New technology industries and economic recovery will drive double-digit office rental growth in “global cities” over the next five years, according to a new report by Knight Frank.
James Roberts, head of commercial research at Knight Frank, said premium pricing for real estate is found in cities with the “most high value knowledge workers”.
Roberts said substantial demand and restricted supply of new commercial stock in such major ‘global cities’ would result in double-digit rental growth in office markets.
San Francisco is tipped to see the highest rise in office rents, with an increase of 36.2% by 2019, driven by Silicon Valley. Madrid and New York’s office markets are also tipped to see rental growth between now and 2019.
“The race for knowledge workers and the attractiveness of firms operating in these sectors is borne out by our prediction for office rental growth,” Roberts said.
“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.” Multi-national corporations, Roberts said, were compelled to locate in major cities.
Despite constricted supply, a new wave of property development is expected to accommodate future economic growth, Knight Frank’s report said. With rents at the start of a new cycle, building will be focused on new districts, such as New York’s Brooklyn, and London’s Nine Elms.
Skyscrapers will, the report said, be the preferred way to maximise sites and deliver large volumes.
Restricted supply of new office stock – along with heightened demand for commercial space – will see vacancy rates fall in key cities by 2019 and average 6.3% in the top 10 global cities. In Tokyo and London, vacancy is tipped by Knight Frank to drop to just 3.9% and 4.4% respectively.
Knight Frank foresees a move towards emerging markets by investors as a knock-on effect of the growth that global cities are set to experience. Kenya, Botswana, South Africa and Nigeria will benefit, the agent said.
This week, delegates at EPRA’s annual conference heard how technology would have a greater role to play in the office sector, with versatility key.
Joe Borrett, director of real estate and construction at Google, said its new office in London’s King’s Cross would be a flexible space, evolving in line with tenant activities.