At 10.5 million square metres (across 96 markets), gross leasing activity during the first quarter has maintained the healthy pace of 2018, with global volumes up 2% on a year ago. For the full-year 2019, global leasing volumes are forecast to be broadly flat on 2018 levels, with some slight softening of activity in Europe and Asia Pacific due to a combination of economic uncertainty and, in some cases, limited supply.
The U.S. office market continued its strong momentum during the first three months of 2019, with gross leasing activity up 6% year-on-year. Tenants are still broadly in expansionary mode, driving 14 million square feet of net absorption in Q1, the second-highest quarterly level of occupancy growth since the beginning of 2017. The ‘big three’ industries of tech, finance and coworking accounted for 44% of all U.S. leasing in Q1, demonstrating their importance to the broader leasing market.
Europe also had a good start to the year, with gross leasing increasing by 6% year-on-year to reach 3.3 million square metres. However, the European total was boosted by particularly robust performances in Brussels and Stockholm. If these two cities are excluded, European office leasing volumes were down 2% from the beginning of 2018. Nonetheless, European net absorption is still around 15% above the 10-year average over the past four quarters, indicating healthy expansionary demand.
Asia Pacific, which was the star leasing performer in 2018, saw its volumes shrink by 20% on the back of economic uncertainty and restricted supply. Demand is still broad-based but financials, professional services firms and tech firms stood out. Flexible space providers continued to expand aggressively during the quarter in some markets, while focusing on improving occupancy and profitability in others, particularly Mainland China.
The global office vacancy rate decreased further in Q1 to 11.1%, the lowest of the current cycle in spite of elevated levels of new deliveries. New deliveries are forecast to peak this year at over 19 million square metres, comparable to levels at the height of the last construction cycle in 2008. With completions projected to be one-third higher than in 2018, the global office vacancy rate is expected to start edging up during the rest of 2019 to finish the year at around 11.5%.
Rental growth for prime office space has remained remarkably consistent over the past 18 months, trending at an annualised average of close to 4% across 30 global cities. Boston, Singapore, Amsterdam and San Francisco top the global rankings with double-digit annual office rental growth. Aggregate rental growth for prime offices is anticipated to stay positive in 2019, although slowing marginally to around 3% as supply options increase.
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