At a macro level, global prime rents stabilized in Q2. However, with varying degrees of economic recovery, there is a wider distribution of regional markets across the different positions on the tracker. Rents in some Asia Pacific markets are still falling, while markets showing the greatest improvement include some in Germany, as well as Taipei, Seoul and Boston. In general, occupiers continue to target high-quality assets in prime locations, which likely will widen the gradient between prime and secondary rents.
In Asia-Pacific, the recovery of office leasing demand gathered pace in Q2, with leasing volumes improving for the fourth consecutive quarter. Availability of prime office space and lower rents spurred a steady flow of flight-to-quality and relocation activity, although some deals also involved downsizing. China, Japan and Seoul all saw robust leasing activity but India saw less volume for a second consecutive quarter as occupiers postponed leasing decisions amid widespread delays to office reoccupation. While most deals signed this quarter were relatively small, there were signs of a return to expansions. However, with a relatively high volume of new Class A construction completions, 60% of which is scheduled in H2 2021, APAC’s overall office vacancy rate is expected to increase and average rent fall in coming quarters. Singapore, Auckland, Seoul and Taipei likely will be the exceptions to this trend.
In EMEA, although leasing activity is still well below normal, Q2 marked another quarter in which volume surpassed the trough levels of mid-2020. Leasing activity increased by 29% compared with the same quarter last year, with an uptick in occupiers securing flexible office space. Vacancy rates continue to rise in many markets, but by smaller increments and with less occupier choice in core, central districts. Under these conditions, prime rents mostly held firm or rose slightly in Q2, with notable increases in Vienna, Stockholm and the West End of London. Although many EMEA markets are at or close to the top of their rent cycle, demand recovery could lengthen the runway for further rent growth.
In the Americas, most markets saw the decline in prime rents decelerate to some degree in Q2. In the U.S., overall net absorption remained negative, but not by as much as in the previous three quarters, mainly due to a 34% increase in leasing activity. The primary markets of Los Angeles, New York and Washington, D.C. have experienced the largest declines in asking rents year-over-year due to rising vacancy. Other markets like Atlanta and Dallas are proving to be relatively resilient to vacancy increases and are expected to recover more quickly because of their high-growth, lower-cost dynamics. Boston has bucked the negative trends of established coastal markets due to its strong foothold in the life sciences industry, which has driven significant leasing activity for the past two quarters. The moderating deterioration of overall office metrics is further evidence of an increase in positive sentiment by occupiers since vaccinations for COVID-19 became readily available earlier this year. This could be constrained in the short term by the emerging COVID-19 delta variant if occupiers begin to delay their return to the office once more, which would in turn could delay leasing decisions.
Prime Rent Change (%) for Select Global Markets, Q2 2021 vs Q2 2020
Source: CBRE Research, Q2 2021.
