CBRE Global Office Rent Tracker Q2 2023
A flight-to-quality trend continued to boost prime rents in most markets in Q2 2023 as occupiers sought space in the best buildings. However, economic uncertainty and hybrid working arrangements led occupiers to curb leasing activity, downsize staffing and delay decision-making.
Americas
Average prime rents increased year-over-year in 20 of the 33 major Americas region office markets tracked by CBRE.
In the U.S., economic uncertainty and tepid office attendance rates led to negative net absorption of 8.5 million sq. ft. in Q2, the third consecutive quarter with negative demand. Montreal (+6.0%), Midtown South New York (+4.2%) and Boston (+3.8%) led major markets for annual prime rent growth in Q2. The biggest year-over-over declines occurred in Seattle (-6.0%), Washington D.C. (-5.0%) and Downtown New York (-2.4%).
U.S. leasing activity slowed by 3% quarter-over-quarter and 33% year-over-year to 36.5 million sq. ft in Q2, the lowest quarterly total since Q1 2021. Smaller leases, in part due to company downsizings, dominated overall leasing activity as the average lease size in H1 2023 was 28% lower than the H1 pre-pandemic (2018/2019) average. With stagnant office utilization, hybrid working and weakening economic conditions, U.S. office demand is expected to remain subdued in the near term. However, strong demand for top-quality office space should continue as the flight-to-quality trend continues.
Europe
Office leasing activity remained subdued in Q2, with fewer leases for large blocks of space and demand limited to top-quality space in urban cores. Availability of such space remained scarce in many European cities.
Combined take-up among the main European office markets totaled 2.3 million sq. m. in Q2, the same as in Q1 but 26% less than in Q2 2022. Year-to-date, total take-up was down by 25%. Rome (+115%), Bucharest (+25%), Vienna (+24%) and Frankfurt (+11%) had the biggest year-over-year increases in Q2 take-up, while Amsterdam (-68%), London (-49%), Barcelona (-45%) and Munich (-39%) had the biggest decreases.
Despite subdued leasing levels, prime rent growth in many cities was supported by relatively low availability. Major markets recording year-over-year prime rent gains included London West End (7.7%), Munich (5.8%), Paris (4.2%), Madrid (3.4%), Amsterdam (3.1%) and Berlin (2.4%).
Asia-Pacific
Leasing activity remained driven by a flight to quality by occupiers in Q2 2023, with the bulk of deals involving consolidation and downsizing.
In Japan, demand for prime space was surprisingly strong but not enough to significantly offset oversupply and support higher rents. Leasing activity in most Australian markets increased in Q2 as the return-to-office trend accelerated. While demand in mainland China improved from Q1’s low base, the recovery in Tier 1 Chinese markets remained weak. Shanghai and Shenzhen were the most resilient. In India, leasing volume also slowed.
Asia-Pacific’s overall office vacancy rate rose to a record-high 18% in Q2, keeping rent growth muted. Elevated vacancy in Melbourne led landlords to boost incentive offerings, dropping effective rents. Oversupply in Japan and mainland China continued to suppress rent growth, leading to favorable conditions for occupiers in H2 2023. Seoul and Sydney outperformed, with decreases in rent-free periods and other incentive offerings by landlords.
Although new construction deliveries will double in H2 from H1 2023 and should spur more relocation activity, preleasing remained weak. This, together with the slow recovery in Greater China, should further increase the vacancy rate this year.
Percentage change in prime office rents, Q2 2023 vs Q2 2022
Source: CBRE Research, Q2 2023.
