With rents at the start of a new cycle, a new wave of property development is expected to accommodate this future economic growth and Knight Frank says that building will be focused on new districts like New York’s Brooklyn, and Nine Elms in London. Skyscrapers will be the preferred means of maximising sites to deliver large volumes of space.
‘Premium pricing for real estate is found in those cities with the most high value knowledge workers, which consequently attract the world’s leading corporations. These are the global cities and the they are set to experience double digit rental growth in their respective office markets due to substantial demand and restricted supply of new commercial stock,’ said James Roberts, head of commercial research at Knight Frank.
‘The race for knowledge workers and the attractiveness of firms operating in these sectors is borne out by our prediction for office rental growth, with San Francisco’s rents leading the way with an increase of 36.2% by 2019, driven by the effect of Silicon Valley,’ he added.
The report also says that the renaissance of demand for Madrid’s office market will see it achieve substantial growth and join Singapore as the biggest movers in the top ten list of office markets globally over the next five years.
A breakdown of the figures predicts that San Francisco is likely to lead the way with 36.2% growth in rents between 2014 and 2019, followed by Madrid at 28.7%, New York with 28.2%, Singapore with 25% and Sydney with 22.3%.
The rest of the top 10 are Washington with growth of 19.6%, London at 16.3%, Mumbai at 14.9%, Tokyo with 13.4% and Mexico City at 10.6%.
‘A new world of technology revolution with humans providing the creative impetus is generating a renaissance in the commercial property world. Offices are thriving as ideal forum for idea generation while work and home are drawing closer so many of us want to live near the bright lights,’ explained Roberts.
‘Firms today are scrambling to secure knowledge workers and the trend for a return to urban living has turned the global cities into talent magnets, and consequently multi-national corporations feel it is essential to locate within them,’ he pointed out.
It is also expected that restricted supply of new office stock in conjunction with this heightened demand for commercial space will see vacancy rates diminish in key cities by 2019 with the average vacancy rate dropping to just 6.3% in the top 10 cities globally. Vacancy rates in Tokyo and London will drop to just 3.9 and 4.4% respectively.
‘Our data illustrates the opportunity for property investors and developers, who are in a position to exploit the growing trend for urban living across the globe. There was $202 billion of global commercial real estate investment in 2009 and we forecast this amount to increase to $606bn in 2015, as just a taste of market activity to come,’ said Roberts.
‘The knock on effect of the global cities growth will also see investors target new frontiers as they look to growth in emerging markets. We expect to see Africa’s mature markets of Kenya, and Nairobi in particular, Botswana, South Africa and Nigeria to benefit. Cape Town, Johannesburg and Lagos are all strategic hubs in the continent as is Dubai as it services a growing flow of African Investment Capital,’ he added.
