The majority of core markets are seeing vacancy rates below 7% and will therefore be able to sustain some new development as well as maintain rental values. There are however a few exceptions to this: namely certain second tier Chinese cities and key Australian cities where existing supply plus new construction will put pressure on rental growth.
Beyond Hong Kong's second position in the global ranking, New Delhi's Connaught Place is the next highest placed district in Asia Pacific, followed by Tokyo in third. Beijing maintains a solid fourth place in the regional ranking. Manila recorded the largest increase in occupancy costs in the Asia Pacific region with strong growth in outsourcing and offshoring services expected to sustain office demand going forward.
While growth in China is well beyond that of most other global countries, it is slowing and this is weighing in on domestic demand. Beijing is the highest performing Chinese city, maintaining its fourth place in the regional ranking despite a fall in rents over the year.
The accelerating US economic recovery is quickly propelling the Manhattan office market beyond equilibrium in favor of landlords, resulting in falls in the amount of quality space available which should lead to solid rental increases in 2015.
New York's Manhattan (Midtown: Madison/5th Avenue) secures the top spot in the region, followed by Rio de Janeiro and São Paolo in Brazil. There was no movement in the top three cities in 2014, which are consistent with those seen in 2013.
New York City continued to record healthy employment growth and as it has been throughout the recovery, much of the growth in office-using jobs has been in the technology, advertising, media and information industries.
Occupier activity in New York City was powered by large deals with total take-up reaching a staggering 32.8 million sq ft in 2014 - the highest level in more than 15 years. Activity was bolstered by the return of the 'mega-deal', as 28 new deals in excess of 100,000 sq ft were completed, while robust leasing activity pushed vacancy rates to single digits for first time since July 2012.
Houston is a noteworthy market, given its exposure to the oil sector that has seen barrel prices plummet over the last few months. This did not impact rents in 2014 but the effect is expected to be seen in 2015 as companies take a strategic approach on how quickly the recovery will come and what it will look like. Demand for new office space is expected to slow as is the rate of new construction. However, job growth is expected to take place in Houston but just not at the rate of previous years and the current economic situation is expected to be more of a temporary 'pause' than a 'standstill'.