A brighter outlook has been evident across the core property sectors worldwide during the last quarter, according to JLL.
The consultancy’s most recent survey has found a further slight improvement in sentiment across the industry both on the prior quarter and last year, with around 48% of respondents anticipating conditions will get better over the next six months.
Matthew McAuley, global property sectors research director, said: “Quite a varied and nuanced outlook, depending on the market and the sector, but there are signs of strengthening demand and more balanced fundamentals as we look out to the rest of the year.”
In the living sector, higher costs are limiting housing construction, with JLL tracking steep declines in new housing starts across the big European markets. In addition, the consultancy’s rental index for the region has increased by 8% over the last quarter.
New-build offices drive occupancy gains
In the office sector, global leasing activity continued to strengthen during the quarter, thanks to a brighter economic outlook, stabilising hybrid work policies, and a growing volume of larger transactions. Office leasing volumes in Europe during the three months to 30 June were up 4% year on year.
JLL noted that newer buildings, those built since 2015, accounted for the majority of net absorption and nearly all occupancy gains, with renewal rates on lease expiry rising.
McAuley said: “We’re seeing more limited availability for those in-demand, best-quality buildings, which is prompting occupiers to stay in place in some cases as they find difficulty searching for that new space.
“If we look at vacancy rates for new or refurbished central business district space in major European markets, like London and Paris, vacancy there remains below 3%.”
On the development front, JLL research showed CBD markets in Europe remain tight, with around 40% of the current pipeline for this year and next already pre-leased.
McAuley said: “Tenants are going to need to start their searches earlier and consider more options as they look for their next space.
“Cost-conscious tenants should also be aware that fit-out costs have moved up significantly as they move to new space over the next 24 months.”
Sheds to get back in balance
Turning to the logistics sector, volumes were up across the EMEA region over the quarter after a very slow start to the year. Occupiers across the industrial real estate sector followed the trends of office movers, with many tenants up for renewals opting to stay in place.
JLL has tracked strong demand for newer facilities, with 45% of leases in grade-A space across the globe over the quarter. In Europe, leasing volumes across the five core markets in the region were up by 20% year over year.
McAuley said: “Third-party logistics warehouse and manufacturers are the most active occupier segment, but e-commerce retailers are coming back into the market with expansion plans after a pause over the last 12 months, and advanced manufacturing companies are expanding in markets like the UK and Germany.”
JLL has tracked that vacancy rates have been moving higher over the last 12 months due to levels of supply hitting a record high across global logistics markets last year. As such, completions are set to go down around 10% in Europe over the nearest term, resulting in lack of supply of modern, energy efficient, technology-enabled space that many tenants are looking for.
McAuley said: “We saw record levels of supply across global logistics markets last year, but new construction is now falling back, and that is going to help markets move back into balance and keep rents rising at a slower pace than we have seen over the last few years.”
Retail reborn
In retail, in contrast to the other sectors, supply has been limited over the last several years, which is helping to support performance, but holding back some retailer demand in the market.
According to JLL, consumers continue to be active on the market, supported by the return of real disposable income growth and rising international tourism. In Europe, leasing activity continued to be strong so far this year.
McAuley said: “Demand is focused on the best locations, but it’s selectively broadening out as the supply of that top quality space reduces.
“Looking ahead, we are seeing a limited supply of space in the best locations, and prime rents are expected to gradually edge further upwards over the remainder of the year and broaden out further in 2025.”
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