Savills Studley Research
National
Savills Studley Report
National office sector
Q3 2014
SUMMARY
Market Highlights
AVAILABILITY RATES DECLINE
The national overall availability rate remained
on a downward path, dropping for the
quarter by 0.4 pp to 16.9%. The only
markets to post increases in their rates were
Orange County (+0.3 pp) and New Jersey
(+0.5 pp). Declines of one percentage point
of more occurred in Tampa Bay (-1.0 pp),
Denver (-1.1 pp) and Silicon Valley (-1.2 pp).
The national Class A availability rate also
continued to fall, by 0.4 pp to 17.8%. Rates
were flat in Dallas/Fort Worth and Northern
Virginia; they inched up by 0.1 pp in Orange
County and by 0.2 pp in New Jersey. All
other markets reported decreases, the
greatest of which took place in Denver (-1.0
pp), Silicon Valley (-1.0 pp) and Tampa Bay
(-1.4 pp).
OVERALL RENT RISES
On a quarterly comparison, the national
overall rental rate rose by 0.5% to $32.81.
New Jersey (-0.3%) and San Diego (-1.0%)
were the only markets to witness declines
in their rates. Rates increased most
substantially in Orange County (+2.2%),
Tampa Bay (+2.9% ) and Silicon Valley (+4.4
%). Reversing a trend, the national Class
A rental rate dropped (-0.2% to $35.61). It
dipped most notably in Silicon Valley (-1.7%)
but soared in Tampa Bay (+5.1%).
“As more businesses
search for balance
between a skilled
workforce and affordable
locations, they are
setting up operations in
urbanized suburbs.”
Keith DeCoster
Savills Studley Research
Savills Studley Report | National
Talent and Cost
Office-Using Employment Trends
Millions
4.0%
30
2.0%
2009
29
0.0%
28
-2.0%
27
-4.0%
26
National Office Emp.
U.S. - % Annual Change
2014
2013
2012
2011
2010
2008
2007
2006
2005
25
-6.0%
-8.0%
Source: Bureau of Labor Statistics
Availability Rate Trends
(%)
25%
20.6%
20%
15%
17.8%
17.2%
15.8%
10%
5%
0%
Class A
3Q09
3Q10
3Q11
Class B & C
3Q12
3Q13
3Q14
Asking Rent Trends
($/sf)
$40
$30
$20
$35.61
$32.85
$28.46
$25.89
$10
Class A
$0
02
3Q09
3Q10
Class B & C
3Q11
3Q12
3Q13
3Q14
Heading into the final quarter of 2014, most
office markets are strengthening. The vigor
of the rebound varies widely but with a few
exceptions, steady job growth, sustained
leasing and limited new construction are
contributing to positive net absorption. While
leasing fundamentals have improved, most
tenants have multiple options to consider, and a
wider range of companies are pulling the trigger
on deals. This mobility is keeping owners on
their toes and keeping lease terms favorable.
Landlords typically have the greatest difficulty
in retaining their tenant rosters once a recovery
really starts to gain momentum. Cities and
states have been engaged in a similar employer
retention/recruitment campaign for the last
couple of years. In this competition, two sets of
markets – those that offer the most specialized
talent and those that provide substantially lower
costs of doing businesses – are outperforming
most others. In many ways, this is a reemergence of a familiar pattern, the segregation
of site selection into knowledge/talent centers
and lower-cost back office operations.
Based on the desire of tech and other
creative-sector tenants to hire millennials, it
has become nearly a given that talent centers
must be in an urban core. Companies that are
most concerned with recruiting, retaining and
energizing their younger workforce are almost
exclusively targeting areas such as SOMA in
San Francisco or Manhattan's Silicon Alley.
The urban playground outside the four walls
of the office space – the nightlife, restaurants,
universities and cultural diversity – is where
younger employees want to be and it has
become part of firm's recruiting package. For
companies that don’t have the wherewithal
to “Google-ize” their space by incorporating
equally appealing features, such extramural
attractions serve as a campus.
Urban cores are in the limelight, but the
suburban corporate campus is far from dead.
Google is tapping into talent in multiple CBDs,
but the mother ship is still in Mountain View,
California. Many suburban locations are
aggressively pursuing high-density development
strategies as they compete for employers,
development projects and residents. And they
are having some success. Top employers
such as State Farm, Exxon/Mobil and Charles
Schwab are anchoring the next set of “urban
suburbs.” They are signing massive build-tosuits in mixed-use complexes with extensive
new residential and retail product in areas such
as Central Perimeter in Atlanta, The Woodlands
in Houston, West Plano and Bloomfield in
Suburban Denver. State Farm, for example
will eventually have up to 8,000 employees
eventually at its 1.5 msf office campus in
CityLine in Richardson. Campuses such as
Q3 2014
State Farm’s will house and train thousands of
company employees, many who will live, shop
and play in the new neighborhoods being built
right around their offices. CityLine, will have
a total of 3.0 msf of office space, 92,000 sf of
retail, 1,370 residential units and 150 hotel
rooms.
Availability Rate Comparison
Availability Rate Comparison
San Francisco
8.1%
At the other end of the cost-spectrum are
secondary and tertiary markets such as
Lexington, Kentucky, or Tulsa, Oklahoma that
are luring back office operations from other
markets. These firms pale in comparison to
State Farm or Exxon/Mobil, but they have a big
impact in smaller markets. Currently Lexington’s
sixth-largest employer, Xerox could be the
second-largest after it adds 1,200 positions to
a customer service center. Data Exchange is
adding 250 employees to its Tulsa call center.
Areas such as suburban Chicago and New
Jersey are still struggling, but as the recovery
accelerates there may be enough growth for a
variety of markets, not just the CBD.
ATLANTA Availability rates have fallen in
Buckhead, Central Perimeter and North Fulton
but remain elevated elsewhere. Asking rents
are still growing only moderately, with stronger
increases in Central Perimeter and Buckhead.
CHICAGO Leasing patterns changed very
little as tech and creative-sector companies
remained active,. Tech companies have
focused most of their demand on Class B
and C properties. Leasing in such properties
significantly surpassed its five-year average.
DALLAS Steady demand has lowered
availability in some submarkets. However, the
region still has a lot of excess space and the
obstacles to new development are low enough
that most tenants can find favorable terms.
DENVER Growth in the energy, tech and
financial sectors is fueling steady demand for
office space. Tenants across more of the region
are running into more challenging conditions.
HOUSTON Leasing has downshifted into
cruise control as mid-sized leases have become
more prevalent. Due to a combination of recent
deliveries and hesitation among developers,
office construction pulled back.
New York City
New York City
10.9%
San Francisco
Silicon Valley
11.1%
Washington, DC
Philadelphia CBD
13.1%
Washington, DC
Atlanta, Phoenix, Dallas/Fort Worth and Denver
have captured many of these campuses
because they have something most CBDs
lack - a balance between talent and cost. All of
these markets have deep and affordable labor
pool that is increasingly skilled and educated.
In Phoenix, for example, nearly 25% of the
workforce over 25 has one college degree or
more, greater than the 20% rate in Los Angeles
(and twice the rate in Las Vegas).
Rental Rate
Comparison
Overall Rental Rate Comparison
14.2%
15.0%
Orange County
15.4%
US Index
$49.95
Silicon Valley
Chicago CBD
Denver Region
$69.98
$51.90
$38.25
Chicago CBD
$34.19
US Index
16.0%
Northern Virginia
$31.00
Los Angeles Region
$29.93
16.9%
Houston Region
17.9%
Los Angeles Region
17.9%
$32.81
San Diego
$28.84
Houston Region
$28.05
South Florida
$27.51
Philadelphia CBD
$26.52
South Florida
18.5%
Tampa Bay
18.7%
New Jersey
San Diego
19.1%
Orange County
$26.19
$24.53
Dallas/Ft Worth Region
21.1%
Denver Region
$23.35
Atlanta Region
21.2%
Dallas/Ft Worth Region
$21.61
Northern Virginia
21.4%
Atlanta Region
$21.11
New Jersey
(%)
0%
26.3%
10%
Tampa Bay
20%
30%
($/sf)
$21.09
$0 $10 $20 $30 $40 $50 $60 $70
Major Savills Studley Transactions
Tenant
Sq Feet
Address
Market Area
John Wiley & Sons
386,407
111 River St, Hoboken, NJ
Northern New Jersey
Blue Cross & Blue Shield of Georgia
235,000
Muscogee Technology Park, Columbus, GA
Atlanta
County Board of Arlington Cty Virginia
217,482
2100, 2110, 2120 Washington Blvd, Arlington, VA
Northern Virginia
Harman Becker Automotive Systems
188,042
39000 Country Club Dr, Farmington Hills, MI
Detroit
AMN Healthcare Services Inc
175,000
12400 High Bluff Dr, San Diego, CA
San Diego
Pharmaceutical Research Associates
142,679
9755 Ridge Dr, Lenexa, KS
Kansas City
US General Services Administration
113,494
126 Northpoint Dr, Houston , TX
Houston
Delaware North Companies Inc
109,345
250 Delaware Ave, Buffalo, NY
Buffalo
WellPoint Inc
102,000
1175 Main Street, Harrisonburg, VA
Virginia
Polsinelli PC
86,664
1401 Lawrence Street, Denver, CO
Denver
LOS ANGELES Hiring and leasing appear at
long last to be gaining momentum. Nonetheless,
given current market conditions, it remains an
ideal time for companies to negotiate a lease.
quarters. Center City and select suburban
submarkets continue to show positive
momentum on many fronts, including leasing,
rental rate growth and new construction.
NEW JERSEY Conditions have become more
SAN FRANCISCO Global tech giants and a
fluid in select submarkets and office parks.
Excluding a few spots, tenants have ample
options and can negotiate generous terms.
swarm of start-ups continue to chase talent and
space at a frenetic and dizzying pace. The faster
the merry-go-round goes, the more people
on the ride ask how much faster it can go and
when it will stop.
NEW YORK It is increasingly clear that
tenants are no longer attracted just to Lower
Manhattan’s cost differential; businesses are
drawn to the excitement and energy emanating
from the area. Companies in Midtown South are
systematically doubling and tripling their space.
In contrast, Midtown still lacks luster.
ORANGE COUNTY In general, tenants can
negotiate favorable lease terms as landlords
remain eager to retain tenants. Companies
seeking space in the very highest-caliber
buildings face more challenges.
PHILADELPHIA The market is building on the
moderate gains seen over the last several
SILICON VALLEY Tenants have a sense of
urgency and some top employers continued to
make pre-emptive strikes on properties. Fewer
mega-leases were completed but sales soared.
TAMPA BAY Energy has been building in the
real estate market for quite some time. Some of
the pent-up demand for office space seems to
be translating into leasing activity.
WASHINGTON, DC Concessions have not
receded as landlords strive to secure long-term
stability of their assets during a long period of
weakened demand for office space.
savills-studley.com/research
03
Savills Studley Report | National
Total
Leasing
Activity
SF
(1000's)
Last
12 Months
This
Quarter
%
Change
from
Last Qtr.
Year
Ago
This
Quarter
pp
Change
from
(1)
Last Qtr.
Year
Ago
This
Quarter
%
Change
from
Last Qtr.
Year
Ago
Atlanta
Atlanta - Class A
155,847
93,432
9,082
6,647
32,986
17,470
-2.6%
-3.4%
36,537
20,377
21.2%
18.7%
-0.6%
-0.7%
23.4%
21.8%
$21.11
$23.95
1.5%
1.5%
$20.43
$22.92
Chicago CBD
Chicago - Class A
144,596
66,381
8,487
3,131
21,734
9,507
-6.3%
-5.2%
24,814
10,644
15.0%
14.3%
-1.0%
-0.9%
17.7%
16.6%
$34.19
$38.36
0.6%
0.7%
$33.20
$37.44
Dallas/Fort Worth
Dallas/Fort Worth - Class A
207,535
104,666
15,927
10,286
43,706
23,191
-3.0%
-0.1%
44,785
22,656
21.1%
22.2%
-0.7%
0.0%
21.9%
22.2%
$21.61
$24.16
1.2%
0.8%
$20.73
$23.10
Denver
Denver - Class A
115,580
46,290
7,978
3,722
18,508
7,601
-6.4%
-5.8%
20,352
8,312
16.0%
16.4%
-1.1%
-1.0%
17.6%
18.0%
$23.35
$27.43
0.4%
0.3%
$22.34
$26.25
South Florida
South Florida - Class A
112,796
51,718
7,086
3,935
20,825
9,524
-1.7%
-1.8%
23,939
11,330
18.5%
18.4%
-0.3%
-0.3%
21.2%
21.9%
$27.51
$31.87
0.7%
0.6%
$26.94
$30.76
Houston
Houston - Class A
Los Angeles
Los Angeles - Class A
185,005
97,542
213,024
155,245
13,859
8,143
13,973
11,079
33,035
17,087
38,178
30,338
-2.5%
-2.7%
-2.0%
-2.0%
31,190
13,245
41,258
32,000
17.9%
17.5%
17.9%
19.5%
-0.6%
-0.7%
-0.4%
-0.4%
17.6%
14.7%
19.4%
20.6%
$28.05
$34.87
$29.93
$31.10
1.0%
-0.9%
0.3%
0.2%
$24.38
$31.40
$28.93
$30.10
New Jersey
New Jersey - Class A
150,701
121,948
7,785
6,919
39,667
30,824
3.0%
0.8%
41,792
32,098
26.3%
25.3%
0.5%
0.2%
27.6%
26.3%
$26.19
$27.02
-0.3%
-0.4%
$25.36
$26.55
New York
New York - Class A
434,314
201,173
41,736
18,790
47,467
25,253
-3.4%
-6.1%
54,057
30,857
10.9%
12.6%
-0.4%
-0.8%
12.5%
15.0%
$69.98
$76.94
0.7%
0.5%
$60.80
$66.91
Orange County
Orange County - Class A
94,531
50,060
46,863
29,162
65,425
27,978
81,401
49,179
71,513
20,093
53,313
23,675
168,582
97,094
130,518
73,527
6,777
4,400
3,284
2,006
6,169
2,890
9,223
6,027
6,457
2,316
3,917
2,116
9,895
6,228
9,143
6,606
14,557
9,931
6,143
3,838
12,524
4,677
6,628
4,036
7,904
2,012
9,961
3,816
36,091
21,818
18,486
10,721
2.0%
0.5%
-1.1%
-3.2%
-1.1%
-3.2%
-4.1%
-7.3%
-8.7%
-5.3%
-4.8%
-8.1%
-0.9%
0.0%
-1.7%
-2.1%
14,966
10,312
6,582
4,113
12,607
4,742
9,354
5,288
9,032
2,998
11,176
4,682
35,509
21,216
18,243
10,378
15.4%
19.8%
13.1%
13.2%
19.1%
16.7%
8.1%
8.2%
11.1%
10.0%
18.7%
16.1%
21.4%
22.5%
14.2%
14.6%
0.3%
0.1%
-0.1%
-0.4%
-0.2%
-0.6%
-0.3%
-0.6%
-1.2%
-1.0%
-1.0%
-1.4%
-0.2%
0.0%
-0.2%
-0.3%
15.8%
20.6%
14.0%
14.1%
19.4%
17.2%
11.6%
11.1%
12.9%
17.1%
21.0%
19.8%
21.1%
21.9%
14.1%
14.3%
$24.53
$25.77
$26.52
$28.71
$28.84
$34.30
$51.90
$54.86
$38.25
$42.91
$21.09
$24.53
$31.00
$32.74
$49.95
$54.79
2.2%
1.9%
0.9%
0.8%
-1.0%
0.1%
0.6%
0.8%
4.4%
-1.7%
2.9%
5.1%
1.0%
1.2%
0.4%
0.2%
$22.98
$23.95
$25.51
$27.41
$27.40
$32.41
$48.95
$51.47
$31.90
$34.42
$20.06
$22.77
$30.66
$32.36
$45.78
$47.94
2,565,763
1,388,443
188,277
110,302
434,113
247,642
-2.2%
-2.3%
461,622
261,219
16.9%
17.8%
-0.4%
-0.4%
18.1%
19.0%
$32.81
$35.61
0.5%
-0.2%
$30.93
$33.87
Map
Submarket
Philadelphia CBD
Philadelphia - Class A
San Diego
San Diego - Class A
San Francisco
San Francisco - Class A
Silicon Valley
Silicon Valley - Class A
Tampa Bay
Tampa Bay - Class A
Northern Virginia
Northern Virginia - Class A
Washington, D.C.
Washington, D.C. - Class A
Savills Studley Major Markets - Class A
Savills Studley Major Markets Total - Class A
Available
SF
Availability
Rate
Asking Rents
Per SF
Please contact us for further information
Savills Studley
399 Park Avenue
New York, NY 10022
(212) 326-1000
Chairman & CEO
Mitchell S. Steir
[email protected]
(212) 326-1000
Corporate Research Contact
Steve Coutts - SVP, National Research
[email protected]
(212) 326-8610
(1) Percentage point change for availability rates.
Unless otherwise noted, all rents quoted throughout this report are average asking gross (full service) rents psf.
Statistics are calculated using both direct and sublease information.
Short-term sublet spaces (terms under two years) were excluded.
The information in this report is obtained from sources deemed reliable, but no representation
is made as to the accuracy thereof. Statistics compiled with the support of The CoStar Group.
Copyright © 2014 Savills Studley
04
www.savills-studley.com
@SavillsStudley