what's on the horizon for the u.s. skyline?
TRANSCRIPT
What’s the beat of the Skyline?2016 overview and trends
June 2016
2
Skyline at a glance
The Skyline set continues to demonstrate success…. From a fundamentals perspective, the top-tier office set posts significantly lower vacancy, higher rents and more developer interest in relative terms than the overall market.
The top of the market continues to outperform, but faces competition from emerging segments
Overall
CBD
Skyline
Trophy
Trophy U/C
$20 $25 $30 $35 $40 $45 $50 $55 $60 $65
$32.28
$43.42
$43.79
$56.82
$61.82
Average asking rent ($ p.s.f.)
3
Skyline at a glance
JLL’s Skyline focuses on the top tier of the office market, looking at some of the most iconic and highest-rent properties within CBDs and urban cores.
The top of the market continues to outperform, but faces competition from emerging segments
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016400,000,000
450,000,000
500,000,000
550,000,000
600,000,000
650,000,000
800
850
900
950
1,000
1,050
1,100RBA (s.f.) Numer of buildings
RBA
(s.f.
)
Num
ber o
f bui
ldin
gs
TrophyNon-Trophy
50.6%Trophy share
of supply
4
What are the trends in
2016?
5
1.Gone today, here tomorrowMany markets are expecting to see substantial office building deliveries, which will begin to shift the balance from landlord-favorable conditions and ease the leasing environment for tenants.
6
2.More, more, morePremium pricing for coveted Skyline buildings will be exacerbated as new Trophy buildings are delivered, forcing some tenants to look to lower cost options or different markets altogether.
7
3.Ready, steady, goThe global economy combined with the concern over the growth trajectory of the technology industry, continues to weigh on the minds of investors.
8
4.On the roadCost and competition in primary markets mean Skyline assets are harder to acquire, if at all. Investors are looking to hot secondary markets where rent growth is still achievable and tenant demand persists.
9
5.What have you done for me lately?Despite the rise in popularity of older creative buildings and fringe markets, Skyline assets still have lasting power, but only if owners meet the needs of tenants to remain competitive.
10
Vacancy
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20166.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
Vaca
ncy
(%)
Both direct and total vacancy continue to fall, but remain well above previous lows
12.7%Total vacancy
11.8%Direct vacancy
Source: JLL Research
Vacancy rate (%)
11
Direct vacancy
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Vaca
ncy
(%)
Direct vacancy for Trophy properties has fallen into the single-digits for the first time this cycle
14.2%Non-Trophy
9.6%Trophy
Source: JLL Research
Vacancy rate (%)
12
Net absorption
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-5,000,000
0
5,000,000
10,000,000
15,000,000
20,000,000
82.0%
83.0%
84.0%
85.0%
86.0%
87.0%
88.0%
89.0%
90.0%
Net absorption (s.f.) Occupancy (%)
Net a
bsor
ptio
n (s
.f.)
Net a
bsor
ptio
n (%
)
Limited space options and strong growth in 2014 and 2015 slowed down gains in Q1
Source: JLL Research
13
2016 Skyline clockThe Skyline is enterting a new phase in the cycle after achieving peak rent growth
Peakingphase
Fallingphase
Risingphase
Bottomingphase
Chicago, New York, Orange County, Philadelphia
Denver
Oakland, Seattle
Austin, Bellevue, Fort Lauderdale, Raleigh
Dallas
Charlotte, Salt Lake CityHudson Waterfront, Milwaukee, West Palm Beach
Baltimore, Cincinnati, Detroit, Indianapolis,Minneapolis, Stamford, Washington, DC
San Francisco
Atlanta, Century City, Fort Worth, Tampa
Portland
Boston, Los Angeles, Miami, San Diego, United States
Hampton Roads, Newark, Phoenix, Pittsburgh, St. Louis
Richmond
Cleveland
Columbus
Houston
Orlando
Wilmington
Sacramento
Source: JLL Research
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Average asking rent
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016$10
$15
$20
$25
$30
$35
$40
$45
$50
Aver
age
aski
ng re
nt ($
p.s
.f.)
Rents continue to reach record levels, rate of growth slowing markedly
$38.612008
$43.79Q1 2016
Skyline rents are 13.4 percent above previous
peak in 2008
Source: JLL Research
$43.79Skyline
$32.28Overall
Direct averageasking rent ($ p.s.f.)
15
Average asking rent
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016$0
$10
$20
$30
$40
$50
$60
$70
Aver
age
aski
ng re
nt ($
p.s
.f.)
Demand for non-Trophy space has boosted rents to new highs; Trophy beginning to flatline
$56.82Trophy
$33.73Non-Trophy
Source: JLL Research
$32.28Overall
Direct averageasking rent ($ p.s.f.)
16
Under construction
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Under construction (s.f.) Preleased (%)
Unde
r con
stru
ctio
n (s
.f.)
Prel
ease
d (%
)
Development slightly up in Q1 at a record 34.1 m.s.f.; preleasing down as confidence improves
Source: JLL Research
17
Market Under construction (s.f.)
New York 12,571,498
San Francisco 2,584,357
Chicago 2,250,000
Seattle 2,227,875
Philadelphia 1,970,864
Denver 1,326,821
Boston 1,215,000
Bellevue 1,078,693
Orange County 1,065,424
All other markets 8,855,014
Skyline 34,080,122
37%
8%7%7%
6%
4%
4%
3%
26%
New York San Francisco Chicago Seattle Philadelphia
Denver Boston Bellevue All other markets
Under constructionHudson Yards pushes New York well above other markets in terms of development
Source: JLL Research
18
Sales volume
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
Sale
s vo
lum
e (s
.f.)
Sales volume on track to meet 2015 levels, but continues to be well below previous cycle
Source: JLL Research
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Sales volume and pricing
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016$0
$10,000,000,000
$20,000,000,000
$30,000,000,000
$40,000,000,000
$50,000,000,000
$60,000,000,000
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Sales volume Price per square foot
Sale
s vo
lum
e ($
)
Sale
s pr
ice
($ p
.s.f.
)
Pricing growth of 26.7 percent from 2015 to Q1 2016 far exceeds expected increase in volume
Source: JLL Research
20
Average cap rate
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20164.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Aver
age
cap
rate
(%)
Inbound capital flows for longer-term holds compressing yields to near-5.0 levels
6.2%2008
5.3%Q1 2016
Cap rates are down 90bpfrom their previous low
Source: JLL Research
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
Julia GeorgulesDirector – Office Research+1 415 354 [email protected]
Phil RyanSenior Research Analyst – Office and Economy Research+1 202 719 [email protected]
What else is on the horizon for Skyline? Visit Skyline or contact us.