WHILE the outsourcing-driven office market buoys the local real estate sector, corporate occupiers in the global scene are in a growth mode as well, generally invigorating leasing activity and real estate worldwide.
In its fourth quarter 2015 Global Perspective Report, Jones Lang Lasalle, a financial and professional services firm based in London, said corporate occupiers remain in expansion mode in majority of global commercial centers, driving strong demand for real estate in established hubs like London, New York, and Sydney, in addition to more emerging centers like Shanghai, Delhi, and Bangalore.
It said concerns on China’s slowdown, lower global growth forecasts, and geopolitical volatility have as yet shown little sign of slowing the robust occupier activity around the globe.
In a nutshell, it said investment volumes worldwide expanded three percent year-on-year in the third quarter, while office leasing volumes went up 12 percent, and capital value up 7.9 percent. Office vacancy rates were stable at 12.3 percent, and might settle at 12 percent in 2016, JLL said.
Offshoring and shared services
In terms of portfolio and location strategy, companies, JLL said, continue to explore shared service centers and nearshore and offshore hubs.
In India, over a dozen financial services occupiers are actively seeking back/middle office space of over 50,000 square meters in cities like Delhi and Bangalore.
Within the U.S. and Europe, “similar portfolio planning exercises are underway to optimize enterprise footprints and to seek greater efficiencies and margin gains through location strategy.
Office leasing builds momentum
Momentum is building in the global office leasing markets, according to JLL, with volume up a healthy seven percent in the year to date vis-à-vis the equivalent period in 2014.
JLL noted that despite economic concerns, corporate occupiers are optimistic about near-term business prospects and many are actively planning for growth.
Europe recorded the highest third quarter leasing volumes since 2007, while Asia Pacific recorded 33 percent higher than in the same period last year.
Although volumes in the third quarter in the U.S. were only two percent higher year-on-year, the full impact of expansionary demand has yet to be felt, JLL noted.
Thus, the firm raised its expectations for the remainder of 2015 and for 2016 as well.
It said global leasing volumes for full-year 2015 might be five percent to 10 percent higher than 2014, “with further five percent uplift forecast for 2016.”
Unless global economy is significantly derailed, JLL said, expansion demand is likely to still progress, “as tenants move away from cost containment, consolidation, and renewals.”
Downward vacancy rates
Vacancy rates worldwide are trending downwards, according to JLL, with global office vacancy rate standing at 12.3 percent and all three regions the firm covered registering steady declines in the third quarter.
“We expect continued falls, with the global vacancy rate settling at about 12 percent in 2016,” JLL opined.
The firm said sustained global occupier demand and a development pipeline “well below that of previous peaks will drive further rental uplifts.”
For the full year 2015, JLL projects a three-percent rental growth across major office markets, with Hong Kong, Sydney, Shanghai, and London vying to be top rental performers.
JLL anticipates rental growth to accelerate to around four percent in 2016, with top posts going to Sydney, Tokyo, and Boston.
Upbeat retail markets
Increased consumer confidence is keeping the retail sector upbeat globally, noted JLL, particularly in the US, Europe, and selectively in Asia Pacific.
“Several standout U.S. markets, primarily gateway cities, are now witnessing conditions typical of a peaking market, as rents see assertive growth and vacancy continues to compress,” JLL reported.
Meanwhile, Europe’s recovery markets have experienced strong rental growth over the quarter, particularly in Italy, Portugal, and Ireland.
In Asia Pacific, the demand picture is still varied, JLL said, although rental growth has been limited in most regional markets in the third quarter.
Heightened warehousing demand
JLL said realignment of logistics networks is boosting global warehousing demand, with build-to-suit schemes set to remain the driving feature of future logistics development.
“In the US, absorption is still outpacing new supply and vacancy rates have dipped below the last cyclical low,” JLL said. “Likewise, strengthening occupier demand in Europe now firmly supports previous expectations of 2015 take-up volumes, representing a new record.”
Meanwhile, in China, third-party logistics companies and retailers are bolstering rental levels.
Quality hotel assets
JLL said investor appetite for quality hotel assets has been strong, with global hotel transaction volumes reaching $60 billion over the year to date, up 37 percent from last year.
All regions enjoyed positive growth over the first three quarters, JLL noted, with the Americas leading the pack, up 47 percent over the same period in 2014.
Investors from mainland China, meanwhile, were noted to be important exporters of capital.
JLL said rental apartments continue to perform well in the U.S., while institutional investor demand continues to rise in Europe, targeting mainly the residential sector. Prime yields, however, are at historic lows in France, JLL said.
Meanwhile, sales volumes are still shrinking in Dubai, although price falls have been modest, according to JLL.
Sales in China have strengthened, reported JLL, “on the back of a more accommodative policy stance, including a cut in interest rates.”
Another buoyant year
JLL noted that capital-raising by private equity funds has spiked in recent quarters, implying that 2016 will be another buoyant year.
“Investment activity continues to move higher, although currency movements mask its true level,” JLL’s report noted, anticipating that 2016 volumes will be at least on par with 2015.