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AMERICAS OFFICE TRENDS REPORT February 2017

February 2017

Americas
Office Trends

The Americas office markets are at varying points in the cycle depending on each
markets unique demand drivers and the amount of new supply coming online.
The outcome of the U.S. presidential election has added some uncertainty to the
Americas economic outlook. However, the increasingly tight and expensive labor
market will likely have a greater impact on the overall office market in 2017.
Strong office-using job growth in the U.S. continues to drive overall tenant
demand, resulting in the vacancy rate dropping below 13% in Q4 2016 for the first
time since 2008.
The previously lagging suburban market is gaining steam due to strengthening
tenant demand and low levels of new supply in many markets, whereas slowdowns
in several Tier-1 downtown markets drove up the overall downtown vacancy rate
for the past few quarters.

The Canadian market is bifurcated: There is less tenant demand stemming from
oil price declines and ongoing construction completions in the Calgary and
Edmonton markets, while the downtown Toronto and Vancouver office markets
remain among the tightest in North America.

In Mexico City, record absorption in 2016 caused the office market to tighten in Q4
2016 despite a very active development pipeline.
AMERICAS OFFICE TRENDS REPORT February 2017

Perspectives
This report reflects current observations and sentiments
from more than 1,500 CBRE Office Advisory & Transaction
and Investment professionals in the Americas.
U.S. TENANT / USER PERSPECTIVES

Tenants across geographies and industries are The technology, life sciences and healthcare
implementing wellness programs and exploring industries remain active, while low oil prices
alternate workplace strategies to maximize continue to impact a select few submarkets with
efficiencies and collaboration. outsized exposure to oil and gas tenants.
In some markets where rents have yet to reach Companies continue to seek renovated ware-
levels supporting new construction, tenants are house and other non-traditional buildings that
increasingly challenged in finding large, availa- offer ample amenities.
ble blocks of Class-A space.

U.S. LANDLORD / OWNER PERSPECTIVES

Vacancy rates are decreasing in most markets, Landlords are implementing major capital
benefiting landlords. improvement programs in some markets to
Net absorption remains positive in most down- remain competitive with new buildings and
town and suburban markets. respond to tenant demand for amenity-rich,
Construction activity remains highly concentrat- highly efficient space.
ed in markets where tenant demand and rent Parking remains a challenge in many markets
growth have been robust, with the top five due to denser employee layouts, requiring
markets for construction underway accounting creative solutions such as tenant ridesharing
for 45% of all U.S. construction activity. programs to improve marketability.

U.S. CAPITAL MARKETS PERSPECTIVES

U.S. office investment totaled $40.7 billion in Q4 Office acquisitions by cross-border buyers
2016, the highest quarterly volume of the year. increased by 5% in 2016 to $31.5 billion, but
Total volume in 2016 was $141.7 billionthe decreased by 20% quarter-over-quarter in Q4
second highest since 2007, albeit 6% below 2016. Germany, Canada, China, South Korea and
2015s record level. Qatar were the top five sources of inbound capital.
Investors had an increased appetite for risk in Office sales prices rose 10% year-over-year,
2016. CBD core/stabilized volumes in non-major according to preliminary estimates of the
metros (as defined by Real Capital Analytics) Moodys RCA CPPI (index based on repeat-sales
grew by 27% for the year. transactions). Despite rising interest rates in Q4,
Manhattan ($22.7 billion) recorded the highest cap rates rose marginally by 20 basis points (bps)
level of investment in 2016, followed by Los for the quartera trend corroborated by CBREs
Angeles ($11.3 billion), Boston ($7.9 billion) San H2 2016 Cap Rate Survey. Average cap rates for
Francisco ($7.7 billion) and Dallas ($6.3 billion). the year were 6.6%.

CBRE
Research 2017 CBRE, Inc. | 2
AMERICAS OFFICE TRENDS REPORT February 2017

U.S. REGIONAL PERSPECTIVES

U.S. NORTHEAST Due to a lack of high-quality, existing space and


Some Midtown Manhattan tenants are opting no construction currently underway, strong rent
for new buildings in emerging submarkets growth continues in Tampa.
rather than older buildings in prime locations. Vacancy rates are in the single digits in eight of
The two major drivers of the Downtown Manhat- Charlottes 11 submarkets, fueling robust
tan market have been large government transac- construction activity.
tions and the migration of TAMI (technology, Office development in Raleigh-Durham is
advertising, media and information) tenants concentrated in core submarkets that offer
looking for suitable, reasonably priced space. live-work-play environments.
Both out-of-state and suburban Boston tenants Large tenants are starting to explore Richmonds
continue to consider the Seaport and other lagging downtown market due to a lack of large,
downtown submarkets to access the citys large available blocks in the suburbs.
labor pool and public transit system. Companies in Memphis are consolidating
With high rents in premier suburban Philadel- employees in multiple offices into a single
phia submarkets such as Radnor and Consho- location.
hocken, some tenants are moving to lower-cost Office construction in Birmingham remains
areas such as King of Prussia. minimal due to rents not at the level needed for
Although most Hartford submarkets remain development activity.
favorable to tenants, buildings located near the
I-84 and I-91 interchanges as well as those in walk-
able, amenity-rich locations are outperforming. U.S. MIDWEST/SOUTH CENTRAL

As medical tenants move from standalone Chicagos CBD performed well in 2016, although
buildings to campuses, medical office buildings the markets balance may start to favor tenants
are being converted to traditional office use in in 2017 due to the large amount of new supply
Albany. scheduled for delivery.
Large corporate downsizings and mergers are Although Houston continued to struggle with
causing the addition of large blocks of sublet negative absorption and a high availability rate
space to the Wilmington market. in 2016, a recent decrease in sublease availability
Although there are large blocks of vacant space could signal a turning point for the market.
in Harrisburg, Class-A vacancy rates are very low Sustained strong tech tenant demand has kept
in some submarkets. the vacancy rate below 10% in Austins CBD,
Northwest and Southwest submarkets.
Although still a very active market, construction
U.S. SOUTHEAST slowed slightly in Dallas/Ft. Worth. The 6.7
The ongoing development of several profession- million sq. ft. underway at year-end 2016 was the
al sports venues has contributed to rising lowest total since 2014, and total square footage
construction costs in Atlanta. delivered during the year decreased from 2015.
Tightening market conditions in Miami are Energy, medical and tech tenants are driving
benefiting landlords, resulting in longer lease leasing activity in San Antonio.
terms and reduced concessions such as rent Detroit is benefiting from robust auto industry
abatement. growth, with most of the markets recent major
office deals by auto manufacturers, suppliers or
other related firms.

CBRE
Research 2017 CBRE, Inc. | 3
AMERICAS OFFICE TRENDS REPORT February 2017

U.S. REGIONAL PERSPECTIVES (CONT.)

In non-traditional markets adjacent to Cincin- Downsizings by insurance, law and advertising


natis CBD, where a significant amount of firms are offsetting positive activity by health-
residential and retail redevelopment occurred in care and hospitality firms in Hawaii, resulting in
recent years, creative office space now often com- a fairly stable market.
mands higher rents than downtown office
towers.
Conversions of obsolete office buildings to CANADA

apartments, hotels and other uses are reducing Attracting and retaining talent remain leading
office vacancy rates in many Midwest markets, enterprise priorities.
including Cleveland, Kansas City and Louisville. Technology drives demand across Canada,
comprising 24.7% of tenants in the market,
followed by financial services and creative
U.S. WEST industries, each comprising 13.3%.
An increase in sublease space in 2016 has New office completions totaled 9.0 million sq. ft.
resulted in good short-term, low-capex opportu- nationwide in 2016, with another 9.3 million sq.
nities for rapidly growing tech firms in San ft. under construction.
Francisco and San Jose. Downtown Toronto has the lowest downtown
Demand from biotech, social media and auto-re- vacancy rate in North America at 4.4% in Q4
lated innovation firms remains strong in San 2016.
Jose, with tenant demand focused on urban core Alberta continues to record rising vacancy rates
areas proximate to the Caltrain commuter rail. resulting from a struggling energy market.
Los Angeles continues to see an unprecedented
migration of tenants across traditionally defined
market boundaries, including the CBD, West Los MEXICO

Angeles, El Segundo and Burbank. Net absorption in Mexico City totaled 3.31
Tech growth has waned somewhat in Portland in million sq. ft. in 2016, a 1.5% increase from
recent months, with activity coming from more 2015s 3.26 million sq. ft.
traditional sources including architecture, Class-A office inventory totaled 59.3 million sq.
engineering, utility and athletic/outdoor compa- ft. in Q4 2016, and the vacancy rate decreased by
nies as well as local government. 70 bps from the previous quarter to 13.7%.
Downtown is the strongest submarket in the San Class-A projects under construction totaled 18.3
Diego metro area, with several large deals million sq. ft. in Q4, while completions totaled
recently completed by local government and a 433,000 sq. ft.
major co-working firm, along with interest from
other tenants.
Financial services firms are very active in
Phoenix and Tucson, with multiple recent
relocations and expansions.
Large blocks of Class-A space are in short supply
in Las Vegas and Reno due to strong demand for
this type of product in recent years and a lack of
new construction.

CBRE
Research 2017 CBRE, Inc. | 4
AMERICAS OFFICE TRENDS REPORT February 2017

CONTACTS

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Additional U.S. Research from CBRE can be found here.

FOR MORE INFORMATION, PLEASE CONTACT:

Scott Marshall Spencer G. Levy


Executive Managing Director Americas Head of Research
Advisory & Transaction Services | Investor Leasing +1 617 912 5236
+1 630 573 7026 spencer.levy@cbre.com
scott.marshall@cbre.com Follow Spencer on Twitter: @SpencerGLevy
Follow Scott on Twitter: @S_R_Marshall
Andrea Cross
Whitley Collins Americas Head of Office Research
Global President +1 415 772 0337
Occupier Advisory and Transaction Services andrea.cross@cbre.com
+1 310 363 4842 Follow Andrea on Twitter: @AndreaBCross
whitley.collins@cbre.com
Julie Whelan
Americas Head of Occupier Research
+1 617 912 5229
julie.whelan@cbre.com
Follow Julie on Twitter: @juliewhelancbre

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not
verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is
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