Office Rents Reach Bottom in Some Major US Markets While European and Asian Markets Display Growth
London, 19 November 2010 – U.S. office markets are showing signs that rental declines are leveling off, and some major cities, such as Washington D.C. and New York, have reached the bottom of the rental cycle, according to CB Richard Ellis Group, Inc.’s (CBRE) Global Office Rental Cycle report for the third quarter (Q3) of 2010. Office vacancy rates are approaching their peak and starting to fall in most global markets, demonstrating a shifting balance between supply and demand as key markets in Europe and Asia Pacific display a degree of rental growth.
The City of London has shown exceptionally strong rental growth over the past year. Prime rents increased in Q3 2010 to £52.50/sq ft/annum - an annual increase of 25% in prime rents since the market nadir. Further double digit growth is expected in the coming year.
In Hong Kong, rents have risen strongly over the past few months as companies have become more active on the back of healthier financial results and expectations of regional economic growth. Take-up in Hong Kong’s central district totaled around 110, 000 sq ft in Q3 2010, with vacancy falling to 3%. This helped push rents 10.9% higher over the quarter to average HK$105 / sq ft, the highest quarterly growth since the market bottomed out in Q3 2009.
Raymond Torto, Global Chief Economist, CBRE, said: “As economic sentiment has improved in most regions across the globe, occupier demand is starting to show signs of picking up. More companies are looking to expand and net absorption is positive in a number of office markets this quarter, including Hong Kong, Washington D.C. and London’s City and West End districts.”
American office markets continue to lag behind Europe and Asia Pacific, but in Washington D.C. net absorption reached 3.9 million sq ft in the year-to-date (Q1 – Q3), the first time demand has outpaced supply in multi-tenant buildings since 2007. Vacancy declined almost two percentage points over the past six months in Washington D.C. to 10.3%, which is the largest decline of any U.S. office market. Asking rents increased by 1.8% over the quarter and are expected to remain at current levels or increase slightly over the next 6-12 months in the city.
Supply-side factors indicate a subtle shift in market fundamentals – in London, a sharp rise in pre-letting activity reflects tighter supply conditions and the limited number of properties now under construction. In the coming year the squeeze on development finance is going to lead to a further tightening in supply, not just in London but also elsewhere, particularly in Europe and the Americas.
“A change in the supply / demand balance means that most of the key markets in Europe and Asia are now showing some degree of rental growth. There is also an expectation that rental growth will accelerate over the coming months,” commented Dr. Torto.