Global office demand is proving resilient in many of the world’s dominant commercial real estate markets despite increased political and economic uncertainty, new research has found.

Although corporate occupiers may be striking a more cautious tone office supply continues to tighten on the back of a shallow development cycle, resulting in continued upward momentum in aggregate rental growth, according to the latest analysis report from JLL.

It shows that rents on prime office assets across the 110 major markets covered by the JLL Global Office Index increased by 3.6% year on year in the second quarter of 2016, the fastest pace of annual growth in four years. Quarter on quarter rents rose by 0.8% compared to 0.6% in the first quarter of the year.

However, economic uncertainty and continued political risks are likely to dampen leasing volume growth over the remainder of the year, with global leasing volumes in 2016 projected to be around 5% lower than 2015.

Nonetheless, the real estate services firm says that underlying market fundamentals are sound and corporate demand is holding up well, notably in the United States and continental Europe and supply constraints will continue to drive rental increases, although at a reduced pace. JLL forecasts prime rental growth of around 2% to 3% for the full year in 2016.

Asia Pacific

A regional breakdown shows that Asia Pacific quarterly rental growth was 0.6% and 2.7% year on year in the second quarter, consistent with the 0.6% quarterly and 3.1% yearly growth in the first quarter.

Tech and finance continued to drive regional demand, while offshoring and outsourcing together with ITES bolstered demand selectively in India and parts of Southeast Asia. But a large upcoming supply volume contributed to an only marginal quarterly uplift in Tokyo of 0.4% despite strong leasing and very low vacancy.

The report also says that vacancy pressure and cost saving strategies saw Shanghai’s rental growth moderate to 0.9% while growth of 2.3% in Hong Kong was propped up by demand from mainland Chinese banks, while the leasing market improved in Seoul with growth of 2% with landlords cutting back incentives despite weakness in the broader South Korean economy.

Rents declined in most of the key Southeast Asian markets with only Manila with growth of 3.4%, where offshoring and outsourcing demand remains robust, registering a quarterly rental increase. Ongoing cutbacks in the energy and resources sectors saw rents fall in Jakarta by 2.8% quarter on quarter and Kuala Lumpur was down by 0.7%.

Banking consolidation and supply pressure led to rents decreasing in Singapore by 3.3% while ongoing tech demand and lack of space resulted in Bengaluru with growth of 4.8% achieving the region’s strongest quarterly rental uplift.

Conditions in Australia remain mixed, with traditional occupier groups such as finance and professional services contributing to strong annual rental growth in Sydney of 17.1% year on year and in Melbourne growth of 1.9%. At the same time, a slumping resources sector and high vacancy once more put downward pressure on rents in Brisbane which fell by 3.5% and in Perth where they plummeted by 20.1%.


In Europe office leasing volumes were down 3% year on year. However, the 2.9 million square metres of office space transacted in e second quarter was well ahead of the 10 year average. Excluding the UK, European take-up grew by 4% year on year which JLL says is a clear sign of the upbeat sentiment on the continent.

However, it also points out that leasing activity in London has clearly been affected in the run-up to and following the European Union referendum, while general sentiment elsewhere in European leasing markets is one of ‘business as usual’ with levels of activity similar to recent quarters.

The European Office Index rose by 1.5% quarter on quarter, the strongest increase in five years, bringing aggregate annual growth to 4.3%. Of the 39 Index markets, 10 have registered quarterly rental increases, up from nine in the first quarter, while only Zurich will a fall of 1.3% and Istanbul with fall of 4.4% have seen a decrease in rents.

Stockholm has been the region’s star performer, with a spike in demand boosting quarterly rental growth to 9.4%. In Paris 3.4% growth quarter on quarter was helped by limited new supply and more robust take-up pushed up prime rents for the fourth consecutive quarter.

Berlin with growth of 6.3% led the German cities, where demand continues to be well ahead of the long term average. In Southern Europe the momentum in the market recovery has continued in Milan, up 2%, while Barcelona up 3.7% and Madrid up 0.9% have maintained their solid run.

Following the EU referendum, headline rents have so far remained unchanged in London on a quarterly basis. The report suggests that rent free periods may soften as occupiers look to negotiate more flexible terms with greater lease flexibility. However, existing requirements are largely continuing as planned with very few deals being withdrawn and deals at the current prime rent recorded in recent weeks.


The Americas Office Index accelerated in the second quarter with prime office rents in the region rising by 0.6%, up from 0.2% in the first quarter. But the report points out that this remains a slower pace of growth than that experienced in the second half of 2015, with growth in some of the previously fastest surging markets, such as those throughout the San Francisco Bay Area, decelerating from unsustainable levels seen earlier in the cycle.

The report says that the cyclical expansion, especially in the US market, remains firmly in place as landlords in the vast majority of cities enjoy market leverage over tenants and this is expected to continue to be the case into 2017.

The Americas Office Index has now gained 20.1% since the cyclical trough in early 2010 and the new record level as of the second quarter of 2016 is 3.6% higher than the previous cycle’s peak in 2008.

The report explains that there are some signs of a shift in leadership as far as cities and drivers of rental outperformance within the Americas. Technology hotspots are still performing very well, as these are generally some of the tightest office markets in the region. Even so, the rate of growth in recent years has in many cases been unsustainable and, in particular, a renewed focus by tech firm investors on profitability has slowed growth in space expansion within the industry.

Meanwhile, top performers for the quarter include a diverse group such as Dallas up 8% quarter on quarter, Montreal up 6.3%, Philadelphia up 3.3%, Los Angeles up 3% and Charlotte up 2.8%.

More secondary cities and markets that are highly diversified are playing strong roles in the market’s expansion, and this is a critical development that will keep national US rents growing for the next several quarters, the report points out.

However, it also points out that significant challenges persist in some of the region’s markets, with a deep recession in Brazil and considerable new supply additions prompting continuing declines in prime rents in Rio de Janeiro which fell by 9.1% quarter on quarter and Sao Paulo with a decline of 1.6%.

Meanwhile soft energy prices, in addition to heavy supply, have been the culprit in Calgary with a fall of 7.6%, Denver down 2.4% and Houston down 1.2%. The report says that both of these US cities have witnessed substantial increases in sublease space on the market as energy firms downsize.

‘These challenges are not likely to dissipate appreciably in the second half of 2016 and, as such, several of these markets, and potentially a few others, for instance those with very active development pipelines in Latin America, may continue to see declining prime rents in the quarters ahead.


The Middle East and North Africa (MENA) index was unchanged over the quarter, with an annual increase of 11.3%, down slightly from 11.9% in the first quarter of 2016. Demand remains strong for limited Grade A space with little interest in secondary locations, creating a two tiered market.

Dubai is the top regional performer on an annual basis with growth of 20% with declining vacancy in the Dubai International Financial Centre (DIFC) boosting rental values. The performance of the DIFC was not, however, representative of the wider market, the report says, where relatively high vacancy rates and upcoming supply have constrained rental growth.

Cairo with growth of 16.7% also has also witnessed robust annual rental growth, driven by relocations to higher quality space in more convenient locations while rents elsewhere in the region have been stable.

The report predicts that the pace of rental growth is set to slow in the second half of 2016. ‘The world’s dominant commercial real estate markets have, so far, weathered the political and economic storms of 2016 comparatively well. While some markets are struggling to maintain forward momentum, many have remained remarkably robust and in some cases are still expanding. Nonetheless, weaker business sentiment, economic uncertainty and continued political risks are expected to dampen leasing volume growth for the rest of 2016,’ it says.

The firm’s latest projection for the full year indicates that global volumes will be about 5% lower than the cyclical peak of 40.9 million square metres in 2015. The current development cycle, likely to peak in 2017, is proving shallower than previous cycles and the global office vacancy rate is forecast to remain stable at historically low levels over the remainder of the year.

‘Supply constraints will continue to boost rents for prime space in most of the world’s major office markets, although there are signs that aggregate rental growth is beginning to soften and the pace is predicted to slow to around 2% to 3% for the full year,’ it adds.

Office leasing volumes in Asia Pacific were down 4% in the first half of 2016 over the same period a year earlier, and growth of 0% to 5% is now anticipated in 2016, reflecting the delayed impact of stock market volatility at the beginning of the year and uncertainty regarding the slowdown in China.

‘A vigorous performance in the first half of the year supports our view that Sydney will record the strongest rental growth in Asia Pacific in 2016. Large supply pipelines and regional economic uncertainty are expected to lead to slower regional rental growth in the second half of 2016,’ the report predicts.

In Europe, the current leasing volumes forecast of 11.1 million square metres for the whole of 2016 represents a 5% to 10% decrease on 2015. However, on the back of the robust activity in the first half of the year, there is some upside potential for take-up forecast if the current acceleration of occupier activity is maintained, the report says.

A period of steady rental increases for prime European offices is projected, with rental growth of 2.5% to 3% in Western Europe set to outperform the 10 year average over the next few years. But in London, rental growth is predicted to move into negative territory during the second half of the year, but low vacancy coupled with an increasingly diverse occupier base should prevent a substantial fall in rents. Stockholm and Madrid are expected to be the region’s high performers over 2016.

The report points out that with the US economy regaining its footing following a relatively soft beginning to 2016, solid employment growth, the shift in national composition of rental growth away from energy and tech-dominated markets towards more diversified primary markets and a greater number of secondary markets is expected to continue into 2017.