Jakarta, São Paulo and San Francisco to See Highest Office Rental Growth Through 2014
20 Dec, 2012, New York
The global office market will stabilize in 2013, with slow growth the norm in the earlier to mid part of the year, according to Cushman & Wakefield?s latest Global Office Forecast.
Jakarta, São Paolo and San Francisco are among the top the cities forecasted to see the highest office rental rate growth through 2014, and while some markets and regions will experience increased activity later in 2013, noteworthy growth is not expected in the majority of locations until 2014 and beyond.
"The global office market is transforming itself, particularly in the more mature markets," said Glenn Rufrano, President and Chief Executive Officer of Cushman & Wakefield. "Tenants are focused on achieving efficiencies, which in many instances has translated into occupying less space, and at the same time, we've seen an increasing flight to quality, resulting in pockets of growth in top-quality properties and global gateway cities."
Most markets in the U.S. will see limited new construction through 2014, with the bulk of activity taking place in New York, San Francisco, Washington, DC and Boston, and largely focused on built-to-suit projects. Moderate, near-term oversupply will exist in Mexico City, while new construction will slow in São Paulo and Buenos Aires. Record development announcements were made in Canada in 2012, and Toronto's building boom has entered a new cycle, with over 3.5 million square feet of downtown space underway.
"We expect a bifurcated recovery in the Americas region over the next two years," said Maria Sicola, Executive Managing Director and head of Americas Research. "The U.S. and Canada will see modest growth in 2013, followed by a more robust recovery in 2014. Mexico and South America will enjoy solid growth in 2013. Prime rents in São Paulo will grow by 60 percent over today's prices by 2014, as new developments are planned to support activity around the World Cup."
The most significant rental growth will take place in 2014 for the majority of markets in the Americas, at which time market fundamentals will shift in favor of landlords. Until then, concessions will still be available, especially in the first half of 2013, on a market-by-market basis.
While the projection for the European office market over the next 24 months is for slow growth at best, the overall vacancy rate should decline as construction remains slow and quality supply constraints become more of an issue in some markets. Despite continuing high levels of cost sensitivity, this factor will be first to drive rental growth as occupiers look to upgrade.
"Europe faces at best a slow re-balancing in its office property market but we can now look forward to a more stable situation rather than a further decline - or at least we can for prime space in major commercial centers," said David Hutchings, Partner and Head of Cushman & Wakefield?s European Research Group. "A shortage of supply will be the key characteristic driving short-term rental increases, which will frustrate those occupiers looking to expand, right size or react to new ways of working. London typifies this and is set to outperform but a range of other cities will not be far behind, ranging from Moscow in the east to Dublin in the west."
The onset of more robust and sustainable levels of take-up activity across Europe is likely to be further delayed as occupiers focus on cost savings and risk avoidance. In an environment of slow demand, occupiers will continue to lead in lease negotiations. Cities with a diverse occupier base and those with better macro-economic growth potential, such as Brussels, Moscow, Paris and Istanbul, will fare best.
While Asia Pacific's economic growth is unlikely to slow further in this cycle, it will not return to the heady rates of 2010. The economic momentum remains sufficient to strengthen employment and sustain momentum in the property markets, with the outsourcing industry continuing to be an important growth pillar into 2013.
"Although rent growth is slowing in Asia, occupiers across the region will continue to pay higher rents when their leases roll over in 2013 and 2014," said Sigrid Zialcita, Managing Director of Research for Asia Pacific.
Demand gains will be lower relative to 2012, as tenants "right size" footprints by rationalizing location requirements and enhancing space efficiencies especially to combat rising occupancy costs in most markets in the region. Still, occupancies will generally remain high in a number of CBD markets such as Hyderabad, Brisbane, Manila, and Perth. High availabilities could be seen in growth markets with robust construction such as Kuala Lumpur, Guangzhou, Pune, New Delhi, Chengdu and Ho Chi Minh.