U.S.

Research Report
TOP OFFICE METROS SNAPSHOT
Q3 2017

Another Solid Quarter for Office

as Fundamentals Hold Firm
Tech Sector Growth is the Key Demand Driver

Featured Highlights
>> Major office markets in the U.S. continued to show solid MARKET METRO CORE
ABSORPTION AVG RENT VACANCY
performance in Q3 2017. Rents held steady in eight of the 1-YR CBD CORE SUBMARKETS
(SF) ($)* RATE
OUTLOOK INVENTORY (SF)
10 leading markets and rose in two. Only three markets had
Manhattan: Midtown,
a rise in vacancy. However, growth has largely slowed and Manhattan, NY
Midtown South, 1,544,636 $72.72 6.2%
500,918,568
been replaced by stability. Downtown

CBD (D.C.), East End

>> A bifurcation in demand is emerging. Traditional office (D.C.), Capitol Hill
(D.C.), NoMa (D.C.),
tenants from the professional and business services sector Washington, D.C. Capitol Riverfront
-1,187,234 $47.90 14.6%
are increasingly in cost-containment mode. Some occupiers 185,462,288 (D.C.), Carlyle (D.C.),
R-B Corridor (NOVA),
are reducing their office footprints in pursuit of space Tysons Corner (NOVA),
efficiency, with law firms being a prime example. Bethesda (SubMD)

West Loop, Central

Chicago, IL
>> At the same time, the tech sector continues to expand at a 145,784,075
Loop, River North, East 376,264 $39.21 11.9%
Loop
torrid pace. Dropbox signed San Franciscos largest ever
CBD, Katy Freeway,
office lease and Amazon is still eating up space in multiple Houston, TX
West Loop (Galleria), -684,258 $34.84 20.6%
118,388,682
locations. These are just the leading examples. Additionally, Westchase

creative office space providersmost notably WeWorkare LA County, CA Downtown Los Angeles,
West Los Angeles, 877,100 $45.47 15.2%
increasing their presence in several markets with Boston a 113,572,200 Tri-Cities
leading example. Midtown, Buckhead,
Atlanta, GA
Central Perimeter, -161,272 $28.15 13.4%
100,816,345
>> Manhattan, the San Francisco Bay Area and Seattle continue Cumberland/Galleria

to lead the way. All have vacancy rates well below 10% Financial District (North
Financial District
and saw positive absorption in the third quarter. Rents are San Francisco & South Financial
Bay Area, CA District), SOMA (West 201,036 $82.89 6.5%
reaching new highs in San Franciscos Financial District. 93,759,830 SOMA & East SOMA),
Leasing activity in Manhattan is particularly strong and at the Palo Alto, Mountain
View, Sunnyvale
second highest year-to-date level seen in the past 10 years.
Dallas, TX Uptown, Preston Center
317,898 $31.00 12.1%
>> Two markets merit a note of cautionLos Angeles and 76,850,194 & Far North Dallas

Washington D.C. Both have a sizeable volume of new supply Back Bay, Financial
District, Charlestown,
seeing little leasing traction, in both recently completed Boston, MA Crosstown, Fenway/
-160,550 $56.21 10.8%
developments and projects underway. D.C. has been here 69,165,145 Kenmore, South
Station, North
before, but market indicators are not as healthy this Station, Seaport
time around. Seattle CBD, Lake
Seattle, WA Union, Pioneer Square,
613,093 $38.74 7.6%
62,370,471 Belltown, Queen Anne,
Ballard

* A quarterly rent change of +/-1% or less, is judged to be flat.

 >> Pre-leasing of high-end new office towers continues in
downtown Chicago. Fulton Market has established itself as a
credible and lower-cost option for tenants seeking creative
space in a desirable neighborhood.
>> Houston was battered by Hurricane Harvey in the third
quarter. Unlike housing and infrastructure, the office inventory
emerged relatively unscathed. However, both the office market
and the city will face significant challenges.
>> Dallas expansion may be slowing. Market indicators are still
>> Although average asking rents are holding steady at around
>> There are five major developments of more than 1 million
square feet underway, ranging from 1.6 to 2.9 million square
feet. The largest of these, due to deliver in 2018, is Silverstein
Properties 2.9 million square foot 3 World Trade Center in
the Downtown market, where 1.8 million square feet remains
available. The only other major project underway that is
mostly available is SL Greens 1.6 million square feet One
Vanderbilt in Midtown. However, this project is not due to
come online until 2020.

Washington, D.C.
solid, but the pace of major corporate locations and new
$48 per square foot, the Washington, D.C. market is facing a
campus developments appears to be tapering. However, rent
dual challenge from negative absorption and a high volume of
levels in its core, niche submarkets are still breaking records.
new construction. Third quarter net absorption was negative
1.2 million square feetalmost double the amount of the next
LOCAL INSIGHTS market with negative absorption (Houston.) At the same time,
D.C.s office vacancy rate moved up by 120 basis points to
>> The Manhattan office market remains one of the strongest in
Manhattan

14.6%the largest third quarter increase of all 10 markets

the U.S. with solid performance in Q3 2017. Net absorption
was over 1.5 million square feet, more than double the prior
quarter. Rents are holding firm and Manhattans office vacancy
rate of 6.2% is the lowest of the 10 markets discussed in this
report. Third quarter leasing volume at 9.5 million square feet
represented a 10% increase from the prior quarter. Combined
leasing activity for the first nine months of 2017, which stands
at 27.3 million square feet, is the second-highest total for the
corresponding period in the past 10 years.
>> Average asking rates stand at $72.70 per square foot, led by
Midtown where rents stand at $81.50 per square foot. Average
asking rents in Midtown South and Downtown ended the third
quarter at $66.10 and $63.20 respectively. The highest rental
rates in Manhattan, at over $90 per square foot, are in the
Plaza District and Hudson Yards/Manhattan West, with the
latter being driven by new office construction and high-end
retail and residential development.
>> Third quarter leasing activity was led by the FIRE (financial
services, insurance and real estate), TAMI (technology,
advertising, media and information firms) and public sectors
with each accounting for around 20% of space leased. The
higher than usual public sector share of leasing was due to
labor union 1199SEIUs 578,000-square-foot relocation to 498
Seventh Avenue in Midtown South.
>> In Midtowns largest new lease signed in the first nine months
of 2017, New York Presbyterian took 471,000 square feet at
237 Park Avenue, which is the largest healthcare sector lease
on record in Midtown. In addition, Amazon almost doubled
its Manhattan presence by leasing 360,000 square feet at 5
Manhattan West.
covered by this report.
>> New supply is the main culprit. There is 6.6 million square feet
under construction in the District alone, almost half of which
remains available. This is not a new phenomenon. A similar
volume of space was underway 10 years earlier in 2007 but
the market dynamics are different. Vacancy in the District
stood at 8.1% then compared to 11.8% percent now. It is
feasible that vacancy could rise to the mid-teens unless there
is a sudden uptick in demand. Developers face a balancing act
between securing tenants and limiting the impact on pro-
forma targets of providing rent abatements and high tenant
improvement incentives.
>> Federal downsizing continues to have a negative impact on
demand. D.C.s core submarketsthe CBD and East Endsaw
a combined 480,000 square feet of negative absorption in the
third quarter. Close-in markets in Northern Virginia are even
more challenged. Ballston and Rosslyn both have vacancy
rates over 27% and are struggling to attract new tenants
despite a $20 per square foot discount in asking rates to the
CBD and East End.
>> The largest leases signed in Q3 2017 were both renewals.
In Northern Virginia, the State Department renewed its
280,000-square-foot-lease at 1701 N Fort Myer Drive in
Rosslyn and Capital One renewed its 178,700-square-foot-
lease at 8020 Towers Crescent Drive in Tysons Corner. There
were no leases of 100,000 square feet or above in the District.

>> There is 12.6 million square feet of new office space under
construction in Manhattan, 60% of which is already pre-
leased. In the short-term deliveries are mostly comprised of
smaller boutique properties in Midtown South, where there
are 10 projects underway in the 50,000 to 175,000 square
feet size range.

Top Office Metros Snapshot | Colliers International 2

 >> The Chicago office market saw rents increase and vacancy
Chicago
fall in Q3 2017. Average asking rates increased by almost
2% while vacancy saw the largest drop of the 10 markets
covered by this report. Although net absorption was negative,
the amount was inconsequential given the size of the Chicago
office market. It was a result of tenant move-ins to recently
completed high-end office towers in the West Loop rather than
any decline in tenant activity.
>> Average asking rates stand at $39.20 per square foot and are
highest in the West Loop at $45.50 per square foot. Market
vacancy has fallen to 11.9% with a low of 7.5% in the River
North submarket. The West Loop has the highest vacancy rate
at 13.7%, but this reflects the ebb and flow of tenant move-
outs to new properties rather than any weakness in
the submarket.
>> Northern Trust signed the largest lease in the third quarter
for 462,000 square feet at 333 South Wabash in the Central
Loop. CNA Financial Corporation was formerly the owner-
occupier of the 1.1 million-square-foot-property, which has
been repositioned by The John Buck Company as a multi-
tenant property. CNA is downsizing to lease 274,000 square
Los Angeles
feet in another John Buck Company property at 151 North
Franklin in the West Loop, which is a new 807,000-square-
foot tower due for delivery in Q2 2018 which will be named
the CNA Center.
>> The formerly industrial Fulton Market submarket, which
adjoins both River North and West Loop, has established
itself as a credible and lower-cost option for tenants seeking
creative space in a hip neighborhood. While it has largely
attracted tech-centric users, including Googles regional
headquarters, Glassdoor and WeWork, McDonalds Corporation
is moving its headquarters to Fulton Market to be closer to its
target employee demographic. Local developer Sterling Bay is
the key player. In Q3 2017 WPP Group announced that it will
occupy 253,000 square feet in Sterling Bays newest project
the redevelopment of the former Coyne College Building.
>> Hurricane Harvey was the dominant story in Houston in
Houston
Q3 2017. The Category 4 hurricane, which dropped over
50 inches of rain in some locations, caused catastrophic
damage across the metro destroying homes, businesses and
infrastructure and shutting down certain oil refineries and
drilling operations. Houstons office inventory was relatively
unscathed with less than 7% of stock impacted, 45% of which
was back in operation within a month. There was minimal
impact on the core submarkets covered by this report.
>> Although rents held steady in Q3 2017, absorption remains
stubbornly in the red at negative 684,250 square feet, while
vacancy rose by 50 basis points to 20.1%. Houston has by far
the highest vacancy rate of the 10 markets covered by this
report. Low crude oil pricesat around $50 per barreland
a high volume of sublease space continue to drag market
performance. There is 5.5 million square feet of sublease
space available across the metro, including 13 spaces with
more than 150,000 square feet, 10 of which are in the core
submarkets. The largest of these is at Four Westlake Park
in the Katy Freeway submarket, where 503,330 square feet
formerly occupied by British Petroleum remains available.
>> Although Q3 2017 net absorption was negative 265,625
square feet in Houstons CBD, the submarket is seeing some
traction with the five largest leases signed in the quarter.
These were led by NRGs 431,000-square-foot new lease at
910 Louisiana and Porter Hedges LLPs 105,025-square-foot
renewal at 1000 Main. Asking rates are highest in the CBD
at $39.30 per square foot compared to a market average of
$38.85 per square foot, with some prestige properties asking
over $50 per square foot.
>> Construction activity remains focused on build-to-suit and
largely pre-leased developments with one major exception.
SCD Acquisitions LLCs 778,350-square-foot Capitol Tower
project in the CBD, which is scheduled for completion in
mid-2019, has more than 70% of its space available. Bank of
America has pre-leased approximately 200,000 square feet
and is understood to have the naming rights.
>> The Los Angeles office market posted solid performance in Q3
2017. Net absorption remained positive and was higher than
the prior quarter, while average asking rents rose by 3% and
vacancy held steady. Net absorption totaled 877,100 square
feet in the third quarter and was positive in all three core
submarkets, but skewed toward West LA which saw 692,200
square feet of net absorption.
>> Average asking rates rose to $45.50 in Q3 2017 and stand
at more than $60 per square foot in the most prestigious
Westside locations of Beverly Hills, Century City and Santa
Monica. Culver City, which has historically been viewed as a
fringe Westside location, is gaining strength as an affordable
alternative in West LA with rents that are around $20 per
square foot lower than the most prestigious locations.
>> After being impacted by major move-outs in prior quarters,
most notably Warner Music and Nestle, the Tri-Cities
submarket tightened in Q3 2017 with vacancy falling
from 13.3% to 12.3%. Burbank, with its critical mass of
entertainment industry occupiers, continues to lead the way
with higher rents ($40.20 per square foot) and lower vacancy
(9.7%) than neighboring Glendale and Pasadena.
>> Construction activity is concentrated in Downtown and West
LA which, when combined, account for more than half of the
office space underway across the Greater Los Angeles Basin.
The vast majority of space in recent completions and projects
underway is still available, feeding concerns of a supply-side
risk. A combined total of 2.1 million square feet has been
delivered in Downtown and West LA during the first three
quarters of 2017, more than 70% of which remains available
with both submarkets being similarly impacted. Projects
underway paint a similar and worrying picture. A further 1.7
million square feet is in progress and is less than 20%
pre-leased.
Top Office Metros Snapshot | Colliers International 3
 >> The Atlanta office market saw minimal change in Q3 2017. by Facebook (Instagram), which leased 412,230 square feet
Atlanta
Rents held steady while vacancy increased slightly by 20 at 181 Freemont Street, Airbnb (290,000 square feet at 650
basis points. Following healthy demand in the prior quarter, Townshend Street) and Amazon (175,725 square feet at 525
net absorption turned negative by 161,000 square feet in Q3 Market Street).
2017 with modest occupancy losses in Buckhead and Central
>> While outside of Q3 2017, another tech firmDropbox
Perimeter. In the quarters largest lease transaction, law firm
signed San Franciscos largest ever lease in early October
Eversheds Sutherland renewed their lease at 999 Peachtree
pre-leasing 736,000 square feet at the four-building 1800
in Midtown but reduced their footprint by 20% to 188,820
Owens development in Mission Bay. This surpasses the
square feet.
714,000-square-foot pre-lease signed by Salesforce at its
>> Average asking rents are holding firm at $28.15 per square namesake tower which is due to be completed in Q4 2017.
foot led by Buckhead and Midtown where rates are both
>> Office space under construction in San Francisco stands
around $33.00 per square foot. However, asking rents for
at 6.4 million square feet, a little over half of which is pre-
the best Class A space in Midtown are now ahead of those in
leased. Given the pace of tech leasing and timing of projects
Buckhead for the first time. Midtown is seeing some properties
underway, we do not anticipate any supply-side risk. The
quoting upwards of $50 per square foot representing the
first project with significant availability is a year away from
highest levels ever seen in Atlanta.
completion. Park Tower at 250 Howard Street, totaling
>> Following a busy second quarter which saw 1.5 million 751,500 square feet and currently fully available, is scheduled
square feet of new inventory added to the Atlanta market, to deliver in Q4 2018.
new space deliveries took a pause in Q3 2017. There were
>> All signs were encouraging in the Dallas office market in Q3

Dallas
no completions of note in the core submarkets. This is a
2017. Rents rose, vacancy tightened and net absorption stayed
temporary pause with three projects totaling 738,250 square
positive. Vacancy across the core submarkets covered by
feet scheduled for completion in Q4 2017. Over half of this
this report fell by 50 basis points to 12.1%, which compares
space is pre-committed but the largest of the three projects
favorably to the overall vacancy rate of 15.1% for the Dallas-
has yet to see any leases signed, local developer Seven Oaks
Fort Worth Metroplex. Average asking rents rose by 1.6%
Company LLCs 335,250-square-foot 4004 Perimeter Summit
to $30.50 per square foot and net absorption was 317,890
in the Central Perimeter submarket.
square feet.
>> In total, there is 2.1 million square feet of new office space
>> Far North Dallas continues to dominate market activity. The
under construction scheduled to deliver between Q4 2017 and
submarket is home to multiple new corporate campuses
Q1 2020. Five of these projects are fully-leased, build-to-suit
and as these projects reach completion tenants are moving
developments for occupiers including Comcast, NCR and State
in and boosting absorption. Toyotas 2.1 million-square-foot
Farm Insurance. The only post-2017 project with significant
headquarters is now fully-occupied, and JP Morgan is starting
vacancy is New Citys 430,000 square feet 725 Ponce in
to move in to its 1 million-square-foot new complex.
Midtown which is scheduled to deliver in Q1 2019 and is
currently 80% vacant. >> Corporate relocations have fueled the current cycle. The
question going forward is whether this trend can be sustained.
>> The San Francisco Bay Area office market continues to
San Francisco

Construction activity looks set to taper and the amount of

outperform, fueled by record leasing activity by technology
space breaking ground has seen a marked fall. Leasing activity
firms. Average asking rates stand at $82.30 per square foot
is slowing. The largest lease signed in Q3 2017 was at 6501
which is the highest rent across the 10 markets covered in this
Legacy Drive in Far North Dallas, where NTT Data Inc. took
report. The markets vacancy rate remains tight at 6.5%.
232,745 square feet. There were no other leases signed of
>> Rent levels have been boosted by a series of leases signed at 100,000 square feet or above.
$85 per square foot and above in San Franciscos Financial
>> The prestigious submarkets of Preston Center and Uptown/
District. This transactional evidence underlines the strength
Turtle Creek continue to garner the highest rents. Average
of the San Francisco market. Rent growth is attributable to
asking rates in both locations are approaching $40 per square
leases being signed as opposed to new product entering
foot, but the top performing properties are seeking rents in the
the market with higher asking rates. In core Silicon Valley
mid to upper $50s per square foot. Site availability in these
locations such as Palo Alto Central, rents are as high as $95
submarkets is relatively finite and after the current round of
per square foot reflecting the submarkets extremely tight
development completes, it will be challenging to add additional
vacancy rate of 2%.
product, not just due to limited options but also the impact of
>> The dominance of the tech sector in the San Francisco office rising land prices and construction costs on
market cannot be overstated. It has been the key driver in this pro-forma rents.
cycle and tech leasing is again on the rise despite the overall
cooling in the U.S. economy. Tech leasing in Q3 2017 was led

Top Office Metros Snapshot | Colliers International 4

 >> The Boston office market held firm in Q3 2017 with no >> The Seattle office market continues to post strong
Boston

Seattle
rent growth and a 20-basis-point increase in vacancy to
10.8%. Average asking rates of $56.10 per square foot
are the third highest among the 10 markets covered in the
report, behind only Manhattan and San Francisco albeit by
a significant delta. No other markets have rates of above
>> Overall market vacancy stands at 7.6%, virtually unchanged
$50 per square foot.
>> There was only a modest shift in demand in Q3 2017. Net
absorption was negative 160,550 square feet compared
to 197,200 square feet in the prior quarter. Following
an uptick in the first half of 2017, net absorption in the
Financial District was negative 191,900 square feet in
Q3 2017.
performances, with positive absorption in Q3 2017 and a tight
and stable vacancy rate. Earlier concerns of a supply-side risk
are receding as new construction is mostly leasing up at a
healthy rate.
from the prior quarter. The smaller submarkets that abut the
CBD have the lowest vacancy rates: Q3 2017 vacancy stands
at 5.1% in Denny Regrade, 5.8% in Lake Union, which is the
principal home of Amazon, and 4.7% in Pioneer Square/
Waterfront. CBD vacancy is higher at 10.7% but the submarket
posted more than 450,000 square feet of net absorption in
Q3 2017.

>> Despite 68,670 square feet of negative absorption, >> Average asking rates held steady in the third quarter at $38.75
Seaport continues to attract major tenant interest and per square foot. The highest rents are found in the CBD and
accounted for two of the three largest leases signed Lake Union at a little over $41 per square foot. Class A asking
in Q3 2017. Both took place at 121 Seaport Boulevard, rents in Lake Union have broken through $50 per square foot.
where PTC took 250,000 square feet and Alexion
>> The big news of the third quarter was Amazons pre-lease of
Pharmaceuticals leased 150,000 square feet. There was
the 726,800-square-foot Rainier Square tower at 411 Union
one other lease signed of more than 100,000 square feet.
Street in the Seattle CBD. Other notable leases signed in Q3
Law firm Mintz Levin leased 205,000 square feet at One
2017 were also mostly focused on tech firms including Sound
Financial Center in the Financial District, representing a
Transit, WeWork and Indeed. Tableau and Snapchat took
20% reduction in space occupied.
occupancy of their new offices in the third quarter.
>> The PTC lease is a further illustration of tenants
>> New construction is mostly leasing up at a healthy clip. There
relocating to central Boston both from suburban markets
is 2.8 million square feet underway that is scheduled for
and further afield. PTC relocated 1,000 employees from
completion by the end of 2018 and 72% is pre-leased. There
Needham to Seaport. Four firms are known to have
are only two projects that are mostly vacant. Schnitzer Wests
active requirements in the region of 100,000 square
764,000-square-foot Madison Center in the CBD was finished
feet focused on the core submarkets: Rapid7, WeWork,
earlier this year and has 534,800 of space available. GLY
Cengage and Draft Kings. With leases signed, or rumored
Construction Inc. is building a 650,000-square-foot office
to be in the works across multiple submarkets, WeWork
property at 333 Dexter Avenue in Lake Union for completion in
has the potential to become one of the largest tenants
2018. The project is less than 10% pre-leased.
in Boston.

OFFICE SERVICES | contact RESEARCH | contacts

Colliers International
Cynthia Foster Pete Culliney Stephen Newbold 666 Fifth Avenue
President, Director of Research | Global National Director of Office Research | USA New York, NY 10103
National Office Services +1 212 716 3698 +1 202 534 3630 +1 212 716 3500
+1 212 716 3515 pete.culliney@colliers.com stephen.newbold@colliers.com colliers.com
cynthia.foster@colliers.com

Copyright 2017 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it.
No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.