State Of The U.S. Office Market - Reno, Sparks and ... Office Market Review of 2014.pdf · page 9...

State Of The U.S. Office Market

2014 Review And Forecast

© Copyright 2015 CoStar Realty Information, Inc. No reproduction or distribution without permission. The following information includes projections and analyses that are based on various assumptions by

CoStar concerning future events and circumstances, as well as historical and current data maintained in CoStar’s database, obtained from public sources or provided by proprietary sources. Actual results

may vary materially from the projections presented. The information in this presentation speaks only as of the date(s) referenced and is provided ‘as is’. CoStar expressly disclaims any guarantees,

representations or warranties of any kind, including those of merchantability and fitness for a particular purpose. You should not construe any of the information herein as investment, tax, accounting or

legal advice.

• Overview

• Economy

• Fundamentals

• Danger Zone

• Most And Least

• Capital Markets

Agenda

Let The Good Times Roll For National Office Market

• Net Absorption 91 MSF (+42%)

• Vacancy Rate 11.3%

• Rents Increased 3.7% Y/Y

• Deliveries of 47 MSF (+9%)

• Under Construction RBA

of 107 MSF (+32%)

• Office Sales of $124 Billion

(+11%)

2014

• Net Absorption 64 MSF ;;;;;

• Vacancy Rate 12.0%

• Rents Increased 3.1% Y/Y

• Deliveries of 43 MSF ‘’’’’’’’’’’

• Under Construction RBA

of 81 MSF

• Office Sales of $112 Billion

2013

Economy

Consumption Is Driving Growth

Contributions To GDP Growth

3/31/2007

6/30/2007

9/30/2007

12/31/2007

3/31/2008

6/30/2008

9/30/2008

12/31/2008

3/31/2009

Sources: BEA; CoStar Portfolio Strategy As of Nov 2014

(15%)

(10%)

(5%)

0%

5%

10%

08 09 10 11 12 13 14

Consumption Business Investment Residential Investment

Change in Inventories Exports Imports

Government Total GDP

Contribution to GDP Growth

Home Prices Rebounding Across The Country

But Housing Market Varies By Metro

AUSTHOUSDENVDALLPITTSANJRALESANFBOSTSEATPHILORANEASTATLANEWYWASHSANDLOSAPHOECHICMIAMLASVDETR

Sources: Moody's Analytics; BLS; CoStar Portfolio Strategy As of 14Q4

0%

2%

4%

6%

8%

10%

12%

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%A

ustin

Ho

usto

n

De

nver

Da

llas

Pitts

burg

h

Sa

n J

ose

Ra

leig

h

Sa

n F

ran

cis

co

Bo

sto

n

Se

att

le

Ph

iladelp

hia

Ora

ng

e C

ou

nty

Ea

st

Bay

Atlan

ta

Ne

w Y

ork

Wash

ing

ton

, D

.C.

Sa

n D

ieg

o

Lo

s A

nge

les

Ph

oe

nix

Ch

ica

go

Mia

mi

La

s V

ega

s

De

tro

it

Home Price - Current Relative to 2006-07 Level

Home Price - Current Relative to 2006-07 Level Change in Home Price (Y/Y)

Y/Y % Change in Home Price

Americans Are Feeling Richer

Household Assets, Debt, And Net Worth (% Of Disposable Income)

3/31/1952

6/30/1952

9/30/1952

12/31/1952

3/31/1953

6/30/1953

9/30/1953

12/31/1953

3/31/1954

Sources: Moody's Analytics; Federal Reserve; CoStar Portfolio Strategy As of Jan 2015

400%

450%

500%

550%

600%

650%

700%

750%

800%

0%

20%

40%

60%

80%

100%

120%

140%

55 60 65 70 75 80 85 90 95 00 05 10

Net Worth Debt Assets Average Net Worth

Assets and Net Worth (% of Disposable)Debt (% of Disposable Income)

Job Growth Rate Is Double Labor Force Growth

Total Employment, Labor Force, & Working Age Population Growth

0000000001010101020202020303030304040404050505050606060607

Sources: Moody's Analyitcs; CoStar Portfolio Strategy As of 14Q4

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Total Employment Labor Force Working Age Population

% Change (Y/Y)

Long-Term Issue Of

Running Out Of Employees

Employment Growth Favoring Southern Metros

Employment Growth And Employment Relative To Prerecession Peak

MarketHoustonDallas - FWAustinRaleighNashvilleAtlantaOklahoma CitySalt Lake CityDenverMiamiSeattleSan DiegoCharlotteSan JoseU.S.San FranciscoBostonNew YorkOrange CountyEast BayPhiladelphiaNorthern New JerseyPhoenixLos AngelesWashington, D.C.MinneapolisDetroitChicago

Sources: Moody's Analytics; CoStar Portfolio Strategy As of 14Q4

85%

90%

95%

100%

105%

110%

115%

120%

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Ho

usto

n

Da

llas -

FW

Austin

Ra

leig

h

Na

shvill

e

Atlan

ta

Okla

hom

a C

ity

Salt L

ake C

ity

De

nver

Mia

mi

Sea

ttle

San

Die

go

Ch

arlotte

San

Jose

U.S

.

San

Fra

ncis

co

Bosto

n

Ne

w Y

ork

Ora

ng

e C

ounty

East

Bay

Phila

delp

hia

No

rthern

New

Jers

ey

Pho

enix

Los A

ngele

s

Washin

gto

n, D

.C.

Min

nea

polis

De

troit

Ch

icago

Employment Growth (Y/Y)

West South East Midwest

Employment Relative to Prerecession Peak

Employment Relative to Prerecession Peak

Green Markets Indicate Broad Base of Job Growth

Office-Using Employment Y/Y Change By Metro

As of 14Q4

Fundamentals

Recovery Is Now In The 7th Inning

National Index Vacancy And Demand, Supply Percentage Changes

3

12/31/199612/31/199712/31/199812/31/199912/31/200012/31/200112/31/200212/31/200312/31/200412/31/200512/31/200612/31/200712/31/200812/31/200912/31/201012/31/2011

Source: CoStar Portfolio Strategy As of 14Q4

11.1%

6%

7%

8%

9%

10%

11%

12%

13%

14%

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Change in Demand (Y/Y) Change in Supply (Y/Y)

Vacancy Historical Average (1982-2013)

Demand & Supply Change Y/Y Vacancy

11.3% as of 14Q4

10.8%

Segmenting Out Vacancy

Office Vacancy/Availability Data By Slice

Rentable Sq Ft Total

1,265,678,052

CHANGE MED OFFICE MANUALLY

MEDICAL


*Note: Includes full country, and not just the National Index markets

14.1% 1.1% 8.3% 9.6% 10.1% 11.5% 12.0% 11.3% 15.2%0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

NonOwnerOcc.

>25k SF

OwnerOcc.

>25k SF

<25k SF MedicalOffice

1 & 2Star

3 Star 4 & 5Star

TotalOffice

TotalOffice

Available

Current Vacancy/Availability 13Q4 Vacancy/Availability

Vacancy/Availability

Vacancy Rates In 20 Largest Markets

Office Vacancy Rates By Metro

3

-1.21%

-0.83%

-1.39%

0.49%

-1.16%

-1.18%

-0.56%

-0.69%

-0.26%

-0.87%

-0.47%

-0.46%

-1.16%

-1.01%

-0.42%

-0.14%

-1.22%

-0.31%

0.11%

-1.70%


6%

8%

10%

12%

14%

16%

18%

20%

Pho

enix

De

troit

No

rthern

NJ

Washin

gto

n, D

.C.

Da

llas -

FW

Atlan

ta

Ch

ica

go

Los A

ngele

s

Phila

delp

hia

De

nver

Baltim

ore

Ho

usto

n

Ora

ng

e C

ounty

Sain

t Louis

Bosto

n

Min

nea

polis

Sea

ttle

Ne

w Y

ork

Pitts

burg

h

San

Fra

ncis

co

West South East Midwest 14Q4 Vacancy

National Average

Above Average Below Average

13Q4 Vacancy

Vacancy

11.3%

Recovery Is Widespread And At Record Levels!

Percentage Of Submarkets/Markets With Declining Vacancy

Period

6/30/2000

9/30/2000

12/31/2000

3/31/2001

6/30/2001

9/30/2001

12/31/2001

3/31/2002

6/30/2002

9/30/2002

12/31/2002

3/31/2003

6/30/2003

9/30/2003

12/31/2003

3/31/2004

6/30/2004

9/30/2004

12/31/2004

3/31/2005

6/30/2005

9/30/2005

12/31/2005

3/31/2006

6/30/2006

9/30/2006

12/31/2006

3/31/2007

6/30/2007

9/30/2007

Sources: CoStar Portfolio Strategy As of 14Q4

0%

10%

20%

30%

40%

50%

60%

30%

35%

40%

45%

50%

55%

60%

65%

08 09 10 11 12 13 14

Submarkets With Declining Vacancies (Left)

Markets with Vacancies Lower than 2006-07 Peak (Right)

Percentage of Markets/Submarkets

64%

42%

Average 51%

Tipping Point In Recovery Is Here

Office Vacancy Rates By Metro

As of 14Q4

Newest Generation Seeing The Bulk Of Absorption

Vacancy By Building Age

3/31/1995

6/30/1995

9/30/1995

12/31/1995

3/31/1996

6/30/1996

9/30/1996

12/31/1996

3/31/1997

6/30/1997

9/30/1997

12/31/1997

3/31/1998

6/30/1998

9/30/1998

12/31/1998

3/31/1999

6/30/1999

9/30/1999

12/31/1999

3/31/2000

6/30/2000

9/30/2000

12/31/2000

3/31/2001

6/30/2001

9/30/2001


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

08 09 10 11 12 13 142008 or Newer 2000-07 1990s 1980s Pre-1980s

Vacancy

Newest Generation Tight In Minneapolis, Not So In Miami

2008 And Newer Building Vacancy Rates

1

2

3

4

5

23

24

25

26

27

5

11

7

25

27


0%

5%

10%

15%

20%

25%

Min

nea

polis

Ora

ng

e C

ounty

Na

shvill

e

Da

llas -

FW

East

Bay

Port

land

Washin

gto

n, D

.C.

Los A

ngele

s

San

Jose

Mia

mi


2008-Newer Vacancy

National Average

The Flight To Quality Is Very Significant

Office Net Absorption Data By Slice

Slice

Non Owner Occ. >25k SF

Owner Occ. >25k SF

<25k SF

Medical Office

1 & 2 Star

3 Star

4 & 5 Star

Total Office


MEDICAL

Period

QTD

2014 4Q



1.4% 1.2% 1.1% 1.1% 0.9% 0.9% 2.0% 1.3%0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

NonOwner

Occ. >25kSF

OwnerOcc. >25k

SF

<25k SF MedicalOffice

1 & 2 Star 3 Star 4 & 5 Star TotalOffice

13Q4 - 14Q4 Change in Occupied RBA 12Q4 - 13Q4 Change in Occupied RBA

Change in Demand (Y/Y)

61.8 MSF

11.2 MSF17.8 MSF 10.5 MSF

16.7 MSF24.4 MSF

49.7 MSF

90.9 MSF

CBD Starting To Wake Up

Absorption By District

3/31/2000

6/30/2000

9/30/2000

12/31/2000

3/31/2001

6/30/2001

9/30/2001

12/31/2001

3/31/2002

6/30/2002

9/30/2002

12/31/2002

3/31/2003

6/30/2003

9/30/2003

12/31/2003

3/31/2004

6/30/2004

9/30/2004

12/31/2004

3/31/2005

6/30/2005

9/30/2005

12/31/2005

3/31/2006

6/30/2006

9/30/2006

12/31/2006

3/31/2007

6/30/2007

9/30/2007

Sources: CoStar As of 14Q4

SF (Millions)

(25)

(15)

(5)

5

15

25

35

45

04 05 06 07 08 09 10 11 12 13 14

CBD Suburban Premier Suburban 4-Quarter Average

22 MSF

46 MSF

23 MSF

64 MSF

91 MSF

42% Growth

Will Energy & Tech Markets See Double The Demand?

Net Absorption As % Of Total Market Inventory

Top Tech MarketsTop Energy MarketsHousing Bust MarketsAll Other Markets

Top Energy MarketsTop Tech MarketsHousing Bust MarketsAll Other Markets


1.9% 1.9%

1.0%0.9%

0.0%

0.5%

1.0%

1.5%

2.0%

Top Energy Markets Top Tech Markets Housing BustMarkets

All Other Markets

12 Month Net Absorption as % of Total Market Inventory

16.5 MSF 11.2 MSF 11.2 MSF 51.9 MSF

- San Jose- Seattle

- San Francisco- Austin

- Raleigh

- Houston- Oklahoma City

- New Orleans- Pittsburgh

- Dallas

- Las Vegas- Chicago

- Phoenix- Ft. Lauderdale

- Miami- Jacksonville- San Diego

- Orlando

Strong Showing In NY & Atlanta

Net Absorption By Market Characteristic


0

1

2

3

4

5

6

7

8

9

Ho

usto

n

Ne

w Y

ork

Da

llas

Atlan

ta

San

Fra

ncis

co

Bosto

n

Los A

ngele

s

Ch

icago

Pho

enix

Sea

ttle

De

nver

Ra

leig

h

Ch

arlotte

Austin

San

Die

go

San

Jose

Phila

delp

hia

Washin

gto

n, D

.C.

Mia

mi

Jackso

nvill

e

Tech Markets Energy Markets Housing Bust Markets Other

14Q1-14Q4 Cummulative Net Absorption (Millions SF)

Net Absorption: Broad Base Of Net Absorption

Year Over Year Net Absorption

3

CBD

11

10

9

8

7

6

5

4

3

2

1


CBDs include metros w ith greater than 100,000 SF or less than 100,000 SF of net absorption and Suburban include metros w ith greater than 400,000 SF

0.1 MSF

0.2 MSF

1.2 MSF

0.4 MSF

2.1 MSF

0.2 MSF

1.1 MSF

0.5 MSF

1.2 MSF

0.5 MSF

0.3 MSF

0% 2% 4% 6%

San Jose

Memphis

Seattle

Hartford

San Francisco

Ft. Lauderdale

Denver

Stamford

Dallas - FW

Austin

Raleigh

5 MSF

1.7 MSF

1.7 MSF

1.4 MSF

1 MSF

1.3 MSF

3 MSF

2.8 MSF

1.6 MSF

1.7 MSF

7.6 MSF

0% 1% 2% 3% 4%

Dallas - FW

Kansas City

Baltimore

Charlotte

Palm Beach

Nashville

Orange County

Phoenix

San Francisco

Raleigh

Houston

CBD Suburban


Construction Returns To Normal

Under Construction RBA Vs. Historical Average

3/31/20006/30/20009/30/2000

12/31/20003/31/20016/30/20019/30/2001

12/31/20013/31/20026/30/20029/30/2002

12/31/20023/31/20036/30/20039/30/2003

12/31/20033/31/20046/30/20049/30/2004

12/31/20043/31/20056/30/20059/30/2005

12/31/20053/31/20066/30/20069/30/2006

12/31/20063/31/20076/30/2007


107

122

0

50

100

150

200

250

300

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Under Construction RBA Historical Average

SF (Millions)

1/3 Of Office Markets Have Above Average Construction

Office Construction Vs. Historical Norms & Demand Growth

3.00

48.0038.0032.0031.0024.0022.0012.00

9.0021.0016.0015.0010.00

8.007.006.005.004.003.002.001.00


0%

1%

2%

3%

4%

5%

6%

7%

Ta

mp

a

Ora

ng

e C

ou

nty

Lo

s A

ng

ele

s

Atla

nta

Sa

n D

ieg

o

Ne

w Y

ork

Wa

sh

ing

ton

, D

.C.

Ph

oe

nix

Ph

ilad

elp

hia

Ch

ica

go

De

nve

r

Bo

sto

n

Pitts

bu

rgh

Da

lla

s -

FW

Ra

leig

h

Se

att

le

Sa

n F

ran

cis

co

Au

stin

Ho

usto

n

Sa

n J

ose

Office Properties Under Construction as of 14Q4 Average Annual Office Supply Growth

SF as % of Market RBA

Limited Development/ Supply Cooling Down

Supply Already Ramping Up

Select Office Starts – 14Q4


888 Boylston Back Bay Submarket

Metro: Boston

SF: 425,000

30.1% Preleased

4 & 5 Star Submarket

Vacancy: 7.8 %

505 Madison St Madison Centre Seattle CBD Submarket

Metro: Seattle

SF: 746,000

5.4% Preleased


Vacancy: 13.3 %

2021 McKinney

Ave McKinney & Olive Uptown/Turtle Creek

Submarket

Metro: Dallas - Fort

Worth

SF: 530,000

35.8% Preleased


Vacancy: 9.6%

1401 Lawrence St CBD Submarket

Metro: Denver

SF: 311,015

27.9% Preleased


Vacancy: 13.8%

Rent Growth Is Chugging Along

National Index Rent Growth

010101010202020203030303040404040505050506060606


(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

01 02 03 04 05 06 07 08 09 10 11 12 13 14

Rent Growth (Y/Y)

3.7%

Bay Area Still Takes The Cake

Year-Over-Year Change In Rental Rates

Sources: CoStar Portfolio Strategy As of 14Q4

3.1%3.1%

3.2%3.8%4.0%4.0%4.2%4.2%

4.5%4.7%4.8%4.9%5.0%

5.3%5.3%5.5%

6.0%6.2%

9.3%11.8%

0% 2% 4% 6% 8% 10% 12%

AtlantaFort Lauderdale

PhoenixOklahoma City

PortlandDallas - FW

Orange CountyBoston

NashvilleMiami

SeattleSan Diego

Los AngelesAustin

East BayDenver

New YorkHouston

San JoseSan Francisco


CBD Rent Growth Taking Off

Rent Growth, Past Year Vs. Year Prior

3

CBD

13

11

10

9

8

7

6

5

3

2

1


5.5%

5.6%

5.8%

6.6%

6.9%

7.5%

7.7%

7.8%

9.3%

10.5%

13.4%

(5%) 0% 5% 10% 15% 20%

Dallas - FW

Austin

Ft. Lauderdale

New York

Boston

Oklahoma City

East Bay

Denver

Miami

Houston

San Francisco

4.3%

4.4%

4.5%

4.6%

4.8%

5.0%

5.0%

5.3%

5.3%

9.3%

9.4%

0% 5% 10%

Denver

Seattle

Nashville

Orange County

East Bay

Los Angeles

San Diego

Houston

Austin

San Francisco

San Jose

Rent Growth, Previous Year

CBD Suburban


Danger Zone

Houston Has Six Times The National Mix Of Energy Jobs

Energy Employment Quotients Over 1 Have Above Average Exposure

Row LabelsHoustonOklahoma CityNew OrleansPittsburghDallas - Fort WorthDenverSan AntonioSalt Lake CityAustinPhoenixSaint LouisRichmondLos Angeles

East BayFort LauderdaleHartfordHonoluluHoustonIndianapolisInland EmpireJacksonvilleKansas CityLas VegasLong IslandLos AngelesMemphisMiamiMilwaukeeMinneapolis

*Share of Natural Resources & Mining Employment Relative to U.S. Average

Sources: Moody's Analytics; BLS; CoStar Portfolio Strategy As of 14Q4

0

1

2

3

4

5

6

7

Ho

usto

n

Okla

hom

a C

ity

Ne

w O

rlean

s

Pitts

burg

h

Da

llas -

Fort

Wort

h

De

nver

San

An

tonio

Salt L

ake C

ity

Austin

Pho

enix

Sain

t Louis

Ric

hm

ond

Los A

ngele

s


Energy Employment Location Quotient*

What’s Not Normal? Current Levels Of U.S. Production

1993Q31996Q31999Q32003Q32006Q32014Q3

0

5

10

15

20

25

30

35

40

45

U.S. Saudi Arabia Iraq Russia Canada China

Sources: IEA; CoStar Portfolio Strategy As of 14Q3

Oil Production (Million Barrels Per Day)

59%

Increase In

U.S.

Production

Oil Production Should Flatline Soon

60

65

70

75

80

85

90

95

100

1,000

1,500

2,000

2,500

3,000

3,500

4,000

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Global Production International Rig Count

International Oil Rig Counts (SA) Quarterly Global Oil Production

Sources: Baker Hughes, IEA, CoStar Portfolio Strategy As of 14Q3

9.9% Decline

Rigs Fall 14.5%,

Production Flatlines

Rigs Fall 9%,

Production Flatlines

Energy Is The Driver

Houston Submarket RBA Occupied By Known Energy Tenants

1

2

3

4

5

6

7

8

9

10

11

12

Houston - Greenspoint/N Belt West (Office)

Houston - Greenway Plaza (Office)

Houston - Gulf Freeway/Pasadena (Office)

Houston - I-10 East (Office)

Houston - Katy Freeway East (Office)

Houston - Katy Freeway West (Office)

Houston - Kingwood/Humble (Office)

Houston - Liberty County (Office)

Houston - Midtown (Office)

Houston - NASA/Clear Lake (Office)

Houston - North Loop West (Office)

Houston - Northeast Near (Office)

Houston - Northeast Outlier (Office)

Houston - Northwest Far (Office)

Houston - Northwest Near (Office)

Houston - Northwest Outlier (Office)


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

2

4

6

8

10

12

14 Million SF

Total Energy RBA % Submarket Energy

% Submarket SF

Most And Least

Occupancy Gains Outpace Losses

Change In Occupancy Y/Y

16151413121110

9876521

paste U to V then change B:B to E:E


1.8%

1.8%

2.0%

2.0%

2.0%

2.1%

2.4%

2.6%

2.6%

2.6%

2.7%

3.1%

3.8%

5.2%

0% 2% 4% 6%

Nashville CBD

West Los Angeles

Atlanta Buckhead

Miami Airport/Gables

San Francisco San Mateo

Seattle North End

Austin CBD/Close-In

Palm Beach Boca/Delray

Stamford

Denver Central

Raleigh Cary/RTP/RDU

Baltimore Ellicott/Colum

San Francisco Non-CBD

Dallas CBD

Strongest Occupancy TrendsStrongest Occupancy Trends

-0.7%

-0.8%

-0.8%

-0.8%

-0.9%

-1.0%

-1.0%

-1.0%

-1.2%

-1.3%

-1.3%

-1.4%

-1.9%

-1.9%

(4%) (2%) 0%

D.C. NoVA Outside Belt

Philadelphia Non-CBD

Columbus Outlying

D.C. South SuburbanMD

Pittsburgh South/West

New York Boroughs

Baltimore CBD

Salt Lake City CBD

Chicago Close-In

Boston Cambridge

Easy Bay 680 Corridor

D.C. Mont. Cty. InnerBelt.

Houston West Suburban

San JoseSunnyvale/Cupertino

Weakest Occupancy Trends


Demand Growth Dominates

Net Absorption (Y/Y)

Sacramento - OutlyingPhoenix - Airport AreaDetroit - Troy/BloomfieldNorfolk - PeninsulaAtlanta - BuckheadCharlotte - NorthBaltimore - Ellicott City/ColumbiaSan Francisco Non-CBDDenver CentralHartfordDallas - Far North SuburbanCharlotte - SouthHouston - North Suburban


0.8 MSF

0.6 MSF

0.5 MSF

0.5 MSF

3.6 MSF

0.9 MSF

0.8 MSF

0.5 MSF

0.8 MSF

0.6 MSF

0.7 MSF

2.4 MSF

1.3 MSF

3.1 MSF

0% 5% 10%

Orange County North/West

Palm Beach Boca/Delray

Stamford

Denver Central

New York Downtown

Dallas CBD

Phoenix Airport


Outlying Sacramento

Baltimore Ellicott/Columbia

Outlying Kansas City

Houston West Suburban

Raleigh Cary/RTP/RDU

Houston North Suburban

Strongest Net Absorption

-0.1 MSF

-0.1 MSF

-0.3 MSF

-0.3 MSF

-1.0 MSF

-0.4 MSF

(2%) 0%

SacramentoHighway 50

Stamford UpperFairfield

Baltimore CBD

D.C. SouthSuburban MD

Chicago Close-In

East Bay 680Corridor

Weakest Net Absorption


Rent Growth - Winners And Losers

Rent Growth (Y/Y)

1413121110

987654321


7.5%

7.6%

7.8%

8.2%

8.8%

8.8%

9.3%

9.4%

9.6%

9.6%

10.2%

10.6%

11.7%

13.4%

0% 10% 20%

West Los Angeles

Portland East Suburban

Denver CBD


Downtown/North San Jose

San Jose Sunnyvale/Santa Clara

Miami CBD

New York Midtown South

Denver Central

San Francisco San Mateo

New York Downtown

Houston CBD

San Jose Palo Alto

San Francisco CBD

Strongest Rent Trends

(0.8%)

(0.8%)

(0.8%)

(1.0%)

(1.2%)

(1.2%)

(1.2%)

(1.4%)

(1.5%)

(1.6%)

(1.6%)

(1.7%)

(1.8%)

(1.9%)

(4%) (2%) 0%

San Antonio South

Stamford Lower Fairfield

Cleveland East Suburban

Las Vegas Suburban

Columbus North

Suburban Milwaukee Cty

Hartford CBD

Baltimore Sub. West

D.C. NoVA Inner Belt.

Cleveland South/West Sub.

Milwaukee SuburbanCounties

D.C. Montgomery Cty. In.Belt.

Baltimore CBD

Philadelphia Southern NJ

Weakest Rent Trends


Capital Markets

Property Sales Up 10%

Sales Volume By Property Type

SectorOfficeMulti-FamilyRetailIndustrialHospitality

Sum of Sum of Sales VolumeYEAR_QTR2014 2q2014 1q2013 4q2013 3q2013 2q2013 1q


11.5%

6.0%

22.5%

8.5%

2.3%

0%

5%

10%

15%

20%

25%

0

20

40

60

80

100

120

140

Office Multi-Family Retail Industrial Hospitality

2014 U.S. Sales Volume (Billions $) 2014 vs 2013

Office Sales Volume Inceases Since 2009

Office Sales Volume Vs. Cap Rate Since 2007

Year20072008200920102011201220132014

20072008200920102011201220132014


EOP Sale, $39B

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014

Sales Volume EOP Sale Cap Rate

Cap RateSales Volume (Billions)

Most Metros Seeing Increased Sales Volume

Sales Volume In 2013 Vs. 2014 In Top Metros

123456789

101112131415

531


(60%)

(30%)

0%

30%

60%

90%

120%

150%

180%

0

5

10

15

20

25

30

San

Fra

ncis

co

Tam

pa

Bosto

n

Port

land

Ne

w Y

ork

Washin

gto

n, D

.C.

San

Die

go

Ch

icago

De

nver

Los A

ngele

s

Atlan

ta

Sea

ttle

Da

llas -

FW

Ho

usto

n

Austin

2014 2013 Percent Change Y/Y

Sales Volume (Billions) Percent Change Y/Y

Core Markets See Largest Pricing Gains

CoStar Repeat Sales Index

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15


0%

2%

4%

6%

8%

10%

12%

14%

Bosto

n

Ho

usto

n

San

Fra

ncis

co

Pho

enix

Ch

icago

Los A

ngele

s

De

troit

Ne

w Y

ork

Sea

ttle

Phila

delp

hia

Atlan

ta

Min

nea

polis

Da

llas -

FW

Washin

gto

n D

.C

De

nver

% Price Change Past Year

% Change in Price


% Price Change Year Prior

Underwriting Is Getting More Aggressive Again

Percentage Of Loans Containing Interest-Only Payments

2014201420142014201420142014201420142014201420142014201420142014201420142014201420142014201420142014201420142014201420142013

Sources: CoStar Risk Analytics; Trepp; ACLI As of 14Q3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Life Insurers CMBS

% Interest Only (Partial + Total)

Selected Top Office Deals – 14Q4

1740 Broadway- New York, NY

1730-1750 Broadway

SF: 601,000

Price: $605 Million ($1,006/SF)

Seller: Vornado Realty Trust

Buyer: The Blackstone Group

Google Pac Shores Center-

Redwood City, CA

7 Properties

Mixed Use: 972,022 SF (934,022

SF Office, 38,000 SF Retail)

Price: $585 Million ($612/SF

Office, $349/SF Retail)

Seller: Starwood Capital

Operations, LLC & Equity Office

Buyer: Google, Inc.

Mesirow Financial Building-

Chicago, IL

353 N Clark St

SF: 1,184,255

Price: $715 Million ($604/SF)

Seller: Tishman Speyer

Buyer: Heitman LLC

PNC Place- Washington, DC

800 17th St NW

SF: 364,502

Price: $392 Million ($1,075/SF)

Seller: PNC Financial Services

Buyer: TIAA-CREF & Norges Bank

Investment Management

Thank You!

State Of The U.S. Office Market - Reno, Sparks and ... Office Market Review of 2014.pdf · page 9...

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