Hints of Hope as Rents Continue Worldwide Slide
LONDON-Hints of increasing demand here and in the US have prompted investment sales and generated a consensus that a weak recovery will produce at least slim office job growth.
By Bob Howard | December 07, 2009 at 11:21 AM
LONDON-Hints of increasing demand for office space here and in the US have prompted some European investment sales and generated a consensus that a weak recovery will produce at least slim office job growth. Those are some of the conclusions from leading commercial real estate services firms in recent weeks, as office rents continue their worldwide slide and market observers continue to wonder when the recovery will arrive.
Demand in the office sector "is coming from a broad range of investors including UK funds," according to a new report from Cushman & Wakefield, which says that investors "have been buoyed by a firming in sentiment among tenants in the UK's main office markets as many look to take new space before rents rise again and incentives fall." London's West End office rents are the highest in the world, according to a recent report from CB Richard Ellis, which also notes that the year-over-year change in prime office occupancy costs of the 179 markets monitored by CBRE revealed an average drop of 7.7% worldwide over the 12-month period ending Sept. 30.
London's West End rate was $185 per square foot per year, with Moscow second in Europe at $132 per square foot in the recent CBRE report. Tokyo's Inner Central district has slipped to second place worldwide at $171.64, followed by that city's Outer Central market at $139.09. Hong Kong's Central Business District at $137.61 and Moscow are fourth and fifth worldwide respectively in the CBRE report.
The reports by CBRE and others present a mixed bag for the office market. Despite the high numbers reflected in the top rental rates worldwide, the trend has been downward for office rents for some time. On the other hand, the analyses today are showing some hope for an economic recovery that could ultimately lead to job growth that could ultimately increase demand for space.
Many economic indicators are showing positive signs, notes a recent report from CBRE Econometric Advisors, which points out that, "GDP turned the corner in Q3 2009 for many economies, including both Japan and the US." The office market "may be on the cusp of moving from intensive care to the stabilization stage–the first step to getting back to good health," says Raymond Torto of CBRE Econometric Advisors, the chief economist for CBRE.
Cushman & Wakefield's managing director of research services, Ken McCarthy, sounds a similar theme. McCarthy points out that the latest employment report by the US Labor Department shows the economy is finally signaling a recovery. "Most critically for the office property market, employment in office-using industries–including financial, professional business services and information–increased by 59,000 jobs in November, the third consecutive monthly increase following upward revisions in September and October," McCarthy explains. He cites a general consensus that the recovery will produce weak job growth, in line with that of 1991 and 2002. But there is also "a strong argument for healthy job growth tied to the need for businesses that cut employment levels significantly to now hire more quickly to meet rising demand," McCarthy says.