May's $30.5 billion of construction starts, excluding residential work, soared 30.3% versus April, according to CMD Group, construction data provider. The nearly one-third month-to-month gain was much higher than CMD's usual April-to-May change, due to seasonality, of +8%.

Starts in May were +7.3% when compared with the same month of 2014. Through the first five months of 2015, total non-residential starts have been +2% versus the same January-to-May time frame of last year.

There has been an uneven pattern of monthly starts variability so far this year. May's +30.3% was preceded by April's -5.6% and March's +28.1%. February was -10.6% and January was 11.7%. Several ultra-large projects have provided some shock waves and some are noteworthy in other respects, such as location or uniqueness, within the 10 metro areas that had the most commercial property under construction as of year-end 2014: Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, New York and Washington, DC.

Tishman Speyer's Three Alliance Center represents the final phase of the highly successful Alliance Center complex in Atlanta's Buckhead district. The 30-story, 500,000-square-foot building, rising on one of Buckhead's last remaining development parcels, will deliver by the end of 2016. Port Logistics Realty began construction on Phase 1 of the Southport Logistics Park in Wilmer, TX, roughly 10 miles south of Dallas. A joint venture of PLR and Diamond Realty Investments, the $500-million Southport Logistics Park will feature nine buildings ranging from 400,000 to 1.5 million square feet at full build-out. In Seattle, Wright Runstad & Co. is betting that a new highrise on Rainier Square will entice tech companies to move Downtown. The planned 1.15 million-square-foot development, which awaits final city approval, will cover a full block and consist of two buildings, a 58-story office and apartment tower and a separate 12-story hotel with retail space.

Overall, disruptors to watch for include new technology such as drones, which are changing the landscape of certain CRE segments. But going forward, improving fundamentals in most markets will be beneficial for owners and lenders. It is an exciting time for CRE development in the 10 key markets.—Lisa Brown

QUICK LINKS

ATLANTA: Turnaround Bigger Than Expected

BOSTON: The Numbers Tell the Tale

CHICAGO: An Unexpected Tech Hub

DALLAS: Industrial Is Stealing the Show

HOUSTON: Tentative Optimism Amid Slowdown

LOS ANGELES: Downtown Leads Construction Surge

MIAMI: Developers Race to the Finish

NEW YORK CITY: A Stellar Six Months

SEATTLE: 58 Cranes In the Air

WASHINGTON, DC: A Very Practical Approach

ATLANTA: Turnaround Bigger Than Expected

Talk about a turnaround. Atlanta had a long road back from the Great Recession but today developers are betting big on the Southern state.

Just how much development is underway in Atlanta? On the multifamily front, developers will add 9,750 units in 2015, according to Marcus & Millichap. New rentals will focus on high-rent areas in the Downtown, Midtown and Buckhead submarkets, where average rents per unit can top $1,400. Meanwhile, retail developers will bring about 1.6 million square feet of space to the market, mostly of pre-leased single-tenant offerings.

There's a little less action in the office market. Developers will finish 626,000 square feet in 2015, down from the 1.4 million square feet completed last year. Looking at industrial, developers will deliver two million square feet of space, expanding inventory 0.3% by the end of the year. Finally, hospitality developers will add another 800 rooms to metro Atlanta's hotel market by year's end.

“It's interesting how multifamily continues to lead us out of the doldrums,” says Thad Ellis, SVP and Atlanta market leader for Cousins Properties. “The past 24-plus months have been very good months to lease office in Atlanta, but multifamily developers are controlling of a lot of what were formerly very good office sites.”

Ella Shaw Neyland, president of Steadfast Apartment REIT, which has been acquiring multifamily assets in Atlanta, has some concerns about development there. For starters, although 400,000 new units nationwide is about 33% higher than the historic annual need for new supply, it does not catch up for the many years post recession where very few new apartment homes were constructed.

“A recent report from Freddie Mac says that we may be in a situation where we are about 1.5 million apartment homes short of demand today,” she says. “And that supply will not catch up with demand for the next nine years.”

Atlanta's industrial vacancy represents a 13-year low, ranking it among the most active in the nation. A steady stream of organic growth combined with new entrants to the market is spurring the growth. “Atlanta's market dynamics have led to historically low vacancy, increasing rental rates and significant investment sales activity,” says Todd Barton, a CBRE first VP of industrial. “The amount of spec development underway, while significant, is appropriate for the market given the limited deliveries in the past five years.”

In terms of retail, Monetha Cobb, managing director of Franklin Street of Atlanta, points out several recent large scale, notable retail-driven projects: Avalon, which opened in October 2014; Buckhead Atlanta, which had tiered openings over the past six months; and Ponce City Market, scheduled to open this fall.“If there is a small to mid-size development taking place, it is most likely being driven by one of the many grocers expanding in the metro Atlanta market,” she says. “This is great for many smaller restaurant or service-oriented tenants who benefit greatly from the 'daily needs' component the grocery store brings.”—Jennifer LeClaire

BOSTON: The Numbers Tell the Tale

Just how strong are the commercial office, industrial and multifamily markets in the Greater Boston area? Well, to answer that question, the old axiom “Numbers don't lie” seems to apply.

In the City of Boston there are 68 projects, totaling 14 million square feet and valued at approximately $7 billion in total development costs, under construction, according to the Boston Redevelopment Authority. A considerable amount of that activity is centered on the multifamily and purchase residential markets. The BRA reports that more than 6,000 new housing units are being built in the city as either standalone housing developments or part of mixed-use projects that in many cases include a component of retail. In addition, a number of new hotel projects are in the pipeline, including a second Four Seasons Hotel that will be part of a 700-foot tower that broke ground in early 2015. That project being developed by Carpenter and Co. of Cambridge, MA, will also feature luxury condominiums.

As for the city's development pipeline, BRA director of communications Nick Martin says there are 167 projects that have been approved by the authority but have yet to break ground. These initiatives total a potential 35 million square feet of new development and $13.6 billion in total development costs. Add to that another 42 projects that are before the BRA, which if approved will add another six million square feet of development and $1.8 billion in development costs to the Boston economy. The projects under review by the BRA would add more than 2,000 units to the city's housing stock.

So far in 2015, the BRA has approved more than five million square feet of construction, totaling over $1 billion worth of investment. The projects approved in the first half of this year will pave the way for 2,492 new units of housing and the creation of more than 4,240 construction jobs.

Among the major developments in the pipeline is the $500-million Copley Place expansion at 5 Copley Place, which is expected to break ground by year's end. The project being developed by Simon Property Group calls for a 52-story tower holding 542 residential units, with 76 earmarked as affordable. It also calls for additional restaurant and retail space, including an expansion of the existing Neiman Marcus store.

Developers, investors and commercial brokers say the Greater Boston/Cambridge markets have not been as vibrant since the dot.com bubble in the late 1990s. Both DTZ and Transwestern | RBJ report the office vacancy rate in Greater Boston was 12% at the end of the second quarter. Brokerage firm DTZ states that Greater Boston closed out one of its strongest quarters on record with two million square feet of office space absorbed. The absorption figure is the region's largest quarterly tally since 2000.

“Greater Boston has closed a historic quarter in terms of absorption,” says Transwestern Northeast research director Chase Bourdelaise. “And this quarter was not a fluke, as we're in the midst of a streak of nine consecutive positive quarters. The strong results have been seen across the region, with every major submarket boasting a level of activity not seen in many years, if ever.”

Glenn Verrette, executive managing director of DTZ's Boston office, says that there is 1.8 million square feet of office space under construction in Downtown Boston, 62% of which is pre-leased.

A particularly hot market is Cambridge, where biopharmaceutical/lab and office space are in scare supply. The two brokerage firms say the overall class A and class B vacancy rate stood in the range of near 6% to below 5%.

A major player in the Cambridge market is Alexandria Real Estate Equities of Pasadena, CA, which owns 5.2 million square feet of life sciences/biotech space in the Cambridge area. The company will have approximately one million square feet of space under construction at its Alexandria Center at Kendall Square development later this year. The firm is building 50-60 Binney St., a two-building complex that will feature 530,000 square feet of rentable office/laboratory space. Genzyme, a subsidiary of pharmaceutical firm Sanofi, has leased 251,234 square feet there and will relocate from 500 Kendall Square in Cambridge when the building is completed in 2018. Alexandria expects to begin construction on the 431,000-square-foot 100 Binney St. in the third quarter. In late June Alexandria struck a lease deal with Bristol-Myers Squibb for 208,000 square feet of space at that property.

Joel S. Marcus, chairman, CEO and founder of Alexandria Real Estate Equities, says the company is in negotiations with a number of companies for the remaining space at the three buildings, including about a dozen proposals for space at 100 Binney.

In terms of demand, Marcus says the firm has not seen it this strong from life science and technology companies looking to house operations in Cambridge. “It has really changed over the years. It used to be a lot of tech firms would settle for Back Bay or places like that, but today virtually everyone wants to be in the Cambridge marketplace.” He adds that his firm has virtually no vacancy at its existing lab-office product in Cambridge and maintains that the other limited vacancies outside its portfolio in Cambridge are at class B and class C properties.—John Jordan

CHICAGO: An Unexpected Tech Hub

As the recession faded, growth began returning to many real estate markets. Chicago was no different but, in the past few years the Midwest's leading city has also witnessed the growth of new business sectors like high tech, which have made its economy even stronger than it was pre-recession, and promise to drive new development for years to come.

“Obviously, San Francisco and the coasts get more notice when people talk about tech hubs,” says Andy Gloor, managing principal of Sterling Bay, a commercial real estate investment and development firm in Chicago. But “Chicago's tech community is quite substantial and underrated.”

Perhaps the best illustration of the transformation sweeping the city's office market is Sterling Bay's gut rehab of an old cold storage facility just outside the downtown core into a sparkling new regional headquarters for Google. Called 1KFulton, the 535,000-square-foot facility now towers over a once-gritty neighborhood that developers are transforming into a community for high-end office users.

Investors have begun pouring money into the city's tech sector, according to a recent report from JLL. “And it's not just Chicago-based venture capital firms investing,” says Nooshin Felsenthal, JLL's senior vice president of investment sales. Instead, the city is now taken seriously by investors that once kept their focus on tech hubs like Silicon Valley and Boston.

In 2014, nearly $1.6 billion in total funding flowed into Chicago, a 50% increase over 2013 and the highest total ever. This was the second year in a row that Chicago passed the $1-billion threshold. Tech firms accounted for 25.7% of the top 20 leases in 2014, 36% in 2013 and 23.8% in 2012, JLL found. Prior to 2011, tech companies typically accounted for less than 5% of the top leases.

The city's more traditional office market has also revived, and for the first time since before the recession, developers are putting up significant new downtown office towers. Hines' 52-story, 1.05-million-square-foot River Point project at 444 W. Lake St. has already secured anchor tenants such as McDermott, Will & Emery and DLA Piper. It also just scored its first global headquarters, that of Mead Johnson, which will relocate from a suburb.

Developer John O'Donnell has broken ground on a new tower at 150 N. Riverside Plaza and like Hines has also had great leasing success. William Blair & Co., Hyatt Corp. and the Pritzker Group have agreed to anchor the 1.3-million-square-foot building, which O'Donnell plans to deliver by late 2016.

Chicago hasn't had this much office space in its pipeline since 2009, when developers completed more than 3.6 million square feet in the CBD. But the tech explosion and the transformation of neighborhoods on the periphery of downtown have changed the market since then.

“Fifteen to 20 years ago, the common thought was if you're going to be doing serious business you have to be Downtown,” says Gloor. But the amount of new space under development in peripheral areas, including the new Google building, “is substantial; it's in the millions of square feet.” In the future, when it comes to office construction, “you're going to see a much bigger geographic spread.”

Perhaps the other most notable recovery in Chicago real estate has been in the industrial sector. “The demand drivers that were stagnant during the recession have come on strong,” says Mike Yungerman, VP of real estate development for Minneapolis-based Opus Development Corp., which has become one of the Chicago region's most active builders. The vacancy rate was at around 12% just a few years ago but has now fallen well below 8%, and much of that remaining space is obsolete.

“Chicago is a strong market and it's viewed as very attractive by institutional capital,” he adds, making it relatively easy for builders like Opus to find deep-pocketed buyers. Including projects that they will finish up shortly, developers have had about 18 million square feet of space in the pipeline during the past 18 months, about eight million of which was available spec space. “We saw positive absorption far north of that last year,” so the market should not have much trouble filling up this new space.

Still, this pace of construction is significantly slower than the region saw in the run-up to the recession, says Yungerman. Lenders worry about inflating a bubble and remain a little more cautious. “It's more controlled growth this time around.”—Brian Rogal

DALLAS: Industrial Is Stealing the Show

What does the future hold for Dallas/Fort Worth development? A great deal, say numerous industry sources. The data coming in all indicate that every commercial real estate sector is seeing strong performance, thanks to the healthy business environment and expanding economy.

According to recent research from JLL, average skyline office rates are averaging $25.56 in Dallas and slightly more in Fort Worth: $28.64. Meanwhile, CBRE reports that retail space continues to be limited as “occupancy reaches new heights.” Currently, vacancy sits at 7.5%, with close to four million square feet under construction.

Not surprisingly, industrial is seeing the most strength. “We're in the middle of the perfect storm in the Dallas-Fort Worth industrial market,” says Nathan Lawrence, senior vice president at CBRE. “Cap rates are at an all-time low, debt is low and demand is at an all-time high. This is the strongest industrial market I've seen in DFW.”

Development activity and demand can be seen across all of DFW's submarkets. “E-commerce in particular is driving demand for distribution,” says Ryan Keiser, another CBRE SVP. “With our central location and strong economic fundamentals, Dallas-Fort Worth has become a top destination for e-commerce fulfillment facilities.”

To that end, spec developments are increasingly prevalent. Trammell Crow Co. is building JJ Lemon, two class A spec buildings, comprising more than 700,000 square feet. Building 1 consists of 201,600 square feet, featuring 32-foot clear heights, strong highway visibility and additional land available for outside storage and trailer positions. Building 2, totaling 500,000 square feet, will include 65 trailer parking spaces, 36-foot clear height and 138-foot truck courts on both sides of the building. The site, located at the northwest corner of I-20 and I-45, has direct access to the I-20 frontage road.

The area of the metroplex remains a popular location for such developments. “With over five million square feet of absorption expected over the next six months, the southern Dallas industrial market has remained in strong demand due to the efficient network of highways, proximity to the UP Intermodal and deep labor base,” says Trammell Crow SVP Jake Marks. “The overall Dallas/Fort Worth industrial market continues to be robust with 18 consecutive quarters of positive absorption including six million square feet in the first quarter of 2015. Vacancy remains low and with sustained job growth it is expected strong demand will continue well into the future.”—Anna Caplan

HOUSTON: Tentative Optimism Amid Slowdown

With the price of oil affecting development and virtually every other aspect of commercial real estate in Houston, the city's outlook remains tentatively optimistic, according to industry sources.

According to Savills Studley, tenant effective rent ($39.93) is more than 25% above the 2008 peak of $31.66. Concessions as a percentage of rent have dipped year-over-year by 18.6%. “Tightening availability in West Houston and strong investment sales boosted landlord optimism in the CBD,” says a rep for Savills Studley.

The very highest-caliber class A properties in the CBD are “unlikely to see more than a slight correction in rents during 2015.” And landlords will be compelled to keep concessions aloft to jump-start leasing as area companies operate cautiously. “It remains to be seen if pullback in the in oil and gas sector will be short-lived or if it will curtail Houston's expansion cycle.” The firm puts the outlook for the rest of 2015 at zero to 5% growth.

Industrial spec construction in Houston is also trending downward due to the drop in oil prices and the expected decrease in overall economic activity. CBRE's Faron Wiley, brokerage services first vice president, adds, “That is not to say that the industrial market is not doing well though—we are just seeing fewer new building starts. Right now, developers are focused on finishing, rather than starting new ones, until the oil and gas market stabilizes and there is acceptable visibility regarding future demand.”

On the retail side, high occupancy levels and no new development over the past few years have created a demand for new retail in Houston, according to Streetwise Retail Advisors. The firm is tracking 49 new developments in various stages of construction in the metro.

“While other products types are seeing a slowdown, retail is very active and growing,” observes Craig Trottier, SVP of Trammell Crow Co. “We have six new retail projects in Houston that will be coming on line in late 2016 and 2017. Grocery store developments continue to be in demand with junior box retailers also looking for new store opportunities.”—Anna Caplan

LOS ANGELES: Downtown Leads Construction Surge

Construction volumes in Los Angeles are among the highest in the country. All the development, however, is concentrated in a handful of submarkets and, overall, Downtown is capturing a majority of the action. That is probably because it has the most available land, and, with the push from city officials to build a central Downtown, the permitting and entitlement process is smoother than it is in other parts of the city.

According to the latest report from the Downtown Center Business Improvement District, the area has nearly 10,000 residential units under way, 2,000 of which are for-sale condos, along with 2,600 hotel rooms, 2.1 million square feet of retail space and 1.3 million square feet of office space all under construction. In this year's first quarter alone, the submarket saw 10 groundbreakings.

While multifamily construction is clearly the darling of the submarket and the greater L.A. area, it has also been a catalyst for other development product. “This is not an uncommon trend in urban development,” says Nicholas Griffin, director of economic development at the Downtown Center BID. “When you get that residential base growing to a critical mass point, you're going to start to get the retail component. You'll also get an increase in office development because you now have an installed residential population that would love to live nearby.”

Downtown has some of the biggest—and most expensive—developments in the L.A. market, including three $1-billion projects: Wilshire Grand Center, Metropolis and Oceanwide Plaza. The submarket also has several projects in the $500-million range. Some of the most notable projects include the Bloc, the Desmond and the Coca-Cola building. New projects pop up every day and a new record-breaking land sale is closed. Most notably, in the first quarter of 2015, SunCal bought 15 acres in the Arts District for $130 million. “That is a purely suburban developer making an urban play because that's where the trend is going,” says Griffin. “You have a confluence of factors—excitability, desirability, availability—that makes this a ripe place to build.”

Not all of the construction is Downtown, however. The Mid-Wilshire submarket has 1.1 million square feet of creative office space under way, according to a second-quarter 2015 report from JLL, while the Westside has 350,000 square feet of creative office under construction. Columbia Square, in the Hollywood micro market of Mid-Wilshire, is the most significant office project, while ICON at Sunset Bronson Studios and 959 Seward are also major projects in the submarket.

For industrial development, central L.A. and the San Gabriel Valley rule. The former has 1.4 million square feet under construction and added eight new projects in Q1 alone, while the latter has 1.3 million square feet under construction. The industrial developments range in size from 50,000 to 200,000 square feet. The most notable project in the pipeline is a 201,000-foot facility in the San Gabriel Valley.

Last year, development in Los Angeles was up 9%, with $7.7 billion of projects under construction. Volume is poised to continue to grow this year, as there is no signs of any slowdown, according to Griffin.—Kelsi Borland

MIAMI: Developers Race to the Finish

In 2010, Miami condo developers were filing bankruptcy and over one million square feet of newly-delivered office space was mostly empty. Fast-forward to 2015 and the volume of developments underway makes the last construction boom look mild.

Here's a quick review of what's in the pipeline: There are 4,800 multifamily units slated to come on line in 2015 after about 3,100 hit the market last year, according to Marcus & Millichap. The firm reports developers will complete 1.4 million square feet of retail space this year, the highest total since 2008 as construction activity accelerates. In 2014, builders finished 700,000 square feet.

Developers will bring a meager 400,000 square feet of office space on line in 2015, after the market saw nearly two million square feet delivered between 2008 and 2011. Nearly two million square feet of industrial hit the market in 2014 and several major hotels are opening this year, with even more coming down the pike. Miami has the fourth-highest number of hotel rooms under construction, according to the STR hotel occupancy report.

Vanessa Grout, president of Miami-based CMC Real Estate, which focuses on luxury residential, commercial and retail properties, says the Miami market is normalizing and developers and investors are far less leveraged now than during the last cycle.

“There's been speculation about Latin American activity winding down, but those markets have historically acted like musical chairs—when one country slows down, another picks up and that's what's happening now as Brazil softens,” Grout says. “Interest among domestic buyers—and even Chinese buyers—is growing and sales at our Brickell Flatiron development have been consistently strong. Miami is an increasingly global market, and our residential product appeals to both international and US buyers.”

Nitin Motwani, managing principal of Miami Worldcenter, has an especially unique perspective on the retail front. The $2-billion project will bring to market a million square feet of retail space, 600,000 square feet of convention space, and an 1,800-room Marriot Marquis hotel. As he sees it, Downtown Miami has been one of the fastest-growing urban centers in the US over the past decade, and now we're seeing the rise of new mixed-use projects that will attract residents, retailers and visitors to the area.

“Construction of Miami Worldcenter is beginning this quarter, and everything we're seeing and hearing from residential buyers, international retailers and members of our community points to pent-up demand for what we're delivering,” Motwani says. “This is the natural next step in Miami's evolution as an urban city.”

David Martin, president of Miami-based developer Terra Group, says the world looks at Miami and sees high-rises, but Terra is seeing rising demand for residential and commercial product in low-density neighborhoods like Coconut Grove, North Beach, Doral, Weston and Pembroke Pines. “Sales volume is steady at our urban residential developments—Park Grove and 87 Park—and we're sold-out at Grove at Grand Bay and Glass in Miami Beach,” Martin says. “We are experiencing similar activity in suburban communities like Botaniko in Weston, and Modern and Neovita in Doral.”—Jennifer LeClaire

NEW YORK CITY: A Stellar Six Months

Whether one watches retail, office or even hotel development, it's all been booming this year across the city. And as analysts and builders reflected and spoke with Real Estate Forum, all of them expressed nothing but optimism for the balance of 2015.

“The volume of construction spending last year reached $36 billion; our forecast was $32 billion but we were off because the market just surged,” says Richard Anderson, president, New York Building Congress. “There are no signs of that letting up in 2015.”

Indeed, the number of building permits issued so far this year—as of mid-July—is 75,527, a year-over-year increase of 2,971 permits, according to the NYC Dept. of Buildings. “Permit issuance has been increasing annually since 2010,” says a spokesman, “and trends show that we're likely to continue increasing through this year.”

The residential sector—which industry executives say drives all other corners of real estate—has the strongest performance, both in terms of the first half of the year and what lies ahead.

“Residential development drives everything, and there a huge amount of work going on in that sector,” says Andy Frankl, founder/president, IBEX Construction. “New York has become a more hospitable place to live so demand has increased and foreign money is coming in, leading to super-high-rise buildings like the Macklowe Tower at 432 Park Ave. and the Nordstrom Tower on 57th Street that'll be even taller. There are several others planned along 57th Sreet but this is happening all over the city.”

Adds Anderson, “The bellwether of the market is residential and it represented $12 billion of construction spending in 2014. This year looks much stronger.”

A spike in residential development must be followed by the creation of office and retail space for a city to thrive. Both areas have moved ahead this year and appear poised to continue doing so. “Numerous developers—including Related Cos. (Hudson Yards); Brookfield Properties (Manhattan West); Moinian (3 Hudson)—are adding millions of square feet of office space to Midtown South,” says Franklin Wallach, senior director for research, Colliers International. “In Midtown, there are several projects going on, including 425 Madison Ave. and 380 Park Ave. (which will be renamed 390 Park Ave.) where, in both cases, L&L Holding Co. is taking the buildings down to their skeletal structure and rebuilding them.”

All told, he says, nearly two million feet of office space will be delivered this year, with much more coming in the next several years.

On the retail side, asserts Frankl, “high-end stores are coming here from all-over. And everything is mixed-use so there's retail at the World Trade Center, Howard Hughes, Corp. is putting in retail at the South Street Seaport and the world's biggest Nordstrom is planned. That won't be delivered for a few years but it will change the whole nature of that area.”

All of this development is sparking hotel demand, and that's creating a surge in supply. But those worried about market saturation may be misguided, suggests Evan Weiss, executive managing director, principal, LW Hospitality Advisors.

“The hotel pipeline shows 42 new properties in Manhattan, 10 in Brooklyn and seven in Queens for a total of 59 hotels this year; there's increased activity on Staten Island too,” he says. “But occupancies are still in the upper 80s. The NYC market is still under hoteled.”—Rayna Katz

SEATTLE: 58 Cranes In the Air

Pasadena, CA-based Alexandria Real Estate Equities Inc. recently broke ground on Juno Therapeutics Inc.'s new headquarters and R&D center, situated in the heart of the vibrant Lake Union cluster Washington. Lake Union is one of the fastest-growing science and tech submarkets. Today, Alexandria is developing an approximately 287,000 square foot state-of-the-art laboratory/office building, which Juno will anchor.

Alexandria is just one of the many that are breaking ground in the region. Gov. Jay Inslee said that groundbreaking signified a strengthening of the state's local life sciences sector. “We are a state known for its innovation,” he said.

Seattle is home to a cluster of high-caliber, world-class academic and medical centers, foundations, and innovative companies including Amazon, the University of Washington Medical School, the Fred Hutchinson Cancer Research Center, and more.

According to a recent research report from Colliers International, there is approximately 4.1 million square feet under construction in the Seattle/Puget Sound industrial market. The firm's Bill Condon, EVP of industrial, says that developers are riding the wave of low vacancy, rising rental rates, and favorable economic conditions. And 40% of those projects under construction, he adds, are preleased.

On the office side, the Colliers report says that 8.2 million square feet is under way across the region, and according to Greg Inglin, SVP, office properties, approximately 4.8 million square feet is preleased in new projects.

“The market continues to be dominated by the technology industry, which accounts for 90% of preleases and more than 60% of tenants currently in the market,” explains David Abbott, SVP at Colliers International, who specializes in office leasing in the Puget Sound. “Tech companies including Amazon, Dropbox, Facebook, HBO, PayScale and Porch were amongst the notable leases signed this quarter in Seattle and Google is expanding its Kirkland campus by 180,000 square feet in Q2 2015.”

On the retail front, CBRE's Susie Detmer, SVP, says that given the low retail vacancy rates (less than 5%) in 'A' markets in the Seattle area, there is a significant increase in retail development, both in projects under construction and planned.

In Bellevue, Detmer says, the expansion of Lincoln Square will add 180,000 squae feet of retail, restaurant and entertainment space with delivery projected for 2016. Bellevue Square's expansion will follow shortly thereafter with 175,000 feet to deliver in 2018.

The focus in Bellevue Square is on aspirational retail brands, Detmer adds. “Residential development throughout Bellevue has added much-needed retail shop space to this tight market.”

Just six miles north in Kirkland, Detmer adds, the former Totem Lake Mall is planned for a major redevelopment that will add approximately 200,000 square feet of retail for 2017.

Seattle's multifamily pipeline will also ramp up in 2015 and 2016, says CBRE. EVP Jon Hallgrimson tells Real Estate Forum that absorption remains strong with all the STEM jobs coming to downtown and the Eastside. “First quarter rent growth was in the 6% to 8% range even with the deliveries,” he says. “Seattle rents are still well below those in the Bay Area, Southern California and Boston.”

The region is attracting Millennials away from those cities, Hallgrimson adds, “due to lifestyle, cost of living and no state income tax in Washington. Developers have continued to build rental rather than condos even when evaluating well located highrise developments. Investors will pay up to a 6% unlevered IRR for type one construction and well located mid-rise.”

According to Detner, “With 58 cranes in the air for new office and residential construction, Downtown Seattle is adding thousands of square feet of retail in these mixed-use projects. High demand for fast casual restaurants and service oriented businesses is helping to fuel the lease-up” of new MXDs.—Natalie Dolce

WASHINGTON, DC: A Very Practical Approach

The Greater Washington, DC area has become very practical and exacting about development in recent years. This is true not only for the office asset class—which has its own special set of issues—but also for multifamily product, an asset class that has seemingly transcended market force gravity.

Let's start with office. In Q2, office markets Northern Virginia, Suburban Maryland and the District of Columbia each recorded positive leasing growth—the first time in over a year and a half, according to JLL's Office Insight Report. In addition, JLL noted, there is some 5.2 million square feet of office product under construction, of which 47.6% is preleased. Not the most auspicious environment to begin a new project, but it isn't the worst, either.

As it happens, trends are moving in favor of office landlords, but they are modest at best. As DTZ noted in its analysis of Q2 activity, federal government leasing is expected to increase, with a staggering 13 million square feet expected to expire through 2019. However, it concluded that the activity would only have modest impact on the overall vacancy in the District as most large leases in the queue are targeting space efficiencies in the 10% to 20% range with one for the Department of Education targeting a 42% space reduction.

In short, for the foreseeable future office development here will be best characterized as a work in progress, no pun intended. Developers will need tangible evidence that demand is there for new office space before investing in projects.

Now let's look at the multifamily category. The picture is brighter here, obviously, but there are telling signs that developers are becoming cautious in their demand projections.

Not that recent stats would lead one to conclude that. Delta Associates reports that 13,800 class A units were absorbed in the past 12 months—more than double the region's 10-year average—while a near-record 14,231 units were delivered in that time. Another 15,121 units are scheduled to deliver over the next 12 months.

Delta does note that it expects the pipeline to shrink to a more healthy level in the next 12 to 24 months “as financial feasibility becomes more difficult in the face of rising construction costs and relatively flat rents.”

News on the ground, though, suggests this is happening already. In July, Washington REIT acquired a three-building, 711-unit multifamily complex in Arlington, VA for $167 million. It also plans a fourth building on the site that would add 360 units. On paper it is certainly a smart move, and perhaps should be executed immediately given the high personal incomes in Arlington, the building's proximity to some nice restaurant and retail amenities and the quick shuttle ride to the Pentagon City Metro station. Class A product would seem to be most welcome here.

Yet a call to the REIT revealed there isn't a timeline to break ground on that fourth building, largely because permitting is only starting. However, plans to upgrade the rest of the project are moving forward posthaste. “Washington REIT,” a spokeswoman relates, “won't be upgrading the units to class A, but rather, to a better class of class B—enough to justify a higher rents.”—Erika Morphy