Global office leasing activity is robust

Office leasing activity has remained solid over the first nine months of 2017 and is up 3% globally on the same period of 2016. All three global regions have recorded an improvement in demand over 2017. Europe has taken the lead on the back of employment growth and buoyant business sentiment, while the U.S. has witnessed a strong surge in demand in Q3 as supply options increase.

Globally, we are on track to hit our original projections for the full-year 2017, with leasing volumes between 2%-5% higher than 2016. We forecast another good year for occupier demand in 2018, with annual volumes expected to be broadly stable on 2017 levels, supported by higher global economic growth and increasing supply options.

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Occupier demand improves in all three global regions

Leasing volumes are at elevated levels across most of Europe, with third quarter take-up 7% higher than last year. Demand in Germany has shown no signs of weakening with steady increases in leasing volumes, while take-up in London rose 41% from a year ago as activity was boosted by a handful of large transactions. Expansionary demand across Europe continues to strengthen and we have increased our full-year 2017 forecast to 12.2 million square metres, which would be 11% ahead of the long-term average.

In the U.S., occupier activity rose to the highest level in more than two years during the third quarter on the back of an increase in new supply. Tenants continue to expand even as talent shortages intensify across gateway markets, and strong occupancy reversed a recent slowdown in net absorption.

Overall leasing activity in Asia Pacific edged up 3% on the previous year during the third quarter. Tech firms and financials continue to stand out, while co-working operators are also actively leasing space. Delhi is still the regional leader for leasing volumes, with Tokyo and Manila also registering high volumes.


City performance

Vacancy trending gradually upwards

The global office vacancy rate increased marginally during Q3 2017 to 12.0%. With the delivery of new offices projected to be at a relatively elevated level during 2018, vacancy is expected to edge up further, pushing above the 12% threshold by year-end 2017 and getting close to 12.5% by the end of 2018.

Supply is trending upwards in both the U.S. and Asia Pacific, and by end-2018 regional vacancy rates are likely to reach 15.5% in the Americas (from 14.9% in Q3 2017) and 12.3% in Asia Pacific (from 11.1%). By contrast Europe, which has experienced yet another fall in vacancy rate to 7.6%, will probably see rates remain generally steady over the next 18 months.

Office rental growth exceeds expectations

Rents for prime offices across 26 major markets are growing at a healthy clip of 4% year-on-year, an improvement on the 2.7% recorded for the full-year 2016. With a projected uplift of 4% for the full year, it looks likely that office rental growth in 2017 will be double our expectations at the beginning of the year, when we were predicting no more than 2%. Momentum is expected to continue into 2018 at an annualised rate of about 3%.

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