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News release

CHICAGO, IL

Expansions Continue to Drive the U.S. Office Market

Fundamentals improve, according to JLL’s U.S. office statistics


CHICAGO, Oct. 3, 2016 – Since January, the U.S. office market has continued to record improved fundamentals and lingering uncertainty from 2015 has lessened as companies continue to grow and return to urban cores.  According to JLL's third quarter office statistics, nearly half (more than 47 percent) of all leases that exceeded 20,000 square feet were expansions.

Robust construction pipeline meets demand

Across the country and despite increasing labor market volatility, employment rates continued to rise and demand for premium office space has followed.  During the quarter, more than 12 million square feet of new construction projects were added to the pipeline, and tenants prove that] location and amenities matter. The Chicago Central Business District alone added 2.7 million square feet of new projects to bring its year-to-date pipeline to 8.3 million square feet, placing it among the top five markets for office development. While Chicago is a standout, New York, Dallas and Washington, D.C. lead the United States in development volume. 

"The United States continues to add jobs and because of that we continue to absorb space," said Julia Georgules, Vice President, JLL Research.  "What's been impressive, though, is that so far this year we are absorbing nearly as much space as is being delivered, and landlords have been able to maintain and grow rental rates as a result."

According to Georgules, preleasing activity has increased along with business expansion.  Overall, the nation now has seen a prelease rate of over 50 percent, up from 46.9 percent in the second quarter.  The top five preleased markets with more than one million square feet under construction include Philadelphia (77 percent), Nashville (70 percent), Dallas (68 percent), Houston (55 percent) and Silicon Valley (54.7 percent).

Expansions aren't a trend

Steady economic expansion has allowed companies to continue to expand, making a commitment to the market.   Both technology and banking and finance consistently outperform their industry partners.  In the third quarter, 19.3 percent of all leases were attributed to tech companies, with 9.7 of leases coming from the banking and finance industry.

However, economic growth isn't isolated within those industries.  The largest expansion in the third quarter was from publishing giant, Penguin Random House, for 603,000 square feet in New York.  Other notable activity includes Valve, who signed on for 223,000 square feet in Seattle.   

Outlook

"Market fundamentals remain largely landlord-favorable and we're near the low point of the cycle in terms of vacancy," said Georgules. "But we'll begin to see a shift in 2017 and 2018, with over 80 percent of markets returning to more neutral conditions as they work to absorb new construction deliveries."

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 $59.1 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.