Knight Frank's Global Real Estate Markets Review and Outlook 2009, which covers major office markets across the Americas, Europe, the Middle East, Africa and the Asia Pacific region, recorded declining office rents in more than half the 102 cities monitored.
Knight Frank noted the strongest declines were in Europe, where rents fell by 12% on average and two-thirds of the continent's major office markets experienced negative growth. Several European markets have continued to see falling rents in the first quarter of 2009, including London and Moscow, which recorded two of the largest falls in 2008.
Joe Simpson, Head of International Research, Knight Frank, commented: "Despite a number of European markets observing rental falls in 2008, values should stabilize in the latter half of this year. Markets that weathered the effects of the downturn in 2008 included the primary German cities and regional UK markets including Glasgow, Edinburgh, Leeds, Sheffield and Bristol. However, the substantial depreciation of the British pound against both the US dollar and the euro now means rents have fallen substantially when measured against other US dollar- or euro-denominated markets.
"Positively, the supply of new office space in the development pipeline is at a more modest level than has been the case in previous downturns, although there are exceptions."
North American markets experienced a more marginal decline in rents, with values falling across most of the markets surveyed. The major financial centers of New York and San Francisco saw more significant decreases in rental values, as compared to the rest of the US.
Asia Pacific office markets recorded minor growth over the course of the year, resisting the trend towards decreasing rental values.
Simpson commented: "The minor growth recorded in a number of the Asia Pacific region's office markets in the first half of the year masks somewhat the rental decline in the latter half of the year as the effects of the global credit crisis took hold in a number of the regions' major office centers such as Singapore and Shanghai.
Simpson concluded: "Commercial real estate is in a period of significant repricing, with some markets further ahead in the process than others. In a challenging market, investors will need to keep clear heads to be able to assess when and where opportunities might arise during 2009 and be well placed to capitalize when markets return to growth."
Source: Knight Frank