DTZ Foresight

2014 Annual Outlook : Time for occupiers and investors to boldly go…

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Economic sentiment has improved markedly, with risk aversion no longer in focus. In fact, the outlook has now improved so much that many central banks are looking to unwind their supportive monetary policies. Therefore, bond yields and interest rate are projected to increase in 2014 and beyond.

Occupiers will benefit from below-inflation cost increases over the next few years. But, in Asia Pacific we do forecast the highest regional average cost increase. This is despite vacancy projected to increase across the region as inflation pushes up rents. The pipeline of new space for 2014-15 is limited and vacancy across the US and Europe is projected to be stable.

As far as space use efficiency, there is little room for improvement across most Asian markets and larger European and US markets. Therefore, occupiers need to be bold about improving their operational flexibility. Across European markets, we consider corporate affordability for the first time. Our analysis shows that highly productive cities are typically least affordable, confirming price signals work. This does leave some smaller markets with low costs and high productivity for corporate expansion.

Investors will benefit from good relative value across most markets, especially in the US. But, lack of attractive prime opportunities has already led investors to re-focus on non-core and non-prime opportunities. Together with improved availability of debt and equity capital, investment volumes have been breaking post-crisis records. But, unfortunately the opportunity is limited in time. We forecast relative value to reduce as interest rates rise. This means that investors need to move ahead boldly, before relative value is no longer available.

With limited time available, market-level liquidity is expected to become more relevant in the next few years. Based on our initial analysis across 26 key markets, London and some of the key US markets come out particularly strong. London ranks top for cross-border liquidity also.

Source : DTZ (Groupe UGL)

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