A good snapshot. Pay attention to TI growth

1. Construction activity grows, and tenant
improvement allowances follow suit
United States
Construction Perspective
Q2 2015

2. As construction costs continue to grow nationwide,
many landlords are looking to redevelop existing stock
in major markets. The focus on tenant improvements
(TIs) is also gaining momentum due to the urban
renewal trend, which is driven by millennial demand for
city center, unique and open spaces.
As a large pipeline of new construction is delivered,
office landlords will compete for tenants by offering
more attractive TI packages. These offerings allow
tenants to customize interiors without paying for a full
redesign out of pocket and are a key piece of lease
negotiations. The average TI allowance nationwide is
$30.00 per square foot, and the average is up to just
over $50.00 per square foot in central business districts
(CBD).
This trend extends beyond the office market. Industrial
occupiers need more custom e-commerce space, with
higher shelving, specialized lighting, new technology
and office space. Retailers, who often self fund TI
projects, are using brick and mortar stores as an
extension of their online presence. They are
incorporating more technology into their stores to
support an omni-channel sales strategy. Restaurant
chains are doing similar work, as quick service
restaurants redesign their interiors to better compete
with fast casual concepts.

3. National economic trends

4. GDP growth slowed in 2015, mirroring similar Q1 declines since
recovery began in 2009.
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
ContributionstopercentchangeinrealGDP(SAAR)
4
Decline in real GDP reflected negative
contributions from exports, nonresidential fixed
investment and drops in government spending.
Source: JLL Research, Bureau of Economic Analysis

5. 600
620
640
660
680
700
720
740
122,000
124,000
126,000
128,000
130,000
132,000
134,000
136,000
138,000
140,000
142,000
144,000
2010 2011 2012 2013 2014 2015
Construction
Overall
After a drop in the winter, construction employment is increasing
as starts rebound for the spring.
5
Source: JLL Research, Bureau of Labor Statistics
Constructionemployment(numberofemployees)
Overallemployment(numberofemployees)

6. 0.0
5.0
10.0
15.0
20.0
25.0
30.0
2008 2009 2010 2011 2012 2013 2014 2015
Overall
Construction
Construction unemployment has declined 20 percent year-over-
year since June 2014, as construction demand grows.
6
Source: JLL Research, Bureau of Labor Statistics
5.5%Overall unemployment rate
June 2015
6.3%Construction unemployment rate
June 2015
Unemploymentrate(%)

7. 20
25
30
35
40
45
50
55
60
The Architecture Billings Index (ABI) slipped in Q2, continuing
the cyclical trend since the recovery.
7
The ABI reflects the time between architecture billings and construction spending, and is a 9-12-month leading indicator.
These fluctuations occur due to
regional differences in recovery –
some markets are seeing
consistent construction growth,
while others see the occasional
dip in activity.
Source: JLL Research, American Institute of Architects, McGraw-Hill Dodge

8. Driven by weather in the Northeast and the West Coast port
slowdown, the Construction Backlog Indicator declined sharply.
8
This index still rests 4.4 percent higher than Q2 2014.
Source: JLL Research, Associated Builders and Contractors
-25.3%
q-o-q
5.9%
q-o-q
CBI
-10.2%
q-o-q
CBI
-0.7%
q-o-q
CBI
CBI
National average
construction backlog
8.4mos

9. Cost trends: Labor and materials

10. Nationwide, TI packages are growing as landlords compete to
attract clients and more stock comes to the market.
10
Q2 2015 average TI allowance has eclipsed 2010 highs.
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Average TI package (per square foot) 14.2 percent
Growth in TI Allowance
from Q2 2013 lows
Source: JLL Research

11. The markets with the highest average TI package also have high
levels of construction activity.
11
Landlords offer higher dollar-value packages in active markets in order to stay competitive.
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
Washington,
DC
Atlanta New York -
Midtown
New York -
Downtown
Seattle Chicago Boston Denver Fairfield
County -
Greenwich
Minneapolis
Average TI package CBD (per square foot)
CBD
Average:
$50.69
D.C. also saw the most
construction starts in Q2
– three starts at 439,394
square feet

12. Many of the most expensive markets for office construction also
lead the pack for tenant improvement cost.
12
Source: JLL Research, RS Means
0
20
40
60
80
100
120
140
2012
2013
2014
RS Means Cost Index based on weighted average
of 30 key markets. The index average is 100;
Greater than 100 indicates higher than average
costs. This is based on materials and installation
costs needed to build out an office space.
RSMeansCostIndex
Buildout costs per market

13. The increase in TI packages gives occupiers the opportunity for
more customized buildouts, despite high costs.
13
Source: JLL Research, RS Means
28%
15%
9%
7%
6%
6%
4%
3%
3%
3%
3%
2%
2%
1% 8%
Percentage of total materials cost
Electrical
HVAC
Drywall
Ceilings
Flooring
Millwork
Demolition
Fire Protection
Voice Data
Glass & Glazing
General Conditions
Paints & Coatings
Audio-Visual
General Clean Up
Other
$19.46
Electrical cost per square foot

14. 0
5000
10000
15000
20000
25000
30000
0
1000
2000
3000
4000
5000
6000
7000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
National Building Construction
Index
Materials Index
Labor Index
Construction costs continue to increase, despite slight dip in
materials cost year-over-year.
14
Labor cost grew 1.4 percent since December 2014.
Source: JLL Research, ENR
Commonlaborindex:Unionwageplusfringebenefits
BCI:20-citylaborandmaterialscostaverageindex

15. The value of nonresidential construction put in place is over
$40,000 more than in May 2014.
15
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014r 2015r
Value construction put in place
Source: JLL Research, U.S. Census
Nonresidentialputinplace($M)

16. The value of construction put in place continues to grow across
all major sectors, as project spend increases.
16
Source: JLL Research, U.S. Census
Total 2014 Total YTD 2015
Manufacturing $57.8 billion $90.3 billion
Education $79.7 billion $81.5 billion
Commercial $62.7 billion $66.5 billion
Office $46.1 billion $55.4 billion
Healthcare $38.4 billion $39.1 billion
Amusement/Recreation $16.6 billion $21.4 billion
Manufacturing spend
eclipsed education to take
the top spot nationwide.

17. 0
5000
10000
15000
20000
25000
New York Boston San
Francisco
Chicago Washington,
DC
Los Angeles Seattle Portland Denver Phoenix
Apr-14
Apr-15
Costs have increased in all major markets, with the biggest cost
growth in San Francisco: 6 percent year-over-year.
17
Cost of construction in major markets
Source: JLL Research, RLB
RLB Comparative Cost Index
tracks the bid cost of
construction, including labor,
materials, contractor and
overhead costs.
RLBComparativeCostindex

18. Rates of growth are increasing in many markets, though Boston,
NYC and Portland are seeing rate declines.
18
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
Boston Chicago Denver Los Angeles New York Phoenix Portland San
Francisco
Seattle Washington,
DC
Q2 2014
Q2 2015
Change in construction cost QOQ
Source: JLL Research, RLB

19. Materials prices are increasing, though rates of increase are
declining.
19
Source: JLL Research, ENR
ENR Materials Price Index tracks weight price movement of structural steel, Portland cement and 2x4 lumber.
Weightedpricemovementofsteel,cementandlumber
1500
1700
1900
2100
2300
2500
2700
2900
3100
3300
3500
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Materials Index
1.7 percent
YOY growth in materials cost

20. Growth in materials prices is driven by gypsum board and other
lumber materials.
Material Percent change YOY
Aluminum Sheet -0.3%
Asphalt Paving 1.2%
Cement 0.4%
Concrete Block 2.2%
Copper Pipe -5.8%
Fabricated Steel 1.1%
Gypsum Board 25.8%
Lumber/Softwood 4.0%
Plywood 1.8%
PVC Water Pipe 5.2%
Ready-Mix Concrete 3.3%
Sheet Metal 1.1%
20
Source: JLL Research, ENR
• Though cement price growth
remains low, it still saw an overall
boost of 8.4 percent since last year.
This supports the overall cost
increase in the industry.
• Copper and aluminum continue to see price
declines, and steel has experienced very low-
level increases as the market struggles with
over saturation of supply.

21. 0
5000
10000
15000
20000
25000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Labor Index
Labor costs continue growth, though at a lower level than in
previous years.
21
Source: JLL Research, ENR
As employment in the construction sector
continues to grow, wages should stop rising and
stay steady in the future.
Commonlaborindex:Unionwageplusfringebenefits

22. Costs remain low in Southern states, while states with a large
union presence remain pricier.
22
Source: JLL Research, ENR
0
5000
10000
15000
20000
25000
30000
35000
40000
ENR labor cost index by city
Commonlaborindex:Unionwageplusfringebenefits

23. Construction activity

24. Q2 2015 starts are at the highest point since the downturn, as the
economic recovery continues.
24
Source: JLL Research, CoStar, McGraw Hill
11.5 m.s.f. 14.1 m.s.f. 19.4 m.s.f.
Q2 2012
12.1 m.s.f.
Q2 2013 Q2 2014 Q2 2015

25. 0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Completions(s.f.)
Average completions
46.0 m.s.f.
Though office construction is rebounding from 2012 lows,
activity is still below historical norms.
25
Source: JLL Research
Historical construction completions

26. Despite a slowdown in the winter months, construction in office
and industrial is up year-over-year.
26
Source: JLL Research, CoStar Group
Industrial construction
Retail construction
122.3
m.s.f. under
construction
Q1 2014
Q2 2015
Q2 2014 Q2 2015
158.8
m.s.f under
construction
61.6
m.s.f. under
construction
45.3
m.s.f. under
construction
Q2 2014 Q2 2015
Office construction
Q2 2014
86.3
m.s.f. under
construction
65.4
m.s.f. under
construction
Growth in retail
construction of
2 m.s.f since
Q1 2015

27. Office vacancies are slowly declining, as companies begin to
renovate and occupy older stock buildings.
27
Source: JLL Research
30,000,000
130,000,000
230,000,000
330,000,000
430,000,000
530,000,000
630,000,000
730,000,000
2011 2012 2013 2014 2015
Vacancy(squarefeet)
-10.2 percent
since Q2 2011

28. The most available office space is in the Midwest and South, as
vacancy tightens nationwide.
28
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
WeschesterCounty
Phoenix
Cleveland
Cincinnati
St.Louis
SanAntonio
Dallas
Indianapolis
Atlanta
LosAngeles
WestPalmBeach
KansasCity
Jacksonville
SiliconValley
Milwaukee
Miami
Minneapolis
Sacramento
Detroit
SanDiego
Richmond
Houston
Columbus
Orlando
Baltimore
FortLauderdale
Chicago
Tampa
Denver
Raleigh/Durham
Pittsburgh
WashingtonDC
Boston
Philadelphia
Austin
SaltLakeCity
SanFrancisco
NewYorkCity
EastBay/Oakland
Seattle
Charlotte
Portland
Vacancy rates by CBD
Source: JLL Research

29. Q2 2015 completions are up 60 percent from Q2 2014, despite the
winter building decline.
29
Source: JLL Research
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Annualcompletions(squarefeet)

30. New York, San Francisco and Chicago have a wide cost variance
in their submarkets, giving them wider cost ranges overall.
30
Source: JLL Research, Rider Levett Bucknell
$0
$50
$100
$150
$200
$250
$300
$350
$400
Boston Chicago Denver Los Angeles New York Phoenix Portland San
Francisco
Seattle Washington
DC
($ p.s.f.)
Range of office construction costs in major markets

31. 4.5
m.s.f.
Boston
The square footage of office space under construction declined
country-wide in Q2, due in part to severe springtime weather.
31
Source: JLL Research
8.5
m.s.f.
Dallas
7.0
m.s.f.
Seattle
1.4
m.s.f.
Portland
3.1
m.s.f.
San
Francisco 2.0
m.s.f.
Cincinnati
3.66
m.s.f.
Phoenix
3.1
m.s.f.
Denver
11.1
m.s.f.
Houston
2.3
m.s.f.
Chicago
2.9
m.s.f.
Austin
9.5
m.s.f.
New
York City
2.13
m.s.f.
Washington,
DC
3.8
m.s.f.
Philadelphia
0.5
m.s.f.
Atlanta
Q2 2015 under construction
Despite the general decline in
square footage under
construction, New York saw
construction activity increase
by nearly 2 million square
feet.

32. Tenant improvements become more vital as occupiers customize
newly acquired space and attract millennial workers.
32
Source: JLL Research
36
percent
50
percent
The percentage of
millennials in the
workforce will increase by
almost 20 percent
between 2014 and 2020.
Companies must work
harder to attract and retain
top talent.
2014
2020
• Millennials seek unique office space design, supporting collaborative work that supports creative thinking. According to
a Deloitte survey, 78 percent of millennials are strongly influenced by how innovative a company is when
making a career decision.
• Tenant improvements can support this innovation in the office market, as companies fill vacant space. This
customization includes new public areas, more access to technology in meeting and collaboration rooms, and open,
mobile workspaces. Firms without these new finishes may find it more difficult to attract and retain younger talent.
• Companies spend millions on these renovations – this is especially true for high-technology firms. The highest-cost
buildout for San Francisco-based technology firms in 2014 was $12 million.

33. 0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
2010 2011 2012 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Industrial completions in Q2 2015 are up 13.9 percent year-over-
year, as many of the 2014 starts come onto the market.
33
Source: JLL Research, CoStar
IndustrialCompletions(squarefeet)

34. Industrial construction cost ranges are the largest in California,
with very little cost differential in the East Coast.
34
Source: JLL Research, Rider Levett Bucknell
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
Boston Chicago Denver Los Angeles New York Phoenix Portland San
Francisco
Seattle Washington
DC
($ p.s.f.) Range of warehouse construction costs in major markets

35. 24.4
m.s.f.
Inland
Empire
6.7
m.s.f.
Reno
3.0
m.s.f.
East Bay
Industrial square feet under construction is growing, especially in
the South and West.
35
Source: JLL Research
13.0
m.s.f.
Dallas
3.1
m.s.f.
Seattle
3.8
m.s.f.
Los
Angeles
4.5
m.s.f.
Central
valley
3.3
m.s.f.
Indianapolis
10.1
m.s.f.
Houston
8.9
m.s.f.
Chicago
4.2
m.s.f.
Kansas
City
17.3
m.s.f.
Atlanta
2.9
m.s.f.
Charlotte
14.6
m.s.f.
Philadelphia
Inland Empire under
construction increased 50
percent since Q4 2014. Q1 2015 under construction
3.0
m.s.f.
Cincinnati

36. Retail deliveries in 2015 are below 2014 totals, as smaller square-
footage stores increase in popularity.
36
Source: JLL Research, CoStar
Annualcompletions(squarefeet)
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Retail deliveries Smaller square-footage specialty
store deliveries are up 4.8 percent.

37. In order to compete, retailers are incorporating technology into
their build-outs.
37
Source: JLL Research
• New “omni-channel” retail outlets combine brick-and-mortar stores with online stores. Retailers often use
brick-and-mortar stores to fulfill online sales, which emphasizes convenience for the consumer.
• This new form of retail requires brick-and-mortar stores to bring in new technology, including interactive
screens in dressing rooms and the opportunity to shop in-store, yet order online.
• Textures, finishes and other unique touches also draw in today’s consumer – this includes exposed
beams and locally harvested materials.
• Flexible space that includes gathering places and outdoor seating is gaining in popularity as well, driven
by demand for unique shopping and dining experiences.

38. Retail costs have the largest price range, due to size and stock
quality variances.
38
Source: JLL Research
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
Boston Chicago Denver Los Angeles New York Phoenix Portland San
Francisco
Seattle Washington
DC
($ p.s.f.)
Range of retail construction costs in major markets

39. The majority of new retail space is focused in the Northeast and
Florida, with some Midwestern growth.
39
Source: JLL Research
0.5
m.s.f.
Broward
Co.
0.5
m.s.f.
Minneapolis
0.4
m.s.f.
Las
Vegas
0.4
m.s.f.
Los
Angeles
0.4
m.s.f.
Indianapolis
0.6
m.s.f.
SW
Florida
0.7
m.s.f.
St. Louis
0.8
m.s.f.
Chicago
0.7
m.s.f.
Washington,
DC
1.0
m.s.f.
Long
Island
0.4
m.s.f.
Northern
NJ
0.7
m.s.f.
New York
City
1.6
m.s.f.
Boston
Q2 2015 under construction
Florida’s growth is driven by
increased consumer confidence,
growth in tourism and a
recovering housing market. 0.5
m.s.f.
Miami

40. Overview and outlook

41. Key construction markets
41
Source: JLL Research
Houston continues to lead the pack, with 11.1 million square feet under construction in Q2 2015. However, this
represents a 12 percent decline of activity since Q1 2015, as the energy construction boom loses steam.
Boston and Long Island see retail growth. The Northeast and Florida represent the most retail construction
growth by square foot in Q2, as the economic engine boosts demand in these regions.
The Midwest and the Southwest lead in available office space. As companies scoop up vacant space in
primary markets, secondary markets still have higher vacancy rates, which provide opportunities for firms looking
for new space.
New York City remains the most expensive market, driven by high labor costs and land supply constraints,
while demand for NYC office space continues to grow.
Chicago had the biggest cost growth YOY, as land available declines while demand in the city increases.
1.
2.
3.
4.
5.

42. What’s next for construction?
42
Source: JLL Research, IBISWorld
Construction costs continue to grow, despite a brief slowdown in materials cost. Materials costs are projected
to rebound, however, further driving up costs.
Construction deliveries saw a dip in Q2 2015, due to winter weather and other supply factors, but starts are at
their highest point since the recession.
Labor costs see no reprieve from growth, and the cost differential between markets remain high, with
Southern states boasting consistently low labor costs.
Tenant improvement demand will stay high, as companies continue to scoop up vacant property in growing
primary and secondary markets and build out offices to fit shifting trends.
As construction activity grows, TI allowances increase as well as landlords battle to attract occupiers; now
is a good time for occupiers to lease new space. Activity is still far below pre-recession highs, indicating growth
will continue over the next several years, and dollar value of TI allowances will as well.
The construction industry usually lags overall economic recovery by one to two years; the industry is
still in the early stages of its recovery and will continue to grow in response to overall economic growth.
1.
2.
3.
4.
5.

43. COPYRIGHT © JONES LANG LASALLE IP, INC. 2015
Thank you
Dana Westgren
Research Analyst
Project and Development Services
+1 (312)-228-2867
Dana.Westgren@am.jll.com
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