2016 - Savills · 2017-02-09 · SAVILLS EFFECTIVE RENT INDEX 2016 2 Summary of Key Findings...
Transcript of 2016 - Savills · 2017-02-09 · SAVILLS EFFECTIVE RENT INDEX 2016 2 Summary of Key Findings...
Savills Effective Rent Index2016
SERI2016
Statistical Summary 1
Summary of Key Findings 2
National Benchmarks 4
Tenant Effective Rent Trends 11
Landlord Concession Trends 13
Landlord Effective Rent Trends 15
Total Rent Components 19
CBD Rent Trends 25
Suburban Rent Trends 33
Glossary 37
SERI Supplement 38
Table Of Contents
SERI2016
Methodology
Since 1995, the Savills Effective Rent Index (SERI) has been providing the real estate industry’s only comprehensive, in-depth study of effective rental rate trends and the real cost of occupancy for tenants in the nation’s major Central Business Districts (CBDs) and surrounding suburban markets. The SERI report tracks actual lease terms that reflect negotiated rents and concessions, as well as the costs of maintaining a building that are partially passed through to tenants – operating expenses, real estate taxes and electricity costs. The SERI Supplement highlights key economic trends and market fundamentals that underpin each market’s performance.
Every year, Savills Studley’s Research team examines larger long-term direct deals signed in higher-caliber Class A properties. Total (gross) rent is separated into its key components: net (or base) rent and building expenses (operating expenses, real estate taxes and electricity costs). The Tenant Effective Rent Index (the cost of occupancy to the tenant) is derived from total rent less the amortized value of concessions provided by the landlord. The Landlord Effective Rent Index (the landlord’s bottom line) is calculated from total rent less costs incurred by the landlord, which include expenses, concessions and commissions.
All statistics in this year’s SERI report are based on larger long-term leases completed during 2015 in existing or newly constructed Class A buildings.
SERI2016
Total (Gross) Rent
LESSLESSLESS
Building Expenses:Operating ExpensesReal Estate Taxes
Tenant Electric
Amortized ConcessionsOperating Expenses,Real Estate Taxes,
Amortized Concessions and Commissions
Net (Base) RentTenant Effective Rent
(Average cost of occupancy for tenants)
Landlord Effective Rent (Landlord's remaining
balance)
All numbers are based on negotiated larger long-term direct leases in higher-caliber Class A properties.
SERI2016
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 61
Statistical Summary
CBD Markets 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015Atlanta (ATL) 31.33 35.57 7.83 7.95 4.00 4.10 1.50 1.50 18.00 22.02 92.00 85.00 18.63 23.84 2.62 7.22Boston (BOS) 52.10 57.23 12.00 12.50 10.50 11.25 2.10 2.23 27.50 31.25 101.65 100.80 38.07 43.34 13.44 17.45Chicago (CHI) 45.45 48.00 8.75 8.80 8.40 8.50 1.80 1.80 26.50 28.90 99.00 110.00 31.79 32.82 12.76 13.65Dallas (DFW) 24.65 26.15 7.40 7.50 1.75 1.80 2.00 2.00 13.50 14.85 50.00 55.00 17.75 18.56 7.07 7.63Denver (DEN) 38.55 42.23 6.85 6.92 2.80 2.85 1.90 1.90 27.00 30.56 83.00 85.77 25.74 29.00 15.04 18.17Houston (HOU) 49.04 45.70 6.68 6.75 6.81 6.90 2.30 2.30 33.25 29.75 66.00 72.00 39.93 35.76 23.64 19.51Downtown Los Angeles (DTLA) 39.92 40.82 10.75 10.85 3.57 3.60 2.10 2.35 23.50 24.02 83.00 85.00 28.47 29.09 12.44 12.91West Los Angeles (WLA) 45.45 47.60 9.75 9.90 4.10 4.25 2.60 2.85 29.00 30.60 74.00 72.52 35.24 37.59 19.46 21.43Miami (MIA) 40.55 42.40 8.10 8.20 5.15 5.25 3.05 3.05 24.25 25.90 80.00 78.00 29.51 31.64 16.11 18.03Manhattan - Downtown (DTNY) 52.10 52.97 11.75 11.90 9.60 9.92 2.65 2.60 28.10 28.55 101.00 102.00 37.71 38.89 14.61 14.81Manhattan - Midtown (MTNY) 83.91 84.34 13.90 14.25 16.41 16.98 3.35 3.30 50.25 49.81 138.00 138.50 64.87 65.23 31.67 31.12New Jersey (NNJ) 29.95 33.63 8.75 9.10 3.25 3.35 1.95 1.95 16.00 19.23 62.50 67.00 21.33 24.38 7.23 9.56Philadelphia (PHI) 30.62 32.71 8.76 8.85 2.36 2.45 1.97 1.97 17.53 19.44 62.00 61.00 22.06 24.29 9.23 11.15Phoenix (PHO) 30.38 31.32 7.46 7.69 3.72 3.84 1.74 1.79 17.46 18.00 84.00 80.00 18.79 20.28 5.71 6.80San Diego (SDO) 31.10 32.00 7.25 7.35 4.65 4.70 2.95 3.05 16.25 16.90 54.00 58.00 22.40 22.65 9.23 9.30San Francisco (SFO) 68.85 69.95 12.45 12.75 5.45 5.60 3.45 3.45 47.50 48.15 72.00 73.00 57.25 58.19 37.58 38.07Tampa Bay (TAM) 28.00 29.04 5.65 5.75 3.00 3.10 2.50 2.50 16.85 17.69 43.25 44.52 22.03 22.90 10.68 11.24Washington, DC (WDC) 65.59 63.12 9.25 9.50 12.76 12.90 2.83 2.83 40.75 37.89 132.35 135.57 47.33 44.41 21.55 18.40
CBD Averages 44.07 45.38 8.99 9.14 5.88 6.02 2.43 2.46 26.76 27.77 80.76 82.68 32.63 33.70 15.68 16.39Suburban Markets 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015Central Perimeter, GA 26.10 27.30 6.05 6.15 2.30 2.35 1.50 1.50 16.25 17.30 52.58 51.50 18.85 20.19 7.23 8.35Cook County, IL 26.85 27.85 7.90 7.95 4.55 4.60 1.50 1.50 12.90 13.80 70.00 69.00 17.19 18.33 3.24 4.28DuPage County, IL 25.50 26.00 7.20 7.25 2.05 2.10 1.75 1.75 14.50 14.90 60.00 60.00 17.22 17.72 6.47 6.87Fairfield County, CT 39.13 38.45 11.15 11.20 4.48 4.50 2.75 2.75 20.75 20.00 50.00 54.00 32.23 31.00 14.55 13.29Fort Lauderdale, FL 36.24 39.74 8.95 9.05 3.80 3.90 2.99 2.99 20.50 23.80 48.50 47.50 28.30 33.19 13.63 18.03Long Island, NY 32.69 32.93 8.20 8.25 6.90 6.94 1.34 1.34 16.25 16.40 41.50 41.50 26.96 27.20 10.03 10.17Main Line/Conshohocken, PA 32.45 33.90 7.50 7.60 3.00 3.10 2.70 2.70 19.25 20.50 30.00 30.00 28.31 29.76 16.03 17.19North Dallas Corridor, TX 29.25 31.50 8.45 8.55 3.80 3.85 2.60 2.60 14.40 16.50 45.00 42.50 23.04 25.64 9.13 11.28Northern Virginia 41.27 40.53 6.25 6.32 3.05 3.07 2.97 2.97 29.00 28.17 92.00 102.00 27.66 25.44 16.06 13.80Orange County, CA 28.89 33.75 7.09 7.25 1.90 1.98 2.05 2.20 17.85 22.32 60.00 67.00 20.01 23.84 9.82 13.19Raleigh/Durham, NC 23.00 24.20 4.65 4.75 2.05 2.05 1.90 1.90 14.40 15.50 35.00 34.00 17.04 18.41 9.07 10.27Scottsdale, AZ 33.58 36.44 9.14 9.36 2.49 2.68 1.95 1.97 20.00 22.43 80.00 78.00 22.54 25.68 8.82 11.36Silicon Valley, CA 43.05 45.00 8.65 8.75 4.05 4.15 3.10 3.10 27.25 29.00 45.00 44.00 36.11 38.21 22.84 24.72Southeast, CO 35.53 34.87 3.90 3.95 3.88 3.92 1.75 1.75 26.00 25.25 45.00 43.50 17.07 18.22 8.34 9.40Waltham (Route 128), MA 36.63 43.20 7.40 8.40 6.00 7.00 1.63 1.75 21.60 26.05 64.15 65.15 27.78 32.68 12.67 16.92West Loop/Galleria, TX 39.93 40.91 7.00 7.05 3.30 3.33 2.13 2.13 27.50 28.40 46.00 47.00 32.08 31.27 20.42 19.56West Palm Beach, FL 36.37 36.02 10.45 10.52 7.92 8.00 3.00 3.00 15.00 14.50 61.00 60.00 40.40 41.57 22.08 23.12Westchester, NY 35.45 35.70 9.85 9.90 6.35 6.40 3.00 3.00 16.25 16.40 50.00 52.00 27.30 26.62 9.28 8.52
Suburban Averages 33.37 35.70 7.69 8.69 3.99 4.11 2.26 2.27 19.43 20.62 54.21 54.93 25.56 26.94 12.21 13.35
Total (Gross) Rent Concessions
Building Expenses Leasing CostsTenant
EffectiveLandlordEffectiveNet (Base) Rent
OperatingExpenses
Real Estate Taxes Tenant Electric
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 2
SERI2016Summary of Key Findings
2014Unweighted
Average
2015Unweighted
Average2015
Change %
2014WeightedAverage
2015WeightedAverage
Total (Gross) Rent $44.07 $45.38 3.0% $60.45 $61.35
Operating Expenses $8.99 $9.14 1.6% $10.98 $11.18
Real Estate Taxes $5.88 $6.02 2.3% $9.51 $9.75
Tenant Electricity $2.43 $2.46 1.3% $2.70 $2.72
Net Rent $26.76 $27.77 3.7% $37.25 $37.71
Amortized Concessions $11.44 $11.68 2.1% $13.86 $14.86
Tenant Effective Rent Index $32.63 $33.70 3.3% $45.69 $46.36
Landlord Effective Rent Index $15.68 $16.39 4.5% $22.53 $22.72
Tenants faced higher effective rents in most markets during 2015, with increases exceeding 5.0% in seven markets.
Landlord effective rent posted its fifth year of growth, but at a more moderate pace than in 2014.
Property taxes pushed higher as investment sales intensified in more markets.
Tenant electricity costs were flat in most markets during 2015, with sharp rate hikes in a handful of them.
KEY CBD FINDINGS
COMMENTS
Net rent increased for the fifth straight year, but at a much slower pace than in 2014.
Operating costs continued their upward trajectory in 2015.
The value of concessions rose slightly, but as was the case in 2014 did not match the jump in rent.
Total rent increased in all markets except for two as many "late recovery" markets once again registered the strongest growth.
Rental Rate Growth in Most Markets, with Declines in a Few Top Metros
For the fifth straight year, tenants faced higher effective rent for premium Class A space in nearly all major U.S. CBDs. A distinguishing factor in 2015 was the acceleration of rental rate growth in many of the “late recovery” markets such as Atlanta, Chicago and Los Angeles. On the other hand, rent fell in a few of the largest markets – Houston and Washington, DC – and was essentially flat in Manhattan. Tenant effective rent rose nationally by 3.3% from $32.63 to $33.70. The average concession package (amortized value) increased nominally, but was unchanged as a percentage of total rent. Total rent grew by 3.0% to $45.38 and net rent rose by 3.7% to $27.77. Concessions did not keep pace with the rise in rents and in turn, landlord effective rent increased by 4.5% to $16.39.
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Summary of Key Findings
`
Total (Gross) Rent$45.38 (+3.0%)
LESS:LESS:LESS:
Building Expenses ($17.62)Op. Ex. $9.14 (+1.6%)Taxes $6.02 (+2.3%)
Tenant Elec. $2.46 (+1.3%)
Amortized Concessions*$11.68 (+2.1%)
Op. Ex., Taxes, Amortized Concessions and
Commissions ($28.99)
Net (Base) Rent$27.77 (+3.7%)
Tenant Effective Rent$33.70 (+3.3%)
Landlord Effective Rent$16.39 (+4.5%)
*Concessions are amortized over the average lease term in the market.
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 4
SERI2016
Another Year of Growth; 2016 Could Be Peak Year
Employers Continue Expansion: Private employers added 2.6 million jobs during 2015. Hiring activity intensified in the final quarter of the year. Heading into 2016, though, concerns about a global slowdown in growth – China in particular – were mounting.
“Late Recovery” Markets Outperforming Others: For the second year in a row, markets that lagged in 2012 and 2013 were once again among the strongest in terms of hiring and leasing. Sustained leasing made a dent in availability this year in Atlanta, Chicago, Miami and Orange County. All of these markets have limited new construction activity. Downtown Los Angeles, Palm Beach County, Phoenix and Northern New Jersey are a bit further behind in terms of working through their excess space, but effective rent posted its first increase in these markets in quite some time as well.
Tech Centers May Be Reaching Their Limits: The competition for talent has shown no signs of relenting in tech-fueled markets such as San Francisco and Silicon Valley, as well as in sections of Denver, Los Angeles and Manhattan. However, more Bay Area companies are looking for lower-cost space alternatives either in the East Bay or Peninsula or in secondary tech metros such as Portland, Oregon, or Salt Lake City, Utah. Many have already set up operations in Atlanta, Chicago and Denver.
Investment Sales and Corporate Relocations Boosting Rents in Lower-Cost Markets: More investors feel that pricing in gateway markets such as Manhattan and San Francisco is getting overheated. Some have sold their assets and redeployed gains in markets such as Atlanta, Chicago, Denver and Raleigh/Durham. This out-of-market investment, coupled with a resurgence of corporate relocations, has given added impetus to rental rate increases in lower-cost markets.
National Benchmarks
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Total Rent Hits New Peak
Total or gross rent (first year taking rent) rose for the fifth straight year, jumping by 3.0% from $44.07 to $45.38, just above the 2007 peak. The increase was not as sharp as in 2014, though, as declines in Washington, DC and Houston, as well as weaker growth in Manhattan and San Francisco offset some of the big increases in Atlanta, Chicago, Denver and Los Angeles.
Total rent consists of four components: net (or base) rent and three building expense components – operating expenses, real estate taxes and tenant electricity.
Total rent rose primarily due to a 3.7% increase in net rent from $26.76 to $27.77. Rising operating expenses and taxes were also a contributing factor. Operating expenses ticked up by 1.6% from $8.99 to $9.14. Real estate taxes increased by 2.3% from $5.88 to $6.02. Tenant electricity also rose – from $2.43 to $2.46.
Total Rent Components Net Rent Operating Expenses
Real Estate Taxes
TenantElectricity
$34.87 $38.96 $44.33 $43.88 $37.75 $37.11 $39.68 $39.70 $40.92 $44.07 $45.38Total Rent
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Net Rent $20.78 $24.18 $28.74 $27.75 $21.42 $20.75 $23.04 $22.93 $24.00 $26.76 $27.77
Operating Expenses $7.35 $7.61 $8.13 $8.42 $8.42 $8.47 $8.70 $8.82 $8.80 $8.99 $9.14
Real Estate Taxes $4.83 $5.09 $5.31 $5.46 $5.61 $5.58 $5.55 $5.57 $5.73 $5.88 $6.02
Electricity $1.92 $2.08 $2.15 $2.25 $2.30 $2.32 $2.39 $2.38 $2.38 $2.43 $2.46
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National Benchmarks
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 6
SERI2016
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Value of Concessions $51.57 $51.42 $53.25 $61.55 $76.18 $73.62 $78.02 $76.80 $77.41 $80.76 $82.68Amort. Concessions/Rent 18.2% 15.9% 14.3% 17.4% 26.5% 25.7% 24.4% 24.2% 24.9% 24.4% 24.4%
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Landlord Concessions: 2005-2015Value of Concessions Falls Relative to Rents
Landlords pulled back on free rent periods and tenant improvement allowances in some of the tightest markets such as Austin, San Francisco and Silicon Valley. Creditworthy tenants can still negotiate favorable concessions in markets that have excess Class A space, though.
Although the value of concessions was stable or rose in most markets, it stayed flat relative to rent. As a percentage of total rent, the average value of amortized concession packages ($11.68) remained at 24.4%. Higher relocation and construction costs in many markets eroded the value of tenant improvement allowances, though.
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National Benchmarks
Expenses’ Share of Total Rent Up Slightly
Total (or gross) rent consists of two main components: net (or base) rent and building expenses (operating expenses, real estate taxes and tenant electricity). As a percentage of total rent, net rent fell from 61.6% in 2014 to 61.5% in 2015. Higher real estate taxes made a slight difference during 2014. Building expenses’ share rose from 38.4% to 38.5%, but was well below its 40.8% share in 2010.
61.5%
18.2%
15.9%4.4%
2015
Building Expenses: 38.5%
Total Rent Components Real EstateTaxes
TenantElectricity
OperatingExpenses
NetRent
61.6%
18.2%
15.7%4.5%
2014
Building Expenses: 38.4%
59.2%
19.4%
16.5%
4.9%
2010
Building Expenses: 40.8%
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 8
SERI2016
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Building Expenses Share 39.1% 35.9% 32.4% 34.4% 42.9% 45.0% 41.3% 41.2% 40.3% 38.4% 38.5%Net Rent Share 60.9% 64.1% 67.6% 65.6% 57.1% 55.0% 59.2% 58.8% 59.7% 61.6% 61.5%
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Net Rent/Total Rent Ratio: 2005-2015Operating Margins Return to Pre-Recession Norms
The net (base) rent/total rent ratio measures how much of net rent is flowing to building expenses. Net rent accounted for 61.5% of total rent – meaning that 38.5% of total rent was diverted to operating expenses, real estate taxes and electricity.
Net rent’s share is approaching the levels seen at the start of the last expansion cycle, but still falls short of the peak level of 67.6% in 2007.
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Tenant Effective Rent $27.60 $31.70 $36.76 $35.16 $27.02 $26.72 $28.68 $28.85 $29.98 $32.63 $33.70Landlord Effective Rent $13.68 $17.11 $21.24 $19.15 $11.13 $10.94 $12.54 $12.57 $13.51 $15.68 $16.39
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National Effective Rent Comparison LandlordEffective
TenantEffective
Effective Rent Increases
Following an 11.5% spike in 2014, net rent posted a moderate 3.7% increase in 2015. Although the growth in net rent was more modest in 2015, it still exceeded the 2.1% rise in the average amortized value of concession packages.
Consequently, tenant occupancy costs (the national Tenant Effective Rent Index) rose by 3.3% from $32.63 to $33.70.
Additionally, the national Landlord Effective Rent Index jumped from $15.68 to $16.39, a 4.5% increase.
National Benchmarks
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SERI2016
Tenant Effective Rent Market Comparison 20152014Flat or Declining Rent in Most Higher-Priced Markets
Despite a very weak 0.6% increase in 2015, Manhattan (Midtown), with an average tenant effective rent of $65.23, remained the most expensive market. San Francisco, the second most expensive market for tenants, continued to close the gap. It posted a 1.6% year-on-year increase to $58.19. There may be little upside remaining for San Francisco’s rents in this cycle, though. While they were still among the higher-priced markets, Washington, DC ($44.41) and Houston ($35.76) reported decreases in tenant effective rent.
On the other hand, several markets registered year-on-year growth in excess of 10.0%, including Northern New Jersey (+14.3%) and Denver (+12.6%). Atlanta posted the biggest increase (+27.9%), pushing it above Tampa Bay, San Diego and Dallas, all markets that continued to struggle to gain traction. MTNY SFO WDC WLA DTNY HOU CHI MIA DTLA DEN NNJ PHI ATL TAM SDO DFW
2014 $64.87 $57.25 $47.33 $35.24 $37.71 $39.93 $31.79 $29.51 $28.47 $25.74 $21.33 $22.06 $18.63 $22.03 $22.40 $17.752015 $65.23 $58.19 $44.41 $37.59 $38.89 $35.76 $32.82 $31.64 $29.09 $29.00 $24.38 $24.29 $23.84 $22.90 $22.65 $18.56Y-o-Y Change 0.6% 1.6% -6.2% 6.7% 3.1% -10.4% 3.2% 7.2% 2.2% 12.6% 14.3% 10.1% 27.9% 3.9% 1.1% 4.6%
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Unweighted Average:$33.70 (+3.3%)
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Tenant Effective Rent: Year-on-Year Change by Market
27.9%
14.3%
12.6%
10.1%
7.2%
6.7%
4.6%
3.9%
3.2%
3.1%
2.2%
1.6%
1.1%
0.6%
-6.2%
-10.4%
-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
Atlanta
Northern New Jersey
Denver
Philadelphia
Miami
West LA
Dallas
Tampa Bay
Chicago
Manhattan (DT)
Downtown LA
San Francisco
San Diego
Manhattan (MT)
Washington, DC
Houston
Lower-Cost Markets Display Strongest Growth
In contrast to 2014, when all markets posted higher occupancy costs, two markets - Washington, DC and Houston - registered declines in 2015. Additionally, effective rent growth was negligible in the two most expensive markets - Midtown Manhattan and San Francisco. Demand is falling short of supply in both Midtown and Downtown Manhattan as well as in Washington, DC. Sublet supply is starting to spike in Houston, undercutting rents across the region.
Last year, seven markets recorded double-digit effective rent growth. During 2015, only four markets posted a 10.0% increase or higher. Tenant effective rent in Denver rose by more than 10.0% for the second year in a row. Atlanta (+27.9%) and Northern New Jersey (+14.3%) also witnessed spikes in effective rent during the year.
Tenant Effective Rent Trends
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SERI2016
Tenant Effective Rent Trends: Percentage Above/Below Prior PeakEffective Rent Still Below Peak in Half of the Markets
Another year of robust growth in Denver pushed tenant occupancy costs 31.6% above their prior peak. Philadelphia was the only other market that was 10.0% above its prior peak but San Francisco (+8.2%), Downtown Los Angeles (+7.5%), Chicago (+5.6%) and Northern New Jersey (+5.5%) were more than 5.0% above their peaks.
The fallout in energy sectors pushed effective rent in Houston 10.4% below its 2014 peak. Tenant effective rent in Washington, DC, fell to its lowest mark since 2002 and was 19.9% below its peak in 2007.
Occupancy costs in Manhattan (Midtown and Downtown) remained more than 20.0% below their prior peak, as did occupancy costs in Dallas (-34.6%) and San Diego (-40.5%).
31.6%
12.7%
8.2%
7.5%
5.6%
5.5%
4.5%
3.0%
-7.8%
-10.4%
-19.0%
-19.9%
-23.1%
-29.8%
-34.6%
-40.5%
-45% -35% -25% -15% -5% 5% 15% 25% 35%
Denver
Philadelphia
San Francisco
Downtown Los Angeles
Chicago
Northern New Jersey (2006)
Tampa Bay
Atlanta (2006)
West Los Angeles (2008)
Houston (2014)
Miami
Washington, DC
Downtown New York
Midtown New York
Dallas (2008)
San Diego
*Unless otherwise indicated, prior market peak occurred in 2007.
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 613
MTNY WDC CHI DTNY DEN ATL DTLA MIA SFO WLA HOU NNJ PHI SDO DFW TAM2014 $138.00 $132.35 $99.00 $101.00 $83.00 $92.00 $83.00 $80.00 $72.00 $74.00 $66.00 $62.50 $62.00 $54.00 $50.00 $43.252015 $138.50 $135.57 $110.00 $102.00 $85.77 $85.00 $85.00 $78.00 $73.00 $72.52 $72.00 $67.00 $61.00 $58.00 $55.00 $44.52Y-o-Y Change 0.4% 2.4% 11.1% 1.0% 3.3% -7.6% 2.4% -2.5% 1.4% -2.0% 9.1% 7.2% -1.6% 7.4% 10.0% 2.9%
Unweighted Average:$82.68 (+2.4%)
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Landlord Concession Trends
Value of Concession Packages Up in Majority of Markets
The value of concessions rose in 12 markets and fell in four. The national average rose by 2.4% to $82.68.
Landlords in Washington, DC had to extend generous concession packages to keep taking rents from falling precipitously.
In markets such as San Francisco, the value of concession packages rose due to rental rate growth that in turn boosted the value of free rent periods. Chicago and Denver also saw a slight increase as several leases signed in new buildings under construction included very large
improvement allowances.
Landlord Concessions: Market Comparison 2014 2015
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SERI2016
Concessions Not Keeping Pace with Rents
The ratio of amortized concessions to total rent (concessions/rent ratio) is a way of comparing the value of concessions from market to market. In most cases, the higher the ratio the more likely it is that conditions favor the tenant. The ratio also provides a measure of leasing costs – as it increases, it indicates that landlords have to concede more to get leases signed.
Washington, DC and Houston registered significant jumps in their concessions/rent ratio and the ratio was flat in San Francisco.
A year ago, Atlanta’s concessions/rent ratio (40.5%) was well above the national average of 24.4%. In 2015, a big jump in its base rent pushed the ratio down to 33.0%. San Francisco (14.8%) was the only market with a ratio of less than 20.0%.
ATL CHI DEN WDC SDO DAL DTLA NNJ DTNY PHI MIA MTNY HOU TAM WLA SFO
2014 40.5% 30.1% 33.2% 27.8% 28.0% 28.0% 28.7% 28.8% 26.8% 27.9% 27.2% 23.0% 18.6% 21.3% 22.5% 16.8%
2015 33.0% 31.6% 31.3% 29.6% 29.3% 29.0% 28.7% 27.5% 26.6% 25.7% 25.4% 22.7% 21.8% 21.2% 21.0% 16.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Unweighted Average: 24.4% (unchanged)
Amortized Concessions as Percentage of Total Rent
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 615
Landlord Effective Rent Trends
Landlords’ Margin Rises in Most Markets: Landlord effective rent rose by 4.5% in 2015, a fifth straight year of growth but well short of the 16.0% increase posted in 2014. A couple of the nation’s biggest markets saw a reduction in landlord effective rent, but the majority of markets recorded an increase. Competition for space in many of the familiar locations – Denver’s CBD, West Los Angeles, San Francisco and Silicon Valley – was sustained in 2015. The year brought more noticeable gains in markets such as Atlanta, Los Angeles and Raleigh/Durham. Landlords are breaching rent thresholds that were previously considered unassailable in several areas – $35.00 in select sections of Raleigh’s Research Triangle Park; $45.00 in Buckhead, Atlanta; $50.00 for view space in Denver and South Florida. New construction in most of these locations has been negligible in this cycle.
“Late Recovery” Markets Outperforming Others: Chicago posted its second consecutive year of 5.0%-plus increase as suburban companies relocating Downtown supplemented moderate expansion among businesses already located within the Loop. More than two-thirds of Chicago’s development pipeline has been pre-leased. Downtown Los Angeles enjoyed its strongest year for leasing – 4.2 msf – in more than decade. Miami registered steady demand from law firms and international banks, further depleting options in Brickell and Coral Gables.
A Few Suburban Markets Rebounding: Of note, while urban cores have outperformed suburban locations in this recovery, some markets with a high percentage of suburban office parks also witnessed a spike in volume and surge in rent. Tenants leased 11.1 msf in Orange County during 2015, and 20 tenants have signed leases of 100,000 sf or more in the last two years. Landlord effective rent jumped by 34.4% in 2015.
Highest-Cost Markets Lag: Demand is falling short of supply in Houston, Manhattan and Washington, DC. Rental rate declines were moderate in Manhattan but were sharper in Houston and Washington, DC. In the nation’s capital, law firms and federal agencies capitalized on the highly favorable terms, spurring a strong year in leasing. In Houston, however, energy companies have been shedding space and sublet supply continues to pile up.
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 16
SERI2016
Landlord Effective Rent Market Comparison 2014 2015
SFO MTNY WLA HOU WDC DEN MIA CHI DTLA DTNY TAM PHI NNJ SDO DFW ATL2014 $37.58 $31.67 $19.46 $23.64 $21.55 $15.04 $16.11 $12.76 $12.44 $14.61 $10.68 $9.23 $7.23 $9.23 $7.07 $2.622015 $38.07 $31.12 $21.43 $19.51 $18.40 $18.17 $18.03 $13.65 $12.91 $14.81 $11.24 $11.15 $9.56 $9.30 $7.63 $7.22Y-o-Y Change 1.3% -1.7% 10.1% -17.5% -14.6% 20.8% 11.9% 6.9% 3.7% 1.4% 5.2% 20.8% 32.3% 0.8% 7.9% 175.7%
Unweighted Average: $16.39 (+4.5%)
$0
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$35
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Double-Digit Growth in Six Markets
Landlord effective rent rose by 4.5% in 2015. This was the fifth consecutive annual increase but rent did not increase as sharply as in 2014 as weakness in Houston, Manhattan (Midtown) and Washington, DC curbed gains.
Most markets saw decent growth, though. For the second straight year, San Francisco posted the highest landlord effective rent.
As a result of a decline in Houston, West Los Angeles became the third most expensive market. Washington, DC fell closer to the middle of the pack following a 14.6% drop.
Despite a doubling in its landlord effective rent from $2.62 to $7.22, Atlanta still has the lowest rate among major metros.
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 617
Landlord Effective Rent Trends: Percentage Above/Below Prior PeakFive Markets Now Above Their Pre-Recession Peak
As was the case in 2014, only three markets had pushed more than 10.0% above their pre-recession peak: Denver (+51.1%), Chicago (+17.1%) and Philadelphia (+16.1%).
With Houston now below its prior peak, 11 markets were below their prior peak and more than half of these markets remained 20% below peak.
Three markets were 50.0% or more below their prior peak: Midtown Manhattan, Dallas and San Diego.
51.1%
17.1%
16.1%
5.1%
1.1%
-2.1%
-6.8%
-9.0%
-17.5%
-27.8%
-29.1%
-42.5%
-49.3%
-51.9%
-52.5%
-62.2%
-65% -45% -25% -5% 15% 35% 55%
Denver
Chicago
Philadelphia
San Francisco
Downtown Los Angeles
Tampa Bay (2006)
Northern New Jersey (2006)
West Los Angeles
Houston (2014)
Miami
Atlanta (2006)
Washington, DC
Downtown NY
Midtown NY
Dallas (2008)
San Diego
*Unless otherwise indicated, prior market peak occurred in 2007.
Landlord Effective Rent Trends
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 18
SERI2016
$13.68$17.11
$21.24 $19.15
$11.13 $10.94 $12.54 $12.57 $13.51 $15.68 $16.39
$1.92
$2.08
$2.15$2.25
$2.30 $2.32$2.39 $2.38 $2.38
$2.43 $2.46$7.35
$7.61
$8.13$8.42
$8.42 $8.47$8.70 $8.82 $8.80
$8.99 $9.14$4.83
$5.09
$5.31$5.46
$5.61 $5.58$5.55 $5.57 $5.73
$5.88 $6.02$6.80
$6.76
$7.27 $8.52
$10.22 $9.54$10.23 $10.54 $10.62
$11.04 $11.23
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Landlord Effective Rent Electricity Operating Expenses Real Estate Taxes Amortized Conc & Comm.
Landlord Cost Components Landlord’s Bottom Line Still Nearly 25.0% Below 2007 Peak
Landlord effective rent has increased during every year since hitting its low of $10.94 in 2010. Nevertheless, in 2015 it was 24.9% below its peak of $21.24 in 2007.
During the last recovery (between 2003 and 2007) landlord effective rent nearly doubled, rising from $11.94 to $21.24. In this cycle it has risen less sharply, gradually rising from $10.94 to $16.16 since 2009.
Elevated concessions have made all the difference in this cycle. Concessions have declined only very slightly in most markets, and in turn are still cutting very deeply into landlord effective rent. Nationally, average amortized concessions and commissions totaled $11.23, a new record.
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 619
DEN SFO HOU WLA ATL MIA TAM CHI WDC PHI MTNY DTLA NNJ DAL DTNY SDO2014 70.0% 69.0% 67.8% 63.8% 57.5% 59.8% 60.2% 58.3% 62.1% 57.3% 59.9% 58.9% 53.4% 54.8% 53.9% 52.3%2015 72.4% 68.8% 65.1% 64.3% 61.9% 61.1% 60.9% 60.2% 60.0% 59.4% 59.1% 58.8% 57.2% 56.8% 53.9% 53.0%
25%
35%
45%
55%
65%
75%
Higher Net Rent/Total Rent Ratio in Nearly All Markets
The ratio of net rent to total rent exceeded 60.0% in eight markets – a slight increase from the six such markets in 2014. Denver (72.4%) had the highest net rent/total rent ratio, followed by San Francisco (68.8%).
The net rent/total rent ratio was significantly lower in San Diego (53.0%) and Downtown Manhattan (53.9%).
Net Rent/Total Rent Ratio by Market 20152014
Total Rent Components By Market
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 20
SERI2016
Total Rent Increases in Most Markets
The national Total Rent Index rose by 3.0%, from $44.07 to $45.38, with increases in all but two markets.
During 2015, only two markets registered growth exceeding 10.0%. These were Atlanta (+13.5%) and Northern New Jersey (+12.3%).
Eight markets saw increases of less than 5.0%. Dallas continues to struggle as many of its buildings are repositioning and some tenants are relocating Uptown or to North Dallas.
Total rent in the most expensive market, Manhattan (Midtown), was nearly unchanged, inching up by only 0.5% to $84.34. Washington, DC (-3.8% to $63.12) and Houston (-6.8% to $45.70) recorded decreases.
MTNY SFO WDC DTNY CHI WLA HOU MIA DEN DTLA ATL NNJ PHI SDO TAM DFW2014 $83.91 $68.85 $65.59 $52.10 $45.45 $45.45 $49.04 $40.55 $38.55 $39.92 $31.33 $29.95 $30.62 $31.10 $28.00 $24.652015 $84.34 $69.95 $63.12 $52.97 $48.00 $47.60 $45.70 $42.40 $42.23 $40.82 $35.57 $33.63 $32.71 $32.00 $29.04 $26.15Y-o-Y Change 0.5% 1.6% -3.8% 1.7% 5.6% 4.7% -6.8% 4.6% 9.5% 2.3% 13.5% 12.3% 6.8% 2.9% 3.7% 6.1%
Unweighted Average:$45.38 (+3.0%)
$0
$5
$10
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$20
$25
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
$80
$85
Total (Gross) Rent Market Comparison 2014 2015
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 621
Moderate Growth in Operating Expenses
The national Operating Expense Index rose by 1.6% to $9.14 in 2015.
Most markets posted moderate increases in operating expenses. Operating expenses in four markets exceeded $10.00 during 2015, while three markets had operating expenses of less than $7.00.
MTNY SFO DTNY DTLA WLA WDC NNJ PHI CHI MIA ATL DFW SDO DEN HOU TAM2014 $13.90 $12.45 $11.75 $10.75 $9.75 $9.25 $8.75 $8.76 $8.75 $8.10 $7.83 $7.40 $7.25 $6.85 $6.68 $5.652015 $14.25 $12.75 $11.90 $10.85 $9.90 $9.50 $9.10 $8.85 $8.80 $8.20 $7.95 $7.50 $7.35 $6.92 $6.75 $5.75
Unweighted Average: $9.14 (+1.6%)
$0
$2
$4
$6
$8
$10
$12
$14
Operating Expense Market Comparison 2014 2015
Total Rent Components By Market
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 22
SERI2016
Taxes Continue Growth
The national Real Estate Tax Index rose by 3.0% to $6.02.
As more investors enter markets such as Atlanta and Chicago and sales prices in Manhattan, Los Angeles and San Francisco remain elevated, assessed values have spiked in more metro areas.
Taxes increased by more than 3.0% in five markets. Strong demand for stabilized Class A assets in major CBDs has pushed pricing higher, and will continue to boost valuations and taxes in some markets.
MTNY WDC DTNY CHI HOU SFO MIA SDO WLA ATL DTLA NNJ TAM DEN PHI DFW2014 $16.41 $12.76 $9.60 $8.40 $6.81 $5.45 $5.15 $4.65 $4.10 $4.00 $3.57 $3.25 $3.00 $2.80 $2.36 $1.752015 $16.98 $12.90 $9.92 $8.50 $6.90 $5.60 $5.25 $4.70 $4.25 $4.10 $3.60 $3.35 $3.10 $2.85 $2.45 $1.80
Unweighted Average: $6.02 (+2.3%)
$0
$4
$8
$12
$16
Real Estate Tax Market Comparison 20152014
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 623
Little Change in Tenant Electricity
Tenant electricity costs barely budged in 2015, inching up from $2.43 to $2.46.
Tenant electricity was unchanged in most markets. Markets in Southern California have been notable exceptions – scheduled rate hikes have boosted tenant electricity costs.
SFO MTNY MIA SDO WLA WDC DTNY TAM DTLA HOU DAL PHI NNJ DEN CHI ATL2014 $3.45 $3.35 $3.05 $2.95 $2.60 $2.83 $2.65 $2.50 $2.10 $2.30 $2.00 $1.97 $1.95 $1.90 $1.80 $1.502015 $3.45 $3.30 $3.05 $3.05 $2.85 $2.83 $2.60 $2.50 $2.35 $2.30 $2.00 $1.97 $1.95 $1.90 $1.80 $1.50
Unweighted Average:
$2.46 (+1.3%)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Tenant Electricity Cost Market Comparison 2014 2015
Total Rent Components By Market
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 24
SERI2016
Net Rent Up Slightly
In 2015, the national Net Rent Index increased by 3.7%, rising from $26.76 to $27.77. Net rent rose in all markets except three.
Atlanta, Chicago, Denver and Miami registered solid increases. Philadelphia (+10.9% to $19.44) and Northern New Jersey (+20.2% to $19.23) both posted sharp increases in net rent but this was the first time in several years that rates had shown significant growth.
Declining rent in Houston and Washington, DC came as little surprise, but, of note rates in Manhattan – both Midtown and Downtown – and San Francisco, posted negligible increases.
MTNY SFO WDC WLA DEN HOU CHI DTNY MIA DTLA ATL PHI NNJ TAM SDO DFW2014 $50.25 $47.50 $40.75 $29.00 $27.00 $33.25 $26.50 $28.10 $24.25 $23.50 $18.00 $17.53 $16.00 $16.85 $16.25 $13.502015 $49.81 $48.15 $37.89 $30.60 $30.56 $29.75 $28.90 $28.55 $25.90 $24.02 $22.02 $19.44 $19.23 $17.69 $16.90 $14.85Y-o-Y Change -0.9% 1.4% -7.0% 5.5% 13.2% -10.5% 9.1% 1.6% 6.8% 2.2% 22.3% 10.9% 20.2% 5.0% 4.0% 10.0%
Unweighted Average: $27.77 (+3.7%)
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
Net Rent Market Comparison 20152014
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 625
CBD Rent Trends
AtlantaTotal rent rose for the third straight year, increasing by 13.5% from $31.33 to $35.57. Net rent jumped by 22.3% from $18.00 to $22.02. Operating expenses (+1.5%) rose once again and real estate taxes (+2.5%) have increased across all submarkets. Landlords made modest reductions to concession packages, but relative to total rent, the value of concessions fell. Tenant effective rent increased by 27.9% to $23.84. Landlord effective rent spiked from $2.62 to $7.22 – a 175.7% jump – but remained well under the pre-recession peak of $10.19 attained in 2006.
ChicagoTotal rent rose for the third straight year, rising by 5.6% to a new peak of $48.00. Net rent surged by 9.1% from $26.50 to $28.90. Operating expenses (+0.6%) and real estate taxes (+1.2%) increased but tenant electric was stable. Concessions jumped by 11.1% to $110.00, as several leases in new buildings underway included very aggressive concession packages. Tenant effective rent increased for the sixth consecutive year, rising by 3.2% to $32.82. Finally, landlord effective rent jumped by 6.9% to $13.65, and was 17.1% above the prior peak of $11.66 in 2007.
Atlanta Rent Trends TotalRent
TenantEffective
LandlordEffective
Chicago Rent Trends TotalRent
TenantEffective
LandlordEffective
27.74 29.35 29.90 31.09 30.53 30.48 29.62 28.44 28.90
31.33
35.57
21.53 23.14
20.93 18.83
16.04 16.93 14.44 15.60 16.70
18.63
23.84
9.76 10.19 7.37
5.01 2.15 3.13
0.72 1.01 1.84 2.62
7.22
$0
$5
$10
$15
$20
$25
$30
$35
$40
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
36.10 38.59
42.11 39.00 38.15 39.78 41.00 39.82 40.80
45.45 48.00
23.68 26.17
31.07 26.58
23.66 25.57 25.82 26.71 28.30 31.79 32.82
5.12 7.12
11.66 7.21
4.09 5.99 6.10 6.96 9.67
12.76 13.65
$0
$10
$20
$30
$40
$50
$60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 26
SERI2016
DallasTotal rent rose for the second year in a row, increasing by 6.1% to $26.15. Net rent posted a 10.0% year-on-year increase, from $13.50 to $14.85. Operating expenses (+1.4%) and real estate taxes (+2.9%) both increased but tenant electric was unchanged. Concession packages posted a notable jump from $50.00 to $55.00, offsetting some of the rental rate growth. Tenant effective rent rose for the second consecutive year, jumping by 4.6% to $18.56, but was still 34.5% below its 2008 peak of $28.36. Landlord effective rent increased by 7.9%, from $7.07 to $7.63.
DenverTotal rent rose for the fifth consecutive year, jumping by 9.5% to $42.23 in what appears to be Denver’s longest expansion cycle in decades. Net rent spiked by 13.2% from $27.00 to $30.56. Operating expenses (+1.0%) and real estate taxes (+1.8%) increased but tenant electric was stable. Concessions fell a bit as a percentage of total rent. Tenant effective rent pushed higher into record territory, increasing by 12.6% to $29.00 – yet another peak for occupancy costs. Landlord effective rent rose by 20.8% to $18.17, also a new peak.
Dallas Rent Trends TotalRent
TenantEffective
LandlordEffective
Denver Rent Trends TotalRent
TenantEffective
LandlordEffective
26.25 27.08
31.1934.43
28.8827.20 26.35 25.15 24.35 24.65
26.15
20.18 21.28
25.6728.36
21.8020.14 19.73 18.80
17.45 17.75 18.56
8.54 8.30
14.2916.07
9.60 8.89 8.927.59 6.84 7.07 7.63
$0
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$15
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
25.00 27.56
31.75
28.54 29.50
27.45 28.26
32.00
36.25 38.55
42.23
15.74 18.92
22.03
17.43 17.16 15.72 16.84 19.97
24.68 25.74 29.00
6.18 9.10
12.02
7.42 6.80 5.37 6.38 9.41
14.17 15.04 18.17
$0
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$20
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 627
HoustonTotal rent fell for the first time since 2010, declining by 6.8% to $45.70. Net rent dropped by 10.5% to $29.75. Operating expenses (+1.0%) and real estate taxes (+1.3%) rose but tenant electric was unchanged. Concession packages continued to increase, rising by 9.1% to $72.00. Tenant effective rent decreased by 10.4% to $35.76 and landlord effective rent posted its biggest decline since 2009, falling by 17.5% to $19.51.
Downtown Los AngelesTotal rent increased for the second consecutive year, rising by 2.3% to $40.82. Net rent increased by 2.2%, from $23.50 to $24.02. Operating expenses (+0.9%) and real estate taxes (+0.8%) both registered sizeable annual increases, with steady investment sales once contributing to the tax increases. Electricity hikes approved in 2013 continued to show up in electricity costs, which rose by 11.9% in 2015. Concession packages posted a minor gain. Tenant effective rent jumped by 2.2% to $29.09. Landlord effective rent rose by 3.7% from $12.44 to $12.91, just above its 2008 peak rate of $12.77.
Houston Rent Trends TotalRent
TenantEffective
LandlordEffective
Downtown Los Angeles Rent Trends TotalRent
TenantEffective
LandlordEffective
20.37
25.37
31.32
36.83 34.45 32.48 34.37
37.96
44.18 49.04
45.70
15.54
21.00
27.29 31.66
26.55 24.93 27.12
31.06 35.24
39.93 35.76
5.87
11.98 16.09
20.13 15.37 13.63 15.50
18.39 20.46
23.64 19.51
$0
$10
$20
$30
$40
$50
$60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
32.25 34.18 35.47 36.73 35.44 36.14
39.92 37.90
35.85
39.92 40.82
23.00 24.93 26.22 27.07
25.09 25.10
29.57 27.55
25.91 28.47 29.09
11.24 12.24 12.70 12.77 10.64 10.91
13.55 12.39 10.59
12.44 12.91
$0
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$45
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CBD Rent Trends
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 28
SERI2016
36.00
41.86
46.93 50.43
38.85 38.40
45.45
39.53 41.20 45.45
47.60
27.31
33.17 37.96
40.77
28.50 28.05
34.41
28.49 31.54
35.24 37.59
15.60 20.04
23.55 26.19
14.11 13.43
18.63
13.12 15.94
19.46 21.43
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
West Los AngelesTotal rent grew for the third consecutive year but rose more moderately than in 2014, increasing by 4.7% from $45.45 to $47.60. Net rent increased by 5.5% from $29.00 to $30.60. Real estate taxes (+1.5%) and operating expenses (+3.7%) registered moderate gains but tenant electric spiked by 9.6% to $2.85. Landlords pulled back slightly on the value of concession packages. Tenant effective rent jumped by 6.7% from $35.24 to $37.59. Landlord effective rent rose by 10.1% from $19.46 to $21.43.
MiamiTotal rent rose for the fifth straight year, registering a 4.6% annual increase from $40.55 to $42.40. Net rent grew by 6.8% from $24.25 to $25.90. Operating expenses (+1.2%) and real estate taxes (+1.9%) rose but tenant electric was flat. Concessions inched lower to $78.00 and declined as a percentage of total rent. Tenant effective rent averaged $31.64, a 7.2% year-on-year increase. Landlord effective rent rose by 11.9% to $18.03.
West Los Angeles Rent Trends TotalRent
TenantEffective
LandlordEffective
Miami Rent Trends TotalRent
TenantEffective
LandlordEffective
35.50
40.50
45.00 44.00
35.75 34.77 36.92
38.66 39.45 40.55 42.40
30.67
35.67 39.07 37.65
26.66 25.94 25.19 26.79 28.41 29.51 31.64
19.13
22.35 24.97
22.66
12.91 13.92 12.89 13.85 15.32 16.11 18.03
$0
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 629
Manhattan (Downtown)Total rent posted its smallest increase since 2013, rising by 1.7% from $52.10 to $52.97. Net rent posted a 1.6% annual increase from $28.10 to $28.55. Operating expenses (+1.3%) and real estate taxes (+3.3%) continued their upward climb but tenant electric fell slightly. Concession packages ticked up slightly to $102.00, nearly even with its peak set in 2011. Tenant effective rent inched up by 3.1% to $38.89, but was still 23.1% below its 2007 peak. Landlord effective rent inched up by 1.4% to 14.81 and was 49.3% below the $29.20 peak attained in 2007.
Manhattan (Midtown)Total rent posted a slight increase, inching up by 0.5% from $83.91 to $84.34. Net rent ticked down by 0.9% from $50.25 to $49.81. Operating expenses (+2.5%) and real estate taxes (+3.5%) rose but tenant electric (-1.5%) fell slightly. Concessions were stable, inching up by 0.4% to a new record value of $138.50. Tenant effective rent inched 0.6% higher to $65.23. Landlord effective rent dropped by 1.8% from $31.67 to $31.12.
Manhattan (Downtown) Rent Trends TotalRent
TenantEffective
LandlordEffective
Manhattan (Midtown) Rent Trends
40.54
51.53
61.07 56.72
43.74
35.00
41.34 46.43 47.97
52.10 52.97
30.19
41.18
50.58 45.96
30.93
22.17 26.99
33.32 35.16 37.71 38.89
11.33
21.03
29.20 24.01
9.27
0.71 5.08
10.92 12.29 14.61 14.81
$0
$10
$20
$30
$40
$50
$60
$70
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
73.34
88.02
102.45 94.59
63.13 58.00
74.30 75.05 77.95 83.91 84.34
63.69
78.70
92.93
81.62
47.26 43.10
58.43 59.16 60.25 64.87 65.23
38.04
51.90
64.65
53.11
19.21 14.45
28.10 27.80 28.20 31.67 31.12
$0
$20
$40
$60
$80
$100
$120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CBD Rent Trends
TotalRent
TenantEffective
LandlordEffective
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 30
SERI2016
27.78 28.49 28.66 29.32 28.45 28.11 27.72 27.02 27.25 29.95
33.63
22.54 23.11 22.87 23.11 21.21 20.52 19.92 19.15 18.97
21.33 24.38
10.37 10.26 9.88 9.46 7.68 7.05 6.41 5.68 5.41
7.23 9.56
$0
$5
$10
$15
$20
$25
$30
$35
$40
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Northern New JerseyTotal rent rose for the third straight year, posting its first significant jump in more than a decade as leasing along the Hudson Waterfront dominated activity. Total rent jumped by 12.3% to $33.63. Net rent rose by 20.2%, from $16.00 to $19.23. Operating expenses (+4.0%) and real estate taxes (+3.1%) increased but tenant electric was unchanged. Concessions also rose but were essentially flat relative to the increase in net rent. Tenant effective rent jumped by 14.3% to $24.38, a new peak level. Landlord effective rent spiked by $32.3% to $9.56, but was still below its most recent peak of $10.85 in 2004.
PhiladelphiaTotal rent rose for the fifth year in a row, jumping by 6.8% to $32.71. Net rent increased by 10.9% from $17.53 to $19.44. Operating expenses (+1.1%) and real estate taxes (+3.8%) ticked up but tenant electric was static. Concessions inched slightly lower to $61.00, and fell as a percentage of total rent. Tenant effective rent registered its biggest annual increase in several years, rising by 10.1% to $24.29, its highest level on record. Landlord effective rent also reached a new peak, increasing by 20.8% to $11.15.
New Jersey Rent Trends
Philadelphia Rent Trends
25.60 27.75
29.25 28.10 27.70 27.00 27.78 27.88 28.42
30.62 32.71
19.39 20.85
22.35 22.30 21.49 20.10 19.64 18.63
20.14 22.06
24.29
7.39 8.50 9.60 9.54 8.65 7.21 6.13 5.10 6.13
9.23 11.15
$0
$5
$10
$15
$20
$25
$30
$35
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
TotalRent
TenantEffective
LandlordEffective
TotalRent
TenantEffective
LandlordEffective
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 631
San DiegoTotal rent increased for the third year in a row but continued to register only moderate growth, rising by 2.9% from $31.10 to $32.00. Net rent inched up by 4.0% from $16.25 to $16.90. Operating expenses (+1.4%), real estate taxes (+1.1%) and electricity (+3.4%) pushed higher. The value of concession packages rose slightly to $58.00 and in turn tenant effective rent rose by merely 1.1% from $22.40 to $22.65. Landlord effective rent inched up by 0.8% from $9.23 to $9.30.
San FranciscoTotal rent increased for the fifth straight year, rising by 1.6% to $69.95. Net rent rose by 1.4% to $48.15. Operating expenses (+2.4%) and real estate taxes (+2.8%) continued their ascent but tenant electric was flat. Tenant effective rent rose by 1.6% to $58.19, pushing 8.2% above its most recent peak in 2007. Landlord effective rent jumped by 1.3% to $38.07.
San Diego Rent Trends
San Francisco Rent Trends
36.76 37.13
43.89 43.42
33.38 32.32 31.39 30.04 30.40 31.10 32.00
31.93 31.65
38.09 36.98
25.81 24.30 23.17 20.78 21.54 22.40 22.65
19.66 18.83
24.58 23.14
13.03 11.44 10.29 7.86 8.55 9.23 9.30
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
36.21 42.38
59.79 57.93
43.78
53.15 55.75 58.35 59.80
68.85 69.95
30.24 35.94
53.76 50.68
34.59
43.46 46.16 48.36 48.53
57.25 58.19
15.70 20.86
36.24 33.11
16.92
25.40 27.70 29.55 29.57
37.58 38.07
$0
$10
$20
$30
$40
$50
$60
$70
$80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CBD Rent Trends
TotalRent
TenantEffective
LandlordEffective
TotalRent
TenantEffective
LandlordEffective
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 32
SERI2016
Tampa BayTotal rent rose by 3.7% to $29.04, its biggest annual increase since 2007. Net rent increased for the third consecutive year, rising by 5.0% from $16.85 to $17.69. Operating expenses and real estate taxes posted increases, but tenant electric was unchanged. While Class A buildings that traded during the year experienced a whopping 29% average increase in real estate taxes, the Class A market averaged a mere 3.3% increase. Generally, landlord concession packages remained unchanged relative to rent. Tenant effective rent averaged $22.90, a year-on-year increase of 3.9%. Landlord effective rent jumped by 5.2% to $11.24.
Washington, DCTotal rent declined for the first time since 2012, dropping by 3.8% to $63.12. Net rent decreased by 7.0% from $40.75 to $37.89. Operating expenses (+2.7%) and real estate taxes (+1.1%) pushed higher but tenant electric was unchanged. Concessions attained a new record level, averaging $135.57, and the District was one of only a few major metros to see a significant jump in the value of concessions relative to rent in 2015. Tenant effective rent dropped by 6.2% to $44.41. Landlord effective rent posted a 14.6% decline from $21.55 to $18.40.
Tampa Bay Rent Trends
23.00 25.00
26.75 27.00 26.50 26.50 26.50 26.50 27.25 28.00 29.04
17.34
20.86 21.92 19.29 17.65 18.23 18.59 19.31
20.98 22.03 22.90
6.22
11.48 11.10
7.94 6.61 7.19 7.55 8.27
9.71 10.68 11.24
$0
$5
$10
$15
$20
$25
$30
$35
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Washington, DC Rent Trends
55.50 58.50
63.75 64.00 65.75 67.00 68.21 64.45 64.68 65.59
63.12
48.60 50.57 55.47 54.34
47.92 53.20 52.82
47.89 45.88 47.33 44.41
28.72 29.57 31.99 28.60
21.09 26.32 26.68
23.22 21.52 21.55 18.40
$0
$10
$20
$30
$40
$50
$60
$70
$80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
TotalRent
TenantEffective
LandlordEffective
TotalRent
TenantEffective
LandlordEffective
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 633
Suburban Rent Trends
Fort Lauderdale Rent Trends
Orange County Rent Trends
33.00 36.50
38.25 34.70 33.50 33.47 33.10 33.60 33.88
36.24 39.74
27.48 30.98
32.73
28.90 25.67 26.33 25.99 26.70 27.33 28.30
33.19
16.09 16.88 17.04 14.77
12.10 11.27 11.87 12.41 13.02 13.63
18.03
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
31.80
39.00 36.91
33.60
28.80 27.59 26.97 26.85 27.65 28.89
33.75
27.36
34.86 32.47
27.68
20.66 18.71 18.09 18.71 19.35 20.01
23.84
17.88
24.51 21.82
17.15
10.72 8.74 8.01 9.10 9.59 9.82
13.19
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Fort LauderdaleTotal rent registered its biggest increase in this cycle, rising by 9.7% to $39.74. Net rent increased by 16.1% from $20.50 to $23.80. Operating expenses (+1.1%) and real estate taxes (+2.6%) pushed higher but tenant electric was flat. The value of concessions fell very slightly. Tenant effective rent jumped by 17.3% to $33.19 and landlord effective rent increased by 32.3% from $13.63 to $18.03, a new peak mark.
Orange CountyTotal rent grew for the third consecutive year and registered its largest increase since 2006, rising by 16.8% to $33.75. Net rent jumped by 25.0% from $17.85 to $22.32. Operating expenses (+2.3%) and real estate taxes (+4.2%) rose. Electricity rate hikes continued to impact the region and tenant electric jumped by 7.3% to $2.20. The nominal value of a typical concession package rose to $67.00, but declined as a percentage of total rent. Tenant effective rent spiked by 19.1% to $23.84. Landlord effective jumped by 34.4% to $13.19, but remained well below the 2006 peak of $24.51.
TotalRent
TenantEffective
LandlordEffective
TotalRent
TenantEffective
LandlordEffective
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 34
SERI2016
Silicon ValleyTotal rent rose for the third consecutive year, jumping by 4.5% to $45.00 and hitting another new peak. Net rent grew by 6.4% from $27.25 to $29.00. Operating expenses (+1.2%) and real estate taxes (+2.5%) both increased but tenant electric was unchanged. Concessions dropped for the fifth consecutive year, declining by 2.2% to $44.00. In turn, tenant effective rent increased by 5.8% to $38.21. Landlord effective posted its third straight annual increase, rising by 8.2% to $24.72.
Northern VirginiaTotal rent fell for the first time since 2009, decreasing by 1.8% to $40.53. Net rent dropped by 2.9% from $29.00 to $28.17. Operating expenses (+1.1%) and real estate taxes (+0.7%) pushed higher but tenant electric was unchanged. The value of concessions increased by more than 10% for a second year in a row, rising by 10.9% to $102.00. Tenant effective rent averaged $25.44, a year-on-year drop of 8.0%, and was 16.4% below the peak of $31.23 in 2011. Landlord effective rent fell by 14.1% to $13.80.
Silicon Valley Rent Trends
Northern Virginia Rent Trends
27.50
31.75 34.25 34.25 34.25 34.00
43.05
37.65 40.45
43.05 45.00
21.33
25.58 28.08 27.92 26.54 25.67
35.03
29.94 33.20
36.11 38.21
11.53 14.42 15.89 15.73 14.34 13.73
21.76
17.35 20.32
22.84 24.72
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
29.50
33.50 36.25 36.40 35.68 35.82
42.55 40.25
36.85
41.27 40.53
23.98 26.60 26.59 25.36
23.86 24.78
31.23 29.28
25.40 27.66
25.44
14.85 17.13 16.42
14.74 13.30 14.17
20.15 18.19
14.46 16.06
13.80
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
TotalRent
TenantEffective
LandlordEffective
TotalRent
TenantEffective
LandlordEffective
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 635
19.1%17.3%
13.9%11.3%
9.0%8.0%
7.1%6.7%6.6%
5.8%5.1%
2.9%2.9%
0.9%-2.5%-2.5%
-3.8%-8.0%
-10% -5% 0% 5% 10% 15% 20%
Orange County, CAFort Lauderdale, FL
Scottsdale, AZNorth Dallas Corridor
Waltham (Route 128), MARaleigh, Durham
Central Perimeter, GASoutheast, CO
Cook County, ILSilicon Valley, CA
Main Line/Conshohocken, PADuPage County, IL
West Palm Beach, FLLong Island, NY
Westchester, NYWest Loop/Galleria, TX
Fairfield County, CTNorthern Virginia
34.4%32.3%32.1%
28.8%23.5%
15.8%15.5%
13.2%12.7%
8.2%7.2%
6.1%4.7%1.4%
-4.2%-8.2%-8.7%-8.8%
-14.1%
-15% -5% 5% 15% 25% 35%
Orange County, CAFort Lauderdale, FL
Cook County, ILScottsdale, AZ
North Dallas CorridorWaltham (Route 128), MA
Central Perimeter, GARaleigh/Durham, NC
Southeast, COSilicon Valley, CA
Main Line/Conshohocken, PADuPage County, IL
West Palm Beach, FLLong Island, NY
West Loop/Galleria, TXWestchester, NY
Fairfield County, CTWestchester, NYNorthern Virginia
Suburban Tenant and Landlord Effective Rent
Tenant effective rent fell in four markets during 2015, compared to only two in 2014. Excess space and weak demand in Northern Virginia and Fairfield County, Connecticut caused tenant effective rent decreases of more than 5.0%. Compared to 2014 rental rate growth accelerated in many suburban markets with double-digit increases in four markets. Orange County’s steady leasing activity, particularly from big block users spurred a 19.1% increase.
Northern Virginia (-14.1%), Westchester, New York (-8.8%) and Fairfield County, Connecticut (-8.7%) registered the sharpest decreases in landlord effective rents as base rents fell slightly and concessions remained elevated. Rents in North Dallas/Corridor continued to increase, rising by 23.5%. Cook County’s 32.1% jump reflects a very low starting point but tightening space options in teh O’Hare Corridor as well. Finally, Silicon Valley’s 8.2% jump in effective rents does not fully reflect the extent of demand for space among larger tech companies.
Suburban Tenant Effective Rent Comparison: Percentage Change 2014 - 2015
Suburban Landlord Effective Rent Comparison: Percentage Change 2014 - 2015
Suburban Rent Trends
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 36
SERI2016W
est P
alm
Bea
ch, F
L
Silic
on V
alle
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A
Wal
tham
(Rou
te 1
28),
MA
Fort
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X
Fairf
ield
Cou
nty,
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Mai
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$23.
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$20.
19
$18.
41
$18.
33
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Suburban Landlord Effective RentSuburban Tenant Effective Rent 20082008 20092009
Silic
on V
alle
y, C
A
Wes
t Pal
m B
each
, FL
Wal
tham
(Rou
te 1
28),
MA
Wes
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Sco
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AZ
Nor
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alla
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Ral
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, NC
Long
Isla
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Y
Sou
thea
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, NY
Cen
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Per
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$24.
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$23.
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$19.
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$19.
56
$18.
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$17.
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$13.
80
$13.
29
$13.
19
$11.
36
$11.
28
$10.
27
$10.
17
$9.4
0
$8.5
2
$8.3
5
$0
$4
$8
$12
$16
$20
$24
20152015 20142014
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 637
Glossary
Concessions: Includes the tenant improvement allowance plus the value of the rental rate abatement. Concessions are amortized over the average market lease term, using beginning-of-period payments.
Landlord Effective Rent: An estimate of rent received from a tenant less related expenses.
Net Rent: The gross rental rate exclusive of the tenant’s proportionate share of real estate taxes, operating expenses and tenant electricity.
Operating Expenses: Includes (1) heating, ventilation and air conditioning (HVAC); (2) maintenance; (3) common area utilities and electricity; (4) cleaning; and (5) all other non-capital costs associated with the operation of a building.
Real Estate Taxes: Local real estate taxes exclusive of special assessments and other one-time charges.
Tenant Effective Rent: An estimate of the actual cost of occupancy for the tenant. The calculation is the total rent minus amortized lease concessions.
Tenant Electricity: Payments made by the tenant, whether to the landlord or public utility, or by the landlord as a general building expense, for the electrical power utilized within a tenant’s premises, exclusive of building HVAC.
Total Rent: The sum of the four rental rate components: net rent, operating expenses, real estate taxes and electricity.
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 38
SERI2016
GDP performance was sporadic in 2015, with growth of less than 1.0% in the first and fourth quarters and sub-3.0% growth in the second and third. Global and U.S. GDP growth expectations for 2016 have both been reduced of late due to a slowing Chinese economy and weakness in commodity-fueled countries such as Australia, Brazil, Canada and Russia. The strengthening of the U.S. dollar has also pushed the trade deficit higher.
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1948
Q1
1949
Q3
1951
Q1
1952
Q3
1954
Q1
1955
Q3
1957
Q1
1958
Q3
1960
Q1
1961
Q3
1963
Q1
1964
Q3
1966
Q1
1967
Q3
1969
Q1
1970
Q3
1972
Q1
1973
Q3
1975
Q1
1976
Q3
1978
Q1
1979
Q3
1981
Q1
1982
Q3
1984
Q1
1985
Q3
1987
Q1
1988
Q3
1990
Q1
1991
Q3
1993
Q1
1994
Q3
1996
Q1
1997
Q3
1999
Q1
2000
Q3
2002
Q1
2003
Q3
2005
Q1
2006
Q3
2008
Q1
2009
Q3
2011
Q1
2012
Q3
2014
Q1
2015
Q3
U.S
. GD
P -
Ann
ual G
row
th R
ate
1990s +3.7%
04-08+2.6%
10-15+2.1%
1960s +4.9%
1950s: AGR+6.7%
1980s+4.1%
Source: U.S. BEA
1970s +5.1%
U. S. GDP - Post WWII
SERI Supplement
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 639
The Dow suffered several sharp declines between 2009 and 2011, precipitated by events such as Eurozone turbulence and periodic debt/budget brinkmanship in Washington. Confidence rebounded in late 2013 and the market began a steady ascent, punching through a series of crises including standoffs in Washington, the Eurodebt crisis and the taper tantrum. The sharp correction in Asian markets and tanking oil prices that began in the summer of 2015 started a period of volatility and negative investor sentiment that appears to be carrying into 2016.
Dow Jones Industrial Average (1990 - 2015)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1990
Q1
1990
Q3
1991
Q1
1991
Q3
1992
Q1
1992
Q3
1993
Q1
1993
Q3
1994
Q1
1994
Q3
1995
Q1
1995
Q3
1996
Q1
1996
Q3
1997
Q1
1997
Q3
1998
Q1
1998
Q3
1999
Q1
1999
Q3
2000
Q1
2000
Q3
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
Sto
ck P
rice
Inde
x
Year End 2015: 17,425
1Q 2009: 7,609
3Q 2007: 13,895
Source: Dow Jones & Company
SERI Supplement - U.S. Economy
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 40
SERI2016
Home prices – a key driver of consumer spending and confidence – have been increasing since early 2012. Based on the Case-Shiller 20-City Composite Index, pricing has increased by 31.9% since it hit a low point in late 2011. Of note, between 2000 and 2003, prices rose by 35.7%. Price increases were interrupted in the summer of 2014 and early 2015, but have resumed growth since then. Limited new construction has kept the inventory of homes for sale at very low levels, helping to boost pricing.
Home Prices, Case-Shiller 20-City Composite Index (2000 - 2015)
2000-2006: 105.4% increase
2007-2011:50.7% decline
Since 2011: 31.9% increase
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
Jan-
00Ju
n-00
Nov-0
0Ap
r-01
Sep-
01Fe
b-02
Jul-0
2De
c-02
May-0
3Oc
t-03
Mar-0
4Au
g-04
Jan-
05Ju
n-05
Nov-0
5Ap
r-06
Sep-
06Fe
b-07
Jul-0
7De
c-07
May-0
8Oc
t-08
Mar-0
9Au
g-09
Jan-
10Ju
n-10
Nov-1
0Ap
r-11
Sep-
11Fe
b-12
Jul-1
2De
c-12
May-1
3Oc
t-13
Mar-1
4Au
g-14
Jan-
15Ju
n-15
Month
ly Ch
ange
Source: S&P/Case-Shiller
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 641
Home sales started to recover by the second half of 2011. Over the last four years home sales have risen and home builders have slowly gained traction. Even so, home sales remain well below their pre-recession peak levels. Existing home sales averaged 4.6 million units in the last twelve months and new home sales averaged 507,000 units (still less than half of their peak of 1.28 million in 2006). The implementation of mortgage transparency regulations hampered sales during late 2015. The biggest impediments to stronger home sales remain weak income growth as well as the challenge of raising a down payment.
New and Existing Home Sales (1968 - 2015)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan-
68
Jan-
69
Jan-
70
Jan-
71
Jan-
72
Jan-
73
Jan-
74
Jan-
75
Jan-
76
Jan-
77
Jan-
78
Jan-
79
Jan-
80
Jan-
81
Jan-
82
Jan-
83
Jan-
84
Jan-
85
Jan-
86
Jan-
87
Jan-
88
Jan-
89
Jan-
90
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Jan-
14
Jan-
15
Hom
e S
ales
(Tho
usan
ds)
New Home Sales Existing Home Sales
2006 average: 6.18 m existing, 1.28 m new homes
12 month average: 4.6 m existing, 507k new homes
Source: NAR, U.S. Census
SERI Supplement
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 42
SERI2016
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Dec
-79
Aug
-80
Apr
-81
Dec
-81
Aug
-82
Apr
-83
Dec
-83
Aug
-84
Apr
-85
Dec
-85
Aug
-86
Apr
-87
Dec
-87
Aug
-88
Apr
-89
Dec
-89
Aug
-90
Apr
-91
Dec
-91
Aug
-92
Apr
-93
Dec
-93
Aug
-94
Apr
-95
Dec
-95
Aug
-96
Apr
-97
Dec
-97
Aug
-98
Apr
-99
Dec
-99
Aug
-00
Apr
-01
Dec
-01
Aug
-02
Apr
-03
Dec
-03
Aug
-04
Apr
-05
Dec
-05
Aug
-06
Apr
-07
Dec
-07
Aug
-08
Apr
-09
Dec
-09
Aug
-10
Apr
-11
Dec
-11
Aug
-12
Apr
-13
Dec
-13
Aug
-14
Apr
-15
Mon
thly
Aut
o S
ales
, (Th
ousa
nds)
2001 - 2007 average: 1.43 m per month
2010 - 2015 average: 1.24 m per month
Source:BEA
U.S. Auto Sales, Monthly (1980 - 2015)
Auto sales have increased steadily from the low point reached in 2009, and by August of 2015 they were just about even with pre-recession trends. Attractive auto financing deals and improving household finances pushed sales to more than 17.0 million annually by year-end 2015, a new peak.
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 643
Median household income finally stabilized in most regions by 2012. Income has posted decent gains over the last three years in the Northeast and West, but has lagged in the South and Midwest. Overall, on an inflation-adjusted basis, household income is still slightly below its pre-recession levels.
U.S. Real Median Household Income (1990 - 2014)
$72,490
$78,399
$78,703
$66,810
$71,024
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
Med
ian
Hou
shol
d In
com
e (In
flatio
n-A
jdus
ted)
U.S. Northeast West South Midwest
Source: U.S. Census Bureau
SERI Supplement
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 44
SERI2016
Consumer installment credit – such as credit cards, bank cards and other revolving debt – has risen steadily over the last few decades. Until the most recent recession, households supplemented income with gains from higher home prices and home equity loans. They also padded spending power with credit card debt. Households lowered this debt slightly between 2008 and 2010, in some cases by defaulting on loans, but outstanding credit has started to rise again as households and banks have both gained confidence.
Total Outstanding Consumer Installment Credit (1980 - 2015)
July 2008:$2.58 trillion
July 2010:$2.39 trillion
Oct 2015:$3.5 trillion
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Tota
l Out
stan
ding
Con
sum
er In
stal
lmen
t Cre
dit (
Billi
ons
$)
Source: U.S. Board of Governors of the Federal Reserve System
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 645
Another area of improvement for the U.S. housing market has been the steady decline in delinquency rates from a range of 9.0% to 10.0% in early 2010 to less than 6.0% in all regions currently. Delinquency has remained much higher in the Northeast and South. In contrast, the West has gone from a delinquency rate of nearly 10.0% in 2010 to just below 4.0%, by far the lowest among the four regions.
Mortgage Delinquency Rates (1980 - 2015)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Del
inqu
ency
Rat
e
Northeast West South Midwest
Source: MBA
SERI Supplement
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 46
SERI2016
One of the steadier features of the U.S. economy, virtually right out of the gates of the recovery, has been the strong balance sheets of corporations. The net worth (assets less liabilities) of nonfinancial corporations took a big hit in the recession, falling to just under $14 trillion, but has pushed steadily higher, rising to $20.5 trillion as of year-end 2014. Companies have deployed the funds for mergers and acquisitions, dividend payouts, stock buybacks, and equipment and software. However, most businesses did not start to aggressively expand payroll until 2014.
Financial Accounts, Nonfinancial Corporations - Net Worth (1970 - 2014)
$17.99
$13.96
$20.52
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
Net
Wor
th, N
onfin
anci
al (T
rillio
ns $
)
Source: Federal Reserve
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 647
Overall employment has increased 63 months in a row (every month since October of 2010). Average monthly job growth improved in the last few months of 2015, but averaged only 214,750 during the year as a whole, well below the 259,666 averaged in 2014. While much of the growth in the early stages of the recovery was industry-specific – tech, government or energy – the growth has spread to other sectors such as retail, hospitality and real estate.
U.S. Overall Monthly Employment Trends (2007 - 2015)
+12.9 million, Average: +204k per month
-8.7 millionAverage: -349k per month
-1,000,000
-800,000
-600,000
-400,000
-200,000
0
200,000
400,000
600,000
Job
Gro
wth
/Lo
ss
Source: BLS
SERI Supplement
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 48
SERI2016
During the last four years, office-using employment – which includes the financial, professional/business services and information sectors – has been slowly but consistently increasing, with losses in only five months since September of 2009. Employers have added 4.2 million office-using jobs since the start of 2010, well above the 2.4 million shed in the recession. Following some weakness in late 2013, hiring accelerated in 2014 with an average monthly gain of 74,166 jobs, well above the average of 58,250 gained per month in 2013.
U.S. Office-Using Monthly Employment Trends (2008 - 2015)
-300,000
-250,000
-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
Jo
b G
row
th /
Lo
ss
Source: BLS
-2.4 million
+4.2 million
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 649
Office-Using Employment and Change in Occupancy (Current Cycle vs. Prior Peak)
Office-using employment, and in turn occupancy rates, have pushed furthest above their prior peaks in Texas metros (red bubbles) and tech-fueled West Coast metros (yellow). Office-using employment in Austin, for example, is 34.0% above its prior peak and its occupancy rate has pushed back to prior peak levels. In contrast, most markets in the Northeast (grey) and Midwest (green) are below their prior peak in occupancy despite reaching new levels in employment. Sunbelt markets such as Phoenix and South Florida still have a lot of excess space.
BOSNYC
LIS
NJ,-5.4%
WCT,-6.4%
PIT
RDUR
CHA
ATL
ORL TAMSFL
CHICCHIS
DET
MIN
CLE
CIN
IND
STL
DFW
HOU
Austin : +34.0%, occ. even with prior peak
SNT
KC MEM
DEN
SLT
PHO
LVGLA
OC
RIC
SVAL
EBAY
SFO
POR
SEA
PHI
BLT
MD
WAS
NVA
-15.0%
-5.0%
5.0%
15.0%
25.0%
35.0%
-1,300 -1,100 -900 -700 -500 -300 -100 100
Offi
ce-U
sing
Em
ploy
men
t %
Cha
nge
(200
8 vs
. Cur
rent
)
Occupancy Rate Change from prior peak (basis points)
Northeast
Southeast
Midwest
Texas, Plains &Mountain WestSouthwest
Bay Area & Northwest
Mid-Atlantic
SERI Supplement - Office Market
Source: BLS
MarketOccupancy Rate
4Q15 vs. prior peak*
Off. Emp. 4Q15 vs.
2008Current Vacancy
Boston (BOS) 0 6.4% 10.3%Manhattan (NYC) -270 8.1% 8.6%Long Island, NY (LIS) -40 -2.7% 8.7%New Jersey (NJ) -430 -6.5% 17.9%Westchester/Fairfield (WCT) -580 -4.8% 15.8%Pittsburgh, PA (PIT) -60 6.9% 10.1%Philadelphia (PHI) -120 1.5% 12.7%Baltimore, MD (BLT) -70 8.4% 12.0%Suburban Maryland (MD) -810 -12.3% 18.6%Washington, DC (DC) -470 0.8% 12.1%Northern Virginia (NVA) -910 -1.6% 19.7%Richmond, VA (RIC) -60 -0.8% 12.6%Raleigh/Durham (RD) 0 21.8% 10.2%Charlotte (CHA) -60 14.5% 11.0%Atlanta (ATL) -20 11.3% 15.4%Orlando (ORL) -480 3.9% 13.6%Tampa Bay (TBY) -340 2.6% 13.4%South Florida (SFL) -560 5.1% 13.3%Chicago CBD (CHIC) -110 1.2% 11.5%Chicago Suburbs (CHIS) -140 1.2% 17.3%Detroit (DET) 0 -0.2% 18.2%Minneapolis (MIN) -80 7.9% 10.8%Cleveland (CLE) -80 -3.0% 14.5%Cincinnati (CIN) -190 8.0% 16.6%Indianapolis (IND) -10 9.8% 10.4%St. Louis (STL) -80 2.4% 13.7%Dallas/Ft. Worth (DFW) -20 19.7% 17.8%Houston (HOU) -400 11.2% 16.8%Austin (AUS) 0 34.0% 9.9%San Antonio (SNT) -290 13.2% 13.4%Kansas City (KC) -70 1.9% 12.7%Memphis (MEM) -20 3.7% 13.8%Denver (DEN) 0 6.7% 12.0%Salt Lake City (SLT) 0 12.1% 7.3%Phoenix (PHO) -770 4.7% 19.2%Las Vegas (LVG) -1040 -3.9% 19.5%Los Angeles (LA) -510 -3.4% 13.4%Orange County (OC) -390 -5.5% 11.6%San Diego (SDO) -380 1.6% 13.8%Silicon Valley (SVAL) 0 33.2% 9.1%E Bay/Oakland (EBAY) 0 2.5% 10.6%San Francisco (SFO) -80 32.0% 8.4%Portland, Or (POR) 0 12.0% 9.1%Seattle (SEA) -160 8.4% 10.8%
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 50
SERI2016
National Office-Using Employment and Vacancy Rates (2000 - 2014)
Average Annual Gain (81, 83-90):526K
Average Annual Gain (92-2000): 488K
Average Annual Gain: 323k
Average Annual Gain:415k
7.0%
peak: 19.3%
trough:7.9%
17.0%
12.3%
17.5%
16.1%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
-1,000,000
-800,000
-600,000
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
Vaca
ncy
Rat
e
Job
Gro
wth
/Los
s
Quarterly Job Loss Quarterly Job Gain VacancyRate
1.2 bsf constructed, 256 sf per new off. emp.
407 msf constructed, 93 sf per new off. emp.
191 msf constructed, 118 sf per new off. emp.
129 msf constructed, 62 sf per new off. emp.
Source: Savills Studley/BLS
The U.S has added an average of 415,000 office-using jobs per year in this recovery, exceeding the annual average of 320,000 jobs gained in the last expansion. Nevertheless, vacancy rates have fallen more slowly, due largely to a widespread effort by companies to consolidate multiple locations and lease less space per employee. Five years after peaking at 17.5%, the vacancy rate has fallen by only 1.4 pp, a fraction of the 4.7 pp decline in the last recovery. Of note, annual office-using employment growth is well short of the pace set in the 1980s and 1990s.
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 651
Washington, DC, 182.2%
Los Angeles, 139.3%
Orange County, 131.5%
Phoenix, 114.3%
Chicago CBD, 112.5%
Denver, 108.3%
New Jersey, 106.5%
Chicago Suburbs, 106.0%
Philadelphia CBD, 102.9%
Suburban Philadelphia, 101.2%
South Florida, 97.5%
Northern Virginia, 94.3%
National Total, 92.4%
Boston, 91.3%
San Diego, 90.5%
Dallas/Fort Worth, 89.4%
Tampa, 87.6%
Silicon Valley, 86.7%
New York City, 85.2%
San Francisco, 70.9%
Raleigh/Durham, 70.0%
Atlanta, 67.7%
Suburban Maryland, 67.7%
Houston, 62.6%
0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0% 180.0%
Annual leasing volume in the top U.S. office markets fell short of its long-term historical average by 7.6% in 2015. Los Angeles (+39.3%), Orange County (+31.5%) and Phoenix (+14.3%) each registered very strong activity during the year. Tenants were very active in Washington, DC (+82.2%) but much of this activity came from renewals and lease restructures, as well as companies capitalizing on record-level concessions.
Leasing Volume as a Percentage of Historical Average (2015)
SERI Supplement
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 52
SERI2016
Unleased & Pre-Leased New Construction (Year-End 2015)
While new construction has been carefully contained, it is starting to gain momentum in more markets – nine markets now have more than 5.0 msf underway, with a combined total of just over 72.0 msf. Even with the increased development, unleased new construction amounts to more than 1.0% of current inventory in only seven markets.
4.0
3.9
4.3
3.2
1.5
3.6
2.5
2.5
2.6
1.8
2.2
0.5
0.9
0.4
0.6
0.8
0.8
0.3
9.1
5.3
4.5
5.4
6.3
3.3
3.7
3.6
2.7
2.1
1.2
2.5
1.8
1.5
1.3
1.0
0.4
0.4
0 2 4 6 8 10 12
Manhattan
Dallas/Fort Worth
Washington, DC
Houston
Silicon Valley
Seattle
Chicago
Boston
San Francisco
Los Angeles
Denver
Philadelphia
Phoenix
Northern New Jersey
Orange County
Atlanta
Miami
Raleigh/Durham
Millions of Square Feet Unleased/Pre-leased
Unleased New Construction
Pre-leased
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 653
SERI Supplement
Adjusted for inflation, tenant effective rent rose to $33.28 in 2015 – based on 2005 dollars, tenants were paying nearly the same amount they did in 2008. Concessions were as high as they have been in the last decade. Landlord effective rent increased to $16.14 in 2015, but was still about 15% below its level in 2007 due to elevated concessions and a steady rise in expenses.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015CONC $6.88 $6.87 $7.14 $8.17 $10.55 $9.99 $10.43 $10.38 $10.52 $10.96 $11.40TER $26.67 $30.67 $35.71 $33.82 $27.11 $26.28 $27.78 $28.22 $29.45 $32.03 $33.28LER $13.22 $16.56 $20.63 $18.42 $11.17 $10.76 $12.15 $12.31 $13.32 $15.43 $16.14
$0
$2
$4
$6
$8
$10
$12
$0
$5
$10
$15
$20
$25
$30
$35
$40
Am
ortiz
ed V
alue
of C
once
ssio
ns (I
nf. A
djut
ed)
Infla
tion-
Adj
uste
d La
ndlo
rd &
Ten
ant E
ff. R
ent
Inflation-Adjusted Rents and Concessions (2005 - 2015) Landlord Effective Rent
TenantEffective Rent
Amortized Concessions
S AV I L L S E F F E C T I V E R E N T I N D E X 2 0 1 6 54
SERI2016
102
125
84
150
166
45
65
85
105
125
145
165
185
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Infla
tion-
Adj
uste
d In
dex
(Bas
e Y
ear
2005
)
TER LER Conc
Using an index with a base year of 2005, concession packages were up by 66% relative to 2005 in 2015. Landlord effective rent and tenant effective rent were both 25% above the base year amount. Tenants were paying about 25% more in inflation-adjusted terms relative to 2005 levels, due primarily to higher gross rents in 2015 compared to 2005.
Effective Rent Indexes (Base Year 2005) LandlordEffective Rent
TenantEffective Rent
Amortized Concessions
Atlanta3414 Peachtree RoadSuite 1000Atlanta, GA 30326(404) 467-0707
Austin111 Congress AveSuite 400Austin, TX 78701(512) 225-2481
Baltimore102 West Pennsylvania AvenueSuite 302Towson, MD 21204(410) 844-3900
BostonExchange Place53 State Street, 13th floorBoston, MA 02109(617) 925-6300
Chicago191 North Wacker DriveSuite 2700Chicago, IL 60606(312) 595-2900
Dallas15303 Dallas ParkwaySuite 1200Addison, TX 75001(972) 739-2200
Denver1050 17th StreetSuite 1650Denver, CO 80265(303) 302-5100
Research Contacts
Steve CouttsSVP, National Research(212) [email protected]
Keith DeCosterDirector, Real Estate Analytics(212) [email protected]
Corporate Media Contact
Greg McGunagleVP, Public Relations(212) [email protected]
Entire contents copyright ©2016 Savills Studley
Florida-MiamiWells Fargo Center333 Southeast 2nd AvenueSuite 2800Miami, FL 33131(305) 423-1919
Florida-Tampa4830 West Kennedy BoulevardSuite 700Tampa, FL 33609(813) 675-7070
Houston333 Clay StreetSuite 3700Houston, TX 77002(713) 522-5300
Los Angeles-Downtown777 South Figueroa Street30th FloorLos Angeles, CA 90017(213) 553-3800
Los Angeles-West10960 Wilshire BoulevardSuite 1700Los Angeles, CA 90024(310) 444-1000
Minneapolis8400 Normandale Lake BoulevardSuite 920Bloomington, MN 55437(612) 225-1256
New Jersey-NorthContinental Plaza III433 Hackensack Avenue,12th FloorHackensack, NJ 07601(201) 556-9700
New York-Headquarters399 Park Avenue11th FloorNew York, NY 10022(212) 326-1000
Orange County 19100 Von Karman Avenue10th FloorIrvine, CA 92612(949) 660-3555
PhiladelphiaTwo Liberty Place50 South 16th Street, Suite 3400Philadelphia, PA 19102(215) 563-4000
PhoenixAnchor Centre East2231 East Camelback RoadPhoenix, AZ 85016(602) 783-1610
RaleighPNC Plaza301 Fayetteville Street 15th FloorRaleigh, NC 27601(919) 827-1818
San Diego3579 Valley Centre DriveSuite 100San Diego, CA 92130(858) 793-8600
San Francisco150 California Street14th FloorSan Francisco, CA 94111(415) 421-5900
San Jose550 South Winchester Blvd Suite 600San Jose, CA 95128(408) 554-8855
Silicon Valley705 High StreetPalo Alto, CA 94301(650) 812-9800
Suburban Washington, DC1600 Tysons BoulevardSuite 200McLean, VA 22102(703) 442-9000
Washington, DC1201 F Street, NWSuite 500Washington, DC 20004(202) 628-6000