Getting Behind the Forecast Numbers

We’ve just finished our quarterly forecasting round and I wanted to share thoughts on the results. Some office markets are already delivering substantial rental growth despite the expected impact of simultaneous austerity packages imposed by a number of European governments. These outperformers include London, Paris and Warsaw whilst many other markets are now expecting prime rents to stabilise rather than fall further. This is driving our forecast for positive rental growth for our European office index, with the rate of growth peaking in 2012.

We cannot emphasise enough, however, that this growth reflects supply shortages in what can often be small sections of the market as opposed to a general broad-based improvement in tenant demand. The tenants who are able are taking the opportunity to rationalise portfolios and upgrade accommodation at the same time. As the recovery (hopefully!) gains traction, growth at least in the short term will be driven by existing employees doing more, not by new employees taking up new space. Companies and labour have cooperated as never before in the recent recession moving to part time working and accepting wage freezes to sustain jobs. This was in contrast to previous recessions where shedding workers was invariably the first response of companies trying to cut costs. As they seemed to have finally learned the lesson that sacking and rehiring is very expensive. But, there is always a bill: this will dampen net absorption as the economy recovers.

Investment volumes have improved from 2009 and we do expect turnover to exceed €100bn across European markets in 2010. There remains a lack of quality prime stock on the market as current owners and their lenders are loath to dispose of their best assets unless they have to or receive a fantastic offer. As markets settle towards a pricing equilibrium, the focus of investors will migrate towards maintaining and wherever possible boosting rental income. There is no general pricing cycle wave to ride so we will be back to a ‘real’ property market where stock selection and adapting to and matching the changing requirements of tenants will be the keys to outperformance.


  1. Robert Wilson

    thanks for the post

  2. Magaly Tonks

    I’m even still maintaining a bullish stock portfolio altogether. It is just a matter of time when everything starts swinging around. Remember when a bull market begins, we do not realize it until it’s already six months old.

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