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Asia Pacific: demand continues to strengthen
Leasing demand continues to improve with net absorption across Asia Pacific’s main office markets increasing by around 10% in Q2. This continues to be driven by upgrading and relocations, although more expansionary requirements are starting to be seen. While occupational demand is still largely dominated by domestic firms, multinationals are starting to become more active. There are also variations between markets; for example, office markets in Greater China are currently seeing much stronger demand than those in North Asia, including Tokyo.
More markets in Asia Pacific start rental recovery
In line with the ongoing recovery in the leasing sector, most markets have posted either increasing or stable rentals in Q2. The markets in Greater China have recorded the strongest growth, led by Hong Kong (up 9.3% compared with Q1), while in Singapore, rents have started to turn around in Q2 (up 2.9%) following steep falls over the last two years. Markets that are still suffering from weak demand have continued to see falling rents, although the pace of decline has slowed significantly.
Corporate uncertainty dampens demand in Europe
In Europe, continuing disparities in the pace, trajectory and sustainability of economic recovery, have fuelled further uncertainty within corporate boardrooms. After marked upturns over the previous two quarters, take-up has now stabilised at levels which, for most markets, remain well below the long-term average. In only three - Moscow, Stockholm and Frankfurt – is there evidence of a clear upturn in demand during the quarter. However, the absence of demand has not typically brought renewed downward pressure on rents, and only 5 of the 19 core markets have seen prime rental reductions during the quarter. The standout market is London, which is leading the cycle and has seen quarterly prime rental growth of some 13.3%.
Supply shortages to fuel rental growth in Europe
Rental growth is forecast to return to a select number of European markets over the second half of 2010 and 2011, but it will be as a result of a lack of supply rather than notable upturns in demand. While vacancy rates in many markets have been subjected to upward pressure, this has typically been due to disposals of second-hand space as corporate occupiers have implemented consolidation and/or rationalisation programmes and exited their lower quality holdings. However, those seeking to secure better-quality space as part of this consolidation process are increasingly challenged.
Supply pipelines have become heavily curtailed as development finance has become prohibitive and developers themselves have responded to weak demand over the last 12 months. ‘Flight to quality’ accommodation has started to appear as an occupier strategy in a few markets but is dependent on the ability of corporate occupiers to fund the ensuing capital expenditure required by these relocations. Increasingly we have seen that cash-rich occupiers are retaining funds to use for strategic acquisitions rather than to implement programmes of change within their corporate real estate portfolios. The consequence of these acquisitions will be to reinforce the need for yet more consolidation and rationalisation within corporate portfolios - the key stimulus to future activity in the occupational markets.
Positive net absorption returning to North America
The corporate occupational markets throughout the Americas region on the whole, are making progress through the bottom of the cycle. In the US, the national office market has registered positive net absorption in Q2 as the overall vacancy rate has edged down, a first for both in 10 quarters. A handful of atypical sectors are driving occupier demand, notably government, non-profit organisations, healthcare, education, energy and green technology. Average face rents have remained stable for the first time in two years, and some office markets such as New York, Washington DC and San Francisco are starting to see limited rental growth in some high quality buildings.
Latin America – a global growth driver
In Latin America, the outlook for commercial space demand is overwhelmingly positive, as the region (trailing behind only Asia), emerges as a global growth driver. In Sao Paulo, the Brazilian growth story continues uninterrupted, as demand for prime office space accelerated in Q2. Even as new supply continues to be delivered in Sao Paulo, the city’s office vacancy rate has declined by a substantial 300 basis points in Q2. Rio de Janeiro’s market continues to be one of the tightest in the region, as a chronic shortage of high-quality supply ensures that any available blocks of space are quickly taken-up by tenants. In Chile, Santiago’s office market remains resilient, despite the challenges posed by the earthquake earlier in the year. |
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Global Market Perspective - global property - corporate real estate market conditions |
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