Strong leasing conditions continue across the globe. At 11.3 million square metres (across 96 markets), Q2 2018 saw the highest second-quarter leasing levels since our global records began in 2007, up 15% on a year ago. Positive second-quarter results put the global leasing market on track for another strong year, with 2018 volumes likely to at least match last year’s impressive tally.
Asia Pacific saw an impressive 45% year-on-year rise in leasing activity in Q2 2018, with overall leasing volumes reaching 2 million square metres for the first time. Manila, Bengaluru, Delhi and Hong Kong were among the markets seeing the strongest growth. Across the region, flexible space operators remain a key source of demand.
Europe recorded its strongest second quarter on record, boosted by a 33% year-on-year increase in Central and Eastern Europe. Occupier activity in London continues to be healthy, the Paris market shows no signs of slowing, and the anticipated slowdown in Germany continues to be avoided, with Munich and Dusseldorf showing healthy growth.
Take-up in the U.S. picked up following a sleepy first quarter. Driven by the tech, finance and co-working sectors and a resurgence in large leases in New York and San Francisco, net absorption has reached almost 12 million square feet in the first half of 2018. At the current pace, full-year 2018 leasing is expected to be one-third lower than 2017, with further slowdown anticipated in 2019.
Despite high levels of new deliveries, vigorous occupier demand pushed the global office vacancy rate to a new cyclical low of 11.5% in Q2 2018. Rates fell by 30 bps in both Europe and Asia Pacific to 6.7% and 10.6% respectively, but remained unchanged in the Americas at 14.8%.
With the global office development cycle expected to deliver 17.8 million square metres this year, the global vacancy rate is predicted to edge higher to just under 12% by the end of the year.
Rental growth for prime offices across 30 major markets is steady at 3.6%, with annual rental growth keeping within the 3%-4% range since the beginning of 2017. Singapore, Berlin, Sydney, Milan and Madrid have all recorded double-digit rental growth year-on-year.
For the full year, rental growth is expected to be steady at 3.4%, with top performances likely to be in Singapore, Sydney, Toronto and Sao Paulo. A handful of markets are likely to see rental corrections across 2018, notably Jakarta and Mexico City.
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