From coast to coast, our city skylines are a source of pride and community. It’s not surprising that top-tier office buildings in our urban cores continue to report lower vacancies, higher rents and more developer interest.
The anticipated Skyline Review is back, and more advanced than ever before.
In case you missed it in years past, the Skyline Review features JLL’s proprietary market insights (regarding office supply, demand, rents, leverage and investment) across 52 markets in the U.S. and Canada. With the report, viewers can compare and contrast individual markets or multiples of markets, as well as individual properties or portfolios.
Register for free to access the floor-by-floor data in roughly 1,200 of our nation’s most prominent towers, including Class A buildings in our Southwest market.
Read on for highlights of our Los Angeles, Orange County, Phoenix and San Diego skylines in 2016.
Landlords creating more open space
As landlords look to adapt to changing tenant demands, one thing is for certain — tenants want more open space. Whether a true creative or traditional office building, several landlords are investing in spending money to redevelop lobby areas, plazas and collaborative common areas. In Los Angeles, nearly $150.0 million of current and future lobby renovations are under way in Downtown trophy assets. The improvements are designed to enhance the tenant experience as well as differentiate the asset. The investment will broaden the appeal of the traditional high-rise office and attract Westside tenants accustomed to a more dynamic and creative campus environment.
Investors looking at secondary markets
With record low cap rates for Skyline buildings in the Southwest, some new investors, both foreign and domestic, are starting to consider secondary markets like Orange County, Phoenix and San Diego where fundamentals remain strong and there is opportunity for rent growth.
Still room for rent growth but at a cost
While JLL’s 2016 Skyline shows that rent growth across much of the nation may be peaking and moderating, Phoenix, Orange County, San Diego and Los Angeles still have room to grow for those landlords willing to invest in capital improvements. In all four markets owners must keep pace with the changing times to remain competitive, particularly in Skyline buildings with below-average occupancy. By investing in common areas, building systems and office space, owners can turn lackluster buildings into a substantial payoff.
Technology Firms Playing a Role in Occupancy Stabilization
The growth of technology and creative firms have played an integral role in the stabilization of occupancy since the last downturn. Los Angeles has seen a flood of architectural and engineering firms, entertainment and agency firms as well as a growing number of technology, fashion and design tenants. Downtown Phoenix has emerged as a viable alternative to Phoenix’s “traditional” tech markets in Tempe and Scottsdale, encouraging investors to act and improve upon their current Skyline assets. San Diego has seen many new start-ups companies, creating a smaller version of the Silicon Valley but with many of the same attributes. In recent months, venture capital funding in the high-tech industry in Orange County is showing signs of slowing down which can hinder the ability of technology firms from expanding their real estate footprints.
To Build or Not to Build
The answer of whether or not to embark on new Skyline development is specific to each market. In San Diego, developers are still in the planning stages with Phoenix’s Skyline still having plenty of available space, maintaining its development neutrality even as more space is leased. Orange County’s Skyline continues to grow with the addition of new Trophy towers aimed at attracting top-tier tenants. Over the past three years, 1.1 million square feet of Trophy space was delivered in the Airport Area and Irvine Spectrum submarkets with a new 20-story, 426,000-square-foot Trophy building being delivered in mid-2017. Finally, Wilshire Grand, a 1.5 million-square-foot mixed-use high-rise tower (350,000 square feet of office and a 1.2-million-square-foot hotel), will be the first trophy tower added in Downtown Los Angeles Skyline since 1992.