A Quick Look at the U.S. Office Market

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By Gregory Green
President, Agency Leasing (U.S.)
Jones Lang LaSalle

Hot Markets for Leasing:
The hottest office markets in the U.S., from a leasing perspective, are currently the technology markets (Silicon Valley, San Francisco, Seattle, and Midtown South in Manhattan) and the energy markets (Houston, Denver). Due to the positive net absorption in these markets and increased demand by tenants, there is spec construction occurring and/or planned. With the U.S. economy inching back to improved health, along with continued growth and investment in the technology and energy sectors, these markets are expected to remain vibrant for the foreseeable future.  Look out for some of the markets in the sunbelt finally starting to see increased activity as well as the housing market recovery progresses and demographic advantages reemerge.

Hot Markets for Investors:
From an investor’s perspective, the hottest market in the U.S. is New York City (pictured above), driven largely by inexpensive financing and foreign investors seeking yield. Several deals valued in excess of $1billion have recently traded, despite the fact that the rents in Manhattan are relatively flat on average and the financial industry is not expanding. After New York City, investors remain focused on investing in the gateway markets of Los Angeles, San Francisco, Boston, and DC, with increasing interest in the next tranche including Seattle, Silicon Valley, Houston, Chicago, Denver and Miami.  There’s no doubt that pricing and tremendous competition in the primary markets are pushing investors farther out the risk spectrum in search of yield, both to stabilized buildings in secondary and tertiary markets and more value add product in core markets.

Buildings That Lease:
As a broad statement, buildings that lease well nationally include those offering nearby transportation, a technology edge on the exterior and in the lobby, pre-builts—including tech pre-builts, numerous amenities, and flexibility in the lease options. Tenants are seeking urbanized, live-work-play environments that help attract and retain educated labor from the emerging millennial generation.  As a result, trophy and creative CBD buildings have generally outpaced commodity and suburban office product in occupancy and rental gains so far in this recovery.  Tenants are driving to higher densities in less space to create efficiency gains, thus buildings with adequate systems, substantial power and, in the suburbs, excess parking, tend to lease well versus the competition. Amenities of interest remain wifi zones, vibrant lobbies, shared conference facilities, workout rooms, and bike storage, especially in cities.

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