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U.S.

Research Report
TOP OFFICE METROS SNAPSHOT
Q1 2018

Most Major Office Markets Hold Steady in
First Quarter 2018
Coworking Firms Continue to Expand Their Presence

Featured Highlights
MARKET METRO CORE
ABSORPTION AVG RENT VACANCY
1-YR CBD CORE SUBMARKETS
>> Most major office markets in the U.S. held firm in Q1 2018. (SF) ($)* RATE
OUTLOOK INVENTORY (SF)
Changes in vacancy and rental levels were mostly marginal. Manhattan: Midtown,
Manhattan, NY
Midtown South, -2,423,810 $76.03 6.2%
503,295,206
>> Strong tenant preference for new construction continues Downtown

unabated as companies seek to retain and attract the best CBD (DC), East End
(DC), Capitol Hill (DC),
talent. Pre-leasing of new construction is necessary to meet NoMa (DC), Capitol
most major tenant requirements. Washington, D.C. Riverfront (DC), Carlyle
653,933 $48.42 14.3%
  185,661,009 (DC), R-B Corridor
(NOVA), Tysons Corner
>> Coworking operators continue their aggressive expansions. (NOVA), Bethesda
WeWork signed leases for 200,000 square feet or more in (SubMD

Boston, Manhattan and San Francisco and took down space West Loop
Chicago, IL Central Loop
in several other markets. 131,314,796 River North
-77,102 $39.98 12.6%
East Loop
>> The San Francisco Bay Area continues to lead the pack with CBD, Katy Freeway,
Houston, TX   
the lowest vacancy rate and highest asking rents of our top 118,059,891
West Loop (Galleria), -975,883 $35.05 21.9%
Westchase
10 office metros. Silicon Valley continues to attract the tech
Dowtown Los Angeles,
giants. Facebook and Amazon leased a combined 1.8 million Los Angeles, CA
West Los Angeles, 202,000 $46.06 15.6%
114,247,500
square feet in one project alone. Tri-Cities
Midtown
>> Manhattan has the second-highest asking rates and second- Atlanta, GA Buckhead
730,115 $28.57 13.6%
101,890,026 Central Perimeter
lowest vacancy rate among the top 10 markets. New Cumberland/Galleria
construction scheduled for completion in 2018 is on track to Financial District (North
be the highest since the 1980s. The shortage of large blocks San Francisco
Financial District
& South Financial
is easing. Bay Area, CA District), SOMA (West 1,752,462 $78.82 5.8%
95,753,726 SOMA & East SOMA),
Palo Alto, Mountain
>> Boston has become the most dynamic market in the top 10 View, Sunnyvale
and landlords hold the stronger hand. Three major pre-leases Uptown, Preston
Dallas, TX
were signed in Q1 2018 with more set to follow. 76,065,228
Center & 982,123 $31.15 14.8%
Far North Dallas

>> Far North Dallas’ heady construction cycle is ending after a Back Bay, Financial
District, Charlestown,
series of major corporate campus developments with the last Boston, MA
Crosstown, Fenway/ 619,637 $56.07 9.6%
69,156,442
(for now) being delivered in the first quarter. Kenmore, South Station,
North Station, Seaport

>> Supply-side concerns in Los Angeles have not abated. Seattle CBD, Lake
Seattle, WA Union, Pioneer Square,
Several large projects are still available in both Downtown 69,156,442 Belltown, Queen Anne,
932,004 $40.32 8.7%
and West LA as the anticipated leasing traction has yet to Ballard

emerge. * A quarterly rent change of +/-1% or less, is judged to be flat.
>> Chicago also has several major projects underway, only one of which Manhattan presence in Q1 2018, taking 167,000 square feet at
is fully committed. Fulton Market, once considered a fringe location, 18 West 18th Street and 122,190 square feet at 154 West 14th
continues to garner interest. Street, both of which are in Midtown South’s Chelsea District.

>> Houston is still the most challenged market in the top 10 and had >> Construction deliveries in 2018 are set to be the highest
the largest increase in vacancy in the first quarter. Leases are set level in Manhattan in almost 30 years. A further 6.9 million
to start expiring on the surfeit of large sublease blocks formerly square feet is set to arrive in the remainder of 2018, of which
occupied by the energy sector and it will be interesting to see how 2.9 million square feet has yet to be leased. The bulk of the
landlords respond. available space is in 3 World Trade Center. With a clear tenant
preference for new construction, this space is not expected
>> Seattle saw its vacancy rate jump in Q1 2018 but is still one of
to linger on the market. The larger question is what will be
the strongest markets in the top 10. Although there is significant
required to fuel an uptick in leasing activity to fill the space left
construction activity underway, most projects are pre-committed.
behind?
>> New supply continues to enter the Washington, D.C. market with 6.5
>> Although vacancy remains elevated, the Washington, D.C.
million square feet underway in The District alone. The majority of
office market looks to be stabilizing. In line with the prior
this space is set to deliver this year.
quarter, both rents and vacancy exhibited minimal change

Washington, D.C.
in Q1 2018. Encouragingly, net absorption remained positive
and the quarterly total of 653,930 square feet was more than
LOCAL INSIGHTS half-a-million square feet higher than the modest level seen in
>> Rents and vacancy held firm in the Manhattan office market in Q4 2017.
Q1 2018 but there was a slowdown in leasing activity. Average >> Average asking rents stand at $48.40 per square foot, slightly
Manhattan

asking rates of $76.00 per square foot and a vacancy rate of higher than in Q4 2017. The delta between Class A asking
6.2% in Manhattan are bettered by only the San Francisco Bay rents in the District and Northern Virginia continues to widen.
Area. New construction is fueling rental growth in the District,
>> First quarter leasing activity in Manhattan totaled 7.6 million where rates now stand at $60.30 per square foot. Comparable
square feet, down by 23% from Q4 2017 and 18% year over rents in the principal suburban markets of the Rosslyn-
year, but slightly above the 10-year average. First quarter Ballston (R-B) Corridor and Tysons Corner range from $40
net absorption was negative 2.4 million square feet, making to $45 per square foot. While vacancy in Tysons Corner, at
it Manhattan’s highest quarterly negative absorption level in 13.9%, is on par with the District, it remains stubbornly high at
nine years. This was due to the addition of 19 large blocks of 25.5% in the R-B Corridor.
available space of 100,000 square feet or more, comprised of >> There is 6.5 million square feet of new construction underway
both new construction and existing buildings. in the District, over half of which (3.5 million square feet)
>> There are now 76 large blocks available across Manhattan is in the core submarkets of the Central Business District
totaling 14.7 million square feet, including 11 blocks of more (CBD) and the East End. NoMA is expanding at a fast clip
than 250,000 square feet accounting for 5.3 million square with 1.1 million square feet underway, equivalent to 10% of
feet. Average asking rents across the 11 spaces stand at current inventory. Construction activity in Northern Virginia is
$84.60 per square foot, reflecting a 16% premium to the centered on Tysons Corner, where there is 1.6 million square
market average. feet underway.

>> Average asking rates stand at $79.20 per square foot in >> Tenants continue to exhibit a strong preference for Class
Midtown, $71.55 per square foot in Midtown South and $63.40 A space. In our Q4 2017 report, we noted a concern about
per square foot Downtown. Reflecting its relative lack of large the volume of older inventory that was being left behind as
blocks, the addition of new or renovated Class A space and firms relocate to new construction and landlords’ abilities to
the type of inventory that is in demand from firms seeking repurpose this space. One of the largest blocks of such space
creative space, Class A asking rents in Midtown South, at came off the market in Q1 2018, with the lease and planned
$86.15 per square foot, are higher than those in Midtown at conversion of 4000 Connecticut Avenue NW into a private
$81.90 per square feet. Hudson Yards/Manhattan West has the school.
highest asking rates of any submarket at $92.20 per square >> The Chicago office market took a step backward in Q1 2018.
foot, followed by $90.50 per square foot in Midtown’s Plaza Although rents held firm, absorption turned slightly negative
District. and vacancy rates increased. Net absorption was negative
Chicago

>> Leasing activity in Q1 2018 was led by the FIRE (Financial, 77,100 square feet and there were only modest variations
Insurance and Real Estate) sector which accounted for 45% across the four core submarkets, with absorption ranging from
of the quarterly total. JP Morgan Chase & Co. signed the first negative 133,100 square feet in the Central Loop to 141,540
quarter’s largest new lease, taking 418,240 square feet at 390 square feet in River North.
Madison Avenue in Midtown. WeWork continued to expand its

Top Office Metros Snapshot | Colliers International 2
>> Chicago’s office vacancy rate increased by 100 basis points 524,300 square feet at Post Oak Central and The Williams
(BPS) in Q1 2018 to 12.6%, the third-highest increase in Companies recommitted to 324,300 square feet at Williams
vacancy among the 10 markets featured in this report. River Tower.
North has the lowest vacancy rate at 8.9% and the West Loop,
at 13.7%, is the highest closely followed by the Central Loop >> The high level of large-block availability hangs over the
at 13.5%. Average asking rates are $40 per square foot with a Houston market and is not going away any time soon. There
$7.00 delta across the submarkets. The West Loop and River are over 80 contiguous spaces of 100,000 square feet or
North lead the pack with average rental rates of $43.25 and more available across the region, including 13 sublease blocks
$42.30 per square foot, respectively. The lowest rates were in of 150,000 square feet or more. The majority of these (10 in
the East Loop at $35.10 per square foot. total) are in the core submarkets highlighted by this report
and are almost exclusively in space formerly occupied by the
>> The West Loop and River North captured the five-largest energy sector. As these leases begin to expire over the next
leases signed in Q1 2018. In the West Loop, BP renewed its two to three years, owners will have to decide whether to
240,000-square-foot lease at 10-30 S. Wacker Drive, while inject capital to reposition this space. Disposition could prove
Morgan Stanley leased four floors totaling 125,000 square challenging in a distressed market.
feet in the Willis Tower at 233 S. Wacker Drive. The bank
is also evaluating an option to terminate its lease at 440 S. >> Fortunately, development activity remains in check with
LaSalle Street and take more space in the Willis Tower, which construction starts predicated by having a lead tenant in place.
continues to garner interest as it undergoes a major upgrade. The principal exception is SCD Acquisitions’ counter-cyclical
There were three leases of approximately 80,000 square feet play in the CBD, where the 778,340 square feet Capitol Tower
signed in River North, including co-working provider Spaces is underway and scheduled for delivery in mid-2019. The
taking the entirety of the 80,000 square feet at 620 N. LaSalle project is 36% pre-leased.
Street. >> The Los Angeles office market was static in Q1 2018. Vacancy
>> Five major office projects totaling 2.4 million square feet are and rents held firm and net absorption, while positive, was a
muted 202,000 square feet. However, several new projects
Los Angeles
scheduled to deliver in the remainder of 2018, three of which
are in the Fulton Market submarket. Once considered a fringe are due to complete this year and have the potential to cause
location, Fulton Market has emerged as a viable alternative vacancy to edge upwards absent of an uptick in demand.
to the Loop, with local developer Sterling Bay having two >> Average asking rates remain at $46 per square foot. West LA
projects underway, including the 486,000-square-foot new has the highest rates by a fair margin at $55.50 per square
headquarters for McDonald’s Corporation at 110 N. Carpenter foot compared with $40.20 per square foot Downtown and
Street. The company is also building the 203,000-square-foot $36.60 in Tri-Cities. Within West LA, Beverly Hills and Santa
210 N. Carpenter Street, where three tenants have pre-leased Monica have the most cachet with rents in the mid-$60s per
space, including WeWork, who will be taking 40,000 square square foot.
feet.
>> Downtown vacancy, at 20%, is considerably above the market
>> Large block availability is on the rise, with 23 blocks of more average of 15.6%. Vacancy rates in Tri-Cities and West LA
than 100,000 square feet available in the Chicago office stand at 13.2% and 13.6% respectively. Although vacancy
market. Most of these spaces (15 in total) are immediately moved up in Q1 2018, Burbank remains the tightest submarket
available, with the rest to follow by year-end. While tenant in Tri-Cities at 12.4%. Vacancy rates in West LA range from
relocations to new construction are contributing to this 5.5% in Olympic Corridor to 22.8% in Culver City. Century
supply, the largest space available is a new development at City, at 9%, is the only high-end location in West LA with a
625 W. Adams Street, which is scheduled to complete in Q2 sub-10% vacancy rate.
2018. The 443,645-square-foot project has yet to secure any
tenants. >> Supply-side concerns have yet to ease. There is 4.1 million
square feet of office space under construction across
>> Following a positive finish to 2017, the Houston office market LA County of which 3.4 million square feet is located in
saw a sharp about-turn in Q1 2018, with almost one million Downtown and West LA. Three-quarters of space underway
square feet of negative absorption and a 160 BPS rise in the
Houston

in West LA remains vacant. Developers were confident to build
vacancy rate to 21.9%. This is the highest vacancy rate across on a speculative basis in West LA’s most prestigious locations,
the top 10 metros by a margin of over 6%. but there has been little leasing traction. Two projects are set
>> The negative absorption was driven by a series of layoffs and to deliver in Q2 2018 led by the 200,000 square feet 2834
mergers, most notably by Technip who vacated over 375,000 Colorado Avenue in Santa Monica, which is 70% vacant.
square feet of space in the Katy Freeway submarket where Downtown is facing a similar challenge. Although not due
vacancy has reached 23.4%. Vacancy in the CBD moved up to deliver until early 2019, there are two major projects
by 120 BPS to 22%. The two largest lease transactions in underway at 801 S. Broadway (500,000 square feet) and 757
Q1 2018 occurred in the West Loop/Galleria where vacancy S. Alameda Street (425,100 square feet) where no space has
is back below 20%. Apache Corp. renewed their lease for been pre-leased.

Top Office Metros Snapshot | Colliers International 3
>> Demand picked up in the Atlanta office market in Q1 2018 >> San Francisco’s largest lease transaction in Q1 2018 occurred
with 730,000 square feet of net absorption, up by more than at 400-430 California Street, where WeWork leased the entire
half-a-million square feet from the prior quarter. Vacancy held 251,000 square feet, making the coworking provider the 10th
Atlanta

firm and there was a slight uptick in rents. While first quarter largest occupier in the market across 13 locations. While there
absorption was positive in all three of the core submarkets, were no blockbuster deals in San Francisco this quarter, tech
one major move-in alone accounted for over half of the net leasing continued apace with Stitch Fix, New Relic, Samsara
gain, as NCR took occupancy of 485,000 square feet in Phase and Google signing leases that range from 57,000 to 134,000
I of its new headquarters in Midtown. square feet.

>> Average asking rates increased by 2% in the first quarter to >> San Francisco’s tallest office building, the 1.4 million square
$28.60 per square foot. Midtown has the highest asking rates feet Salesforce Tower, completed in Q1 2018, leaving 5.1
at $34.65 per square foot, followed by Buckhead at $33.40 million square feet still underway. Over 4.3 million square feet
per square foot. Central Perimeter asking rates are slightly of this space is scheduled to deliver by year-end 2018 and all
below the market average at $27.65 per square foot, but the but one of the new projects are pre-leased. The outlier is the
submarket posted the greatest rental gains in Q1 2018. Central 751,000-square-foot Park Tower on Howard Street, which is
Perimeter rents rose by 6% in the quarter, largely driven by fully available, but is now the only major new space option in
the addition of high-end, new product to the market, led by the market. Facebook is understood to be in discussions to
the completion of the 355,250 square feet 4004 Perimeter lease the entire development.
Summit.
>> Office construction volume in Silicon Valley has risen to 6.1
>> The three largest leases transactions in Q1 2018 all took million square feet with three projects breaking ground in Q1
place in Central Perimeter. Insight Global pre-leased 205,800 2018, all of which are fully pre-leased. These include the 1.8
square feet in Trammell Crow Company’s Twelve 24 project, million square Moffett Towers II in Sunnyvale where Facebook
while Northside Hospital and Arby’s leased 178,000 and took 1.1 million square feet and Amazon leased the balance.
160,830 square feet respectively of Class A space. The
>> The Dallas office market showed stability in Q1 2018, with
submarket is gaining in popularity as Class A availability
rents holding firm and vacancy declining slightly by 30 BPS.
tightens in Midtown and high-profile moves bring an increased
Dallas
Although absorption fell in the quarter, it remained firmly
focus on Central Perimeter as an attractive alternative to more
positive at almost one million square feet. However, with large
expensive locations.
corporate move-ins to new headquarters in Far North Dallas
>> There are 10 projects of 100,000 square feet of more under ending, it is unclear what will drive demand going forward.
construction across the Atlanta metro, half of which are in
>> Once again, Far North Dallas accounted for the lion’s share
Midtown. The largest of these is the 760,000 square feet
of absorption with Liberty Mutual taking occupancy of its 1.1
Coda at 771 Spring Street, which is scheduled to deliver in
million-square-foot build-to-suit new campus representing
early 2019. WeWork pre-leased 50,000 square feet of space
73% of first quarter absorption across Dallas-Fort Worth.
in this project in Q1 2018. Other major Midtown developments
Construction activity has slowed down markedly in Far North
underway include Phase II of NCR’s new headquarters
Dallas. Uptown/Turtle Creek, at 1.2 million square feet, now
and the 343,270 square feet 725 Ponce, which is fully
has the greatest amount of space underway in the core Dallas
available. Developers are showing confidence that Midtown’s
submarkets.
combination of an attractive location, high-end space and
proximity to Georgia Tech will attract tenants seeking to hire >> Average asking rates in the Dallas office market stand at
and retain the best talent. $31.15 per square foot. Average asking rates in Preston Center
and Uptown/Turtle Creek remain around $40 per square foot
>> The San Francisco Bay Area (the Bay Area) office market is
but new space in prestigious locations can achieve upward of
the strongest of the 10 markets highlighted in this report with
$50 per square foot. Despite the elevated level of construction
San Francisco

the highest average asking rates (at $78.70 per square foot)
activity in Uptown/Turtle Creek, downward pressure on rents
and the lowest vacancy rate (at 5.4%.) The Bay Area also
is unlikely. The submarket will be virtually built-out once
posted the largest amount of net absorption of the major office
the current round of projects completes and 55% of space
markets in Q1 2018, with a quarterly total of 1.7 million square
underway is pre-leased.
feet.
>> Leasing activity was muted in Q1 2018 across the submarkets
>> Reflecting the tight vacancy rate and strong demand, the gap
tracked in this report, with no new leases signed of 50,000
between Class A and Class B rents is slim. Average Class B
square feet or higher. The largest lease signed in the Dallas-
asking rates in San Francisco stand at $75.40 per square foot,
Fort Worth market in the first quarter took place in the Dallas
reflecting a discount of less than $7 per square foot from their
CBD, where Thompson & Knight LLP signed a renewal for
Class A counterparts. In San Francisco’s Financial District,
154,000 square feet at 1722 Routh Street. However, despite
both Class A and B properties are attracting average rents in
higher availability and significantly lower rents, the CBD has
the low to mid $80’s per square foot. Average asking rates in
yet to become a competitive alternative to the more expensive
Silicon Valley are $81.85 per square foot rising to over $90 per
close-in submarkets of Preston Center and Uptown/Turtle
square foot in Palo Alto Central, where the vacancy rate is a
Creek.
mere 1.9%.

Top Office Metros Snapshot | Colliers International 4
>> The Boston office market has become the most dynamic >> Trends in the Seattle office market were mixed in Q1 2018.
of the 10 markets covered by our report. In Q1 2018, Absorption more than doubled and rents held firm, but
the vacancy rate fell more than any other market in this vacancy increased. Vacancy rose by 160 BPS to 8.7%, which
Boston

Seattle
report, while absorption was firmly in the black. Rents ties with Houston as the largest increase among the markets
are the third-highest in our survey and the high volume of surveyed in this report. Despite this uptick, the Seattle office
tenant requirements in the market looks set to push them market remains relatively tight with the third-lowest vacancy
up higher. rate of the 10 markets.

>> Boston’s office vacancy rate fell by 100 BPS in the >> Net absorption totaled 932,000 square feet in Q1 2018, up
quarter to 9.6%. Seaport remains the tightest of the core from 401,280 square feet in Q4 2017. The Seattle CBD and
submarkets with vacancy at 6.9%, compared with 9.6% Lake Union remain the principal beneficiaries, with first
in Back Bay and 11.9% in the Financial District. Available quarter absorption of 530,560 square feet and 335,860
Class A space in Seaport is virtually non-existent with square feet respectively. Absorption in Lake Union was driven
a sub 1% vacancy rate. Back Bay was the principal by Facebook and Amazon, who both moved in to 150,000
beneficiary of this shortage in Q1 2018, with over square feet of space at 1101 Westlake and the Westlake Terry
350,000 square feet of positive absorption. building, respectively. Vacancy in Lake Union is only 4.9%.

>> Tight Class A supply and a shortage of available large >> As in most of the other major office markets, WeWork
blocks are driving two key trends in the Boston office continues to increase its presence, leasing 100,145 square feet
market. Tenants with large space requirements are at 1600 7th Avenue in the CBD, which was the largest lease
turning to new construction and the gap between Class signed in Q1 2018. Outside of this transaction, leasing activity
A and Class B rents is narrowing. Five leases of more was somewhat muted in the first quarter. Average asking
than 100,000 square feet were signed in Q1 2018 and the rates held steady at $40.25 per square foot led by the CBD
two largest were pre-leases. Amazon signed a 460,000 at $44.50 per square foot and Lake Union at $41 per square
square feet lease for the first phase of a potential two- foot. View space in downtown’s trophy towers commands a
step one million square feet expansion in Seaport Square, significant premium with average asking rates at close to $60
and Mass Mutual leased 300,000 square feet of new per square foot.
construction at 10 Fan Pier Boulevard.
>> Construction activity remains elevated with 5.4 million square
>> As noted in prior reports, WeWork continues to expand feet underway in 11 projects of more than 100,000 square feet
at a fast clip in Boston and took a further 200,000 in size. Three-quarters of this space is pre-committed, which
square feet in Q1 2018 across two properties, 33 Arch should limit near-term increases in the vacancy rate, led by
Street in the Financial District and 501 Boylston Street Phases III and IV of Amazon’s towers in Belltown/Denny
in Back Bay. With almost 5.5 million square feet of active Regrade, totaling a combined 1.8 million square feet. There
tenant requirements in the Boston office market, look for are three fully speculative projects underway including the
more large leases to be announced. When measured by 650,000 square feet 2+U project at 1201 2nd Avenue in the
the volume of requirements in the market, prospective CBD and the 600,000 square feet 333 Dexter Avenue in Lake
demand is double the level seen five years ago. Union, both of which are due to come online in the first half of
2019.

OFFICE SERVICES | contact RESEARCH | contacts
Colliers International
Cynthia Foster Pete Culliney Stephen Newbold 666 Fifth Avenue
President, Director of Research | USA 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 © 2018 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its
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