Global Office Rent Cycle MarketView

Transcription

1 Global Office Rent ycle arketview RE elect European arkets how igns of Improvement ot Topics London ity saw a strong recovery in demand during as the availability of prime space continued to tighten. Prime rents have grown for two consecutive quarters in London West End. Grade A rent growth in Tokyo gained momentum, rising 1.5% quarter-overquarter. everal outhern European markets reached a trough this quarter, signaling a stabilization in prime rents. The U.. continued to see the most widespread rent growth. arkets displaying rent growth included Atlanta, hicago, Dallas, Denver, Los Angeles entury ity, iami, Philadelphia, Phoenix and an Diego. RE s Global Office Rent ycle showed signs of improvement in, particularly for London and a select few European markets which have stabilized at their trough positions. Prime office rents in London s West End and ity markets strengthened, Dublin s rents sharply increased, and four other European markets stabilized signaling that further rental declines in those four markets are not expected. eanwhile, most markets in the Americas continued to post gradual gains, and a few Asia Pacific markets were resilient amid prevailing panregional occupier caution and cost containment. The RE Global Office Rent ycle positions a market s office rents relative to its unique rent cycle. The Global ycle tracks 18 key global markets, as presented in Figure 1. In, an increasing number of markets were positioned for future rental growth. For example, fueled by strong demand for prime space, London West End and London ity were positioned in at the edge of the Figure 1: Global Office arket Rent ycle, rental growth accelerating category, as both markets are expected to see continued, yet moderated, rental growth over the next year and a half. In Tokyo, recovering tenant and business sentiment throughout Japan resulted in office rents rising for the second consecutive quarter. eanwhile, hicago and entury ity in Los Angeles witnessed gradually strengthening of rental conditions this quarter as a result of improving employment conditions in those markets. Americas Unlike previous quarters, there was no regional theme across the positioning of markets. We found a mix of markets from different regions in each of the major positioning categories. Regionally, the Q results showed markets in the Americas posting widespread improvements. The Americas Office Rent ycle, featured in Figure 2, exhibited accelerating rent growth in Atlanta, hicago, Dallas, Denver, Los Angeles entury ity, iami, Rental Decline Accelerating Rental Decline lowing Rental Growth Accelerating Rental Growth lowing ão Paulo hanghai exico ity Toronto T ydney New York - idtown N London ity L London West End L ong Kong A adrid Paris P F Los Angeles - Downtown L ingapore Washington D.. W Auckland Frankfurt hicago L Los Angeles - entury ity T Tokyo ource: RE Research,.

2 Philadelphia, Phoenix and an Diego. We find that a limited supply of Prime and lass A space in most of these markets in the face of modest demand has elevated prime rent levels. everal markets in the Americas are positioned on the slowing rental growth phase of the cycle. Rent growth in exico ity moderated from an accelerating position as a result of supply-side factors, though demand throughout the market remained strong, driven by both local and international occupiers. On the supply side, more than 1 million sq. m. (nearly 11 million sq. ft.) of lass A+/A office space is under construction, as of the end of. The delivery of these projects will ultimately result in an increase equal to 25% to exico ity s office inventory. any of the newly completed buildings posted asking rates above the market average, which led to a slight growth in the city s lass A+/A average asking rate. Despite the large supply pipeline, rents are expected to increase, according to local sources, due to strong demand. because of limited availabilities of large blocks of quality space. eanwhile, ao Paulo s rents dropped due to an increase in supply. EEA EEA s Office arket Rent ycle, shown in Figure 3, indicated that conditions across EEA remained broadly stable during. The majority of EEA s markets were positioned within the slowing and/or flat rental growth segment of the cycle, as most occupiers continued to exhibit a wait-and-see attitude towards expansion until they see substantial improvement in economic conditions. Nevertheless, results were promising in London West End and London ity, where take-up strongly rebounded during the quarter. Promisingly, rents in Dublin increased sharply for the second consecutive quarter. While vacancy remains high, prime availability was restricted and further rent growth is expected for the remainder of the year. Additionally, several southern European markets reached a trough position during the quarter. Global Office Rent ycle arketview Only two America s markets were positioned along the declining phase of the cycle: algary and ao Paulo. Although algary s rents started to slide after peaking earlier this year, a significant decline is not anticipated entral London s improved take-up levels have been supported by widespread positive economic news in the U.K., which instilled sufficient confidence across the market to trigger a number of large requirements, Figure 2: Americas Office arket Rent ycle, Rental Decline Accelerating Rental Decline lowing Rental Growth Accelerating Rental Growth lowing algary ão Paulo New York idtown N uenos Aires Atlanta A Panama ity P hicago an Francisco ontreal Dallas Preston enter D antiago Rio de Janiero Dallas Uptown/Turtle reek D eattle Vancouver Denver D Toronto T Los Angeles entury ity L Austin A exico ity iami oston Philadelphia P ouston Phoenix P Lima L an Diego Los Angeles Downtown L Northern New Jersey N Orange ounty O Washington D.. W R V ource: RE Research,. Figure 3: EEA Office arket Rent ycle, Rental Decline Accelerating Rental Decline lowing Rental Growth Accelerating Rental Growth lowing anchester Edinburgh Dusseldorf D irmingham London ity L Vienna russels V London West End L Rotterdam Oslo O Amsterdam A openhagen Istanbul I elsinki tockholm unich Warsaw Zurich Athens A Rome R erlin Paris P arcelona oscow Geneva D Lisbon L Prague P Dublin amburg adrid udapest ilan Frankfurt F ucharest E R W Z G 2 ource: RE Research,.

3 3Global Office Rent ycle arketview some of which were stalled when the economic climate was murkier. Prime headline rents increased for the second consecutive quarter in the West End core and were stable for London ity. As was the case for many Americas markets, the shortage of prime space across EEA s markets served to support and elevate rents. For example, though Amsterdam s rents were flat over the quarter, the market s very low vacancy levels for prime locations is expected to result in slight growth by the end of the year, and somewhat faster growth in everal other EEA markets, namely arcelona, ucharest, Lisbon, and Rome, stabilized at their trough positions, with expectations for improving demand. A few European markets were positioned along the decline phase of the cycle including Paris, Lisbon, adrid, Athens and ilan. These markets experienced low levels of demand amid continuing economic uncertainty. Notably, Paris experienced softness during, and for the first time since the onset of the global financial crisis, prime rents declined 3.6% quarter-over-quarter. The market continued to struggle from low levels of demand and weak occupier confidence, with companies opting to renegotiate and renew their existing leases rather than move to new buildings. In addition, the market has seen increased development activity, placing further downward pressure on rents. A roughly 1% correction is expected over the next 18 months to bring the market for new space closer to tenants expectations and to better compete with incumbent landlords. Accordingly, the market was positioned near a trough position given the marginal correction still expected. Note, however, that this quarter s decline is not anticipated to be a precursor to a prolonged downturn, and accelerating rent growth is expected once the French and European economies begin a stronger recovery from 2014/2015 onwards. asia pacific Occupiers across Asia Pacific continued to express caution, and the weak demand conditions seen in previous Figure 3: Asia Pacific Office arket Rent ycle, quarters persisted during. As seen in Figure 4, most markets within Asia Pacific s Office Rent ycle were positioned in the declining and trough portion of the rent cycle. owever, a few markets still experienced growth including anila, Taipei, Tokyo, Jakarta and angkok. Tokyo was among those few markets that grew as strengthening economic prospects and improving business sentiment helped fuel a 1.5% quarter-overquarter increase in rents, marking the second consecutive quarter of gains. The outlook for Tokyo remained optimistic as the pipeline for new supply over the next 18 months is lower than the amount of new supply that hit the market in Additionally, further improvement in landlord and tenant sentiment amid the expectations of Abenomics may prompt occupiers to accelerate their relocation decision-making process. As such, rents are expected to record further gains and the supply of high-quality space will gradually decline over the course of the year as more space is taken up. everal Asian markets, such as New Delhi, henzhen and eijing, were positioned at a stabilized position towards the top of the cycle. For instance, after experiencing more than three years of accelerated rent growth, eijing shifted to a peak, yet stable, position as occupiers became more cost conscious and cautious regarding expansion. The majority of Asia Pacific markets, including angalore, umbai, elbourne, ydney and hanghai, were positioned along the declining portion of the cycle. ydney and elbourne faced subdued occupier demand, as did hanghai, which continued to be impacted by decentralization and cost-saving strategies by occupiers. Even Perth, which experienced moderate growth in previous quarters, saw slowing growth in its mining sector, causing its demand profile to return closer to historical averages. Rental Decline Accelerating Rental Decline lowing Rental Growth Accelerating Rental Growth lowing A Adelaide K Kuala Lumpur New Delhi N elbourne P Perth henzhen ydney angalore eijing hanghai umbai risbane eoul anoi ong Kong G A W ity ingapore Guangzhou Auckland anberra Wellington T T anila Taipei Tokyo J Jakarta angkok ource: RE Research,. 2013, RE, Inc.

4 ethodology: Office ycles The Global and Regional Rent ycles are determined through a collaborative process with RE researchers and market professionals in local markets. The cycle is intended to illustrate the office rent cycle for (a) core locations that (b) attract the highest rents, which (c) represent the principal concentration of major occupiers in a city. In many cases this will be the central business district, but need not be. There may be more than one of these in a given market (e.g. West End and ity in London) which have different characteristics and rent dynamics. Each quarter, the local market teams evaluate the market for prime space and determine the position of the prime rents within the market and within the context of the rent cycle s defined positions a market is positioned on the cycle by each team. In addition, each local market provides thorough, written justification and rationale for its current market position, as well as the change in position from the last report. Regional research leadership then reviews all local market segments, positioning, and written justification and provides their approval. Global leadership serves as the final review phase. Regional and Global leadership focus carefully on ensuring that all market position changes are consistent with the position definitions to ensure that each market can reliably be compared both regionally and cross-regionally against other markets on the global cycle. There are four main segments to the rent cycle: Growth Accelerating, Growth lowing, Decline Accelerating and Decline lowing. Inflection points are positioned between each broad category. Within each broad category, there is one sub-position. The Position Definitions include qualifying statements referencing not only what occurred in Prime Office rents during the previous quarter, but also explanatory statements regarding the direction (growth or decline) and magnitude (accelerating or slowing) rents are anticipated to move in the next quarter. y including both backward and forward-looking statements, the Positions are intended to capture each market s unique stance in its unique rent cycle. The duration and magnitude of rent cycles vary considerably by market. ome may undergo very tight/short cycles with very small peak to trough changes, while others may experience longer cycles with much larger rent variations. The Rent Positions are not aimed at serving as formal forecasts for Prime rent, rather forward-looking statements are utilized and included to assist local market researchers in distinguishing various positions. Global Office Rent ycle arketview 4

5 contacts For more information about this Global arketview, please contact: Global Research Abigail Pitzner Global Economist t: e: For more information regarding activity, please contact: 5Global Office Rent ycle arketview Nick Axford, Ph.D. Global ead of Research t: e: Follow Nick on Raymond Torto, Ph.D., RE Global hairman of Research t: e: Follow Ray on Neil lake, Ph.D. ead of Research, UK and EEA t: e: onnect with cbre Peter Damesick, Ph.D. hairman of EEA Research t: e: Follow Peter on rook cott Interim ead of Research, Americas and ead of Occupier Research, Americas t: e: RE is an integrated community of preeminent researchers and consultants who provide real estate market research, econometric forecasting, and corporate and public sector strategies to investors and occupiers around the globe. Additional research produced by can be found at Disclaimer Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by RE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the RE Global hief Economist.