Where are the most expensive U.S. office rents?

Fall 2016jll.com/skyline

2

Houston

10$47.43 p.s.f.*

A rapid increase in sublease space and an economic freeze caused by energy sector turbulence has pushed rents downward across most city submarkets, including the CBD. Altogether, more than 12 million square feet of space has hit the market in the past two years alone. Law firms and professional service tenants seeking quality space are taking high-priced blocks off the market, but that’s leaving available space with no short-term tenant demand.

*Direct average asking rent for Skyline properties. Data is from November 2016.

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3

Seattle

*Direct average asking rent for Skyline properties. Data is from November 2016.

9 $48.58 p.s.f.*

Rents will maintain their upward momentum across Seattle as demand continues to outpace supply. Direct asking rents in Q3 were up more than $5.00 per square foot from their Q2 levels. Rates currently stand at $48.58 per square foot on average. The market is seeing an intense level of development but new space comes at a marked premium. Although tech companies typically prefer mid-rise and creative settings, many larger users have moved to the Skyline segment of the market, with landlords responding to this demand by improving in-building amenities and repositioning second-generation Skyline space.

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4

Stamford

*Direct average asking rent for Skyline properties. Data is from November 2016.

8 $49.50 p.s.f.*

Financial services are playing a major role in the evolution of Stamford’s Skyline market. Limited supply and high land and business costs are also driving up rent prices to above-average levels. Direct vacancy is now at 13.4 percent, a significant drop from a recession high of 28.3 percent.

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5

Austin

*Direct average asking rent for Skyline properties. Data is from November 2016.

7 $54.86 p.s.f.*

Severe supply constraints and the combination of rapid population and employment growth have pushed rent increases in Austin to a level seen by only a select few U.S. office markets. The market’s supply-demand imbalance will keep it landlord-favorable over the short-term, but an expected slowdown in tech expansion over the next few years will eventually bring it back into balance. Overall market fundamentals have led to an increase in investor activity, though the development pipeline is mostly limited to Trammell Crow’s 500 W 2nd Street project.

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6

Oakland

*Direct average asking rent for Skyline properties. Data is from November 2016.

6 $57.00 p.s.f.*

While Oakland’s not usually known as a high-rent market, rents are on the rise due to a lack of new construction and spillover from San Francisco. Both the overall market and Skyline segment have seen double-digit rent growth as a result. The direct average asking rent took a major quarterly jump, moving from $51.00 per square foot in Q2 to $75.00 per square foot in Q3. Even though that level of rate increase will likely be slower going forward, rents should continue to rise as the affordability ceiling is reached and the remaining blocks are filled.

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7

Century City

*Direct average asking rent for Skyline properties. Data is from November 2016.

5 $57.84 p.s.f.*

While rents are rising all across the Los Angeles metro area, Century City is emerging as one of the highest-priced submarkets in the entire city. Overall metro growth has been driven by digital media, tech and entertainment, which opt for non-Skyline space in submarkets with concentrations of creative tenants. We expect vacancy to remain on a slower downward track, with legal, financial and professional services tenants being the primary players due to a lack of amenities desired by high-growth industries.

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8

Boston

*Direct average asking rent for Skyline properties. Data is from November 2016.

4 $61.25 p.s.f.*

Boston remains one of the top U.S. Skyline markets in terms of rents, demand and real estate investment thanks to its established status as a financial, education, health and tech hub. Limited supply and high land values are playing their usual role in asking rent increases with new supply coming to market in the Seaport District also impacting rent prices. That product is already commanding a significant premium to traditional Skyline product.

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9

San Francisco

*Direct average asking rent for Skyline properties. Data is from November 2016.

3 $75.49 p.s.f.*

Skyline rents will continue to grow as positive market demand remains in place, but expect the rate of increase to slow or flatten altogether along with the tech industry’s annual growth levels. New construction will bring new high-priced blocks to the market, which will eventually soften conditions and shift leverage from landlords back to neutral territory in 2018.

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10

Washington, DC

*Direct average asking rent for Skyline properties. Data is from November 2016.

2 $81.33 p.s.f.*

Bouncing back from a sequestration-driven slowdown, average full-service rents for new construction in Washington, DC now exceed $80.00 per square foot, with demand and supply in lockstep. After rising steadily in recent years, Washington, DC Skyline asking rents are expected to flatline, or even decrease slightly, over the next few years as a wave of construction starts result in more than 5.5 million square feet of top-tier supply coming to the market through 2020. As the Skyline market is dominated by law firms, which remain in rightsizing mode, this will likely lead to some degree of oversupply depending on market conditions and economic performance. The market’s status as a highly stable investment location will also keep rents up, with 15 Skyline properties trading for more than $800.00 per square foot since 2011; half of these deals took place within the past 24 months.

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11

New York City

*Direct average asking rent for Skyline properties. Data is from November 2016.

1 $86.75 p.s.f.*

Though it tops our list of most expensive Skyline markets, rent growth across New York City has been hampered by the slow growth of traditional drivers like hedge funds and law firms. While there will still be pockets of growth, these will be countered by increases in supply elsewhere. Rents of more than $100 per square foot are moving to non-Skyline locations as part of a broader shift within the New York office market. Midtown South, for example, is seeing record-high rent prices amid tight availability.

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