JLL Global Office Index shows landlord confidence fuelling rental growth

Posted On Monday, 24 August 2015 20:42 Published by
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Rental growth continues to move at a steady pace, with the annual rate of growth on prime office assets across the 95 major markets covered by the JLL Global Office Index standing at 2.3% and around 70% of all markets recording rental uplift over the past year.

 

JLL Global Office Index

Quarter-on-quarter, rents increased by 0.9%, compared to 0.4% in Q1 2015. Office leasing markets made a significant rebound during the second quarter, with global leasing volumes at their highest level since Q4 2011 and expansion demand now firmly on the agenda of many corporate occupiers. While technology continues to have a significant impact on leasing markets across the globe, there is now a much broader diversity of demand in terms of industry sector. Tightening fundamentals are boosting landlord confidence and JLL predicts that prime rental growth will accelerate to 4% for the full-year 2015.

Rental growth continues to accelerate in Asia Pacific In Asia Pacific, net effective rents increased in over half of markets in Q2. Rental growth accelerated for the second consecutive quarter, with a 0.9% increase (0.5% in Q1) driven by demand from domestic technology and financial firms in most markets. Wellington (+6.7%) recorded the strongest quarterly uplift, followed closely by Hong Kong (+5.6%), where landlord confidence was bolstered by more robust take-up and improved occupancy rates.

Shanghai, Auckland, Tokyo and Bangalore registered moderate increases (2%-3%), in part a result of demand from technology firms. Rents fell furthest (by 5%-6% quarter-on-quarter) in Adelaide, Perth and Singapore where conditions generally favoured tenants, while smaller rental declines of around 1% were recorded in Mumbai and Brisbane. Rents were mostly flat or changed fractionally in other markets. Over the 12 months to Q2 2015, the Asia Pacific Office Index grew by 2.4% (versus 2.5% for Q1 2015).

Positive momentum across Europe In Europe, office leasing markets saw renewed momentum, with Q2 2015 the healthiest second quarter since 2008 and leasing volumes up 25% on Q1.

The European Office Index returned to growth in Q2, rising by 0.5% after a temporary dip in Q1 (-0.7%). Of the 24 Index markets, seven witnessed prime office rental increases quarter-on-quarter (compared with just three in Q1 2015). At 0.7% growth over the quarter, Eurozone markets performed particularly strongly, with just Q2 2014 registering higher (at 1.9%) over the last four years. The robust recovery in Spain translated into further prime rental uplift with Barcelona (+5.6% quarter-on-quarter) outperforming Madrid (+1.0%) in Q2.

In Germany, the rise in office-related employment continued to feed rental growth. While rents were stable in Hamburg and Düsseldorf, quarter-on-quarter increases were seen in Frankfurt (+1.4%) and Munich (+1.5%).

Berlin significantly outperformed with 4.5% rental expansion in Q2. In contrast, Paris saw rents decline marginally (-1.4% quarteron-quarter) for a second consecutive quarter as many corporates continue to be very cost cautious. While there is a risk of further minor corrections in Paris in the short term, prime rents have recently fluctuated between quarters without a strong uptrend. The most significant quarterly correction in rents was recorded in Warsaw (-2.1%).

The Americas overtakes pre-crisis peak The Americas Office Index grew by 1.4% in Q2 2015, faster than the 1.1% pace in Q4 and the highest quarterly rate for four years. Over the past year the Index has advanced by 3.9% and has now surpassed the peak level reached in the previous cycle, standing 1.0% higher than its last crest in Q3 2008 and 17.2% higher than the cyclical low in early 2010. Technology-heavy markets remain among the regional leaders, with the top quarterly rental increases recorded in the Bay Area’s San Francisco Peninsula (+5.7%) and OaklandEast Bay (+4.6%).

However, rental growth is now occurring in a broader array of cities, with a robust local economy and urbanisation trend boosting Dallas (+3.3%), while Miami, Los Angeles, Fairfield County, Baltimore and Phoenix all registered gains of between 2%-3%. Rents declined over the quarter in most Latin American markets, while low oil prices and a heavy supply pipeline weighed on Calgary, which saw rents drop by 10.9% over the quarter. In Brazil, rents fell in both Sao Paulo (-3.8% quarter-onquarter) and Rio de Janeiro (-3.3%) as a recession that is now deeper and longer-lasting than previously expected is prompting landlords to cut asking rents and increase concessions on offer to entice tenants.

In addition, Santiago (-1.7%) continues to experience falling prime rents as slower economic growth, as well as high levels of new supply, present obstacles for landlords. Limited rental uplift in MENA markets The MENA Index was down slightly by 0.2% during the quarter but still up by 1.9% year-on-year. Jeddah was the top performer in the region (+5.3% quarter-on-quarter and 21.2% year-on-year) with continued demand from government agencies for well-located space. Rents remained broadly stable elsewhere in the region with the exception of Cairo, which witnessed a significant correction of 14.3% over the quarter as demand shifts towards satellite cities such as New Cairo.

Regional Overviews:

• The Americas Index grew by 1.4% in Q2 2015, slightly faster than the 1.1% pace in Q1 and the most robust quarterly growth in four years. Expansion continued to broaden across U.S. cities, while rents declined primarily in Latin American markets.

• In Asia Pacific, quarterly rental increases accelerated to 0.9% (0.5% in Q1) due to increasing space requirements mainly from local corporates, financial institutions and technology-related firms.

• Europe saw quarterly rental growth resume in Q2 2015. Despite a decline in Paris and Moscow, the European Office Index rose by 0.5% in the quarter, indicating positive momentum across the rest of Europe.

• The MENA Index fell by 0.2% during Q2, its first quarterly drop since Q3 2013.

This was largely the result of decreasing rents in Cairo, while Jeddah and Abu Dhabi were the only markets witnessing rental growth.

Market Performance:

• U.S. technology hub San Francisco Peninsula once again leads the global ranking with 25.5% annual growth.

Other U.S. cities that feature among the global outperformers include Charlotte (+14.9% year-on-year) and the tech-rich markets of Denver (+13.6%), Silicon Valley (+10.4%), San Francisco (+10.3%) and Seattle (+9.0%).

Last modified on Sunday, 20 September 2015 03:22

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