The impact of economic headwinds and heightened uncertainty became more evident in office markets during the first quarter, with greater caution among occupiers leading to slower decision-making and delays to large-scale space requirements. Global office leasing volumes in Q1 were 13% below Q4 2022 and 18% lower than in Q1 2022, with leasing activity moderating across all three regions. Occupancy losses accelerated in North America, although Europe and Asia Pacific registered positive absorption over the quarter.
This article is part of JLL’s Global Real Estate Perspective
In most markets newer, high-quality assets are continuing to significantly outperform the rest of the market as occupiers focus on upgrading space. The global vacancy rate rose another 35bps to 15.3% in the quarter with the largest rise recorded in North America.
Delays to construction pipelines last year mean that 2023 is expected to mark the peak of the global development cycle. The picture varies significantly by region, with completions in the U.S. predicted to slow sharply this year, while elevated new deliveries are anticipated in Europe and Asia Pacific. But concerns around future demand levels combined with higher construction and financing costs are likely to lead to a sizeable reduction in groundbreakings on new developments, particularly in the U.S. and Europe.
Future trends: A growing quality divide
Short-term: Leasing activity is likely to remain subdued as occupiers maintain a cautious stance in the face of cyclical headwinds. New supply will continue to push aggregate vacancy higher, although demand for high-quality assets is expected to stay more robust as flight to quality accelerates. A stronger close to the year is anticipated as economic conditions stabilize and a backlog of expirations is addressed.
Long-term: The confluence of occupier demand for high-quality space and sustainability regulations will require much higher rates of retrofits or repurposing. With the majority of office stock in most major markets over 20 years old, a growing share of buildings will be functionally obsolete and more than 1 billion square meters of office space globally will need to be retrofitted or converted to new uses by 2050.
Global Real Estate Perspective May 2023
This page is part of JLL’s quarterly Global Real Estate Perspective. Follow one of the links below to find out more about global real estate market trends and outlook by sector.