2023: Solid Global Rent Growth and New Leading Locations

Regional Highlights

United States/Canada 
Rents in the U.S./Canada grew by 6% in 2023 after rising a record 30% in 2022. The Southeast and Southwest regions recorded the fastest average growth in rents during the year, including more than 10% in several markets, such as Las Vegas and Central Florida. In the largest coastal gateways, the pace of growth slowed, with a reversal in Southern California and muted growth in New York/New Jersey. Sticky replacement cost rents, boosted by still-high construction costs and increased return requirements, kept a high floor under market rents, even in locations with high levels of new supply.

We expect a near-term rebalancing of supply with demand (a mini-cycle), with the vacancy rate peaking in mid-2024 around 6%—a healthy level relative to the market’s history—before declining again in the second half of 2024, and beyond, as deliveries fall sharply. A reintroduction of scarcity in the market should reaccelerate rent growth.

Exhibit 6:

Exhibit 7:

Asia

China  
Market rents dipped 2.1% in 2023 on record new supply and vacancy rates of more than 20% nationally. The average was held back by an extended downtick in some locations, which exceeded -30% in some submarkets in the North and East regions, where concessions reached up to 20% of lease value. Over time, the unwinding of these concessions could result in sharp jumps in net effective rental rates. The South China region remained stable, with more than 3% rent growth, as vacancy rates in most markets were in the low- to mid-single digits.

Japan  
Both new deliveries and new demand set records in 2023. With the market in rough equilibrium, market rents recorded steady 1.8% y/y growth. Vacancy rates are rising in pockets of Japan with a high level of new deliveries in peripheral submarkets of major metros and regional markets, such as Nagoya. We expect limited impact on rents, however, with new structural drivers for regional and secondary locations, including re-shored manufacturing and truck stop points when legislation reducing continuous truckdriver working hours takes effect in 2024.

Europe 
In 2023, rents grew by 7%. Performance diverged by location, with markets failing into four groups:

• Supply-constrained markets with healthy growth that benefit from structural trends (e.g., Germany and the Netherlands).

• Markets with traditionally modest growth that continued to grow at a defensive pace (e.g., France).

• High-cost markets where rents stabilized at high levels (e.g., London and Prague).

• Select markets where elevated deliveries drove an increase in concessions (e.g., Poland).

Looking ahead, Europe is likely to see a lower peak in the vacancy rate during the upcoming mini-cycle because new construction starts fell earlier than in the U.S. and other global markets. Improvement in the demand backdrop could cause rent growth to reaccelerate quickly as scarcity returns to many markets on both the Continent and in the United Kingdom.

Exhibit 8:

Exhibit 9:

Latin America

Mexico  
Driven by nearshoring activity, demand reached all-time highs, growing 8% from the prior record. Increased new supply and frictional vacancy pushed up the vacancy rate from 0.9% in Q4 2022 to 1.4%. The sustained scarcity, coupled with rising construction costs and limited availability of land plots interconnected to the power grid, produced competition for availabilities and 19% rent growth in 2023. We expect vacancy rates to hover around 2% through the near term, keeping upward pressure on rents.

Brazil  
Market rents for Class AAA space in the Southeast increased 11.3%. Record-high demand and a sharp decline in deliveries produced a 320 bps decline in overall market vacancy to 11.4%, the lowest level on record. 2023 development starts ground to a halt (42% below 2022), owing to near-prohibitive debt costs. As a result, we expect vacancies to decline further, driving competition for space and rent growth in 2024.