Increasing confidence in global office investment markets

Corporate confidence is boosting activity in top tier office markets around the world, leading to accelerating early cycle rental growth and robust capital value growth in prime assets, especially where new quality supply is limited, according to Jones Lang LaSalle’s inaugural, quarterly Global Office Outlook report.

The report points to several hot spots emerging with high growth prospects. Poland is one of those and the only European market with such an excellent evaluation. The remaining countries classified as high growth regions include E7 (Brazil, India, China, Russia, Indonesia, Mexico and Turkey), Hong Kong and Singapore.

For the first time since the global financial crisis, downside risks are being outweighed by the improving business optimism although recent global events have the capacity to dent this optimism.

Jones Lang LaSalle’s Global Office Outlook report shows that market demand and leasing activity are back in a cyclical upswing, fueled by improving economic growth, renewed corporate confidence, and strengthened balance sheets and prospects of increasing spending and hiring associated with real estate investment. Global office vacancy rates have reached a plateau and edged downward across all three regions in late 2010. The global office vacancy rate now stands at 14.1%.

Prior to the Japan earthquake and tsunami, Asia Pacific was moving ahead strongly with the largest declines in vacancy, improving occupancy levels, and attractive conditions for investment.

‘Regional momentum should continue led by robust growth in China and India. The ultimate impact on the large Japanese economy and real estate market and its trading partners regionally and globally will not be known for some time,’ said Jane Murray, Asia Pacific head of research.

With Japan’s devastation aside, property market fundamentals continue to improve across Asia Pacific, assisted by strengthening business conditions and solid corporate hiring, she explained. ‘Regional net absorption is expected to further increase in 2011, and vacancy is expected to fall in most major markets. However in a few markets that have large impending supply, such as Singapore and some Indian cities, vacancy rates are expected to rise over 2011,’ added Murray.

In the Americas the coming year will be best characterised by an uneven upswing and cautious optimism, according to Ben Breslau, managing director of Jones Lang LaSalle Americas Research. ‘North America is expected to accelerate modestly, with continuing improvement in select prime markets such as Washington DC, Midtown Manhattan, and San Francisco,’ he said.

‘United States vacancy levels are down year on year and will close below 18% in 2011. Additionally, the Canadian office market will tighten with accelerated rent growth in 2011; while Sao Paulo’s strong economic growth is translating into healthy office demand,’ he added.

Business sentiment is at its highest level since 2007 in Europe with occupier and investment transaction volumes recovering strongly. ‘Occupiers remain cautious with deals still driven largely by lease events and consolidation. We are now in a rental growth phase led by a limited number of markets but it could be beyond 2014 in some markets before 2007 market peaks are witnessed again,’ said Grant Fitzner, head of Jones Lang LaSalle EMEA Research.

‘The UK, France, Germany and some of the Nordic markets, particularly Sweden are paving the road with improved market fundamentals and dominating investor interest. We are also watching events in the Middle East and North Africa very closely. As well as obvious impacts on local business sentiment internally, the impact may filter through to greater capital markets volumes externally,’ he explained.

Tomasz Trzósło, head of Capital Markets in Central and Eastern Europe said there has been increased interest in the Polish real estate market from global investors. ‘An example of this trend can be capital originating from Middle East. These funds are seeking alternative and safe investment opportunities. Not endangered with any natural disasters, and with good macro-economic prospects, Poland offers such opportunities to global investors,’ he added.