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News release


At Last: Expansions, Rents Support Formidable 2016 U.S. Office Market

Data from JLL’s U.S. Office Outlook points to deep, wide U.S. momentum

CHICAGO, Jan. 12, 2016 – After much anticipation, market data is at last reflecting an economy ripe with corporate expansions, revealing few signs of slowing in the year ahead. According to JLL’s Q4 2015 U.S. Office Outlook, this momentum runs deep and wide, boosting overall occupancy at a rate 1.3 times faster than new supply. In addition to big absorption numbers, it is also producing strong rent growth in not only tier one cities but also in areas that were hardest hit by the recession.
“We ended 2014 on an extremely high note with more than 16 million square feet of net absorption in the last quarter alone. Then we entered 2015 and occupancy growth dropped to less than half that figure – its lowest point in years,” said Julia Georgules, Vice President of U.S. Office Research for JLL. “Despite this slow start, we knew that 2015 would deliver tremendous results because of the volume of expansionary leasing activity we’ve been seeing. Now, landlords and developers are in an exceptional position to capitalize on tenant demand, rising rents and new construction.”
Expansions Drive Out Vacancies
Business growth was the name of the game in 2015, with company expansions accounting for more than half of the leases signed in the fourth quarter and consistently over the past 18 months. This is a sharp contrast to years prior, when tenants were downsizing in response to the economy or, more recently, maintaining status quo.
Phoenix, Los Angeles, Philadelphia, Chicago and the San Francisco Peninsula topped the list of Q4 occupancy winners, with a combined gain of more than 6.7 million square feet (35.8 percent of total Q4 absorption). A strong turnout by technology, banking and financial services industries supported these achievements, contributing 32.7 percent of the nation’s leasing volume during Q4 alone.
Even with 44.2 million square feet of new U.S. office supply, 63.4 percent was preleased and additional corporate growth pushed the overall office market vacancy rate down to its lowest point in eight years, dropping 40 basis points during fourth quarter to end 2015 at 14.7 percent. Five markets exceeded this benchmark, falling into single digit vacancy. These include: Salt Lake City (6.4 percent), Nashville (6.7 percent), San Francisco (8.2 percent) and New York (9.6 percent).
Rent Growth Won’t Stop
Landlord leverage also continued to build in Q4 as properties filled and rents improved to a national average of $31.28 per square foot. A 2.3 percent rent growth represented the largest quarterly jump so far this cycle. CBDs led this charge, holding their position as the preferred location for many tenants. This was reflected in a Q4 CBD office vacancy rate of 12.1 percent and 3.3 percent rent growth – compared to 1.5 percent for suburban space. However, an annual total rent growth of 8.5 percent in CBDs and 7.0 percent in the suburbs is allowing landlords across the U.S. to make broad and consistent headway.
This is particularly true in Sun Belt cities. Jacksonville, Phoenix, Tampa Bay and Orange County posted the greatest Q4 growth at an average 4.4 percent.
“Leasing activity throughout Florida remains robust,” said John Gilbert, Managing Director of JLL’s Agency Leasing in Orlando. “With few large blocks of available space, strong tenant demand and very little new construction, rents are expected to continue to rise through 2016.”
As the office market ventures into 2016, even the bad news is relatively good. For example, although nine markets posted absorption losses in the fourth quarter—some of those being Fairfield County, Westchester County, New York, Houston and Milwaukee—a counter-tide of economic and employment activity still held year-to-date losses to just 1.1 million square feet.
“We still have a few things to watch for, including impact from the Fed’s recent interest rate increase and turmoil in the global economy, but in general the outlook for 2016 is very optimistic. Corporate expansion will continue and landlords will enjoy further tightening in the market,” adds Georgules.  “New construction will go a long way toward meeting demand but tenants must still contend with rising rents and an increasingly competitive environment in the near term.”
To view the Q4 Office statistics, please visit JLL’s full Q4 2015 U.S. Office Outlook.  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. A Fortune 500 company 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 $57.2 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