Are real estate markets reconnecting?

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Colin Dyer, JLL President and CEO, and LinkedIn Influencer, on why leasing and investment markets are reconnecting across the world 

The below post was originally shared on LinkedIn by Colin Dyer.

Dyer, ColinA year ago, I wrote about the disconnect between commercial real estate investment and office leasing markets around the world, as investment sales surged while leasing volumes remained stalled. But I also said, “The good news is that there’s good reason for greater optimism next year…Business and consumer confidence should improve, and strong corporate balance sheets will support new capital expenditures.”

That, in fact, has been the case in 2014. Big corporate tenants were struggling with low revenue growth last year. That made them cautious, and many postponed occupancy decisions to focus on cost cutting and productivity measures. Today they are demonstrating greater confidence, and with it, greater willingness to spend and implement longer-term real estate strategies. As of mid-2014, global office net absorption was up 15 percent on the year before. Investment volumes increased 21 percent during the same period.

Why the new life on leasing?

Prior to 2014, only the technology and energy sectors showed signs of life. Now, we’re also seeing growth in the financial and consumer products sectors.

In the United States, office absorption is at its strongest level in the current cycle, demonstrated by a return of large leasing deals from companies like Blackstone, Salesforce, LinkedIn and Ericsson.

Across Europe, the scale is more balanced between investors and corporates as well. London is leading the recovery in office leasing activity in Europe, where office space under offer is at its highest since 2007. This demand is boosted by a resurgent financial sector, with recent deals from ING, Mizuho and China Construction Bank.

Asia Pacific mid-year leasing volumes were up by 20 percent over this time last year, while regional investment volumes have plateaued. Major players in the technology sector, including Google, Twitter and LinkedIn, are leasing space in the region. In many cases, these tech companies are backfilling space put back into the market by the financial sector. Tokyo and Seoul are witnessing strengthening occupier demand, but Manila is the region’s stand-out market with a growing number of outsourcing entrants to the Philippines.

The investment and leasing separation still divides several markets, however, most notably Australia and Canada, where national real estate outlook is skewed. Near-record investment volumes are counterbalanced by weak occupational markets. Australia, for example, has recorded negative net absorption across its central markets in five out of the past six quarters.

We’ve witnessed just how much can change in a year’s time, and while we can’t predict the future, we can look at real estate market trends for the year for a clear sense on what’s to come. While leasing volumes are steadily recovering and occupier sentiment is notably improved, we haven’t seen a substantial breakthrough in demand. Annual volumes won’t likely exceed 5 percent more than 2013. But, stronger economic growth, improving business performance and elevated M&A activity all point to a healthier leasing market in 2015.

Market momentum will tip the sector scales, but a year ahead looks good for both investor and leasing markets in most parts of the world.

Explore Colin Dyer’s LinkedIn profile for the above post and further insights about corporate real estate, business management and the global economy.