Commercial Real Estate Shows Steady Global Growth

The increased momentum in global real estate markets we saw last year has continued into 2015, with major markets characterized by optimism and a sense of quiet confidence. Steady, if not spectacular, growth in the global economy is being translated into positive trends for most major real estate markets and sectors around the world.

A detailed look at conditions in commercial real estate markets globally can be found in the latest edition of JLL’s Global Market Perspective.

Strong Investment Markets

Investments in real estate have continued to expand in 2015, even as the strength of the U.S. dollar has camouflaged the extent of this activity. Market transactional volumes rose 9% year on year to US$ 155 billion during the first quarter, a 13% increase in local currencies.

The U.S. was the world’s standout investment market during the quarter, Japan has taken the lead in Asia Pacific early this year, and the UK and Germany have recorded good growth in Europe. Abundant equity capital, plentiful debt, continued low interest rates and increasing institutional allocations to real estate are fueling investment activity. Our researchers expect full-year investment volumes to grow by at least 5%, to US$ 750 billion.

The search for attractive returns is prompting investors to accept increased risk. Beneficiaries include recovering markets in Europe – Spain and Italy, for example – along with India and Vietnam.

Growing Confidence in Office Leasing Markets

Confidence is building in global leasing markets as corporate occupiers in a broad range of industries continue to shift their focus from cost-cutting and “right-sizing” to growth and expansion. Leasing activity was down marginally in the quarter but is projected to increase by up to 5% for the full year, with the greatest growth in Asia Pacific, at 15%.

Corporate tenants are targeting space in major central business districts and other markets whose amenities, density and mix of office inventory make them attractive destinations, particularly for companies competing for talented and increasingly scarce “knowledge workers.”

It is becoming harder to secure prime space in the world’s dominant office markets: New York, London, Hong Kong and Tokyo, for example, which show single-digit vacancy rates. New construction is growing quickly, but supply shortages are expected to persist until at least 2016. Such shortages are prompting landlords to increase rents, which cost-conscious, productivity-minded tenants continue to resist. In the end, steady global growth, new job creation and diverse demand will support further rental rate increases, which we project to be in excess of 4% for the full year across major markets.

Positive Trends in Retail, Warehousing and Hotels

Increasing consumer confidence, and the growing retail sales it inspires, is creating optimism in U.S., European and selected Asia Pacific retail markets. U.S. markets like Miami and New York continue to see the strongest growth. The outlook for retail in recovering European markets, particularly in Spain and Ireland, has improved significantly. And as foreign retailers continue to enter Asia Pacific, and domestic tourism grows in the region, markets like Tokyo, Australia and Southeast Asia are improving.

Warehouse demand is growing throughout the world as consumers demanding quicker service and shorter delivery times spur companies to create distribution facilities and services across multiple geographies and channels. Gateway cities like San Francisco, London, Tokyo and Hong Kong are seeing the fastest growth in warehousing rents as a result.

The hotel investment market got off to a fast start in 2015. Transaction volumes rose by more than 80% in the first quarter, to over US$ 24 billion, or 30% of the full-year’s projected market volumes. Private equity firms and investment funds have been the most active buyers in the hotels sector.

Major Economies Expanding

April GDP forecasts for the world’s major economies have seen January’s projections revised upward for six of eight countries, by 10 to 180 basis points. There has been no change for Japan, and the U.S. received a 40 basis points downgrade, largely due to a slow first quarter and to the expected impact of the strong U.S. dollar on exports.

In our own business, we have strong new business pipelines across service lines, and, wherever I travel, I see confidence and optimism among both our clients and my JLL colleagues.

This combination of global economic growth overall and continued momentum in real estate markets around the world makes a strong case for continued robust activity and performance for commercial real estate throughout 2015.