2023Q1美國寫字樓空置率報告

UnitedStates|Q12023

Research

OfficeOutlook

Occupierandinvestorcautiondrives

continuedsofteningofofficefundamentals

2|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

Economy

Corporatecost-cuttingeffortscontinuedinQ1,

includinglayoffsandreductionsinofficeportfolios,technologycompanies,whicharecuttingback

afteraperiodofprotractedgrowth.Bankfailuresraisedconcernsovercapitalavailabilityand

credittightening.

Leasing

U.S.officeleasingvolumefell10.7%inQ1,thethirdconsecutivequarterofslowingdemand.Despitethequarterlydecline,strongactivityfromthefirsthalfof2022wasenoughtokeeprolling12-monthvolume2%highernationally.

NetAbsorption

Althoughoccupancylossescontinuetomount,theimpactisfeltprimarilyamongolder,commodityassets.Netabsorptioninofficesbuiltsince2015

increasedbyanadditional6.6millions.f.,drivingcumulativegainstoover100millions.f.sincetheonsetofthepandemic.

Vacancy

Vacancyratesincreasedby49basispointsinQ1toarecord20.1%.Newsubleaseadditionsinthefirst

quartertotaled15.1millions.f.,anearly10%

quarter-over-quarterincrease.Subleasevacancyrepresented3%oftotalofficeinventory.

RentalRates

Despitechallengingunderlyingmarket

fundamentals,nationalaskingrentscontinueto

grow,reaching$38.96pers.f.inQ1,anincreaseof0.3%sinceQ4.Supplyanddemanddynamicswithinhigh-qualityClassAandTrophyspacearevastly

differentinmanymarkets.

Development

Constructionhascomeunderheightenedpressureamidvolatilityandcometoanearhaltintheofficesector.Some8.9millions.f.ofnewspacedeliveredinQ1,andjustover2millions.f.brokeground.

Executive

summary

JacobRowden|Manager|U.S.OfficeResearch

3|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

Inaneconomiclandscaperifewithchallenges,corporate

occupiersandinvestorsalikecontinuetoexerciseahighdegreeofcautionregardingtheirofficeportfolios,drivingthecontinuedsofteningofofficefundamentalsinthefirstquarter.

Throughthefirstfewmonthsoftheyear,companiescontinuedtoshiftintodefensiveposturingin

preparationforapossibleeconomicslowdown,withmanygroupsannouncinglayoffsandalargeshareofofficetenantstrimmingtheirportfoliosthrough

subleaseadditions.InMarch,thefailuresofSiliconValleyBank,SignatureBankandCreditSuisse

injectednewfoundvolatilityintothemarket,throughdirectimpactstoclienttenantswhosefinancingwasputinjeopardy,aswellasgrowingconcernsmore

broadlythatdiminutionofofficevaluesoverthepastyearwillleadtofurthercreditchallengestobankswithlargecommercialrealestateexposure.

Priortothebankdefaults,theeconomicpicturewasbrightening.Whileinflationremainselevated,withannualgrowthratesstillordersofmagnitudehigherthanFederalReservetargets,year-over-yearinflationhasfallenmorethan400basispointsfrompeak

levelsinJune2022asofMarch,,andthedriversofinflationaresofteningnotably.Supplychain

pressureshaveeased,withbacklogsattheUnitedStates’largestport,thePortofLosAngeles/Long

Beach,decliningmorethan90%sincethesecondhalfof2022andcontainershippingpricesfalling

morethan80%frompeaklevels;thewaveoffiscalstimulusisbeingabsorbedandfederalgovernmentexpenditureshavefallenby10%onarolling12-

monthbasis;andthestrengthoftheconsumeris

softening,withrealbusinesssectorwagesfalling

4.3%sincepeakinginQ42020andpersonalsavingsratesdecliningtothelowestlevelsincetheGreat

FinancialCrisis.Tocombatinflation,theFederal

Reservehasdeployedthemostaggressiveincreasestointerestratesinover40years,withthe25bps

increaseinMarchreflectingtheninthratehikesinceMarch2022andacumulativeincreaseof450bpstopolicyrates.Inlightofdistressinthefinancial

system,expectationsforfuturerateincreaseshave

shiftedandgaineduncertainty—inearlyMarch,

marketswerepredictingadditionalrateincreasesthroughlatesummer,whichwouldgivewaytoratecutsinthefall.Investorsnowexpectratestopeakinthenexttwomonthsandbegindeclininginearnestthroughthesecondhalfoftheyear.Pastratehikecycleshavebeencharacterizedbyabriefplateau

andrelativelyrapideasingofrates:sincethe1980s,ratehikecycleshaveaveraged21months,and

interestrateshavereturnedtopreviouslevels16monthslater,excludingtheincreasesin1994.

Thepeakingandeventualeasingofinterestrates

willbeawelcomedevelopmentforofficeoccupiersandinvestorsalike.Increasestofinancingcostsandimpactstoassetandentityvalueshavespurredthedefensiveactivitybyofficetenantsexemplifiedbysubleaseadditionsandlayoffannouncements.U.S.-basedcompanieshaveannouncedaverage

monthlylayoffsofover100,000sofarin2023,far

surpassingQ4’speakof72,000.While

announcementshavecaughtthepubliceye,the

labormarketremainsnearall-timepeaks—layoffs

recordedbytheBureauofLaborStatisticsincreasedatthebeginningof2023butremainbelow2019

averagesthroughJanuary,andtheunemploymentratesitsat3.5%,identicaltopre-pandemiclows.

Office-usingsectorsincludingFinance,InformationandProfessionalServicesareseeingaslightly

outpacedsofteningoflabormarkets:bothjob

openingsandhiringvolumeoverthepast12monthshavefallenfasterinoffice-usingsectors,andthesegroupsareseeinglayoffvolumesincreasetwiceasfastasotherindustries.Amongoffice-using

industries,impactsareevenmorepronouncedincapital-fueledindustriessuchastechnology,whichhasmadeupover60%ofthepubliclayoff

announcementsamongU.S.companiesinthelastsixmonths.

4|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

Quarterlyleasingactivity(s.f.)

51,601,230

61,497,397

60,686,234

56,144,428

55,796,348

57,832,467

62,494,619

61,447,311

56,815,039

58,964,533

62,834,071

62,457,684

68,813,611

63,986,471

59,687,423

57,982,530

50,630,252

27,893,891

30,366,705

28,068,376

32,719,643

38,706,022

40,873,582

44,634,337

47,167,121

47,888,367

45,853,633

42,740,589

38,167,399

+37%

-10.7%QOQ

Withthisdefensivebackdropinplace,U.S.leasingvolumefellto38.5millions.f.,thethirdconsecutivequarter

ofslowinganda9.8%declineagainstQ42020.Despitethedecline,strongactivityfromthefirsthalfof2022

wasenoughtokeeprolling12-monthvolume2%highernationally.Activitywassomewhatbolsteredbya

recordvolumeofleaseexpirations,withanestimated400millions.f.ofleasesexpiringnationallyin2022.

Expirationvolumewillslowmoderatelyin2023butremainelevatedforthenextthreeyears,withroughlyone-thirdofleasedspacesettoexpirebetween2023and2026.

Leasingactivity

80,000,000

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0

59.9millions.f.

Fromtrough

20162017201820192020202120222023

Source:JLLResearch

Whileeffortstoreinininflationand

recentfinancialmarketdisruptionshave

unwoundsomeoftheU.S.officemarket’s

postpandemicrecovery,cyclical

headwindsareobscuringwhatcontinues

tobeapositiveseculargrowthstory,orat

leastthealleviationofamajorheadwind

thathashamperedofficegrowthsince

2020.Aslabormarketssoftenand

companiesrefocusonefficiencyand

productivity,return-to-officeefforts

continuetoprogressincrementally

acrossmajorU.S.markets.Inthefinal

monthsof2022andwithsome

momentumtricklinginto2023,awaveof

majoremployersinkeyindustries

includingtechnology,media,financeand

professionalserviceshasannounced

reversalsofremoteworkpoliciesor

increasedfrequencyforhybridworkers.

Whilemanyoftheseannouncements

takeeffectinMarchandApril,impactsare

alreadybeingregisteredfornational

officeattendance.Jobpostingsfor

remotepositionsarealsocontinuingto

declineinthefirstquarter:inJanuary,

remotepositionsreflected12.5%ofnew

jobpostingsonLinkedInafterpeakingat

20.6%inFebruary2022.TheKastle

workplaceoccupancyindex—which

measuresweeklyofficeattendancein

majorcities—reachednewpostpandemic

highsof50.1%inearlyMarchand

reportedthatpeakdaysreached58.8%

duringthattime.TheRealEstateBoardof

NewYorkreleasedanewstudyon

workplaceoccupancythatsuggeststhese

levelsmayevenbeunderestimating

actualattendancebyomittingsomeof

thekeyassetsofthelargestlandlordsin

thetrackedmarkets—theyfoundthat

withoutevenaccountingforvariancesin

attendancebyweekday,average

attendanceratesinManhattanexceeded

60%of2019levelsin2022,withtheClass

Amarketrecordinghigherattendance

ratesof66%.NewdatafromtheBureau

ofLaborStatisticsalsosuggeststhat

remoteworkmaybeoverstatedbysome

metrics:accordingtobusinesssurvey

resultsfromQ32022,morethan15

millionworkerswereemployedby

establishmentsthatshiftedfromhybrid

worksettingstopredominantlyon-site.

5|U.S.OfficeOutlook|Q12023

6|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

Patentsissued

85,846

97,704

99,492

108,058

93,159

100,197

97,633

97,860

92,933

93,137

90,660

85,299

85,201

92,690

84,184

61,940

IndexValue,QuarterBefore

Recession=100

Whileasofteninglabormarketisperhapsprovidingmorecovertoinstitutestricterreturn-to-office

guidelines,employersareusingtheleverageto

combatwhatisseenasdeterioratingproductivity,retention,innovationandcollaboration.MetaCEOMarkZuckerbergmadeheadlinesrecentlywhenamemowaspublicizedwhichsuggestedthat

employeeswhojoinedinaremotecapacity,

particularlyyoungeremployees,havehadlower

performancethanpeerswhoseemploymentbeganwhenemployeeswereinoffices.Thereisalso

increasingevidencethatemployeeretentionis

sufferingbeyondjusttheimpactsofatightlabor

market:theshareofworkerswhohavebeenattheiremployerformorethan10yearshasfallenfrom

18.9%to15.2%foremployeesintheir30sandfrom38.6%to35.7%foremployeesintheir40ssince

2018—leadingtoa7%declineinmedianemployeetenureforoffice-usingsectors.Asremotework’s

influenceintheofficemarketbeginstowaneand

tenantscontinuetotrimofficeportfolios

aggressivelywhilemakingmarginalcutstostaff,thelikelihoodofsomeofficetenantsfindingthemselveswithashortageofspaceisgrowing.Firmswill,to

someextent,havetheabilitytolimitspaceneedsbyoptimizingworkplacestrategyandinstituting

hotelingordesksharingtotrytomaximizespace

efficiency,andmanycompaniesarecurrently

pursuingthoseplans,buttherearelimitstohow

muchspacecanbesavedandtradeoffsforthe

employeeexperienceandbenefitsofin-office

attendancewhenthesepoliciesareimplemented,limitingtheiruptakehistorically.Couplingthe

persistentlaborshortagesinrecentyearswiththe

factthatatypicalofficetenant’srentobligations

composejust10%–15%ofemployeepayrollcosts,manycompaniesmaybecompelledtocontinue

investinginpremiumofficespaceandresisthotelingemployeesinordertopromoterecruitmentand

retention.

Innovationandproductivity

Volumeofpatentsbeingissuedslowingsignificantly

120,000

100,000

80,000

60,000

40,000

20,000

0

-17%

vs.2019

2019

2021

2022

2020

Businesssectorproductivityhasexperienceditssharpestdeclineonrecord

118

113

108

103

98

Productivityatcurrentpointinpandemicrecoveryis8%lowerthanthepastthreerecessions’average

12345

6789101112131415161718192021222324Quarterssincerecessiononset

S&LCrisis

Dot-ComBubbleGFCCovidPandemic

Sources:JLLResearch,BureauofLaborStatistics

7|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

2014Advertisingandmarketing2.8-59.1%

76Accountingandconsulting9.2-40.1%

810Architectureandengineering8.2-18.4%

12

8

Media

5.8

-54.2%

13

18

Constructionandmaterials

4.9

-23.0%

14

19

Nonprofit

4.7

-21.6%

15

16

Otherprofessionalservices

4.4

-32.9%

16

17

Lifesciences

4.4

-31.5%

17

11

Foodandbeverage

3.5

-64.6%

18

20

Aerospaceanddefense

3.5

-31.6%

19

15

Education

3.1

-54.3%

TheleasingdeclineinQ1continuestobedriven

primarilybythreefactors:correctionsamongkeygrowthindustries,delayingoflarge-scaleactivity

andadiminishedpipelineofnewrequirementsastenantsexercisecaution.Industriesthathadbeenfuelingofficedemandgrowthinthewakeofthe

pandemic,chieflythetechnologysector,havefeltasharperimpactfromcapitalconstraintsand

valuationshiftsandhaverespondedwithamore

substantialpausetonewrequirements.AsBigTechhasbacktrackedonrapidlyexpandingoffice

portfoliosoverthepastsixmonths,thefinance

sectorhasgrowntocomprisethelargestshareofleasingvolumeforthefirsttimeinoversevenyears,althoughleasingisslowingacrossalmostall

industries.Aselectgroupoflesscyclicalprivate-

sectorindustrieshavebeenbrightspots:legal

services,defense,education,energy&utilityand

food&beveragecompaniescollectivelyleased

13.1%morespaceinQ1thanquarterlyaveragesin2022,buttheseindustriesreflectjustover20%ofofficedemandnationally.Leasingvolumeisalso

beingweigheddownbyageneraldelayingoflarge-scaleactivity:transactionsabove100,000s.f.made

up6.7millions.f.,whichatjust17.4%ofgross

leasingreflectsthesmallestshareofvolumethat

segmenthasevercomprised.Whilelarge-scale

leasingdidexceedthelowestquarterlylevels

registeredduringthepandemic,thisslowdownstillrepresentsadeficitof11.3millions.f.oflargeleasingthatwouldoccurinatypicalpre-pandemicquarter,accountingformuchofthegapbetweencurrent

leasingvolumeand2019levels.Theprofileofleasesbeingsignedisnotundergoingmajorshifts—tenantscontinuetotargethigh-endandnewerspaceata

disproportionaterate—butwaningsupplyofnew

constructionisstartingtoputdownwardpressureontheshareofleasinginnewerproduct.Subleasingcontinuestorepresentabout10%ofgrossleasingactivityforthethirdconsecutivequarter,and

averagetermlengthforbothdirectleasesand

subleasesismarginallyincreasing.Whilethenear10%declineinleasingactivityisthesharpestdrop-offsincethefirsthalfof2020,Q1levelsarenearly40%higherthanthetroughsexperiencedatthe

onsetofthepandemic,whenjust27.9millions.f.ofleasingwasexecutedinQ22020.

Leasingbyindustry

TTM

Rank

2019

Rank

Industry

TTMleasingactivity(m.s.f.)TTMvs.2019change(%)

1

-16.8%

29.4

2Bankingandfinance

2

-53.3%

26.4

1Technology

3

-26.3%

15.0

4Legalservices

4

5

-30.4%

12.6

Health

57Government11.0-15.6%

63Realestate(incl.Coworking)9.5-63.4%

Retail

-16.5%

7.7

913

109

-40.4%

7.5

Insurance

1112Energyandutilities6.5-29.5%

Source:JLLResearch|Note:TTM=Trailing12months

8|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

Quarterlychangeinsubleaseavailability

Flexibilityinthewakeofthepandemichad

acceleratedin-placemigrationtrendsthatfavoredtheSunBelt,andduring2020and2021domestic

migrationintomarketsinFlorida,Texas,North

CarolinaandArizonasurged,andsteadyratesof

corporatemigrationoutofgatewaymarketsin

California,NewYorkandChicagowasacceleratinginkind.Inthesecondhalfof2022andthrough2023,

someofthatmomentumhasfaded,return-to-officemandatesarebeginningtorecallsomeofthe

flexibilitythatemergedin2020–2021andhousing

pricesingrowthmarketshaveappreciatedeven

fasterthanthenationalaverage,stiflingsomeofthedriversofmigration.Atthesametime,avoidanceoflarge-scaleofficetransactionsislimitingfuture

relocationannouncementsandevendrivingsomerollbacksofpreviousplans.Despitethis,select

companiesarestillannouncingrelocations,often

drivenbyseekinglowerbusinesscostsandtax

burdens—FisherInvestments,awealthmanager

withover5,000employeesnationally,recently

announcedtherelocationofitsheadquartersfromasuburbofPortlandinWashingtonStatetothe

suburbsofDallas.

Ascompaniestapthebrakesonleasingactivity,theyarealsoutilizingsubleaseadditionstocutcostsanddisposeofunderutilizedspace.Newadditionsin

thefirstquartertotaled15.1millions.f.,thelargest

quarterlytotalsincethepandemicbegananda

nearly10%quarter-over-quarterincrease.Subleasevacancycontinuestoclimbandreachnewrecordlevels,increasingby5.5millions.f.to142.2millions.f.,reflecting3%ofnationalinventory,butas

tenantsinthemarketincreasinglytargetsubleaselistingsforcostsavingsandprebuiltspaces,thenetchangesinoverallsubleasevacancyaretapering,

decliningfroma6.6millions.f.increaseinQ42022anda10.3millions.f.increasethepreviousquarter.Thetechnologysectorisstillpredominantly

responsibleforrecentsubleaseadditions,butnewlistingsdiversifiedinthefirstquarter,withtheshareofnewadditionscomingfromtechnologydecliningto32%afterreaching47%inQ42022.Meta

Platforms,whichhadexpandedbothheadcounts

andofficeportfoliosatanextremelyrapidpace

duringthepandemicrecovery,hasbeenparticularly

activeinsheddingspacethroughsublease,listinganadditional1.8millions.f.inthefirstquarter,more

than10%ofthenationaltotal.MetaandotherBigTechcompanies’subleaseadditionsaredriving

morequalityandcompetitivespacewithlonger

remainingtermintothesubleasemarketthanin

previousstagesofthepandemic:from2020to2021,15%ofsubleaselistingsplacedfirst-generation

spaceonthemarket,whileinthepastsixmonthsthathasgrownto28%.

Subleasebyindustry

Quarterlychangeinsubleaseavailabilitybydominantindustry

30.0%25.0%20.0%15.0%10.0% 5.0% 0.0% -5.0%-10.0%

Tech-ledsubmarkets

Othersubmarkets

2020

Q1

2020

Q2

2020

Q3

2020

Q4

2021

Q1

2021

Q2

2021

Q3

2021

Q4

2022

Q1

2022

Q2

2022

Q3

2022

Q4

2023

Q1

Source:JLLResearch|Note:Technology-ledsubmarketsaredefinedassubmarketswithmorethan500,000s.f.oftechnologyorbiotechtenancyand>20%ofoccupancyattributedtothetechnologysector.

9|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

Withleasingcontinuingtoslowandsubleaseadditionsgrowing,netabsorptionwasunsurprisinglynegativeforthefifthconsecutivequarter,with19.5millions.f.of

occupancylossinthefirstquarter,asoccupancylossescontinuetoaccelerateafterabriefperiodofpositivenetabsorptioninQ42021.Inanotableshiftfrom2022,whenmorethan80%ofoccupancylosswasattributableto

subleasespace,morethan70%ofoccupancylossinQ1occurredindirectspace,whilenegativesublease

absorptionwasslowerthanlastyear’squarterlyaveragedespitearecordvolumeofadditions.Withtenants

increasinglyconsciousofcostsintoday’senvironmentandagrowingavailabilityofhigher-qualitysublease

spacewithlengthierremainingterm,thistrendmay

continueinto2023.Asoccupancylossesmount,nationalvacancyratesareclimbing,increasingby49basispointsquarter-over-quartertoreacharecord20.1%.Althoughoccupancylossesarecontinuingtogrow,theimpactisnotbeingfeltamongownersofnewerofficeproduct.

Evenascompanieshavebecomemoredefensiveoverthepastsixmonths,netabsorptioninofficeproductbuiltfrom2015tothepresentcontinuestopost

consistentoccupancygains,withanadditional6.6

millions.f.ofnetabsorptionthathasreachedover100millions.f.sincetheonsetofthepandemicbecauseasizableshareoftenantshaveoptedtoexpandor

relocateintonewer,higher-qualityofficeassets.

Netabsorptionandflighttoquality

Netabsorption(s.f.)

40,000,000

30,000,000

20,000,000

10,000,000

0

-10,000,000

-20,000,000

-30,000,000

-40,000,000

-50,000,000

2015

2016

2017

2018

2019

2020

2021

2022

Source:JLLResearch

Yearofdelivery

2015–present

2010–2014

2000s

1990s

1980s

1970s

1960s

Pre-1960

-7.1

-55.7

-43.9

-104.3

-37.4

-18.7

-43.4

103.2

NetabsorptionsinceCOVID-19onset(m.s.f.)

CBDClassAaskingrent

(p.s.f.)

TIallowance($p.s.f.)

Freemonths

Rentalratesremainsomethingofanenigmaintoday’s

environment,asdespitechallengingconditionsnationalasking

rentscontinuetogrow,reaching$38.96pers.f.inQ1,anincreaseof

0.3%sinceQ4.Partofthisisdrivenbylandlordspreservingasking

rentsthroughincreasedconcessions,butthebifurcationsinthe

officemarketdrivenbyassetqualityhavebeenmoreinfluential.

Althoughvacancyratesarereachingrecordlevelsnationally,

supply-and-demanddynamicswithintheperformingsegmentof

themarket—high-qualityClassAandtrophyspace—isvastly

differentinmanymarkets,withavailablespaceinhigh-quality

buildingsrelativelyscarcedespitedemandfrommigrationof

tenantsfromlower-qualitybuildings.Becauseofthis,executed

rentsonleasessignedoverthepast12monthscontinuetoclimb,

withbaserentandeffectiverentincreasing16.4%and16.5%

respectivelyagainstthe12monthsleadingintoQ12022.Asfurther

evidence,apluralityofmajormarketshaveseenrecordrentalrates

eclipsedonofficeproductinthepast12months,andmorethan

80%ofmarketsdidsosincetheonsetofthepandemic,including

Charlotte,NashvilleandOrangeCountycontinuingtoestablish

newhigh-watermarksinthepastsixmonths.However,thereare

signsthattheserecord-breakingtransactionsarebecomingmore

infrequent,andrentsarecomingunderpressureamidvolatility—

bothbaserentsandeffectiverentsonexecutedleaseshavepulled

backbyabout5%inthepastsixmonths.

Rentandconcessions

Asking

rentalrates

$55.75

(+1%YOY)

$58.00

$56.00

$54.00

$52.00

$50.00

$48.00

20192020202120222023

10-yearleaseequivalentconcessions

$100

$80

$60

$40

Freemonths

(+11%YOY)

$80p.s.f.

(+5%YOY)

allowance9.8months

TI

2020202120222023

10

9

8

7

6

5

Source:JLLResearch

10|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

11|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP,Inc.Allrightsreserved.

13,163,420

21,524,175

15,556,135

12,022,831

13,787,078

8,928,364

8,948,281

7,326,642

10,268,152

17,937,625

13,689,252

7,763,292

8,317,194

8,930,086

4,388,860

3,808,883

2,303,148

145,381,967

139,764,094

115,810,821

98,366,629

89,900,720

Despitetheenviableperformanceofnewlybuilt

officeproductincomparisontotheprevailing

market,constructionhascomeunderheightened

pressureamidvolatilityandcometoanearhaltintheofficesector.Constructionmaterialscostssawmajorincreasesduringsupplychainchallengesof2021and2022,andwagesintheconstructionsectorhaveoutpacednationalwagegrowth,causing

constructioncoststosurgeoverrecentyears.Thathasbeencompoundedbyrecentincreasesto

financingcosts,whichhavemadetheeconomicsofofficedevelopmentmorechallengingevenasnewproductexperiencesstrongdemand.Though8.9

millions.f.ofnewspacedeliveredinthequarter,justover2millions.f.brokeground,mostlyconsistingofsmaller-scaleinfilldevelopmentsinstronger

marketsorbuild-to-suitproductforcorporate

occupierswithamoremission-criticalnature.The

U.S.officemarketisalsoundergoingitsmostrapidlossofinventoryasoffice-to-residentialconversionmomentumgrowsinmanymarketsandselectlocalgovernmentshavebeguntoencourageand

incentivizethoseprojects.Whileconversionsarenotnew,withmorethan100millions.f.offormerlyofficeproductnowbeingusedasapartmentsorhotels

acrossgatewaymarketsandmajorsecondary

markets,themomentumisgrowinginawaythat,incombinationwithadrop-offinnewdeliveries,couldhaveamarginalimpactonofficefundamentalsandhelpkeepalidonvacancyratesaswellas

rejuvenateurbancoresthathavesuffereddueto

reducedofficeattendance.Despitethis,conversionshavehistoricallyhadlittleimpactonofficetenantsastheypredominantlyhaveoccurredinbuildings

thathavebeenvacantforseveralyearsanddonotrealisticallycompetewiththeClassAofficemarket.

Groundbreakingsandpipeline

Groundbreakings

20192020202120222023

Source:JLLResearch,RealCapitalAnalytics,GreenStreet

Volumeunderconstruction

56%

pre-leased

20192020202120222023

12|U.S.OfficeOutlook|Q12023?2023JonesLangLaSalleIP