged down Los Angeles nine spots in the ranking.
■■ Employment Forecast: Employers will expand payrolls 2.5 percent in
2015 as 104,000 jobs are created. Office-using employment will jump 3.9
percent, or 41,000 positions.
Sales Trends
$300
■■ Construction Forecast: Builders will complete 2.4 million square feet of
office space this year, up from nearly 800,000 square feet in 2014.
$280
■■ Vacancy Forecast: Stronger leasing will support a 90-basis point decline
in vacancy to 14.2 percent. Last year, the rate dipped 20 basis points.
$260
$240
$220
Asking Rent
2015 Rank: 14
Employers Plan Expansion; Activity to Boost
Absorption and Lift Investor Activity
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Following a 5.1 percent increase in asking rents in 2014,
rents will advance 4.6 percent to $32.77 per square foot this year.
■■ Investment Forecast: Playa Vista continues to expand rapidly, which is
pushing office space demand into El Segundo and other secondary areas.
Investors may consider properties in the path of growth.
Market Forecast
page 34
Employment: 2.5% s Construction: 1.6M s Vacancy: 90 bps t
Asking Rents: 4.6% s
Louisville
Down 6 Places
|
2015 Rank: 32
|
2014 Rank: 26
Rising Space Demand May Trigger More Deals,
Establish Price Benchmark in Louisville
■■ 2015 NOPI Rank: 32, Down 6 Places. Louisville slipped 6 positions in the
ranking as office asking rents remain attractive for tenants.
4.5%
3.0%
1.5%
0%
11
Completions
■■ Rent Forecast: The metrowide rent decreased 1.7 percent last year, but
lower vacancy will enable operators to lift the average rent 2.0 percent in
2015, to $15.87 per square foot.
■■ Investment Forecast: Older high-vacancy office buildings in the CBD will
remain targeted by developers for repositioning to multifamily use.
14*
15**
Absorption
Vacancy
14%
0.5
12%
0
10%
-0.5
-1.0
8%
11
12
13
14
15**
6%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$18
8%
$17
4%
$16
0%
$15
-4%
$14
11
12
13
14
15**
-8%
Sales Trends
■■ Vacancy Forecast: A 90-basis point drop in the vacancy rate this year to
10.6 percent will occur; the rate was unchanged in 2014.
13
1.0
■■ Employment Forecast: Hiring will accelerate in 2015 with the creation of
15,400 jobs. A projected gain of 2,500 professional and business services
positions will account for most of the increase in office-using employment.
■■ Construction Forecast: The completion of 80,000 square feet in 2015 will
expand office stock nominally. Last year, 475,000 square feet came online.
12
Asking Rents per Square Foot
2015 Market Outlook
Office-Using
Despite the solid performance of local properties and a history of restrained
supply growth, few office properties changed hands in the Louisville market
last year. Cap rates in recently executed deals reside in the mid-8 to mid-9
percent range, while the average price has tracked a steady climb over the
past four years, primarily reflecting sales of top assets. A more notable influx
of out-of-area capital will not likely occur until yield-driven investors exhaust
efforts to make purchases in larger markets. Local investors, however, will
continue to explore opportunities in Louisville’s East End, a prominent residential area that also boasts a sizable stock of well-performing office properties. Owners of office buildings here may increasingly seek to monetize
recent improvements in vacancy and rents to either sell in the year ahead or
refinance to free capital for other purchases.
Nonfarm
6.0%
Vacancy Rate
The Louisville office market is positioned for stronger operations this year as
demand intensifies and completions dwindle. Payrolls in the market returned
to their pre-recession peak several months before the U.S. did and are growing consistently and broadly. One major office-using sector, professional and
business services, exceeds its former high in staffing, while financial services
headcounts will reach a new peak in 2015. After backfilling underutilized
space, more substantial expansions of tenant footprints should occur in the
coming year as improving business conditions support growth and require
additional hiring. The absorption of space in the Louisville CBD, where physical vacancy hovered near 11 percent at the end of last year, marks a trend to
watch in the year ahead. Class A property owners there continue to dangle
attractive rents and generous leasing incentives to lure new tenants from
suburban locations or outside of the metro. A buildup of hotel stock in the
urban core and Ohio River bridge improvements are added incentives for
prospective CBD tenants to weigh.
Employment Trends
$120
$110
$100
$90
$80
10
11
12
13
14*
Market Forecast
page 35
Miami
Up 4 Places
Office-Using
8%
6%
4%
2%
0%
11
12
13
14*
15**
Absorption
Vacancy
2.0
18%
1.5
16%
1.0
14%
0.5
12%
0
11
12
13
14
15**
Vacancy Rate
Completions
10%
Rent Trends
Y-O-Y Rent Change
$32
4%
$30
2%
$28
0%
$26
-2%
$24
11
12
13
14
15**
-4%
|
2014 Rank: 11
Office properties in Miami-Dade continue to chart a respectable recovery,
buoyed by restrained construction and growing space demand. High-end
space in the CBD is attracting new tenants, and additional large layouts
remain for further expansions and relocations during 2015. Conditions in
the suburbs are also strengthening, with 13 consecutive quarters of positive
net absorption recorded through the end of last year. In the suburbs, Coral
Gables remains a competitively priced alternative to the CBD. Vacancy in the
submarket is falling steadily and demand is rising faster than the countywide
rate of growth. Office construction in Miami-Dade is muted and may remain so for some time. Notably, the massive Miami Worldcenter mixed-use
project has no office space in the 765,000-square foot initial phase that is
slated to begin construction this year. Generally, commercial builders remain
focused upon filling more rapidly expanding needs for housing, retail and
hospitality space than employing coveted development sites for office stock.
The migration of new and expanding tenants to existing space is rendering
more properties sellable at a time when investor interest in local assets is
rising. High-quality stabilized properties remain a primary investment target,
with initial yields for Class A buildings sitting in the low- to mid-6 percent
range. Class B properties with stable occupancy and sound credit profiles
in the tenant mix attract smaller, local buyers and can trade at cap rates
ranging up to 8 percent. Many of these properties had substantial vacancies
during the downturn due to closures of residential real estate firms but are
steadily attracting new tenants to backfill vacancy. Debt is increasingly available for purchases, though lenders are primarily focused on asset performance, location and the strength of the borrower. The accelerating market
and limited construction, however, will likely encourage debt providers to
expand lending parameters as 2015 proceeds.
2015 Market Outlook
■■ 2015 NOPI Rank: 7, Up 4 Places. Miami moved into the top 10 of the
Index behind a strong projected vacancy decrease.
■■ Employment Forecast: Staffing will swell 3.2 percent, or by 35,000 positions, in Miami-Dade during 2015, including more than 10,000 jobs in
primary office-using employment sectors. Growth in professional and
business services contributed to a gain of 28,000 total jobs last year.
Sales Trends
$260
■■ Construction Forecast: Developers will place in service only 400,000
square feet, exceeding last year’s scant total of 121,000 square feet.
$230
■■ Vacancy Forecast: The vacancy rate will slide 160 basis points to 13.1
percent; a 170-basis point plunge occurred in 2014.
$200
$170
$140
Asking Rents per Square Foot
Asking Rent
2015 Rank: 7
Another Year of Subdued Completions
Strengthens Miami-Dade Market
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: A growing economy and rising space demand will underpin a 3.9 percent increase in the average rent to $30.03 per square foot in
2015. The year-end average rent last topped $30 per square foot seven
years ago.
■■ Investment Forecast: Foreign capital will continue to flow into Miami-Dade
and increasingly favor the value proposition offered by office assets.
Market Forecast
page 36
Milwaukee
No Change
|
2015 Rank: 44
|
2014 Rank: 44
Accelerating Office Job Growth Will Boost Milwaukee’s
Market and Entice Investors
■■ 2015 NOPI Rank: 44, No Change. Milwaukee stayed near the bottom of
the NOPI as operations will only improve modestly.
■■ Employment Forecast: The creation of 20,000 jobs will increase employment by 2.3 percent during 2015. Office-using employment will grow at a
clip of 3.7 percent.
4%
2%
0%
-2%
11
Completions
■■ Investment Forecast: Amazon will complete a second building in nearby
Kenosha this year, adding 1 million square feet of distribution space and
more than 1,000 jobs. The increased economic activity will likely generate
investor interest in office properties along the Interstate 94 corridor in the
southeastern portion of the metro.
14*
15**
Absorption
Vacancy
18%
0.5
17%
0
16%
-0.5
15%
-1.0
11
12
13
14
15**
14%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$17
2%
$16
1%
$15
0%
$14
-1%
$13
11
12
13
14
15**
-2%
Sales Trends
■■ Rent Forecast: The decline in vacancy will allow operators to lift asking
rents 0.5 percent to $16.07 per square foot in 2015. Last year, rents
dipped 0.5 percent.
13
1.0
■■ Construction Forecast: Last year’s output will more than double during
2015 as 300,000 square feet of office space will come online.
■■ Vacancy Forecast: Rising demand for office space will drop vacancy 40
basis points to 15.2 percent this year, building on a 20-basis point drop
in 2014.
12
2015 Market Outlook
Office-Using
Investors are attracted to Milwaukee’s improving office operations, lower entry costs, and the potential for higher yields than are available in most larger
metros. Many buyers tend to favor medical or single-tenant office properties
with credit tenants. Increased competition for these less management-intensive assets from out-of-state investors, however, requires buyers to be
willing to expand their portfolio parameters and consider a wider range of
property types, locations or sizes. Local investors, meanwhile, are targeting
lower-tier value-add properties, especially east of the river in downtown and
near employment hubs in Waukesha County, at cap rates that typically start
in the mid-8 percent range.
Nonfarm
6%
Vacancy Rate
The brightening employment outlook will bolster office operations in Milwaukee. The metro will create nearly 7,000 office-using positions this year, requiring some companies to lease additional office space. The increase in
tenant demand has developers ramping up construction. Office inventory
will expand by 300,000 square feet in 2015 as a new building for Kohl’s is
completed. The company has converted the former InnoWare warehouse
into office space and has purchased four other properties near its corporate
campus for expansion. Also underway are 833 East, due in 2016, and the
Northwestern Mutual Tower slated for completion in 2017. Together these
buildings will add 1.5 million square feet to downtown inventory. Although
construction is ramping up, the adaptive re-use of some downtown Class
B/C office buildings into hotels or apartments, coupled with increased leasing efforts, will contract vacancy to a six-year low and allow owners to post
modest rent gains.
Employment Trends
$120
$105
$90
$75
$60
10
11
12
13
14*
Market Forecast
page 37
Down 3 Places
Office-Using
6.0%
4.5%
3.0%
1.5%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
16%
2
15%
0
14%
-2
13%
-4
11
12
13
14
15**
Vacancy Rate
Completions
12%
Rent Trends
Y-O-Y Rent Change
$20
6%
$18
3%
$16
0%
$14
-3%
$12
11
12
13
14
15**
-6%
Sales Trends
|
2014 Rank: 13
The Minneapolis-St. Paul office market will strengthen this year, bolstered by
large corporate profits and small-business growth that has generated more
than 160,000 jobs over the past five years, including 40,000 in office-using
sectors. The metro’s highly skilled labor force continues to attract companies to the region as existing employers expand, generating office construction. Downtown East will dominate office development this year as the first
of two 600,000-square foot towers for Wells Fargo is completed near the
new Vikings stadium. This will impact occupancy in select submarkets as
the company consolidates employees and vacates leased space throughout the metro. United Healthcare will finish its current expansion with two
additional office towers on its Minnetonka campus totaling 850,000 square
feet. Also, the largest speculative project underway is Offices @ MOA. The
180,000-square foot tower in Bloomington is adjacent to the Mall of America
and light rail. Despite rising construction, vacancy will still fall in 2015, supporting increased rents this year.
The thriving local economy and improving office fundamentals are attracting
investor capital to the metro. The sale of trophy properties among institutional investors will continue with assets targeted in downtown Minneapolis and
along Interstates 394 and 494. At the other end of the spectrum, obsolete
office buildings in walkable neighborhoods and near transit will be targeted
by developers for residential or hotel conversions, or for remodeling to add
open floor plans and natural light to attract creative and tech companies.
Throughout the region, the boom in development has driven the rise in construction costs above the national pace, escalating the price of tenant improvements, which could dampen NOI growth going forward.
2015 Market Outlook
■■ 2015 NOPI Rank: 16, Down 3 Places. Other metros moved past the Twin
Cities, facilitating a three-spot fall in the Index.
■■ Employment Forecast: A total of 30,000 jobs will be generated in the
metro during 2015, expanding payrolls by 1.6 percent. Office-using employment will rise 2.2 percent, or by 10,000 positions.
■■ Construction Forecast: During 2015, 1.8 million square feet will come
online, up from last year’s 1.5 million square feet. Although office construction is dominated by build-to-suit projects, nearly 400,000 square
feet of competitive office space will be completed.
$140
$125
■■ Vacancy Forecast: Vacancy will fall 60 basis points to 13.2 percent, the
lowest rate in six years. Last year, vacancy dropped 80 basis points.
$110
■■ Rent Forecast: As vacancy dips, metrowide asking rents will jump 3.9 percent to $18.70 per square foot in 2015, after a 3.8 percent climb last year.
$95
$80
Asking Rent
2015 Rank: 16
Thriving Minneapolis-St. Paul Office Market Faces
Headwinds as Construction and Labor Costs Rise
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Investment Forecast: Medical office assets will remain the focus of many
investors at cap rates that begin in the high-7 percent range for quality
properties in prime locations.
Market Forecast
page 38
Nashville
Up 6 Places
|
2015 Rank: 9
|
2014 Rank: 15
Rock-Solid Job Creation and Office Fundamentals Have
Investors Rolling into Nashville
■■ Employment Forecast: Metro employment will rise 3.1 percent in 2015
with the addition of 26,500 jobs. This includes 10,500 office-using positions, a 5.0 percent year-over-year increase.
■■ Construction Forecast: Developers will complete 210,000 square feet
this year, expanding office inventory 0.3 percent. Last year, 802,000
square feet came online.
■■ Vacancy Forecast: Limited new supply and elevated office demand will
pull down vacancy 90 basis points to 9.0 percent in 2015. Vacancy tumbled 150 basis points one year earlier.
■■ Rent Forecast: In 2015, rent growth will accelerate 4.1 percent to $21.85
per square foot, following a 4.0 percent climb last year.
■■ Investment Forecast: Class B/C properties with higher vacancies in
northern Nashville and the Airport Area will present value-add opportunities to yield-driven investors.
6%
4%
2%
11
12
13
14*
15**
Completions
Absorption
Vacancy
2
12%
1
11%
0
10%
-1
9%
-2
11
12
13
14
15**
8%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 9, Up 6 Places. Nashville moved into the top 10, supported by one of the nation’s lowest vacancy rates.
8%
0%
Y-O-Y Rent Change
$22
6%
$21
4%
$20
2%
$19
0%
$18
11
12
13
14
15**
-2%
Sales Trends
2015 Market Outlook
Office-Using
Robust job creation and improving fundamentals are generating excitement
among investors, expanding the pool of motivated buyers. However, strong
rent gains are encouraging owners to hold properties, limiting for-sale inventory. The diminishing amount of trophy listings and restrained new development will intensify competition among REITs and institutions, investors that
once dominated the buyer pool. Meanwhile, high-net-worth private investors
will target properties downtown in the revitalized Gulch neighborhood and
near major employment centers in Brentwood, Franklin and Cool Springs.
Stabilized properties that require minimal lease renewals in the near term can
receive multiple offers when competitively priced. Rising property values will
encourage owners who were contemplating listing their properties over the
next few years to consider exit strategies.
Nonfarm
Vacancy Rate
Nashville employment will record healthy gains in 2015, benefiting office operations. Growth is widespread, though significant drivers this year will be in
traditional office-using sectors, including professional and business services
and financial activities. In recent years, Aramark and UBS each committed
to hiring 1,000 workers, and other corporate expansions and relocations by
companies such as AIG, NaviHealth and Healthstream continue to unfold.
Meanwhile, employment prospects are attracting more residents to the metro, supporting rapid population growth that will also fuel gains in the healthcare sector and foster demand for medical office floor prints. As companies
absorb existing space, available inventory will fall below 10 percent, one of
the few markets in the nation to achieve single-digit vacancy. Although space
will become challenging to find, developers remain cautious and deliveries
will account for a small fraction of pre-recession output. Further downward
pressure on vacancy will allow for another year of healthy rent growth.
Employment Trends
$160
$145
$130
$115
$100
10
11
12
13
14*
Market Forecast
page 39
New Haven
Down 8 Places
Office-Using
4%
3%
2%
1%
0%
11
12
13
14*
15**
Completions
Absorption
Vacancy
20%
0.5
19%
0
18%
-0.5
17%
11
12
13
14
15**
Vacancy Rate
1.0
-1.0
16%
Rent Trends
Y-O-Y Rent Change
$30
6%
$29
4%
$28
2%
$27
0%
$26
11
12
13
14
15**
-2%
Sales Trends
|
2014 Rank: 37
The office market in New Haven and Fairfield counties will continue its steady
recovery this year as employment inches closer to the pre-recession peak
and companies expand their footprints. This year, led by gains in the education and health services and professional and business services sectors, total employment will come within 1 percent of replenishing the jobs lost during
the financial crisis. As hiring increases, many office tenants are beginning to
outgrow their current leases and penning new ones within the two-county
market, which will help push vacancy down. The construction pipeline will
begin to grow this year; however, only one major project is scheduled to
be delivered. The first phase of Downtown Crossing in New Haven will add
roughly 500,000 square feet to existing stock. The project will be anchored
by Alexion Pharmaceuticals, which will initially employ 300 at the site and
add another 300 workers over the next five years. Rising tenant demand will
support rent growth again this year as tenants compete for available space.
Average asking rents have posted modest increases in three out of the past
four years.
Stable economic growth and higher yields than are available in other nearby
metros will continue to draw investors to New Haven and Fairfield counties.
Large institutions will search for Class A properties, which can dip into the
mid-6 percent cap rate range. Class B listings in Fairfield County, where
initial yields are in the low-7 percent bracket, will garner the most investor interest. Investors seeking larger returns will look in New Haven County, where
initial yields average 25 to 50 basis points higher. Demand for medical office
properties will remain elevated; however, limited listings will generate intense
competition for adequately priced assets.
2015 Market Outlook
■■ 2015 NOPI Rank: 45, Down 8 Places. Soft employment growth and high
vacancy dragged down New Haven to near the bottom of the NOPI.
■■ Employment Forecast: This year, employers in New Haven and Fairfield
counties will add 12,500 new positions, boosting total employment 1.5
percent. Employers in the primary office-using sectors will add 3,300 jobs.
■■ Construction Forecast: Developers will bring online 500,000 square feet
of space in 2015, increasing inventory 0.6 percent. Last year, a mere
60,000 square feet was completed.
$200
$175
■■ Vacancy Forecast: Average vacancy in the two-county market will fall 50
basis points this year to 18.9 percent, after posting a 90-basis point rise
last year.
$150
$125
$100
Asking Rent
2015 Rank: 45
Stable Economic Growth, Tightening Operations
Lure Yield-Seeking Buyers
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Vacancy improvements will enable operators to lift average asking rents 1.5 percent to $29.80 per square foot, eclipsing last
year’s 0.5 percent bump in asking rents.
■■ Investment Forecast: Rising office-using employment and tightening vacancy will fuel demand for high-vacancy upper-tier properties from opportunistic buyers this year.
Market Forecast
page 40
New York City
Down 1 Place
|
2015 Rank: 4
|
2014 Rank: 3
Demand Outpaces Supply Additions;
Owners Convert Industrial to Office Use
■■ Employment Forecast: Employers will boost hiring 2.3 percent with the
addition of 92,500 workers; 22,000 jobs will be in the primary office-using
sectors. Last year, 85,000 positions were created.
■■ Construction Forecast: Developers will place 2.8 million square feet into
service this year, down from 3.9 million square feet in 2014.
■■ Vacancy Forecast: Healthy tenant demand in 2015 will pull down vacancy 60 basis points to 9.2 percent on net absorption of nearly 6.3 million
square feet. Last year, the rate fell 110 basis points.
■■ Rent Forecast: Operators will lift average asking rents 7.0 percent this
year to $59.65 per square foot. In 2014, asking rents rose 6.7 percent.
■■ Investment Forecast: Potential zoning changes this year could create
some headwinds to transaction velocity, possibly changing which industrial properties can be converted to office. These restrictions could impact
property values and promote office construction in Brooklyn and Queens.
2%
1%
11
12
13
14*
15**
Completions
Absorption
Vacancy
12
12%
9
11%
6
10%
3
9%
0
11
12
13
14
15**
8%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 4, Down 1 Place. New York retained one of the top
spots in the ranking as vacancy stays below the 10 percent level.
3%
0%
Y-O-Y Rent Change
$60
8%
$55
6%
$50
4%
$45
2%
$40
11
12
13
14
15**
0%
Sales Trends
2015 Market Outlook
Office-Using
Tight conditions will support some of the fastest rent gains in the country.
Strong rent growth and an expanding economy will draw a wide array of investors to the city. Foreign investors, drawn to the relative stability of the U.S.
economy and the brand recognition of New York, will target assets in Manhattan. Institutional buyers and high-net-worth individuals will look for trophy
assets in Midtown and Lower Manhattan and smaller properties throughout the boroughs. In Brooklyn and parts of Queens, value-add investors will
search for industrial properties within a reasonable walking distance of transit
hubs that can be converted into office space.
Nonfarm
4%
Vacancy Rate
Following expansions by Google and Amazon last year, demand for office
space in New York City will remain strong in 2015 as tenants scour the market for large blocks of space. Cadillac, for instance, has announced it will be
moving its office from Detroit to Manhattan in 2015. Meanwhile, Samsung
continues its quest for additional square footage, planning to lease up to 1
million square feet on the island. Growing tech firms will generate additional
demand for office assets as vendors follow suit. Properties with lower rents,
access to transportation routes and proximity to a skilled labor force will also
draw many companies to Brooklyn and Long Island City. Yet, a lack of available office space and the high cost of new construction will push owners to
convert well-located industrial properties into new office space. Throughout
the five boroughs, the completion of office buildings will slow this year as the
number and size of new properties declines. The largest project scheduled
to be completed this year is 10 Hudson Yards. At 1.7 million square feet, it
pales in comparison to last year’s delivery of One World Trade Center, which
exceeded 3 million square feet. The ebb in construction, and rising demand,
will enable vacancy to dip to the lowest point since 2008.
Employment Trends
$720
$640
$560
$480
$400
10
11
12
13
14*
Employment: 2.3% s Construction: 1.1M t Vacancy: 60 bps t Asking Rents: 7.0% s
Market Forecast
page 41
Northern New Jersey
Down 7 Places
Office-Using
2.0%
1.5%
1.0%
0.5%
0%
11
12
13
14*
15**
Absorption
Vacancy
2
22%
1
20%
0
18%
-1
16%
-2
11
12
13
14
15**
Vacancy Rate
Completions
14%
Rent Trends
Y-O-Y Rent Change
$26
4%
$25
2%
$24
0%
$23
-2%
$22
11
12
13
14
15**
-4%
Sales Trends
|
2014 Rank: 34
Rents on the west side of the Hudson River can average 50 percent less
than those in New York City, enticing many companies to migrate to Hudson
County. Charles Komar & Sons, an apparel company with a 100-year history in Manhattan, will move its workforce of nearly 500 and showrooms to
Jersey City. Also, Actavis, a pharmaceutical company, will consolidate 400
jobs, including from locations in Long Island and New York City, to Jersey
City this year. Meanwhile, owners of large vacant corporate campuses in
the suburbs are converting space to industrial use, further reducing office
inventory and placing downward pressure on vacancy. In Secaucus, at the
former Panasonic headquarters, office buildings are being torn down as others are being rebuilt for data center tenants. At the former Bayer HealthCare
campus in Wayne, Driscoll Foods will replace existing vacant office buildings
with a 400,000-square foot distribution center and headquarters. Though
older buildings are being removed, office deliveries will increase this year
with the completion of the 750,000-square foot Prudential Tower in Newark
and various smaller medical office buildings, some of which are speculative.
Rising employment and steady improvements to operations will boost investor optimism in Northern New Jersey this year, particularly in Hudson County.
Higher yields than are available for similar assets in New York City will lure
additional buyers to the region. Institutional investors will remain dominant
along the river, targeting assets near major transportation routes. As corporate expansion continues along the Gold Coast, opportunistic investors will
intensify their search for high-quality assets with high vacancy to attract tenants at market rate rents. Local high-net-worth individuals will seek assets
in central business districts and near transit stations throughout the region.
2015 Market Outlook
■■ 2015 NOPI Rank: 41, Down 7 Places. Northern New Jersey has the
weakest job growth rate forecast in the country, pulling down the market
in the NOPI.
■■ Employment Forecast: In 2015, employers will add 15,000 jobs in the
six-county region, lifting total employment 0.8 percent. Office-using employment will rise 1.2 percent with the creation of 6,000 positions.
■■ Construction Forecast: Developers are on track to deliver 835,000 square
feet a 0.5 percent increase to existing office stock. In 2014, approximately
660,000 square feet was placed into service.
$210
$185
■■ Vacancy Forecast: Average vacancy will ease 40 basis points in 2015 to
19.3 percent. A 60-basis point decline was recorded last year.
$160
$135
$110
Asking Rent
2015 Rank: 41
Tenants From Manhattan Drawn to Gold Coast;
Owners Reposition Suburban Office Space
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: As vacancy edges down, operators will push up average
asking rents 2.0 percent to $25.79 per square foot. In 2014, asking rents
rose 2.5 percent.
■■ Investment Forecast: This year high-net-worth individuals will scour Bergen, Essex and Passaic counties for available assets whose owners have
maturing loans and that can be leased with minimum cost.
Market Forecast
page 42
Employment: 0.8% s Construction: 290K s
Oakland
Down 1 Place
|
2015 Rank: 17
|
2014 Rank: 16
Operations in East Bay Improving Dramatically;
Investors Shifting Focus to Oakland/Walnut Creek
■■ 2015 NOPI Rank: 17, Down 1 Place. The East Bay slipped one position in
the Index despite rapidly improving office operations in core areas.
8%
6%
4%
2%
0%
11
■■ Rent Forecast: Rapidly declining vacancy for the second consecutive
year will facilitate 6.6 percent asking rent growth this year to $27.10 per
square foot. In 2014, asking rents surged 5.7 percent.
■■ Investment Forecast: Opportunities to purchase office properties in the
East Bay at elevated cap rates are quickly evaporating as buyers take
notice of the improving operations.
14*
15**
Absorption
Vacancy
6
18%
4
16%
2
14%
0
12%
-2
11
12
13
14
15**
10%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$28
8%
$26
4%
$24
0%
$22
-4%
$20
11
12
13
14
15**
-8%
Sales Trends
■■ Vacancy Forecast: Vacancy will decline 140 basis points in 2015 to 12.7
percent, building on a 280-basis point fall last year.
13
■■ Employment Forecast: Employment growth will surge 2.8 percent in
2015 as 29,500 spots are created. Office-using employment will increase
4.2 percent with 10,500 new jobs.
■■ Construction Forecast: Only 10,000 square feet of space will be added to
inventory this year, after no stock came online in 2014.
12
Completions
2015 Market Outlook
Office-Using
Investors that had shied away from East Bay office properties are reconsidering acquisitions due to elevated cap rates, though deal flow remains light
heading into 2015. Buyers remain cautious due to the nascent nature of the
office recovery in the area. Additionally the prevalence of construction in the
other Bay Area markets could mitigate the amount of spillover demand that
will find its way into East Bay office buildings. As a result, buyers who act
quickly can take advantage of both low interest rates and low competition.
Another year of strong operational performance locally and compressing cap
rates elsewhere may send a wave of buyers into Oakland late this year, evaporating the opportunity to buy closer to the bottom of the real estate cycle.
Average cap rates in the East Bay are 300 to 500 basis points higher than
across the bridge in the city, supporting tremendous upside for owners.
Nonfarm
Vacancy Rate
The East Bay office market came into its own last year after being overshadowed by the high-performing San Francisco and San Jose metros in the
early stages of this robust cycle. Office owners are beginning to reshape the
market to attract tech firms seeking additional space or those priced out of
other areas in the Bay Area. The old Sears building in Oakland, for example,
is undergoing a speculative transformation that caters to technology firms.
The six-story property is located near a BART station and could anchor gentrification efforts due to the relatively low cost of housing and ample supply
of entertainment options. Other areas in the East Bay are also performing
well due to heightened demand from technology and healthcare firms. Ellie
Mae, for instance, will move into 100,000 square feet of space in Pleasanton
during the first half of the year. Astex Pharmaceuticals also signed a significant lease in the same office park. Additionally, architecture firm Gensler is
moving workers to the area due to the proximity of the company’s headquarters in San Francisco.
Employment Trends
$240
$220
$200
$180
$160
10
11
12
13
14*
Market Forecast
page 43
Orange County
Up 3 Places
Office-Using
8%
6%
4%
2%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
20%
3
18%
2
16%
1
14%
0
11
12
13
14
15**
Vacancy Rate
Completions
12%
Rent Trends
Y-O-Y Rent Change
$28
8%
$26
4%
$24
0%
$22
-4%
$20
11
12
13
14
15**
-8%
|
2014 Rank: 8
Orange County is entering the third year of an office recovery behind healthy
growth in the professional and business services sector. The county’s reliance on the mortgage industry prior to the recession has hindered the pace
of the recovery thus far as the area redefines its base industries. Still, a
comparison to the overheated nature of office performance metrics during
the mid-2000s fails to reflect the traction office operators have gained in the
past several quarters. Vacancy will dip below the 15 percent threshold this
year and space demand will approach the previous peak, achieved in 2005.
Nonetheless, high overall vacancy will keep asking rents for available space
more than 15 percent below the previous high watermark despite solid gains
anticipated this year. Development activity, meanwhile, is beginning to work
in leasing managers’ favor. Several large projects came online in 2014, but
construction will slow to a crawl in 2015.
Buyers have moved ahead of the operational recovery in Orange County,
which is keeping cap rates relatively low and has some local operators reconsidering investment strategies ahead of schedule. Investors who were enamored with South Orange County, including Irvine and Newport, are now seeking assets in other established office districts near the airport and Costa Mesa.
The migration toward older areas where cap rates are higher and competition
is muffled will continue through this year as investors chase larger spreads. In
the most sought-after areas, first-year returns regularly dip below 6 percent,
while properties in established submarkets trade for up to 100 basis points
higher. Although buyers are becoming more active in the county, suburban
listings will need a good story to attract interest. Owner-users who can take
advantage of low interest rates and SBA loans, meanwhile, have a limited
window to purchase before risking a higher cost of capital.
2015 Market Outlook
■■ 2015 NOPI Rank: 5, Up 3 Places. A dramatic decline in the local vacancy
rate and significant reduction in construction supported a three-position
rise to this year’s ranking.
■■ Employment Forecast: Employers will add 34,000 positions in Orange
County this year, including 14,000 jobs in traditional office-using sectors,
representing growth of 2.3 and 3.4 percent, respectively.
Sales Trends
$240
■■ Construction Forecast: Only 160,000 square feet of office space will
come online in 2015, down from 1.4 million square feet last year.
$225
■■ Vacancy Forecast: Strong tenant demand will support a 130-basis point
drop in vacancy to 13.8 percent. In 2014, vacancy fell 110 basis points.
$210
$195
$180
Asking Rent
2015 Rank: 5
Orange County Office Recovery Continues to Impress;
Investor Demand Spilling into Secondary Areas
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Available space will be marketed at $26.04 per square
foot at year-end 2015, up 5.3 percent annually. Last year, asking rents
jumped 7.1 percent.
■■ Investment Forecast: Investors will become more active in older office districts this year in an effort to achieve higher returns. However, institutional
buyers will target the handful of Class A properties that become available.
Market Forecast
page 44
Employment: 2.3% s Construction: 1.2M t Vacancy: 130 bps t Asking Rents: 5.3% s
Orlando
Up 5 Places
|
2015 Rank: 34
|
2014 Rank: 39
Higher Tenant Traffic in Prime Orlando Hubs,
Putting Downward Pressure on Vacancy Rate
■■ Employment Forecast: During 2015, staffing will expand 3.1 percent
through the addition of 35,000 positions. The total includes 4,500 new
posts in professional and business services, an office-using sector.
■■ Construction Forecast: A mere 190,000 square feet of space will be
completed this year, down from 398,000 square feet in 2014.
■■ Vacancy Forecast: Strengthening space demand will cut the vacancy rate
130 basis points to 15.2 percent, the lowest year-end reading since 2008.
A decrease of 90 basis points occurred during 2014.
■■ Rent Forecast: Operators will raise the average rent 3.0 percent to $19.64
per square foot, outpacing the 1.7 percent rate of growth in 2014.
■■ Investment Forecast: Commodity-type suburban properties will generate
some interest from investors, but pricing may be suppressed by lenders’
near-term vacancy assumptions.
3%
2%
1%
0%
11
12
13
14*
15**
Completions
Absorption
Vacancy
2.0
20%
1.5
18%
1.0
16%
0.5
14%
0
11
12
13
14
15**
12%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 34, Up 5 Places. As asking rents gained traction and
construction remained limited, Orlando reversed course and edged higher.
4%
Y-O-Y Rent Change
$20
4%
$19
2%
$18
0%
$17
-2%
$16
11
12
13
14
15**
2015 Market Outlook
Office-Using
Vacancy Rate
The lack of competition from new supply is supporting modest gains in rents
and a gradual rise in operating incomes. While a greater number of properties in the area may be sellable due to recent performance gains, transaction
activity remains limited by a lack of inventory for sale. Accordingly, owners of
well-located, low-vacancy properties contemplating near-term dispositions
may accelerate timelines and list properties this year to tap unfulfilled investor demand. Cap rates in recent transactions average in the 8-percent
band, offering a sizable spread over lending rates. Private, local investors
and groups remain the principal buyer pool in the metro. REITs, though, also
own properties in the market and may take advantage of buyer interest in
performing, best-in-class assets to shuffle portfolios and liberate capital this
year. Investor interest in office-to-multifamily conversions also continues to
grow, with downtown Orlando a primary target.
Nonfarm
-4%
Sales Trends
Hiring in Orlando is steadily grinding down vacancy in select areas of Orange
and Seminole counties, but other parts of the metro are lagging. Most of the
space absorbed recently has been in Orange County, in areas that include
downtown Orlando and the Tourist Corridor. Lake Mary in Seminole County
also continues to perform well due to its proximity to executive housing and
a degreed workforce. The economic recovery, though, is translating to less
vigorous improvements in office operations in other parts of the metro, including Metro West and Kissimmee. Dark spaces in core areas will need to
backfill more completely to drive additional tenants to these areas, a trend
that will improve only modestly this year. Despite growing demand in select areas, office developers have not yet responded. Inventory is increasing
only nominally, and a significant portion of new space last year was in the
220,000-square foot fully pre-leased Verizon Financial Center in Lake Mary.
Employment Trends
$200
$175
$150
$125
$100
10
11
12
13
14*
Market Forecast
page 45
Philadelphia
Down 2 Places
Office-Using
2.0%
1.5%
1.0%
0.5%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
18%
3
17%
2
16%
1
15%
0
11
12
13
14
15**
Vacancy Rate
Completions
14%
Rent Trends
Y-O-Y Rent Change
$24
2%
$23
1%
$22
0%
$21
-1%
$20
11
12
13
14
15**
Asking Rent
-2%
|
2014 Rank: 23
Philadelphia’s steady employment gains will generate new office demand
as tenants outgrow their current leases, pushing down vacancy as supply
growth decelerates. This year total employment will come within 1 percent of
the pre-recession peak. In Southern New Jersey, competitive tax incentives
are encouraging expansions by local companies, supporting job retention
and creation. Subaru will retain its North American headquarters in the metro
as it moves from Cherry Hill to a larger space in Camden, where it will increase its workforce by 100 jobs. Meanwhile, Cooper Health will consolidate
350 administrative positions in Cherry Hill and Mount Laurel to a larger office
in Camden. Towers Watson, Lockheed Martin and Holtec International have
made similar moves. Despite the additional demand, construction of office
space will occur in a handful of projects, most of which will deliver in the first
half of the year. Completions will accelerate in 2016 with the delivery of the
FMC tower in University City. The brief pause in office completions will enable
vacancy to dip to the lowest point since early 2009.
Tightening vacancy, the metro’s stable economy and higher yields than available in other major metros in the Northeast are boosting investor confidence
and luring buyers to Philadelphia. Older, high-vacancy office properties in
suburban locations will draw opportunistic investors who have the wherewithal to upgrade and reposition. Initial yields for these assets can exceed 9
percent in some cases. Institutional investors will target stabilized upper-tier
properties in the CBD and near King of Prussia, where cap rates can dip into
the low-5 percent range. Class C listings, particularly those in downtown
Philadelphia and University City, will attract the attention of local buyers.
Some of these properties will be renovated into creative office space while
others are repurposed for residential use or hotels.
2015 Market Outlook
■■ 2015 NOPI Rank: 25, Down 2 Places. Limited rent growth resulted in
Philadelphia’s two-spot decline.
■■ Employment Forecast: Philadelphia area employers will boost total employment 0.9 percent in 2015 with the addition of 25,000 jobs. Primary
office-using sectors will add 11,500 workers to payrolls.
Sales Trends
■■ Construction Forecast: After completing 930,000 square feet last year,
office deliveries will plummet in 2015 as a mere 150,000 square feet is
placed into service. Construction is expected to accelerate next year.
$180
$160
■■ Vacancy Forecast: Elevated demand for office space will push down vacancy 60 basis points this year to 15.5 percent, following a 10-basis point
rise in 2014.
$140
$120
$100
2015 Rank: 25
Corporate Expansions Drive Office Demand;
High Yields Draw Investors
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Average asking rents will increase 1.5 percent in 2015 to
$23.21 per square foot. Last year, asking rents rose 1.3 percent.
■■ Investment Forecast: Strong job gains in the education and health services sector will create additional demand for medical office assets.
Market Forecast
page 46
Phoenix
Up 1 Place
|
2015 Rank: 21
|
2014 Rank: 22
Build-to-Suit Heats Up in Phoenix;
Tech Boosts Space Demand
■■ 2015 NOPI Rank: 21, Up 1 Place. Phoenix remained in the top half of the
Index as conditions continue to improve.
8%
6%
4%
2%
0%
11
Completions
■■ Rent Forecast: Average rents will reach $21.64 per square foot in 2015, a
1.9 percent increase. Last year, asking rents climbed 3.0 percent.
■■ Investment Forecast: The largest challenge buyers will face this year is
limited for-sale inventory, though heightened interest and rising values will
motivate more owners to test the market.
14*
15**
Absorption
Vacancy
26%
3
24%
2
22%
1
20%
0
11
12
13
14
15**
18%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$22
8%
$21
4%
$20
0%
$19
-4%
$18
11
12
13
14
15**
-8%
Sales Trends
■■ Vacancy Forecast: Though completions will double this year, new inventory will come online heavily pre-leased and vacancy will tick up 10 basis
points to 20.7 percent. Vacancy fell 20 basis points in 2014.
13
4
■■ Employment Forecast: Metro employers will create 44,600 jobs in 2015,
including 19,000 positions in primary office-using sectors.
■■ Construction Forecast: After completing 1.1 million square feet of office
space last year, builders will deliver 2.5 million square feet in 2015.
12
2015 Market Outlook
Office-Using
Despite relatively high vacancy, the market’s stability and an optimistic economic outlook will attract more investors to Phoenix, sustaining transaction
velocity. California investors are particularly active, lured by average cap rates
that are up to 200 basis points higher than coastal markets. Opportunistic
investors are targeting Class B/C-plus assets with rent growth potential in
prime locations in the East Valley and Scottsdale Airpark. While private buyers dominate, institutions will continue their search for best-in-class office
properties in established corridors in Scottsdale and North Phoenix where
initial yields are in the low-7 percent range.
Nonfarm
Vacancy Rate
More companies are expanding or relocating in Phoenix; however, rather
than absorbing existing space, many are building large office complexes.
Last year, General Motors and GoDaddy moved their employees to newly
built facilities in Chandler and Tempe, leaving behind a significant amount of
available inventory to fill. As large blocks of space featuring amenities remain
difficult to find, growing companies will continue to expand into newly constructed offices this year as well. California-based tech company Zenefits will
add 1,300 workers by 2017, outgrowing its space in Scottsdale and moving
to a new 100,000-square foot office nearby. An increase in build-to-suit projects will contribute to completions nearly tripling this year to more than 3 million square feet, the largest addition to inventory in five years. Construction
is concentrated in the East Valley. The largest developments are in Tempe, at
State Farm Marina Heights and Hayden Ferry Lakeside, and an expansion at
Wells Fargo’s campus in Chandler. A wave of new office construction will put
slight upward pressure on the vacancy rate, which has hovered in the lowto mid-20 percent range since 2008. Nevertheless, technology, healthcare
and financial company job announcements will continue to unfold, helping
to backfill space.
Employment Trends
$160
$140
$120
$100
$80
10
11
12
13
14*
Employment: 2.4% s Construction: 1.3M s Vacancy: 10 bps s Asking Rents: 1.9% s
Market Forecast
page 47
Pittsburgh
Down 4 Places
Office-Using
6%
4%
2%
0%
-2%
11
12
13
14*
15**
Absorption
Vacancy
2
16%
1
14%
0
12%
-1
10%
-2
11
12
13
14
15**
Vacancy Rate
Completions
8%
Rent Trends
Y-O-Y Rent Change
$22
6.0%
$20
4.5%
$18
3.0%
$16
1.5%
$14
11
12
13
14
15**
0%
Sales Trends
|
2014 Rank: 29
Steady employment gains led by the education, medical, technology and energy sectors will support healthy absorption in the Pittsburgh office market.
More than half of the new positions generated this year will be in traditional
office-using segments, boosting space demand. Company expansions and
relocations over the past two years have pushed net absorption past the longterm annual average to more than 800,000 square feet. This year, the market
will record more than 1 million square feet of net absorption. Despite this milestone, gains in absorption will be offset by a wave of deliveries, which include
several speculative projects that are slated for completion over the next two
years. Much of the construction is located in high-demand sections of downtown, the airport area and along the Interstate 79 corridor. The largest development to be completed this year is the build-to-suit 800,000-square foot
PNC headquarters, which will house 2,200 employees in the central business
district. New inventory will put slight upward pressure on vacancy this year,
though operators will achieve another year of modest rent gains.
Investors seeking higher returns in secondary and tertiary markets will show
increased interest in the steady Pittsburgh market, boosting deal flow in 2015.
Private investors will search for stabilized Class A/B assets in the CBD or in
well-performing northern suburbs such as Cranberry and Wexford. These assets generally bid in the low-8 to mid-9 percent bracket. Properties with tenants
in place requiring minimal management will garner the strongest interest from
coastal investors seeking assets that trade at prices below what is available in
their home markets. These investors, however, should carefully monitor areas
receiving significant deliveries this year that may affect property performance.
Meanwhile, institutions will scour the market for medical office properties, where
best-in-class assets can dip in the mid-6 percent cap rate range.
2015 Market Outlook
■■ 2015 NOPI Rank: 33, Down 4 Places. Pittsburgh’s employment forecast
is among the lowest in the country, restraining the metro in the NOPI.
■■ Employment Forecast: After adding 8,000 positions last year, employers
will create 9,500 jobs in 2014. Of this total, 5,400 workers will be hired in
the office-using sectors.
■■ Construction Forecast: Developers will accelerate the pace of construction this year as 1.4 million square feet is scheduled for completion. In
2014, 1.1 million square feet was delivered.
$140
$120
■■ Vacancy Forecast: In 2015, vacancy will tick up 10 basis points on net
absorption of 1.1 million square feet to 14.1 percent. Vacancy rose 20
basis points one year earlier.
$100
$80
$60
Asking Rent
2015 Rank: 33
Heightened Completions Near Parity
With Absorption to Balance Occupancies
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Asking rents will advance 1.0 percent this year to $20.07
per square foot, following a 1.0 percent increase in 2014.
■■ Investment Forecast: Owners of buildings that have reached peak value,
or have tenant rollover will consider testing the market and trade into larger deals while interest rates remain low.
Market Forecast
page 48
Employment: 0.8% s Construction: 300K s Vacancy: 10 bps s Asking Rents: 1.0% s
Portland
Down 4 Places
|
2015 Rank: 10
|
2014 Rank: 6
Expanding Tech and Creative Companies
Spark Demand for Portland Office Space
■■ 2015 NOPI Rank: 10, Down 4 Places. Despite tight vacancy, Portland fell
four slots in the NOPI as other cities outperformed.
4%
3%
2%
1%
0%
11
■■ Rent Forecast: Contracting vacancy will enable operators to push up
rents. Average asking rents will jump 4.5 percent to $22.09 per square
foot during 2015, after a 4.3 percent climb last year.
■■ Investment Forecast: Buyer demand will remain intense for the few medical office assets that become available for sale.
14*
15**
Absorption
Vacancy
2.0
16%
1.5
14%
1.0
12%
0.5
10%
0
11
12
13
14
15**
8%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$24
6%
$22
4%
$20
2%
$18
0%
$16
11
12
13
14
15**
-2%
Sales Trends
■■ Vacancy Forecast: Vacancy will drop 80 basis points to 9.7 percent in
2015, following a 110-basis point decline last year, as tenant demand
remains strong amid a rise in construction output.
13
■■ Employment Forecast: During 2015, employers will expand payrolls by
35,000 workers, an increase of 3.2 percent. Office-using jobs will account
for 8,500 of these positions, a yearly gain of 3.4 percent.
space this year, up from 100,000 square feet last year.
12
Completions
2015 Market Outlook
Office-Using
Strengthening operations and attractive valuations are drawing buyers to
office assets in the metro. Portland offers value-add investors an array of underutilized older office buildings in desirable areas. Many of these properties
are being renovated to attract creative companies, or are being converted
into hotels or apartments. The available supply in the most sought-after submarkets, however, cannot keep pace with buyer demand due in part to a
perceived lack of reinvestment potential by some owners. As a result, quality
assets for sale in these areas will receive multiple offers. Cap rates that begin
in the mid-6 percent range are higher than in most other West Coast metros, drawing many yield-driven buyers, especially from California. First-year
returns 50 to 100 basis points higher in the suburbs will move many of these
investors farther from the metro core.
Nonfarm
Vacancy Rate
Job growth is approaching a 20-year high, bolstering the metro’s office market during 2015. A large portion of the office-using hiring is in the rapidly
expanding apparel and footwear, and tech industries. Many of these creative
companies are locating in Portland, where live-work-play neighborhoods are
favored by younger employees. The increase in space demand has prompted
the renovation of older office buildings with open floor plans, rooftop decks,
and bicycle parking that are attractive to these firms. Also, the 30-story Park
Avenue West Tower will come online in the downtown area this year, totaling
220,000 square feet. Suburban office parks have been slower to stabilize
and draw new tenants, as many lack the amenities companies desire to lure
workers. Suburban buildings with updated features and near transit stations
should fare better. Additional office space is expected to become available
in suburban submarkets as Nike moves employees from leased space to its
corporate campus over the next several years. The company plans to start a
1.3 million-square-foot office expansion at its headquarters this year.
Employment Trends
$200
$175
$150
$125
$100
10
11
12
13
14*
Market Forecast
page 49
Up 2 Places
Office-Using
8%
4%
0%
-4%
-8%
11
12
13
14*
15**
Absorption
Vacancy
2.0
20%
1.5
18%
1.0
16%
0.5
14%
0
11
12
13
14
15**
Vacancy Rate
Completions
12%
Rent Trends
Y-O-Y Rent Change
$20
8%
$19
4%
$18
0%
$17
-4%
$16
11
12
13
14
15**
Asking Rent
-8%
|
2014 Rank: 33
The recovery of the office market in the Riverside-San Bernardino metro is
gathering momentum, as limited construction and a brightening job outlook
will support a further drop in vacancy. With the local economy strengthening,
every employment sector will add workers this year. Expansions will bolster
the addition of more than 6,000 professional and business services positions in 2015, generating new demand for office space. Other employment
sectors will also enlarge the population of office-using workers. Rising warehouse and multifamily construction, for example, will require developers to
supplement their office staff. Office property completions, though, lag these
other sectors. Projects slated for delivery in 2015 will expand office stock
nominally and mark a decrease from a similarly subdued level last year. A
majority of the space coming online this year is pre-leased and will have little
effect on the vacancy rate. With a limited amount of new buildings to attract
tenants requiring larger layouts, an increase in space demand will greatly lift
the performance of existing buildings.
Buoyed by low interest rates and greater access to debt, investors and owner/users are steadily resuming acquisitions in the Riverside-San Bernardino
metro. Small-business owners especially remain an active source of capital
for purchases of buildings measuring less than 35,000 square feet. Office
investors, though, include many out-of-area groups seeking value-add deals
in higher-density communities such as Ontario and Riverside. Demand remains elevated for buildings pricing up to $5 million that require re-tenanting
and some physical improvements, though listed inventory is insufficient to
satisfy buyers’ appetites. Cap rates in the market average from the low-8
to mid-9 percent range and remain highly attractive to yield-driven investors
exiting other markets.
2015 Market Outlook
■■ 2015 NOPI Rank: 31, Up 2 Places. The Inland Empire’s office market is
slowly gaining ground, though the pace of improvement is limited.
■■ Employment Forecast: This year, 35,000 jobs will be created in the
two-county metro, a rise of 2.7 percent. Office-using employment will
jump 4.5 percent.
Sales Trends
■■ Construction Forecast: A total of 370,000 square feet is scheduled for
delivery this year, growing slightly from last year’s 350,000 square feet.
$160
■■ Vacancy Forecast: The vacancy rate will decrease 40 basis points to 15.5
percent, nearly matching last year’s 70-basis point decline as demand
outpaces completions of new space.
$145
$130
$115
$100
2015 Rank: 31
Falling Vacancy and Rising Job Growth
Bode Well for Inland Empire Investors
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: Operators will once again push up asking rent as vacancy
tightens. Average rents will advance 2.1 percent to $19.50 per square foot
after last year’s 1.4 percent elevation.
■■ Investment Forecast: Owner-operators will make strong bids for the market’s smaller properties.
Market Forecast
page 50
Sacramento
Down 4 Places
|
2015 Rank: 42
|
2014 Rank: 38
Record Low Vacancy Brings Investors
Back to California Capital
■■ 2015 NOPI Rank: 42, Down 4 Places. High vacancy is limiting rent improvement, which dragged Sacramento four positions lower.
6%
4%
2%
0%
11
Completions
■■ Rent Forecast: Rent will advance 1.0 percent to $20.94 per square foot,
after rising 0.4 percent during 2014.
■■ Investment Forecast: A greater number of out-of-state buyers will consider the metro this year, including many who are priced out of primary office
markets and see potentially higher returns in Sacramento.
14*
15**
Absorption
Vacancy
22%
1.5
20%
1.0
18%
0.5
16%
0
11
12
13
14
15**
14%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$22
4%
$21
2%
$20
0%
$19
-2%
$18
11
12
13
14
15**
-4%
Sales Trends
■■ Vacancy Forecast: With minimal completions, vacancy will continue to
plummet. The rate will fall to 16.5 percent, 90 basis points below last
year’s level.
13
2.0
■■ Employment Forecast: After moderate growth in 2014, employers will
hire 20,000 workers this year, representing a 2.3 percent increase.
■■ Construction Forecast: Developers will construct 181,000 square feet
in the metro, increasing supply by 0.2 percent and up from only 91,000
square feet last year.
12
2015 Market Outlook
Office-Using
The investment market is gradually gaining traction as office property operations strengthen, though investors outnumber the assets listed for sale.
Within the region, buyers from the Bay Area will increasingly comb Sacramento for investment opportunities that offer higher yields than are available
in their home markets. Many owners in Sacramento who have been holding
assets to realize potential operating income growth may instead capitalize on
investor interest by listing buildings for sale. This year, interest will also develop in properties in the area surrounding a new arena for the Sacramento
Kings, which is under construction. The arena may encourage consideration
of other commercial development in downtown.
Nonfarm
8%
Vacancy Rate
The Sacramento economy is turning a corner following several years of
tepid growth, creating more favorable conditions for office investments. Private-sector employers continue to hire, backfilling empty desks and creating
new requirements for larger office layouts. State government payrolls are
growing consistently as California’s finances improve, providing an additional
leg of support for the office market. After adding more than 2,000 jobs last
year, additional staffing needs will lead to the hiring of 3,000 state government workers in 2015. To meet the needs for supplementary staff, CalSTRS,
the teacher’s pension fund, has mentioned adding a second building near its
new West Sacramento site, among other options for future expansion. With
space demand on an upswing, the vacancy rate will decline this year to the
lowest annual level in eight years. Developers, though, have yet to respond
to the improving operations across the metro. Projects slated for completion
in 2015 comprise smaller properties with phased sites that will expand office
stock only slightly. An extended period of limited office development will persist, offering an opportunity for owners of existing buildings to fully capitalize
on the increase in demand.
Employment Trends
$140
$130
$120
$110
$100
10
11
12
13
14*
Market Forecast
page 51
Salt Lake City
Down 1 Place
Office-Using
8%
6%
4%
2%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
16%
3
14%
2
12%
1
10%
0
11
12
13
14
15**
Vacancy Rate
Completions
8%
Rent Trends
Y-O-Y Rent Change
$20
4%
$19
2%
$18
0%
$17
-2%
$16
11
12
13
14
15**
-4%
|
2014 Rank: 12
A large educated workforce and a favorable business climate will continue
to attract businesses to the area, creating new demand for office space.
In addition, last year’s surge in venture capital funding in Utah will support
expansion by technology companies along the Wasatch Front. For example,
InsideSales.com received $100 million in funding and will add 300 employees this year. As existing space is filled, rising employment will cause many
companies to outgrow their current locations, forcing many to lease additional space. Despite rising demand, office completions will slow this year,
though several large projects are scheduled for delivery in 2016. The largest
project to be placed into service this year will be the 170,000-square foot
speculative Cornerstone I property in Cottonwood Heights. Next year, 111
Tower in downtown Salt Lake City and the Overstock.com headquarters in
Midvale will be delivered as building picks up again. The dip in construction
will enable vacancy to fall below 11 percent for the first time since mid-2008.
Improving vacancy, higher yields than in many other Western metros, and
a growing economy will increase investor confidence along the Wasatch
Front, boosting demand for office assets. Buyer interest will be heaviest in
downtown Salt Lake City and along the Interstate 15 corridor in Salt Lake
and Utah counties. Institutional investors will be more dominant in these
areas. Local investors will look for office properties along Interstate 215 in
eastern Salt Lake County or along I-15 in Davis and Weber counties. Medical office properties will remain in high demand; however, listings will be
limited, generating heightened competition for these assets.
2015 Market Outlook
■■ 2015 NOPI Rank: 13, Down 1 Place. Salt Lake City fell one spot in the
NOPI due to one of the lowest rent growth forecasts in the nation.
■■ Employment Forecast: Overall employment will expand 2.7 percent in
2015 as 30,000 positions are created. Employers in primary office-using
sectors will increase payrolls by 10,500 workers.
■■ Construction Forecast: After placing into service 1.2 million square feet
of office space in 2014, builders will slow the development pipeline to
a mere 530,000 square feet this year. Deliveries are expected to nearly
double in 2016.
Sales Trends
$140
■■ Vacancy Forecast: Limited construction and strong demand will contribute to a 110-basis point decline in vacancy to 10.2 percent in 2015. Last
year, vacancy fell 140 basis points.
$120
$100
■■ Rent Forecast: Tight vacancy will enable average asking rents along the
Wasatch Front to rise 0.5 percent this year to $17.61 per square foot,
after a 1.2 percent decrease in 2014.
$80
$60
Asking Rent
2015 Rank: 13
Tech Boom in Full Swing as Developers Pause,
Raising Investor Confidence
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Investment Forecast: Redevelopment of the University Mall in Orem and
future redevelopment of the Cottonwood Mall in Holladay will create opportunities for investors as the projects add amenities to nearby offices.
Market Forecast
page 52
San Antonio
Down 2 Places
|
2015 Rank: 23
|
2014 Rank: 21
San Antonio’s Northwest Submarket Remains
Frontrunner in Local Job Creation
■■ 2015 NOPI Rank: 23, Down 2 Places. San Antonio remains in the top half
of the ranking as vacancy is expected to drop this year.
8%
6%
4%
2%
0%
11
■■ Rent Forecast: Similar to last year, rent growth will be moderate in 2015.
On average, asking rents will rise 1.1 percent to $19.38 per square foot.
■■ Investment Forecast: Despite San Antonio’s relatively low vacancy rate
and strong growth prospects, cap rates have held in a fairly tight band
since 2012. The metrowide average of 8.8 percent remains highly favorable compared with other large Texas markets.
14*
15**
Absorption
Vacancy
2.0
18%
1.5
16%
1.0
14%
0.5
12%
0
11
12
13
14
15**
10%
Rent Trends
Asking Rent
Y-O-Y Rent Change
$20
4%
$19
3%
$18
2%
$17
1%
$16
11
12
13
14
15**
0%
Sales Trends
■■ Vacancy Forecast: In 2015, the metro’s vacancy rate will improve 30 basis points to 13.3 percent, following a 90-basis point decline last year.
13
■■ Employment Forecast: Payrolls will rise 2.2 percent with the addition of
20,700 jobs. The forecast total includes 7,200 new office-using positions.
office space this year, down from 719,000 square feet in 2014.
12
Completions
2015 Market Outlook
Office-Using
Sales velocity will rise moderately in 2015 as improved operations prompt
more owners to list. Deal flow will remain brisk in the North Central and
Northwest submarkets, which contain more than 70 percent of the metro’s
office stock. While private investors will continue to dominate the market
for smaller to midsize deals, institutional investors and REITs will remain key
players in the Class A/B-plus segments and for credit-tenant medical office
deals. Last year, institutions and REITs accounted for 50 percent and 20 percent of dollar volume, respectively, up from a collective 21 percent in 2013.
Nonfarm
Vacancy Rate
San Antonio’s office market will tighten this year as construction slows and
job creation remains at healthy levels. While oil and gas production in the Eagle Ford Shale has benefited the economy in recent years, the direct impact
on San Antonio’s office market has been somewhat limited. As such, recent
oil price volatility is unlikely to significantly affect local office fundamentals.
Similar to 2014, job creation in traditional office-using employment sectors
is forecast to remain elevated, which, coupled with rising healthcare and
government payrolls, will continue to support new tenant demand. In recent
quarters, USAA and IBEX Global each announced plans to hire up to 1,000
workers this year, while the NSA reported its intention to significantly expand
its cybersecurity operations in the metro. Many of the new office jobs will
be concentrated in the Northwest submarket, which will also account for
the most sizable share of completions in 2015. Relatively tight conditions in
the area have encouraged speculative development, but projects have been
met with steady demand. The 129,000-square foot WestRidge One at La
Cantera, for example, was leased entirely by Harland Clarke soon before its
late-2014 completion, while the developer of a similar-size building due for
delivery midyear has reported interest from prospective tenants. With the
exception of a proposed 200,000-square building in the North Central area,
most of the other buildings on tap for this year are medical offices.
Employment Trends
$180
$160
$140
$120
$100
10
11
12
13
14*
Employment: 2.2% s Construction: 70K t
Market Forecast
page 53
San Diego
Down 1 Place
Office-Using
6.0%
4.5%
3.0%
1.5%
0%
11
12
13
14*
15**
Absorption
Vacancy
4
18%
3
16%
2
14%
1
12%
0
11
12
13
14
15**
Vacancy Rate
Completions
10%
Rent Trends
Y-O-Y Rent Change
$30
6%
$28
3%
$26
0%
$24
-3%
$22
11
12
13
14
15**
Asking Rent
-6%
|
2014 Rank: 7
San Diego’s office market will take another step forward in 2015 as hiring
remains on track and the threat of new supply is limited. Office-using payrolls
will surpass pre-recession levels in the first half of this year, more than 12
months after overall employment breached the important threshold. Nonetheless, space demand began this year nearly 9 percent above the prior
peak, and many firms are scouring the market for larger footprints. As office
users expand or move to the metro to create synergies with the biotechnology industry, vacancy will dip below the pre-recession low by the end
of 2015. Some of these companies will benefit from grants funded by the
National Institutes of Health, which totaled nearly $1 billion in 2013. Supply-side headwinds are limited to a few speculative buildings. The largest
speculative project is One La Jolla Centre, which began the year with insignificant pre-leasing activity. However, several firms are exploring options at
the 300,000-square foot building.
The office investment market also enters 2015 with positive momentum,
though conditions are far off the heated pace during the most recent real
estate boom. Buyers are slowly moving down the quality scale in anticipation of stronger leasing activity in the coming months. Class B assets with
elevated vacancy that can be re-tenanted are climbing on investors’ wish
lists this year. However, few of these deals are prevalent in the metro and
out-of-market capital is beginning to become a larger factor in bidding. The
strong office investment markets in nearby Orange and Los Angeles counties are the primary catalyst of capital migration, rather than overwhelming
performance in the local office operations. Nonetheless, 2015 will likely be
the last year buyers can find higher cap rates in a coastal California market;
soon those opportunities will be relegated to landlocked states.
2015 Market Outlook
■■ 2015 NOPI Rank: 8, Down 1 Place. San Diego holds onto a top 10 position in this year’s ranking.
■■ Employment Forecast: Payrolls will grow by 37,000 spots in 2015, representing a 2.7 percent gain and matching last year’s percent change. Office
users will hire 14,400 additional workers, a 4.4 percent rise.
Sales Trends
■■ Construction Forecast: Development will accelerate modestly to 910,000
square feet, including 550,000 square feet of speculative space. Last year,
builders completed nearly 900,000 square feet.
$280
$260
■■ Vacancy Forecast: After a 200-basis point fall last year, vacancy will contract 120 basis points to 13 percent in 2015.
$240
■■ Rent Forecast: Asking rents for available space will increase 4.6 percent
to $28.65 per square foot, building on last year’s 4.9 percent advance.
$220
$200
2015 Rank: 8
Out-of-Market Investors Beginning to Bid Up San Diego
Office Assets; Suburbs Provide Value Opportunities
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Investment Forecast: The spread in cap rates between primary and
secondary areas provides opportunities for investors with multiple return criteria. In the suburbs, first-year returns can reach 8 percent, while
sought-after office districts have cap rates below 6 percent.
Market Forecast
page 54
San Francisco
No Change
|
2015 Rank: 1
|
2014 Rank: 1
Salesforce Reshaping South of Market Area;
Tech Firms Strengthen Their Hold in San Francisco
■■ Employment Forecast: Employers will hire 33,400 additional workers this
year, a 3 percent increase. Nearly half of those jobs, or 18,000 positions,
will be added in office-using sectors.
■■ Construction Forecast: After 950,000 square feet of space came online
in 2014, 3.5 million square feet will be finished this year.
■■ Vacancy Forecast: Office vacancy will decline to 8.6 percent by year end,
down 140 basis points from 2014.
■■ Rent Forecast: Asking rents for available space will jump 8.5 percent this
year to $52.38 per square foot. Last year, rents advanced 10.3 percent.
■■ Investment Forecast: Investors will need to stretch to acquire properties
in San Francisco this year as buyer demand remains intense. Owners who
purchased in 2009 may begin profit-taking.
6%
4%
2%
11
12
13
14*
15**
Completions
Absorption
Vacancy
6.0
16%
4.5
14%
3.0
12%
1.5
10%
0
11
12
13
14
15**
8%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 1, No Change. Strong leasing activity on the peninsula
and in the city keeps San Francisco atop this year’s Index.
8%
0%
Y-O-Y Rent Change
$56
18%
$50
15%
$44
12%
$38
9%
$32
11
12
13
14
15**
6%
Sales Trends
2015 Market Outlook
Office-Using
The attractiveness of San Francisco office properties extends to investors,
who are aggressive when targeting assets. Prices have appreciated considerably during the past few years as owners attempt to expand their presence
or establish a foothold in the market. As a result, cap rates in San Francisco
County are among the lowest in the nation, which is keeping highly leveraged buyers from being competitive. Low spreads are also limiting the
number of value-add plays in the metro, though investors willing to reposition
dilapidated office/industrial space into creative footprints can achieve favorable returns. Most of these deals have been exhausted in the sought-after areas, so investors will seek opportunities on the fringes of trendy office
markets. Sellers, on the other hand, have been reluctant to list assets while
conditions are improving rapidly. As leases that were signed between 2009
and 2011 roll over into market-rate rents, owners may consider divesting at
new, higher valuations.
Nonfarm
Vacancy Rate
San Francisco’s office market is among the best in the country as high-tech
firms continue to migrate into the city and establish a stronger presence in
office districts traditionally dominated by other industries. A trend that started
as a Mid-Market revolution with Twitter is showing few signs of slowing as
technology companies now occupy significant space in the Financial District, South of Market, Mission and South Beach. Dropbox and Splunk, for
instance, recently inked leases for buildings underway in South Beach on
Brannan. The most significant news in the local office market, however, is
Salesforce’s activity in the South of Market area. The cloud-computing firm
recently committed to 710,000 square feet in the renamed Salesforce Tower. The company also occupies much of the nearby space, creating a large
urban campus. Construction projects, meanwhile, are coming online across
the metro. Pre-leasing is healthy, however, and supply additions will not impact operations until 2017.
Employment Trends
$400
$360
$320
$280
$240
10
11
12
13
14*
Market Forecast
page 55
San Jose
No Change
Office-Using
10%
8%
6%
4%
2%
11
12
13
14*
15**
Absorption
Vacancy
6.0
16%
4.5
14%
3.0
12%
1.5
10%
0
11
12
13
14
15**
Vacancy Rate
Completions
8%
Rent Trends
Y-O-Y Rent Change
$40
16%
$36
12%
$32
8%
$28
4%
$24
11
12
13
14
15**
Asking Rent
0%
|
2014 Rank: 2
The pace of construction will hasten this year, though strong tenant demand
from technology firms will maintain downward pressure on office vacancy.
Much of the new space scheduled for delivery in 2015 is in a handful of office parks that broke ground as speculative construction. Leasing activity is
running approximately six months ahead of completions, muffling the current
pressure from new space. One of the largest office parks underway, Moffett
Place in Sunnyvale, was recently leased entirely to Google; half of the 1.9
million square feet in the project will come online in the second quarter of
this year. With this commitment and others, Google now has space for an
additional 30,000 employees in the South Bay, solidifying the firm’s longterm commitment to the market. LinkedIn will also take down considerable
space, adding nearly 350,000 square feet in Mountain View during the first
quarter. Additionally, the company is seeking permission to develop 1 million
square feet in North Bayshore in the coming years.
The office investment market in San Jose is diverse and competitive as users, exchange buyers and institutions vie for the limited number of listings.
As rents have skyrocketed, owners are awaiting lease rollovers prior to divesting assets. In fact, large blocks of vacant space can capture the highest prices as technology firms awash with capital expand their real estate
holdings. Google, for example, is the most active buyer in Mountain View,
amassing a huge real estate portfolio. Builders are also major players for
older office assets that can be used to assemble sites for redevelopment. At
the lower end of the market, investors anxious to gain a foothold in the metro
are paying a premium for smaller buildings that meet the needs of startups
or population-serving office users. These buyers will need to employ caution
when considering rent increases for non-tech tenants that may not be able
to pay top-end rates.
2015 Market Outlook
■■ 2015 NOPI Rank: 2, No Change. San Jose holds onto the second position in the ranking as major tech firms ink huge leases for future growth.
■■ Employment Forecast: Office-using employment will jump 5.0 percent
this year as 15,000 positions are added. Overall payrolls will expand by
28,500 spots, or 2.8 percent.
Sales Trends
■■ Construction Forecast: Developers will complete 5.0 million square feet
in 2015, up from 1.6 million square feet last year.
$360
$330
■■ Vacancy Forecast: Office vacancy will decline 110 basis points to 9.5
percent, building on a 130-basis point fall in 2014.
$300
■■ Rent Forecast: Asking rents will rise 7.7 percent in 2015 to $39.11 per
square foot. Last year, a 10.1 percent jump was recorded.
$270
$240
2015 Rank: 2
Tech Companies Expand Real Estate Holdings;
Smaller Investors Target South and East Submarkets
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Investment Forecast: Cash-heavy investors will be the primary players in
the heart of Silicon Valley, relegating smaller buyers to secondary submarkets. Marketwide cap rates were less than 7 percent at the start of 2015,
though first-year returns in primary submarkets are closer to 5 percent.
Market Forecast
page 56
Seattle-Tacoma
Up 1 Place
|
2015 Rank: 3
|
2014 Rank: 4
Investors Pour Capital Into Seattle,
Saturating Puget Sound Office Market
■■ Employment Forecast: During 2015, employers will create 55,000 positions, a 3 percent gain, including 18,000 office-using jobs.
■■ Construction Forecast: Office completions will soar this year as builders deliver 3.8 million square feet of space, up from 560,000 square feet
during 2014. Amazon will account for nearly half of the new inventory.
■■ Vacancy Forecast: Vacancy will fall 60 basis points to 11.2 percent in
2015, on net absorption of nearly 4.4 million square feet. Last year’s vacancy dropped 150 basis points.
■■ Rent Forecast: Strong tenant demand and tightening vacancy will drive
up asking rents 4.4 percent to $30.40 per square foot this year. In 2014,
asking rents ticked up 3.6 percent.
■■ Investment Forecast: As prices rise, more owners will test the market,
listing underperforming assets. Local buyers, however, still expect discounted prices.
2%
1%
11
12
13
14*
15**
Completions
Absorption
Vacancy
6.0
16%
4.5
14%
3.0
12%
1.5
10%
0
11
12
13
14
15**
8%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 3, Up 1 Place. Low vacancy and robust payroll growth
boosted Seattle-Tacoma one position in this year’s ranking.
3%
0%
Y-O-Y Rent Change
$32
6.0%
$30
4.5%
$28
3.0%
$26
1.5%
$24
11
12
13
14
15**
0%
Sales Trends
2015 Market Outlook
Office-Using
The sizzling local economy is attracting worldwide capital to office assets in
Seattle. Improving operations and new inventory are gaining the attention of
institutional investors, while some foreign buyers are seeking a safer haven
from more volatile markets overseas. Top-tier properties close to the Seattle
core and in Bellevue are especially sought after at cap rates that can dip below 5 percent. In the under $10 million bracket, more investors are seeking
stabilized assets that offer steady cash flows. Properties near downtown,
along major transit routes, or that have amenities to attract tech or startups
are receiving significant investor attention. A shortage of these assets available for sale has generated intense competition among those that are listed,
with some selling above asking price.
Nonfarm
4%
Vacancy Rate
Robust hiring in Seattle-Tacoma will drive employment gains to the highest
annual level in eight years. This bodes well for the local office market, as the
office-using sector will account for nearly a third of these positions, many at
tech companies. Competition among these firms to attract and retain staff
has some companies putting a greater emphasis on workplace culture and
environment. Office buildings that can offer amenities or tenant improvement
packages to attract these businesses will do well. Competitive construction
is on the rise with projects such as Dexter Station and the 929 Office Tower
coming online this year. Although Amazon’s expansion is dominating office
development with more than 1.7 million square feet underway in Seattle,
accounting for nearly half of the metro’s new inventory this year. Amazon’s
addition should not affect overall vacancy as the company is not expected
to vacate any leased space. During 2015, increased tenant demand will drop
marketwide vacancy to the lowest level in seven years, supporting a fifth
annual rent gain.
Employment Trends
$300
$275
$250
$225
$200
10
11
12
13
14*
Market Forecast
page 57
St. Louis
Down 8 Places
Office-Using
4%
3%
2%
1%
0%
11
12
13
14*
15**
Absorption
Vacancy
2
16%
1
15%
0
14%
-1
13%
-2
11
12
13
14
15**
Vacancy Rate
Completions
12%
Rent Trends
Y-O-Y Rent Change
$18
2%
$17
1%
$16
0%
$15
-1%
$14
11
12
13
14
15**
Asking Rent
-2%
|
2014 Rank: 28
Blossoming research and tech companies serving the healthcare sector will cultivate employment growth, boosting office operations in St.
Louis. While larger expanding firms such as Boeing, SunEdison, Centene and Laclede Group have greater floorplate requirements, smaller
companies are also looking to grow. Veering away from traditional offices,
some local entrepreneurs are becoming creative and upgrading industrial buildings for their operations, remaining close to transportation hubs.
However, this has not yet posed a threat to existing available office buildings as many companies still demand traditional space and amenities.
As the office market warms up with new jobs, developers are planning mixeduse projects to meet the evolving demands for smaller footprints and open
floor plans among office-using employers. Demand is highest in the southwestern section of the metro, where vacancy is on the cusp of falling to 10
percent this year. Employment hubs in the northwest along Highway 270,
however have room to improve, with vacancies in the 15 to 16 percent range.
A broad range of properties are maintaining performance in the metro, with
scope for growth in the next few years. While institutional investors dominate
ownership of large footprint office towers, buildings under 50,000 square feet
are owned primarily by local entities or individuals. Many of these investors
will exchange these assets to reposition into similar office properties that can
be re-tenanted, supporting increased yields. Intense competition will ensue
for larger office assets, as a number of local firms have the capital to meet
institutional level bids. Retro, value-add properties in the western portion of the
county near Creve Coeur are also a popular option. Buyers less active in the
areas near Highway 40 and Olive Boulevard, south of Westport. Institutions
seeking Class A product will look in Clayton, downtown St. Louis and pockets
of Creve Coeur and Chesterfield.
2015 Market Outlook
■■ 2015 NOPI Rank: 36, Down 8 Places. St. Louis retracted eight positions
in the Index as office vacancy remains stubbornly elevated.
■■ Employment Forecast: Employers will generate 28,000 positions, including 12,000 office-using jobs. This represents a 2.1 percent advance and
an acceleration from last year’s 1.7 percent growth to overall jobs.
Sales Trends
$120
■■ Construction Forecast: Developers are slated to complete 100,000
square feet of office space this year, following 420,000 square feet.
$110
■■ Vacancy Forecast: The vacancy rate will ebb 20 points to 13.6 percent
down from last year’s 40-basis point fall.
$100
■■ Rent Forecast: Asking rents will rise 1.2 percent to $18.05 per square
foot, building on the 1.6 percent growth in 2014.
$90
$80
2015 Rank: 36
Seeds for Growth Planted
In St. Louis as Hiring Accelerates
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Investment Forecast: Though the current pace of sales has room to
reach peak levels, employers are optimistic, creating demand for smaller
spaces for startups and small businesses. Owners can optimize through
re-tenanting and lease-up of assets.
Market Forecast
page 58
Employment: 2.1% s
Construction: 320K t Vacancy: 20 bps t Asking Rents: 1.2% s
Up 6 Places
|
2015 Rank: 24
|
2014 Rank: 30
Tenants Expand Search Parameters for Tampa Bay Space
As Steady Absorption Pulls Vacancies Lower
■■ Employment Forecast: Establishments in Tampa Bay will create 30,000
positions in 2015. A projected gain of 2,200 financial services jobs will lift
employment in the sector above its pre-recession peak.
■■ Construction Forecast: A mere 90,000 square feet will be delivered in
Hillsborough County as construction remains restrained metrowide.
■■ Vacancy Forecast: The vacancy rate will tumble 190 basis points to 13.5
percent, surpassing the 150-basis point plunge posted last year.
■■ Rent Forecast: After the average rent advanced 2.1 percent in 2014, operators will leverage reduced vacancy and limited construction to raise the
metrowide level 3.0 percent to $20.31 per square foot.
■■ Investment Forecast: Low interest rates offer an opportunity for many
property owners to refinance to monetize the recent increase in value and
redeploy capital into other properties.
3%
2%
1%
11
12
13
14*
15**
Completions
Absorption
Vacancy
4
20%
3
18%
2
16%
1
14%
0
11
12
13
14
15**
12%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 24, Up 6 Places. Vacancy will fall at the fastest pace in
the nation, pulling Tampa-St. Petersburg up six spots in the Index.
4%
0%
Y-O-Y Rent Change
$22
4%
$20
2%
$18
0%
$16
-2%
$14
11
12
13
14
15**
-4%
Sales Trends
2015 Market Outlook
Office-Using
The average price has risen steadily during the economic recovery, while
cap rates average in the high-7 to low-8 percent range in recent deals. Momentum is building in the transaction market, with dollar volume and velocity
rising last year, led by an increasingly active contingent of buyers in the $1
million to $10 million price tranche. Interest in performing assets in primary
submarkets, including Westshore, Tampa, St. Petersburg and high-demand
suburban communities such as Brandon, will persist in 2015. Supply of available properties will fall short of demand, however, and assets in secondary
and tertiary suburban locations have yet to spark much interest. Suburban
office assets with significant vacancy, for example, will likely need to offer
yields higher than the current marketwide range to attract investor interest.
Nonfarm
Vacancy Rate
Growing payrolls in office-using employment sectors and an ongoing slump
in office development will drive tenants to expand their searches throughout
Tampa Bay this year, enabling property owners to backfill vacancies and
firm rents. Over the past four years, a disproportionate share of demand
growth occurred in a few primary submarkets, including Westshore, and
the Tampa and St. Petersburg CBDs. Other areas have lagged but appear
positioned for stronger results in 2015 as tenants expand and additional
office-using startup businesses materialize. Supply pressures are minimal,
with restrained completions and a portion of the roughly 8 million square feet
planned for the metro at least a year away. The projects with the greatest
chances of proceeding to groundbreaking, though, are in downtown Tampa
and St. Petersburg and in East Hillsborough County. Multifamily development is booming in these areas, and prospective office tenants will strongly
consider layouts near growing housing stock and a large concentration of
prospective workers.
Employment Trends
$180
$155
$130
$105
$80
10
11
12
13
14*
Market Forecast
page 59
Washington, D.C.
Down 2 Places
Office-Using
2%
1%
0%
-1%
-2%
11
12
13
14*
15**
Absorption
Vacancy
8
22%
4
20%
0
18%
-4
16%
-8
14%
11
12
13
14
15**
Vacancy Rate
Completions
Rent Trends
Y-O-Y Rent Change
$38
2%
$36
1%
$34
0%
$32
-1%
$30
11
12
13
14
15**
-2%
|
2014 Rank: 24
Developers will continue to build in 2015, despite the market recording one
of the highest vacancy rates in the nation. More than 20 percent of the
metro’s office stock will sit empty this year. Operations in the District will fair
slightly better, with vacancy approximately 500 basis points below Suburban
Maryland and Suburban Virginia. Several factors are contributing to the escalated rate, including speculative development and lackluster employment
growth. Federal cutbacks over the past few years have tightened public
service staffing and federal contractor employment, reducing demand for
space. Soft demand-side pressure alongside a wave of completions resulted in three years of negative net absorption that pushed the vacancy rate
up 340 basis points. Looking forward, employment will moderately rise this
year, regaining all office-using jobs lost during the 2013 sequester. While
companies add to headcounts and outgrow their existing facilities, they will
expand into larger offices. Additional space demand, however, will lag new
supply. Deliveries in 2015 will fall below the five-year annual average, though
unleased inventory will increase competition for existing properties, moderately lifting vacancy.
Investors remain optimistic in the Washington, D.C., office market, though
rising property values have pressured some buyers out of the core and into
secondary locations. Well-capitalized private investors and owner-users will
target properties priced between $3 million to $10 million. Stabilized offices located in densely populated communities in Suburban Virginia such as Fairfax
County, particularly the Dulles Corridor, as well as the I-270 Corridor in Suburban Maryland will garner the strongest interest. First-year returns in these
areas vary significantly, depending on quality and lease terms, averaging in the
low-7 to mid-8 percent area. Meanwhile, institutions will remain focused inside
the Capital Beltway where cap rates are in the low-5 percent range.
2015 Market Outlook
■■ 2015 NOPI Rank: 26, Down 2 Places. Falling deficits will keep government contractors from expanding, dragging down the metro two spots.
■■ Employment Forecast: Employment will expand 1.6 percent in 2015 with
the addition of 48,500 workers. This includes 14,500 new employees in
the traditional office-using sector.
Sales Trends
$340
■■ Construction Forecast: After developers completed nearly 4.1 million
square feet last year, 1.6 million square feet is scheduled for delivery in
2015, a 0.4 percent increase to stock.
$320
■■ Vacancy Forecast: New supply will contribute to a 20-basis point rise in
vacancy to 19.9 percent this year. Vacancy climbed 110 basis points one
year earlier.
$300
$280
$260
Asking Rent
2015 Rank: 26
Speculative Development Amid Lackluster Employment
Lifts Vacancies
Employment Trends
Nonfarm
|
10
11
12
13
14*
■■ Rent Forecast: In 2015, average rents will edge up 0.1 percent to $35.40
per square foot, following a 0.6 percent loss last year.
■■ Investment Forecast: High vacancy in the D.C. market presents value-add opportunities for yield-driven and opportunistic investors who have a tenant in line.
Market Forecast
page 60
Employment: 1.6% s Construction: 3.1M t Vacancy: 20 bps s Asking Rents: 0.1% s
West Palm Beach
Up 7 Places
|
2015 Rank: 28
|
2014 Rank: 35
Office Sector Gaining Traction,
Setting Table for More Deals in 2015
■■ Employment Forecast: An aging population will support an increase of
5,900 education and health services positions in 2015 and generate additional medical office space demand. Overall, employment in the county
will increase 3.1 percent, or by 17,500 jobs, during the year.
■■ Construction Forecast: Buildings comprising a total of 52,000 square feet
will come online, a drop from 209,000 square feet last year.
■■ Vacancy Forecast: Minimal construction will help slash the vacancy rate
160 basis points to 16.9 percent.
■■ Rent Forecast: The average rent in the county will advance 3.5 percent to
$27.22 per square foot in 2015. Last year’s decrease in vacancy supported a 2.3 percent increase.
■■ Investment Forecast: Widening availability of debt will support a greater
number of transactions in 2015 and enable refinancings to free capital for
additional acquisitions.
6%
4%
2%
0%
11
12
13
14*
15**
Completions
Absorption
Vacancy
2
24%
1
21%
0
18%
-1
15%
-2
11
12
13
14
15**
12%
Rent Trends
Asking Rent
■■ 2015 NOPI Rank: 28, Up 7 Places. Strong employment growth and a
significant decrease in the vacancy rate propelled West Palm Beach’s seven-spot jump in the NOPI.
8%
Y-O-Y Rent Change
$28
4%
$27
2%
$26
0%
$25
-2%
$24
11
12
13
14
15**
2015 Market Outlook
Office-Using
Vacancy Rate
Transaction velocity and dollar volume are rising, expanding liquidity in the
market. Recent gains in occupancy and rents are enabling many property
owners to list properties for sale and enhancing the probability that price
objectives can be attained. Among the buyer pools, institutions were net acquirers in 2014, deploying capital into top-end, well-performing assets. The
county will remain a venue for select, one-off purchases by institutions this
year, and assets in downtown West Palm Beach and Boca Raton will elicit
special interest. Vacancy continues to fall in Boca Raton and a meager planning pipeline of 125,000 square feet will not impose an obstacle to maintaining occupancy and achieving NOI and return goals. Small private investors,
meanwhile, will figure prominently in deals involving smaller Class B buildings
in 2015. Cap rates in this segment start in the mid-8 percent range.
Nonfarm
-4%
Sales Trends
Consistent job growth and a resumption of favorable demographic trends are
converging to provide momentum in the Palm Beach County office market.
Payrolls will finally surpass their pre-recession high during the year, triggering
new space needs and a plunge in vacancy. The professional and business
services sector has already exceeded its former peak, while financial services staffing is rising steadily. With demand strengthening and the amount
of occupied sublease space marketed for lease back at pre-recession levels,
rents will grow substantially this year. In addition to the growing population of
office workers, improved housing affordability, expanded options for renters
and strengthening job prospects are sparking a resurgence in relocations
from outside the county. New arrivals will require services such as medical
care, and rising demand may initiate expansions by medical practices and
spur greater absorption of medical office space.
Employment Trends
$220
$205
$190
$175
$160
10
11
12
13
14*
Market Forecast
page 61
Office Locations
Office Locations United States
Corporate Headquarters
Marcus & Millichap
23975 Park Sorrento
Suite 400
Calabasas, CA 91302
(818) 212-2250
Atlanta
500 Northpark Town Center
1100 Abernathy Road, N.E.
Building 500, Suite 600
Atlanta, GA 30328
(678) 808-2700
Michael J. Fasano
Austin
8310-2 N. Capital of Texas Highway
Suite 110
Austin, TX 78731
(512) 338-7800
Craig R. Swanson
Bakersfield
4900 California Avenue
Tower B, 2nd Floor
Bakersfield, CA 93309
(661) 377-1878
Adam Christofferson
Birmingham
The Landmark Center
2100 First Avenue North
Suite 600
Birmingham, AL 35203
(205) 747-3722
Jody McKibben
Boise
950 W. Bannock Street
Suite 1100
Boise, ID 83702
(208) 319-3549
Tim Rios
Boston
100 High Street
Suite 1025
Boston, MA 02110
(617) 896-7200
Gary R. Lucas
Brooklyn
16 Court Street
Floor 2A
Brooklyn, NY 11241
(718) 475-4300
John Horowitz
Charleston
145 King Street
Suite 407
Charleston, SC 29401
(843) 952-2222
Raj Ravi
page 62
Charlotte
405 Eagle Bend Drive
Waxhaw, NC 28173
(704) 443-0600
Gary R. Lucas
Charlotte Uptown
525 N. Tryon Street
Suite 1600
Charlotte, NC 28202
(704) 831-4600
Raj Ravi
Chicago Downtown
333 W. Wacker Drive
Suite 200
Chicago, IL 60606
(312) 327-5400
John Przybyla
Chicago Oak Brook
One Mid America Plaza
Suite 200
Oakbrook Terrace, IL 60181
(630) 570-2200
Steven Weinstock
Chicago O’Hare
8750 W. Bryn Mawr Avenue
Suite 650
Chicago, IL 60631
(773) 867-1500
Steve Rachman
Cincinnati
600 Vine Street
10th Floor
Cincinnati, OH 45202
(513) 878-7700
Michael L. Glass
Cleveland
5005 Rockside Road
Suite 1100
Independence, OH 44131
(216) 264-2000
Michael L. Glass
Columbia
1320 Main Street
Suite 300
Columbia, SC 29201
(803) 678-4900
Raj Ravi
Columbus
230 West Street
Suite 100
Columbus, OH 43215
(614) 360-9800
Michael L. Glass
Corpus Christi
15217 S. Padre Island Drive
Suite 203
Corpus Christi, TX 78418
(361) 949-3300
J. Michael Watson
Dallas
5001 Spring Valley Road
Suite 100W
Dallas, TX 75244
(972) 755-5200
Tim Speck
Iowa
425 Second Street S.E.
Suite 610
Cedar Rapids, IA 52401
(319) 333-7743
Tim Rios
Denver
1225 17th Street
Suite 1800
Denver, CO 80202
(303) 328-2000
Richard A. Bird
Jacksonville
5220 Belfort Road
Suite 120
Jacksonville, FL 32256
(904) 672-1400
Kirk A. Felici
Detroit
Two Towne Square
Suite 450
Southfield, MI 48076
(248) 415-2600
Steven Chaben
Kansas City
7400 College Boulevard
Suite 105
Overland Park, KS 66210
(816) 410-1010
Matthew Fitzgerald
Encino
First Financial Plaza
16830 Ventura Boulevard
Suite 100
Encino, CA 91436
(818) 212-2700
Adam Christofferson
Lafayette
1812 W. Pinhook Road
Suite 202
Lafayette, LA 70508
(337) 231-5174
David H. Luther
Fort Lauderdale
5900 N. Andrews Avenue
Suite 100
Fort Lauderdale, FL 33309
(954) 245-3400
Ryan Nee
Fort Worth
300 Throckmorton Street
Suite 1500
Fort Worth, TX 76102
(817) 932-6100
David H. Luther
Fresno
8050 N. Palm Avenue
Suite 300
Fresno, CA 93711
(559) 389-5891
Adam Christofferson
Greensboro
324 S. Elm Street
Suite 300
Greensboro, NC 27401
(336) 450-4600
Raj Ravi
Houston
3 Riverway
Suite 800
Houston, TX 77056
(713) 452-4200
David Luther
Indianapolis
600 E. 96th Street
Suite 500
Indianapolis, IN 46240
(317) 218-5300
Josh Caruana
Las Vegas
3800 Howard Hughes Parkway
Suite 1550
Las Vegas, NV 89169
(702) 215-7100
John Vorsheck
Little Rock
5507 Ranch Drive
Suite 201
Little Rock, AR 72223
(501) 228-9600
Matthew Fitzgerald
Long Beach
One World Trade Center
Suite 2100
Long Beach, CA 90831
(562) 257-1200
Matthew J. Kipp
Los Angeles
515 S. Flower Street
Suite 500
Los Angeles, CA 90071
(213) 943-1800
Enrique Wong
Louisville
9300 Shelbyville Road
Suite 1012
Louisville, KY 40222
(502) 329-5900
Matthew Fitzgerald
Manhattan
270 Madison Avenue
7th Floor
New York, NY 10016
(212) 430-5100
J.D. Parker
Office Locations
Memphis
5100 Poplar Avenue
Suite 2505
Memphis, TN 38137
(901) 620-3600
Jody McKibben
Oakland
555 12th Street
Suite 1750
Oakland, CA 94607
(510) 379-1200
Jeffrey M. Mishkin
Reno
241 Ridge Street
Suite 200
Reno, NV 89501
(775) 348-5200
Ryan DeMar
Tucson
4031 E. Sunrise Drive
Suite 151
Tucson, AZ 85718
(520) 202-2900
Steven Chaben
Miami
5201 Blue Lagoon Drive
Suite 100
Miami, FL 33126
(786) 522-7000
Kirk A. Felici
Oklahoma City
9120 N. Kelley Avenue
Suite 100
Oklahoma City, OK 73131
(405) 254-2200
J. Michael Watson
Sacramento
3741 Douglas Boulevard
Suite 200
Roseville, CA 95661
(916) 724-1400
Ryan DeMar
Tulsa
7633 East 63rd Place
Suite 300
Tulsa, OK 74133
(918) 294-6300
J. Michael Watson
Milwaukee
13890 Bishops Drive
Suite 300
Brookfield, WI 53005
(262) 364-1900
Matthew Fitzgerald
Ontario
One Lakeshore Center
3281 E. Guasti Road
Suite 800
Ontario, CA 91761
(909) 456-3400
Kevin Boeve
Salt Lake City
36 South State Street
Suite 2650
Salt Lake City, UT 84111
(801) 736-2600
Gary K. Mangum
Ventura
1000 Town Center Drive
Suite 300
Oxnard, CA 93036
(805) 351-8796
Adam Christofferson
San Antonio
8200 IH-10W
Suite 603
San Antonio, TX 78230
(210) 343-7800
J. Michael Watson
Washington, D.C.
7200 Wisconsin Avenue
Suite 1101
Bethesda, MD 20814
(202) 536-3700
Bryn Merrey
Palo Alto
2626 Hanover Street
Palo Alto, CA 94304
(650) 391-1700
Steven J. Seligman
San Diego
9255 Towne Centre Drive
Suite 700
San Diego, CA 92121
(858) 373-3100
John Vorsheck
West Los Angeles
12100 W. Olympic Boulevard
Suite 350
Los Angeles, CA 90064
(310) 909-5500
Tony Solomon
Philadelphia
101 W. Elm Street
Suite 600
Conshohocken, PA 19428
(215) 531-7000
Bryn Merrey
San Francisco
750 Battery Street
5th Floor
San Francisco, CA 94111
(415) 963-3000
Jeffrey M. Mishkin
Westchester
50 Main Street
Suite 925
White Plains, NY 10606
(914) 220-9730
J.D. Parker
Phoenix
2398 E. Camelback Road
Suite 550
Phoenix, AZ 85016
(602) 687-6700
Don Morrow
Seattle
Two Union Square
601 Union Street
Suite 2710
Seattle, WA 98101
(206) 826-5700
Joel Deis
Minneapolis
1350 Lagoon Avenue
Suite 840
Minneapolis, MN 55408
(952) 852-9700
Craig Patterson
Mobile
Pelican Square
101 Lottie Lane
Suit 3
Fairhope, AL 36532
(251) 929-7300
Jody McKibben
Nashville
6 Cadillac Drive
Suite 100
Brentwood, TN 37027
(615) 997-2900
Jody McKibben
New Haven
265 Church Street
Suite 210
New Haven, CT 06510
(203) 672-3300
J.D. Parker
New Jersey
River Drive Center 3
611 River Drive
4th Floor
Elmwood Park, NJ 07407
(201) 582-1000
Brian Hosey
New Mexico
6565 Americas Parkway NE
Suite 204
Albuquerque, NM 87110
(505) 563-5791
J. Michael Watson
Newport Beach
19800 MacArthur Boulevard
Suite 150
Irvine, CA 92612
(949) 419-3200
Robert Osbrink
Orlando
300 South Orange Avenue
Suite 700
Orlando, FL 32801
(407) 557-3800
Kirk A. Felici
Pittsburgh
204 Fifth Avenue
Suite 502
Pittsburgh, PA 15222
(412) 360-7777
Michael L.Glass
Portland
111 S.W. Fifth Avenue
Suite 1550
Portland, OR 97204
(503) 200-2000
Adam Lewis
Raleigh
101 J Morris Commons Lane
Suite 130
Morrisville, NC 27560
(919) 388-1278
Raj Ravi
St. Louis
7800 Forsyth Boulevard
Suite 710
St. Louis, MO 63105
(314) 889-2500
Matthew Fitzgerald
Tampa
4030 W. Boy Scout Boulevard
Suite 850
Tampa, FL 33607
(813) 387-4700
Richard Matricaria
The Woodlands
2441 High Timbers
Suite 130
The Woodlands, TX 77380
(832) 442-2800
David H. Luther
Office Locations - Canada
Calgary
5920 Macleod Trail SW
Suite 201
Calgary, AB T2H 0K2
(587) 349-1302
Gary R. Lucas
Toronto
20 Queen Street W
Suite 2300
Toronto, ON M5H 3R3
(416) 585-4646
Daniel B. Holmes
Vancouver
400 Burrard Street
Suite 1020
Vancouver, BC V6C 3A6
(604) 675-5200
Chris Anderson
page 63
National Office and Industrial Properties Group
Senior Management Team
Alan L. Pontius, Senior Vice President, National Director
(415) 963-3000 | al.pontius@marcusmillichap.com
John J. Kerin, President and Chief Executive Officer
(818) 212-2700 | john.kerin@marcusmillichap.com
Rick Lechtman, Vice President, Eastern Director
(212) 430-5100 | rick.lechtman@marcusmillichap.com
Gary Willard, Vice President, Western Director
(650) 391-1700 | gary.willard@marcusmillichap.com
National Research Team
John Chang, First Vice President, Research Services
James Reeves, National Production Manager
Peter Tindall, Research Operations Manager
Tamarah Calderon, Research Administrator
Maria Erofeeva, Graphic Designer
Michael Farr, Research Associate
Marette Flora, Copy Editor
Art Gering, Senior Analyst
Jessica Glick, Research Associate
Steve Hovland, Senior Analyst
Rafael Hwang, Data Analyst
Peng Jia, Research Associate
Charles LeSueur, Research Associate
Erica Linn, Senior Analyst
Mridul Nanda, Research Associate
Kyle Newhall-Caballero, Research Coordinator
Nancy Olmsted, Market Research Analyst
Troy Roffi, Research Associate
Rudé Van Eck, Research Marketing Coordinator
Communications/Graphic Design
Michelle Cocagne, Senior Vice President,
Communications
Contact:
Gene A. Berman, Executive Vice President
(954) 245-3400 | gene.berman@marcusmillichap.com
Hessam Nadji, Senior Vice President, Chief Strategy Officer
(925) 953-1700 | hessam.nadji@marcusmillichap.com
William E. Hughes, Senior Vice President
Marcus & Millichap Capital Corporation
(949) 419-3200 | william.hughes@marcusmillichap.com
Martin E. Louie, Senior Vice President, Chief Financial Officer
(818) 212-2250 | marty.louie@marcusmillichap.com
Gary R. Lucas, Senior Vice President
(415) 963-3000 | gary.lucas@marcusmillichap.com
Paul S. Mudrich, Senior Vice President, Chief Legal Officer
(650) 391-1700 | paul.mudrich@marcusmillichap.com
Steven R. Chaben, Senior Vice President
(248) 415-2600 | steven.chaben@marcusmillichap.com\
Kent R. Williams, Senior Vice President
(858) 373-3100 | kent.williams@marcusmillichap.com
Media Contact:
Gina Relva
Public Relations Manager
2999 Oak Road, Suite 210
Walnut Creek, CA 94597
(925) 953-1716
gina.relva@marcusmillichap.com
John Chang
First Vice President, Research Services
2398 E. Camelback Road, Suite 550
Phoenix, Arizona 85016
(602) 687-6700
john.chang@marcusmillichap.com
National Office Property Index Note: Employment and office data forecasts for 2015 are based on the most up-to-date information available as of December 2014
and are subject to change.
Statistical Summary Note: Metro-level employment, vacancy and annual asking rents are year-end figures and are based on the most up-to-date information available as of December 2014 and January 2015. Average prices and cap rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Forecasts for employment and office data are made during the fourth quarter and represent estimates of
future performance. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of the information contained herein.
Sources: Marcus & Millichap Research Services, American Council of Life Insurers, Blue Chip Economic Indicators, Bureau of Economic Analysis, Commercial
Mortgage Alert, CoStar Group Inc., Economy.com, Federal Reserve, Freddie Mac, Foresight Analytics, Mortgage Bankers Association, Real Capital Analytics, Real
Estate Center at Texas A&M University, Standard & Poor’s, The Conference Board, Trepp, TWR/Dodge Pipeline, U.S. Bureau of Labor Statistics, U.S. Census
Bureau, U.S. Department of Health and Human Services, U.S. Securities and Exchange Commission, U.S. Treasury Department.
© Marcus & Millichap 2015
page 64
2015
NATIONAL OFFICE REPORT
Real Estate Investment Research
Research Services
2398 E. Camelback Road | Suite 550 | Phoenix, AZ 85016
(602) 687-6700

national office report

Transcription

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