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JLL’s 2017 Skyline report reveals creative tenants returning to downtown offices
CHICAGO, July 18, 2017 – When it comes to premium office space, creative firms are doing what they do best: driving change. JLL’s 2017 Skyline shows that creative’s boomerang to this coveted space and the eighth straight year of occupancy growth are contributing to record rents and a landlord-friendly market.
Skyline is JLL’s annual look at office space within some of the tallest buildings in 57 markets across North America. Some highlights from this year’s edition include:
“We’ve seen an important shift in demand for skyline office buildings,” said Scott Homa, JLL Director of U.S. Office Research. “Traditionally law firms, financial institutions and other professional services groups were the main drivers of leasing activity within Skyline buildings. Today, a lack of creative space in more unique and eclectic neighborhoods is drawing technology, advertising, media and information companies into more traditional business districts and high-rise office buildings.”
Landlords on top, for now
The net change in occupied space, also called net absorption, jumped to 8.3 million square feet – more than five times what it was a year ago. However, we expect eight straight years of skyline occupancy growth to ease soon as the market prepares for several large blocks of space to become available.
Skyline vacancy sits at 12.9 percent – well below the overall national average of 14.5 percent. Just 10 percent of trophy space (think Chicago’s Willis Tower and New York’s One World Trade Center) is available, giving landlords the upper hand. But that may change as we see a slow rise in vacancy in 2018.
A rising tide lifts all boats
Tenants still want that skyline caché, which is why rents jumped to a record $44.55 per square foot on average. For those coveted few Trophy spaces, that premium goes to $57.84 per square foot. New York stands above all others with an average skyline rent of $87.90 per square foot. Nashville hit a high note with the biggest year-over-year rent growth (+27.4 percent).
Buyers selectively target the skyline
“Skyline assets continue to provide stable value, making them an incredibly attractive option for investors,” said Jonathan Geanakos, President, Americas JLL Capital Markets. “We’ve also seen a large increase in foreign investment into some of the trophy properties included in our skyline portfolio over the last year and the beginning of this year. In addition, both foreign and domestic investors are finding secondary market real estate to be more readily available and at a relative discount.”
So, just how much do investors love the Skyline?
Getting quieter on the construction front
A healthy 34.7 million square feet of skyline space remains in the construction pipeline, but activity is down 8.3 percent since the end of 2016. The delivery of several large projects and a tightening in construction lending are the main factors.
With the pipeline extending all the way into 2021 –15 million square feet is set to deliver in 2018 alone – and the potential for slower economic growth, we expect the skyline to shift to neutral territory for landlords and tenants.
About the Skyline
Investors and tenants can access JLL’s Skyline via a digital platform. The interactive website features JLL’s exclusive market insights regarding office supply, demand, rents, leverage and investment into 57 markets across the United States and Canada. It gives users the ability to compare and contrast individual markets or multiples of markets as well as individual properties or portfolios. In addition, the site offers videos and infographics, all of which are available via mobile access.
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About JLLJLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At the end of the first quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 78,000. As of March 31, 2017, LaSalle Investment Management has $58 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit http://www.jll.com/.
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