From Colin Dyer
President and CEO
Strong momentum in the world’s major commercial real estate markets points to another good year ahead for the industry. The title of JLL’s current edition of the Global Market Perspective says it all: “Global real estate forges ahead.”
Markets around the world are in better shape than at any time since the Global Financial Crisis. Money continues flowing into real estate investments, and corporate occupiers looking for more, and more modernized, office space – which is causing construction levels to rise.
Those are a few of the top-level conclusions found in the GMP, a quarterly research publication from JLL that examines recent performance, current conditions and future prospects for the world’s leading commercial real estate markets.
Real estate experts across industry sectors and geographies write the GMP to provide a commentary on a range of subjects all one concise document. Want to know the top 20 cities for direct investment in commercial real estate? There’s a chart for that. Looking for trends in retail and industrial real estate around the globe? Or, for the most significant, recent real estate transactions? It’s all in the GMP.
2014 was a very solid year for real estate markets globally, with full-year investment volumes increasing to US$710 billion, up 20 percent from 2013. Our researchers predict that continued high demand will generate volumes this year of between $US740 billion and $US760 billion, matching the record levels of 2007.
With competition increasing for top assets, prices continue to rise and returns are being compressed. This is prompting investors to consider smaller markets and second-tier locations in search of higher returns. Yet even as prices rise and yields compress, assets are not over-priced, and returns on real estate investments still compare favorably to stocks and bonds.
If the story for real estate investments is one of continued momentum, conditions in corporate occupier markets tell a tale of renewed activity; this, following several years in which corporates focused on cost savings. That began to change last year for major corporate tenants who refocused on renewed growth and portfolio restructuring. Leasing volumes increased substantially in most markets as a result. We see this trend continuing in 2015, driven by healthy global economic growth, business expansion and a preference for modern, accessible office space as companies compete for talented employees.
We expect office leasing activity to be more balanced across industry sectors this year. Where technology and energy firms had been the most active occupiers of office space, declining oil prices and peaking rental rates in high-priced tech markets may see other sectors – manufacturing, banking, consumer and healthcare for example – become more prominent space users. And with office rents continuing to increase, and vacancy rates declining, postponing occupancy decisions can become expensive.
There is one potential constraint on increased office leasing volumes: High-quality space is scarce in some markets. That should spur increased development activity and increased confidence among developers. But supply will remain in check in most markets for at least several years, limiting the prospect of over-building.
With improving economic conditions in most markets globally, perhaps the greatest risk to continued momentum has become geopolitical risk: the situation in Russia and Ukraine, for example. But in general, current conditions and near-term trends show global real estate markets off to a strong start with continued upside potential this year.