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February 2020 Global Market Perspective JLL Global Research
Investor and Occupier Markets at Different Speeds
Leasing demand trends lower as investment volumes set new record
Easing economic growth is feeding through to real estate market activity, with investment and
occupier markets now moving at different speeds. Momentum in global leasing has moderated
slightly from the peak levels set in 2018, while investment volumes have registered a new record.
Office leasing demand remains healthy, but a further slowing is forecast this year, while a peaking
supply cycle will gradually push up vacancy rates. Logistics continues to be the stand-out sector
with robust leasing activity during 2019, although demand growth is now slowing from previous
levels. Real estate remains attractive relative to other asset classes and investor conviction in the
sector is still strong, with allocations to real estate continuing to rise and capital available for
deployment near all-time highs. Greater caution and selectivity, as well as limited availability of
stock, mean that global investment activity is likely to be marginally lower for the full year.
Global Commercial Real Estate Market Prospects, 2020
Investment Capital values
~1% Higher
-0-5% Lower
Leasing 2020 Rents
-5-10% lower
prospects ~1% Higher
Vacancy rate Development
Rising Peaking
Leasing, vacancy, development, rents and capital values relate to the office sector.
Source: JLL, January 2020
© 2020 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no
representation or warranty is made to the accuracy thereof.Global commercial real estate markets defy expectations to set new record Following a strong third quarter, global investment volumes in the fourth quarter of 2019 grew by 10% from a year earlier to US$245 billion. This brought full-year activity to US$800 billion, up 4% from the elevated levels seen in 2018 and making 2019 the strongest year for commercial real estate on record. As the current real estate cycle enters its eleventh year, the outlook for the sector remains positive. Target allocations to real estate by institutional investors rose for the sixth consecutive year in 2019, with most groups expected to either maintain or increase their allocations in 2020. Investor conviction in the real estate sector is still strong, supported by robust supply and demand fundamentals in many global markets and healthy spreads to risk-free rates. In this environment we forecast global investment in commercial real estate to moderate slightly in 2020, by 0%-5%, to roughly US$780 billion. While investors are still keen to access the sector, continued caution and selectivity, as well as limited availability of product, stand to impact transaction volumes. Global office demand slows amid uncertainty 2018 was the peak for global office leasing volumes, with a slowdown recorded in Asia Pacific and the Americas in 2019. Economic uncertainty created by U.S.-China trade tensions along with political unrest has flowed through to corporate decision-making. Even so, demand remains at solid levels and, in some markets, activity is constrained by a lack of available space. The outlook for 2020 is for a further gradual slowing of demand across all three regions. Global office vacancy rate stabilised in Q4 The global office vacancy rate stabilised at 10.7% in the final quarter of 2019. This is expected to be the turning point of the cycle. Vacancy rates moved down in Europe (-20 bps) but started to move out in the U.S. (+10 bps) and Asia Pacific (+40 bps). Globally, new office deliveries are projected to reach 19.8 million sq m in 2020, the anticipated peak of the cycle. However, the highest level of new completions varies by region – it is predicted to have been 2019 in the U.S., 2020 in Asia Pacific and 2021 in Europe. Given the pick-up in completions, the global office vacancy rate is forecast to edge up to 11.2% in 2020. Annual prime rental growth slows but remains healthy Global prime office annual rental growth slowed to 3.2% in Q4 2019. The stand out performers with double-digit increases were Boston, San Francisco and Toronto. However, several markets are now recording falling rents including Dubai, Shanghai, Hong Kong and Jakarta. Aggregate rental growth for prime offices across the 30 global cities is likely to stay positive in 2020 but ease further to around 0.9% as supply options increase. Toronto, San Francisco, Boston, Amsterdam and Berlin are projected to be the top rental performers in 2020 with Beijing and Hong Kong expected to be the weakest. © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Rental Growth for Prime Offices, 2010-2020
10
8.4%
8
7.1%
Rental change (y-o-y %)
6
4.2%
3.9%
4 3.4%
3.3% 3.0% 3.2%
2.9%
2.4%
2
0.9%
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F
Unweighted average of 30 markets
Source: JLL, January 2020
Retail moves towards a mixed-use future
Retail’s ongoing structural transformation is leading landlords to focus on repositioning retail
centres from shopping-only properties to hybrid centres that also provide experiences and
services. While this includes pure entertainment offerings such as restaurants, movie theatres and
gyms, it also encapsulates the provision of working and living space via conversion to mixed-use.
In the U.S., net absorption in the final quarter of 2019 increased from levels recorded earlier in the
year but was still 10% lower than in 2018. Construction remains limited, which has helped to keep
the national vacancy rate stable and rents generally flat. Rents have also stayed broadly steady in
Europe, with increases in some Central and Eastern European markets offsetting declines in
several Western European cities. Retailers continue to be cautious about expansion strategies in
Asia Pacific given the challenging environment, leading to longer lease negotiations in some
markets and lacklustre rental growth.
Growth in online retail shifts demand to urban logistics
Global logistics markets continued to see robust albeit slowing demand in 2019, fuelled by further
e-commerce growth and efforts by traditional retailers to shift towards omni-channel distribution
models. Much of this new demand is concentrated on urban and last-mile delivery as companies
race to get closer to the consumer, which is leading to greater densification, the renovation of
brownfield sites and the construction of new types of facilities, such as multi-storey warehouses, in
several markets.
In the U.S. the national vacancy rate increased marginally in the fourth quarter, but net absorption
continues to largely offset rising supply levels. Coupled with new speculative projects
commanding high rents, this contributed to the strongest rental growth in three years over 2019.
Development activity is also at a record high in Europe, although limited speculative construction
and healthy demand have kept rents rising. In Asia Pacific, leasing demand remains positive but
slowing, with mixed rental growth across the region.
© 2020 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no
representation or warranty is made to the accuracy thereof.Hotel transaction volumes register a minor decrease in 2019 Global hotel transaction activity registered a slowdown of 6% during 2019, with volumes totalling US$67 billion. Following a notable softening in 2018, transaction levels in EMEA in 2019 were largely unchanged, while the pace of the U.S. market eased due to a drop in portfolio and entity- level deals. Asia Pacific posted double-digit growth in transaction volumes in 2019, with activity coming close to the robust levels of 2017. U.S. multi-housing market remains robust The U.S. multi-housing market remained strong throughout 2019. The national vacancy rate stayed near 4% during the year, reflecting robust net absorption that continues to outpace relatively elevated levels of new completions. That sets the stage for asking rents to continue growing in 2020, with ongoing demand for housing but new completions restrained by rising construction costs and a limited construction labour force. Investment activity in the European institutional residential market continued to be robust in 2019, although a lack of completed stock constrained activity in some markets. Germany bucked the trend as portfolio rebalancing, following regulatory uncertainty around rent controls, contributed to above-average volumes as more assets came to market. Meanwhile, a lack of available stock in the Netherlands reduced transaction activity despite strong investor demand. Although uncertainty in the UK meant volumes slowed from the record levels of 2018, the number of homes either completed or in the pipeline continued to rise. Rent control regulation came into effect in a number of European markets during 2019. Although this has yet to significantly undermine the investment case for residential, it does introduce a new layer of risk and has had a direct impact on values for some investors in these markets In Asia Pacific, buying activity held up in most markets despite broader economic uncertainty and holiday season effects, while mixed leasing demand and competition between developers of newly completed projects impacted price growth across the region. © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
The full Global Market Perspective report is only available to our clients. To find out how we can support your global real estate market strategy with research insights and strategic advice, please contact one of the members of the global research team. Carol Hodgson Matthew McAuley Senior Director Director Global Research Global Research Carol.Hodgson@eu.jll.com Matthew.Mcauley@eu.jll.com Ben Breslau James Brown Chief Research Officer, Americas Chief Research Officer, EMEA Benjamin.Breslau@am.jll.com James.Brown@eu.jll.com Roddy Allan Chief Research Officer, Asia Pacific Roddy.Allan@ap.jll.com About JLL About JLL Research JLL (NYSE: JLL) is a leading professional services firm that JLL’s research team delivers intelligence, analysis and specializes in real estate and investment management. Our insight through market-leading reports and services vision is to reimagine the world of real estate, creating that illuminate today’s commercial real estate dynamics rewarding opportunities and amazing spaces where people and identify tomorrow’s challenges and opportunities. can achieve their ambitions. In doing so, we will build a Our more than 500 global research professionals track better tomorrow for our clients, our people and our and analyse economic and property trends and forecast communities. JLL is a Fortune 500 company with annual future conditions in over 60 countries, producing revenue of $16.3 billion, operations in over 80 countries and unrivalled local and global perspectives. Our research a global workforce of nearly 92,000 as of June 30, 2019. JLL is and expertise, fuelled by real-time information and the brand name, and a registered trademark, of Jones Lang innovative thinking around the world, creates a LaSalle Incorporated. For further information, visit competitive advantage for our clients and drives www.jll.com. successful strategies and optimal real estate decisions. COPYRIGHT © JONES LANG LASALLE IP, INC. 2020. All Rights Reserved 6
Visit our dedicated Global Market Perspective website to explore market performance data and to learn more about recent investment and leasing transactions with our data visualisation toolkit: http://gmp.jll.com/gmp Our Offices Chicago London Singapore 200 East Randolph Street 30 Warwick St 9 Raffles Place Chicago London #39-00 Republic Plaza IL 60601 W1B 5NH Singapore 048619 +1 312 782 5800 +44 (0)20 3147 6040 +65 6220 3888 © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
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