Global office markets will rebound slowly, according to Cushman & Wakefield's Global Office Forecast released this week, with some main markets poised to begin the in 2012 and 2013. real estate qatar
Although office markets around the world started the year high, apprehension and uncertainty caused a big stumbling block in the third quarter, resulting in a cautious outlook for the coming year.
Although growth forecasts have become more cautious, solid leasing fundamentals and limited supply will keep global office markets afloat, with little or no new construction planned for 2012 or 2013.
Leasing activity in 2012 can best be described as mixed. Markets reliant on government leasing will plateau in the Americas, but development sectors such as technology, healthcare, and oil will keep cities like San Francisco, Calgary, Houston, and Downtown Toronto afloat. Although the European economy as a whole is expected to remain slow, Frankfurt, Munich, Paris, Istanbul, Stockholm, and London are expected to outperform other European markets. In Asia, growth in China's second-tier markets, as well as in countries where regional trade accounts for the majority of exports, such as Indonesia and Australia, is expected to accelerate.
Early in 2011, increased leasing activity had little impact on global office rents. As a result, the majority of U.S. markets are not expected to see substantial rent increases until 2013. In the meantime, many European markets experienced strong rental growth in 2011, but many expect downward pressure on rents to return if economic conditions do not improve in the near future. In Asia, the relationship between rental prices and GDP growth and inflation would support modest growth.
Occupiers around the world are focusing on reducing costs associated with corporate real estate while also beginning to take a more proactive approach to their real estate in order to generate value for their companies.
Organizations with multiple locations are centralizing functions to increase synergy, while sustainability, technology, and evolving work patterns have prompted many occupiers to adopt a "less room is more" strategy. Just 6% of Cushman & Wakefield's top global clients said they will dramatically increase the size of their portfolio in the next 12 months, according to a recent survey, with 36 percent suggesting moderate expansion, 33 percent indicating moderate contraction, and 24 percent indicating no expansion.
THE AMERICAS
While most office markets in the Americas are expected to slow in 2012, prime cities like New York, San Francisco, and Seattle in the United States, Calgary in Canada, and Mexico City, Santiago, Sao Paolo, and Buenos Aires in Latin America are expected to tighten even more once the economic uncertainty subsides.
Leasing activity will slow in 2012, compared to the pent-up demand levels seen in 2011, but absorption should remain positive in most markets due to the lack of new speculative development.
In most markets in the Americas, rental prices will remain stable. In the United States and Canada, reduced new development means less competition for current landlords, enabling them to maintain their asking rents. Increases in domestic consumption and trade with Asia will counter any declines in European demand in Mexico and South America, propelling corporate expansion plans.
"By 2013, all major markets in the Americas are expected to be back on stable ground, with increased leasing activity, higher absorption levels, and steady demand," Maria Sicola, Executive Managing Director and head of Cushman & Wakefield's Americas Research, said. "An expansionary period is on the horizon, and companies that concentrate on long-term corporate strategies and development will benefit."
Natural-resource advancement, scientific research, technical and business services, technology, health care, education, and domestically consumed products and services have all seen growth in recent years to support office market demand. If demand increases, a lack of high-quality office space would almost certainly result in dramatically higher rental rates and, eventually, new construction.
UNITED KINGDOM
Although the European office sector shifted slowly toward being a landlords' market for the majority of 2011, recent economic uncertainty has placed occupiers back in charge. The decreasing availability of high-quality space, on the other hand, has made it clear that the current situation would support a delayed rather than a cancelled recovery. Even though demand is dwindling, companies are still searching for ways to boost efficiency and reduce costs. Tenants are constrained in their options for high-quality space when it comes time to replace older space, merge, reorganize, or achieve greater sustainability. In some markets, this will eventually drive rental development.
Market performance can vary across Europe. Overall, vacancy is projected to decline slightly, but some cities will see an increase as a result of reduced demand or increased growth. Although new building completions in some regions, such as Milan, Warsaw, Madrid, and Stockholm, are expected to increase in 2012, overall growth in Europe continues to decline. New construction peaked at 3.7 percent of total inventory in 2009, and is expected to decline to 1.7 percent in 2011 and 1.4 percent in 2012/2013.
"While the number of active occupiers is expected to rise, most will be looking for ways to boost productivity rather than expand, and 2012 is generally expected to be a difficult year," said David Hutchings, Cushman & Wakefield's Head of European Research. "The market will remain polarized, but absorption is expected to soften and then rebound in most markets in 2013."
Central European markets will continue to have the highest net absorption compared to inventory. Frankfurt will continue to improve, while relative activity in Budapest, Dublin, Madrid, and Amsterdam will increase.
For major cities, prime rents rose by 3% in 2011, but rental growth is expected to slow to less than 1% in 2012 before another rise in 2013. Over the next two years, Paris, Istanbul, Dublin, Luxembourg, Munich, and Stockholm will see the most development, while Moscow is expected to do well after 2012. In 2013, 14 of the 20 markets are expected to expand faster than in 2012.
PACIFIC ASIA
The Asia Pacific economic forecast for 2012 predicts moderate growth, which will boost investment in the occupier sector. Despite an anticipated slowdown in growth, demand will remain broad-based, with the banking sector remaining a key player. Pharmaceutical companies are targeting China and India for their increasing middle class and large population base, as well as Japan, given its large, aging population, as a result of continued global outsourcing and information technology spending. In Australia and Indonesia, the booming mining industry is expected to be a major growth engine.
The construction pipeline in Asia Pacific is the largest in the world, at more than 250 million square feet. Although a large portion of the new construction is expected to be absorbed, vacancies in Guangzhou, Chengdu, Mumbai, Hyderbad, the National Capital Region, Ho Chi Minh City, and Seoul's CBD remain strong, with class-A vacancies already in the double digits. For occupiers, the combination of substantial new construction and current high vacancies would build a plethora of attractively priced opportunities.
Several new buildings are being built in Tokyo, but the demand for office buildings with higher seismic standards is expected to maintain or increase rental rates, which are at a 10-year low. Flat-to-moderately declining vacancy will support modest rental increases in Jakarta, Shenzhen, Sydney, and Melbourne, while limited new supply will keep office markets in Bangalore, Beijing, and Shanghai strong.
"There are many headwinds as we reach 2012, but we do not foresee a repeat of 2009," said Sigrid Zialcita, Cushman & Wakefield's Managing Director of Asia Pacific Research. "While the region's growth rate will slow from its recent phase of above-trend growth, it is still healthy."