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News release


Supply and Demand to Tip Scales in 2013 as Office Rents and Future Construction Prospects Increase in U.S. Skyline Markets

Boston’s premier office properties among elite subset of assets favored by investors and tenants in post-recessionary flight to quality

BOSTON, March 11, 2013 — Constrained construction and heated demand for office space in the most active segments of the United States office market are already fueling prospects of rental increases and new office property development in 2013 and into 2014. An expansion period is approaching for the high-quality urbanized office sector of trophy skyscrapers known as the Skyline, according to Jones Lang LaSalle’s Spring 2013 United States Skyline Review.

“In all but a handful of the Skyline markets, large tenants will have few existing options to consider and thus will be forced to look at proposed development options if they desire to explore relocation options,” said John Sikaitis, Senior Vice President of Research at Jones Lang LaSalle.

Boston is a market that has benefitted greatly from favorable trends in demographics and exposure to growth sectors. “In addition, Boston’s downtown submarkets appear to be entering a new chapter in each of their respective history books,” said Jones Lang LaSalle Research Manager Lori Mabardi. “The Financial District has seen positive momentum in the low-rise portion, as well as a transformation into a true work-play-live submarket.

“The Seaport District is becoming home to a number of build-to-suit projects, and the Back Bay is achieving pre-recession rents in its premier spaces. Even fringe submarkets downtown are seeing strong absorption. The outlook is bright for Boston given its proven ability to react to secular trends in urbanization, its highly skilled workforce and its diverse economic base.”

Boston is one of 34 city centers across the nation in which Jones Lang LaSalle tracks Class A and Trophy office properties for its proprietary Skyline Markets report. Its researchers identify and track the hottest office micro-segments where tenants and investors alike have focused demand for office space in a flight to quality and efficiency throughout the recent recovery. 

Leasing highlights indicate most Skyline markets will reach equilibrium by mid-2014
Vacancy rates are in the single digits in 10 Skyline markets, including Pittsburgh, Richmond, Bellevue, Houston, Portland, the New Jersey Hudson Waterfront, Raleigh, San Francisco, Philadelphia and Boston. Additions to supply are only beginning to appear, with office construction in eight, or 24.2 percent, of the Skyline markets, including speculative construction in three markets. By mid-2014, all of the Skyline markets will have reached equilibrium, where the balance of supply and demand has historically made rents pop and new construction feasible, Jones Lang LaSalle’s researchers predict.

Three large office tenants that returned space to the market in 2012 skewed overall leasing totals across the Skyline, with a minimal net change from the previous year. Excluding those deals, however, Skyline absorption would have tipped the scales at more than 4.6 million square feet. Energy and tech companies will continue leading absorption in 2013, counterbalanced by right-sizing among law, financial and consulting firms that seek greater efficiency by cutting back space, typically between 15 percent and 20 percent.

Landlords offered fewer concessions to tenants in 2012, increasing effective rents by 4.5 percent, compared with just 1.6 percent effective rent growth the previous year. More than 85 percent of Skyline markets will see rent increase in 2013, with compression of tenant incentives in 90 percent of markets as landlords gain pricing control. In some Skyline markets, asking rents even surpassed prior market cycles’ peaks in four markets (San Francisco; the New Jersey Hudson Waterfront; Washington, D.C.; and Cincinnati).

Investment sales slowly migrate to pre-recessionary peaks in select top Skyline markets
Skyline sales volume fell to less than 40 million square feet in 2012, down 29.3 percent from 55.7 million square feet sold the previous year, chiefly due to limited Skyline Trophy activity in New York. Despite reduced volume, investor appetite for the high-quality product and favorable fundamentals is pushing sales prices nearer to pre-recessionary peaks in the top five Skyline markets (New York, San Francisco, Washington D.C., Boston, and Seattle-Bellevue), and even in top energy markets like Houston and Denver.

Real estate investment trusts topped the list of buyers in 2012, accounting for 29.6 percent of sales transactions, closely followed by institutional domestic buyers at 29.1 percent, with global buyers coming in a distant third at 11.9 percent. An increasingly diversified economic and leasing recovery are expected to push activity levels up more than 20 percent in 2013 for the “Super Seven” primary markets (Boston, Chicago, Los Angeles, New York, San Francisco, Seattle-Bellevue and Washington, D.C.). Stronger investment activity will be based on increasingly difficult barriers to entry.

“Look for markets like Denver, Indianapolis, Minneapolis, Orlando and Portland, among others, to capture enhanced institutional demand over the next few years based on aligned supply and demand and an increased institutional focus,” said Marisha Clinton, Director of Capital Markets Research, Jones Lang LaSalle.

Major market highlights

  • Boston: Rapid technology growth and recovering legal and financial services contributed to full recovery of jobs lost during the recession. Widespread absorption and built-to-suit construction in the Back Bay is accompanied by pre-recession rent levels in premier properties.
  • New York: Near-term, large blocks of space weigh on the market, including 3 million square feet that a financial services firm returned to Downtown Manhattan in 2012.
  • San Francisco: Sizzling leasing velocity drove up asking rents by 27.4 percent in 2012 from the previous year. New projects are breaking ground in the South Financial District.
  • Washington, D.C.: Tenants’ flight to quality bolstered the Skyline, bucking the malaise of the market. Concession packages hovered near record levels in 2012, however.
  • Seattle-Bellevue: The highest price paid per square foot for an office building here in 2012 reached $642, an all-time high.

To request a copy of the Skyline report, please visit our Skyline webpage.

Jones Lang LaSalle’s research team delivers intelligence, analysis, and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our 350 professional researchers track and analyze economic and property trends and forecast future conditions in over 70 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. For greater detail on Jones Lang LaSalle’s research, visit the firm’s reports at:

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet. Its investment management business, LaSalle Investment Management, has $47.0 billion of real estate assets under management. For further information, visit