Office Markets Continue To Bounce Back

by CoyDavidson on April 5, 2011

GLOBAL OFFICE REAL ESTATE REVIEW

Investors Anxious To Piggyback on Global Economic Recovery

Office space markets around the world continued to make gains in the second half of 2010. Most regions showed further signs that the worst of the global financial crisis had passed, and tenants were back in the market with a renewed appetite for office space. Leasing activity was up from the prior six-month period and was also an improvement from a year ago. In particular, many parts of Asia Pacific, Latin America, Canada and major markets in the United States and Europe all posted healthy growth rates in the second half of 2010. Parts of the United States and much of Europe, however, chalked up another six-month period of tepid demand. With the exception of Asia Pacific, all regions reported lower or stable vacancies while rents were more mixed. Construction remains concentrated in Asia Pacific with year-end data showing 165.6 million square feet, or 42 percent of global construction underway within this rapidly growing region. By comparison, five years ago just 91.1 million square feet was under construction in Asia Pacific.

As we anticipated, midyear 2010 will be remembered as an inflection point for the global office market and the second half of the year will mark the beginning of the next up cycle. Office investment sales activity in the second half of 2010 was up again, relative to both the first half of the year and also the same period a year ago. This suggests investors continue to get more comfortable with pricing and the prospect of firming market fundamentals in the near- and medium-term.

The outlook for 2011 is for continued growth, but the recent surge in energy prices and the geopolitical tensions in the Middle East and North Africa are reasons for concern. Higher oil prices represent a fairly significant headwind for all regions of the world, and could derail what appears to be a reasonably strong recovery. However, because of the usual lags, any future deceleration won’t be apparent until the second half of the year. In the interim, leasing markets are expected to strengthen and investment sales activity to increase further.

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