2014 North America Energy Outlook (Jones Lang LaSalle)

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Energy Outlook North America | 2014

Large energy companies are seeking to drive up shareholder value and minimize losses from underperforming business lines. Small energy companies are chasing the shale boom and trying to scale up quickly to generate positive cash flow.

JLL | North America | Energy Outlook | 2014

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Table of contents

Executive summary

3

The U.S. shale story

5

U.S. shale profiles: people, labor & real estate

6

Energy & Multifamily

8

Energy & Retail

11

Energy Office markets

14

Energy Industrial markets

22

Energy Hotel markets

30

JLL | North America | Energy Outlook | 2014

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Executive summary

Employment: There are approximately 1.5 million energy-related jobs in the United States. While this represents only 1.1 percent of total non-farm employment, energy is among the fastest-growing industries, up 10.7 percent over the past five years. In fact, the rate of energy job growth is 2.5 times faster than the national average during the same time period. Through 2020, energy-related employment will increase by another 5.0 percent, not including auxiliary services and jobs supported through expansion in the energy industry. However, this growth is likely to be more volatile than total non-farm given the highly cyclical nature of the energy industry.

related products as the surge in domestic supply was met with strong overseas demand. These factors are fueling the current debate in Washington on whether the restrictions put in place in the 1970’s to limit the exportation of U.S. crude oil should be lifted. The energy industry took a large step toward crude oil exportation in June when a private ruling by the Commerce Department opened the door for the exportation of ultralight oil for the first time in four decades. The ruling, which could be enacted upon as early as August, will allow two companies, Pioneer Natural Resources Co. and Enterprise Products Partners to ship ultralight oil to foreign buyers. The rise in shale oil production is saturating domestic refiners and pushing the price of ultralight oil up to $10 below that of crude.

12-month employment growth 10.0%

Total non-farm

Energy

5.0% 0.0% -5.0% -10.0%

Source: Moody’s Economy.com, BLS

While energy job growth is concentrated in specific hubs, it is starting to disseminate as technology enables new ways to produce, transport and utilize oil and gas. Energy companies primarily locate their U.S. and Canadian headquarters in Houston and Calgary respectively. Second-tier energy hubs include Dallas, Denver, Edmonton, Fort Worth, Pittsburgh and Philadelphia. The strong job growth in downstream energy sectors is expanding activity in the secondary hubs as well as creating the opportunity for new clusters to emerge. Industry insight: U.S. oil production continues to surge ahead. According to the International Energy Agency, the U.S. will surpass Russia and Saudi Arabia as the world’s top oil producer by 2015. In 2013, the U.S. recorded a 10.0 percent increase in the exportation of petroleum

The Brookings Institute estimates that as much as 700,000 barrels of ultralight oil per day could be exported by next year. Companies are aggressively lobbying for the opportunity to seek out buyers in foreign markets willing to pay a higher price. The private ruling will encourage similar exportation requests from other companies and is prompting the Commerce Depart to establish industry guidelines. If federal regulators lift the ban on exporting crude oil, an unlikely scenario until after the presidential election, the economic benefits would stem from relieving the oversupply of light oil here in the U.S. Most U.S. refineries are designed to process heavier crude oil from Canada, Venezuela or Mexico not domestic light crude oil. With U.S. domestic oil output reaching 8.2 million barrels per day in March, the capacity of U.S. refineries to process light oil is maxing out and restricting further investment in production. According to a study by IHS, relieving this gridlock would result in: • U.S. oil production would increase, beginning with an additional 949,000 b/d in 2016. The ability to export crude would then result in more than a million barrels per day in extra production each year going forward, peaking at 1.3 million b/d of additional production in 2030. • The increase in crude production would support 359,000 more jobs in 2016 before peaking at 964,000 additional jobs in 2018 • GDP would rise by nearly $73 billion in 2016 • Average disposable income per household would increase by an additional $391 in 2018 as benefits from increased investment, additional jobs and lower gasoline prices are passed along to consumers

JLL | North America | Energy Outlook | 2014

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Company insight:

Real Estate insight:

Large energy companies are seeking to drive up shareholder value and minimize losses stemming from underperforming business lines. Consequently, there is strong momentum behind the implementation of division-to-grow strategies and the divesture of non-core assets. One of the first examples of this trend occurred when ConocoPhillips spun off its downstream retail, transportation and chemicals business under the brand Phillips 66 in 2012. A recent example includes Occidental Petroleum splitting its operations in California into a separate public company. Another recent example is BP PLC spinning off its onshore oil and gas business to operate as a separate entity from the rest of BP, led by a management team in Houston apart from its Westlake campus. Other large energy companies are divesting non-core assets to pursue the more disciplined growth of core businesses. Outside of cost and revenue benefits, these corporate maneuvers support branding, marketing and risk mitigation objectives.

The energy industry surpasses most other sectors in its utilization of capital, resources and real estate. Small- to mid-sized energy companies are following the shale boom and trying to scale up quickly to generate positive cash flow. Large energy companies are trying to rein in spending until regulatory challenges dissipate. Leasing activity in the office market mirrors these differing business priorities. Smaller energy companies and downstream support service firms are seeking top-tier CBD space in markets like Denver, Calgary, and Fort Worth. Rents have increased to meet demand and kept companies focused on leasing smaller floor-plates and more efficient space. Large energy companies, are maintaining blocks of CBD Class A space, but looking to campus environments in suburban markets to house the bulk of their operations. Exxon Mobil’s construction of a 4 million square-foot campus south of the Woodlands in Texas is an example.

Both small and large energy companies are facing heavy competition to attract and retain workers. Industry growth, the retirement of skilled workers and a shortage of geologists and engineers from quality institutions are the key factors behind the problem. Unemployment in mining, gas and oil extraction hit a low of 2.6 percent in May, significantly below the U.S. unemployment rate of 6.3 percent. The worker gap is putting upward pressure on wages and increasing labor costs for companies. Energy workers command an average salary of $73,662, which is 58.6 percent higher than the U.S. average. Graduates from the South Dakota School of Mines & Technology graduated with a median salary of $56,700 in 2012, which is more than the $54,100 graduates of Harvard University received at that time. While energy workers may cost more to employ, they lead other industries in revenue generation. A first quarter 2014 study by S&P Capital IQ revealed that seven out of the eight companies where revenue per worker topped $1 million belonged to the energy sector.

The high costs of attracting and retaining energy workers is putting employee productivity under a microscope. Energy companies are turning to new construction as a way to gain workplace features that promote employee health and output. Energy companies are adding things like ample natural light, shorter commute times and fitness facilities to space requirements to boost employee well-being. A recent example is Phillips 66 commencing construction on its new 1.1 million square-foot headquarter facility in the Westchase district of Houston. The complex will include multiple office buildings as well as a cafeteria, fitness center, coffee shop and conference center all aimed to provide the Phillips 66 employees a true live/work/play option in the booming Westchase submarket. Well-capitalized landlords can take advantage of the growing energy industry by renovating second-generation space to reflect these new space requirements. Landlords have leverage in most energy hubs now, but a large pipeline of new buildings will deliver attractive space options to energy tenants in 2015 and beyond.

JLL | North America | Energy Outlook | 2014

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The U.S. shale story

urgh ational Airport

Airpor

7.6 mil s.f. 3.6 mil s.f.

San Antonio International Airport Austin-Bergstrom International Airport

11.4 mil s.f.

38.4 mil s.f.

Source: JLL Research, Energy Information Administration

Shale area attributes:

JLL | North America | Energy Outlook | 2014

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U.S. shale profiles: people, labor & real estate Bakken The Bakken has the smallest population of all the plays with roughly 220,000 residents, but is expected to experience the fastest growth through 2018 at a rate of 2.4%. Its residents also hold strong spending power with the second highest median household income at $53,897. The Bakken is heavily dependent on the energy sector with little diversity from other industries. It has the second highest percentage of energy-related businesses and jobs (12.0%). So far, this has bode well as the area boosts a low unemployment rate at 7.6%. Data indicates a need for additional housing in this shale area. The Bakken has a low housing vacancy rate relative to this group and is expected to see a home value increase of 9.6% through 2018. On the retail front, the demand for grocery, general merchandise stores and restaurants is surpassing the current supply by a significant degree.

Fayetteville

Eagle Ford Eagle Ford sits in the middle of the pack from a population standpoint. But its residents are the youngest of the shale plays with a median age of 32. While Eagle Ford is currently at the low end for household income, it is expected to see the strongest income growth through 2018 (4.6% compared to the U.S. average of 3.0%). The economy in Eagle Ford is more diverse than some of the other shale regions. This shale play has a lower percentage of energy jobs (1.8%) and a larger percentages of manufacturing jobs (17.5%). This has resulted in the highest unemployment rate of the shale plays at 10.8%. With a housing vacancy rate of 21.8% and modest home value creation expected through 2018, the residential market in Eagle Ford does not need more supply. Similarly, the current volume of grocery stores, general merchandise stores and automobile dealers is surpassing demand. What this shale play needs is more restaurants, with a retail gap of $2.6 million.

Haynesville

The Fayetteville shale play is well populated with 660,000 residents but little population growth is expected through 2018. One obstacle to population growth is the low household income and weak outlook for income growth expected over the next few years.

While, lesser known than Marcellus and Bakken, the Haynesville shale is the third most populated with approximately 842,000 residents. While the median household income is currently in the middle of this sample set, it is expected to see a 4.0% rise through 2018.

The Fayetteville shale holds one of the highest percentages of energy works at 5.6%. It also has a healthy number of manufacturing jobs. The presence of energy, agriculture and mining businesses has left the area with a lower unemployment rate of 8.1%.

The labor market is focused on energy and manufacturing, but does have some diversification in the form of construction and educational services. The unemployment here is 8.2%.

A surplus of housing stock needs to be worked through before home values will rise in this shale area. The Fayetteville shale has the highest housing vacancy rate at 22.9% and low population growth will make for a slow recovery. In terms of retail development, there is a large need for grocery stores (retail gap of $87.3 million) and restaurants (retail gap of $34.3 million).

The Haynesville shale area is in need of housing. This shale play has the second lowest housing vacancy rate (8.3%) and the second highest average value ($209,018). Through 2018, the average home value is expected to increase 36.1%, well above the national expected average of 3.0%. Haynesville is hungry for both grocery stores and restaurants.

Source: Esri JLL | North America | Energy Outlook | 2014

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U.S. shale profiles: people, labor & real estate Marcellus

Niobrara

The Marcellus shale is the most heavily populated of all the plays with 1.5 million residents in the Pennsylvania counties with 50 or more active wells. Having already reached significant size, it is expected to see the lowest population gains through 2018. Those living here are the oldest, with a median age of 44.

Overlapping with the Denver metro area, the Niobrara shale is the second most populated behind Marcellus. But unlike the Marcellus where growth is expected to be slow ahead, this area's population will expand by 1.4% through 2018. The area boasts the highest household income and will see it grow by 3.7% over the next few years.

There are nearly 80,000 different businesses within this geography. This mass has led to greater industry diversity though the area does have the highest percentage of manufacturing jobs at 21.2%. The unemployment rate closely trails the Bakken at 7.9%.

Due to its overlap with Denver's metro area, the employment make-up of the Niobrara shale is more diversified. The area has a large number of healthcare, technology and educational jobs in addition to energy. The unemployment rate is the second lowest at 5.3%.

Like Haynesville, a large population has driven up home values. But, unlike Haynesville, there is plenty of vacant stock in Marcellus to go around (vacancy rate of 15.4%). Retail supply is also largely sufficient. Currently there is a surplus of automobile dealers, general merchandise stores and restaurants. Instead there is a huge need for grocery stores with a retail gap of $237.7 million.

A case can be made for residential development around the Niobrara shale. The area has the lowest housing vacancy rate at 6.3% and the highest average home value at $296,474. In fact, home values in Niobrara are almost 2.5 times higher than those in the Bakken. In the retail market, there is a huge need for restaurants with a gap between supply and demand of approximately $153.7 million.

Permian

Woodford

The Permian Basin in West Texas is less populated; close in size to Woodford in Oklahoma. But it is expected to see the second highest rate of population growth after the Bakken. The workforce here is young, similar to its neighbor Eagle Ford. The median age is 34.

The Woodford shale play is home to approximately 475,000 residents making it twice as populated as the Bakken, but smaller than the other zones. Household income in Woodford ranks in the upper half of the shale plays. But spending power is not expected to increase much through 2018.

The economy around the Permian Basin is all about energy. This area has the highest percentage of energy jobs among all the shale plays (18.0%). The dependence on energy and little manufacturing diversity gives Permian the lowest unemployment rate of the group at 4.2%.

Similar to Eagle Ford, the Woodford shale play has a higher unemployment rate due to fewer energy jobs and a large percentage of manufacturing employees.

The housing market around the Permian shale is tight with a lower vacancy rate of 9.0%. From now to 2018, the average home value in this area is expected to jump 32.1%. In terms of retail real estate, the area is fairly developed with supply outpacing demand right now in the automobile and general merchandise segments.

Despite a higher unemployment rate, the housing market in the Woodford shale is active. The housing vacancy rate is 11.0% and demand is expected to drive up home values by 36.6%. Like the Bakken, there is a need for additional retail development across sectors.

Source: Esri JLL | North America | Energy Outlook | 2014

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Multifamily

JLL | North America | Energy Outlook | 2014

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Energy & Multifamily

Houston’s multifamily market has likely experienced the most notable gains as a direct result of the energy sector. Over the last 12 months the metro absorbed 14,574 units (the highest nationally) and saw vacancy decrease 1.3 percent. To put that into perspective, major U.S. metros absorbed 4,100 units on average during that same time period, which lead to an average vacancy reduction of 30 basis points. Additionally, as a result of the significant employment gains and population growth in Houston, multifamily vacancy has dropped from 12.9 percent in 2010 to 5.5 percent today.

Houston’s development pipeline is growing rapidly to meet the rental demand; nearly 25,000 units are currently under construction and an additional 20,000 units are in the proposed or planning stages. While Dallas-Fort Worth’s economy is diverse, the energy sector continues to play an important role, particularly in the Fort Worth metro where the Barnett Shale formation has directly supported economic expansion. Following Houston, DFW saw the second highest number of units absorbed over the last year (13,630) as renter demand outpaced deliveries (10,590). In fact DFW saw more units delivered over the last 12 months than any other U.S. metro. The metro’s vacancy currently sits just above the national average at 4.6 percent; a substantial drop from its 10.3 percent vacancy rate in 2010. In addition to Houston and Dallas-Fort Worth, Denver have also seen apartment fundamentals tightened considerably in recent years. While unit absorption in Denver is beginning to slow as a result of its deepening

100,000

9.0%

90,000 80,000

8.0%

70,000

6.0%

7.0%

60,000

5.0%

50,000

4.0%

40,000 30,000

3.0%

20,000

2.0%

10,000

1.0%

0

Vancancy and rent growth

While nearly all major U.S. metros are experiencing occupancy growth, the highest percentage of unit absorption can be found within the recovering Sunbelt and STEM centric economies. Metros in which the energy industry is a primary economic driver, such as Houston, DallasFort Worth and Denver, are realizing some of the most significant gains across the United States while at the same time experiencing robust multifamily development.

United States multifamily performance indicators Absorption and deliveries (units)

Multifamily fundamentals across the United States continue to remain historically tight, with vacancy reaching a record low of 4.0 percent during the first quarter of 2014 and annual rent growth above 3.0 percent. Supporting this trend is a continued aversion towards homeownership, population growth within prime renter cohorts (millennial and empty nesters) and a rise in household formation as a result of job growth, the economic recovery and the resulting consumer confidence.

0.0% 2010 Q1

2010 Q3

2011 Q1

2011 Q3

2012 Q1

2012 Q3

2012 Q1

2012 Q3

2014 Q1

Deliveries (units)

Net Absorption (units)

12-month effective rent growth

Vacancy

Source: REIS, JLL Research

Top 10 metros – 12 month unit absorption Houston

14.6

Dallas-Ft. Worth

13.6

Wash-NoVa-MD

7.5

South Florida

5.8

Seattle

5.7

Los Angeles

5.5

Austin

5.0

Phoenix

4.6

Denver

4.6

New York

4.4 -

Energy markets

5

10 15 20 Units absorbed (thousands)

Source: REIS, JLL Research

JLL | North America | Energy Outlook | 2014

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delivery pipeline, the metro continues to experience some of the strongest rent growth in the country. Additionally, over the last year, the metro has absorbed 2.6 percent of its inventory and seen vacancy decline to a historical low of 3.6 percent. Despite a heavy pipeline of more than 12,600 units under construction, expansion within Denver’s energy sector and its auxiliary industries continues to drive above average wage growth, population in-migration and household formation. All of which bode well for the apartment market’s long-term outlook. Outlook Looking ahead, we expect the U.S. energy sector to be a significant contributor to strong multifamily fundamentals as job growth helps to mitigate over supply concerns in core energy metros. Additionally, the energy sector could provide investors and developers with interesting opportunities outside of the typical primary and secondary metros as available jobs drive population growth into the quickly growing “fracking boom towns” around the country. The most notable example is the economic expansion occurring in Williston, North Dakota, where population in-migration is far outpacing residential supply, and, in turn, is reportedly driving apartment rents upwards of $2.50 per square foot.

Top 10 major metros – 2013 household formation 3.0%

Household

Energy markets

Population

2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

Source: Moody’s Analytics, JLL Research

United States multifamily vacancy map

Seattle Portland Boston New York Philadelphia San

Baltimore Washington DC Richmond-Tidewater

Los

Raleigh

Orang

Charlotte

San Diego Vacancy meter 7.0% +

Nashville ksonville rlando

6.0% to 6.9% 4.0% to 5.9%

South FL

Source: REIS, JLL Research

JLL | North America | Energy Outlook | 2014

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Retail

JLL | North America | Energy Outlook | 2014

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Energy & Retail

The Bakken Shale will mean big business for Williston, ND The recession had at least one lasting effect: it so diminished new supply that markets that stand to see the greatest retail growth in years to come will be characterized by strong population and employment growth. Enter Williston, ND, a burgeoning energy-dependent town with a mushrooming population count and nowhere near enough supply to meet residents’ demands. In fact, typically, consumers drive more than an hour to go shopping.

The average retail square footage per person in the U.S. is 23.8 square feet. For North Dakota, that number sinks almost 50 percent to 12.02 square feet.

The sharp rise in employment has led to a housing shortage in Williston

18000 16000 14000 12000 10000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: U.S. Census Bureau

Service population in Williston will almost triple from 2010 to 2017 Service population (permanent & temporary) Permanent population

The total retail demand for the Williston trade area is 4.8 million square feet in 2014 and is projected to reach 6.9 million square feet in 2024. The total retail demand for regional centers is approximately 1.9 million in 2014 and 2.6 million in 2024. Fortunately, development will soon be underway which will help meet the needs of local consumers. International real estate company, Stropiq is planning a $500 million open-air project, which will encompass roughly 1 million square feet of retail, entertainment and hotel space, along with generous office and multifamily components, spread over 219 acres of land.

60000 40000 20000 0

2010 Source: U.S. Census Bureau

2012

2017

Retail will follow rooftops: as population rises, so will retail demand 200000

Permanent population

Temporary worker population

150000 100000 50000 0 2014

2017

2019

2021

2024

2030

2036

Source: NCG, Claritas

Williston is severely under retailed: current and future retail demand far exceeds current space Millions of square feet

The large need for workers has put upward pressure on wages and resulted in very high household income for energy workers. In a recent survey, temporary workers boast an average annual income of $115,587, while permanent workers can command an annual income as high as $132,303. The ripple effect of this uptick in spending power is heightened demand for food, shelter, leisure and shopping locales. Midland, Texas saw its average personal income soar 25 percent from 2009 to 2011 – more than any other metro area. The result was skyrocketing demand for retail; in fact, a recent study showed potential for $578 million in restaurant sales in the Midland market.

Housing units

20000

80000

The U.S. oil and gas industry is investing aggressively in infrastructure in the near future, with 2014 expected to be especially strong. Over the next six years, annual investments are expected to hit at least $80 billion. Shale formation areas like Bakken in North Dakota and Eagle Ford in Texas, will require more extensive investments in infrastructure since they are not historic production regions. Estimates are that the Williston area will benefit from at least a 30-year window of prosperity.

Regional employment

22000

8

Total regional Retail Demand Potential Est. Regional Retail Demand in Regional Centers

6 4 2

0 2014 2017 Source: NCG, Claritas

2019

2021

JLL | North America | Energy Outlook | 2014

2024

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The Texas energy markets While the relatively new energy industry in Williston is turning heads, the Texas markets are still quite robust. Employment growth in Houston continues to be well-above average, with more than 340,000 jobs added since the recovery began, or roughly three for every one lost in the recession. Employment actually surpassed its previous peak in 2008 by 9.0 percent in March 2014. While hiring growth has been broad-based, it all ties in with the energy sector in one way or another. Service-oriented sectors dependent on population growth are also indirectly benefitting from growth in the energy industry. This includes education and healthcare, leisure and hospitality, and retail. Dallas employment has been similarly strong. The market added over 90,000 jobs in the last year, which has brought on a flurry of in-migration and population growth. In fact, population growth has been roughly twice that of the national average., and one of the best in the U.S., totaling more than 70,000 people in the last 12 months. As retail follows rooftops in this post-recession world, it is no surprise that net absorption has been dominant in these two Texas markets. As a percentage of total inventory, net absorption in Houston and Dallas exceeds levels tracked in the East Coast, Western markets, Florida and Chicago. Vacancy has fallen 210 and 200 basis points (for Houston and Dallas, respectively) since their peaks during the recession. Since construction levels are still low, vacancy rates should continue to compress in the next several quarters, until deliveries ramp up.

Not surprisingly, energy markets had the greatest demand in the last four quarters Florida markets

0.6% 1.0% Last 4 quarters

West markets 0.6% Energy/SW markets

1.1% East coast markets Absorption as % of inventory Source: CoStar, JLL. As of Q1 2014

Recent leasing activity Grocers

Kroger, Whole Foods, Trader Joe’s, Fresh Market, Aldi

Discounters

Dollar Tree, Walmart, Five Below

Sports & hobby

Golf Galaxy

Combined, energy markets have absorbed the most space in the last four quarters

Absorption as % of total stock

2.0%

East coast

West

Florida

Energy

1.5% 1.0% 0.5% 0.0% -0.5%

So, what does this mean for retail? Energy markets will continue to be strong retail performers, with continued vacancy compression, rising sales and rising rents. For the Texas markets, with more established retail, as construction returns in late 2015, retail fundamentals will gradually reach equilibrium, and there will be little room for further growth. The situation in Williston is radically different, however, given that it is a relatively new market, with outsized population and employment growth and very little existing retail. We can expect to see a flurry of new supply, largely pre-leased, and climbing rents for the foreseeable future, until population levels out, and demand and supply reach equilibrium. JLL | North America | Energy Outlook | 2014

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Energy Office markets

JLL | North America | Energy Outlook | 2014

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Calgary | Office 70.0%

80.0%

14.0%

15,000

Percentage of energy tenants occupying the CBD market

Percentage of energy tenants occupying top-tier CBD market

Percent change of energy jobs since 2007

Average lease size (s.f.) among energy tenants

Historically, large energy tenants have been attracted to high-rise Class AA/A buildings in the CBD. This trend continues with the larger companies still driving development and absorption of large blocks of space in the downtown core. Although some larger oil and gas companies have started to migrate to more open concept and flexible environments, the majority in the sector favour office intensive layouts. Calgary’s energy companies continue to lease space in the CBD despite Imperial Oil’s decision to move to a campus environment in the suburban market. This 800,000 square foot facility is similar to those seen in major U.S. oil cities. Unlike Imperial, other large energy companies like Cenovus, Husky Energy, and Nexen have renewed their commitment to long-term CBD tenancies. For now, it is likely that Imperial Oil will remain the sole large cap energy company to be located in suburban Calgary. On the horizon for Calgary’s oil and gas tenants is the current building cycle which is expected to bring 4.9 million square feet of new construction to the downtown market from now until 2018. With many large energy companies relocating to these new buildings, a significant quantity of backfill space is anticipated as the larger users consolidate in new premises. TransCanada Pipelines recently took advantage of such an opportunity and leased 300,000 square feet of Imperial Oil’s backfill space in Fifth Avenue Place West. Activity in the A/AA market has been very strong with in excess of 3.0 million square feet of leasing buoying landlords’ expectations for the market in the early part of 2014. It’s been almost a decade since Calgary has seen a new building developed that has not been fully leased prior to completion date. Demand – 60% of total active requirements in the market E&P Energy Company 300,000 s.f. Expansion Energy Services Company 150,000 s.f. Expansion

Outlook for Tenants •

Increasing office supply may result in a more tenant favoured market from 2017 onward Current sublease market conditions can provide cost effective opportunities for mid to large cap companies looking for full floor opportunities



for Landlords •

Alberta continues to lead the country in population growth with the highest net gain in interprovincial immigration Increased M&A activity may precipitate increased sublease vacancies and large scale relocations



Pricing and incentives

$54.42

$33.89

CBD Gross rent ($ p.s.f.)

Suburban asking rent ($ p.s.f.)

$57.05

N/A

Average CBD energy rent ($ p.s.f.)

Average suburban energy rent ($ p.s.f.)

$25.00

1/3

TI allowance ($ p.s.f.)

Free rent (months)

**averages on 10-year new/renewal transactions

2014 Transactions

Calgary continues to be the epicenter of the oil and gas industry in Canada, with oil and gas exploration, production and transmission the main economic drivers. Approximately 70.0 percent of Calgary’s central business district (CBD) is occupied by energy or energy service firms. In 2013, 120,700 Calgarians were employed in the energy sector which produced CAD $34.27 billion dollars worth of GDP for Calgary. With the majority of the energy company’s Canadian headquarters based in Calgary, its office market continues to expand and contract with the energy sector.

Cenovus Energy Inc. Brookfield Place - East 1,000,000 s.f. New, Growing

TransCanada PipeLines Limited Fifth Avenue Place - West 300,000 s.f. New, Expansion

Ernst & Young Calgary City Centre 80,000 s.f. New, Stable

JLL | North America | Energy Outlook | 2014

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Dallas – Fort Worth | Office 6.0%

Dallas 9% Fort Worth 28%

34.6%

40,000

Percentage of energy tenants in the market

Percentage of energy tenants in top-tier CBD market

Percent change of energy jobs since 2007

Average lease size (s.f.) among energy companies

Even though DFW has diversified into a variety of technology areas, energy continues to be a fundamental part of North Texas. A key economic driver has been the Barnett Shale natural gas deposits west of the Metroplex, which has reinforced Fort Worth’s CBD as an energy hub.

Outlook for Tenants •

While this resource has been known for decades, the wells through the early 1990s were experimental. When horizontal drilling and fracturing technologies took off after 2000, it became feasible to tap these resources. It is estimated that this resource has contributed more than $1 billion to the local and state governments.



Lower natural gas prices have caused some companies to pull back Barnett shale exploration. Even so, North Texas continues to benefit as an energy hub because of its critical mass of energy and related companies (engineering, law, accounting, and investment banking) that serve a broader region that encompass oil and gas from West Texas’ Permian Basin, South Texas’ Eagle Ford shale reserves, and beyond. In the last year, Dallas-based Matador Resources reported that its better drilling times, managed costs, and increased borrowing capacity will allow it to expand drilling in its Eagle Ford Shale holdings. Even Richardson-based Reef Oil & Gas has entered a joint venture with Conoco-Phillips to expand into North Dakota’s Bakken Shale, which brings its active operations into 16 states. XTO (an recent Exxon subsidiary) is also expanding in Midland’s Permian Basin and moving into 55,000 acres in Ohio’s Utica Shale. Likewise, Pioneer, based in Irving and the biggest producer in the Permian Basin, estimates that its oil production will double by 2018 due to its operations in west Texas.

• •

Location needs vary given companies range in size from Exxon Mobil's corporate headquarters to start-ups. Demand – 3% of total active requirements in the market Pioneer Resources

300,000 s.f.

Expansion

EXCO

300,000 s.f.

Renewal

Regency Oil & Gas

100,000 s.f.

Stable



for Landlords •

Higher competition for tenants due to increased “spec” office construction and BTS opportunities needing anchor users Ability to raise rates due to tighter office market conditions Tenants may need flexibility for expansion or shifting space needs

Pricing and incentives Dallas Fort Worth

$21.00-$22.00 $26.00-$30.00

CBD asking rent ($ p.s.f.)

Dallas Fort Worth

Dallas Fort Worth

$21.00-$22.00 $26.00-$30.00

$45.00/$10.00 $35.00/$15.00

TI allowance ($ p.s.f.)**

Dallas Fort Worth

$21.50-$22.50 $22.00-$23.00

Suburban asking rent ($ p.s.f.)

Average CBD energy rent ($ p.s.f.)

Dallas Fort Worth

$21.50-$22.50 $22.00-$23.00

Average suburban energy rent ($ p.s.f.)

Dallas Fort Worth

10/6 6/3

Free rent (months)**

**averages on 10-year new/renewal transactions

2014 Transactions

On the office front, while energy companies are not growing organically at the pace they had a few years ago, most are maintaining their presence, with the exception of Encana that shuttered its recently constructed Dallas operation due to corporate restructuring. Other companies are expanding elsewhere, like Exxon Mobile’s new Houston campus and Breitling’s planned Houston hub.

Higher operating costs due to rising rents in new construction and in existing stock Downward pressure on energy pricing requires right-sizing of office operations and potential geographic location adjustments More regional operations offset local growth and expansions

Murchison Oil & Gas Legacy Tower, Plano TX 27,000 s.f. Relocation to new construction

Venari Resources Colonnade II, Addison, TX 25,200 s.f. Renewal, Growing

Forestar DR Horton Tower, Fort Worth, TX 21,000 s.f. Relocation & Expansion, Growing

JLL | North America | Energy Outlook | 2014

16

Denver | Office 9.0%

25.0%

27.5%

9,000

Percentage of energy tenants in the market

Percentage of energy tenants in top-tier CBD market

Percent change of energy jobs since 2007

Average lease size (s.f.) among energy companies

Flush with abundant natural resources, Colorado’s economic fortunes have long been tied directly to the energy industry. For over a century, energy exploration has been ongoing throughout the Denver-Julesburg Basin, but it has not been until the past decade that such a tremendous impact has reverberated throughout Northern Colorado and metro Denver, with a rush of investment and activity at levels not previously seen. Put simply, Denver is “oil country,” and its local economy is being buoyed as unprecedented amounts of capital pour into the region. This city is now a key office operations market and is especially vital to the oil and gas industries. In its 8,000-respondent survey, Rigzone recently named Denver the third-best city in the world for representing the most important, promising opportunities in the industry and the employees that drive it. Denver was the only American city to make the list, quickly establishing itself a global energy hub.

Outlook for Tenants • • •

Scrutiny toward state-wide regulatory referenda centered on fracking Escalating rental rates throughout the metro, including suburban markets Growing payrolls partially attributable to net in-migration gains and, consequently, increased space demand

for Landlords • •

Scrutiny toward state-wide regulatory referenda centered on fracking Rising investment competition fueled by yields that are higher here than in many coastal markets Pursuit of more build-to-suit development for meeting heightened location and space requirements



Pricing and incentives

Denver is a region at the forefront of energy development. Its unique location offers a mix few cities can match: the ability to both retain senior management and attract new talent; proximity to higher education programs and research centers; access to research collected by a broad group of federal and private research activities; public policy programs formed to encourage industry growth. We anticipate robust employment growth over the long-term, making energy firms an attractive target for commercial real estate developers and investors here in Denver. Demand – 21.3% of total active requirements in the market Anadarko Petroleum Corp. 60,000 s.f. Growing Sanjel, Inc. 32,000 s.f. Growing TPG Capital / Jonah Energy LLC 30,000 s.f. Growing

$30.19

$21.81

CBD asking rent ($ p.s.f.)

Suburban asking rent ($ p.s.f.)

$30.00

$22.00

Average CBD energy rent ($ p.s.f.)

Average suburban energy rent ($ p.s.f.)

$50.00/$40.00

10/8

TI allowance ($ p.s.f.)**

Free rent (months)**

**averages on 10-year new/renewal transactions

2014 Transactions

Oil and gas still operates on magnitudes of paperwork; not surprisingly, it is the leading edge of Denver’s surging commercial office market. Broadly speaking, energy companies seek trophy space in top-tier CBDcenter properties within reasonably close proximity to like-kind businesses. The past two years’ shrinking vacancy rates, tightening availabilities, rising rental rates and positive absorption have largely been driven by the sector’s exponentially increased production, and the gains made have rippled throughout the region. Energy’s profitability is translating into growing payrolls for the numerous ancillary industries that support it, from construction and engineering firms to legal and accounting services. In turn, many of these businesses have sought larger space footprints of their own, helping move the office market nearer toward the landlord-favorable end of the pendulum.

EOG Resources, Inc. 600 17th Street 154,681 s.f. Renewal, Stable

DCP Midstream Partners, LP 370 17th Street 146,808 s.f. Renewal, Stable

Bonanza Creek Energy, Inc. 410 17th Street 89,000 s.f. Expansion, Growing

JLL | North America | Energy Outlook | 2014

17

Edmonton | Office 6.5%

7.0%

101.0%

15,000

Percentage of energy tenants in the market

Percentage of energy tenants in top-tier CBD market

Percent change of energy jobs since 2007

Average lease size (s.f.) among energy companies

Strategically located between the world’s second largest oil reserves and the U.S., Edmonton’s thriving economy has kept demand for commercial real estate strong. Despite Edmonton’s real estate market being commonly associated with industrial space, there are a wide range of firms that require office space located there. Energy firms have historically been located in both the CBD and suburban office markets. The largest cluster of companies are found in Sherwood Park, just east of the city. Downtown typically houses tenants focused on service, scientific and engineering disciplines dependent on the oil and gas sector. However, some of these firms have also chosen to locate in suburban markets, primarily on Edmonton’s south side. Edmonton's energy sector saw a ‘boom’ in 2007 and many firms expanded into additional buildings, often taking up more space than required in anticipation of further growth. While there is still strong growth in the sector, energy firms are increasingly looking for cost-saving measures in a highly capital intensive environment. While real estate accounts for only a fraction of overall costs, it has become increasingly important for firms to rethink their real estate needs and the need to consolidate is increasingly prevalent. It has become evident in recent quarters that a number of firms want to bring all employees under one roof, generating both cost savings and promoting collaboration among groups that were often located far apart. Examples of companies currently looking at consolidation options are Stantec, a design and consulting firm headquartered in Edmonton and Enbridge, Canada’s largest natural gas distributor. Both are considering new office developments in downtown Edmonton. The overall outlook for Edmonton's economy remains positive although the current office construction boom is expected to have a significant impact on the leasing market with increasingly tenant-favorable conditions over the next few years. Demand – 50% of total active requirements in the market Enbridge

600,000 s.f.

Stable

Stantec

350,000 s.f.

Stable

Outlook for Tenants •

The high quality and quantity of new space coming to the market through 2014 and 2016 will create more options for tenants, especially large office users who previously had a limited pool of options for growth. Financial District rents are expected to decrease as landlords are eager to lock in deals before the new constructions are completed.



for Landlords •

Vacant space and new construction are putting downward pressure on rents. Employment growth is expected to remain strong.



Pricing and incentives

$35.25

$29.17

CBD asking rent ($ p.s.f.)

Suburban asking rent ($ p.s.f.)

$35.25

$29.17

Average CBD energy rent ($ p.s.f.)

Average suburban energy rent ($ p.s.f.)

$25.00/$10.00

N/A

TI allowance ($ p.s.f.)**

Free rent (months)**

**averages on 10-year new/renewal transactions

2014 Transactions

The key driver of Edmonton's economic growth remains the energy sector, both conventional and unconventional oil and natural gas. The sector has expanded to include a number of ancillary industries including transportation, manufacturing, clean energy and technology, to name a few, resulting in both a diverse and resilient economy.

AECOM 18817 Stoney Plain Rd. West Campus 77,111 s.f. Consolidating, Stable

General Electrics Centre Point Place, 10205 – 101 Street 16,000 s.f. Relocation

JLL | North America | Energy Outlook | 2014

18

Houston | Office 38.0%

51.0%

28.3%

149,000

Percentage of energy tenants in the market

Percentage of energy tenants in top-tier CBD market

Percent change of energy jobs since 2007

Average lease size (s.f.) among energy companies

The Houston economy has long been driven by the success of the energy industry in the area, and this year has seen the same economic trend. 2014 has continued the pattern of a booming local economy with staggering job growth at a rate of 3.0 percent year-on-year. The office market has reflected this job growth with the expansion and relocation of energy companies. Through the first quarter of 2014, the Houston market has experienced over 1 million square feet of positive total absorption. A trend contributing to success in the Houston market is energy firms dividing into smaller, more focused units. One such company is Occidental Petroleum, who has announced that they will be separating into two companies and moving their headquarters from California to Houston by early 2015. They are expected to look at their current location in Greenway Plaza for any additional space needs. BP is another example of this division-to-grow, announcing they have formed a separate business to manage onshore oil and natural gas assets in the U.S. These divisions and others will lead to an increase in aggregate demand and absorption for office space in the market. Exxon Mobil’s 4 million square-foot campus south of The Woodlands is expected to see the first tenants by the fourth quarter of this year. The campus is rumored to have an emphasis on natural light and informal meeting spaces, which has been tested to have success with employee groups of varying ages. Companies are willing to invest more in unique spatial differentiators like these to recruit the best talent possible.

Outlook for Tenants • •

New developments in pipeline allow for preleasing opportunities Higher rents in existing buildings due to low vacancies in major submarkets Spending more for space to accommodate new technologies



for Landlords • • • •

Favorable conditions result in fewer concessions being offered Able to raise rents while new construction is still underway New inventory may level out rise in market rents Landlords with low basis in their property are better positioned to compete aggressively for tenants

Pricing and incentives

$41.43

$34.37 Average suburban energy rent ($ p.s.f.)

$45.00/$30.00

3/0

TI allowance ($ p.s.f.)**

Free rent (months)**

Transocean

350,000 s.f.

Growing

Foster Wheeler

325,000 s.f.

Relocation

Linn Energy

300,000 s.f.

Growing

**averages on 10-year new/renewal transactions

2014 Transactions

Demand – 35.0% of total active requirements in the market

$33.05 Suburban asking rent ($ p.s.f.)

Average CBD energy rent ($ p.s.f.)

The ever-growing Energy Corridor continues to draw developers, which means the nearly 5 million square feet of office under construction in the submarket may escalate. New developments have been proposed in the CBD as well which could bring as much as 3M square feet of new Class A space to the submarket. Until new construction delivers to these and other submarkets, in approximately 2015 and beyond, the market will remain very tight and landlord favorable. Even with the new deliveries we may not see a relief of demand in the market. Look for rents to continue the upward trend experienced in recent years.

$40.51 CBD asking rent ($ p.s.f.)

Cheniere Energy Pennzoil Place 167,446 s.f. Renewal

IHI One Eldridge Place 61,455 s.f. Relocation

Air Liquide (HQ relocation) 9807 and 9811 Katy Freeway 600,000 s.f. (two buildings) Relocation

JLL | North America | Energy Outlook | 2014

19

Pittsburgh | Office 18.0%

5.0%

44.7%

40,000

Percentage of energy tenants in the market

Percentage of energy tenants in top-tier CBD market

Percent change of energy jobs since 2007

Average lease size (s.f.) among energy companies

Leasing demand from natural gas and other energy-related companies is helping to drive growth and bolster the Pittsburgh office market, where rents are at their highest in more than a decade. In fact, the Pittsburgh market is outpacing national growth in rents and occupancy, thanks in large part to the energy sector. While a few of these companies have chosen to locate within the CBD, the majority reside within the suburban submarkets, and in particular, the Southpointe submarket. Southpointe is home to more than 60 energy companies, including MarkWest, Schlumberger, Range Resources, Halliburton and Consol Energy. Soon to be joining the roster of energy tenants in Southpointe is Houston, Texas-based oil and gas company Noble Energy Inc. The company has leased 139,000 square feet at the currently under construction Town Square Office Building at 1700 Main Street in Canonsburg, PA. Noble’s lease, which was signed in the latter half of 2013, was the largest office transaction in Pittsburgh for 2013. The Noble lease marks the second year in a row the region’s largest office lease came out of Southpointe II. In 2012, Ansys Inc. agreed to lease 186,000 square feet at the Zenith Ridge development by Burns & Scalo Real Estate Services at Southpointe II, now under construction.

Outlook for Tenants • • •

Market conditions will remain tight in the CBD over the coming year Energy tenants will continue to cluster in the Southpointe submarket New office stock and build-to-suit options will remain available in the Southpointe submarket

for Landlords •

With historically low vacancy in the CBD expected to persist into 2015, landlords will continue to hold leverage at the negotiating table Landlords can expect increased demand over the coming year as energy companies gain a foothold and shale production increases exponentially



Pricing and incentives

$22.94

$20.13

CBD asking rent ($ p.s.f.)

Suburban asking rent ($ p.s.f.)

$23.91

$22.68

Average CBD energy rent ($ p.s.f.)

Average suburban energy rent ($ p.s.f.)

$30/$15.00

2/4

TI allowance ($ p.s.f.)**

Free rent (months)**

With record low vacancy and large blocks of space virtually nonexistent, developers have been quick to capitalize on the landlord-favorable conditions. Currently, over 1.5 million square feet of office property is under construction, a third of which is speculative.

2014 Transactions

Despite the unprecedented market conditions, landlords have only been able to push rents up marginally over the last year, in part because of the already record-high levels. With vacancies continuing to trend downward, rent growth is expected to persist through 2014 keeping the leverage in the landlord’s corner.

**averages on 10-year new/renewal transactions

Rice Energy 300 Woodcliff Dr 18,000 s.f. New Lease, Growing

JLL | North America | Energy Outlook | 2014

20

Philadelphia | Office 2.0%

1.0%

-7.7%

26,367

Percentage of energy tenants in the market

Percentage of energy tenants in top-tier CBD market

Percent change of energy jobs since 2007

Average lease size (s.f.) among energy companies

DTE and Pusey are suburban firms that opened downtown offices. They are not as noteworthy and neither of them have demonstrated growth. DTE principally opened its office at The Navy Yard because it runs The Navy Yard's grid. All in all, the energy sector is one of many small but growing industries in the CBD facilitating diversified growth and occasionally providing sources of demands for Top-tier inventory. However, relative to the healthcare, education, media, technology, manufacturing and general professional services sectors, energy has not had a significant impact on current leasing fundamentals. Continued conversations concerning the viability of linking Philly into Western PA shale resources would be a game changer for the sector locally, and vested parties will continue to pursue this strategy. However, regardless of its potential, it will not impact local markets over the next few years. Entrepreneurial energy companies and research groups more so will be the principle drivers of energy leasing demand.

Outlook for Tenants • • •

Tightening local market conditions Slow national GDP growth; modest local growth Currently renovation projects are more favorable than build-to-suit projects

for Landlords • • •

Well-capitalized landlords continue to invest in renovations Landlords will continue pushing rents as market conditions tighten Focusing on improving building conditions and adding to building amenities

Pricing and incentives

$27.04

$25.14

CBD asking rent ($ p.s.f.)

Suburban asking rent ($ p.s.f.)

$25.00

$24.00

Average CBD energy rent ($ p.s.f.)

Average suburban energy rent ($ p.s.f.)

$45.00/$20.00

12/6

TI allowance ($ p.s.f.)**

Free rent (months)**

**averages on 10-year new/renewal transactions

2014 Transactions

Philadelphia Energy Solutions (PES), Mark Group and ecoSave are all good examples of companies which have opened either new or US operations in Philly over the past few years. PES runs the South Philly Refinery for Carylse and ETP and expanded onto an additional floor at 1735 Market Street last year. Mark Group and ecoSave both selected Philadelphia (and The Navy Yard specifically) for their North American headquarters. Both are in flex properties with ecoSave now leasing short-term space. Its BTS flex building should project ground soon.

ecoSave Three Crescent Drive, Philadelphia 6,600 s.f. New Location, Growing

Detroit Edison (DTE) 4747 S. Broad Street, Philadelphia 2,300 s.f. New Location, Growing

AirGas 259 N. Radnor Chester Road, Radnor 4,983 s.f. Expansion, Growning Slowly

JLL | North America | Energy Outlook | 2014

21

Energy Industrial markets

JLL | North America | Energy Outlook | 2014

22

Calgary | Industrial 7.0%

38,120

32,500

26,060

Percentage of energy tenants in the market

Average lease size (s.f.) among energy companies

Average facility size (s.f.)

# of energy related manufacturing jobs

Calgary continues to see interest from energy companies looking to expand their industrial space and industrial land holdings, as Calgary continues to strengthen its foothold as a strategic hub for Western Canadian distribution. Intensive industrial development has centered around land adjacent to the Calgary International Airport. Industrial development seems to have followed infrastructure investment; which has been heavily concentrated in northeast Calgary. With the northeast seeing the completion of a major ring road and a new airport tunnel, as well as large-scale expansion of the airport itself, industrial development opportunities are following, and are plentiful around the YYC terminal. YYC is one of the fastest growing cargo airports in North America and its strategic location provides a single hub for receiving, transferring, storing and distributing air, rail and highway cargo. To support Calgary’s rapid growth in the north sector, Shepherd Development Corporation is developing 160 acres boasting 1.8 million square feet of industrial space. Another large development adjacent to the airport is WAM Development Corporation’s 1,000 acres of industrial land in Stonegate Landing. It will consist of up to 11.0 million square feet of industrial and retail space with access to hotels, restaurants and other amenities. CN rail recently opened its new state-of-the-art intermodal yard, the Calgary Logistics Park in Conrich located just minutes outside Calgary’s city limits. This 200 million square feet project connects to ports on all North American coasts and provide the fastest ocean/land service to Calgary from Asia.

Outlook for Tenants •

Wider range of choices are available across the market, particularly in Calgary’s North sector Relatively stable asking rates, and many new spaces available Ability to strategically locate near new and efficient infrastructure project

• •

for Landlords • • •

Expanded labor due to considerable growth in Calgary’s population Advances in technology which minimize costs and expand capabilities Capitalize on new developments and available land near the new ring road and logistics centers

Pricing and statistics

$8.05

6.0%

Average asking rent ($ p.s.f.)

Availability rate

$8.32

11

Average energy rent ($ p.s.f.)

# of facilities under construction

3

$184.00

# of energy related sale transactions (last 12-months)

Average sales price ($ p.s.f.)

Address

Owner/ Developer

s.f.

Yard space/ Delivery land area date

Stoney 5 & 6 @ Stoney Industrial Centre, 12290 – 18th St NE

WAM

716,224

14 acres

Q3 2014

Jacksonport

Shepard Development Corp

1,800,000

160 acres

Q1 2015

Stonegate Landing

WAM

~11,000,000 1,000 acres TBD

7120 – 7220 Barlow Trail SE Seller: 2137569 Ontario Inc. Buyer: Barlow Trail Investments Inc. $16.7M | $72.00 per s.f.

2014 Sales

Under construction

Leasing activity in the Calgary area reflected the strong demand and limited supply in the market, with close to 700,000 square feet of net absorption in the first quarter of 2014. Currently, 1.5 million square feet of warehouse and industrial development projects are slated for completion over the next three quarters in the metropolitan area.

8558 – 44 St SE Seller: Petro-Tech Heaters Ltd. Buyer: Canarector Properties Inc. $4.0M | $196 per s.f.

3740 – 11A St NE Seller: Triple Row Properties Ltd. Buyer: Traugot Building Contractors $24.8M | $47.87 per s.f.

JLL | North America | Energy Outlook | 2014

23

Dallas – Fort Worth | Industrial 1.0%

58,000

130,000

46,000

Percentage of energy tenants in the market

Average lease size (s.f.) among energy companies

Average facility size (s.f.)

# of energy related manufacturing jobs

Dallas-Fort Worth is not a heavy user of industrial/warehouse space for the energy industry because the region is more of a corporate office location than a drilling / exploration hub. Even though natural gas prices are slightly higher, demand for space is off from 2005 to 2009 due to high costs of developing the Barnett Shale fields. While in-place companies are stable they are not expanding and some have shifted resources to other locations. The facilities that do exist tend to be traditional warehouses and vary in location, size, and age. Lay-down yards are one popular option for temporary storage of large goods such as piping, tubing, and heavy equipment. Facilities like these are clustered around Fort Worth, especially in the west and south industrial areas because of proximity to the Barnett Shale fields west of the city. Oil field service facilities that support drilling, exploration, and completion also exist and include companies like Schlumberger and Halliburton. A typical oil field service facility would include warehouse space for parts (10,000 to 20,000 square feet), shop space for repairs (25,000 square feet), and land for storage of large items (10-plus acres). Rail access is an important component. In addition, because of Dallas-Fort Worth’s superior logistic framework of rail and truck, other operations exist to transport, clean, and store frac sand, as well as move oil and gas equipment and energy products through Texas and north into the Dakotas. This past year, Fort Worthheadquartered BNSF announced its plan to buy a fleet of 5,000 state-ofthe-art rail cars to ship oil safely across the nation.

Outlook for Tenants • • •

New spec inventory, especially in Alliance, gives tenants greater options Slow natural gas pricing recovery limits need to expand Potential need to manage locations closer to production sites to realize economic efficiencies

for Landlords •

Provide greater lay-down yard options in rail-served locations, especially as a potential interim land use Gradually tightening market conditions and increasing rents Intermodal and rail locations key to servicing this sector

• •

Pricing and statistics

$3.85

10.0%

Average asking rent ($ p.s.f.)

Availability rate

$3.00-$4.00

30

Average energy rent ($ p.s.f.)

# of facilities under construction

0

$59.00

# of energy related sale transactions (last 12-months)

Average sales price ($ p.s.f.)

Address

Owner/ Developer

s.f.

Yard space/ Delivery land area date

Procter & Gamble: 1500 S Millers Ferry Rd Wilmer, TX

Panattoni Development

1,400,000 0 acres

2014

Alliance Center North Alliance Airport: Fort Worth, TX

Hillwood Properties

1,200,000 0 acres

2014

Logistics Center I 2701 West Bethel Rd DFW Airport

Perot Development

1,052,000 0 acres

2014

Patriot I & II 4155 – 4255 Patriot Dr, Grapevine, TX Seller: DCT Industrial Buyer: JP Morgan $30.2M | $47.00 per s.f.

2014 Sales

Under construction

Some wind and solar power component manufacturers have been actively looking to expand operations in the area as the region is known for its strong technology workforce with several related industries already well established within the Metroplex.

Grand Prairie Distribution Center 1430 Ave R, Grand Prairie, TX Seller: ML Realty Partners Buyer: JLL Income Property Trust $17.2M | $62.00 per s.f. GRM Arlington 1701 Timberlake Dr, Arlington, TX Seller: Prologis Buyer: GMR Information Management $8.8M | $39.00 per s.f. JLL | North America | Energy Outlook | 2014

24

Denver | Industrial 5.0%

8,500

20,000

12,100

Percentage of energy tenants in the market

Average lease size (s.f.) among energy companies

Average facility size (s.f.)

# of energy related manufacturing jobs

Energy companies are concentrated largely in Weld and Adams counties, with a few tenants located in the I-70/East and Southeast submarkets. Field service businesses require 10,000 to 20,000-squarefoot buildings with at least three to five acres of land for outside storage and equipment. Unfortunately, these types of buildings are scarce and therefore, build-to-suits are often the only option in this market. Rates needed to construct these buildings for energy companies range from $18.00 to $22.00 NNN, a much higher rate than the $4.00 to $5.00 NNN for existing warehouse product. Because Denver’s existing energy tenants are already in place, most sales that occur are land sales.

Under construction

Speculative construction is making a big comeback with several properties currently under construction in the I-70/East, Southeast and Northwest submarkets. However, energy tenants tend to sign shorter term deals and the cost to construct spec product is very expensive, so developers are not willing to build due to the length of time it takes to break even. While the office market continues to see growth within the industry, the industrial market is in more of a holding pattern, partly due to a lack of the type of building required. For those companies already in place, now is a good time to complete renewals as rates will continue to tick upward and landlords will gain more leverage. The industrial sector of the industry is not as boisterous as the office sector, however, it is still considered an economic driver and will become more apparent as additional options are explored and provided in the marketplace. Address

Owner/ Developer

s.f.

Yard space/ Delivery land area date

Anadarko 501 N Division Blvd

Anadarko

118,000

15 acres

Q3 2014

Majestic Commercenter 3700 N Windsor Dr

Majestic Realty

500,000

24 acres

Q2 2014

Highfield Business Park 8501 Highland Pkwy

Central Development

98,750

7 acres

Q4 2014

Outlook for Tenants • • •

Tightening local market conditions Continued downward pressure on cost and risk No speculative construction occurring in areas where energy tenants occupy space, so build-to-suit projects are the only option

for Landlords • • •

Expanded labor pool due to a net increase in Denver's population Advances in technology which minimize costs and expand capabilities Buildings and users are in place, so activity for landlords is minimal

Pricing and statistics

$5.19

6.9%

Average asking rent ($ p.s.f.)

Availability rate

$4.19

20

Average energy rent ($ p.s.f.)

# of facilities under construction

2

$72

# of energy related sale transactions (last 12-months)

Average sales price ($ p.s.f.)

United Natural Foods, Inc. 17901 E 40th Ave Seller: The Pauls Corporation Buyer: Industrial Income Trust $46.4M | $83.70 per s.f.

2014 Sales

Denver’s industrial market is well and truly on its feet. Average requirements have increased in both size and total amount. Sales activity in general is ramping back up in a much more competitive environment. Energy companies make up roughly five percent of the overall market, although a majority of activity is within companies that support the industry. These businesses frequently provide pipe, drilling equipment, fracking sand, water, and field services, all requiring land for outside storage.

Fiberspar Corp. 3600 Ronald Reagan Blvd Seller: McWhinney Real Estate Services Buyer: Broadstone Real Estate $19.3M | $116.67 per s.f. 3333 E Center Dr Seller: All American Homes of Indiana Buyer: Bayou Well Services $3.6M | $28.15 per s.f.

JLL | North America | Energy Outlook | 2014

25

Edmonton | Industrial N/A

16,000

30,000

10,500

Percentage of energy tenants in the market

Average lease size (s.f.) among energy companies

Average facility size (s.f.)

# of energy related manufacturing jobs

The Greater Edmonton Region continues to experience stable growth due to its strong energy driven economy. The strength of the energy sector has led the region to have one of the lowest vacancy rates in North America, causing a consistent increase in property values. Energy companies further reinforce this trend, as they consistently absorb Class A buildings which support their requirements of heavy power, cranes and excess yard. The Southeast Edmonton submarket continues to be one of the most desired areas in the Edmonton Region, as it is predominately occupied by energy companies or those that service the energy market. Currently sitting at 2.4 percent vacancy, we expect this rate to decline as most new product continues to be rapidly absorbed. The most recent example of this trend is Shell who leased two newly constructed buildings totaling 242,000 s.f. at Oxford’s Cityview Business Park and is the largest lease transaction in 2014 to date. Land is also virtually non-existent in Southeast Edmonton, pushing values to historical highs and forcing new development towards other energy parks such as Nisku and Leduc to sustain the demand within the region. Nisku / Leduc combined is the second largest energy park in North America and only behind one of the industrial parks in Houston, Texas. Over the last couple years we have witnessed a surge of development activity in Nisku / Leduc as energy companies are able to find newly constructed buildings with heavy power, cranes and excess yard that they require. Average asking lease rates, currently sitting at $16.27 p.s.f., in Nisku/Leduc are the highest in the Edmonton Region as demand for buildings with these characteristics continues to be the trend.

Outlook for Tenants •

Tenants are being forced to make quicker decisions as product is being leased in a timely manner Lack of product is forcing tenants to consider outlying industrial parks such as Acheson, Nisku and Leduc



for Landlords •

Lack of product, especially in Southeast Edmonton, continues to support a landlords market Low vacancy rates within Edmonton has increased the importance of the convenant of the tenant and is one of the determining factors for landlords



Pricing and statistics

$12.00

2.4%

Average asking rent ($ p.s.f.)

Availability rate

$12.00

8

Average energy rent ($ p.s.f.)

# of facilities under construction

9

$158.00

# of energy related sale transactions (last 12-months)

Average sales price ($ p.s.f.)

RTL Westcan 12104 17th St NE Seller: RTL Westcan Buyer: Edgefront Realty Corp. C$26.6M | C$228.41 per s.f.

Address

Owner/ Developer

s.f.

Yard space/ Delivery land area date

Hopewell Horizon Business Park: 184th Street & Yellowhead Developments Trail

178,253

12.28 acres Q3 2014

Northwest Business Park: WAM 13455 – 149 St Development

169,400

11.84 acres Q3 2014

51st Ave Business Centre 3604 51 Ave

78,000

6 acres

GWL Realty Advisors

Q4 2014

2014 Sales

Under construction

As energy companies continue to demand and absorb Class A buildings, there will be a stable, gradual increase in property values throughout 2014 and into 2015.

10821-209 St Seller: RTL Robinson Enterprises Buyer: Redco Properties Ltd. C$7.1M | C$241.39 per s.f.

53016 60 Hwy Seller: Private (Unknown) Buyer: PIRET C$7.3M | C$120.97 per s.f.

JLL | North America | Energy Outlook | 2014

26

Houston | Industrial 44.8%

56,504

74,539

71,800

Percentage of energy tenants in the market

Average lease size (s.f.) among energy companies

Average facility size (s.f.)

# of energy related manufacturing jobs

2014 has mirrored 2013’s as one of growth for the industrial market in Houston, including when viewed through the prism of energy and energy service companies. The overall Houston industrial market absorbed 1.3 million square feet within the first quarter of 2014. The North and Northwest submarkets account for 90.0 percent as energy service providers have historically looked to develop new manufacturing and distribution sites within these logistics hubs. However, the energy growth in Houston has begun to affect the industrial market in other ways. Large scale users such as HD Supply, Amazon and Goodman Global have recently taken blocks of space between 250,000 and 500,000 square feet to help meet growth demands within the retail and housing sectors caused by Houston’s robust energy economy. While these new occupiers create diversity in the submarkets, the vast majority of users will continue to be energy based as the proximity to both George Bush Airport and the ExxonMobil campus make the area prime for manufacturing and distribution growth throughout the remainder of 2014. With the United States’ growth in ethane and Houston’s growth in ethylene and ethylene derivatives, the Southeast submarket, including the Port of Houston, is primed to be a submarket of growth going forward over the next few decades. As the U.S. and Texas continue toward energy independence and becoming a net exporter, the Gulf Coast of Texas and the Southeast submarket in Houston will lead the way in development and advancement for energy and chemical companies’ needs. A key driver for this for companies such as Chevron Phlliips, Dow, and ExxonMobil are their announced crackers which will increase ethylene and their expected derivatives and provide another pipeline of growth within the Houston manufacturing and distribution markets.

Outlook for Tenants • • •

Prime submarkets will continue to have tightening vacancies BTS and spec options will be present for savvy tenants Strong economy and job growth will allow for expansion plans to move forward

for Landlords • • •

North and Northwest submarkets will remain landlord favorable Energy tenants will continue to seek crane-served and crane ready space Rental rates will continue to spike as tenants fight for prime distribution and logistics space

Pricing and statistics

$5.46

4.8%

Average asking rent ($ p.s.f.)

Availability rate

$5.77

52

Average energy rent ($ p.s.f.)

# of facilities under construction

96

$81.20

# of energy related sale transactions (last 12-months)

Average sales price ($ p.s.f.)

Alamo Crossing Commerce Seller: Colony Realty Partners Buyer: Cornerstone Real Estate Advisers $86.0M | $82.08 per s.f.

Address

Owner/ Developer

s.f.

Yard space/ Delivery land area date

Greens Crossing I

Hines

600,750

665 acres Q2 2014 (total in Pinto Park)

Generation Park Phase I

McCord Development

BTS

2,000 acres Q3 2015

225 Railport

Avera

600,000

47 acres

Q3 2014

2014 Sales

Under construction

Going forward through 2014 and beyond, Houston’s industrial market is poised to help maintain Houston’s position as the global energy capital.

Interwood Business Center I and II 14430-14440 JFK Blvd Seller: KTR Capital Partners LLC Buyer: Stockbridge Real Estate Funds $15.6M | $77.07 per s.f. Century Distribution Center 525 Century Plaza Dr Seller: Avera Capital Partners Buyer: Industrial Property Trust $11.5M | $77 per s.f. JLL | North America | Energy Outlook | 2014

27

Philadelphia | Industrial N/A

16,000

241,000

28,200

Percentage of energy tenants in the market

Average lease size (s.f.) among energy companies

Average facility size (s.f.)

# of energy related manufacturing jobs

Hydraulic fracturing, fracking, remains the topic of conversation related to energy in the Philadelphia industrial market. Gas drilling in Marcellus and Utica shale across Pennsylvania is without a doubt growing and active, yet the direct impact has been muted and difficult to measure, particularly in the Philadelphia Industrial Market. Anecdotal evidence suggests that storage and distribution for sand and water, both critical components of the natural gas liquid extraction, has increased in support of the gas production. These typically take shape in the form small water production wells and sand shipping yards across the state. Additionally, leasing activity has increased for gas drilling equipment storage yards in the form of small laydown yards. Most of the activity so far has been located at the fringe or outside of the Philadelphia market. The indirect impact from gas drilling on manufacturing has been more pronounced. The bevy and low cost of natural gas, in addition to other factors such as greater quality control and condensed supply chain, is contributing to the recent “on-shoring” movement. Manufacturing requirements have grown 45 percent year-over-year and are now the largest demand center by vertical industry. This is a trend that is expected to continue well throughout 2014 and into 2015.

Outlook for Tenants • •

Tightening local market conditions Expanding gas / oil processing and shipping capacity at Philadelphia refineries

for Landlords •

Minor increase in benefits from Marcellus and Utica shale gas extraction at market fringe Increased manufacturing demand in market core



Pricing and statistics

$3.85

12.8%

Average asking rent ($ p.s.f.)

Availability rate

$3.85

23

Average energy rent ($ p.s.f.)

# of facilities under construction

0

$46.00

# of energy related sale transactions (last 12-months)

Average sales price ($ p.s.f.)

Address

Owner/ Developer

s.f.

Yard space/ Delivery land area date

9300 Olde Scotland Rd

Liberty Property Trust

1,700,000 182 acres

Q2 2014

600 Oak Ridge Rd

American Eagle Outfitters

1,054,011 128 acres

Q2 2014

766 Brackbill Blvd

Urban Outfitters

971,370

Q2 2015

52 acres

2014 Sales

Under construction

8051 Allentown Blvd Seller: Hayden Real Estate Investments Buyer: Gramercy Property Trust $8.3M | $45.53 per s.f.

1109 Commerce Blvd Seller: DP Partners Buyer: RREEF $19.7M | $75.99 per s.f.

4501 Westport Rd Seller: DCT Industrial Buyer: JP Morgan $23.5M | $46.89 per s.f.

JLL | North America | Energy Outlook | 2014

28

Pittsburgh | Industrial 10.0%

15,000

40,000

32,200

Percentage of energy tenants in the market

Average lease size (s.f.) among energy companies

Average facility size (s.f.)

# of energy related manufacturing jobs

The Marcellus Shale industry continues to have a positive effect on Pittsburgh’s industrial market as the drilling, processing, storage and transportation of natural gas remains strong. Over the past few years more than 50 companies have rushed to the area, many of which are coming from Texas and Oklahoma. They include major independent companies such as Range Resources and Talisman Energy USA, but also include international oil conglomerates such as ExxonMobil and Shell. These companies have located predominately in Washington County, within the Parkway West and Southpointe submarkets.

Outlook for Tenants •

Large blocks of Class A industrial space will remain limited over the coming year and little stock is currently in the development pipeline Development sites with significant acreage for yard storage are limited due to the region’s rolling topography



for Landlords •

Under Construction

Currently, the largest proposed industrial project in the Pittsburgh market is the construction of a petrochemical “cracker” facility to be owned and operated by Shell. The international oil conglomerate has significant acreage within Beaver County under control and is analyzing whether to move forward with the project. If plans do move forward, construction would start within two years, with the facility to be delivered approximately four years later. The cracker plant would allow Shell to break down compounds extracted from the ground and process them for use in everyday products such as clothing or carpeting. The project would provide a huge economic boost to the region, as construction of the facility would employ up to 10,000 people when operational.

Tenant: Address

Owner/ Developer

S.f.

Yard space/ Delivery land area date

Gordon Food Service: 1 Service Dr, Imperial, PA

Gordon Food Service

420,000

62 Acres

Q1 2015

Industrial Scientific: Ridge Rd, Pittsburgh PA

Industrial Scientific

330,000

25 Acres

Q2 2015

Speculative: Donohoe Rd, Greensburgh PA

RiDilla Partners

75,000

5 Acres

Q4 2014

• •

Pricing and statistics

$4.71

16.7%

Average asking rent ($ p.s.f.)

Availability rate

$6.00

8

Average energy rent ($ p.s.f.)

# of facilities under construction

4

$29.00

# of energy related sale transactions (last 12-months)

Average sales price ($ p.s.f.)

3498 Grand Ave Seller: Dollar Bank Buyer: Oil Service $2.2M | $34.46 per s.f.

2014 Sales

Energy requirements have typically been for warehouses of 10,000 to 20,000 square feet and four to five acres of lay-down yard space. Many of these companies have had a hard time finding existing properties that meet their requirements given Pittsburgh’s topography and history manufacturing steel and glass, often in huge industrial facilities. Although numerous large blocks of space exist, very little is premium space. Consequently, many companies have met their needs by partnering with developers on build-to-suit projects.

As shale production continues to increase over the coming year, space demand, especially yard space, is expected to grow in concert With limited options available for users, landlord's will retain leverage For developers with land, built-to-suit opportunities may abound

73 W Noblestown Rd Seller: 73 West Noblestown LLC Buyer: Gyrodata Incorporated $1.4M | $58.33 per s.f.

101 Pleasant Dr Seller: First National Bank Buyer: Master Pumps & Equipment Corp. $565,000 | $35.31 per s.f.

JLL | North America | Energy Outlook | 2014

29

Energy Hotel markets

JLL | North America | Energy Outlook | 2014

30

Calgary | Hotel 84

12,000

66.9%

$144.62

# of hotels

# of hotel rooms

Average occupancy rate (2013)

Average daily rate (2013) ($ CAN)

Calgary’s economic growth is primarily attributed to growth in the energy sector. As an international oil and gas distributor, the market anchors offices for nearly every major Canadian and numerous global oil and gas companies.

Outlook • • •

For the hospitality sector, this is good news as both corporate transient and group room nights are expected to see continued increases. Overall, Alberta experienced occupancy increases of 5.4 percent and 3.7 percent in 2012 and 2013, respectively, which is well-above the Canadian national average. In 2013, room demand increased by six percentage points over the prior year and we expect continued growth in lodging fundamentals.

Pricing and statistics

Given strong corporate demand, a new conference center is being developed north of the Calgary Airport. The center will anchor three hotels, adding 525 rooms to the airport inventory. Overall, we expect Calgary’s hotel supply to increase by approximately 4.0 percent based on the hotels currently under construction. As a whole, Canada lags the U.S. in terms of the proportion of branded hotel supply so the bulk of new development is focused on branded stock.

Recent transactions

$96.73

7.6%

Alberta RevPAR (2013 $ CAN)

Alberta RevPAR growth (2013)

$252.2

$270,000

Transaction volume (millions, past 12 months, $CAN)

Average transaction price per room (past 12 months, $ CAN)

4

525

Number of hotels under construction

Under construction

On the investment front, Calgary has seen notable transaction volume in the past 12 months in particular due to the sale of the Westin Calgary which sold as part of a five-hotel portfolio. That trade boosted the market’s average price per key. Given the strong economic outlook and robust operating fundamentals, we expect to see continued investor interest in the market—especially from institutional investors.

Market remains a global leader in oil and gas production Hotel operating fundamentals continue to rise given increasing demand Institutional investors expected to pursue acquisitions and development

Property name

Address

Number of rooms under construction

Owner/ developer

Rooms

Delivery date

Hampton Inn - Calgary 19th St N.E. Airport North

Prestige 135 Hospitality Corp.

Q4 2014

Homewood Suites by 19th St N.E. Hilton - Calgary Airport North

Prestige 122 Hospitality Corp.

Q1 2015

Hilton - Calgary Airport 19th St N.E. North

Prestige 268 Hospitality Corp.

Q2 2016

Name

Rooms Seller

Buyer

Price $ (CAN millions)

Price per room ($ CAN)

The Westin Calgary

525

PSP Investments

Starwood Capital Group

Undisclosed

Undisclosed

Acclaim Hotel Calgary Airport

225

Undisclosed

Temple REIT

$42.0

$186,700

Hotel Elan

62

Undisclosed

Undisclosed

$11.4

$184,200

JLL | North America | Energy Outlook | 2014

31

Dallas-Fort Worth | Hotel 897

109,400

64.2%

$90.64

# of hotels

# of hotel rooms

Average occupancy rate (2013)

Average daily rate (2013)

Similar to the market’s strong performance in 2013, the Dallas-Fort Worth lodging market is expected to continue growing at an accelerated pace in 2014. The slowdown in market growth during the absorption of the 1,001-room Omni Dallas Hotel which opened in late 2011 was short-lived.

Outlook

Dallas-Fort Worth’s energy sector is undergoing robust growth and the hotel sector is often among the first real estate sectors to see a rise from the increased economic activity given the sector’s nightly leases. Nonetheless, even as developers seek to add product to cater to business travelers in emerging economic sectors, hotels under construction in Dallas-Fort Worth amount to less than two percent of existing supply, which is relatively low by historic standards.

Pricing and statistics

The market’s largest transaction thus far in 2014 is the Four Seasons Resort & Club Dallas at Las Colinas. Sustained increases in hotel operating performance are expected to draw more investors, in particular private equity funds, to pursue investments as the market possesses characteristics that are expected to drive future hotel operating performance and investment returns: strong airlift, two large convention centers and a burgeoning energy sector.

Recent transactions

Name

New supply being absorbed relatively quickly Near-term development pipeline void of big-box hotels Trailing 12-month transaction volume doubles and more growth expected

$58.23

10.8%

RevPAR (2013)

RevPAR growth (2013)

$266.1

$175,000

Transaction volume (millions, past 12 months)

Average transaction price per room (past 12 months)

18

2,000

Number of hotels under construction

Under construction

The largest hotel reported to be under construction in the MSA is the proposed 299-room Hilton Dallas Plano Granite Park. Thus, in contrast to numerous other major cities such as Houston or Chicago, Dallas does not have a 1,000-room-plus convention center headquarters hotels on the drawing board. This constrained supply pipeline is expected to bode well for Dallas-Forth Worth hotels’ RevPAR growth.

• • •

Rooms Seller

Number of rooms under construction

Property name

Address

Owner/ developer

Rooms

Delivery date

Hilton Dallas Plano Granite Park

5805 Granite Parkway

Granite Properties

299

Q3 2014

J. Wales Construction

120

Q3 2014

88

Q4 2014

SpringHill Suites Dallas 2650 Lake Vista Lewis Drive

Towneplace Suites by 1832 Market Place Undisclosed Marriott- McKinney Drive

Buyer

Price (millions)

Price per room

Four Seasons Resort & Club Dallas at 431 Las Colinas

CW Capital LLC

Blackstone

$150.0

$348,000

Dallas/Addison Marriott Quorum by the 547 Galleria

Host Hotels & Resorts

Wheelock Street Capital

$55.0

$100,500

Homewood Suites by Hilton Dallas Downtown

Lowen Hospitality, LLC

Apple REIT Companies

$25.3

$ 195,000

130

JLL | North America | Energy Outlook | 2014

32

Denver | Hotel 298

41,700

70.8%

$103.18

# of hotels

# of hotel rooms

Average occupancy rate (2013)

Average daily rate (2013)

Denver’s economy is buoyed by energy investment in the region, and hotel demand is growing. With the city increasingly a key office operations market, local hotels are seeing more corporate demand. In 2013 and year-to-date 2014, the market has witnessed above-average growth in occupancy. Hotel operators are gaining more pricing power.

Outlook

On a national basis, the bulk of the new hotel supply pipeline is comprised of select service hotels, as the majority of the large full service hotels conceptualized during the previous market peak have opened by now. Hotels under construction in Denver are generally under the 200-room mark, with the majority of development comprised of select service assets. The main exception is the 519-room Westin Hotel and Conference Centre at Denver International Airport, the largest hotel under construction in the MSA. The property is expected to result in a draw for new group business.

Pricing and statistics

Recent transactions

The demand fundamentals in Denver point to ongoing stability; disproportionate economic activity from the energy sector is thus expected to provide a boost to the market and push certain submarkets to outperform. The city has seen a wave of investors including hotel real estate investment trusts, who have historically been less active in Denver. We anticipate robust employment growth over the long-term, making Denver an attractive target for commercial real estate investors.

Denver’s lodging performance growth rate exceeds national averages Upscale select service hotels cropping up in Denver’s CBD Market’s solid fundamentals attracting institutional investors

$73.08

8.6%

RevPAR (2013)

RevPAR growth (2013)

$143.4

$84,800

Transaction volume (millions, past 12 months)

Average transaction price per room (past 12 months)

13

2,494

Number of hotels under construction Property name

Under construction

A notable trend shaping the downtown hotel market is the increased introduction of new branded high-quality select service hotels in the CBD, such as the construction of the dual-branded Hyatt Place/Hyatt House property. These hotels will provide more options for business travelers seeking quality accommodations in central locations, without paying higher upscale hotel prices.

• • •

Address

Number of rooms under construction Owner/ developer Rooms

Delivery date

Hyatt Place/Hyatt House 14th Street and White Lodging Glenarm Place Services/Hyatt Hotels JV

361

Q1 2015

Kimpton Hotel at Union Station

16th Street

Continuum Partners

200

Q4 2015

Westin Hotel and Conference Centre at Denver International Airport

DIA Airport

Denver International Airport

519

2016

Name

Rooms Seller

Buyer

Price (millions)

Price per room

Embassy Suites Denver

403

Whiteco Residential LLC

Cornerstone Real Estate Advisers, LLC

$135.0

$334,400

Hyatt Regency Denver Tech Center

451

Hyatt Hotels Corporation

JMI Realty, Inc.

$60.0

$133,000

Blackstone

Chatham Lodging Trust

$27.9

$155,000

Hilton Garden Inn Denver Tech Center 180

JLL | North America | Energy Outlook | 2014

33

Houston | Hotel 654

72,600

69.0%

$101.40

# of hotels

# of hotel rooms

Average occupancy rate (2013)

Average daily rate (2013)

Houston saw the highest growth in RevPAR of any large urban market in the U.S. in 2013. New supply entering the market has been constrained, and this is underpinning the performance of existing hotels in Houston. With more full hotels, operators are increasingly yield managing business and are choosier about the rates they offer. Year-to-date 2014 statistics already confirm this trend are expecting double-digit RevPAR growth in Houston in 2014.

Outlook • • •

Houston to remain as one of country’s top-three RevPAR growth markets City to be home to additional convention center headquarters hotel Office and hotel use often competing for same development sites

Pricing and statistics

After several years of below-average supply increases, a new development cycle is emerging driven by the demand growth fuelled in part by the energy sector. Downtown Houston will see a surge in new rooms with the under-construction 1,000-room Marriott Marquis by the convention center. The property is expected to further increase Houston’s competitiveness in attracting large conventions which compress the entire hotel market.

Recent transactions

Hotel investors are increasingly looking at Houston. During the past 12 months, hotel deal volume neared $315 million, indicating an increased pace of investment in a city where overall deal size has traditionally been more constrained than in New York or West Coast gateways. Asset pricing is still below what is recorded on the coasts, but the recent sale of the Four Seasons Hotel Houston set a new high for the market.

13.8%

RevPAR (2013)

RevPAR growth (2013)

$314.6

$162,700

Transaction volume (millions, past 12 months)

Average transaction price per room (past 12 months)

24

3,500

Number of hotels under construction

Under construction

The Galleria submarket also continues to be sought after by developers. Lastly, while no large hotel projects are underway yet, the Exxon Mobil’s expansion south of The Woodlands will undoubtedly also become home to several new hotels, with both full-service along with upscale select service hotels expected to accommodate the vast amount of new corporate demand in this submarket.

$69.97

Number of rooms under construction

Property name

Address

Owner/ developer

Rooms

Delivery date

JW Marriott Houston Downtown

806 Main Street

Pearl Hospitality

298

Q3 2014

Hyatt Regency Houston Galleria

Sage Road and West Alabama Street

HighRoads 325 LLC, The Carlyle Group

Q4 2015

Marriott Marquis Houston

George R. Brown Houston First Convention Center Corp

1,000

Q3 2016

Name

Rooms Seller

Buyer

Price (millions)

Price per room

Four Seasons Hotel Houston

404

Maritz, Wolff & Co.

Cascade Investment, LLC

$140.0

$346,500

DoubleTree Suites by Hilton by the Galleria

380

Westmont Hospitality Group

Wheelock Street Capital

$62.5

$164,500

Hilton Garden Inn – Galleria

182

American Liberty Hospitality

Summit Hotel Properties, Inc.

$37.5

$206,000

JLL | North America | Energy Outlook | 2014

34

Philadelphia | Hotel 365

46,000

65.3%

$121.15

# of hotels

# of hotel rooms

Average occupancy rate (2013)

Average daily rate (2013)

Philadelphia is among the nation’s 25-largest hotel markets; the bulk of large full service hotels are concentrated in downtown Philadelphia, with another cluster of sizeable hotels near the Philadelphia International Airport.

Outlook • •

Hotel performance to pick up in 2014 following temporary lull Hotel transaction volume built notably during past 12 months and expected to remain elevated New supply consists primarily of select service product in suburbs



Philadelphia’s hotel market is performing in line with national averages thus far in 2014, following a soft year in 2013 which was partially attributable to weakness in the city’s convention calendar. Demand has increased by seven percentage points this year and the market is expected to continue to see increases in occupancy and average hotel rates as a result of rising commercial activity in the city’s various business sectors.

Pricing and statistics

Following Philadelphia’s record hotel transaction volume in 2010, deal flow slowed down through 2013. However, for year-to-date 2014 the market has seen more than $270 million in transaction volume and is expected to see continued transactions activity. Philadelphia is viewed as a secure investment destination and real estate investment trusts in particular have a penchant for the city.

With energy-related business activity and investment strengthening the economic prospects for the Philadelphia area, hotel developers will increasingly determine where they can match a strong submarket or a cluster of demand generators with new lodging product.

Recent transactions

Name

-0.9%

RevPAR (2013)

RevPAR change (2013)

$317.4

$175,600

Transaction volume (millions, past 12 months)

Average transaction price per room (past 12 months)

8

915

Number of hotels under construction

Property name

Under construction

In Philadelphia, most of the anticipated new hotel supply is set to open in the suburbs, with no large projects currently underway in the CBD. The projects under construction include select-service hotels with premium brands, such as the Courtyard Philadelphia Lansdale. This strategy allows global hotel companies to continue to grow their presence by introducing quality product offerings at all tiers.

$79.07

Address

Number of rooms under construction

Owner/ developer

Rooms Delivery date

Courtyard Philadelphia 1735 Lansdale Sumneytown Pike

Ernst & Ernst / Trier Group

135

Q3 2014

Courtyard Philadelphia 3280 Tillman Bensale Drive

Undisclosed

125

Q3 2014

Four Seasons 1800 Block of Philadelphia (planning Arch Street phase)

Comcast Corporation and Liberty Property Trust

200

Q4 2017

Rooms Seller

Buyer

Price (millions)

Price per room

Philadelphia Marriott Downtown (89% 1,408 stake)

Host Hotels & Resorts

Oaktree Capital Management, LLC

$270.0

$217,900

DoubleTree Suites by Hilton Hotel Philadelphia West

253

LNR Partners Inc.

Arden Group, Inc.

$31.1

$122,900

Hilton Garden Inn Philadelphia/Ft. Washington

146

Magna Hospitality Group

Laurus Corporation

$16.3

$111,600

JLL | North America | Energy Outlook | 2014

35

Pittsburgh | Hotel 213

25,00

64.4%

$142.94

# of hotels

# of hotel rooms

Average occupancy rate (2013)

Average daily rate (2013)

Pittsburgh is a mid-size lodging market which has seen a higher amount of hotel transaction activity than its peers, with deal volumes totaling $330 million since 2011. Our outlook for hotel operating performance, however, is more temperate; RevPAR growth among the city’s downtown full service hotels lagged national averages in 2013.

Outlook

That said, certain submarkets within Pittsburgh are seeing disproportionate demand growth due to specific economic sectors such as energy experiencing rising investment and employment.

Pricing and statistics

A trend of note is the increasingly core and mature positioning of Pittsburgh’s hotel stock. Once primarily conceptualized in larger gateway markets, Pittsburgh is expected to see the addition of a new luxury boutique hotel. Kimpton’s Hotel Monaco Pittsburgh is slated for a late 2014 opening, speaking to investors’ increasingly core view on the market.

Recent transactions

Name

Continued transaction activity in the downtown submarket Hotel stock becoming more mature and seeing introduction of diverse product types such as boutique hotels Market expected to face near-tern supply pressures



$92.01

1.6%

RevPAR (2013)

RevPAR change (2013)

$200.0

$153,300

Transaction volume (millions, past 12 months)

Average transaction price per room (past 12 months)

19

2,300

Number of hotels under construction

Under construction

Pittsburgh currently boasts a slightly larger construction pipeline than Philadelphia, even though Pittsburgh is notably smaller. The hotel development pipeline consists primarily of branded select-service hotels in downtown and suburban locations near corporate campuses and other demand generators which are expected to post robust growth during the next several years. Hotels with an extended-stay positioning are expected to fare well, as they will be well-suited to accommodate travelers on long-term assignments in the energy sector.

• •

Number of rooms under construction

Property name

Address

Owner/ developer

Hotel Monaco Pittsburgh

435 6th Avenue

PMC Property 247 Group and Kimpton

Q4 2014

Hyatt Place Meadows Racetrack Road Racetrack

Meadows Hotel 155 Associates LLC

Q1 2015

Hilton Garden Inn Pittsburgh

Millcraft Investments

Q4 2015

Rooms Seller

Forbes Avenue

Rooms

197

Delivery date

Buyer

Price (millions)

Price per room

Westin Convention Center Pittsburgh 616

Forest City Enterprises, Inc

Starwood Capital Group

$74.4

120,800

Sheraton Pittsburgh at Station Square 399

Forest City Enterprises, Inc

Pyramid Hotel Group/Glenmont Capital Management, LLC JV

$61.0

$152,800

Hyatt Place Pittsburgh-North Shore

Continental Realty Co.

Chatham Lodging Trust

$40.0

$224,700

178

JLL | North America | Energy Outlook | 2014

36

Contacts

For more information, please contact: Research:

Local markets:

Lauren Picariello Industry Research +1 617 531 4208 [email protected]

Aaron Ahlburn Retail Research +1 424 294 3437 [email protected]

Thomas Forr Canada Research +1 416 304 6047 [email protected]

Graham Hildebrand Houston Research +1 713 888 4044 [email protected]

John Sikaitis Office Research +1 202 719 5839 [email protected]

Brady Titcomb Multifamily Research +1 954 653 3222 [email protected]

Walter Bialas Dallas Research +1 214 438 6228 [email protected]

Andrew Batson Pittsburgh Research +1 216 937 4374 [email protected]

Dain Fedora Industrial Research +1 424 294 3444 [email protected]

Lauro Ferroni Hotels Research +1 312 228 2566 [email protected]

Thomas Jaroszewski Denver Research +1 303 260 6523 [email protected]

Geoff Wright Philadelphia Research +1 215 399 1825 [email protected]

JLL | North America | Energy Outlook | 2014

37

Energy workers are costly to employ- with an average salary 58.6 percent higher than the U.S. average. But they lead other industries in revenue generation. Energy companies are looking to drive employee productivity and health through more modern workplace design. JLL | North America | Energy Outlook | 2014

38

About JLL JLL (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $4.0 billion, JLL operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 3.0 billion square feet. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management. For further information, visit www.jll.com. About JLL Research JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.

This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc. COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

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Jones Lang Lasalle Inc. 10-Q May. 5, 2017 2:00 PM | Seeking Alpha
May 5, 2017 - Readers of this quarterly report should refer to the audited financial statements of Jones Lang LaSalle In

FCA Risk Outlook 2014
Mar 14, 2014 - Information asymmetries – when one party in a transaction has more or better information than the other

World Energy Outlook 2010
World. Energy. Outlook. Please note that this PDF is subject to specific restrictions that limit its use and distributio