Q2 Investment Outlook: Office Highlights

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While core investment is trending up in secondary markets, primary markets and expanding large deal activity are driving office investment. The following are highlights from the Office section of JLL’s Q2 U.S. Investment Outlook.

 

Leasing activity surges as scientific and technical companies continue to grow

  • More than 40.0 percent of all office leases 20,000 square feet and larger signed during the quarter represent growth, a trend that has persisted over the past four quarters and is expected to continue amidst a growing economy.

 

New supply providing new opportunity as occupier confidence and plans for expansion increase

  • Of the 52.9 million square feet of speculative developments under way, only 29.8 percent or 15.8 million square feet have been pre-leased, presenting opportunities for tenants amidst an expanding corporate orientation to recruitment, growth and business development.

Increasing office investment activity across primary, secondary markets drives 46.2 percent growth year-to-date

  • U.S. office investment activity reached $39.2 billion in the second quarter, representing year-over-year growth of 46.2 percent and further supporting full-year growth forecasts of 20.0 percent.

Pace of primary market investment growth increases… although driven by a smaller subset of markets

  • Year-to-date, primary markets are up 55.3 percent, positioning the market segment to outperform 2014 deal flow with average cap rates stable at 4.6 percent.

Growth of large office investment sale activity paralleling rise of portfolio and partial interest deals

  • The large office transaction segment, defined as those greater than $500 million, is up 80.8 percent at mid-year, exhibiting expanding liquidity for office deals of this threshold.

Diversification into core secondary product continues

  • Secondary markets have grown 44.0 percent year-to-date, demonstrating the continued diversification outside primary markets.
  • Growing secondary market deal flow was largely driven by Atlanta, New Jersey, Philadelphia, San Diego and Phoenix this quarter, which accounted for half of all secondary market activity.

Asian-based capital, notably from China, driving quarterly foreign investment

  • Foreign demand for U.S. office real estate continues to expand with investment up 57.1 percent year-to-date. At this trajectory, foreign investment is on track to see its highest level since 2007.
  • Foreign capital remains focused on high quality core and select core-plus assets with occupancy averaging 90.0 percent.
  • Foreign capital is active for select top assets in secondary markets. This notably was exhibited in transactions in Phoenix and Miami this quarter.

Click here to view the entire JLL’s Q2 U.S. Investment Outlook report. For more information about JLL’s office investment services, contact:
Desmond_DennisDennis Desmond
Senior Managing Director
+1 602 282 6246
Email Dennis

 

Ackerman_Brian-Color-v2Brian Ackerman
Senior Vice President
+1 602 282 6247
Email Brian

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