TORONTO, August 16, 2018 /PRNewswire/ --
Avison Young releases its Mid-Year 2018 North America and Europe Office Market Report
New approaches from technology companies and co-working providers across North America and Europe are challenging occupiers' and landlords' office-space accommodation strategies, forcing players in more established sectors to adjust how they think about the size, physical form and operational function of their premises. This transformation continues to encourage new development, which is racing to keep up with demand in some markets and being bolstered by a young, educated workforce gravitating to urban centres.
These are some of the key trends noted in Avison Young's Mid-Year 2018 North America and Europe Office Market Report, released today.
The report covers the office markets in 67 metropolitan regions in Canada, the U.S., Mexico, the United Kingdom, Germany and Romania: Calgary, Edmonton, Halifax, Lethbridge, Montreal, Ottawa, Regina, Toronto, Vancouver, Waterloo Region, Winnipeg,Atlanta, Austin, Boston, Charleston, Charlotte, Chicago, Cleveland, Columbus, OH; Dallas, Denver, Detroit, Fairfield County,Fort Lauderdale, Greenville, Hartford, Houston, Indianapolis, Jacksonville, Las Vegas, Long Island, Los Angeles, Memphis, Miami, Minneapolis, Nashville, New Jersey, New York, Oakland, Orange County, Orlando, Philadelphia, Phoenix, Pittsburgh, Raleigh-Durham, Reno, Sacramento, San Antonio, San Diego County, San Francisco, San Jose/Silicon Valley, San Mateo, St. Louis, Tampa, Washington, DC; West Palm Beach, Westchester County, Mexico City, Coventry, London, U.K.; Manchester, Berlin, Duesseldorf, Frankfurt, Hamburg, Munich and Bucharest.
"Against a backdrop of economic, geopolitical and financial volatility, the commercial property markets - for the most part - are functioning under relatively sound fundamentals," comments Mark E. Rose, Chair and CEO of Avison Young. "Nowhere are we seeing more profound changes than in the office sector - especially in urban areas of major metropolitan markets across the six countries covered in our annual review. The impact can be seen on city skylines, which are changing rapidly as new construction picks up pace, driven by insatiable tenant demand from organizations adjusting their workplace strategies to a growing millennial workforce and their adaptability to innovative technologies."
Rose continues: "At the same time, sectors that have historically accounted for a significant amount of demand for office space are now being both augmented and squeezed by ever-expanding technology and co-working industries. This phenomenon is being seen across national boundaries, particularly in markets with dense and growing urban populations."
According to the report, of the 67 office markets tracked by Avison Young in North America and Europe, which comprise more than 6 billion square feet (bsf), market-wide vacancy rates declined in 38 markets, remained unchanged in seven, and increased in 22 markets as almost 74 million square feet (msf) was absorbed on an annualized basis.
The report goes on to say that construction cranes remained prominent fixtures across many skylines as nearly 74 msf of office space was completed during the 12-month period, while another 138 msf was under construction at mid-year 2018 - with 50% of the space preleased.
"It's great to see so much confidence on the part of developers as they respond to the supply-demand imbalance in many markets," says Rose. "As always in this industry, the inherent risk is that circumstances could change, resulting in an oversupply of product at the time of delivery. In many cases, this scenario is the result of external economic and geopolitical factors. This time around, however, the new influences of disruptive technologies and increasing co-working space availability are also affecting how and where people work, potentially impacting the office sector from within - and challenging conventional wisdom."
Rose adds: "Generally sound office market fundamentals are being threatened on the North American front by ongoing NAFTA talks. In Europe, the looming Brexit deadline continues to dominate the headlines in the U.K., while in Germany, strong leasing activity continues to drive vacancy rates downward in all Avison Young markets. In Bucharest, Romania, development continues in response to demand."
CANADA
Canada's office property markets remained sound through the first half of 2018, supported by stable macroeconomic indicators, including healthy employment numbers, GDP growth and a rebounding Alberta economy. However, U.S. protectionist policies and escalating tariffs pose a risk to the Canadian economy and global trade flows, and may lead to moderating growth ahead.
"Intense competition for office space continues to bolster office market fundamentals across Canada - especially in downtown markets," states Bill Argeropoulos, Principal and Practice Leader, Research (Canada) for Avison Young. "Demand from traditional sectors is being augmented by the proliferation of domestic and global technology and co-working firms, ongoing urbanization and a burgeoning millennial workforce - all part of Canada's emerging innovation economy."
The report shows declining vacancy rates in more than half of the Canadian office markets with suburban markets outpacing downtown markets in terms of absorption (led by Montreal and Vancouver) and new deliveries (led by Toronto, Vancouver and Montreal) during the past 12 months. However, the amount of downtown space under construction at mid-year (led by Toronto) outstripped the suburbs by a significant margin.
Argeropoulos concludes: "Urbanization - partly attributable to growth in the technology sector - has created a noticeable gulf between downtown and suburban vacancy rates in emerging tech hubs such as Vancouver, Toronto, Waterloo Region, Ottawa and Montreal. Given tight conditions and upward pressure on rents in some of the nation's downtown markets, and with little or no near-term supply relief, suburban markets - particularly those offering transit connectivity and other urban amenities - may be the beneficiaries of overflowing tenant demand during the next couple of years."
Notable Mid-Year 2018 Canadian Office Market Highlights:
U.S.
The U.S. office market has benefited from another strong 12-month period of positive economic indicators: Further business expansion and job growth, decades-low unemployment, and rising consumer and business spending. Business spending kept its momentum in the first half of 2018, boosted by corporate tax breaks even while the federal government moved toward greater isolationism and global trade uncertainty. As of June, U.S. unemployment averaged 4% and employment over the last 12 months grew by 2.4 million, supported by the office-occupying professional and business sector gaining 521,000 jobs.
The 5.2-bsf U.S. office market reported net absorption of 43 msf on the strength of gains in five markets each achieving more than 3 msf.
"In spite of this strong take-up, I'm not surprised that the overall vacancy rate remains elevated given the volume of construction underway and the continuing trend of more efficient space design," says Earl Webb, Avison Young's President, U.S. Operations.
U.S. office market trends mirror those in Canada, registering an increasing impact from co-working firms. Occasionally, co-working companies have occupied large blocks of space in oversupplied markets, helping to keep vacancy in check, and the concept's popularity with tenants has forced landlords to compete by adding conference rooms, tenant centers and social spaces.
Webb continues: "Flexible occupancy is key. We also see some national corporate tenants utilizing co-working space in order to control costs and create that flexibility. One co-working operator's recent announcement that it is moving into brokerage operations could further disrupt the office market, and we'll be watching that situation and other co-working developments as we head into 2019."
The report goes on to discuss other recent and continuing trends, including the redevelopment of aging inventory and developers' emphasis on offering transit-oriented mixed-use projects. Tenants continue to display a preference for amenity-laden buildings and geographies - an important recruiting strategy designed to appeal to the millennial workforce in the tight U.S. labor environment.
Notable mid-year 2018 U.S. office market highlights:
"As we forecasted at mid-year 2017, the flight to quality and tenant demand for efficient, amenity-rich options carried into 2018 - and showed no signs of abatement, while class A rents, downtown and suburban, edged higher," concludes Webb. "High-quality development will continue to boost tenant occupancy and garner higher rents and institutional interest while outperforming the market at large through year-end."
Please turn to the following pages of the report for local market highlights. For comments on individual markets, please contact the Avison Young representatives listed below. Thank you.
pp.4-5 Canada & U.S.:
Bill Argeropoulos, Principal and Practice Leader, Research (Canada), 416.673.4029 or 416.906.3072 (cell) [email protected]
Margaret Donkerbrook, Principal and Practice Leader, U.S. Research, 202.644.8677 [email protected]
Canada
p.17 Calgary
Todd Throndson, Principal and Managing Director, 403.232.4343 [email protected]
p.18 Edmonton
Cory Wosnack, Principal and Managing Director, 780.429.7556 [email protected]
p.19 Halifax
Michael Brown, Managing Director, 902.454.4110 [email protected]
p.20 Lethbridge
Doug Mereska, Managing Director, 403.330.3338 [email protected]
p.21 Montreal
Denis Perreault, Principal and Managing Director, 514.905.0604 [email protected]
p.22 Ottawa
Michael Church, Principal and Managing Director, 613.567.6634 [email protected]
p.23 Regina
Dale Griesser, Managing Director, 306.559.9001 [email protected]
p.24 Toronto
Martin Dockrill, Principal and Managing Director, 905.283.2333 [email protected]
p.25 Vancouver
Michael Keenan, Principal and Managing Director, 604.647.5081 [email protected]
p.26 Waterloo Region
Ted Davis, Managing Director, 226.366.9040 [email protected]
p.27 Winnipeg
Wes Schollenberg, Managing Director, 204.560-1501 [email protected]
United States
p.29 Atlanta
Steve Dils, Principal and Managing Director, 404.865.3663 [email protected]
p.30 Austin
Corey Martin, Principal and Managing Director, 512.717.3084 [email protected]
p.31 Boston
Michael Smith, Principal and Managing Director, New England, 617.575.2830 [email protected]
p.32 Charleston
Chris Fraser, Managing Director, South Carolina, 843.725.7200 [email protected]
p.33 Charlotte
John Linderman, Principal and Managing Director, North Carolina 919.420.1559 [email protected]
p.34 Chicago
Danny Nikitas, Principal and Managing Director, 312.940.8794 [email protected]
p.35 Cleveland
Chris Livingston, Principal and Managing Director, 216.406.1131 [email protected]
p.36 Columbus, OH
Scott Pickett, Principal and Managing Director, 614.264.4400 [email protected]
p.37 Dallas
Greg Langston, Principal and Managing Director, 214.269.3115 [email protected]
p.38 Denver
Alec Wynne, Principal and Managing Director, 720.508.8112 [email protected]
p.39 Detroit
Jim Becker, Principal and Managing Director, 313.209.4121 [email protected]
p.40 Fairfield County
Sean Cahill, Principal and Managing Director, 203.614.1264 [email protected]
p.41 Fort Lauderdale
Pike Rowley, Principal and Managing Director, Florida, 954.938.1807 [email protected]
p.42 Greenville
Chris Fraser, Principal and Managing Director, South Carolina, 843-725-7200 [email protected]
p.43 Hartford
Andrew Filler, Principal and Managing Director, 860.327.8302 [email protected]
p.44 Houston
Rand Stephens, Principal and Managing Director, 713.993.7810 [email protected]
p.45 Indianapolis
Bill Ehret, Principal and Managing Director, 317.210.8808 [email protected]
p.46 Jacksonville
Pike Rowley, Principal and Managing Director, 954.938.1807 [email protected]
p.47 Las Vegas
David Jewkes, Principal and Managing Director, 702.472.7978 [email protected]
p.48 Long Island
Ted Stratigos, Principal and Managing Director, 516.962.5399 [email protected]
p.49 Los Angeles
Chris Cooper, Principal and Managing Director, Southern California 213.935.7435 [email protected]
p.50 Memphis
Warren Smith, Managing Director, 615.727.7409 [email protected]
p.51 Miami
Donna Abood, Principal and Managing Director, 305.447.7857 [email protected]
Michael Fay, Principal and Managing Director, 305.447.7842 [email protected]
p.52 Minneapolis
Mark Evenson, Principal and Managing Director, 612.913.5641 [email protected]
p.53 Nashville
Warren Smith, Managing Director, 615.727.7409 [email protected]
p.54 New Jersey
Jeff Heller, Principal and Managing Director, 973.753.1100 [email protected]
p.55 New York
Arthur Mirante, Principal and Tri-State President, 212.729.1896 [email protected]
Mitti Liebersohn, Principal and Managing Director, 212.729.7734 [email protected]
p.56 Oakland
Charlie Allen, Principal and Managing Director, 510.333.8477 [email protected]
p.57 Orange County
Keith Kropfl, Principal and Director of Brokerage Services, 949.430.0680 [email protected]
p.58 Orlando
Greg Morrison, Principal and Managing Director, 407.440.6640 [email protected]
p.59 Philadelphia
David Fahey, Principal and Managing Director, 610.276.1081 [email protected]
p.60 Phoenix
David Genovese, Principal and Managing Director, 480.423.7900 [email protected]
p.61 Pittsburgh
Brad Totten, Principal and Managing Director, 412.944.2132 [email protected]
p.62 Raleigh-Durham
John Linderman, Principal and Managing Director, North Carolina 919.420.1559 [email protected]
p.63 Reno
John Pinjuv, Managing Director, 775.332.7300 [email protected]
p.64 Sacramento
Thomas Aguer, Principal and Managing Director, 916.563.7827 [email protected]
p.65 San Antonio
Marshall Davidson, Principal and Managing Director, 210.714.8083 [email protected]
p.66 San Diego
Jerry Keeney, Principal and Managing Director, 858.201.7077 [email protected]
p.67 San Francisco
Nick Slonek, Principal and Managing Director, Northern California 415.322.5051 [email protected]
p.68 San Jose/Silicon Valley
Gregg von Thaden, Principal and Managing Director, 408.913.6901 [email protected]
p.69 San Mateo
Randy Keller, Principal and Managing Director, 650.425.6425 [email protected]
p.70 St. Louis
Tim Convy, Principal and Managing Director, 314.650.6601 [email protected]
p.71 Tampa
Ken Lane, Principal and Managing Director, 813.444.0623 [email protected]
Clay Witherspoon, Principal and Managing Director, 813.444.0626 [email protected]
p.72 Washington, DC
Josh Peyton, Principal and Managing Director, 202.644.8688 [email protected]
p.73 West Palm Beach
Jonathan Satter, Principal and Managing Director, 561.721.7031 [email protected]
p.74 Westchester County
Sean Cahill, Principal and Managing Director, 203.614.1264 [email protected]
Mexico
p.76 Mexico City
Guillermo Sepulveda, Principal and Managing Director, 52 55 4123 7570 [email protected]
United Kingdom
p.78 Coventry
Robert Rae, Principal and Managing Director, +44 (0)24 7663 6888 [email protected]
p.79 London
Jason Sibthorpe, Principal and Managing Director, U.K. +44 (0)20 7046 6514 [email protected]
p.80 Manchester
Mark Williams, Principal and Managing Director, +44 (0)161 819 8220 [email protected]
Germany
p.82 Berlin
Nicolai Baumann, Managing Director, +49 30 920 320 110 [email protected]
p.83 Duesseldorf
Stephan Heinen, Principal and Managing Director, +49 211 22070 100 [email protected]
p.84 Frankfurt
Udo Stoeckl, Principal and Managing Director, Germany +49 69 962 443 111 [email protected]
p.85 Hamburg
Udo Stoeckl, Principal and Managing Director, Germany +49 69 962 443 111 [email protected]
p.86 Munich
Markus Bruckner, Principal and Managing Director, +49 89 150 025 250 [email protected]
Romania
p.88 Bucharest
David Canta, Principal of Bucharest Operations and Managing Director, +40 727 737 894 [email protected]
Avison Young is the world's fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 2,600 real estate professionals in 84 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial, multi-family and hospitality properties.
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