Office Markets Show Further Recovery – But Concerns Rising
Office space markets around the world continued to make gains in the first half of 2011. Most regions also showed leasing markets continued to be relatively active despite what was an increasingly uncertain global economy. With the global economic landscape showing more and more signs of slowing, however, the demand for office space has again been called into question and will need to be monitored closely in the coming months.
EUROPE, MIDDLE EAST, AFRICA (EMEA)
With more mixed economic conditions across many parts of Europe, Middle East and Africa, the EMEA average vacancy rate remained at around 12 per cent at midyear. While the regional vacancy rate remained elevated, vacancies in key markets including Berlin, Frankfurt, central London, Moscow, Warsaw and Zurich all fell during first half of the year. With conditions still mixed, office rents in the region largely held steady. London again retained its position as the most expensive office market in the region, with average Class A asking rents in the West End sub-market at $150.00 USD/£93.50 GBP per square foot per year. Office space under construction at midyear was down modestly from year-end: at midyear development totaling 159 million square feet was underway, compared with 163 million square feet at year-end.
The United States office market finished the first half of the year on a relative weak note. The much anticipated recovery in the U.S. office market remained muted with many markets still characterized by little or no growth. Rents continued to languish as both downtown and suburban markets registered small decreases during the first six months of the year. With only modest economic growth in the first half of the year and employment showing disappointing gains, the outlook for the office space market is far from certain. By comparison, Canadian markets enjoyed another reasonably good half year on the back of a robust first quarter and a modest job gains through the January-June period. Given the sudden stall in job creation and continued high energy costs, the U.S. office market in particular faces fairly stiff headwinds that will likely put a full recovery back until mid 2012 at the earliest. Across the continent, Midtown Manhattan continued to hold top spot for office occupancy costs with average Class A rents at $64.00 USD per square foot.
The Asia Pacific region posted strong results during the first half of 2011 reflected by the pan-regional vacancy rate tumbling 121 basis points to 11.42 percent. All but seven of the 25 markets tracked recorded lower vacancy rates. Once again Hong Kong recorded the region’s lowest vacancy rate in the region at just 3.7 percent. Rents moved modestly higher in the first half of 2011, increasing an average of 2.9 percent. The Asia Pacific region remains characterized by high levels of office construction with Bangalore, Beijing, Chengdu, Chennai, Delhi, Guangzhou, Ho Chi Minh City, Mumbai, Shanghai and Tokyo all with at least five million square feet of construction underway. Construction in these ten cities totaled 138 million square feet at midyear. In a ranking of highest office occupancy costs (average Class A gross rents) Hong Kong again took the top spot, both within the region and the world, at $214.00 USD per square foot per year/$139.00 HKD per square foot per month.