Global office leasing volumes at highest levels for a decade

The global office leasing markets finished the year on a high note, with 11 million square metres leased in the final quarter of 2017 across 96 markets, the strongest quarterly volume since 2007. For the full-year 2017, gross leasing volumes were a healthy 4% higher than in 2016 and at the top end of our forecast range. Europe was the outstanding leasing market performer with activity up an impressive 10%, while volumes in the U.S. were up by 3% on 2016 levels with new supply providing greater choice for tenants.

2018 is set to be another good year and we have revised our global volume projections upwards to close to 40 million square metres. Yet due to the exceptional 2017 result, this translates into a modest 3% decline year-on-year, with volumes unlikely to hit last year’s impressive tally.

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Healthy demand across all three global regions

European office take-up rose to 4.0 million square metres in Q4 2017, the highest quarterly leasing volume on record. Robust activity in the final quarter pushed 2017 take-up 10% higher than 2016, to the highest level since the previous peak of the market in 2007. In particular, Paris and the ‘Big 5’ German markets outperformed, while London also continued to see strong take-up levels. Demand across Europe continues to strengthen, and we have therefore increased our full-year 2018 forecast to 12.3 million square metres, 11% ahead of the long-term average.

Fundamentals remain positive in the United States and organic growth continues as the economy powers on, with leasing volumes up 3% for the full-year 2017. 2018 will see continued growth for the U.S. office market as leasing activity has yet to show a sign of slowing and economic growth should again be solid. This will keep demand for space buoyant, while more balanced conditions will ease the cost and space burdens on tenants.

Overall leasing activity in Asia Pacific dropped 26% year-on-year in the fourth quarter, contributing to a full-year decline of 5%, in part due to low vacancy and high pre-commitment rates for quality buildings in several key markets. Most Asia Pacific cities experienced healthy broad-based occupational demand driven largely by financial and technology firms. With a positive outlook for regional and global economies in 2018, we are optimistic that leasing activity will hold up relatively well and remain within reach of 2017’s level.


City performance

Global vacancy rate falls, defying expectations

Office leasing markets ended the year a lot tighter than predicted, with the global office vacancy rate defying expectations by falling marginally to 11.9% in Q4 2017, testimony to the capacity of the market to absorb additional space.

Most of the vacancy rate decline was due to the continued falls in Europe, where vacancy dropped further to 7.4% in the fourth quarter. Vacancy rates remained broadly flat in the Americas (at 14.9%) and Asia Pacific (at 11.1%). Nonetheless, with the delivery of new offices expected at a relatively elevated level during 2018, global vacancy is projected to edge up in 2018 to around 12.2%.

Office rental growth strongest since 2011

Rents for prime offices across 26 major markets grew by 4.1% for the full-year 2017, double our forecasts at the beginning of 2017 and the largest increase since 2011. More of the same is expected for 2018, with growth projected to average 3% and top performances going to Singapore and Sydney. Only Shanghai, Mexico City and Beijing are slated for rental corrections over the coming year.

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