November 2017

Tenant Advisor November 2017

Jones Lang LaSalle Brokerage, Inc.

04 The Latest

07 Research

08 Our Services

09 Our Team

1

1

In an effort to deliver unique value to our clients and friends, our team has put together several industry articles that highlight the latest trends in the Portland market. JLL is a global leader in delivering commercial real estate services to “occupiers” and “investors” and we encourage you to read through the newsletter and get to know the Portland occupier team and how we can support you on corporate real estate matters. If you have any questions or topics that you would like us to address in the future we would like to hear from you at [email protected]. Stay tuned for other announcements related to our JLL College which will cover topics from reducing occupancy costs, to workplace trends, strategy and doing business internationally.

November 2017 2

Operating and Tax Expense Estimates for 2018 are on the Way!

Chances are, Please instruct your

payables and property teams to watch out for these letters via mail or email.

expenses and taxes are going up, and

now is the time to get your house in order to prepare for accurate accounting and potential savings. If you are in the middle of lease negotiations now, we suggest you step back and make sure you are aligned for future success and of course cost control.

Direct any questions to Craig Reinhart, Managing Director, Occupier Services at [email protected]

3

Lease Accounting With the beginning of the year quickly approaching, you will receive a letter from your landlord in regards current and future operating costs. In 2018, lease accounting standards will put leases on the balance sheet and it is imperative that finance, accounting, legal and C-Suite executives understand the change. Please check in with us if you have questions with regard to this change.

New lease accounting standards Early in 2016, the Financial Accounting Standards Board (FASB) and the International Accounting Standard Board (IASB) both released new lease accounting standards –FASB Topic 842 and IFRS 16. Under these changes, virtually all leases will be put onto the balance sheet and, for those companies that report

The changes are intended to eliminate one of the largest sources of off-balance sheet financing, and improve comparability and financial transparency.

under IFRS, the P&L treatment for real estate leases will be

Who is impacted

dramatically different than what we have today.

The new lease accounting standards will impact all companies

The standard is effective for fiscal years beginning after December15, 2018. For publicly traded companies, there is a financial reporting requirement to report the two preceding years, included as comparative periods. This effectively means that calendar-year companies will need to be ready for the changes on January 1,2017. 4

Reasons for the changes

that have leases (including real estate and equipment) and report under FASB or IFRS. This includes public companies, private entities and non-profit organizations...

Read the Full Report

Leasing Strategies: Minimizing the Financial Impact Read the Full Report

How to approach a CRE decision Recommended hierarchy to approach the analysis

1

(What is the business case and strategic rationale for the decision)

Real estate evaluation

2

(NPV, total amount and timing of cash flows)

Corporate finance evalution

3

Accounting evalution

(Net incomes, EPS, EBITDA) 5

We can help to audit your leases! Our approach to Lease Auditing is predicated on the fundamental belief that

positive financial gain

is optimized when we deliver savings and preserve the tenant / landlord relationship. Read the Full Report

6

To learn more about our lease audit services please contact Matt Simpson at [email protected]

Eric Turner Corporate Real Estate Services

“The upside is that Tenants have several quality options to consider including a wide range of product types and locations - significantly more than we’ve seen in the past 3-5 years; the downside is that rental rates have increased across all options; sometimes as high as 40% from the 2012 – 2013 timeframe. Creating leverage is more critical now than ever and most of the concessions will be in the form of enhanced tenant improvement and free rent packages vs a reduction in rental rates.”

Q3 Overview

Key Take Away

OFFICE INSIGHTS

Demand bounced back after a flat first half of the year. Q3 saw over 300,000 square feet of positive net absorption, with over 2/3rds coming from CBD Class A

Portland Q2 2017 Office Insight

Rose City real estate blooms this spring Fundamentals YTD net absorption

• The number, and total square footage, of leases signed above 10,000 s.f. ticked up to the highest level in a year • Construction has reached a new cyclical high with almost 2 million s.f. under construction • Rents of under construction Class A buildings now average $43.15 p.s.f. full service

deliveries outpaced demand Overall rents are down $0.09 quarterover-quarter due to Class A space being taken off the market by tenants trading up from Class B space

9.8%

Concessions

After a mediocre first quarter, the second quarter put a smile back on the face of Portland commercial real estate with 145,000 square feet of positive absorption. Both leasing and absorption was up in the second quarter, with the number of leases signed above 10,000 s.f. increasing to 26. Autodesk inked the largest deal in the metro in 2 years when they leased up the whole of Towne Storage, the largest office development ever in the Close In Eastside. On the topic of development, 5 new projects kicked off in the second quarter, adding another 388,000 square feet to the swelling development pipeline. 2 of these projects are in the Close-In Eastside, where there is boom of small and mid-size developments. 9 of the 25 projects currently under construction are in the Close In Eastside.

▲ ▲ ▲ ▶

Net absorption Deliveries

1,500,000 1,000,000 500,000 0 2013

2014

2015

2016

2013

9.6%

8.9%

9.4%

2014

2015

2016

part of 5 years in Portland. But we should see a general slowdown in rent increases towards more sustainable levels as new developments

YTD 2017

Total vacancy 11.1%

A new high-water mark was set in Portland when 1320 Broadway sold to Credit Suisse for $541 p.s.f. The sale represents the biggest flip of an office building as the joint venture between Clarion Partners and Urban Renaissance Group sold the building for more than 6 times its purchase price in less than 2 years.

Stable

Supply and demand (s.f.)

9.8%

start to deliver through the end of 2018, with new

2017

Average asking rents ($/s.f.)

Class A Class B

$30.00 $20.00 $10.00

construction pricing already being factored into

$0.00 2013

For more information, contact: Tim Harrison | [email protected]

year-over-year, as new construction

1,971,508 s.f.

Total vacancy

Average asking rent (gross) $28.31 p.s.f.

Outlook With construction activity at a post-recession high, all eyes are on pre-leasing. Portland is historically not a strong ‘leasing before construction starts’ kind of town, with the majority of leasing occurring fairly close to delivery. With the majority of the 2 million square feet under construction set to deliver in 2018, the next half of 2017 will shine a light on to how much more new office construction Portland can absorb. Of course rents play a large factor in determining the viability of a project, and with average Class A rents touching $35 p.s.f. full service in the CBD, $45.00 for new construction is not uncommon in Portland anymore.

Vacancy is up 90 basis points

Forecast 37,621 s.f. ▲

Under construction

We’ve seen surging office rents for the better

2014

2015

2016 YTD 2017

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

current asking rates.

OFFICE STATS Portland Q2 2017

Office Statistics Class

Inventory (s.f.)

Portland CBD Lloyd District Portland Central City Clackamas/Milwaukie Airport Way/Columbia Close In Eastside Outer Eastside Portland Eastside Suburbs 217 Corridor/Beaverton I-5 South Corridor Kruse Way Northwest Sunset Corridor SW Close In Portland Westside Cascade Park/Camas CBD/West Vancouver Hazel Dell/Salmon Creek Orchards/Outer Clark St. John's Central Vancouver Vancouver Mall Vancouver Suburbs Portland

Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals Totals

23,192,388 3,027,049 26,219,437 1,615,023 1,650,263 2,561,287 720,885 6,547,458 5,141,562 3,345,651 2,815,455 1,593,449 5,109,658 2,643,732 20,649,507 2,358,325 2,003,427 541,213 317,528 579,416 763,982 6,563,891 59,980,293

Total net absorption (s.f.) 60,766 12,856 73,622 45,686 47,557 -4,447 18,508 107,304 2,758 -23,893 -31,224 0 -3,410 -11,753 -67,522 536 29,513 5,029 -336 1,052 -4,187 31,607 145,011

Portland CBD Lloyd District Portland Central City Clackamas/Milwaukie Airport Way/Columbia Close In Eastside Outer Eastside Portland Eastside Suburbs 217 Corridor/Beaverton I-5 South Corridor Kruse Way Northwest Sunset Corridor SW Close In Portland Westside Cascade Park/Camas CBD/West Vancouver Hazel Dell/Salmon Creek St. John's Central Vancouver Vancouver Mall Vancouver Suburbs Portland

A A A A A A A A A A A A A A A A A A A A A A

12,503,349 1,263,060 13,766,409 761,373 437,634 214,167 161,473 1,574,647 2,299,320 1,706,174 2,398,311 0 2,399,704 396,936 9,200,445 1,014,679 953,069 152,400 119,617 448,724 2,688,489 27,229,990

61,094 3,193 64,287 25,907 35,000 -3,800 12,620 69,727 21,468 -31,857 -31,022 0 -2,557 -19,722 -63,690 274 7,357 -270 -3,365 -5,585 -1,589 68,735

38,437 32,489 70,926 54,381 47,933 21,733 -2,099 121,948 -18,967 -1,358 -86,274 -30,366 -46,123 -9,160 -192,248 1,359 25,402 11,201 -575 2,579 -2,971 36,995 37,621

YTD total net absorption (% of stock) 0.2% 1.1% 0.3% 3.4% 2.9% 0.8% -0.3% 1.9% -0.4% 0.0% -3.1% -1.9% -0.9% -0.3% -0.9% 0.1% 1.3% 2.1% -0.2% 0.4% -0.4% 0.6% 0.1%

Direct vacancy (%) 8.9% 6.6% 8.6% 3.8% 16.7% 6.0% 10.1% 8.6% 14.0% 11.9% 11.9% 6.4% 8.6% 6.7% 10.5% 6.6% 6.9% 1.6% 12.9% 23.3% 5.5% 7.9% 9.2%

35,716 7,434 43,150 15,380 35,000 9,976 -142 60,214 22,389 -18,361 -89,378 0 -35,069 -26,590 -147,009 3,769 2,697 8,302 -3,020 -4,369 7,379 -36,266

0.3% 0.6% 0.3% 2.0% 8.0% 4.7% -0.1% 3.8% 1.0% -1.1% -3.7% 0.0% -1.5% -6.7% -1.6% 0.4% 0.3% 5.4% -2.5% -1.0% 0.3% -0.1%

8.6% 3.8% 8.1% 1.8% 4.3% 4.0% 11.9% 3.8% 14.1% 10.3% 13.8% 0.0% 7.7% 10.2% 11.5% 11.0% 6.8% 0.5% 4.6% 2.3% 7.2% 8.9%

YTD total net absorption (s.f.)

Total Average vacancy direct asking (%) rent ($ p.s.f.) 9.4% $32.76 6.6% $27.23 9.1% $32.38 3.8% $22.87 16.9% $20.72 6.0% $31.06 10.1% $21.14 8.7% $26.17 15.2% $22.46 13.3% $23.64 12.0% $30.18 6.4% $37.07 10.4% $23.94 6.9% $22.70 11.5% $26.52 6.6% $21.14 6.9% $23.74 1.7% $22.24 12.9% $18.15 23.3% $19.41 5.5% $15.40 7.9% $20.53 9.8% $28.31 9.5% 3.8% 9.0% 1.8% 5.3% 4.0% 11.9% 4.1% 16.0% 11.2% 14.0% 0.0% 9.8% 10.2% 12.7% 11.0% 6.8% 0.7% 4.6% 2.3% 7.2% 9.8%

$34.97 $32.07 $34.91 $26.62 $26.96 $36.00 $29.00 $28.01 $24.69 $25.76 $30.27 $42.16 $24.21 $29.65 $29.97 $23.60 $25.02 $24.00 $18.15 $22.13 $24.07 $31.73

55,525 45,098 100,623 0 0 51,729 0 51,729 0 0 0 0 0 0 0 0 0 0 0 0 0 0 152,352

Under construction (s.f.) 801,085 0 801,085 17,495 0 425,155 0 442,650 60,886 21,000 0 465,767 0 110,120 657,773 0 70,000 0 0 0 0 70,000 1,971,508

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

715,898 0 715,898 0 0 24,300 0 24,300 0 0 0 420,454 0 0 420,454 0 70,000 0 0 0 70,000 1,230,652

YTD completions (s.f.)

A number of medium sized projects are waiting in the wings, particularly in the Close In Eastside, and with a few large leases in new construction rumored to be close to signing, these proposed projects should keep the pipeline full through 2019. 7

Our Services Tenant Representation

Workplace Strategy

Our team will help define space requirements and recommend occupancy solutions to align your real estate strategies with your business goals and objectives.

We will help align your culture, business drivers, and the nature of work to define a workplace that improves your ability to recruit and retain top talent.

Project Development Services

Multi-Market Portfolio Services

We manage the design and construction of both simple and complex real estate projects from beginning to end on time and on budget.

From domestic to global portfolios we can help you develop your overall portfolio strategy and execute projects anywhere your business takes you. We focus on your portfolio data, critical dates and the financial impacts of your real estate decisions globally.

Market Intel / Research

Strategic Consulting

Our industry leading professionals are supported by proprietary site analysis software, financial analytics and demographic/drive time mapping. Together, we are the market leaders in delivering data driven support of critical real estate decisions.

Our multidisciplined team of subject matter experts deliver unique value to clients in portfolio strategy, portfolio management, occupancy planning, workplace strategy and sustainability strategy.

Click here to contact your Portland team. 8

Our Team Craig Reinhart

Sarah Thorson

Chris Elsenbach

Niall Travers

Eric Turner

Matthew Ryer

Michael Jordan

Corporate Real Estate Services

Project Management






[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

Cayla Wardenburg

Soo Anderson

Patricia Raicht

Tim Harrison

Alec Torkelson

Kevin Nesse

Jane Snyder


Project Management

Research

Research


Project Management

Project Management

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

Lindsey Anderson

Carrie Jeske

Matt Simpson

Forrest Munro

Angie Cole

Melanie Bostrom

Project Management

Startup Practice Group Manager

Portfolio Manager

Client Coordinator

Public Relations/Communications

Designer

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

9

Our Ambitions We know that real estate is more than just a physical space. It’s where we work, live, shop, play, laugh, cry; and for you it’s even more than that, it’s where your ambitions are achieved and it needs to work for you. We help maximize the value of your real estate decisions so you achieve your ambitions, however bold and challenging they may be. So everything we do – our skills, services, platforms, technology and our amazing people – are entirely focused on helping you achieve those ambitions. Reach out to us at [email protected] for more information.

JLL’s Exclusive Tenant Representation Team Jones Lange LaSalle Brokerage, Inc. 1120 NW Couch Street, Suite 500, Portland, OR 97209

10

About JLL JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At the end of the first quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 78,000. As of March 31, 2017, LaSalle Investment Management had $58.0 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.