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2012GLOBAL REALESTATE MARKETSAnnual review and outlookFigure 14US Class A CBD office rents, annual change, Q4 2010 to Q4 2011%San FranciscoManhattanBostonLos AngelesHoustonNashvilleDenverWashington, DCPhiladelphiaDallasDetroitAtlantaChicagoMiamiNew Jersey-5 0 5 10 15 20 25Source: Newmark Knight Frank ResearchIn 2011, nearly $360 million in investmentsales activity took place, an increase over the$220 million of activity seen in 2010. Theaverage price per sq ft also increased to $166per sq ft from $127 per sq ft in 2010. One ofthe larger leases signed in 2011 was for theGeneral Services Administration for33,000 sq ft at 100 SE 2nd Street.Following the effects of the economicdownturn, the San Francisco office market hasbeen surging over the past year. Leasingactivity in the market grew to nearly 5.6million sq ft in 2011 from 4.7 million sq ft oftransactions in 2010. The year-end total fornet absorption finished the year at924,752 sq ft, compared with the negative218,235 sq ft of net absorption in 2010.Average asking rents in San Francisco grew25.3% to $40.77 per sq ft from $32.53 persq ft reported at the end of 2010. Rents in thismarket still remain below the peak of $72.44per sq ft reached during the dot-com period in2000. The vacancy rate finished the year at10.4%, nearly 200 bps below the 12.1% ratereached at the end of 2010, and the lowestlevel since 2008.In the San Francisco green office market, theaverage asking rent rose to $41.31 per sq ft atthe end of 2011, indicating a 23.2% climbfrom the $30.01 per sq ft rate reported in2010. The vacancy rate improved to 9.8% from12.6% in 2010, making San Francisco one ofthe leading green markets for vacancyimprovement over the past year. Nearly 3.3million sq ft of green office leasingtransactions took place in 2011, comparedwith 3.0 million sq ft in 2010.Following a rough first half of 2011 in theWashington, DC market as nearly330,000 sq ft of negative absorption tookplace, the second half of the year appeared torebound as 280,572 sq ft of positiveabsorption took place. The vacancy rate forthe market ended 2011 at 13.7%, rising abovethe 12.8% rate reported at the end of 2010.The average asking rent in Washington, DCended 2011 at $54.74 per sq ft, up 1.4% fromthe $53.98 per sq ft average at the end of2010. The average asking rent in the markethas been more resilient to the declines seenin other major markets over the past fewyears. Average asking rents have actuallygrown 2.3% since 2008. Leasing activity wasrobust in 2011 as 2.0 million sq ft of leaseswere signed. This level of leasing activity hasnot been seen in the Washington, DC officemarket since 2003.Construction activity in the Washington, DCmarket remained strong over the past twoyears with more than 1.0 million sq ft of newspace brought to the market. In theinvestment sales arena, average cap rates in2011 were 6.0%, a slight drop from the 6.5%seen in 2010, as investors continue to seekout prime properties in core markets.CanadaThe Canadian economy performedsolidly throughout 2011, despite thedifficulties experienced elsewhere inthe world. Foreign trade accounts forapproximately 45% of the country’s GDP,and an improving economic outlook in theUnited States bodes well for maintainedeconomic stability throughout 2012.According to Statistics Canada, thecountry’s economy grew by 2.5% in 2011,down from 3.2% in 2010, but surpassingeconomists’ earlier forecasts. Over thecourse of the year, all major sectors postedgains, with mining, oil and gas extraction,construction, public sector spendingand manufacturing leading the way.As of March 2012, the Canadian dollar wastrading above par with its US counterpart,which causes challenges for the country’sexporters, and the consensus is thatannualised GDP growth will slow in 2012, withforecasts coming in at around 2.0%. Overallunemployment levels are expected to remainrelatively stable, at approximately 7.5%.The overall Class A and B vacancy rate inCanada’s major cities stood at 4.7% at theend of 2011, down from 6.8% a year earlier.In most major cities, office space, especiallyhigh quality space in new towers, continuesto be leased at an accelerated rate. Indeed,while vacancy rates declined by over 200bps in 2011, the total inventory of built spaceincreased by nearly 2 million sq ft, most ofthis coming online in Calgary and Toronto.In 2012, it is expected that there will bepositive space absorption in virtuallyall of Canada’s major cities, more newoffice tower developments and upwardpressure on asking rents in most cities asspace availability continues to decline.Montreal’s combined Class A and B vacancyrate fell from 7.7% to 5.9% in 2011, and ClassA rates dropped from 6.8% to 6.2%. With thedecline in vacancy rates, asking net rentalrates began to creep upward by the year-end.Development and pre-development activityis energising the downtown real estatemarket, and the imminent announcement of18