Efficiency and quality driving global office rents, says C&W
The global office market is poised for slow steady growth in 2014, while 2015 should be more robust as recovery takes hold and business gains renewed confidence, according to Cushman & Wakefield.
The firm’s latest Global Office Forecast report reveals that Jakarta, Dublin and Boston are the regional leaders among the top cities forecasted to see the highest office rental rate growth through 2015.
“Reduced occupancy footprints and an upgrade to better quality space are two global trends that are here to stay,” says Carlo Barel di Sant’Albano, executive chairman of Cushman & Wakefield. “The workplace is becoming more complex and inter-related with business performance and objectives, with modern efficient space seen as promoting increased productivity and workplace satisfaction. In certain instances, new construction can achieve both goals.”
Technology and energy continue to be the main drivers of the US real estate recovery. As a result, Boston is expected to see continued strong demand pushing prime asking rents upwards by 22 per cent through the forecast period, while Dallas is enjoying a resurgence of activity with rents expected to rise approximately three per cent annually. Softening near-term demand will result in an oversupply situation in Canada, Mexico and Brazil. Rents will decline modestly in Canada and Mexico while widespread rental growth in Brazil will not take place until 2016.
"Office market conditions will vary widely across the Americas in 2014, as economic recovery favours some sectors, along with the markets in which they are located,” says Maria Sicola, executive managing director and head of Americas research. “Steady leasing activity related to the adoption of efficient new workplace strategies that include consolidation and densification will continue."
Markets whose tenancy foundations are built on a more traditional mix of sectors, which continue to shrink their occupancy footprints, will continue to move along a slow growth trajectory. Not surprisingly, Washington, D.C. is not expected to see a return to recovery until 2015 due to economic difficulties exacerbated by a polarized Congress.
Major international cities such as London, Stockholm and Frankfurt have led in the European leasing recovery, but others are now joining in, including some from the formerly distressed fringe. Dublin, for example, has bounced strongly with no new construction underway and double-digit rental growth anticipated.
“Occupiers have a clear preference for quality space but many are encountering supply constraints in an increasing number of cities,” says David Hutchings, partner and head of Cushman & Wakefield’s European research group. “This is pushing rental growth and occupiers will have to move sooner than expected to secure deals on the decreasing amount of quality space that is available.”
This will push rental cost up quite sharply in the most under supplied markets but rental trends will be highly variable through the forecast period with many markets flat and weaker locations having to cut rents further to remain competitive.
More subdued growth in the region should cause leasing conditions to remain less buoyant over the next year with rents expected to advance by one to two per cent. Rental growth rates will pick up in a number of core and emerging locations led by Tokyo and Manila, where supply risks are limited, upon the resumption of stronger economic growth.
“With the abundance of new supply especially in the emerging markets, it remains a great time to be an occupier,” says Sigrid Zialcita, managing director of research for Asia Pacific. “However, Jakarta is among the exceptions with rents on track to rise nearly 30 per cent, the highest forecast globally for the second consecutive year with rates more than double the level in 2011 when the report was first released.”
Considering the prevalence of high rents and continued increases, many tenants are taking a long, hard look at devising ways to achieve efficiencies. Many businesses are seeking space in lower-cost options outside of the central business districts and in the process upgrading to new construction.
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