Forecasts for the Immediate Future – An Interview with Richard Barkham

As a specialist in macro and real estate economics, CBRE’s Richard Barkham, will cover some hot economic trends impacting corporate real estate during his scheduled session for the 2016 CoreNet Global EMEA Summit in Amsterdam. During a recent conversation, Mr. Barkham answered some questions about the immediate future of corporate real estate and discussed what trends to be watching out for.

Question 1:   Forecasts for the immediate future suggest that steady growth will continue for capital markets globally and we have seen growth in occupier activity. What trends can occupiers expect to see as growth continues? What opportunities can occupiers expect?

Barkham_webRental rates will continue to rise, quickly in some high growth markets, but overall at about the rate of inflation.  Opportunities to occupy brand new space will be limited.  However, because growth is moderate, there will not be an overwhelming pressure to take on more space.  Occupiers from certain sectors will remain cost conscious.  The earliest we are likely to see a downturn in rents is 2018.

Question 2:   It is easy to ride the wave in periods of steady growth. But growth trends come with certain risks and cautionary notes. One of the key points you’ll make at the EMEA Summit is that CRE professionals need to create resilience against external economic events.  What are a few practical activities they can do to be flexible and agile?

They need to have a proportion of their space in short leases, so they can vacate relatively quickly if a downturn arrives, maybe 30%.  They need to decide what space / locations are core to their business and make plans to get this under ownership when the pricing is right… don’t waste a crisis!  They need to be proactive in understanding what sort of office / space layout boosts productivity and reduces costs and to invest in this.  They need a clear view of the cycle and plan for it.

Question 3:   8 years later the global financial crisis still underpins generalizations about the economy, whether the trends are good or bad. How can CRE professionals incorporate these unpredictable trends into their long-term planning and day-to-day decision-making?

Despite the fact that the banks have tied up their balance sheets, many of the conditions that created the great financial crisis still exist.  The most important is that governments, corporations, and households still have very high levels of debt.  This does not matter when the economy is growing, but it does matter in the downturn, it makes downturns much worse.  Corporates should expect this and anticipate this, and negotiate purchases and leases at advantageous prices.  Easier said than done, but this can repay in the longer term.  A second issue is deflation. We have noticed that core real estate does well and secondary less well in conditions of deflation.  Therefore, corporations should own core property, and lease secondary property on short leases.  Ultimately though corporations should plan for growth.  Growth is the norm, recessions are relatively rare, even in this febrile post-crisis economic environment.

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