employment situation changes little from 2012, although ... · biotech / pharmaceutical growing san...

Bill Poffenberger Executive Vice President Cincinnati, OH

Employment situation changes little from 2012, although upward revision show signs of promise

90%

92%

94%

96%

98%

100%

102%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62

1973 1981 1990 2001 2007

We are finally over halfway back to previous peak levels over 60 months into the cycle

Reco

vere

d job

s (%

)

Past recessions (40 years)

Source: Jones Lang LaSalle, Bureau of Labor Statistics

Pre-recession employment level

Jobs lost during recession…

Jobs gained during recovery…

63.2 percent of jobs have been recovered from the recession


Office-using (PBS) jobs lost during recession…

Office-using (PBS) jobs gained during recovery…

All office-using jobs have been recovered, but are much more tech- and management-centered


Southern and Western markets continue to grow faster than the rest of the U.S. on a year-on-year basis


Austin 4.1%

San Francisco 3.2%

Houston 3.1%

Phoenix 3.0%

Denver 2.9%

Silicon Valley 3.2%

United States Office Review 2013

After an inconsistent 2012, signs point to greater certainty across the U.S. office landscape in 2013

LEASING ACTIVITY

•  Leasing levels dip again: -6.8% from last quarter •  Both Q4 and 2012 leasing below respective quarterly and annual levels since recovery began. •  Tech and energy markets also comprise the majority of fastest-leasing markets.

ABSORPTION •  Absorption levels continue with 11th consecutive quarter of occupancy growth, but vary widely by geography

as the West grows and the East Coast disappears. Sunbelt markets are starting to add to the recovery. •  Even with continued occupancy growth in Q4, 2012 absorption levels down 19.4 percent from 2011. •  Second-generational Class B product still lagging the recovery substantially.

OCCUPANCY •  Vacancy drops, hits 17.0 percent. •  Vacancy levels remain near historical highs, and although CBDs are on track to reach historical vacancy

rates faster than suburbs, CBD vacancy declines have slowed while suburban declines have sped up. •  Sublease space stable even as signs of softening penetrate the market.

RENTS •  Tenants have far less leverage across urbanized, core markets despite overall market pause, but rents have

now inched up in nine of the past ten quarters. •  Class A continues to trump commodity across the board. •  Rents growing over four times faster in CBDs than suburbs. •  Concessions continue to erode and are at 2008 levels.

CONSTRUCTION •  Low construction completions helping the market return to equilibrium faster than normal due to limited new

supply. However, volumes are well below pre-recession levels. •  Despite a slower recovery of late, the Northeast is dominating construction activity.

The recovery should regain momentum after a slower-than-expected 2012

Source: Jones Lang LaSalle

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

Q1 20

07

Q2 20

07

Q3 20

07

Q4 20

07

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

U.S. office leasing activity (SF)

Leasing levels dip again: -6.8% from last quarter, now at 52.4 million square feet


20-quarter trailing average

LEASING ACTIVITY

Over the past few quarters, the East Coast has essentially disappeared from the recovery


-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012

East Coast Central West Coast

ABSORPTION

Second-generational Class B product still lagging the recovery substantially from demand/pricing perspective


Trophy & Class A net absorption

54.4 MSF

2011 & 2012

Class B & C net absorption

5.4 MSF

2011 & 2012

ABSORPTION

Northeastern CBDs dragging down national flight-to-quality growth


New York: Class A: -1.9% Overall: -0.7%

Boston: Class A: -1.5% Overall: 0.0%

Philadelphia: Class A: 1.2% Overall: 0.8%

Baltimore: Class A: 1.8% Overall: 0.9%

Washington, DC: Class A: -0.1% Overall: -0.8%

23.82028.658

0

20

40

U.S. total WithoutNortheast

Millio

ns

CBD Class A net absorption (YTD m.s.f.)

2,035.31,657.7

0

1,000

2,000

3,000

U.S. total WithoutNortheast

Millio

ns

CBD Class A inventory (m.s.f.)

ABSORPTION

Vacancy drops by a scant 10 basis points, hitting the 17.0 percent mark

10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

17.0%


OCCUPANCY

As a result of slower employment and absorption growth, vacancy levels remain near historical highs

6%

8%

10%

12%

14%

16%

18%

20%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

17.0%


OCCUPANCY

Industry Employment base Most affected office markets to date State Government Contracting California, Illinois, New Jersey Federal Government Contracting Washington, DC Media-print Contracting LA, NYC Finance / banking Contracting NYC, Charlotte, Chicago, Palm Beach, Pittsburgh Law firms Contracting (Rightsizing) Washington, DC, NYC, SF, Atlanta, LA Consulting Contracting (Rightsizing) NYC, Chicago, Washington, DC Accounting Contracting (Rightsizing) Chicago, NYC, LA Telecom Stable NJ, Dallas, Atlanta Retail / consumer goods Stable NYC, Atlanta, Los Angeles Education Stable Everywhere Media digital and TV Stable Atlanta, NYC, LA, Philadelphia, Washington, DC Green energy / clean technology Stable Pittsburgh, Silicon Valley, Denver Real estate (Residential) Growing Southern CA, Nevada, AZ, FL, GA, Carolinas

Technology Growing Silicon Valley, San Francisco, Austin, Seattle, Portland, Midtown South NYC, Cambridge, MA

Natural Gas / Oil Energy Growing Denver, Houston, Dallas, Pittsburgh Biotech / pharmaceutical Growing San Francisco, San Diego, NJ/Phil, Boston, RDU

Economic recovery beginning to diversify ever-so-slightly


OCCUPANCY

Peaking phase

Falling phase

Rising phase

Bottoming phase

Overall, the United States moves forward slightly as rents rise…3.1 percent in 2012


Baltimore, Jacksonville, Sacramento, Tampa, Westchester County

Orlando

Atlanta, Charlotte, Chicago, Cincinnati, Cleveland, Columbus, Fairfield County, Miami, Portland, Raleigh-Durham

Dallas, Pittsburgh, San Francisco Peninsula

Los Angeles, Minneapolis, Philadelphia, United States

Hampton Roads, Oakland-East Bay, Orange County, San Antonio

Denver Fort Lauderdale, West Palm Beach

Boston, Richmond

Austin

Detroit, New Jersey, Phoenix, San Diego, St Louis

Indianapolis, New York Washington, DC

Silicon Valley

San Francisco

Seattle

Houston

RENTS

Peaking phase

Falling phase

Rising phase

Bottoming phase

Suburbs also see rent increases, but continue to lag behind CBD counterparts


Baltimore, Los Angeles

Jacksonville, Southern NJ

Orlando

Northern DE, Portland (Vancouver) Tampa, Westchester County Central NJ, Detroit, Fairfield County, Miami, Northern NJ, Phoenix, Portland (West), San Diego, St Louis

Dallas

East Bay Suburbs, Indianapolis, Minneapolis

Boston, Oakland Suburbs, Orange County, San Antonio, United States

Denver, Richmond, Seattle (Northend)

Charlotte, Chicago, Cincinnati, Cleveland, Columbus, Hampton Roads, Lehigh Valley, Philadelphia, Seattle (Southend)

Ft Lauderdale, W Palm Beach

Raleigh-Durham, Sacramento

Austin, Pittsburgh

Northern Virginia

Atlanta, Portland (East), Suburban MD

San Francisco Peninsula

Seattle (Eastside), Silicon Valley Cambridge

Houston, San Francisco

RENTS

of absorbed space YTD has been Class A

per square foot premium for Class A space to Class B space…

the rate at which Class A rates are growing compared to Class B

amount by which Class A vacancy has dropped in 2012

Class A continues to trump commodity across the board


RENTS

With recovery moving at a quicker pace in the CBD than suburbs, rent gap widening

$20

$22

$24

$26

$28

$30

$32

$34

$36

$38

$40

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012

CBD Suburbs


$11.36 $15.10

RENTS

As vacancy declines, so do TI packages

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

19.0%

$25

$26

$27

$28

$29

$30

$31

Q1 2009 Q1 2010 Q1 2011 Q1 2012

Total

vaca

ncy

Aver

age

TI pa

ckag

e

Average TI package Total vacancy

RENTS

Low construction completions helping the market return to equilibrium faster than normal due to limited new supply Completions (SF)


0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD2012

Historical average amount of completions (SF) per year

CONSTRUCTION

While the construction pipeline is increasing, it is still increasingly small compared to historical norms Under construction (SF)


0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Spec construction underway Atlanta

Charlotte Dallas

Houston New York

Northern Virginia San Francisco Silicon Valley

Washington, DC

CONSTRUCTION

# of Bldgs Inventory (SF) Total Available (SF) Total Vacant (SF)

Total Vacancy Rate (%)

Direct Vacant (%)

Direct Vacancy Rate (%)

Available Sublease (SF)

Qtrly Net Absorption (SF)

YTD Total Net Absorption

A 148 21,385,133 4,569,854 4,476,530 20.90% 4,295,387 20.10% 223,449 -120,695 66,992

B 230 13,649,811 3,266,808 2,974,347 21.80% 2,892,080 21.20% 137,859 20,156 -25,292

C 99 4,663,063 1,329,406 1,345,046 28.80% 1,340,546 28.70% 4,500 25,445 49,103

Grand Total 477 39,698,007 9,166,068 8,795,923 22.80% 8,528,013 21.50% 365,808 -75,094 90,803

Cincinnati

Cincinnati

Cincinnati Skyline Report Stats

Skyline Sta+s+cs

Inventory 8,209,912

Direct vacancy 1,707,812

Direct vacancy rate 20.80%

2012 absorp+on (204,521)

Gross asking rentes $24.10

Cincinnati Downtown vacancy remains at all-time high

22%

Cincinna+ Class A blocks of con+guous space

Cincinna+

Class A proper+es have historically garnished rent premiums averaging $8.00 psf

Leasing Activity: •  2012 saw a high volume of relocations, many of which also involved expansions. •  These transactions lead to over 300,000 square feet of positive absorption for the year. •  High profile transactions included Omnicare, First Financial Bancorp, Nielsen, Vorys and Kao. •  Despite increased leasing activity in the last 18 months, organic growth in the metro has not been enough to restore

vacancy rates to previous levels. •  To make matters worse, the vacating of Chiquita Brands added an additional 113,000 square feet to the market. Sales Activity: •  Capital markets activity decreased in 2012 with a significant portion of the transactions involving distressed properties. •  These trouble assets continue to push down pricing, resulting in the 2012 average office sales price of $45 per square

foot. •  Examples of distressed sales include Centennial Plaza I&II, the 580 Building, the former Enquirer Building and the former

Cincinnati Post Building. •  However, for stabilized properties with long leases and healthy revenues, buyers can be found. For instance, the

Hawthorne Center which was 94.0% occupied at the time of sale, was purchased for $123 per square foot. Construction Activity: •  Construction activity began to ramp up at the end of 2012 as Paycor and Dunnhumby prepared to break ground on their

respective headquarters. •  The year saw two significant deliveries Itelligence’s new 70,000-square foot headquarters and Seapine’s 50,000-square-

foot headquarters. Both buildings are owner-occupied. •  Speculative office construction remains nonexistent since the delivery of the Great American Tower in 2011. 2013 should

see the Kickoff of Phillips Edison’s “Kenwood Collection” and Jeff Anderson’s Rookwood project, both mixed use. Outlook: •  For those tenants evaluating options, large blocks of space remain prevalent both downtown and in the suburban

submarkets. •  Asking rents will increase little, if at all, preserving tenant-favorable conditions.

Cincinnati Summary

employment situation changes little from 2012, although ... · biotech / pharmaceutical growing san...

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