Office landlords have started to shift back into the driver’s seat across the world, according to a recent Cushman & Wakefield study. Though some political instability and pockets of overbuilding keep expectations from soaring too high, the general consensus is that most markets will gain rents and occupancy by 2016.
Maria Sicola, head of the company’s research for the Americas division, says the United States is the definite bright spot of her firm’s 2015-2016 Global Office Forecast. More than 80 percent of the major U.S. office markets will experience rent growth exceeding inflation in the next two years, she notes, with high-tech stars such as Boston and San Francisco still shining bright, and more markets such as Atlanta, Chicago and Dallas joining on the strong side. London, Dublin, Mexico City and Tokyo, cities where there was little new construction since the recession, will lead the office market growth in the rest of the world.
“Overall, things are in better shape than they were 12 months ago,” Sicola says. “In U.S. cities where there’s a combination of strong employment growth, enduring tech growth and a constrained real estate supply, that’s where you’re going to see the greatest improvement in rents.”
Though double digit growth is forecast for the technology and energy sectors, the U.S. office recovery has broadened to most markets, Sicola says. Demand still outpaces supply, and even in cities where there are large office towers going up, such as Chicago, a significant amount of new space is pre-leased. Even Washington, D.C., which is struggling with vacancy of about 15 percent, is expected to see rents rise in 2015-2016, according to the C&W study.
“What’s mainly going to be affected by this new U.S. office growth is aggressive tenant demands,” Sicola says. “The markets where there are limited large blocks available, the recovery will be somewhat more rough. That’s combined with decision makers who are trying to decide how to do more with less.”
Rest of the Americas
New deliveries are expected to hit the major Canadian markets to meet a surge in office demand. About 5.1 million sq. ft. of new office space should come on the market in Toronto by 2017, including the $200 million, 26-story Deloitte Tower scheduled to be completed next summer. In South America, Mexico City has become the unlikely leader in growth due to recently adopted business-friendly legislation and improved economic conditions, while Brazil has seen a slowdown in office fundamentals, along with a weakening economy and political uncertainty.
Overbuilding has limited growth in some markets, especially in Asia, but only to the point of stagnation, not a strong reversal. Asia’s GDP is still forecast to grow by around 5.5 percent in 2014 and up to 5.8 percent by 2016, almost twice the growth expected in the Americas and almost three times the growth expected in Europe. Strong corporate gains in Tokyo have pushed expected rents in that city to 8.5 percent. China and Hong Kong have seen a slowdown in demand and an overload of supply, but rents are still expected to grow moderately or remain stable, according to C&W.
In Europe, limited building has boosted markets including London and Dublin, the latter of which hasn’t seen a new office building in three years and ranks strongest for rent growth in the region. Trouble spots include areas such as Russia and Ukraine, where political upheaval has negatively impacted business confidence.