Office leasing activity has been remarkably stable during the first half of 2017, with global volumes virtually unchanged on the same period of 2016. Western Europe, where employment prospects and corporate sentiment have improved, has taken the lead in driving growth in leasing activity during 2017. Activity has also strengthened in China’s Tier 1 Cities, Southern Europe and South East Asia, while there were signs of improvement in the UK market.
For the full-year 2017, we expect global leasing volumes to remain stable, matching the levels recorded in 2016. Volumes are anticipated to be slightly higher than in 2016 in the United States, stable in Europe and slightly lower in Asia Pacific.
Leasing activity edges ahead in Europe and the United States
After a strong first quarter, robust occupier demand pushed office take-up in the first half of the year 8% higher in Western Europe. Germany has seen volumes increase further from the record levels of 2016, while the Netherlands also posted strong leasing market activity. Volumes in London during the first half are 11% higher than a year ago, with take-up in the serviced office sector rising in response to increasing requirements for flexible space.
Following a slow start to the year, the U.S. office market rebounded during the second quarter on the back of sustained tenant demand, consistent economic fundamentals and a raft of new supply coming to the market. Seattle and Dallas have accounted for the majority of occupancy growth so far this year while secondary markets such as Austin, Raleigh-Durham and Denver have also made further strides. By contrast, absorption has been negative in certain key markets including Silicon Valley and San Francisco.
Leasing activity declined marginally by 2% in Asia Pacific in the first half of the year, indicating stable leasing demand across the region. Delhi has continued to be the regional leader for leasing volumes, while Bengaluru, Manila and Guangzhou have also seen strong leasing activity so far in 2017. However, sluggish tenant demand has impacted leasing activity in Seoul and Taipei.
Global office vacancy rate expected to rise, but Europe bucks the trend
The global office vacancy rate is stable at 11.9%, where it has remained for much of the past year. Nonetheless, supply is expected to trend upwards during the rest of 2017, with both the Americas and Asia Pacific already seeing an uptick in vacancy in Q2. By contrast, Europe has witnessed a further fall in vacancy and it is likely to stay below 8% for the rest of 2017.
Rental growth surprises on the upside
Rental growth has quickened in recent months, with annual growth for prime offices across 26 major markets accelerating to 3.4% (from 2.7% in Q4 2016). We have upgraded overall growth forecasts for 2017 to 3%, with Sydney, Stockholm and Brussels projected to top the global ranks for rental growth for the full year.