Cushman toronto office leasing market report 2014

MARKETBEAT
OFFICE SNAPSHOT

GREATER TORONTO AREA, ON

Q3 2013

A Cushman & Wakefield Research Publication

ECONOMIC OVERVIEW
The Ontario economy continues to struggle,
partly because export growth has so far failed
to materialize. Consumers and homebuyers
remain active, but they have limited ability to
bolster the economy, and businesses have
remained cautious in their capital spending. Real GDP is forecast to
reach only 1.3% in 2013 (RBC Economics) but pick up significantly in
2014 as corporate Canada begins to loosen its purse strings in
response to increasing global demand.

downtown reached five million square feet, or about 12% of premium
space inventory. Inevitably, this will result in softer rental rates on
existing product. Class A space in the GTA West is set to tighten,
creating improved conditions for new developments, which will be
strategically located near transportation and workforce to limit risk.
As class A tightens, classes B & C will see significant increases in
availability in some markets.

STATS ON THE GO
Q3 2012

Q3 2013

Y-O-Y
CHANGE

6.8%

7.3%

0.5 pp

$36.54

$37.29

2.1%

6,887,243

5,264,866

-23.6%

DOWNTOWN TORONTO
Overall Vacancy
Direct Asking Rents (psf/yr)
YTD Leasing Activity (sf)

DIRECT RENTAL VS. VACANCY RATES
$40.00

Demand across the downtown is weak and sublet space is on the rise
in downtown Toronto, with little evidence that this will change over
the near term. With First’s Gulf’s announcement that it will build the
Globe and Mail Centre, a 500,000-sf LEED-gold building in the
downtown east market, the total inventory under construction

Cushman & Wakefield Ltd.
33 Yonge Street, Suite 1000
Toronto, ON M5E 1S9
www.cushmanwakefield.com/knowledge

6.0%

$20.00

4.0%
2.0%
0.0%

$0.00
2009

2010

2011

DIRECT GROSS RENTAL RATE

2012

Q3 2013

OVERALL VACANCY RATE

HISTORICAL NEW SUPPLY
5,000
4,000
sf (thousands)

OUTLOOK

8.0%

$10.00

SUBURBAN MARKET DYNAMICS
Suburban markets were relatively active in third quarter, particularly
the GTA West, but overall demand conditions remained weak.
Surprisingly, the suburban markets saw negative absorption in excess
of 500,000 sf. While much of this was caused by two key tenants in
the GTA east, who relocated and displaced a significant amount of
space, expansionary demand continues to be offset by densification
and consolidation, leading to contractions in many cases. There are
numerous transactions near completion in the GTA West, which will
absorb a significant amount of Class A space and displace lower
quality space as tenants move into quality space at very good prices.

10.0%

$30.00
psf/yr

Demand remained weak across central Canadian markets over the
third quarter as lacklustre economic conditions and weaker
commodity prices led to cautious decision-making. Downtown
Toronto saw 245,000 square feet (sf) of negative absorption,
underscoring weakened market fundamentals. Large tenant activity
clearly softened and, while small tenants in the downtown fringe
markets continued to lease built-out space, demand for smaller blocks
space in the financial core fell off significantly from two quarters ago.
However, even though overall demand eased, the market remained
active, with strong interest shown in the new developments. Of the
4.6 million square feet of new office space under construction at the
end of the third quarter, about 50% had already been leased.

12 MONTH
FORECAST

For more information, contact:
Stuart Barron, National Director of Research
416 359 2652
stuart.barron@cushwake.com

3,000
2,000
1,000
0
2009

2010

2011

2012

Q3 2013

NEW SUPPLY

The market terms and definitions in this report are based on NAIOP standards. No
warranty or representation, express or implied, is made to the accuracy or completeness
of the information contained herein, and same is submitted subject to errors, omissions,
change of price, rental or other conditions, withdrawal without notice, and to any special
listing conditions imposed by our principals.
© 2013 Cushman & Wakefield Ltd. All rights reserved.

1

FINANCIAL CORE
VACANCY ALL CLASSES

●

●

The overall vacancy rate rose to 5.0% from 4.3% last quarter.
Class AAA and B recorded the largest increases in availability at
113,000 sf and 110,000 sf respectively.
Weaker demand fundamentals and a significant amount of future
space returning to the market, particularly in Q1 2014, will exert
upward pressure on the vacancy rate in the coming quarters.

6.0%

2,000
1,500
sf (thousands)

VACANCY

4.0%

1,000
2.0%

500
0

0.0%
Q3 12

Q4 12

Q1 13

Q2 13

VACANCY SF

●

●

Leasing activity eased to 298,000 sf from 556,000 sf last quarter.
The market remains tight, though weak demand has led to lower
leasing activity numbers over the third quarter.
First National Financial LP leased 24,000 sf at 100 University
Avenue. Q9 Networks Inc. leased 17,000 sf at 100 Wellington
Street West.

VACANCY RATE

LEASING ACTIVITY ALL CLASSES
800
600
sf (thousands)

LEASING ACTIVITY

Q3 13

400
200
0
Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q2 13

Q3 13

LEASING ACTIVITY

SUBLEASE AVAILABILITY

●

SUBLEASE AVAILABILITY ALL CLASSES

Sublet space has begun its ascent, providing additional evidence
of weakening demand fundamentals in downtown Toronto.
Availability increased to 381,000 sf from 221,000 sf last quarter.
Sublet availability will continue to rise over the coming quarters,
driven in part by a 90,000 sf block arriving at 130 Adelaide Street
West and a 40,000 sf block at 79 Wellington Street West.

500
400
sf (thousands)

●

300
200
100
0
Q3 12

Q4 12

Q1 13


ABSORPTION

●

Absorption dropped dramatically over the third quarter, falling
to negative 181,000 sf, driven by much lower levels of Class
AAA and B absorption. Absorption is expected to remain weak
in the coming quarters.
An increased number of contractions are being observed as
tenants complete lease transactions in the downtown market.
This is one factor driving negative absorption.

300
200
sf (thousands)

●

ABSORPTION ALL CLASSES

100
0
(100)

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

(200)
ABSORPTION

Toronto, ON M5E 1S9

416 359 2652


2

DOWNTOWN FRINGE
VACANCY ALL CLASSES

●

The overall vacancy rate increased to 4.2% from 3.9% last
quarter. Vacancy rose across all of the downtown fringe
submarkets except for King West. Class B space accounted for
the largest sf increase in the third quarter.
The fringe market’s vacancy rate will be facing significant upward
pressure in Q1 2014, as in excess of 250,000 sf of space returns
to market. This includes over 100,000 sf of space at 400
University Avenue to be vacated by Zurich Insurance.

LEASING ACTIVITY
●

●

Leasing activity is on the decline in the downtown fringe
markets, falling to 260,000 sf from 394,000 sf quarter-overquarter. Class B leasing activity fell to 99,000 sf from 277,000 sf
last quarter.
Mercatus Technologies leased 45,000 sf at 545 King Street West.
Royal Bank of Canada leased an additional 26,000 sf at 88
Queens Quay West. Zurich Insurance Company Ltd. leased
24,000 sf at 901 King Street West.

1,500

sf (thousands)

●

6.0%

1,000

4.0%

500

2.0%

0

0.0%
Q3 12

Q4 12

Q1 13

Q2 13

VACANCY SF

Q3 13

VACANCY RATE

500
400
sf (thousands)

VACANCY

300
200
100
0
Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q2 13

Q3 13

LEASING ACTIVITY


●


Sublet availability decreased to 289,000 sf from 337,000 sf last
quarter. Class A sublet availability fell in the third quarter to
164,000 sf from 231,000 sf.
A number of sublet availabilities will arrive at market over the
next two quarters, totaling 54,000 sf. This includes CH2M Hill
Canada Limited’s sublet for approximately 32,000 sf in Q4 2013.

400
300
sf (thousands)

●

200
100
0
Q3 12

Q4 12

Q1 13


ABSORPTION

●

Absorption in the Downtown Fringe dropped into negative
territory over the third quarter. The major contributor to
declining absorption was Class B, as absorption fell to negative
73,000 sf from 151,000 sf in the previous quarter.
The fringe market will see a significant amount of space return to
market in Q1 2014 putting additional downward pressure on
absorption. In excess of 250,000 sf of space will return to
market early in 2014, beginning a slow shift towards a tenant’s
market.

Toronto, ON M5E 1S9

150
100
sf (thousands)

●


416 359 2652

50
0
(50)

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

(100)
ABSORPTION


3

MIDTOWN
VACANCY ALL CLASSES

●

The overall vacancy rate increased to 5.1% from 4.7% in the
previous quarter. However, Midtown remains tight, with the
vacancy rate slightly above the five-year low recorded last
quarter.
Over the next few quarters almost 200,000 sf of space will
return to market, putting some upward pressure on vacancy.
About half of this space will become available in Q4 2013,
including 33,000 sf at 160 Bloor Street East.

LEASING ACTIVITY
●

●

Leasing activity fell to 145,000 sf from 178,000 sf in the previous
quarter. The decline was due to a decrease in activity within the
Bloor submarket, where leasing activity fell to 36,000 sf from
74,000 sf.
St. Clair was the only Midtown submarket with increased leasing
activity in the third quarter. The increase of about 17,000 sf was
attributed to increased activity within both class A and B
markets.

1,200

sf (thousands)

●

8.0%
6.0%

800

4.0%
400

2.0%
0.0%

0
Q3 12

Q4 12

Q1 13

Q2 13

VACANCY SF

Q3 13

VACANCY RATE

300

sf (thousands)

VACANCY

200
100
0
Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q2 13

Q3 13

LEASING ACTIVITY



Sublease availability rose in the third quarter to 186,000 sf from
136,000 sf. Class A sublet space accounted for the bulk of this
increase, rising by 39,000 sf.

●

Sublet availability should remain stable based on what is
currently being tracked in the market. Weaker demand
fundamentals could mean an unexpected rise in sublet space
from tenants who bring excess space to market.

300

sf (thousands)

●

200
100
0
Q3 12

Q4 12

Q1 13


ABSORPTION

●

Absorption in Midtown fell to negative 71,000 sf from positive
53,000 sf last quarter. This trend is now being experienced
across most GTA markets.
Class A absorption in both the Bloor and Eglinton submarkets
declined by a total of 102,000 sf in the quarter, resulting in
Midtown’s weak performance.

120
80
sf (thousands)

●


40
0
(40)
(80)

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

ABSORPTION

Toronto, ON M5E 1S9

416 359 2652


4

GTA EAST

●

The GTA East overall vacancy rate increased to 9.7% from 8.7%
quarter-over-quarter. This was driven by a return of class A
space to market, which drove the vacancy rate to 10.9% from
9.3%.
We are tracking in excess of 230,000 sf of space that will return
to market over the next two quarters. Two buildings that will
see a significant rise in vacancy include 3500 Steeles Avenue East
and 45 Vogell Road.

LEASING ACTIVITY
●

●

Leasing activity was modest over the third quarter, rising slightly
to 282,000 sf from 258,000 sf last quarter. Class A space in the
Highway 7 & Highway 404 submarket posted the largest increase
in leasing activity, rising by 31,000 sf.
CiRBA leased 22,000 sf at 45 Vogell Road. Cogent
Communications leased 23,000 sf at 245 Consumers Road.

10.0%

3,500
3,000
2,500
2,000
1,500
1,000
500
0

8.0%
6.0%
4.0%
2.0%
0.0%
Q3 12

Q4 12

Q1 13

Q2 13

VACANCY SF

Q3 13

VACANCY RATE

600

sf (thousands)

●

sf (thousands)

VACANCY ALL CLASSES

VACANCY

400
200
0
Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q2 13

Q3 13

LEASING ACTIVITY


●


GTA East sublet availability was relatively flat in the third quarter
at 497,000 sf. Overall demand for sublet space is very dependent
on the underlying quality of the space. Tenants are willing to pay
for the combination of quality and location.
We are currently tracking approximately 26,000 sf of new sublet
space coming to market over the next quarter, including Ernst &
Young’s 20,000-sf sublet at 175 Commerce Valley Drive West.

800
600
sf (thousands)

●

400
200
0
Q3 12

Q4 12

Q1 13


ABSORPTION
●

Absorption in the GTA East spiked downward over the third
quarter to negative 439,000 sf -- the weakest result of any GTA
market.

●

This negative absorption was driven by a few very large blocks of
space arriving at market that was displaced from several tenants
who transacted some quarters ago, but relocated into their new
premises over the third quarter.

sf (thousands)

200
100
0
(100)
(200)
(300)
(400)
(500)
Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

ABSORPTION

Toronto, ON M5E 1S9

416 359 2652


5

GTA NORTH
VACANCY ALL CLASSES

●

●

The GTA North was the only market across the GTA to
experience tightening vacancy over the third quarter, with the
vacancy rate falling to 5.5% from 5.8% last quarter.
Over the next year we will see a modest amount of space, in
excess of 125,000 sf, return to market. During the same period,
214,000 sf of new developments are scheduled for completion,
of which 45% is preleased.

6.0%

1,000
800
sf (thousands)

VACANCY

4.0%

600
400

2.0%

200
0

0.0%
Q3 12

Q4 12

Q1 13

Q2 13

VACANCY SF

●

●

Leasing activity fell marginally over the third quarter to 126,000
sf from 143,000 sf quarter-over-quarter. Despite this decline,
year-to-date leasing activity of 347,000 sf is on par with last
year’s total of 344,000 sf for the first three quarters, reflecting
stable relatively tight market conditions.
ADR Chambers leased 14,000 sf at 4101 Yonge Street. Class B
leasing activity in the North Yonge Corridor improved, rising to
16,000 sf from 9,000 sf in the previous quarter.

VACANCY RATE

200
150
sf (thousands)

LEASING ACTIVITY

Q2 13

100
50
0
Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q2 13

Q3 13

LEASING ACTIVITY


●


Sublet availability decreased to 162,000 sf from 184,000 sf in the
previous quarter. A decline in class A sublet space accounted for
100% of the 22,000 sf drop.
Very little sublet space is currently being tracked to return in the
GTA North. Sublet space as a percentage of available space has
fallen steadily to 19.8% from 24.0% in Q1 2013. Tenants wishing
to bring excess space to market would likely be well received.
From an asset management perspective, this market continues to
perform well.

250
200
sf (thousands)

●

150
100
50
0
Q3 12

Q4 12

Q1 13


ABSORPTION

●

GTA North was the sole market to register positive absorption
in the third quarter. Absorption was marginally positive at
29,000 sf as modest amounts of space returning to market have
been well matched by demand.
Absorption is expected to remain relatively stable over the
coming quarters, although risks include tenants relocating out of
the submarket. The market with the most in-migration has been
downtown Toronto.

100
50
sf (thousands)

●


0
(50)
(100)

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

(150)
ABSORPTION

Toronto, ON M5E 1S9

416 359 2652


6

GTA WEST
VACANCY ALL CLASSES

●

●

The overall vacancy rate rose to 11.7% from 11.5% in the
previous quarter. The 81,000 sf speculative new development at
175 Galaxy Boulevard was completed over the third quarter.
Over the next two quarters, in excess of 825,000 sf of space will
come to market. Citigroup’s 208,000-sf sublet at 2920 Matheson
Boulevard East will become available in Q4 2013. This will put
upward pressure on the vacancy rate.

5,000

12.0%

4,000
sf (thousands)

VACANCY

9.0%

3,000

6.0%

2,000

3.0%

1,000

0.0%

0
Q3 12

Q4 12

Q1 13

Q2 13

VACANCY SF

●

●

Leasing activity increased in the third quarter to 423,000 sf from
347,000 sf as a number of significant transactions were complete.
A notable renewal was Moneris Solutions’ 138,000-sf renewal at
3300 Bloor Street West. Samsung leased 127,000 sf at 2050
Derry Road just after quarter end. Max the Mutt Animation
leased 16,000 sf at 1485 Dupont Street.

VACANCY RATE

800
600
sf (thousands)

LEASING ACTIVITY

Q3 13

400
200
0
Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q2 13

Q3 13

LEASING ACTIVITY



Sublet availability increased to 729,000 sf from 693,000 sf last
quarter.

●

Citigroup’s 208,000-sf sublet will drive up sublet availability
substantially. In addition, 55 Standish Court will have a total of
62,000 sf of sublet space coming available, including Samsung’s
38,000-sf sublet.

800

sf (thousands)

●

600

400
Q3 12

Q4 12

Q1 13


ABSORPTION

●

Absorption decreased slightly in the third quarter to negative
92,000 sf from negative 85,000 sf last quarter. However, several
deals, including Samsung’s newly completed lease of the entire
building at 2050 Derry Road West, will add positive absorption
in Q4 2013.
Absorption is likely to remain low for a few quarters, though
absorption for Class A space is expected to show significant
strength as a number of larger transactions for quality space are
completed.

Toronto, ON M5E 1S9

400
300
sf (thousands)

●


416 359 2652

200
100
0
(100)
(200)
(300)

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

ABSORPTION


7

GREATER TORONTO AREA
SUBMARKET

INVENTORY

OVERALL
VACANCY
RATE

DIRECT
VACANCY
RATE

YTD LEASING
ACTIVITY

UNDER
CONSTRUCTION

YTD
CONSTRUCTION
COMPLETIONS

CURRENT
QUARTER
ABSORPTION

YTD OVERALL
ABSORPTION

WTD. AVG.
ALL CLASSES GROSS
RENTAL RATE*

WTD. AVG.
CLASS A GROSS
RENTAL RATE*

Financial Core

34,299,185

5.0%

3.9%

1,199,873

1,925,720

0

(180,789)

42,197

$55.35

$60.10

Downtown Fringe

33,388,532

4.2%

3.3%

1,105,432

2,660,572

100,000

(64,589)

121,297

$39.44

$45.46

Downtown

67,687,717

4.6%

3.6%

2,305,305

4,586,292

100,000

(245,378)

163,494

$47.51

$54.37

Midtown

16,699,064

5.1%

3.9%

552,495

0

0

(71,292)

72,467

$36.27

$39.48

CENTRAL AREA

84,386,781

4.7%

3.7%

2,857,800

4,586,292

100,000

(316,670)

235,961

$45.32

$52.15

GTA East

33,028,314

9.7%

8.2%

867,430

0

0

(439,497)

(385,987)

$27.79

$29.29

GTA North

14,688,676

5.5%

4.4%

346,695

214,869

0

28,736

(82,500)

$32.38

$33.55

GTA West

37,188,590

11.7%

9.7%

1,192,941

1,452,587

230,950

(92,179)

163,128

$29.11

$31.10

SUBURBAN AREA

84,905,580

9.9%

8.2%

2,407,066

1,667,456

230,950

(502,940)

(305,359)

$29.13

$30.87

169,292,361

7.3%

5.9%

5,264,866

6,253,748

330,950

(819,610)

(69,398)

$37.29

$41.40

GTA TOTAL

* RENTAL RATES REFLECT ASKING $PSF/YEAR

MARKET HIGHLIGHTS
SIGNIFICANT Q3 2013 LEASE TRANSACTIONS

SUBMARKET

TENANT

BUILDING CLASS

3300 Bloor Street West (West Tower), Toronto*

Bloor & Islington

Moneris Solutions

A

138,000

545 King Street West, Toronto

Downtown West

Mercatus Technologies Inc.

C

45,000

88 Queens Quay West, Toronto

Downtown South

Royal Bank of Canada

A

26,000

100 University Avenue, Toronto

Financial Core

First National Financial LP

A

24,000

901 King Street West, Toronto

King West

Zurich Insurance Company Ltd.

A

24,000

245 Consumers Road, Toronto

Consumers Road

Cogent Communications

B

23,000

45 Vogell Road, Richmond Hill

Hwy 404 / 407

CiRBA Inc.

A

22,000

SIGNIFICANT Q3 2013 SALE TRANSACTIONS

SUBMARKET

BUYER

PURCHASE PRICE / $PSF

1 Queen Street East & 20 Richmond Street East, Toronto

Financial Core

Canadian Pension Plan
Investment Board

$220,000,000 / $437

503,000

Madison Centre, Toronto

Yonge & Hwy 401

Northam Realty Advisors

$133,500,000 / $309

432,127

100 Yonge Street (Share Sale), Toronto

Financial Core

H & R REIT and Dundee REIT

$79,200,000 / $327

242,287

The Promontory, Mississauga

Sheridan

FAM REIT

$39,025,000 / $244

159,752

215 Spadina Avenue, Toronto

Downtown North

Crespoint Real Estate
Investments Ltd.

$26,200,000 / $248

105,510

SIGNIFICANT Q3 2013 CONSTRUCTION COMPLETIONS SUBMARKET

MAJOR TENANT

COMPLETION DATE

175 Galaxy Boulevard, Toronto

Airport (Surrounding
ACC)

Speculative

Q3 2013

SIGNIFICANT PROJECTS UNDER CONSTRUCTION

SUBMARKET

MAJOR TENANT

COMPLETION DATE

Bay Adelaide Centre East, Toronto

Financial Core

Deloitte & Touche LLP

Q1 2016

1,020,000

One York Street, Toronto

Downtown South

HOOPP

Q3 2016

941,147

88 Queens Quay West, Toronto

Downtown South

Royal Bank of Canada

Q4 2014

933,020

100 Adelaide Street West, Toronto

Financial Core

Ernst & Young

Q2 2017

905,720

120 Bremner Boulevard, Toronto

Downtown South

Marsh & McLennan Companies

Q4 2014

700,000

60 Standish Court, Mississauga

Hurontario Corridor

TJX Group/Winners

Q1 2015

335,000

SQUARE FEET

SQUARE FEET

BUILDING SQUARE FEET
80,950
BUILDING SQUARE FEET

* RENEWAL - NOT INCLUDED IN LEASING ACTIVITY STATISTICS

Toronto, ON M5E 1S9

416 359 2652


8

GLOBAL OFFICE
FORECAST 2014-2015

1 Global Overview: Efficiency and Quality Rule
1 Global Overview: Stable in 2013, Better Times Ahead
3 Special Report: The Changing Workplace
3 Americas: Bright Pockets in Mixed Forecast
5 Americas: Gathering Strength
8 Asia Pacific: Primed for Soft Landing
11 Asia Pacific: Still Solid Growth
13 Europe: A Bumpy Road
17 EMEA: Positive Signs

DECEMBER 2013

DECEMBER 2013


GLOBAL OVERVIEW: EFFICIENCY AND QUALITY RULE
Reduced occupancy footprints and an upgrade to betterquality space are two global trends that show no sign of
letting up anytime soon. From New York to London to
Hong Kong, business leaders continue to monitor their
real estate costs and no longer tolerate “wasted space.”
But cost is not the only way to achieve efficiencies. Floorplate size, design and layout, and collaborative workspaces
typically not found in older office stock are key factors
that companies around the world see as promoting
increased productivity and workplace satisfaction.

AMERICAS: BUMPY RECOVERY
Office market conditions will vary widely across the
Americas in 2014: Canada is faced with oversupply in some
markets, which, along with weaker demand, could lead to
decreasing rents; Latin America is a mixed bag, with some
markets undergoing market corrections, while others are
attracting increased investment; and, the U.S. is forecast
to have the highest GDP growth in the Americas at 3.1%,
although this will not translate into healthy real estate
market fundamentals in all cities.
Robust demand and tight office markets ignited a
development boom across Canada that will see 7.9 msf
feet of office space come to central markets in 2014 and
2015. Weak global economic conditions, particularly in the
U.S., softened demand over 2013, but improved conditions
expected by late 2014 will revive business confidence and
growth. New product will push up vacancy and some
easing of rental rates will result.
Several Latin American markets are at risk of oversupply
with São Paulo leading the way with an astonishing 15
msf in the pipeline being delivered just as the country
is entering a period of slow growth. While rents in Rio
de Janeiro have begun a market correction, they are still
1

inflated, causing occupiers to flee class A space for class B
or B+ – and buck the global flight-to-quality trend.
Santiago, which has the strongest economy in South
America, will outperform Mexico City and other South
American markets. Its vacancy rate will drop to a rockbottom 0.9% by 2015.

ASIA PACIFIC: STILL GROWING
Through most of Asia, 2014 is generally expected to be a
repeat of 2013, with little divergence in economic patterns.
Growth rates will not be as high overall, averaging about
5%. This deceleration is being driven mainly by China, India
and Indonesia.
An exceptionally large office supply pipeline continues to
define most of the emerging markets in Asia. By the end of
2015, the class A office stock in Asia is anticipated to grow
by 15% with some Chinese markets doubling, or nearly
doubling, in size. Demand will be slow to catch new supply,
however, with tier 1 cities capturing much of the activity
and absorption remaining at moderate levels. With high
availabilities, it remains a great time to be an occupier.

Rents will continue on their upward trajectory with
growth averaging 1-2% annually, causing many tenants
to take a long, hard look at their occupancy costs and
devising ways to achieve efficiencies. Many businesses are
seeking space in lower-cost options outside of the
central business districts, and, in the process, upgrading
to new construction.
The region is expected to remain attractive to investors.
While the risk of interest rate increases looms due
to potentially tighter monetary policy in the U.S., the
prospect of further improvements in office market
fundamentals will help fuel investment activity through
the forecast period.

EUROPE: POSITIVE SIGNS
After a weak start to the year, Europe has stabilized.
2013 marked the end of the eurozone recession, and
both business and consumer confidence is on the mend.
Growth projections have been raised for 2014/15 although
the regional picture will still be one of below trend growth
overall with significant differences market to market.

2014 GDP GROWTH FORECAST

3%

5.1%

1.3%

2.9%

AMERICAS

ASIA PACIFIC

WESTERN EUROPE

EASTERN EUROPE

SOURCE: CUSHMAN & WAKEFIELD RESEARCH

GLOBAL OFFICE
FORECAST
2014-2015


TOP-TEN GLOBAL MARKETS AT A GLANCE (2013-2015)
In the office markets, there is a clear divergence between
primary and secondary space. The supply of modern space
is beginning to dwindle, particularly in major international
cities like London, Stockholm and Frankfurt, as tenants
demand the best-quality space. As a result, developers
are now pushing ahead with any schemes they have in the
pipeline, resulting in a modest increase in new completions
in 2014 which, with net absorption still low, will result in
an uptick in vacancy in some markets.
However, the pipeline beyond next year is still restrained
thanks to the lack of starts in recent years. Hence, as
demand picks up vacancy will start to fall back, potentially
dropping to its lowest level since 2008 towards the end of
the forecast period.
With the exception of a handful of markets at either
extreme, rents in most markets will see only modest
growth through the forecast period. Rents for prime space
in London, Dublin and Budapest are expected to rise by
5.0% or more annually, while those in Milan, Prague and
Warsaw will decline.
The majority of real estate investors in the office sector
continue to favor core markets, but as prime opportunities
decrease and prices become more competitive in the best
markets in particular, they are prepared to move up the
risk curve and look at what options are available to them
in second tier cities. Also for the risk-takers, speculative
development and refurbishment is expected to rise in 2014
and beyond.

COMPOUND ANNUAL RENT GROWTH

NEW SUPPLY AS PERCENTAGE OF INVENTORY

Jakarta

Chengdu

Dublin

Ho Chi Minh

Boston

Shenzhen

San Francisco

Guangzhou

London

Istanbul

Singapore

São Paulo

Tokyo

Jakarta

Seattle

Hyderabad

Manila

Delhi NCR

New York

Pune

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

ABSORPTION AS A PERCENTAGE OF INVENTORY
Istanbul

0.0%

20.0%

40.0%

60.0%

80.0% 100.0% 120.0% 140.0%

New Supply
will remain on the upswing even in markets
with elevated vacancy rates as occupiers
continue to be drawn to modern,
efficient space.

Guangzhou
Chengdu
Shenzhen
Ho Chi Minh
Pune
Jakarta
São Paulo
Hyderabad
Manila
0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

SOURCE: CUSHMAN & WAKEFIELD RESEARCH

2

SPECIAL REPORT:

THE
CHANGING
WORKPLACE

DECEMBER 2013


FOCUS ON COST AND CULTURE

In our changing world, workplace culture
is more central to business success than
ever before.
From a Corporate Real Estate perspective, clients think
of three things when talking about offices: workplace,
workplace and workplace. Faced with the relentless
transformation of work habits, business is acutely aware
that their physical work environment and other critical
real estate decisions are key to managing change and
maintaining competitiveness.
There are of course very different conditions at a local
market level around the world that impact occupier
decisions in terms of rental cost and existing options to
occupy modern effective space. However, organizational
issues and how businesses actually use their space can
be of greater significance. Increasingly, business leaders
recognize that workplace transformation is required to
support their business strategy and performance through
enhancing collaboration between departments and also
attracting talent.

The three main drivers for
workplace transformation –
cost, people, and organization –
vary considerably between
different business sectors.
3

The 2013 Cushman & Wakefield Corenet Survey of
corporate real estate executives highlighted that the three
main drivers for workplace transformation – cost, people,
and organization – vary considerably between different
business sectors.

COST
PRIMARY MOTIVATION
• Reduce real estate costs
• Reduce churn and facility costs
• educe other costs (paper,
R
utilities, travel)

Simply put, profound changes in our work habits facilitated
by technology have redefined workplace requirements,
which has enabled companies to consolidate and
rationalize their portfolios. The savings achieved through
reduced footprints can be dramatic – up to 40% in some
cases. In a more lean and agile workplace, byproducts such
as the cost of churn or use of paper provide additional
savings benefits.
A truly integrated workplace transformation program
will see further cost savings across the enterprise with
initiatives like Bring Your Own Device and the migration to
soft phones, and through reduced absenteeism. For some
sectors, such as banking, the cost savings are the primary
driver; for others they are an added benefit to improved
productivity. Still, given that real estate is typically the
second largest corporate cost item, savings and new
efficiencies will remain high on the agenda.

GLOBAL OFFICE
FORECAST
2014-2015

A Cushman Wakefield Research Publication

PEOPLE

ORGANIZATION

GLOBAL ADOPTION

NUMBER-ONE
CONSIDERATION

PROMOTING
COMMUNICATIONS AND
COLLABORATION

CATCHING ON AROUND
THE WORLD

• Attract and retain employees
• Increase employee productivity
• Improve work-life balance

For the first time since its inception, the CW Corenet
CEO Challenge survey of chief executives from over 700
large global corporations ranked “human capital” as the
number-one, top-of-mind consideration.
As lean businesses emerge from the recession they are
targeting new growth opportunities in new global markets,
and recognize that attracting and retaining the “right”
talent is needed to remain innovative and competitive in
the face of relentless change. This is particularly the case
for the high-tech sector.
Major cities around the world are natural magnets for
young educated workers, and are increasingly attracting
tech companies regardless of their higher cost base.
These companies are using the workplace as a major
differentiator in attracting target employees.
Out-of-the-box workplace designs in this sector define
a culture and brand – offering relaxed campus-like
environments with many collaborative areas and other
inducements such as free food and high-tech toys to
entrench employee loyalty and inspire innovation. Equally,
traditional professional services sectors are focused on
winning the fight for talent by establishing more dynamic,
flexible workplaces in targeted locations.

• ncrease communication and
I
collaboration
• ncrease creativity and innovation
I
• mprove agility and customer
I
responsiveness
The workplace is a primary enabler (or inhibiter if badly
designed) for communication and collaboration within any
business. The recent initiatives by the CEOs of Yahoo!
and HP, bringing remote workers back into the office,
reinforce the role of the workplace in creating business
cohesion and driving innovation.
In sectors where innovation is a critical success factor, a
workplace strategy that supports knowledge sharing and
co-creation is seen as mandatory. The pharmaceutical
sector is perhaps the leader in this area, and now extends
its philosophy beyond the organizational boundaries
to ensure collaboration with other businesses and
universities as the best way to develop the next generation
of solutions.

With human capital at the forefront of
CEO concerns, the relationship between
the workplace and culture is empowering
Corporate Real Estate executives to
play an increasingly significant role in
C-suite decisions.

•
•
•
•
•

North America 57%
South America 31%
Europe 62%
Middle East and Africa 38%
Asia 74%

The level of workplace transformation adoption varies
across different regions as highlighted by the survey.
CRE directors reported that Asia Pacific is now seeing
the most significant level of adoption, although much of
this is still in the early stages of planning and roll out.
Throughout Europe and North America, the workplace
transformation movement is much more mature. Indeed,
some advanced companies in these regions are rethinking
their initial approaches to workplace polices based on
measured results.
The work-from-home movement, for example, has
not only skewed occupancy levels, but in many cases
has proved to have a negative impact on organizational
cohesion and effectiveness. This is driving many companies
to explore ways to re-energize the workplace so staff are
more motivated to work out of the office.
In conclusion, the workplace is becoming more complex
and inter-related with business performance and
objectives. More than ever, it defines the culture of an
organization and, as Professor Rene Carol from Cass
Business School, put it: “Culture is more powerful than
business strategy.”

4

DECEMBER 2013


AMERICAS: GATHERING STRENGTH

UNITED STATES: RECOVERY TAKES HOLD
Technology, energy and new media continue to be the
main drivers of the real estate recovery. As a result,
markets like San Francisco and Boston, despite having
a fair amount of construction in the pipeline expect
continued strong demand over the next two years keeping
vacancy rates low and pushing prime asking rates upwards
by 16% and 22%, respectively. Seattle will see a slow and
steady recovery.
Houston and Dallas, in particular, stand to benefit from
a growing energy industry. The Dallas Central Business
District (CBD) is enjoying a resurgence of activity and
class A rents will rise by 3%, although vacancy will
remain high. While Manhattan has over 10 msf under
construction, 48% is preleased. With positive absorption
expected to continue in this thriving market, class A rents
will rise by nearly 15% on a cumulative basis.
On the other end of the spectrum are those markets
whose tenancy foundations are built on a more traditional
mix of sectors – financial, legal, professional business
services, for example. Businesses in these sectors have
kept their growth plans on hold as they wait for stronger
signs of U.S. and global economic recovery. However,
steady leasing activity related to the adoption of efficient
new workplace strategies that include consolidation
and densification will continue. Conditions will favor
tenants in these markets as asking rents will see little
upward movement in the next two years until business
gains confidence and significant job creation takes place.
5

Los Angeles, Atlanta and Philadelphia would fit into this
category of markets.

growth will fuel real estate activity and rents will increase
by 7.5% from 2013 to 2015.

Perhaps not surprisingly, economic difficulties exacerbated
by a polarized Congress is no more evident in any real
estate market than Washington, D.C., which does not
expect to see a return to recovery – balanced leasing
fundamentals – until 2015.

Mexico City will see rising vacancy and little movement
in rents in the near term due to deliveries of about 6.5
msf. Improvement is expected by 2015 with local players
in government agencies, finance and manufacturing
bolstering demand.
Mexico’s new government is working on putting forth
a number of changes in tax and energy laws as well as
educational, telecom and financial reforms. If executed,
these could support business expansion plans.

LATIN AMERICA: EYES ON SANTIAGO
Santiago is the South American superstar with projected
GDP growth of 11% by the end of 2015. The economic

ABSORPTION AS A PERCENTAGE OF INVENTORY VS. COMPOUND ANNUAL RENT GROWTH (2013-15)
12.0%
Boston
Compound Annual Rent Growth 2013-2015

Maria T. Sicola
Executive Managing Director,
Americas Research

8.0%
San Francisco

4.0%
Philadelphia

New York
Houston

Seattle

Los Angeles
Dallas

Chicago

0.0%
Toronto
Montreal

Calgary

Atlanta
Washington, DC
Mexico City
Ottawa
Vancouver

Santiago

São Paulo

-4.0%
Rio de Janeiro
Buenos Aires

-8.0%
-5.0%

0.0%

5.0%

10.0%

15.0%

Absorption as a Percentage of Inventory 2013-2015
SOURCE: CUSHMAN WAKEFIELD RESEARCH

20.0%

25.0%

GLOBAL OFFICE
FORECAST
2014-2015


A significant number of projects will be completed in São
Paulo over the next twelve months – nearly 2.5 times the
four year average. This, along with reduced demand, will
drive up vacancy and exert downward pressure on pricing
in existing buildings until 2015.
In Rio de Janeiro, approximately 4 msf is in the pipeline
in advance of both the World Cup and the Olympics,
but very little of it has been preleased. Coupled with
uncertainties surrounding the upcoming election cycle,
vacancy rates are expected to increase while cumulative
rent growth will be moderate.
Economic uncertainty remains the story in Buenos Aires
and, although GDP growth is expected to increase from
2.8% in 2014 to 3.9% in 2015, vacancy rates and rents will
essentially remain at 2013 levels through 2015. However,
investment activity is on the upswing as companies are
finding it difficult to repatriate profits, and acquiring
properties as a hedge against inflation has become
commonplace.
Bogota is also a market to watch as speculative
construction has returned to the western part of the city.
Class A stock delivered in 2014 will help eliminate barriers
to entry in this supply-constrained market.

CANADA: MARKETS TO SEE IMPROVED
DEMAND
Soft demand across central Canadian markets will regain
traction in the latter half of 2014, driven by a strengthening
U.S. economy and improved global fundamentals. One
of the hottest central market development cycles in 20
years will push vacancy upward, particularly in markets like
Toronto and Calgary, where in excess of 5 msf will hit each
market over coming years. Heading into this supply storm,

Canadian central markets are well positioned, being among
the tightest markets in North America, with an average
vacancy rate of only 6.0%.
So, while vacancy will rise significantly over current levels,
2014 vacancy rates in Vancouver, Calgary and Toronto
will climb moderately to 7.7%, 6.7% and 7.0% respectively.
Montreal will see rates rise to 9.1% and Ottawa will see
rates rise to 6.6% from 4.8%. As companies relocate
into the new developments, displaced space will create
opportunities and rental rates will soften across most
central markets, but these declines will be modest.

Steady
leasing activity related to the adoption of
efficient new workplace strategies that
include consolidation and densification will
continue, especially in markets dominated by
“traditional” sectors.

NEW SUPPLY AS A PERCENTAGE OF INVENTORY (2013-2015)
Houston
Los Angeles
Philadelphia
Chicago
Atlanta
Montreal
Dallas
Toronto
Washington, DC
New York
San Francisco
Seattle
Calgary
Ottawa
Boston
Buenos Aires
Vancouver
Santiago
Mexico City
Rio de Janeiro
São Paulo
0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Supply as Percentage of Inventory

6

DECEMBER 2013


AMERICAS: MAJOR OFFICE MARKETS FORECAST
CBD CLASS A
VACANCY
2013
(%)

2014
(%)

2015
(%)

CBD CLASS A
RENTS
2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

CLASS A
NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
Local
Measure

SF

COMMENTARY

2015
Local
Measure

SF

SF

UNITED STATES

0

Increased momentum in Atlanta’s employment sector,
particularly in office-using industries, will continue
to drive the recovery of Atlanta’s office market.
Vacancies are expected to continue to slowly decline
which should begin to translate into upward pressure
on rental rates over the next 12 months.

1,314

Over 3.6 msf of class A office space is scheduled to
come online through 2015. Asking rents are expected
to grow 22% from 2013-2015, while vacancy rates will
tick upwards but remain among the lowest of U.S.
CBDs.

150

With solid employment growth across all sectors, net
absorption is anticipated to be steady for 2014 and
remain positive for 2015. Vacancy rates will decline
slightly and rents will keep pace with but not exceed
the rate of inflation.
Despite being one of the softer CBD markets in
the U.S., demand in and around the Dallas CBD is
stronger than seen in years. Rent growth is expected
to be around 3.0% and vacancy will hold around 20.0%
for the near term.

Atlanta
Local Currency:
US$/sf/yr

21.1

20.2

19.1

26.68

26.68

26.95

26.95

27.10

27.10

0

0

550

550

0

Local Measure:
sf

Boston
Local Currency:
US$/sf/yr

7.5

6.4

8.1

54.35

54.35

58.43

58.43

66.27

66.27

1,833

1,833

485

485

1,314

Local Measure:
sf

Chicago
Local Currency:
US$/sf/yr

11.9

11.0

10.8

38.65

38.65

39.39

39.39

40.51

40.51

0

0

0

0

150

Local Measure:
sf

Dallas
Local Currency:
US$/sf/yr

20.8

20.0

20.6

24.67

24.67

25.24

25.24

26.08

26.08

0

0

0

0

455

455

6.7

5.8

4.5

39.50

39.50

41.54

41.54

43.50

43.50

0

0

0

0

0

0

Over the next 12 quarters, stable job recovery
combined with no new construction will result in a
steady decline in vacancy and increase in rents. The
energy sector remains a critical player in the market.

20.3

20.2

20.0

36.41

36.41

37.74

37.74

39.37

39.37

0

0

0

0

0

0

Still a traditional office-using market occupied by
financial, legal and back office tenants, vacancy rates
are expected to hold while asking rents will inch up in
relation to overall market dynamics.

Local Measure:
sf

Houston
Local Currency:
US$/sf/yr
Local Measure:
sf

Los Angeles
Local Currency:
US$/sf/yr
Local Measure:
sf

New York
Local Currency:
US$/sf/yr

9.5

9.8

9.4

70.81

70.81

74.46

Local Measure:
sf

SOURCE FOR EXCHANGE RATES: FINANCIAL TIMES, 21 OCT 2013, CLOSING PRICE

7

74.46

81.33

81.33

4,548

4,548

3,246

3,246

2,492

2,492

Improvement in net absorption coupled with
substantial new space being delivered over the next
two years (which is 48.0% preleased) supports
continued rent growth averaging 7.2% over the
next two years. Despite the influx of new space,
Manhattan's vacancy rate will remain among the
lowest in the nation.

GLOBAL OFFICE
FORECAST
2014-2015


CBD CLASS A
VACANCY
2013
(%)

2014
(%)

2015
(%)

CBD CLASS A
RENTS
2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

CLASS A
NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
Local
Measure

SF

COMMENTARY

2015
Local
Measure

SF

SF

UNITED STATES
Philadelphia
Local Currency:
US$/sf/yr

12.8

12.3

11.5

26.80

26.80

27.34

27.34

28.02

28.02

0

0

0

0

0

0

Fundamentals are forecast to slowly improve in
Philadelphia's CBD over the next two years. With
no new construction scheduled to deliver over that
period, the vacancy rate will decrease and rent growth
will trend above inflation, averaging 2.2% per annum.

1,313

San Francisco is in the midst of a building boom, with
over 2.4 msf of new space coming to market by yearend 2015. Demand is expected to keep pace, resulting
in only a slight increase in vacancy. Rent growth is
forecast to be robust, averaging 7.6% per year.

1,018

The Seattle market is recovering nicely from its 2009
downturn. Vacancy is forecast to decrease only slightly
due to 1 msf coming online in 2015. Asking rents are
forecast to average a solid 5.6% growth per annum
through 2015.

590

With the exception of trophy properties and new
construction, demand will be slow to return, with no
significant improvements until 2015 and 2016 when job
growth accelerates. Outdated inventory coupled with
tenant rightsizing will leave vacancy rates elevated
through the forecast period.

Local Measure:
sf

San Francisco
Local Currency:
US$/sf/yr

8.3

7.8

8.6

57.45

57.45

61.77

61.77

66.55

66.55

476

476

649

649

1,313

Local Measure:
sf

Seattle
Local Currency:
US$/sf/yr

13.3

11.0

11.8

34.77

34.77

36.26

36.26

38.76

38.76

302

302

0

0

1,018

Local Measure:
sf

Washington,
DC
Local Currency:
US$/sf/yr

14.9

14.8

13.6

59.63

59.63

59.68

59.68

60.98

60.98

1,271

1,271

168

168

590

Local Measure:
sf

CANADA
Calgary
Local Currency:
CAD/sf/yr

4.6

6.7

7.3

50.52

49.07

49.53

48.11

48.28

46.90

100

100

1,000

1,000

1,100

1,100

Local Measure:
sf

Montreal
Local Currency:
CAD/sf/yr

8.3

9.1

10.5

38.81

37.70

38.19

37.10

37.62

36.54

0

0

230

230

500

500

As market conditions soften across Canada, Montreal
is the first to feel the effects of declining business
demand. Class A availabilities will increase moderately
from current levels by year end 2015, putting
downward pressure on rental rates.

0

CBD class A vacancy will increase in 2014 from a
weakened economy but modest demand in 2015 is
expected to bring rates back down. The delivery of
new, government occupied space will generate positive
absorption for the near term.

Local Measure:
sf

Ottawa
Local Currency:
CAD/sf/yr
Local Measure:
sf

4.8

6.6

5.7

48.75

47.35

49.22

47.81

49.69

48.27

0

0

840

840

0

Due to its dependence on the energy sector, the
Calgary market has always experienced some
volatility. Vacancy will rise over the next two years
due to lackluster demand and new developments
coming to market.

8

DECEMBER 2013


CBD CLASS A
VACANCY
2013
(%)

2014
(%)

2015
(%)

CBD CLASS A
RENTS
2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

CLASS A
NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
Local
Measure

SF

COMMENTARY

2015
SF

Local
Measure

SF

CANADA

280

Weaker demand across the region as a result of the
sluggish economy combined with robust new supply
coming to market will push vacancy rates higher
through 2015. Rent levels will decline to compensate
for the 5.1 million square feet of new development
presently under construction.

1,200

Vancouver, historically one of the tightest markets in
Canada, will see vacancy rise into low double digits
by the end of 2015 due to new developments coming
to market. Rental rates will also decline, but at a
relatively slow rate, bolstered by the addition of new
top-tier space.

320

The GDP of Buenos Aires is anticipated to grow
2.8% in 2014 and 3.9% in 2015. Demand for space in
the market will be flat as uncertainty in the economy
keeps tenants on the sidelines. Both the vacancy
rate and market rents for class A space will maintain
current levels through the end of 2015.

0

New construction delivery through 2014 will push
vacancy up while slower demand for space from local
business will minimize absorption growth resulting in
sustained higher vacancy and flat rents through the
end of 2015.

Toronto
Local Currency:
CAD/sf/yr

5.0

7.0

8.8

52.15

50.66

51.34

49.87

49.35

47.94

0

0

1,600

1,600

280

Local Measure:
sf

Vancouver
Local Currency:
CAD/sf/yr

5.3

7.7

10.5

52.28

50.78

51.79

50.31

50.50

49.05

20

20

1,137

1,137

1,200

Local Measure:
sf

LATIN AMERICA
Buenos Aires
Local Currency:
US$/sqm/mo

8

8.5

8.5

26.25

29.28

25.98

28.97

25.79

28.77

129

1,388

73

791

30

Local Measure:
sqm

Mexico City
Local Currency:
US$/sqm/mo

11.9

16.7

16.9

28.70

32.01

29.21

32.58

29.64

33.06

309

3,325

292

3,142

0

Local Measure:
sqm

1,586

Vacancy rates are forecast to increase 4 percentage
points through 2015. Larger expansion decisions are
expected to be put off in the the short term due to
uncertainties about the upcoming election cycle.
Preparations for both the 2014 World Cup and the
upcoming 2016 Olympic games are driving a robust
development pipeline.

1,356

GDP is expected to grow over 11% by the end of
2015 making Chile one of the strongest economies
in South America. Asking rents will increase 7.5%
between 2013 and 2015 driven by new construction
and increased demand.

Rio de Janeiro
Local Currency:
R$/sqm/mo

17.6

20.2

21.7

131.39

60.46

134.97

62.11

137.56

63.30

80

859

158

1,705

147

Local Measure:
sqm

Santiago
Local Currency:
US$/sqm/mo
Local Measure:
sqm

9

2.7

2.2

0.9

24.15

26.93

25.11

28.00

25.96

28.95

100

1,076

132

1,420

126

GLOBAL OFFICE
FORECAST
2014-2015


CBD CLASS A
VACANCY
2013
(%)

2014
(%)

2015
(%)

CBD CLASS A
RENTS
2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

CLASS A
NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
SF

Local
Measure

COMMENTARY

2015
SF

Local
Measure

SF

LATIN AMERICA
São Paulo
Local Currency:
R$/sqm/mo
Local Measure:
sqm

17.5

21.3

23.8

129.99

59.82

134.15

61.73

139.62

64.25

451

4,854

462

4,968

528

5,681

New construction flooding the market through
2015 will push up vacancy rates in the near term.
Asking rents will also jump as these higher priced
new buildings come online. However, longer term,
rents will flatten as slower demand for space forces
landlords to adjust in order to compete against the
increased number of tenant opportunities in the area.

10

DECEMBER 2013


ASIA PACIFIC: STILL SOLID GROWTH

GROWING SLOWLY BUT SURELY
The Asia Pacific region will continue to be an engine for
world economic recovery next year, but will move to a
lower growth path. Regional real GDP is projected to
expand by 5.0-5.3% in 2014-2015, down slightly from
5.4-5.5% in 2012-2013. Prospects will vary, with relatively
solid growth in Japan, an incipient recovery in most
export-oriented economies, and weakening in some
major emerging markets.
“Abenomics” will continue to underpin the economic
upswing in Japan; an additional stimulus package will be
rolled out to cushion the impact of the sales-tax rise,
though the long-awaited “third arrow” is a prerequisite to
put its economy on a more durable growth trajectory over
the long term. This relatively upbeat assessment for Japan,
along with the steady improvement in the U.S. and Europe,
should gradually benefit export-oriented economies led by
Singapore and South Korea.
Growth in most ASEAN economies is set to return to
its potential on the back of solid domestic demand. For
the Philippines, preliminary estimates expect the damage
from super typhoon Haiyan to shave off at least 1.0% from
its output in 2014. Nonetheless, other economic centers
that account for a larger share of its GDP, and were left
unscathed by the typhoon, should continue their positive
momentum. In Australia, economic strength will hinge on
domestic consumption and export volumes to mitigate the
shortfall from mining investment.
11

Meanwhile, major emerging markets will continue to
decelerate. Together, the downward adjustments for
the three large economies of China, India and Indonesia
explain the growth slowdown in the region. China’s
slower growth and relatively weak domestic demand will
possibly necessitate looser financial conditions for many
economies, even with policy normalization by the U.S.
Federal Reserve. Fortunately, inflation should generally
remain within central banks’ comfort zones against a
backdrop of moderate growth and benign outlook for
global commodity prices, and that should allow space for
policy easing, if necessary.

The changing growth dynamics have brought new risks
to the forefront. First, the Fed taper over the coming
year would create spillover effects, with capital outflows
likely to intensify and reduce liquidity and, in turn, restrain
economic growth in some economies.
Second, given current insufficient fiscal and structural
reforms across the region, there is a risk of stagnation
or deterioration in domestic fundamentals that could
have adverse effects. Lastly, the elections in India and
Indonesia slated for 2014 could have ramifications on the
coordination of economic policy.

25.0%


Sigrid Zialcita
Managing Director,
Research, Asia Pacific

Jakarta

20.0%

15.0%

10.0%

Hong Kong
Sydney
Beijing
Brisbane
Melbourne

0.0%

-5.0%
-5.0%

Singapore

Tokyo

5.0%

0.0%

5.0%

Manila

Bangkok
Pune
Chennai
Seoul
Bengaluru
Taipei
Perth
Hyderabad
Shanghai
Mumbai
Ho Chi Minh
Kuala Lumpur
Delhi NCR
10.0%

15.0%

20.0%

25.0%


Shenzen
Guangzhou

Chengdu
30.0%

35.0%

GLOBAL OFFICE
FORECAST
2014-2015


CAUTIOUS LEASING ACTIVITY
More subdued growth in the region would cause leasing
conditions to remain less buoyant over the next year.
Specifically, absorption gains are expected to dip modestly
from 2013, as leasing in most markets will continue to
be undermined by the lack of strong demand catalysts.
However, new construction remains robust particularly in
emerging markets within China and India, and the regional
construction pipeline of nearly 400 msf will remain the
highest globally.
Notably, grade A stock is set to grow by 10-15% by 2015.
While overall occupancies will vary across the region,
rents are still expected to advance annually by 1-2%, on
average, through 2015. Considering further the continued
rent increases in most markets since 2009, and the
prevalence of high rents, occupiers will be more focused
on space efficiency and cost containment. Notably, most
markets are expected to achieve positive rental reversions
once again. Occupiers with three-year leases up for
renewal in 2014 will likely see average rent increases
of 3-5% in core cities and 9-11% for emerging markets
relative to 2011. For 2015, the positive rent reversion
trend is expected to persist, with increases in core cities
set to accelerate to 6-8%, but more moderate increases in
emerging markets of 2-4%.

POSITIVE INVESTOR SENTIMENT
Conditions across most of Asia continue to be favorable
for investors. Macro trends, including the emerging policy
direction in China, influence on liquidity of “Abenomics,”
elections in Indonesia and India and Australia’s
consumption trends will be closely watched as they stand
to impact sentiment. At the property level, rental growth
rates in the core and core-plus space will continue to

drive allocations. We expect rental growth rates to
accelerate in a number of core and emerging locations led
by Tokyo and Manila, where supply risks are limited, upon
the resumption of stronger economic growth over the
medium term. In emerging markets, China is now seen
as presenting value again and acute equity financing gaps
in India and Vietnam will continue to offer compelling
opportunities. Additionally, the incremental allocation to
Asian real estate strategies from large money managers,
defined benefit pension plans, insurance companies and
endowments from North America and Europe will further
strengthen in the years ahead. 2014 promises to be another
solid year in terms of investment volumes for Asia.

2015 Rents
Look Up
For 2015, the positive rent reversion trend
is expected to persist, with increases in
core cities set to accelerate to 6-8%, but
more moderate increases in emerging
markets of 2-4%.

Hong Kong
Brisbane
Bangkok
Tokyo
Beijing
Kuala Lumpur
Seoul
Singapore
Taipei
Chennai
Melbourne
Sydney
Manila
Perth
Bengaluru
Shanghai
Mumbai
Pune
Delhi NCR
Hyderabad
Jakarta
Guangzhou
Shenzhen
Ho Chi Minh
Chengdu
0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%


12

DECEMBER 2013


ASIA PACIFIC: OFFICE MARKET FORECAST 2013-2015
CBD CLASS A
VACANCY
2013
(%)

2014
(%)

2015
(%)

CBD CLASS A
RENTS
2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

CLASS A
NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
Local
Measure

SF

COMMENTARY

2015
Local
Measure

SF

SF

SOUTHEAST ASIA/PACIFIC
Singapore
Local Currency:
SGD/sf/mo

5.5

4.2

9.67

93.42

10.07

97.29

10.50

101.44

808

808

720

720

801

801

4.4

4.2

2.0

937.75

24.24

959.85

24.81

1,054.19

27.24

476

5,126

560

6,023

112

1,210

Demand from BPO operations remains healthy and
vacancies are expected to remain low despite a steady
flow of supply over the next two years. Rents are on
the rise.

21.0

20.5

20.6

8.35

31.61

8.15

30.85

8.00

30.28

681

681

1,596

1,596

1,988

1,988

With high vacancies and excess supply under
construction, developers have slowed down or
deferred the completion of the office projects. Lower
occupancy and rent levels are expected going forward.
Higher supply is expected over the next two years;
absorption, while healthy, will lag with vacancy
increasing towards 2015. Rental rates, however, are
still expected to grow but at a much slower pace
than 2013.

Local Measure:
sf

Manila
Local Currency:
PHP/sqm/mo
Local Measure:
sqm

Kuala Lumpur
Local Currency:
MYR/sf/mo
Local Measure:
sf

Jakarta
Local Currency:
RP/sqm/mo

8.3

11.0

15.3

462,241

45.48

531,612

52.30

584,773

57.54

189

2,032

362

3,897

570

6,132

13.0

20.0

26.0

46.00

51.28

46.00

51.28

46.00

51.28

23

252

55

592

49

527

11.2

11.5

8.3

776.55

27.86

789.40

28.32

801.50

28.75

0

0

45

479

0

0

Limited grade A supply, construction delays in noncore locations and stable absorption will reduce
vacancy and increase CBD rents over the next
two years.

10.0

8.8

5.8

655.00

58.86

660.00

59.31

670.00

60.21

19

200

0

0

0

0

With state government cutbacks now behind us, it
is expected that vacancy has peaked. While demand
remains low, a lack of new construction may limit the
pressure on vacancy rates.

Local Measure:
sqm

Ho Chi Minh
City
Local Currency:
US$/sqm/mo
Local Measure:
sqm

Bangkok
Local Currency:
THB/sqm/mo
Local Measure:
sqm

Brisbane
Local Currency:
AUD/sqm/yr
Local Measure:
sqm

13

Absorption to remain positive due to firm economic
and property fundamentals. Tightening vacancies and
limited supply to allow moderate increases in rents.

6.2

Rents reached a bottom in 2013 and are expected to
remain relatively stable in 2014. Shortage of larger
spaces likely to continue next year and we expect the
impact of new supply on rent to be marginal in 2015.

GLOBAL OFFICE
FORECAST
2014-2015


CBD CLASS A
VACANCY
2013
(%)

2014
(%)

2015
(%)

CBD CLASS A
RENTS
2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

CLASS A
NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
Local
Measure

SF

COMMENTARY

2015
Local
Measure

SF

SF

SOUTHEAST ASIA/PACIFIC
Melbourne
Local Currency:
AUD/sqm/yr

9.6

10.3

10.5

625.00

56.16

620.00

55.72

610.00

54.82

152

1,635

67

721

103

1,113

An increase in building completions over the coming
years will maintain upward pressure on vacancy rates.
With only a moderate increase in office demand, it can
be assumed that vacancy will continue to climb.

6.6

9.2

13.9

810.00

72.79

810.00

72.79

800.00

71.89

0

0

34

361

106

1,141

The downturn in the resources sector has not had as
great an impact as expected, with a lack of speculative
development helping to keep the lid on vacancy rates.

11.4

12.0

15.2

875.00

78.63

875.00

78.63

860.00

77.28

50

539

48

519

225

2,416

With much of upcoming new developments precommitted, a sizeable amount of backfill space will
enter the market over the next 2-3 years. Attractive
rents and flexible lease terms should continue.

7,637

Limited supply is likely to reduce vacancy in 2014
whereas a large volume of new supply will increase
availabilities in 2015. Strong demand and healthy
leasing activity should support steady rental growth
over next two years.

Local Measure:
sqm

Perth
Local Currency:
AUD/sqm/yr
Local Measure:
sqm

Sydney
Local Currency:
AUD/sqm/yr
Local Measure:
sqm

NORTHEAST ASIA
Guangzhou
Local Currency:
RMB/sqm/mo

18.0

9.0

14.0

283.62

51.90

299.24

54.76

307.87

56.34

810

8,718

185

1,988

710

Local Measure:
sqm

Hong Kong
Local Currency:
HK$/sf/mo

7.0

6.6

5.7

105.51

163.37

105.77

163.77

115.63

179.05

0

0

95

95

172

172

Local Measure:
sf

Shanghai
Local Currency:
RMB/sqm/mo

5.5

5.5

7.5

459.88

84.15

464.68

85.03

453.48

82.98

492

5,298

483

5,202

783

8,427

With the establishment of Shanghai Free Trade
Zone, office demand is likely to grow in emerging
submarkets and the decentralizing trend will gain
momentum. Rentals may record a modest growth in
2014 given a lack of new supply.

2,939

The rise of emerging submarkets due to
decentralization and other office property types, as
well as the slowdown of macro-economic growth
will influence the core-area office demand and rental
growth. The decentralizing trend will be on the rise.

Local Measure:
sqm

Beijing
Local Currency:
RMB/sqm/mo
Local Measure:
sqm

6.4

7.6

7.3

556.46

101.82

558.62

102.22

559.93

102.46

225

2,421

261

2,809

273

Banks in Greater Central, and large occupiers in
general, will continue to focus on cost containment,
but overall demand will slowly improve due to more
stable economic conditions. Rents have stabilized and
will likely experience flat growth in 2014.

14

DECEMBER 2013


CBD CLASS A
VACANCY
2013
(%)

CBD CLASS A
RENTS
2013

2014

CLASS A
NEW SUPPLY (000s)
2015

2013

2014

COMMENTARY

2015

2014
(%)

2015
(%)

12.6

11.7

16.4

333.09

60.95

348.72

63.81

349.42

63.94

486

5,231

324

3,483

251

2,706

Moderate supply and demand growth should keep
rents elevated in 2014. However, the pre-leasing of
large-scale upcoming space could hinder rental growth
in 2015 despite healthy leasing activity.

36.8

33.2

40.2

170.76

31.25

170.91

31.27

158.79

29.06

468

5,040

341

3,666

1,025

11,031

Demand would balance new space in 2014 and stabilize
rents at current levels. However, a steady stream
of supply will cause rents to fall sharply in 2015 and
beyond.

Local
Currency

US$/
SF/YR

Local
Currency

US$/
SF/YR

Local
Currency

US$/
SF/YR

Local
Measure

Local
Measure

SF

SF

Local
Measure

SF

NORTHEAST ASIA
Shenzhen
Local Currency:
RMB/sqm/mo
Local Measure:
sqm

Chengdu
Local Currency:
RMB/sqm/mo
Local Measure:
sqm

Tokyo
Local Currency:
JPY/tsubo/mo

3.8

3.1

2.5

25,500

87.62

28,000

96.21

30,000

103.08

113

4,031

136

4,826

165

5,883

Demand is set to grow gradually following the
economic recovery and absorb vacancies. Accordingly,
vacancy rates are anticipated to trend downward over
the next 4 years, helped by a moderate level of new
constructions, and rents are expected to rise.

14.6

12.9

10.9

37,810

39.68

38,245

40.14

38,878

40.80

373

4,012

140

1,502

137

1,474

New supply will boost vacancies in CBD during 2014.
Given the market conditions, occupiers will actively
review more efficient relocation options, thereby
keeping transaction activity stable.

11.6

12.0

15.7

4,890

56.09

4,890

56.09

4,890

56.09

0

0

9

303

26

919

Moderate demand and new supply in Xinyi Planned
Area will impact vacancies. Upcoming space in
Nankang submarket at much lower rents is likely to be
a barrier for rental growth in 2014-15.

14.5

14.2

12.0

58.19

11.35

57.71

11.26

60.42

11.79

9,135

9,135

6,932

6,932

5,498

5,498

Vacancy levels are expected to decline starting in 2014
due to limited supply and healthy demand. Rental rates
in most locations are set to see a gradual uptrend over
the next two years.

3,250

Supply will exceed demand thereby increasing
vacancies in 2014. Availability of large-sized space
options in the Madhapur submarket will help to keep
the leasing momentum healthy. Rents are likely to
remain stable.

Local Measure:
tsubo

Seoul
Local Currency:
KRW/sqm/mo
Local Measure:
sqm

Taipei
Local Currency:
NT$/ping/mo
Local Measure:
ping

INDIA*
Bengaluru
Local Currency:
INR/sf/mo
Local Measure:
sf

Hyderabad
Local Currency:
INR/sf/mo
Local Measure:
sf

12.6

17.4

16.2

47.67

9.30

47.70

9.31

47.72

9.31

1,868

1,868

4,560

4,560

3,250

* RENTS ARE NOT CONFINED TO THE CBD IN INDIA DUE TO A MORE DIVERSE OFFICE MARKET. HOWEVER, PROPERTIES CHOSEN TO BENCHMARK RENTS ARE COMPARABLE TO THOSE FOUND IN THE REGION’S CBDs.

15

GLOBAL OFFICE
FORECAST
2014-2015


CBD CLASS A
VACANCY
2013
(%)

2014
(%)

2015
(%)

CBD CLASS A
RENTS
2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

CLASS A
NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
SF

Local
Measure

COMMENTARY

2015
SF

Local
Measure

SF

INDIA*
Delhi NCR
Local Currency:
INR/sf/mo

29.0

31.4

30.9

82.02

16.00

74.85

14.60

70.77

13.81

8,396

8,396

7,800

7,800

6,457

6,457

Rents will increase marginally in the CBD due to
lack of supply and scarcity of space. High demand
and increasing rents are likely in Gurgaon CBD.
Oversupply will impact rents in Gurgaon and Noida
non-core locations in 2014-15.

1,139

Relocations from CBD to BKC and Lower Parel may
gain momentum with increasing availabilities at lower
rents due to a rise in supply. Vacancy in non-core
markets such as Andheri and Malad are expected
to decline, with low supply and healthy absorption
pushing rentals upward in 2014 and beyond.

Local Measure:
sf

Mumbai
Local Currency:
INR/sf/mo

18.7

25.6

25.8

295.36

57.63

284.55

55.52

279.63

54.56

150

150

1,500

1,500

1,139

Local Measure:
sf

Chennai
Local Currency:
INR/sf/mo

15.1

13.3

11.3

54.29

10.59

54.62

10.66

54.74

10.68

3,663

3,663

666

666

950

950

Local Measure:
sf

Pune
Local Currency:
INR/sf/mo
Local Measure:
sf

23.2

21.4

18.2

57.17

11.16

56.12

10.95

56.96

11.11

4,066

4,066

3,180

3,180

2,998

2,998

High vacancy and availability of better-quality IT
space in suburban locations like Guindy, Perangudi
and Taramani should keep CBD rents in check.
Limited supply, healthy absorption and rising rents are
expected in non-core locations in 2014.
Moderate demand, high vacancy and an increased
preference for suburban markets with lower rentals
could pressure core areas. Healthy demand is
expected in non-core markets and rents are likely to
remain stable.

* RENTS ARE NOT CONFINED TO THE CBD IN INDIA DUE TO A MORE DIVERSE OFFICE MARKET. HOWEVER, PROPERTIES CHOSEN TO BENCHMARK RENTS ARE COMPARABLE TO THOSE FOUND IN THE REGION’S CBDs.

16

DECEMBER 2013


EMEA: POSITIVE SIGNS
David Hutchings
Partner, Head of the European
Research Group

market, as well as for those ready to take risks and restart
development and refurbishment. Investors are very much
focused on core markets, but as opportunities reduce for
well-priced quality stock they are pushing their geographic
boundaries and looking at the ‘best-of-the-rest’ in second
tier cities and markets.

will however remain differentiated city by city not just
country by country. Occupiers have a clear preference for
quality space at the expense of secondary, and many are
encountering supply constraints in some cities, particularly
those seeking larger floor plates. This is pushing some
to move sooner than expected to secure deals on the
decreasing amount of quality space that is available.

SOME CLEAR WINNERS

Major international cities such as London, Stockholm
and Frankfurt have led in this recovery, but others are
now joining in, including some that had been in what
was Europe’s distressed fringe. Dublin, for example, has

A BRIGHTER, IF STILL MIXED FUTURE

At an aggregated level, following an increase in
completions this year, 2014 will also see more activity. This
will be reflected in the vacancy rate, which is anticipated to
rise in 2014 before declining as development completions
plateau and demand firms, potentially taking vacancy down
to its lowest since 2008.
The decline in completions is linked to both the lagged
impact of the eurozone crisis and the ongoing shortage
of financing for speculative projects. For occupiers, this
will exacerbate the shortage of modern stock already
evident within the profile of availability – delivering an
ongoing two-tier market with limited prime supply and
an abundant choice of second-tier space. For investors,
this suggests areas of opportunity away from the grade A
17

Returning confidence will help to reignite the leasing
market, as more occupiers are ready to act to improve
or grow their business, not just save costs. The market

14.0%


Marked improvements in Europe’s economy have been
seen this year with the eurozone officially emerging from
recession and confidence rising in both consumer and
business sectors. While this is clearly positive, downside
risks are still very much in the picture. Growth is expected
to be slow overall and remain very mixed country by
country. Indeed, while the action of the European Central
Bank has been critical in underpinning confidence in the
region as a whole, austerity measures continue to weigh
on individual markets, making risks more local in nature.
Hence, as some of the core markets of Europe gain
momentum, the slow recovery in other areas continues to
subdue occupier demand for property.

12.0%

No markets
fall between
17% and 30%

10.0%
8.0%
London
6.0%
Budapest
Frankfurt
Luxembourg

4.0%
2.0%
Stockholm
0.0%
Brussels
-2.0%

-3.0%

Dublin

Munich

Istanbul
Moscow

Madrid
Zurich Amsterdam
Lisbon
Barcelona
Paris
Milan
Prague

0.0%

3.0%

6.0%

Bucharest

Warsaw
9.0%

12.0%

15.0%


33.0%

36.0%

GLOBAL OFFICE
FORECAST
2014-2015


bounced strongly and with no new construction underway
and more stringent planning procedures coming, doubledigit rental growth is anticipated.
More widely, a modest rise in speculative development
is anticipated from late 2014 onwards as investors and
lenders take on more risk. Pre-letting will be attractive
and markets with expanding demand pipelines, such as
London, could lead the development cycle. In key German
and Nordic cities, the recovery has been supply-led but
more companies are also now looking to increase their
operational footprint as economic growth improves.
To the east, the story is the same with star performers
Moscow and Istanbul where rental growth is anticipated
on the back of limited quality supply and improving
demand. In Istanbul, new submarkets are emerging due
to infrastructure developments.

OTHERS STILL WAIT FOR TAKEOFF
Thanks to the depth and duration of the downturn,
manifested in high levels of unemployment, concerns
over income levels and tight credit conditions, a number
of cities are blighted by an oversupply that will take
time to absorb and, in markets such as Rome, Lisbon
and Barcelona, occupiers can choose from a plethora of
options. To the east, new development in Warsaw and
Prague should attract more occupiers but here and in
other markets such as Bucharest and Budapest, conditions
will continue to favor tenants, with landlords offering
attractive incentives, including rent free periods even on
short leases and capital contributions, in order to attract
and hold tenants in situ. However, even in these markets,
occupiers are moving to take more favored space off the

market at the expense of lower quality and less efficient
office accommodation – some of which is converted
into alternative uses such as hotels or more commonly
residential. In time, this will limit quality supply and exert
mild upward pressure on rents as early as next year even
in some markets where vacancy is still high, such as Milan,
Madrid and Amsterdam.

Occupiers
have a clear preference for quality space
at the expense of secondary, and many
are encountering supply constraints in
some cities, particularly those seeking
larger floor plates.

Dublin
Madrid
Stockholm
London
Lisbon
Barcelona
Milan
Amsterdam
Zurich
Munich
Brussels
Paris
Budapest
Frankfurt
Luxembourg
Prague
Warsaw
Bucharest
Moscow
Istanbul
0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%


18

DECEMBER 2013


EMEA: MAJOR OFFICE MARKETS FORECAST
OVERALL
VACANCY
2013
(%)

2014
(%)

CLASS A /
PRIME RENTS

2015
(%)

2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
Local
Measure

SF

COMMENTARY

2015
Local
Measure

SF

SF

WESTERN EUROPE
Amsterdam
Local Currency:
€/sqm/yr

14.5

13.9

13.8

360.00

45.74

365.00

46.37

365.00

46.37

59

636

67

721

0

0

Minimal economic growth and austerity measures are
intrinsic to office market performance. A drive for
efficiency and consolidation, in particular from public
bodies, is seeing excess space released and vacancy
rates stabilise at best as construction slows.

595

Total availability is high, but grade A vacancy is
low with space absorbed as occupiers upgrade in a
pressurized rental market. Positive growth will follow
as limited speculative completions decrease further
with developers reluctant to commit in the absence
of pre-lets.

431

An improving macroeconomic environment provides
the backdrop for a better performance in the office
market from 2014. The choice of quality supply levels
are relatively low, with rising numbers converted
buildings, which is supporting positive rental growth as
incentives are gradually withdrawn.

161

Recovery is on its way in the Irish office market
alongside a more robust economic performance.
Quality space is in demand as companies upgrade or
expand their accommodation. Availability is falling and
there are constraints for those seeking large amounts
of contiguous space.

1,254

Structural oversupply challenges exist, however
quality space is still being absorbed with relative ease,
bolstered by solid economic fundamentals that are
supporting positive rental growth. Net addition to
stock is being offset by new completions as stock
withdrawals continue.
Tough economic conditions were particularly
pronounced for the financial and business service
sector which shed employment negatively impacting
on rents. As demand improves in 2015 and
competition intensifies for high quality space, which is
limited, a rental recovery should follow.

Local Measure:
sqm

Barcelona
Local Currency:
€/sqm/mo

13.5

14.0

13.1

17.50

26.68

17.75

27.06

18.00

27.44

46

497

9

99

55

Local Measure:
sqm

Brussels
Local Currency:
€/sqm/yr

10.0

10.0

9.7

275.00

34.94

275.00

34.94

280.00

35.57

281

3,029

30

323

40

Local Measure:
sqm

Dublin
Local Currency:
€/sqm/yr

17.8

15.5

11.9

339.00

43.07

390.00

49.55

431.00

54.76

0

0

0

0

15

Local Measure:
sqm

Frankfurt
Local Currency:
€/sqm/mo

12.3

11.8

12.1

37.00

56.41

37.50

57.17

39.00

59.46

195

2,103

252

2,713

117

Local Measure:
sqm

Lisbon
Local Currency:
€/sqm/mo

12.3

11.8

10.1

18.50

28.21

18.00

27.44

18.50

28.21

41

436

37

394

8

87

6.6

6.8

6.3

110.00

177.75

120.00

193.91

127.50

206.03

3,075

3,075

6,433

6,433

2,456

2,456

Local Measure:
sqm

London
Local Currency:
£/sf/yr
Local Measure:
sf

Occupier activity strengthens as the risk appetite to
take decisions grows in anticipation of a dearth of
future supply, increasing rental values amid a steadily
more positive economic scenario.


19

GLOBAL OFFICE
FORECAST
2014-2015


OVERALL
VACANCY
2013
(%)

2014
(%)

CLASS A /
PRIME RENTS

2015
(%)

2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
SF

Local
Measure

COMMENTARY

2015
SF

Local
Measure

SF

WESTERN EUROPE
Luxembourg
Local Currency:
€/sqm/mo

5.6

5.1

5.0

43.00

65.56

44.00

67.08

45.00

68.61

64

693

106

1,139

74

791

Local Measure:
sqm

Madrid
Local Currency:
€/sqm/mo

11.8

10.9

9.5

24.50

37.35

25.00

38.12

25.50

38.88

81

868

70

753

0

0

Local Measure:
sqm

15.1

14.5

13.3

475.00

60.35

465.00

59.08

480.00

60.99

47

506

70

755

74

792

1,138

Healthy fundamentals will support good growth going
forward. Strong take-up levels, held back by supply
shortages especially for large floorplates, will outstrip
the amount of new speculative supply coming to the
market. In turn rents at the top end will rise.

7,361

Persistent fiscal pressures, an uncertain business
environment and high unemployment have slowed
occupier activity, and rents declined in 2013. A revival
of activity in 2014-2015 is expected as limited new
completions are due in Paris proper and demand
continues to erode excess space.

Local Measure:
sqm

Munich
Local Currency:
€/sqm/mo

7.1

7.1

5.6

32.00

48.79

32.50

49.55

34.00

51.84

161

1,734

189

2,030

106

Local Measure:
sqm

Paris
Local Currency:
€/sqm/yr

8.0

7.7

7.4

810.00

102.91

810.00

102.91

820.00

104.18

642

6,909

496

5,341

684

Local Measure:
sqm

Stockholm
Local Currency:
SKr/sqm/yr

8.9

9.7

11.0

4,650

67.48

4,700

68.20

4,800

69.65

20

215

56

606

88

947

The strong performance of the economy will continue.
As unemployment trends downwards and the financial
and business service sector grows, vacancy for quality
stock will fall as rents increase linked to companies
increasing their real estate footprints.

431

Companies move to new developments as they
consolidate and reduce costs in what is still a
pressurized rental market. As supply gradually
reduces expansion plans are reactivated in late 2014,
underpinned by a stronger economy, vacancies may
reduce, followed by potential rental rises.

Local Measure:
sqm

Zurich
Local Currency:
SFr/sqm/yr
Local Measure:
sqm

4.7

4.9

4.8

760.00

78.30

760.00

78.30

760.00

78.30

32

340

56

597

40

Secondhand space continues to be released by tenants
who are downsizing and/or upgrading their workplaces
in a weak tenant market with muted rental growth.
Any improvements are not expected until late 2014 at
the earliest when some positive growth is likely.
The ongoing weak economy is underpinning a
market characterized by strategic relocations and
renegotiations of existing contracts as occupiers look
for more efficient space. Landlords are increasingly
flexible offering rent-free periods and capital
incentives. Conditions will persist through 2014, with
improvements in 2015.

Milan
Local Currency:
€/sqm/yr

A healthy financial and banking sector is imperative
to office sector performance. Rising demand and
restricted speculative development results in erosion
of grade A space that will support rental growth.
Central areas will reap long term benefits from
approved transport projects.

20

DECEMBER 2013


OVERALL
VACANCY
2013
(%)

2014
(%)

CLASS A /
PRIME RENTS

2015
(%)

2013
Local
Currency

2014
US$/
SF/YR

Local
Currency

NEW SUPPLY (000s)
2015

US$/
SF/YR

Local
Currency

2013
US$/
SF/YR

Local
Measure

2014
SF

Local
Measure

COMMENTARY

2015
SF

Local
Measure

SF

CENTRAL AND EASTERN EUROPE
Bucharest
Local Currency:
€/sqm/mo

13.5

14.7

14.0

19.00

28.97

19.00

28.97

19.50

29.73

123

1,328

147

1,585

100

1,076

As domestic conditions recover and unemployment
continues to decline, office market fundamentals will
also improve. However, this is from a low base and
despite less speculative construction and more robust
demand, rental rises are unlikely before late 2015.

254

Hungary is still working through the after effects of
its recession and despite an improving financial and
business services sector, unemployment is stubbornly
high. However, occupier activity is improving and
'control' is firmly with tenants as landlords compete
for deals in an oversupplied market.

Local Measure:
sqm

Budapest
Local Currency:
€/sqm/mo

17.9

16.4

15.8

21.00

32.02

21.00

32.02

22.00

33.54

61

661

45

487

24

Local Measure:
sqm

Istanbul
Local Currency:
US$/sqm/mo

8.4

7.7

6.3

45.00

50.17

45.50

50.72

47.00

52.40

300

3,229

937

10,082

640

6,887

Rental growth may be restrained short-term as
supply surges ahead with the emergence of new
submarkets. 2014 will see the situation rectify itself
as requirements are satisfied and demand for quality
stock, which the city severely lacks, increases.

7,834

Despite an upward tick in overall vacancy in 2014,
a strong and improving economy will see occupier
activity gain further traction, and increased
competition from tenants for quality space and rents
will come under sustained upward pressure over the
next 18-24 months.

1,615

With a plethora of choice for occupiers, the market
continues to be tenant-led. Due to huge current
construction the vacancy rate will increase in spite of
strengthening demand, putting additional pressure on
incentives and rents.

2,570

Pressure on real estate fundamentals may ease
temporarily, but there is a danger that with a large
amount of speculative space due to complete in 2014
any improvements in employment will not be able to
offset rental declines before a more robust 2015.

Local Measure:
sqm

Moscow
Local Currency:
US$/sqm/yr

13.3

16.1

12.9

1,200

111.48

1,225

113.81

1,250

116.13

1,169

12,580

900

9,688

728

Local Measure:
sqm

Prague
Local Currency:
€/sqm/mo

14.2

15.0

16.2

20.50

31.26

20.00

30.49

20.00

30.49

88

947

170

1,830

150

Local Measure:
sqm

Warsaw
Local Currency:
€/sqm/mo
Local Measure:
sqm

21

11.5

12.0

11.5

25.50

38.88

25.00

38.12

25.50

38.88

321

3,459

224

2,408

239

GLOBAL OFFICE
FORECAST
2014-2015

Cushman Wakefield is known as a global industry knowledge leader. Through the delivery of timely, accurate, high-quality research reports on the leading trends,
markets around the world, forecasts and business issues, we aim to assist our clients in making property decisions that meet their objectives and enhance their
competitive position. Cushman Wakefield also provides customized studies to meet the specific information needs of owners, occupiers and investors.

Published by Cushman Wakefield Research

CONTRIBUTORS
AMERICAS
Maria T. Sicola
Executive Managing Director,
Research Americas
San Francisco, CA
Lic. # 00616335
T +1 (415) 773-3542
E maria.sicola@cushwake.com
Elle Saling
Project Manager, Research
Los Angeles, CA
Lic. # 00616335
T +1 (818) 634 2598
E elle.saling@cushwake.com

EUROPE

ASIA PACIFIC

Paula F. Munger
Managing Director, Research
Mid-Atlantic / Southeast
Tysons Corner, VA
T +1 (703) 847 2785
E paula.munger@cushwake.com

David Hutchings
Partner, Head of the European
Research Group
London, UK
T +44 (0) 20 7152 5029
E david.hutchings@eur.cushwake.com

Alex Milojevic
Senior Research Consultant,
European Research
London, UK
T +44 (0) 20 7152 5936
E alex.milojevic@eur.cushwake.com

Sigrid Zialcita
Managing Director, Research
Asia Pacific
Singapore
T +(65) 6232 0875
E sigrid.zialcita@ap.cushwake.com

Robert C. Miller, III
Director of Research,
Capital Markets / Forecasting
San Francisco, CA
Lic. # 00616335
T +1 (415) 773 3561
E rob.miller@cushwake.com

Joanna Tano
Director, European Research
London, UK
T +44 (0) 20 7152 5944
E joanna.tano@eur.cushwake.com

Neil McLocklin
Partner, Global Business Consulting
EMEA
London, UK
T +44 (0) 77 1547 5135
E neil.mclocklin@eur.cushwake.com

Lai Wyai Kay
Senior Manager, Research Services
Asia Pacific
T +(65) 6232 0864
E wyaikay.lai@ap.cushwake.com
Nagaraj Kapil Kanala
Senior Manager, Research Services
Hyderabad, India
T +(91) 40 4040 5531
E kapil.kanala@ap.cushwake.com

Cushman Wakefield is the world’s largest privately held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position
in the world’s major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and management assignments. Founded in 1917, it has approximately 250 offices in 60 countries, employing more
than 16,000 employees. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property
management, facilities management, project management, consulting and appraisal. The firm has more than $3.7 billion in assets under management globally. A recognized leader in local and global real estate research, the firm publishes its
market information and studies online at www.cushmanwakefield.com/knowledge.

© 2013 Cushman Wakefield, Inc. All rights reserved.

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