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News release

RICHMOND, VA

Richmond’s Skyline Office Space Commands Top Dollar, But Rent Growth Expected to Moderate

Richmond Skyline Market to Remain Tenant Favorable Through 2017


RICHMOND, VA, July 18, 2016 – Rents for the office buildings that make up the Richmond's Skyline market have climbed to $25.03 per square foot, 31.0 percent higher than the Richmond average $19.11 per square foot for the overall office market.  And rents for trophies (those ultra-premium office towers within the Skyline) are even pricier at $30.00 to $32.00 per square foot, full service. But JLL's 2016 Skyline shows that rent growth may be moderating.

Skyline Review of Richmond includes Class A and Trophy buildings that are over 90,000 square feet and meet one or more of the following criteria: built or significant renovations since 1978, high-profile location, recognized tenant profile and/or architectural significance.

"The Trophy market is somewhat tight, but overall, the Richmond Skyline has hit its cyclical low," said JLL Managing Director Charlie Polk. "Concessions continue to be a larger part of the negotiation process and a mid-size tenant has plenty of relocation options when surveying availabilities downtown. Despite the multi-year supply of vacant Class A and Trophy office space on hand, residential density in the CBD and the surrounding submarkets continued to increase, particularly given the rise in young professionals. This may create a slight uptick in demand as Richmond companies cater to the shifting demographics within their own organization." 

According to the report, downtown Richmond's largest tenants continue to swap their older, multi-generational office space for new towers in the CBD. While demand from Richmond's financial services firms initially fueled efforts to backfill over 300,000 square feet vacated by law firms in the past three years, space requirements from that industry have tapered. To attract tenants some landlords began blending parking costs into contracted rental rates. In some cases, pushing effective base rents 23.8 percent below asking when extracting market parking costs. 

Also impacting the Skyline set is the growing demand for creative office space. Rather than opting for suites inside the CBD's signature towers, financial, high-tech, and professional business service firms have been scouring the market for brick-and-beam aesthetics in smaller buildings outside the core CBD boundaries.  While these requirements have generally been smaller in size, collectively they have made up a significant porting of leasing activity within the urban office landscape. 

Despite rising availability rates, investors have not been deterred from acquiring both core and value-add opportunities in the Skyline. Bullish on long-term urban performance, pro forma cap rates for high-vacancy, Class A towers is at about 9 percent, only 120 basis point above actual cap rates recorded for core asset trades.

About the Skyline Review
Investors and tenants alike can access JLL's Skyline via a digital platform.  The fully interactive website will feature JLL's proprietary market insights regarding office supply, demand, rents, leverage and investment into 52 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiples of markets as well as individual properties or portfolios.  In addition, the site will offer videos and infographics. All information will also be available via mobile access.

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 $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 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.