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Only 31 percent of occupier markets will be tenant favorable by 2012; Window for large lease up is now
Real estate sector forecast
The level of liquidity in the U.S. capital markets has improved dramatically over the course of 2010, as investors have regained confidence, particularly in stable, well-leased and located properties in the traditionally best-performing markets. Activity will continue to trend upward throughout 2011 as investor interest grows amid a very favorable monetary environment and an improving macroeconomic picture.
“Total investment transaction volume in apartments, office, retail and industrial will increase by a projected 36 percent over the 2010 figure, which at an estimated $92 billion would represent an 80 percent increase over the low reached in 2009,” added Josh Gelormini, Vice President of Capital Markets Research for Jones Lang LaSalle.
In 2011, Gelormini expects pricing trends that occurred in 2010 to look somewhat different. While pricing for core, top-quality properties will remain strong, there is less scope for continued significant declines in cap rates in this segment during 2011.
“Growth in property rental income will need to take over as a catalyst for value increases in prime property. We also expect that given the large amount of capital on the sidelines relative to the amount of available core property on the market, that investors will begin to take on increasing risk by targeting more value-add opportunities,” said Gelormini.
Corporate occupier markets
Over the last two years, companies have seen their internal vacancy rates grow by nine percent as they reduced headcounts. As a result “rightsizing the portfolio” is a mandate for corporate real estate executives and will be for the next 12 months.
“When we asked tenants to rank the key factors shaping their real estate strategy, rightsizing the portfolio was number one, closely followed by streamlining and efficiency,” said Lauren Picariello, Director of Occupier Research for Jones Lang LaSalle. “Companies today are disposing of space in non-core locations as well as renewing leases in more expensive CBD locations for client facing teams, then relocating backroom functions to less expensive suburban locations.”
While tenant leverage remains strong, time is running out. Ninety-four percent of markets are tenant favorable now, but only 31 percent will be in 2012. Tenants seeking large blocks of space should move to lease in the next nine months.
Jones Lang LaSalle expects risk management, cash conservation and cost management will strongly influence 2011 business plans and the corporate demand for space in 2011.
Industry sector movers in 2011
Several sectors are entering a commercial comeback in 2011. Some of the largest expected movers include:
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