Signs of improvement following a disappointing 2013
2013 turned out to be a disappointing year for the office leasing market, with full-year global leasing volumes virtually unchanged on the subdued 2012 levels; Europe and Asia Pacific witnessed annual volumes down by 4% and 12% respectively. Nonetheless, there were definite signs of improvement during the final quarter of 2013, with volumes up 18% quarter-on-quarter in Europe and by 6% in Asia Pacific. The U.S. was the most active leasing market in 2013 – where full-year volumes were an encouraging 7% higher than in 2012.
Modest upswing in demand in 2014
The recovery in global leasing volumes is expected to build during 2014 (subject to macroeconomic stability). Business confidence is improving, corporations will be less capital constrained and a greater willingness to commit to longer-term real estate is anticipated. Global gross leasing volumes for the year are projected to be 5-10% higher than in 2013 in all three global regions. More expansionary demand is also expected, with global office net absorption likely to be 20-25% higher than in 2013.
Momentum builds in the U.S.
The U.S. office market in particular is showing the brightest signs of a more cohesive, across-the-board uptick in leasing activity. Net absorption levels are at their highest since 2007, and more than 65% of U.S. markets have reported higher tenant touring activity.
Gradual improvements in Europe
Europe’s occupational markets have maintained their recovery, but at a slower pace than the investment market. Aggregate statistics show only a gradual recuperation, but sentiment is improving strongly in line with hardening evidence of economic expansion. London continues to see the strongest office market momentum in Europe, but conditions in Paris remain impacted by ongoing headwinds (in sharp contrast to its robust investment market). The German cities are still experiencing solid demand and, encouragingly, there were significant quarterly increases in the Dutch markets, Dublin, Milan and Madrid.
For the year ahead the vast majority of European leasing activity will, again, involve consolidations or portfolio improvements. Corporate occupiers will continue to be cost-conscious, focusing on modern, grade A space to drive both efficiency, productivity and hence return on real estate expenditure. Overall, it is expected that total European leasing volumes will increase by 5-10%.
Office leasing activity starting to improve in Asia, but still slow in Australia
For Q4 2013, both net and gross absorption increased year-on-year in aggregate for Asia (by 5% and 7% respectively). However, at this stage, the improvement is patchy and there are no sub-regions which are unambiguously improving.
Australia witnessed a further contraction in occupied space in Q4, and gross leasing was down almost 50% year-on-year. As a result, quarterly net absorption across the whole region fell 12% year-on-year while gross leasing was down 10%.