Office rentals in key markets to rise in 2013

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GOOD PROSPECTS: Rentals in globalised cities worldwide are expected to register single-digit growth

The office rental markets in Beijing, San Francisco, London, Tokyo, Moscow, Hong Kong and Sydney are tipped to register strong rental growth prospects in 2013, says Jones Lang LaSalle’s latest Global Office Index. Other top-performing markets to watch out for are Jakarta, Mexico City, and Rio de Janeiro while tech-rich markets such as San Francisco and Stockholm are also performing well, said Jeremy Kelly, Director in Jones Lang LaSalle’s Global Research team.

“The BRIC (Brazil, Russia, India and China) and MIST (Mexico, Indonesia, South Korea and Turkey) office hubs registered the fastest rental growth,” said Kelly, adding that 2013 will see a stable outlook for global prime office rental growth with the majority of major markets expected to register single-digit rental growth.

Jones Lang LaSalle’s Global Office Index tracks the rental performance of prime office space across 90 major markets in the Americas, Asia Pacific and Europe. While the overall outlook shows rising rents next year, Jones Lang LaSalle’s analysis of global rental growth in Q3 showed a deceleration in office rental growth to 0.2 per cent, down from 0.6 per cent growth in the second quarter of 2012.

The decline reflected a range of factors including weak corporate occupier demand particularly from the financial sector, oversupply or poor economic fundamentals.

Global market highlights: On a related note, Jones Lang LaSalle’s new Fourth Quarter 2012 Global Market Perspective, highlighted the following: • Investment volumes: US$100 (RM300) billion of capital transactions registered in Q3 — a consistent pattern emerges.

• Capital Markets outlook: On track to achieve US$400 billion (RM1.2 trillion) investment volumes for full-year 2012.

• Office leasing subdued: Office leasing volumes weaken globally as corporate occupiers adopt a holding pattern and delay real estate decisions in the face of economic uncertainty. Global leasing volumes for full-year 2012 are expected to be 15 per cent below 2011. Net absorption, a measure of expansion demand, is likely to be down 20 per cent for full year 2012 compared to 2011.

• Vacancy edges downwards: Global office vacancy rate continues to edge downwards, and currently stands at 13.2 per cent — helped by very low levels of new office deliveries in the United States and Europe.

• Construction: New office deliveries are at the lowest level for more than a decade. Construction is gradually increasing in the United States and Europe, but will still be below historic norms.

• Capital values: Capital appreciation decelerates to an annualised rate of 4.2 per cent (across 24 office markets).

• Retail: International retailers boost demand in key gateway cities and across emerging markets.

• Industrial: Pockets of strength in the United States; market polarisation in Europe; retail sales underpin demand in Asia.

• Hotels: Full-year 2012 hotel investment volumes likely to be 10 per cent below initial forecasts. Strong investor focus on gateway cities, notably New York and London.

• Residential: United States rental apartment market remains robust, with burgeoning development pipeline; German residential market is attracting institutional investors.

Law firm expansion up On a separate note, Jones Lang LaSalle’s Global Law Firm Perspectives 2012 revealed that strong economic growth in emerging markets is driving law firm office expansions across the Asia Pacific and Africa regions.

“Law firm real estate trends vividly illustrate current global economic polarisation,” said Tom Carroll, Director , Corporate Research, Jones Lang LaSalle.

“While firms focus their sights on high growth emerging markets in Asia and Africa, a tenant–favourable market will continue in North America and much of Europe for quite some time.” Noteworthy is the fact that changes to regulations in key markets in Asia, enabling overseas firms to practice local law themselves rather than via a joint venture with a local firm, are resulting in quite dramatic changes in the legal industry landscape in the Asia Pacific region. For example, in Singapore six firms currently hold the Qualifying Foreign Law Practice (QFLP) licence, but a further 23 firms have applied for the QFLP in the second round of applications which closed at the end of August.

“International firms are of course very keen to take advantage of this change in regulations; being able to set up here as a full practice rather than in a JV with a local firm means that they can capitalise on the growth opportunities presented by Asia’s expanding economies,” observed Jeremy Sheldon, Managing Director , Markets Asia Pacific, Jones Lang LaSalle. “We anticipate that this increased number of legal firms in key markets will result in a heightened demand for suitable office space as we witnessed in the first half of 2012 in Hong Kong.”

 


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