Signs of corporate resilience
The third quarter of 2013 delivered further signs of corporate resilience, despite an inconsistent global recovery and some political headwinds.
Corporate leasing activity in the U.S. continues to increase steadily, with the recovery now evident in the majority of markets – not only those most heavily influenced by technology and energy tenants. Landlords are gaining confidence nationwide, and corporate occupiers are generally facing rising rents and reduced options in the North American markets.
New construction is beginning to pick up in response, but most of the projects underway will not come online until 2015 or later, meaning that the next year could be a period of increased landlord leverage and a time of rent rate growth for occupiers who are renewing or looking for large blocks of space. All of this positive improvement in market conditions has happened despite the challenges of stagnation in the U.S. government. With more certainty from the government, the economic and corporate real estate recovery could have significant momentum in 2014.
Europe – a tale of two cities
In Europe, sentiment is clearly improving, with London and Germany leading the region in leasing activity. However, the pace of growth in some Northern European markets has been offset by weak activity in Southern European markets. As an illustration of the contrast within Europe, London and Paris have displayed very different activity over the year. In London, take-up to end Q3 exceeded its entire 2012 total. Led by surging leasing activity in the City, the Central London market saw almost 290,000 square metres of space let in Q3, reflecting growth of 19% on an already strong Q2 result. However, across the English Channel, Paris is experiencing a much weaker year than 2012 with Q3 seeing occupier activity significantly down on last year’s levels.
Shortages of available Grade A supply and a constrained speculative development pipeline will continue to limit options in Europe, driving occupiers to renew in situ or pre-lease; it will also reinforce prime rents going forward.
Across the Asian markets, there are mixed results. The slowing of the Chinese economy has reduced the previously aggressive expansion strategies of corporate occupiers. On the other hand, we are seeing positive gains in India and increased leasing activity in South East Asia.
Workplace strategies and space optimisation
Globally, there remains very strong corporate interest in workplace strategy, space density and space optimisation. Even sectors and regions traditionally less focused on managing occupational costs (such as financial and legal) are now adopting portfolio optimisation studies and cost-reduction programmes.
There is still significant debate within many global corporations about how and where to invest to maximise growth. There is a clear deceleration in growth for some emerging markets (such as Brazil) which had previously been viewed as unvarnished opportunities. This has created challenges in identifying the best risk-adjusted investments for the large stockpiles of cash that many corporations still have on their balance sheets.
In general, occupier sentiment has improved markedly compared to the end of last year. But it is tempered in many markets and prone to external shocks. As such, the sentiment has still not yet translated into wholesale increases in corporate investment, expenditure or leasing activity.
Published: 4th November 2013