Reading the clock
The Jones Lang LaSalle office clock demonstrates where each market sits within its real estate cycle. Markets generally move clockwise around the clock. Geographies on the left side of the clock are generally landlord-favorable, while markets on the right side of the clock are typically tenant-favorable.
For the first time in more than five-plus years, nearly 70.0 percent of office markets Jones Lang LaSalle tracks are located at or beyond the 6:00 position, signaling landlord's slow, but increased confidence in overall market fundamentals. In fact, landlords increased rents for the ninth consecutive quarter, lifting rents 0.8 percent in the first quarter of 2013. As landlords shifted rents up, they also pushed concession levels down, but at slower rates than prior quarters, demonstrating owner's desire to gradually shift from concession compression to rent growth coupled with gradual concession compression.
Overall, rents have grown nearly 4.0 percent over the past 12 months and 7.4 percent since hitting bottom in early 2010, recovering about half of the rent declines experienced during the downtown. Additionally, over the past 12 months free rent has dipped 9.5 percent, while tenant improvement allowances were clawed back by 4.4 percent with concessions falling approximately 12.5 percent from cyclical highs in 2009 and 2010.
There definitely remains a tale of two markets with the technology and energy hubs of San Francisco, Seattle, San Francisco Peninsula, Austin, Houston, Dallas and Denver leading rent growth with many of those markets seeing rents moving beyond prior-market peak rents. Markets with those demand drivers located near the top of the clock, particularly San Francisco, Houston and Silicon Valley, will test the market from a supply side over the next 12 to 18 months and could see rent growth slow due to the new space additions. Whereas markets at the opposite side of the clock, particularly in the Midwest and Southeast / Southwest, are moving closer toward bottom, but not yet at that point to date. Of those markets, expect the Southeast and Southwest to pull ahead due to stronger economies and demand patterns and the Midwest to lag. Overall, through the course of 2013, we expect almost all geographies to transition to a landlord's market by early 2014.