CHICAGO—DTZ Research just published its 2014 Annual Outlook, and like many economic forecasts that focus on the real estate industry, the firm expresses moderate optimism about the big picture of job growth and overall economic activity. However, like many of their fellow forecasters, the researchers also remain unconvinced that these bits of good news will, at least in the short term, create conditions that will reignite new development.
“In North America, both the US and Canadian economies will continue to expand at a moderate rate, which will lead to more job growth and a related increase in demand for occupational space,” the researchers note. But “given the moderate job growth across the region, vacancy will only trend down slowly.”
The slow but steady trend means occupiers in most markets will remain in good bargaining positions for at least two more years. John Wickes, the Chicago-based Americas Head of Research at DTZ and co-author of the report, says that “with regards to office, most US markets will remain affordable throughout the next two years with rental growth in line with inflation. The most affordable markets will be Dallas, Minneapolis, Phoenix, Seattle and Atlanta. In New York and San Francisco, however, occupiers will face rental growth well above inflation. Demand from the TMT and professional services sectors have driven the vacancy down to single digits in these markets.”
Forecasts by other observers in the real estate world mostly align with those by DTZ. The Urban Land Institute and PwC, for example, recently released the 35th edition of Emerging Trends in Real Estate, a joint publication based on interviews and surveys they did with over 1,000 professionals. And among that group, the general feeling was that a modest recovery would continue in 2014. They did, however, expect that the recovery would strengthen somewhat. For several years, they said, much real estate activity had been driven by a compression in cap rates, but in 2014, they expected property enhancements to be one of the big drivers.
But solid rates of stock growth will have to wait for another year, DTZ researchers now say. “So far,” they note, “developers have largely remained on the sidelines.” And “even with the recovery, there are still few new projects under construction across the office, retail and industrial sectors.”
Earlier this year, DTZ released their study, “Money into Property 2013 North America,” and said that although China and other Asian countries had attracted lots of interest, North America remained the most attractive market for investors. “US markets are classified as the most attractive region, ensuing future volume growth,” the report stated. “Considering the high level of market liquidity, we would expect more international investors to focus on the U.S. going forward.”
But in this latest study, DTZ says that “the increased competition to place capital in the larger US metros in prime office has produced lower yields, so many investors have started to turn their attention to other property types. This is reflected in the larger amount of “hot” retail and industrial opportunities. The re-emergence of retail as an attractively priced property type is surprising, given the negative impact from the recession and the changes in US consumer buying habits and increase internet shopping.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
