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News release


Large Upticks in Rents, Development and Lease Expansion Balanced by Slower Absorption

JLL report shows fastest-growing rents of the cycle despite slower absorption

CHICAGO, April 13, 2015 - Tight U.S. office market fundamentals in 2014 continued into the first quarter of 2015 with increases in leasing, touring, rents and developments, but the rate of absorption slowed. JLL’s Q1 2015 U.S. Office Outlook pegged nationwide net absorption at 6.4 million square feet for the quarter – positive, but down from nearly 17 million square feet in Q4 2014. Slower absorption levels kept the U.S. vacancy rate stable at 15.6 percent due to a substantial uptick in sublease activity in Houston and also space givebacks in New Jersey, New York and Washington, D.C. that mitigated growth in markets like Dallas, Silicon Valley and Austin.
Despite Absorption Slowing, Incidence of Leasing Expansion Grows
According to JLL Research’s findings, despite slower occupancy gains in the quarter, the incidence of tenant lease expansion has jumped in recent quarters with more than 55 percent of leasing transactions larger than 20,000 square feet representing expansionary activity, up from 43.0 percent in just three quarters’ time.  That’s an increase of 1300 basis points and more than double 12 months ago. In short, more tenants are growing and even fewer are shrinking, with just 6.9 percent of all transactions in this range representing contraction in the first quarter.
“Corporates are feeling more confident in the overall outlook of the economy and that’s translating into real job growth across a variety of industries. Tech remains a dominant player in the expansionary trend, but we’re really starting to see a return of banking and finance, professional business services and healthcare that’s having a significant impact across markets.  All of that will lead to occupancy gains in the coming quarters,” highlights John Sikaitis, Managing Director of U.S. Office Research for JLL.
Landlord Confidence at an Eight-Year High
This positive momentum across local markets has pushed the overall average asking rate to nearly $30.00 per square foot at an increase of 3.1 percent—the highest quarterly uptick so far in the cycle. JLL found that greater supply constraints in CBDs resulted in a 6.1 percent quarterly jump in rents compared to 0.9 percent in the suburbs. Rent growth was led by tech-heavy markets such as Cambridge, Midtown South (New York), Austin and San Francisco, where rents spiked by 10.1, 8.3, 7.3 and 3.5 percent, respectively, during the quarter. Sikaitis adds, “Over the next 18 months, we expect to see increasingly heightened supply constraints, that when combined with a 22.7 percent rent premium for new construction and more aggressive underwriting in the capital markets, yields rent spikes over the near term.”

Development Boom Expands
Supported by this increasing demand, new development has soared in recent months. A trend that started in Houston and Northern California has spread across the U.S. According to JLL, 80 percent of markets have space under construction and 18 markets have more than a million square feet underway, including Phoenix, Raleigh-Durham and Seattle. Overall, construction levels reached 84.2 million square feet at the end of March, compared to 56 million at the same time last year. Breaking down that development, 74.8 percent is speculative, of which 33.8 percent of that is preleased; including build-to-suit activity while overall preleasing jumps to 49.3 percent.

Houston’s Correction 
The correction in energy markets has created a correction in the office sector in Houston over the past six months. Net absorption levels have declined from averaging a million square feet in the last quarter of 2014 down to just 167,000 square feet in the first quarter. The slowdown in demand and increased incidence of availability, both through sublease space and the vacant development pipeline, have yet to be realized fully as energy and oil companies work through losses incurred over the past six months. 

“The near-term challenge for Houston will be the state of the energy markets. The Federal Reserve Bank of Dallas estimated that economic growth will only reach 1-2 percent in the state this year, compared to 3.4 percent last year, and that job growth could only be half of last year’s rate,” explained Chrissy Wilson, Senior Vice President with JLL’s Houston Agency Leasing. “We have already seen some impact in Houston, with low office absorption of only 0.01 percent in Q1 2015, sublease upticking by nearly 3 million square feet and a -3.4 percent change in asking rents across the metro area, in addition to a substantial development cycle.  Most of these projects are a couple years from completion, however, so the real estate community is clearly focused on the long-term market view.”

“While it remains to be seen what the full implication of this contraction means to the market, we’re still seeing investor interest in Houston as a market with future growth potential, and even more so in Austin and Dallas where there’s been a little more insulation from the oil industry-contraction because of its diversified industry base,” observed Sikaitis. “Like anything, markets go through cycles. Houston just happened to peak ahead of the others this time around, first from a supply side and second from the demand side.” He concluded, “As we progress through 2015, however, U.S. occupancy growth levels will tick back up toward their recent averages and we will see national office vacancy fall below 15 percent for the first time in more than 10 years due to continued strength in both the domestic economy and corporate.”

To read JLL’s full Q1 2015 U.S. Office Outlook and to view Q1 Office Statistics visit 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.

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2014 alone, JLL Capital Markets completed $118 billion in investment sale and debt and equity transactions globally. The firm’s Capital Markets team comprises more than 1,700 specialists, operating all over the globe.

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

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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 $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 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