Toronto is projected to experience some of the healthiest office rent growth in 2020 of any of the 30 major world cities JLL monitors. That follows double-digit increases last year when Toronto was dubbed one of the “stand out performers” along with Boston and San Francisco.
The same three cities are expected to enjoy the greatest gains again this year, joined by Amsterdam and Berlin, while average rent growth for prime office space globally slows to a more modest 0.9 per cent. JLL analysts maintain that’s in keeping with a prolonged real estate cycle, now in its eleventh year, and evidence that the peak has been crested in some sectors and markets.
A slowdown in leasing activity and scheduled completion of more than 213 million square feet of new space office space underpin the prediction for a 50 basis point increase in the global office vacancy rate — climbing from 10.7 per cent at year-end 2019 to 11.2 per cent this year. Asia Pacific markets already suffered a 40-basis increase in vacancies last year, with corresponding falling rents in Shanghai, Hong Kong and Jakarta.
Still, there are few signs that investors will be actively abandoning the real estate asset class following last year’s record USD $800 billion expenditure — a 4 per cent increase from 2018. Investment is projected to dip no more than 5 per cent from that 2019 level this year.
“Real estate remains attractive relative to other classes and investor conviction in the sector is still strong, with allocations to real estate continuing to rise and capital available for deployment near all-time highs,” JLL analysts conclude in their newly released 2020 Global Market Perspective. “Greater caution and selectivity, as well as limited availability of stock, mean investment activity is likely to be marginally lower for the full year.”
The inverse trajectories of industrial and retail markets are expected to continue. Retail centres are earmarked for repositioning as landlords and investors attempt to tap into consumer demand for a more varied mix of food services, entertainment opportunities, residential and even e-commerce distribution uses.
The e-commerce ripple effect is now seeping into urban neighbourhoods through a complementary uptick in demand for last-mile delivery facilities. “As companies race to get closer to the consumer, (it’s) leading to greater densification, the renovation of brownfield sites and the construction of new types of facilities, such as multi-storey warehouses, in several markets,” the JLL report observes.