2014 Outlook: JLL Research Foresees Strong Year Ahead for Commercial Real Estate

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By John Sikaitis, Managing Director of Office Research, Jones Lang LaSalle

JLL research experts have revealed their commercial real estate predictions for 2014, and, fortunately, we have high expectations for the year to come. Below, I’ve provided a quick look at leading trends (as well as market conditions) to ensure your forward-looking business plan aligns with industry activity and economic drivers.

According to JLL’s 2014 global viewpoints, “the weight of money, combined with an improving lending environment and heightened risk appetite, point to further uplift over the coming year.” The CRE outlook is improving alongside improving economic conditions, nationally and globally. Subsequently, investor confidence has grown, especially here in the U.S., sparking further investment along the risk spectrum into core-plus and value-add product in 2014. We also expect to see increased interest in secondary markets during 2014 as the recovery has shown increased signs of diversifying geographically.

Emerging trends like these will drive ongoing growth into the New Year. In fact, we expect a 10% increase in year-over-year global investment volume growth, with $550 billion predicted for 2014.

Millennials Expected to Drive Big Change in 2014

In the U.S., the office leasing market, in particular, is expected to perform well this year. Diverse demand, coupled with low supply, will drive tightening leasing conditions; however, new, more efficient workplace strategies may limit forecasted growth. The urbanization of the workforce, driven by the millennial generation, will also shape new challenges (or opportunities) in the office leasing market.

What we will see over the next five to 10 years is that Millennials will replace the Baby Boomer generation as the stewards of the office market.  That has a huge impact on where Millennials go, how they want to be, how they want to work and it’s making some of the market challenged . . . It makes buildings without a sense of place, without amenities, without transit, without a story probably a bit more challenged than what they’ve experienced over the past 20 years.

JLL’s United States Cross Sector Outlook details forecasted demand drivers and market conditions in 2014, including:

  • Brighter economic prospects should continue to push leverage in the landlords’ favor until additional supply hits in mid-2015 into 2016. 
  • In the majority of markets, CBD locations have shifted to landlord-favorable conditions most suburban locations have now hit bottom and are projected to see increased momentum into 2014, but lag overall CBDs
  • Potential rent spikes in the next 24 months are forecasted in CBD segments of the market due to limited construction; concession compression is expected in the suburbs with rent growth coming in late 2014 across nearly all geographies.
  • Overall construction levels will be below trend until at least 2015, despite the steadily increasing new office development.

After nearly three years of demand largely dominated by the energy and technology market, 2014 is expected to drive higher leasing volumes and greater expansionary activity as more markets will contribute to the recovery.

For a comprehensive outlook on JLL’s entire predictions about the 2014 CRE market, visit our full release.

Have questions about the real estate market predictions for the upcoming year? Contact me for more information at spaces@am.jll.com

About the Author

Research_Sikaitis_J2John is the Senior Vice President and Director of Office Research and Local Markets Research for the Americas. John works in conjuction with the JLL team of research analysts to compile customized research reports, which include marketing trends, forecasts, economic updates and more. View John’s full bio to read up on his experience and recent transactions.