Mixed messages in global leasing markets

Following last week’s blog about investment activity in the first half of 2016, we now turn to look at the office leasing markets. Global leasing volumes are expected to fall by 5% across 2016 as corporate occupiers delay decisions due to weaker business sentiment and a range of uncertainties, notably the ‘Brexit’ vote. Ultimately, however, market fundamentals remain sound and global corporate demand appears to be solid.

Cooling demand in London

As in the office market, London’s leasing volumes suffered in the run-up to the referendum, falling by a third compared to H1 2015, as occupiers took stock and took time to mull over decisions. Looking forward, rents and incentives may come under pressure in certain parts of the market, but low vacancy rates and an increasingly diverse occupier base will help cushion any impact.

‘Business as usual’ in continental Europe and the U.S.

Excluding the UK, European take-up in H1 was 10% above the same period in 2015, demonstrating the continuing upbeat sentiment on the continent. In Germany, Berlin, Munich and Frankfurt were outperformers, with nationwide take-up up 12% year-on-year in H1 2016. Paris continues its recovery with take-up rising 20% compared to H1 2015, as the broad-based improvement in corporate sentiment becomes clear.

In the U.S., quarterly leasing activity rebounded by 18% in Q2, quelling concerns that the poor performance in the previous quarter marked the start of a broader slowdown in the market. Nearly 40% of total leasing volumes were in the country’s big five cities – New York, Washington, Boston, Chicago and Los Angeles. Meanwhile, there has been a deceleration in demand (albeit from a high level) in some of the country’s tech hubs – including San Francisco and Austin – while secondary cities, such as Atlanta, San Diego and Salt Lake City, have seen upturns and leasing volumes increasing by more than 20% year-on-year.

Mixed performance in Asia-Pacific

The most notable changes in Asia-Pacific were in Beijing and Shanghai, where volumes were down 40-50% year-on-year in H1 2016 due partly to concerns over China’s economic slowdown. Bangalore also saw significant declines in leasing volumes (-36% y-o-y), this time due to slowing demand from e-commerce firms and a lack of available space.

However, Tokyo was the most active leasing market in the region, with H1 volumes up a massive 93% year-on-year, while Hong Kong, Singapore, Seoul and Manila also registered strong increases in activity.

In Australia, the picture was mixed. Sydney (+35% y-o-y) has continued its impressive run of growth, while weaknesses in the local economies of Perth and Adelaide mean that demand continues to be subdued.

Global leasing Volumes
Image source: JLL 2016

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