Global Office Index - Jones Lang LaSalle

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Global Office Index - Jones Lang LaSalle

GLOBAL OFFICE INDEX

Global Foresight Series 2012

Global Office Index Q3 2012

Rental Growth Slows Further


Rental Index (Q1 2000 = 100)

2 Global Office Index, Q3 2012

Jones Lang LaSalle Global Office Index Q3 2012

Rental Growth Slows Further

Jones Lang LaSalle’s Global Office Index tracks the rental

performance of prime office space across 90 major markets in the

Americas, Asia Pacific and Europe. This fifth edition indicates a

deceleration in rental growth, with just over one-third of all monitored

markets registering rental increases during Q3 2012.

Rents for prime office space in the world’s major cities grew by an

average of 0.2% during Q3 2012, down from 0.6% in Q2 2012. On

an annualised basis, prime rents were up 2.0%, the lowest year-onyear

growth in two years.

Asia Pacific’s markets have seen quarterly rental growth moderate

from 1.0% in Q2 to just 0.5% in Q3, largely due to slower rental uplift

in markets such as Shanghai and Beijing, coupled with further

declines in Hong Kong and Singapore and falls in most Australian

markets. As economic headwinds strengthen, the Americas also

saw growth decelerating to 0.6% quarter-on-quarter from the 1.1%

registered in Q2. Given the negative economic backdrop, rents in

Europe corrected by a further 0.4%, the third consecutive quarterly

decline.

Global Office Index – Prime Rents, 2000-2012

210

200

190

180

170

160

150

140

130

120

110

100

90

Q1 2000

Q3 2000

Q1 2001

Asia Pacific

Americas

Europe

GLOBAL

Q3 2001

Q1 2002

Q3 2002

Q1 2003

Q3 2003

Q1 2004

Q3 2004

Q1 2005

Across the 90 monitored markets, Jakarta (+34.2% y-o-y) and

Beijing (+31.8%) rank as the strongest performers. A number of

Latin American markets also feature in the ‘top 10’: Mexico City

(+26.3%), São Paulo (+12.5%) and Monterrey (+9.1%). Robust

demand from the technology and commodities sectors continues to

support healthy annual rental growth in a number of markets such

as San Francisco (+18.8%), Silicon Valley (+10.5%), Perth

(+11.7%), Bangalore (+9.4%) and Chennai (+8.3%).

A third of the markets covered by the Index registered rental

declines in Q3, compared with just a quarter of all markets in Q2,

reflecting a range of factors including weak corporate occupier

demand (particularly from the financial sector), oversupply or poor

economic fundamentals. The largest quarterly falls were recorded

in Detroit (-4.5%), Melbourne (-3.1%) and Brisbane (-2.4%). In

Europe, Paris, Milan, Madrid, Utrecht and The Hague all

registered declines of between 1.9% and 2.4%, while in Asia Pacific,

Singapore and Hong Kong experienced decreases of 1.2% and

2.2% respectively. In the Americas, the Canadian markets of

Toronto, Vancouver and Montreal all recorded declines of

between 1.2% and 1.6%.

Asia Pacific – stock weighted average of 27 markets; Americas – stock weighted average of 39 markets; Europe – stock weighted average of 24 markets

Global Index based on GDP weighted average of the three regional indices

Source: Jones Lang LaSalle, October 2012

Q3 2005

Q1 2006

Q3 2006

Q1 2007

Q3 2007

Q1 2008

Q3 2008

Q1 2009

Q3 2009

Q1 2010

Q3 2010

Q1 2011

Q3 2011

Q1 2012

Q3 2012


Slow rental growth in most Asia Pacific markets

Modest rental movements were witnessed across major markets in

Q3 2012, with either lower rental growth than Q2 or fairly small

declines. Most markets saw quarterly uplifts of less than 3% as

landlords took a less aggressive stance on asking rents. Of the 27

featured office markets, 14 saw an increase in net effective rents

while 10 markets recorded decreases and three were static.

Aggregate rental growth across the region averaged 0.5% quarteron-quarter,

slowing from 1.0% in Q2 and below the post-Global

Financial Crisis (GFC) average quarterly growth of 1.4%.

Beijing and Jakarta’s CBDs continued to see the largest quarteron-quarter

rental increases (between 5% and 8%) due to a lack of

quality space. Average rents in the Shanghai CBD remained

largely unchanged, although some landlords in Puxi have lowered

rents slightly due to weak demand. On an annual basis, Beijing and

Jakarta also saw the strongest rental growth across the region (30-

35%).

Rental declines remained moderate in Hong Kong (-2.2%) and

Singapore (-1.2%) as any contraction in space requirements in both

cities has been modest, following cumulative falls of about 13%

since the market peak in late 2011. Effective rents in Tokyo saw a

slight increase (2.3%) for the second straight quarter on the back of

a low vacancy rate. Rents saw further declines in a few other Asian

markets (e.g., Seoul, Ho Chi Minh City) due to subdued tenant

demand or new supply. Average rents in India were flat or saw

marginal growth. Effective rents fell in most Australian cities,

generally by 1 to 2%.

European office market recovery slowing further

The pace of office market recovery in Europe continues to slow and

is likely to pause in the short term. Latest surveys and economic

data indicate that the Eurozone economy is still struggling, despite

some recent encouraging policy developments including the

European Central Bank’s new plan for bond purchases, German

support for the European Stability Mechanism and an increasing

focus on banking integration and regulation. Uncertainty remains

high, however, and concerns about Spain’s debt issue remain

evident alongside a similar apprehension for the situations in

Greece, Italy and Portugal. Governments are continuing to drive

austerity programmes and consequently the European labour

market is not expected to show much recovery in the short term.

Any renewed growth in demand for office space will therefore be

delayed until the anticipated economic recovery filters through to job

growth and expansionary demand.

3 Global Office Index, Q3 2012

Over the quarter, prime office rents continued to soften in

aggregate. The European Office Rent Index showed the third

consecutive quarterly decline (-0.4% q-o-q and -0.5% y-o-y).

Nevertheless, rents increased in Stockholm (+2.3%) and Munich

(+1.7%) based on robust economic performance and a decreasing

availability of high-quality space. Rents fell in Madrid (-2.0%),

Milan (-1.9%) as well as in The Hague (-2.4%) and Utrecht

(-2.3%), where the impact of the Eurozone debt crisis and austerity

measures is weighing down on economic performance and the job

markets. Prime rents also decreased in Paris (-1.9%). All other

Index markets were unchanged on the previous quarter.

Decelerating rental growth in the Americas

The Americas Office Rent Index experienced moderate growth

during Q3 2012 as prime rents increased 0.6% quarter-on-quarter.

This represents further deceleration from the 1.1% q-o-q pace

registered in Q2 and is the slowest quarterly growth since Q1 2011.

Although the Americas Index now stands 8.5% above its post-GFC

trough, the current level remains 6.8% lower than where it peaked

just before the onset of the GFC in 2008.

Although there are still wide variations in performance by each city

within the region’s Rent Index, one notable trend from the Q3 results

is that the outperformers in the U.S. and Canada, mostly the

technology-driven and energy sector markets, have seen rental

growth slowing noticeably from earlier in 2012. Nevertheless, there

still remain pockets of outperformance in the region, particularly in

some of the dominant office centres in Latin America, where active

development pipelines have thus far been met with ongoing resilient

tenant demand.

The strongest prime rental growth in the Americas in Q3 was

recorded in Mexico City and Rio de Janeiro, with quarterly gains of

7.7% and 6.0% respectively. Mexico City’s outperformance was

mainly due to robust demand coupled with some postponement of

near-term deliveries. Meanwhile, rents in Buenos Aires gained

3.1% q-o-q. In North America, many of the best performers in Q3

were again technology and energy-related centres, e.g. Denver

(+3.2%), Seattle (+1.8%), Charlotte (+1.5%) and Austin (+1.2%).

On a year-on-year basis, Mexico City saw the highest growth in the

region of more than 26%, followed by San Francisco (+18.8%),

São Paulo (+12.5%) and Silicon Valley (+10.5%).


4 Global Office Index, Q3 2012

Global Office Index – Prime Rents, 2008-2012

Quarterly Movements

Rental Change (% QoQ)

4.0

2.0

0.0

-2.0

-4.0

-6.0

-8.0

-10.0

Asia Pacific – stock weighted average of 27 markets; Americas – stock weighted average of 39 markets; Europe – stock weighted average of 24 markets.

Global Index based on GDP weighted average of the three regional indices.

Source: Jones Lang LaSalle, October 2012

Outlook for 2013 is still positive

In overall terms, prime rental growth in 2013 is expected to remain

positive, with the bulk of major markets projected to register single-

digit rental growth over the next year. Among the larger markets, it

is anticipated that Beijing and San Francisco will deliver the

strongest rental performance. London, Tokyo, Moscow, Hong

Kong and Sydney are also forecast to register above-average

rental growth (5-10%). Madrid is predicted to experience the

largest rental decline in 2013, while the two main LATAM markets –

São Paulo and Mexico City – are expected to move into negative

territory next year.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012

In Asia Pacific, the office market in general continues to favour

landlords, although corporate occupiers have become increasingly

reluctant to pay high rents. We anticipate limited rental growth in

most markets over the short term, while Hong Kong, Singapore

and a few Australian cities should witness further moderate

declines. On the whole, moderate rental growth is expected in 2013

with rents in Hong Kong and Singapore starting to recover in H2

2013 and the strongest growth likely to be seen in markets such as

Beijing and Jakarta.

Americas Europe

Asia Pacific Global

In Europe, rental growth in aggregate is expected to be flat at best

for the remainder of the year - we forecast a slight 0.4% decline for

the full-year 2012. For 2013, we project aggregate growth returning

(+0.9%), driven by solid performances in the Nordic region, London

as well as Germany and Russia. Rental growth will be supported by

low levels of new supply, while in many markets, the continued

scarcity of high-quality stock in CBD locations should further bolster

prime rental levels. However, more pronounced rental growth is

only expected when economic conditions show sustained recovery.

The Americas Office Rent Index should see growth maintained

through the end of 2012, but it is likely to be at the slower pace

evident in Q3. There is still potential for growth to decelerate a little

further, particularly through early 2013, as the concerns regarding

near-term U.S. fiscal policy will probably spike at the outset of the

new year. Momentum is also likely to ease in some Latin American

cities as new inventory is delivered at the time when sluggish global

and U.S. growth is prompting a temporary pullback in sentiment.

However, by mid-year, short-term worries are likely to have

subsided, and growth should start to pick up in line with generally

improving economic fundamentals.


Methodological Note

5 Global Office Index, Q3 2012

Jones Lang LaSalle’s Global Office Index is derived from the weighted average of the rental movements of Jones Lang

LaSalle’s European, Asia Pacific and American Regional Indexes that cover 90 office markets in total. They are weighted by real

GDP (US dollar basis) for each region from IHS Global Insight. Weights are adjusted every four quarters. The latest weights are

34% - Europe; 30% - Asia Pacific; 36% - Americas.

The European Index is calculated from the change in headline face rents for the highest-quality space in the premier office sub-

market in 24 European cities, weighted on the basis of the total office stock (all grades) in each city’s overall market.

The Asia Pacific Index is calculated from the change in average Grade A rents (net effective) in the main sub-market in 27 Asia

Pacific cities, weighted on the basis of Grade A stock in the main sub-market of each city.

The Americas Index is calculated from the change in average Class A rents (gross asking in North America, triple net in Latin

America) in the CBD, Downtown, central areas or primary investment market of 39 Americas cities, weighted on the basis of Class A

stock (D.C. city for Washington DC; Hudson Waterfront for New Jersey; Palo Alto for Silicon Valley; Midtown for New York; Westside

for Los Angeles; Greenwich Overall and Stamford CBD/Railroad for Fairfield County, South County for San Francisco Peninsula).


6 Global Office Index, Q3 2012

Jones Lang LaSalle Global Office Index

Quarterly Rental Performance across 90 Cities

Quarterly Change - Q3 2012 vs Q2 2012

Global 0.2%

Europe -0.4%

Asia Pacific 0.5%

Americas 0.6%

1 Jakarta 8.1%

2 Mexico City 7.7%

3 Rio de Janeiro 6.0%

4 Beijing 5.1%

5 San Francisco 3.9%

6 Denver 3.2%

7 Buenos Aires 3.1%

8 Bangkok 2.5%

9 Stockholm 2.3%

9 Tokyo 2.3%

11 Bangalore 2.2%

12 São Paulo 2.1%

13 Seattle 1.8%

14 Munich 1.7%

15 Charlotte 1.5%

16 San Francisco Peninsula 1.4%

17 Chennai 1.3%

18 Austin 1.2%

19 San Diego 1.0%

20 Los Angeles 0.9%

21 Wellington 0.7%

22 Kuala Lumpur 0.6%

22 Oakland-East Bay 0.6%

22 Auckland 0.6%

22 New York 0.6%

26 Houston 0.5%

27 Calgary 0.4%

28 Manila 0.3%

29 Taipei 0.2%

29 Shanghai 0.2%

29 Phoenix 0.2%

32 Silicon Valley 0.1%

32 Adelaide 0.1%

32 New Jersey 0.1%

32 Boston 0.1%

32 St. Louis 0.1%

37 Bogota 0.0%

37 Osaka 0.0%

37 Amsterdam 0.0%

37 Barcelona 0.0%

37 Berlin 0.0%

37 Brussels 0.0%

37 Budapest 0.0%

Quarterly Change - Q3 2012 vs Q2 2012

37 Dublin 0.0%

37 Düsseldorf 0.0%

37 Edinburgh 0.0%

37 Frankfurt 0.0%

37 Hamburg 0.0%

37 London 0.0%

37 Luxembourg 0.0%

37 Lyon 0.0%

37 Moscow 0.0%

37 Prague 0.0%

37 Rotterdam 0.0%

37 Warsaw 0.0%

37 Mumbai 0.0%

37 Delhi 0.0%

37 Miami 0.0%

37 Monterrey 0.0%

37 Santiago 0.0%

37 Washington, DC 0.0%

62 Tampa -0.1%

62 Perth 1-0.1%

64 Dallas -0.2%

65 Sydney -0.3%

66 Atlanta -0.4%

66 Philadelphia -0.4%

68 Ho Chi Minh City -0.5%

68 Chicago -0.5%

70 Canberra -0.8%

70 Portland -0.8%

72 Guangzhou -0.9%

73 Seoul -1.0%

74 Toronto -1.2%

74 Singapore -1.2%

74 Vancouver -1.2%

77 Baltimore -1.3%

77 Fairfield County -1.3%

79 Orlando -1.5%

80 Montreal -1.6%

81 Paris -1.9%

81 Milan -1.9%

81 Hanoi -1.9%

84 Madrid -2.0%

85 Hong Kong -2.2%

86 Utrecht -2.3%

87 The Hague -2.4%

87 Brisbane -2.4%

89 Melbourne -3.1%

90 Detroit -4.5%


Annual Rental Performance across 90 Cities

Annual Change - Q3 2012 vs Q3 2011

Global 2.0%

Europe -0.5%

Asia Pacific 2.7%

Americas 3.8%

1 Jakarta 34.2%

2 Beijing 31.8%

3 Mexico City 26.3%

4 San Francisco 18.8%

5 São Paulo 12.5%

6 Perth 11.7%

7 Silicon Valley 10.5%

8 Bangalore 9.4%

9 Monterrey 9.1%

10 Chennai 8.3%

11 Santiago 7.6%

12 Rio de Janeiro 6.7%

13 Tampa 6.6%

13 New Jersey 6.6%

15 Seattle 6.5%

16 Düsseldorf 6.4%

17 Brisbane 6.2%

18 Denver 6.0%

19 Buenos Aires 5.9%

20 San Francisco Peninsula 5.8%

21 Austin 5.6%

22 Luxembourg 5.3%

23 Boston 5.2%

24 Sydney 5.1%

24 Bangkok 5.1%

26 Berlin 4.8%

26 Stockholm 4.8%

28 Shanghai 4.6%

28 New York 4.6%

30 Houston 4.3%

31 Adelaide 4.0%

32 Auckland 3.7%

33 Fairfield County 3.4%

34 Manila 3.3%

35 Vancouver 3.2%

36 Oakland-East Bay 3.0%

37 San Diego 2.7%

38 Portland 2.6%

38 Rotterdam 2.6%

40 Bogota 2.5%

41 Los Angeles 2.4%

42 Tokyo 2.3%

43 Hamburg 2.1%

44 Munich 1.7%

45 Dallas 1.6%

Annual Change - Q3 2012 vs Q3 2011

7 Global Office Index, Q3 2012

46 Taipei 0.7%

47 Calgary 0.5%

47 Mumbai 0.5%

49 Charlotte 0.2%

50 Detroit 0.1%

51 Amsterdam 0.0%

51 Budapest 0.0%

51 Edinburgh 0.0%

51 Frankfurt 0.0%

51 London 0.0%

51 Lyon 0.0%

51 Moscow 0.0%

51 Prague 0.0%

51 Warsaw 0.0%

51 Delhi 0.0%

61 Guangzhou -0.1%

62 Phoenix -0.3%

63 Chicago -0.5%

64 Philadelphia -0.6%

65 Wellington -0.8%

66 St. Louis -0.9%

66 Washington, DC -0.9%

68 Toronto -1.0%

69 Kuala Lumpur -1.5%

69 Orlando -1.5%

69 Seoul -1.5%

72 Montreal -1.7%

73 Milan -1.9%

74 Canberra -2.0%

75 Miami -2.2%

75 Osaka -2.2%

77 Utrecht -2.3%

78 Baltimore -2.4%

79 Paris -3.0%

80 Barcelona -4.0%

81 Atlanta -4.1%

82 The Hague -4.7%

83 Brussels -5.0%

83 Melbourne -5.0%

85 Dublin -6.2%

86 Madrid -6.7%

87 Ho Chi Minh City -10.6%

88 Singapore -12.1%

89 Hong Kong -13.5%

90 Hanoi -16.8%


8 Global Office Index, Q3 2011

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a financial and professional

services firm specialising in real estate. The firm offers

integrated services delivered by expert teams worldwide to

clients seeking increased value by owning, occupying or

investing in real estate. With 2011 global revenue of US$3.6

billion, Jones Lang LaSalle serves clients in 70 countries from

more than 1,000 locations worldwide, including 200 corporate

offices. The firm is an industry leader in property and corporate

facility management services, with a portfolio of approximately

2.1 billion square feet worldwide. LaSalle Investment

Management, the company’s investment management

business, is one of the world’s largest and most diverse in real

estate with more than US$47.7 billion of assets under

management. For further information, please visit our website,

www.joneslanglasalle.com

About Jones Lang LaSalle

Research

Jones Lang LaSalle’s research team delivers intelligence,

analysis and insight through market-leading reports and

services that illuminate today’s commercial real estate dynamics

and identify tomorrow’s challenges and opportunities. Our 350

professional researchers track and analyse economic and

property trends and forecast future conditions in over 70

countries, producing unrivalled local and global perspectives.

Our research and expertise, fuelled by real-time information and

innovative thinking around the world, creates a competitive

advantage for our clients and drives successful strategies and

optimal real estate decisions.

For more information contact:

Contributing Authors:

Dr Jane Murray

Head of Research, Asia Pacific

+ 852 2846 5274

jane.murray@ap.jll.com

Ben Breslau

Managing Director, Americas Research

+ 1 617 531 4233

benjamin.breslau@am.jll.com

Dr Lee Elliott

Head of Research, EMEA

+ 44 (0) 20 3147 1206

lee.elliott@eu.jll.com

Jeremy Kelly

Director, Global Research

+ 44 (0)20 3147 1199

jeremy.kelly@eu.jll.com

Myles Huang

Director, Asia Pacific Research

+ 852 2846 5793

myles.huang@ap.jll.com

Josh Gelormini

Vice President, Americas Research

+ 1 312 228 2060

josh.gelormini@am.jll.com

COPYRIGHT © Jones Lang LaSalle IP, INC. 2012

This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written

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