JLL reports a slowdown in office demand going into 2017, but that London has kept its grip despite the UK’s decision to leave the EU.

The latest Global Office Index from real estate investment manager JLL reveals that rental momentum is slowing into 2017, European and US cities dominate the top 10 global office performers, and that London took only a modest hit from Brexit.  

JLL’s Q3 2016 index measures the rental, vacancy and leasing rate of prime office assets across 110 major markets. Its latest report finds that annual global office rental growth fell to 2.9% in Q3 2016, down from 3.4% in Q2. 

However, “Global office demand has remained steady in many of the world’s dominant commercial real estate markets in spite of various political and economic headwinds,” the report said. 

Indeed, similar to Q3 2015, year-on-year rental growth is at 2.9%. JLL predicts it will remain around this level by the year’s end, and slow to around 2% in 2017 after the current development cycle peaks. Hence, a return to the double-digit growth of pre-2008 is still a fantasy. 

Top performers

Four US cities made the global top 10 annual performers. “Broad-based demand across industries and sectors has contributed to diversified markets such as Baltimore and Fairfield County joining technology hubs Oakland-East Bay and Austin among the top 10,” said the report. 

Europe has also shown robust growth, with Stockholm leading the global top 10 both quarterly and annually. Excluding the UK and Moscow, year-on-year growth in Europe reached 5.8%, the highest increase since Q2 2011. 

Berlin is Europe’s second outperformer, reaching 15.2% annual growth. “Berlin has seen a significant [structural change] in the last decade, [becoming] much less reliant on government institutions, with expansionary demand now driven by tech, (new) media, services, education and health occupiers,” Alex Colpaert, head of office research, told fDi.

London weathers Brexit

Contrastingly, London and Moscow witnessed quarter-on-quarter rental falls of 4.2% and 6.3%, respectively. In London, prime West End rents fell by 4.2%, the first rental decline since Q2 2009. However, prime City office rents were stable. “Demand slowed ahead of the EU referendum and has not recovered since [as people continue] to wait and see,” said Mr Colpaert. 

However, given the exaggerated fears surrounding Brexit, Mr Colpaert called its impact “modest”. “Although there is plenty of chatter in Frankfurt, Paris, Amsterdam and Dublin around a potential influx of UK-based companies…the overall sentiment is business as usual,” he said.

This article is sourced from fDi Magazine
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