Rental growth continues at a healthy pace Global Office Index 2016
2 Global Office Index, 2016 JLL Global Office Index 2016 Rental growth continues at a healthy pace Despite heightened financial market volatility and global economic uncertainty leading to a slightly more subdued picture for global office demand during the first quarter of 2016, supply shortages and limited new deliveries have kept the leasing environment highly competitive in many of the world s dominant office markets. Rents on prime office assets across the 95 major markets covered by the JLL Global Office Index rose by 3.6% year-on-year in, the fastest annual pace of growth in four years. Quarter-on-quarter, rents increased by 0.6% compared to 1.3% in 2015. With the world s major real estate markets appearing to be back on track following a cautious start to the year, business sentiment is improving and corporate activity is expected to ramp up over the course of 2016, with leasing volumes projected to broadly match those of 2015 and some upside potential of up to 5%. Strengthening global occupier demand through 2016 and tight supply will drive continued rental increases, and JLL forecasts prime rental growth of around 3%-4% for the full-year 2016. Regional Overviews: The Americas Index saw quarterly rental growth slow to 0.3% in 2016, down from 0.8% in 2015 as declines in Latin America and Canada weighed on relatively stronger gains in the U.S. In Asia Pacific, quarterly rental growth decelerated to 0.6% (1.1% in ) as overall growth was encumbered by lacklustre economic conditions in several Tier I markets. Europe saw rental growth moderate to 0.6% quarter-onquarter (1.0% in ), although general sentiment continued to be positive and no markets registered quarterly rental falls. The MENA Index rose by 2.7% during, compared with the 7.4% pace in, with rental growth confined to Dubai and all other markets stable over the quarter. Market Performance: Technology-oriented cities continue to feature among the leading markets, with Oakland-East Bay heading the global ranking with 34.0% annual growth, and Seattle (+11.7% year-on-year) and Austin (+11.7%) also among the top performers. Other U.S. cities in the upper tier include Atlanta (+17.1%), Los Angeles (+13.3%) and Denver (+11.4%). Elsewhere in the Americas, weak commodity markets, oversupply and ongoing economic volatility have carried on pushing down rents in many Latin American cities including Mexico City (-3.2% year-on-year), Sao Paulo (-9.3%) and Rio de Janeiro (-13.9%), while Calgary (-20.3%) logged the largest regional decline due to the continued sharp correction in the energy markets. In Asia Pacific, robust leasing activity, in part from the Education and IT sectors, drove Sydney rents up 15.7% year-on-year in, and financials from mainland China contributed to 14.7% growth in Hong Kong. Broadbased demand pushed rents up in Shanghai (+9.9%) and Osaka (+8.1%), IT contributed to an increase in Bengaluru (+7.4%) while Wellington (+8.9%) also recorded a substantial uplift. Softening tenant demand and supply pressure caused Singapore (-15.7%) rents to decline faster; Jakarta (-4.2%) and Hanoi (-6.9%) rents also fell. The gap between top and bottom performers has continued to widen in Australia. A range of industries underpinned demand in Sydney and Melbourne (+2.1% year-on-year), with government occupiers a key source of leasing activity in both markets. Elsewhere, market conditions were again generally weak in Adelaide (-4.1%) and Perth (-21.5%). European and MENA markets were led by Dublin (+25.0% year-on-year), Dubai (+20.0%) and Stockholm (+17.8%), while Barcelona (+12.5%) also outperformed. However, a continuing recession and currency volatility in Russia pushed Moscow rents down by 4.8% over the year, while Warsaw (-2.1% year-on-year) and The Hague (-5.1%) also recorded rental decreases.
2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 Rental Index ( 2000 = 100) 3 Global Office Index, 2016 Global Office Index Prime Rents, 2000-2016 220 210 200 190 180 170 160 150 140 130 120 110 100 90 Change Year-on-Year 2015-2016 Asia Pacific Americas Europe GLOBAL 3.1% 2.9% 3.4% 3.6% Asia Pacific stock weighted average of 27 markets; Americas stock weighted average of 39 markets; Europe stock weighted average of 24 markets. Global Index based on GDP weighted average of the Asia Pacific, Americas, Europe and Middle East and North Africa indices. Source: JLL, May 2016. Patchy growth in Asia Pacific rents Although over half of Asia Pacific markets recorded quarterly rental growth in 2016, increases moderated to 0.6% (3.1% year-on-year), down from 1.1% (3.3% year-on-year) in 2015. Offshoring and outsourcing, financials and ITES were key occupier categories, while e-commerce firms were active in several markets such as India, China and Indonesia. Despite broad-based demand in Tier I Japanese markets, Osaka (+3.3%) registered a much stronger quarterly uplift than Tokyo (+0.6%). While weakness in the wider South Korean economy continued, annual escalations drove Seoul rents up 1.4% quarter-on-quarter. Hong Kong (+2.6%) and Shanghai (+1.6%) were the Greater China standouts, with both reporting robust leasing activity from financials headquartered in mainland China. Manila (+1.2% quarter-on-quarter) was the lone bright spot in Southeast Asia largely due to leasing activity from offshoring and outsourcing firms, while the correction in energy markets continued to weigh on Jakarta (-1.9%). Economic growth below trend and sustained weakness in the banking sector saw Singapore s (-4.8%) rental declines gather pace. ITES remained a key driver of demand across Indian markets. The largest uplifts were evident in Chennai (+1.9%) and Bengaluru (+1.5%). Rental growth at four-year high in Europe 2016 witnessed a continued improvement in occupier activity across most of Europe, with office leasing volumes up 14% on 2015 and the strongest first quarter since 2011. The European Office Index rose by 0.6% quarter-on-quarter, slowing from the 1.0% growth in 2015. Of the 24 index markets, 7 experienced quarter-on-quarter rental increases (compared with 10 in 2015). While quarterly growth was marginally slower, Europe recorded a year-on-year increase of 3.4% in, the steepest rise in four years. Over the last 12 months, most European office markets have joined the rental growth cycle, with just three markets reporting annual rental declines. In Paris, improved occupier sentiment pushed up rental levels for the third consecutive quarter (+0.7% in ) after a prolonged period in which prime rents were relatively volatile and not finding their direction. Elsewhere in Europe, sentiment was generally positive. In Spain, Barcelona (+1.3% quarter-on-quarter) and Madrid (+0.9%) continued their solid run. Demand for prime office space in Germany remains exceptionally strong with Frankfurt recording a 2.8% increase in prime rents. Other
Rental change (% q-o-q) 4 Global Office Index, 2016 office markets experiencing prime rental growth in were Budapest (+4.8%), Milan (+2.1%) and Stockholm (+1.9%). Americas Office Index decelerates to begin 2016 The Americas Office Index saw rental increases ease to 0.3% quarter-on-quarter in 2016 from the 0.8% pace in 2015. While the rate of annual growth also slowed to 2.9% (3.9% in ), there was highly variable performance around the region with rental rates in the U.S. displaying sturdy growth. Since the cyclical trough reached in 2010, the Americas Index has risen by 19.1% and now stands 2.8% above the previous cycle s peak in 2008. The best-performing markets in the Americas were highly concentrated in the Southwestern and Western U.S., with tech-oriented cities continuing to dominate the rental growth tables. Technology sector demand contributed to Oakland- East Bay (+6.0%), Austin (+4.9%) and San Francisco (+3.7%) recording the strongest quarterly growth, while Phoenix (+3.0%), Los Angeles (+2.8%) and Seattle (+2.8%) also joined the list of top performers. At the same time, the ongoing weakness in energy markets continued to push down rents in Calgary (-2.9% quarter-onquarter), while Montreal (-2.8%) also witnessed a drop in rents. In Latin America, Brazil s prolonged recession and political crisis continued to affect Rio de Janeiro (-6.1% quarter-onquarter) and Sao Paulo (-3.7%), while prime rents also declined by 3.2% in Mexico City on heavy new supply. Continued flight to quality in MENA The MENA Index rose by 2.7% over the quarter, pushing the annual increase for 2016 to 11.9%, with demand concentrated in limited Grade A space. Dubai was the top performer (+20.0% year-on-year) with falling vacancies in the Dubai International Financial Centre (DIFC) helping to drive up rental values. The performance of the DIFC was not, however, representative of the wider market, where relatively high vacancy rates have constrained rental growth. Abu Dhabi (+5.3%) and Jeddah (+5.3%) also saw annual growth while rents elsewhere remained mainly stable. Global Office Index Prime Rents, 2009-2016 Quarterly Movements 4 Americas Europe Asia Pacific Middle East and North Africa Global 2 0-2 -4-6 -8-10 -12 09 09 Source: JLL, May 2016 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15 15 15 15 16
5 Global Office Index, 2016 Rental growth to maintain pace in 2016 Despite a slightly more subdued picture for global office demand during the first quarter, supply shortages and limited new deliveries have kept the leasing environment highly competitive in many of the world s dominant office markets. Global office leasing volumes for the full-year 2016 are now forecast to broadly match 2015 levels, with some upside potential of 5%. While 2016 is expected to represent the peak of the global office development cycle, completion levels are still well below the previous peaks seen in 2001 and 2008, and the global vacancy rate is projected to remain generally stable over the rest of the year. Improving global occupier demand and limited new supply will contribute to further rental growth, with a pace of about 3%-4% predicted to continue in 2016. Office leasing volumes in Asia Pacific were up 7% year-onyear in 2016 and the region is expected to outperform with growth of 10%-15% for the full year, supported by robust outsourcing markets and the sustained strength of domestic occupiers in China. Sydney is forecast to be the region s top rental performer in 2016, while Singapore is likely to see further declines; economic uncertainty and supply pressures are anticipated to result in more moderate overall regional rental increases in 2016. In Europe, occupier leasing activity is anticipated to continue to hold up in 2016. Most markets have joined the rental growth cycle, and a longer period of steadier rental growth is now forecast with some upside potential in the case of a more pronounced acceleration in demand. Rental growth of 2%-3% a year is projected for prime European offices in both 2016 and 2017, with Western Europe set to outperform the 10-year average with annual growth of 2.6% this year. Following the heightened financial market volatility and economic uncertainty in the first quarter of 2016, leasing market momentum in the U.S. is expected to ramp up over the course of the year in order to accommodate record-level employment and changing workplace preferences. Although significant parts of Latin America s office markets and energy industry-focused markets in Canada are likely to continue to struggle throughout the year, the expansionary cycle in the U.S. economy and labour market will keep aggregate prime office rents in the region on track into 2017. With further strong national employment growth and moderate construction pipelines in an historical context, market leverage will continue to shift towards landlords. As a result, the Americas Office Index will regain momentum over the course of 2016 with growth exceeding 4% on an annual basis by year-end 2016. Prime rents are forecast to remain largely stable in MENA over 2016 as most of the region s office markets continue to be tenant-favourable in the face of significant new supply and caution by occupiers. The flight to quality seen over recent quarters is expected to carry on, resulting in two-tier markets with more robust demand for Grade A space and limited interest in secondary locations.
6 Global Office Index, 2016 Top 10 Global Performers during 2016 (quarter-on-quarter) Oakland-East Bay Dubai Austin Budapest Sydney San Francisco Osaka Phoenix Los Angeles Seattle Americas Europe Asia Pacific MENA % change q-o-q 0 2 4 6 Based on rents for Grade A space. In local currency. Source: JLL, May 2016 Top 10 Global Performers Year to 2016 (year-on-year) Oakland-East Bay Dublin Dubai Stockholm Atlanta Sydney Hong Kong Los Angeles Barcelona Seattle Americas Europe Asia Pacific MENA % change y-o-y -2 2 6 10 14 18 22 26 30 34 Based on rents for Grade A space. In local currency. Source: JLL, May 2016
7 Global Office Index, 2016 Technical Note The JLL Global Office Index is derived from the weighted average of the rental movements of JLL s European, Asia Pacific, Americas and Middle East and North African (MENA) Regional Indexes that cover 95 office markets in total. They are weighted by real GDP (US dollar basis) for each region from Oxford Economics. Weights are adjusted annually. The latest weights are 28% - Europe; 32% - Asia Pacific; 35% - Americas; 5% - MENA (percentages are rounded). The European Office Index is calculated from the change in headline face rents for the highest-quality space in the premier office submarket in 24 European cities, weighted on the basis of the total office stock (all grades) in each city s overall market. The Asia Pacific Office Index is calculated from the change in average Grade A rents (net effective) in the main submarket in 27 Asia Pacific cities, weighted on the basis of Grade A stock in the main submarket of each city. The Americas Office Index is calculated from the change in average Class A rents (gross asking in North America, triple net in Latin America) in the CBD, Downtown, central areas or primary investment market of 39 Americas cities, weighted on the basis of Class A stock (DC city for Washington, DC; Hudson Waterfront for New Jersey; Palo Alto for Silicon Valley; Midtown for New York; Westside for Los Angeles; Greenwich Overall and Stamford CBD/Railroad for Fairfield County; South County for San Francisco Peninsula; overall Downtown market for Seattle; Tampa CBD-only for Tampa). The MENA Index is calculated from the change in headline face rents for the highest-quality space in the premier office submarket in five cities, weighted on the basis of the total office stock in each city s overall market.
8 Global Office Index, 2016 JLL Global Office Index Quarterly Rental Performance across 95 Cities Quarterly Change 2016 vs 2015 Global 0.6% Europe 0.6% Asia Pacific 0.6% Americas 0.3% MENA 2.7% 1 Oakland-East Bay 6.0% 2 Dubai 5.2% 3 Austin 4.9% 4 Budapest 4.8% 5 Sydney 4.0% 6 San Francisco 3.7% 7 Osaka 3.3% 8 Phoenix 3.0% 9 Los Angeles 2.8% 9 Seattle 2.8% 9 Frankfurt 2.8% 12 Hong Kong 2.6% 13 Monterrey 2.2% 14 Milan 2.1% 15 Orlando 1.9% 15 Stockholm 1.9% 15 Chennai 1.9% 18 Canberra 1.8% 19 Atlanta 1.7% 20 Shanghai 1.6% 21 Bengaluru 1.5% 22 Seoul 1.4% 23 Miami 1.3% 23 Taipei 1.3% 23 Barcelona 1.3% 26 Manila 1.2% 27 Denver 1.1% 27 St. Louis 1.1% 29 Melbourne 1.0% 29 Philadelphia 1.0% 31 Auckland 0.9% 31 Madrid 0.9% 31 Vancouver 0.9% 31 Buenos Aires 0.9% 35 Kuala Lumpur 0.8% 36 Adelaide 0.7% 36 Paris 0.7% 38 Tokyo 0.6% 38 Silicon Valley 0.6% 40 Toronto 0.5% 40 Charlotte 0.5% 40 New York 0.5% 43 Chicago 0.4% 43 Boston 0.4% 45 Ho Chi Minh City 0.2% 45 Guangzhou 0.2% 47 Beijing 0.1% Quarterly Change 2016 vs 2015 48 Bogota 0.0% 48 Delhi 0.0% 48 Wellington 0.0% 48 Amsterdam 0.0% 48 Berlin 0.0% 48 Brussels 0.0% 48 Dusseldorf 0.0% 48 Edinburgh 0.0% 48 Hamburg 0.0% 48 London 0.0% 48 Luxembourg 0.0% 48 Lyon 0.0% 48 Moscow 0.0% 48 Munich 0.0% 48 Prague 0.0% 48 Rotterdam 0.0% 48 The Hague 0.0% 48 Utrecht 0.0% 48 Warsaw 0.0% 48 San Diego 0.0% 48 Tampa 0.0% 48 Abu Dhabi 0.0% 48 Jeddah 0.0% 48 Riyadh 0.0% 48 Cairo 0.0% 48 Dublin 0.0% 48 Bangkok 0.0% 48 Santiago 0.0% 76 Detroit -0.1% 76 Mumbai -0.1% 78 Baltimore -0.3% 79 Portland -0.4% 80 Dallas -0.5% 81 New Jersey -0.7% 81 Houston -0.7% 83 Hanoi -1.2% 84 Washington, DC -1.3% 85 Brisbane -1.4% 86 Jakarta -1.9% 87 Fairfield County -2.0% 88 Montreal -2.8% 89 Calgary -2.9% 90 Mexico City -3.2% 91 Sao Paulo -3.7% 92 Singapore -4.8% 93 Rio de Janeiro -6.1% 94 Perth -7.1% 95 San Francisco Peninsula -10.5% Source: JLL, May 2016
9 Global Office Index, 2016 Annual Rental Performance across 95 Cities Annual Change 2016 vs 2015 Global 3.6% Europe 3.4% Asia Pacific 3.1% Americas 2.9% MENA 11.9% 1 Oakland-East Bay 34.0% 2 Dublin 25.0% 3 Dubai 20.0% 4 Stockholm 17.8% 5 Atlanta 17.1% 6 Sydney 15.7% 7 Hong Kong 14.7% 8 Los Angeles 13.3% 9 Barcelona 12.5% 10 Seattle 11.7% 10 Austin 11.7% 12 Denver 11.4% 13 Budapest 10.0% 14 Shanghai 9.9% 15 San Francisco 9.8% 16 San Diego 9.4% 17 Berlin 9.1% 18 Baltimore 8.9% 18 Wellington 8.9% 20 Phoenix 8.6% 21 Osaka 8.1% 22 Boston 8.0% 23 Bengaluru 7.4% 24 Luxembourg 7.1% 25 Madrid 6.8% 26 Auckland 6.5% 27 Miami 6.4% 27 San Francisco Peninsula 6.4% 29 Orlando 6.3% 30 Silicon Valley 6.2% 31 Tokyo 6.1% 32 Charlotte 5.3% 32 Abu Dhabi 5.3% 32 Jeddah 5.3% 35 Dallas 5.1% 36 Portland 4.6% 37 Frankfurt 4.3% 37 Milan 4.3% 39 Beijing 4.0% 40 Bangkok 3.9% 41 Guangzhou 3.5% 42 Edinburgh 3.3% 42 Toronto 3.3% 44 Manila 3.1% 44 Chicago 3.1% 46 Munich 3.0% Annual Change 2016 vs 2015 47 Philadelphia 2.9% 48 Chennai 2.6% 49 Delhi 2.4% 50 Canberra 2.2% 51 London 2.1% 51 Melbourne 2.1% 51 Paris 2.1% 54 Hamburg 2.0% 55 Washington, DC 1.5% 55 Taipei 1.5% 57 New York 1.3% 57 Seoul 1.3% 57 Houston 1.3% 60 Detroit 1.1% 61 Buenos Aires 1.0% 62 Tampa 0.5% 63 Bogota 0.0% 63 Amsterdam 0.0% 63 Brussels 0.0% 63 Dusseldorf 0.0% 63 Lyon 0.0% 63 Prague 0.0% 63 Rotterdam 0.0% 63 Utrecht 0.0% 63 Riyadh 0.0% 63 Cairo 0.0% 73 Santiago -0.3% 73 Fairfield County -0.3% 75 Mumbai -1.0% 76 Kuala Lumpur -1.1% 77 Vancouver -1.3% 78 New Jersey -1.4% 79 Warsaw -2.1% 80 Montreal -2.6% 81 Ho Chi Minh City -2.7% 82 St. Louis -3.2% 82 Mexico City -3.2% 84 Brisbane -3.8% 85 Adelaide -4.1% 86 Jakarta -4.2% 87 Moscow -4.8% 88 The Hague -5.1% 89 Hanoi -6.9% 90 Sao Paulo -9.3% 91 Rio de Janeiro -13.9% 92 Monterrey -15.7% 92 Singapore -15.7% 94 Calgary -20.3% 95 Perth -21.5% Source: JLL, May 2016
10 Global Office Index, 2013 About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialised real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square metres, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com About JLL Research JLL s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our 350 professional researchers track and analyse economic and property trends, and forecast future conditions in over 80 countries, producing unrivalled local and global perspectives. Our research and expertise, fuelled by realtime information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. For more information contact: Contributing Authors: Dr Jane Murray Head of Research, Asia Pacific + 852 2846 5274 jane.murray@ap.jll.com Ben Breslau Managing Director, Americas Research + 1 617 531 4233 benjamin.breslau@am.jll.com James Brown Lead Director, EMEA Research + 44 20 3147 1155 james.brown@eu.jll.com Jeremy Kelly Director, Global Research + 44 20 3147 1199 jeremy.kelly@eu.jll.com Matthew McAuley Analyst, Global Research + 44 20 7852 4014 matthew.mcauley@eu.jll.com Josh Gelormini Vice President, Americas Research + 1 312 228 2060 josh.gelormini@am.jll.com Craig Plumb Head of Research, MENA + 971 4 436 2493 craig.plumb@eu.jll.com Alex Colpaert Analyst, EMEA Research + 44 20 7493 4933 alex.colpaert@eu.jll.com Christopher Clausen Senior Manager, Asia Pacific Research + 852 2846 5793 christopher.clausen@ap.jll.com COPYRIGHT Jones Lang LaSalle IP, Inc. 2016 This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.