Moderator and Panelists - NAIOP

NAIOP O.CON Conference in Houston, Texas June 24‐25, 2015

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The Best Office Marketin America

Moderator and Panelists

Michael SchuerichArch-Con Corporation

Meade BoutwellCBRE

Chip ColvillColvill Office Properties

Paul FrazierBrookfield Property Partners

Dave MageeCommerce Real Estate Solutions

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The Best Office Market in America

Category San Francisco Houston New York Seattle

Market Size (sf)

37.8 Million 271 Million (50 Million Downtown)

393 Million(87.5 million Downtown)

41.8 Million

Average Rate ($/SF) per Year

$70.65 $47.20 $57.58($74.40/$63.28)

$36.08

Rent Growth (%)

16.2% 5.4% 17%(7.7%/5.9%)

2.5%

Vacancy Rate (%)

7.0% 12.5% 10.4% 9.3%

Under Construction (sf)

4.42 Million SF 8.8 Million SF(1.6 M Downtown)

7.1 Million SF 6.28 Million SF

Employment Growth

Forecast: 1.6% Forecast 1.8% 107,000 jobs added

111,600 jobs added

The Best Office Market in AmericaMarket Overview & Comparison


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San Francisco

New office development pipelineNew supply unable to keep pace with demand for large blocks of space

0.0

0.3

0.5

0.8

1.0

1.3

1.5

155 FifthSt (Renov.)

680Folsom/50Hawthorne

505Howard

One Tenth(Renov.)

535Mission

340 Bryant(Conv. to

Office)

333Brannan

350Mission

222Second

270Brannan

390 Main(Renov.)

1600Owens

345Brannan

181Fremont

350 Bush/500 Pine

SalesforceTower

Mill

ions

Sq.

Ft.

Amount Pre-Leased Building Square Footage

2014 Completions1.8 MSF recently completed

(92% leased)

2016-17 Completions 2.2 MSF under construction

(32% pre-leased)

2015 Completions2.2 MSF under construction

(90% pre-leased)

Q1 2017Q1 2016

June 2015• 6.2 million sq. ft. under const./ completed

• 70% pre-leased (4.3 MSF)

UOP

Eventbrite

Riverbed

Macys.com

Athenahealth

NeustarPerkins

Coie

Twitter

TruliaWeWor

kTalkdes

kLibratoEnvivio

Dropbox Dropbo

x

Salesforce

SalesforceLinkedI

n

Splunk

MTCKaiser

Permanente


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Silicon valley venture capital fundingSoftware/Media-Entertainment is over 60% of all S.V. funding

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

$0

$5

$10

$15

$20

$25

$30

$35

$40

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD

Bill

ion

s

Silicon Valley Total Funding ($) S.V. Share of Total U.S. Funding (%) Software/Media-Entertainment Share of Total S.V. Funding (%)

Source: CBRE Research & PwC MoneyTree

Venture Capital Funding in Silicon Valley Historical Data (through Q1 2015)

Biggest Threats to Demand

• Housing

• Housing

• Housing


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Why San Francisco is the Best Office Market

• We attract and retain the most innovative people in the U.S.

– Water on three sides, and the Planning Commission on the fourth

– Great mass transit system– Multiple major industries, one is always growing– Most of the VC money is based here– Weather– Access to recreation/outdoors– Asia– Warriors, Giants, 49ers

Houston


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WHY Houston vs NY, Seattle, Boston and San Francisco?

Lower Cost of Living

-7.3

-5.2

-4.9

-3.8

-3.1

-2.8

6.9

9.5

13.0

13.3

35.0

35.1

35.4

37.7

50.4

53.8

-15.0 -5.0 5.0 15.0 25.0 35.0 45.0 55.0 65.0

Tampa

Houston

Detroit

Phoenix

Dallas

Atlanta

Chicago

Baltimore

Seattle

Miami

Washington DC

Los Angeles

San Diego

Boston

New York

San Francisco

Cost Of Living Index = 100


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Jobs Recovered Since Bottom of Recession

34.6%

76.1%

82.2%

83.5%

91.9%

110.3%

120.7%

140.7%

158.4%

159.4%

160.3%

174.8%

204.1%

204.2%

278.3%

381.6%

0.0% 50.0% 100.0% 150.0% 200.0% 250.0% 300.0% 350.0% 400.0% 450.0%

Detroit

Tampa

Phoenix

Chicago

Los Angeles

Miami

Atlanta

San Diego

Seattle

Baltimore

New York

San Francisco

Washington DC

Boston

Dallas

Houston

% of Jobs Recovered through December 2014

Lower & Less Volatile Home Prices

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Boston-Cambridge-Quincy, MA-NH Houston-Baytown-Sugar Land, TX

New York-Wayne-White Plains, NY-NJ San Francisco-Oakland-Fremont, CA

Seattle-Tacoma-Bellevue, WA


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Great things happen in Houston…

The Texas Medical CenterWorld’s largest medical complex:

45.8 million SF comprised of 290 buildings and 27,500 parking spaces.

21 Renowned Hospitals8 Academic & Research Institutions

6 Nursing Programs3 Public Health Organizations

3 Medical Schools2 Universities

2 Pharmacy Schools

The Port of Houston25-mile-long complex of public terminals and over 150 private facilities. Each year, more than 200 million tons

move through the port carried by more than 8,000 vessels and 200,000 barge calls.

U.S. Rankings1st in foreign waterborne tonnage

1st in imports1st in exports

MillennialsAges 18-34 / 24% of total population

25% increase in the number of Millennials 2010-2013Among the top 10 cities nationally with the fastest-growing

Millennial populationsHigh-rise and walkability

Lower cost of livingPlentiful and flexible work arrangements

Fortune 500 Companies26 companies on the 2015 Fortune 500 list are

headquartered in Houston3rd in U.S. behind New York and Chicago, ahead of Dallas,

Atlanta, Los Angeles and San FranciscoNewest move is Occidental Petroleum 2015

from Los Angeles

Energy Capital of the World5,000 energy-related businesses in Houston

Home to 40 of the nation’s 134 publicly traded oil and gas exploration and production firms including 10 of the top 25.9 refineries process more than 2.3 million barrels of oil each day – 50%

of the Texas total production and 13.2% of the total U.S. capacityAs of YE 2014, Houston held:

31.6% of the nation’s jobs in oil and gas extraction16.1% of the nation’s jobs in support activities for mining


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The Houston Market

Office Market Size 271 Million SF (6,785 buildings)

Vacancy Rate 12.5%

Under Construction 8.8 Million SF (+3.5 Million SF owner-occupied)

% Preleased 50%

10-YR Annual Average Historical Absorption 4.4 Million SF

10-YR Annual Average Employment Growth 2.3%

2015 Forecasted Employment Growth 55,000 Jobs – 1.8%

Class A CBD Rental Rate (FSG) $47.20 ($31.19 NNN / $16.01 OpEx)

Class A CBD % Rent Growth Y-O-Y 5.4%

Bullish on Houston… You bet!


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4th Largest City / 5th Largest Metro

2.19 Million City / 6.3 Million MSA

2.9 Million Payroll Jobs

more than 36 other U.S. States

$522.9 Billion in 2013 GDP

23rd Largest World Economy, Greater than Norway or Venezuela

26 Fortune 500 Companies

New York (72) and Chicago (30)

10,000+ Square Miles…

Larger than New Hampshire

New York


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New York Market Update

Downtown – New York

Category Downtown NY

Market Size (sf) 87.5 million

Average Rate ($/SF) $57.58

Rent Growth (%) 17% (year over year Q1 2014 – Q1 2015)

Vacancy Rate (%) 10.4%


7.1 msf

Projects underdevelopment

World Trade Center – 7.1 million SF


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Midtown – New York

Category Midtown

Market Size (sf) 239.7 million SF


Rent Growth (%) 7.7% (year over year Q1 2014 – Q1 2015)



1.15 msf

Projects under development

425 Park – 675,000 SF7 Bryant Park – 472,000 SF

Midtown South – New York

Category Midtown

Market Size (sf) 66.6 million SF


Rent Growth (%) 5.9% (year over year Q1 2014 – Q1 2015)


Under Construction (sf) 6.3 msf

Projects under development Manhattan West – 2 million SFHudson Yards – 1.7 million SF

Manhattan West

Hudson Yards


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Market Summary

• Surge of new development due to the need for new space:– The average age of the existing buildings in NYC is 70 years old– Design standards have improved (i.e. greater efficiency and technology)

• Development costs– Costs are currently $1,000 - $1,100 per SF and rising

• Demand drivers for development– TAMI (Technology, Advertising, Media and Information) tenants

• Threats to the market– Current administration (anti-business, anti-police, crime and overall quality

of life)– Overbuilding

Why New York is the best office market

• Financial capital of the World• Quality of life• Steady growth• Financial services sector has not begun to grow

again. When it does, demand will increase


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Seattle

Seattle


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billionaires

booksbands

biotechbytes

bootsboats

brew

boeing


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Discussion

Make this session what you need it to be

-- Ask the Question

Please proceed to one of the standing microphones.

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Thank You!

We’ll see you in Toronto for the Commercial Real Estate Conference!

Moderator and Panelists - NAIOP

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