Capital value growth
An abundance of equity, new capital formation and improving debt liquidity are supporting a robust global commercial real estate investment market. With the market on track to achieve the highest transaction volumes since 2007, JLL’s forecasts for full-year 2014 have been upgraded. In the occupational markets, most indicators show steady progress across all the main commercial sectors. Shortages of high-quality space are intensifying, which is helping to boost developer confidence and trigger an uptick in new construction.
The second quarter of 2014 has maintained the strong momentum of recent quarters. First half 2014 investment volumes are 28% higher than a year ago, prime yields in core markets have defied expectations by compressing further, and office capital values are accelerating once again, up 8.8% over the past year. The Americas and EMEA regions continue to demonstrate the strongest volume growth. Asia Pacific has struggled to sustain the record pace of 2013, but investor interest remains robust. Given capital availability and the transactions pipeline, full-year 2014 global investment volumes are expected to hit US$700 billion, an uplift of about 20% on 2013 levels.
The global office leasing markets are moving in a positive direction, although the signs are more ambiguous than in the investment market. The United States has registered the highest net absorption rate of the current cycle, and London and Paris are leading the recovery in demand in Europe; in Asia Pacific, leasing volumes have rebounded by 20% compared to 2013 levels. However, global leasing volumes in Q2 were still only 5% higher than in 2013, with corporate occupiers keeping a close eye on space usage and efficiency.
Shortages of quality office space in the world’s dominant office markets are intensifying. While the recent uptick in new construction marks the start of a new development cycle, it will not translate into deliverable space until late 2015 and 2016, leaving a period of 15-18 months of Grade-A supply shortages and rental uplift.
Retail markets in the U.S. and Europe have continued their steady recoveries despite ongoing structural shifts in the retail industry. Polarisation remains pronounced and many mid-priced retailers are being squeezed. Retailer consolidation will continue to be a trend this year and M&A activity is likely to tick upwards as retailers respond to changes in consumer demand. In Asia, international retailers are looking for growth opportunities although some caution was evident in the second quarter of 2014.
Supply chain realignment and massive structural changes in the retail sector are driving robust demand for functional modern warehousing across all three global regions. Rental growth and supply shortages are stimulating construction in both North America and Europe, an increasing proportion of which is being built on a speculative basis.
Hotel investment volumes have maintained the strong levels of 2013, with activity dominated by private equity and single-asset transactions. Activity remains strong, and we now expect the full-year 2014 volumes to reach US$54.5 billion, compared to US$52 billion in 2013.
London and Dubai are leading price growth in the high-end residential sector, boosted by international demand, although there are early signs of cooling in both markets. The U.S. apartment market has continued its growth run, with the tightest conditions apparent in the gateway cities. The Asia Pacific high-end residential sales market remains subdued due to a combination of softer economic growth and policy restrictions.