As a new year gets under way, we turn our attention to the outlook and identify nine major occupier and investment trends we expect will influence market conditions and investment performance in 2021 and beyond.
1. Uncertain Environment Persists: Signs are encouraging for economic activity going into 2021, but occupier demand will be held back in the first half of the year because of elevated levels of uncertainty.
2. Supply Growth Remains Subdued: Unlike in past cycles, supply growth was contained prior to the downturn and is set to remain subdued in 2021 and beyond.
3. Increased Remote Working Pushes Vacancy Upward: Office vacancy is already rising, and the prospect of a shift toward increased remote working is set to weigh on rental growth prospects in the coming years.
4. Sector Divergence Stays Wide: Rental growth divergence is set to remain wide, driven by contrasting fortunes across geographies as well as between the logistics and retail sectors.
5. Transaction Volume Recovers Slowly: Transaction volume has fallen sharply, and although investors are keen to deploy capital, ongoing restrictions are set to hold back the recovery in deal activity.
6. Low Interest Rates Continue to Support Pricing: The sharp drop in long-term interest rate expectations recorded in 2020 is providing support for yields at current levels despite wider uncertainty.
7. Capital Values and Rents Start to Move Together: Yields may fluctuate in the near term, but 2021 looks set to be the first year of a new cycle, in which rental growth rather than yield shift determines value movement.
8. Investor Interest in Debt Is Rising: The share of debt capital raising continues to increase, supporting a gradual improvement in origination volume from a broader group of lenders in 2021.
9. Distress Remains Contained, but Financing Opportunities Emerge: Distress is set to be limited, but value declines in parts of the market and ongoing regulatory constraints on banks imply a growing opportunity for nonbank lenders in 2021.