CBRE Global Office Rent Tracker Q1 2023
Global prime office rent growth slowed in Q1 2023 but remained positive in most markets. Economic uncertainty and occupier downsizings due to hybrid work were significant headwinds to global office space demand. However, strong demand for top-quality spaces continued to buoy prime rents in most markets.
Americas
Average prime rents increased year-over-year in 19 of the 33 major Americas region office markets tracked by CBRE, slightly fewer than the 21 markets that registered growth in Q4. Among those 19 markets, rent growth was evenly split between downtown and suburban markets. Five of the top 10 markets were suburban and the other 5 were downtown markets.
In the Americas, economic uncertainty tied with banking instability and hybrid work-driven occupier downsizings resulted in negative net absorption of 16.5 million sq. ft. in Q1, marking the weakest quarter for office demand in two years. Calgary (+9.1%), Dallas (+8.6%) and Midtown Manhattan (+7.1%) led major markets for year-over-year prime rent growth in Q1. Seattle (-4.0%), San Francisco (-3.7%) and Downtown Manhattan (-2.0%) had the biggest declines.
In Q1 2023, U.S. office leasing activity slowed by 35% year-over-year, to 34.2 million sq. ft. With a moderate recession expected this year and continued adoption of hybrid work, U.S. leasing activity will likely continue falling. Despite this, there will be sustained demand for top-quality space that supports new ways of working.
Europe
Two factors are dominating European office markets in H1 2023:
- Generally weaker leasing demand
- Bifurcation between prime and commodity buildings as occupiers focus on top-quality space. This puts continued upward pressure on prime rents in many markets because top-quality space is scarce.
European office take-up fell 20% year-over-year in Q1, the weakest quarter for European office take-up since mid-2021. Among major markets, take-up fell by 38% in Paris, 39% in Munich, 40% in Warsaw and 42% in Dublin. Only a limited number of cities such as Vienna and Amsterdam had increases. CBRE expects overall European leasing activity in 2023 to decline year-over-year.
Prime rents continued to rise in many cities, but mostly at a slowing rate. Rents are up year-over-year in Paris (4.2%), Milan (7.8%), Amsterdam (5.3%), Dublin (11.2%), Munich (8.3%), Brussels (8%) and London West End (12%), among others.
CBRE continues to expect slower rent growth in almost all European markets this year as leasing activity declines.
Asia-Pacific
Occupiers remained prudent about office space decisions in Q1 2023. Growing economic uncertainty and the Chinese New Year holidays prompted Asia-Pacific office occupiers to delay major decisions. Although flight-to-quality was a key trend, most deals involved consolidation and downsizing.
Demand recovery in mainland China has been weaker than expected due to seasonal effect and still affected by numerous lease expires, but the market logged an increase in site inspections in March.
Office leasing activity in Japan increased, with its strongest quarterly leasing volume since 2016. This was due to upgrading demand, requiring occupiers to lease alternative space as their headquarters undergo redevelopment.
There has been limited impact on regional office leasing from recent banking sector instability, primarily because most office space demand in Asia-Pacific markets originates from domestic banks.
Rents in several Asia Pacific office markets underperformed but downward pressure is diminishing. Grade A rents remained weak in Greater China, as landlords offered more competitive leasing deals to fill space. In Melbourne, incentive levels rose as vacancies increased in Q1, causing effective rents to fall by 2% quarter-over-quarter.
Upbeat markets included Seoul, Sydney and Perth, with Seoul’s full year rental growth likely to reach to low double digits.
CBRE expects an uptick in leasing volume for Asia-Pacific markets in H2 2023. Full-year gross leasing volume is forecast to decline slightly from last year due to Greater China’s weak recovery and a lessening of pent-up demand in India.
Y-o-Y change (%), Q1 2023 vs Q1 2022
Source: CBRE Research, Q1 2023.
