Fundamentals Improving in Many Markets
Across the Americas, Asia and Europe
Commercial
real estate services firm Cushman & Wakefield has released its 2015-2016
Global Office Forecast. The report tracks current and anticipated Class A
office market trends in The Americas, Asia Pacific and Europe.
“From
a global perspective, 2014 was a stronger year for the office real estate sector,
with many markets heading into 2015 on solid footing, noted Maria T. Sicola,
who heads Cushman & Wakefield’s Research for the Americas group. “Of
course, some markets in or near areas of political instability and those with
stalled economic growth continue to struggle; but overall, things are in better
shape than they were 12 months ago.”
UNITED
STATES AND THE AMERICAS
As
the North American market bright spots, U.S. cities are experiencing economic
expansion – even beyond those dominated by the robust technology and energy
sectors -- which is translating into strong office market fundamentals.
“Demand, particularly for newly constructed or refurbished space, is on the
upswing,” Sicola said. “While rental growth has moderated in some markets, more
than 80 percent of the locations in the study will experience rent growth
exceeding inflation.”
The
changing workforce presents a significant driver of the U.S. office market
recovery. “The millennial generation is exerting its influence on where it
wants to work,” Sicola said. “Atlanta, Chicago and Dallas are experiencing
increased leasing velocity and have joined the ranks of San Francisco, Seattle,
Boston, New York and Houston with respect to improved fundamentals.”
The
Canadian office market continues along a path of recovery as well. Strong
demand in Toronto is ushering a new era of growth; 5.1 million square feet of
new space will come online through 2017. In Montreal, the Deloitte Tower will
rise, while Calgary and Vancouver both will see new supply come online as well.
Consolidations and densification remain the norm in most Canadian markets,
while the flight to quality is creating vacancies in some older office stock.
Mexico
City has risen as the star of the Latin American office market, due in part of
energy reforms and secondary laws passed by Congress, which have opened up the
country to increased foreign investment. While GDP growth was below
expectations in 2014, robust growth is projected over the next several years
there.
But
South American markets are lagging behind especially in Argentina and Brazil,
where both production and consumption levels are dampened. While the Santiago
office market in Chile has been ahead of the curve, recent trends have moved it
in line with other markets, which are not expected to fully recover until 2017.
ASIA
PACIFIC
Japan
and India are among the strongest performers in Asia in terms of economic
growth and stability. Office market demand in Tokyo is being driven by strong
corporate profits, while in India information technology-related tenants
continue to dominate the landscape. Singapore is also benefitting from tech
growth, as it tends to be the next destination, along with the Philippines,
after India for multi-nationals.
Not
surprisingly, rental growth among established markets is expected to be
strongest in Tokyo and Singapore. Jakarta, Manila, Bangkok, Shenzhen, Bengaluru
and Chennai will lead emerging markets with annual average rent increases in
the range of 3%-4%. Across much of China, rents will grow moderately or remain
stable.
“While
the modest pace of growth in Asia Pacific markets resulted in a subdued leasing
environment in 2014, activity is set to gain traction next year,” Sicola said.
“Most core markets will boast relatively low vacancies through 2015 and 2016,
with the exception of cities in Australia, and some emerging markets in China
and India.”
EUROPE
Economic
conditions across Europe remain mixed, but on the whole, a recovery is taking
shape. “The outlook is brighter than it has been for a considerable period of
time,” Sicola said. “Overall performance is positive across leading indicators
including rental growth, supply levels and demand.”
Seventeen
of the 21 cities monitored are anticipated to register rental growth. The two
front-runners – Dublin and London – are in the midst of supply-led recoveries.
Dublin, with only one project in the development pipeline, is anticipated to
see 5.7 percent annual compound growth over 2014-2016. In London, the
development pipeline will be restricted in the next two years as below-average
completions combine with pre-letting, which is absorbing future supply.
With
few exceptions, Class A downtown office markets across Europe are poised for
respectable levels of growth through 2016. However, older office stock will pay
the price given the pervasive trends of densification and flight to quality.
Cushman
& Wakefield’s full 2015-2016 Global Office Forecast report is available at http://www.cushmanwakefield.com/en/research-and-insight/2014/global-office-forecast-15-16/.
The company performs rigorous, global, primary research and data-driven
analysis. Researchers collect data from an array of publicly available sources,
owners, agents and most importantly, from the firm's brokers, appraisers and
property managers. Cushman & Wakefield's 228 research professionals track
more than 26 billion square feet in 170 office and industrial markets
worldwide. Senior Research personnel use proprietary as well as secondary data
to produce reports on topics affecting the real estate industry.
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