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News release

BOSTON, MA

New Names Top The Charts of Best Performing U.S. Office Markets

JLL report shows non-CBD cities like Cambridge are busy with new development


BOSTON, Jan. 9, 2015 – The United States office market ended the year on a high note with the vast majority of markets displaying occupancy growth and rental gains, but a number of the usual suspects are missing from the top ranks. Instead, historical "secondary markets" like Phoenix, Raleigh-Durham, Salt Lake City and Miami are topping the list alongside the likes of San Francisco and Silicon Valley. Meanwhile, non-Central Business District (CBD) markets in metro areas with high concentration of technology tenants are coming back to peak levels as well, such as Cambridge, MA, and Seattle's Eastside, outpacing their respective CBD markets.

Fueling the nationwide demand for office-space, naturally, is the bustling U.S. economy, which has propelled office fundamentals to their strongest levels in more than six years. JLL’s Q4 2014 U.S. Office Outlook shows that nationwide, net absorption increased by 36.7 percent from 2013, ending the year at 54.7 million square feet. Meanwhile, more than 80 percent of U.S. office markets experienced rental rate growth over the course of the year, while the total office vacancy rate ticked down a percentage point from year-end 2013 to 15.6 percent. For leases larger than 20,000 square feet, the numbers are even more compelling: nearly 50 percent of all large leases experienced occupancy growth, contributing to the second quarter in a row that posted double the rate of growth the U.S. has experienced at any other point during the recovery.

"The U.S. added nearly three million jobs to the economy in 2014. Our unemployment rate is the lowest it has been since the second half of 2008. Meanwhile, corporate profits and consumer spending are strong, encouraging the business sector's confidence in continued expansion," explained John Sikaitis, Managing Director of Research at JLL.

Indeed, new construction in 2014 was more than 68 percent higher on a per-square-foot basis than in 2013. Much of it continues to be concentrated in the CBDs of large metro areas. The nationwide average for vacant space in the CBDs is only 12.7 percent compared to an overall office vacancy rate of 15.6 percent. It is the tightest markets that are seeing the most new development, like Midtown and Downtown New York, Downtown Seattle, Philadelphia and San Francisco. But a number of non-CBD markets are busy with shovels in the ground as well. The biggest outlier is Houston. Other top-performing non-CBDs, especially those with a strong tech and life science presence like Cambridge, have become such sought-after office markets that current demand outpaces available space by multiples of two or even four.  The demand in East Cambridge, in particular, is so strong that it’s having a ripple effect, helping to drive leasing activity in Boston’s CBD.

"Demand in Cambridge is nearly four times greater than existing supply," noted Peter Bekarian, Managing Director in JLL's Boston office. "The vacancy rate is at 7.7 percent and falling. The new construction underway will not be enough to slow the growth of rental rates significantly.  Rents have soared over the past year, rising 14 percent over the course of the year. While average asking rents for office space in East Cambridge are now just shy of $59 per square foot, some buildings have already achieved rents in excess of $70 per square foot.”

Meanwhile, the traditional top-tier markets like Boston, Midtown New York, Chicago and Los Angeles are tightening, but still haven't approached the cyclical peak. Washington D.C.'s office fundamentals, on the other hand, are only just coming out of the red for the first time in four years due to diversification of demand to tech, media and creative, while its suburban markets, dominated by government contractors, are still in decline.

A watchful eye on the future
While the current picture is rosy for the U.S. office sector overall, the real estate industry will be closely watching several recent economic developments that could slow momentum. In spite of enormous employment gains, labor force participation is still the lowest it has been in more than three decades, and low energy prices will be disconcerting for the otherwise bustling Southern and South Central regions of the country.

"There are certainly several economic factors along these lines that the real estate industry will have to bear in mind when making near-term growth estimations. But overall, the forecast for 2015 and into 2016 is the strongest it has been in more than 10 years," Sikaitis concluded.

To read the full Q4 2014 U.S. Office Outlook and to view Q4 Office Statistics visit http://bit.ly/JLLOutlookQ414.

For more news, please visit JLL’s online and mobile app, The Investor, a global news source providing real-time commercial real estate news to asset buyers and sellers around the world.

About JLL
JLL (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 fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $53.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.