The global outlook for the sector remains positive, according to JLL. 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.
Carol Hodgson, senior director, global research at JLL explains:
“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.”
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 US-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. JLL’s outlook for 2020 is for a further gradual slowing of demand across all three regions. 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 US, 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. Global prime office annual rental growth slowed to 3.2% in Q4 2019. The standout 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.
Carol Hodgson added:
“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.”