Manulife US REIT - Annual Report 2021

MANULIFE US REIT 48 Independent Market Report By JLL as at 31 December 2021 U.S. economy • Output: GDP rose by 2.3% in real terms in Q3 2021, bringing it 1.4% above pre-pandemic levels. The U.S. is the first major advanced economy to achieve this feat. • Employment: 6.4millionnetnewjobshelpedpush unemployment down to 3.9%. Transportation and warehousing as well as financial activities have recovered all lost jobs. • Spending and investment: Consumer spending remains at record highs of more than US$600 billion on a monthly basis. Business investment and venture capital are also rising appreciably. U.S. office market • Leasing activity: A 47%surge in large leasing activity at the end of the year brought Q4 activity to 71.3% of pre-pandemic levels and 2021 activity to 63%of pre-pandemic norms. • Net absorption and vacancy: Q4 2021 registered the first quarter of net occupancy growth since the onset of COVID-19, while flight to quality brought vacancy in new supply down to 18.9%. • Rents: Asking rents remain stable, while net effective rents for CBD Class A space are still 7.1% below year-end 2019, but rising steadily. • Construction: The pipeline fell below 100 million sq ft for the first time since 2015 as deliveries outpaced starts. MUST markets • Atlanta: Buckhead and Midtown are the hubs for the region’s construction pipeline, housing 2.5 million sq ft of development. A number of large-scale projects will deliver over the course of 2022, highlighted by Midtown Union, 760 Ralph McGill and One Phipps Plaza. Further inbound migration will keep fundamentals steady. • Los Angeles: Leasing activity in the second half of the year was driven mostly by mid-sized tenants and a combination of renewals and new leases. A traditional anchor of the CBD market, law firms were responsible for the majority of notable leases. • New Jersey: The state’s economic development and incentives packages are some of the most favourable nationally and are likely to help keep corporate demand stable in the face of headwinds. Additionally, Jersey City’s population growth and housing development over the past decade has been among the highest nationally. • Northern Virginia: Zeta Associates’ 210,190-square-foot renewal provided an injection of confidence into Fairfax, which has struggled with tenant attraction and retention due to its ageing inventory and lower levels of connectivity. Sales activity was similarly impressive given challenges, with US$226.9 million in transactions finalised in H2 2021. • Orange County: Large leasing continued during the latter half of the year, led by three deals larger than 100,000 sq ft from Verizon, Amazon and Genesis. Similarly, high-profile companies such as JPMorgan Chase, TYVAK and Bandai Namco made meaningful commitments to the submarket. • Phoenix: Vacancy remains below 2009 and 2010 highs, while asking rents in the core of Tempe have approached US$35 per square foot on average. Nine deals larger than US$20 million totaling US$542.5 million took place in Tempe and Chandler over the past six months, making it one of the most active investment markets nationally. • Portland: The Sunset Corridor remains better positioned from a statistical perspective than during the previous downturn, but faces challenges with respect to competition with the CBD and premier suburban locations such as Lake Oswego as well as ageing office product and connectivity. • Sacramento: Demographic and economic drivers will keep activity stable even with a lower presence of higher-growth industries. With only one property currently under construction – the renovation of 6609 J Street – vacancy is unlikely to rise much further, although a lack of quality product is likely to catalyse new speculative construction. • Washington, D.C.: The D.C. CBD will remain soft among gateway markets over the near-term as continued supply additions keep vacancy elevated and concessions stay firm at record highs. Legislation to accelerate the process of converting office space in Downtown D.C. to other asset classes is likely to help correct fundamentals. Executive Summary