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The economy and property markets in 2014

The economy and property markets in 2014. OAS breakfast, November 28 th 2013. Global economy is improving (mostly) . USA Banks are lending Consumers have stopped precautionary saving Austerity programme less damaging than UK Medium term energy self-sufficiency? Labour cheap BRICS

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The economy and property markets in 2014

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  1. The economy and property markets in 2014 OAS breakfast, November 28th 2013

  2. Global economy is improving (mostly) USA • Banks are lending • Consumers have stopped precautionary saving • Austerity programme less damaging than UK • Medium term energy self-sufficiency? • Labour cheap BRICS • Was slowing growth inevitable? • China – not that much wrong • Russia – virtually everything wrong (transparency, governance, oil price, law, corruption) • Brazil – tight fiscal policy, how much has recent growth been due to US QE, needs more reform • India – most worrying, needs lots of reforms, tough to do business in

  3. Global economy is improving (mostly) Japan • New economic policy holds out some hope for growth • But new consumption tax could cancel out the benefits of QE Eurozone • Little hope of growth as a region • Continued widening between core and fringe Big theme • Interest rates, tapering, QE and what happens if the economies haven’t reached escape velocity when central banks act

  4. Until June I could have recycled this slide for the third year....

  5. ... But something happened to Britain this summer Source: GfK,

  6. House price growth undoubtedly had something to do with this Source: Savills, Nationwide

  7. Are the chattering classes impacting on sentiment? Source: Savills

  8. Is this worrying or exciting? Source: RICS

  9. The housing recovery becomes more national from 2014 Source: Savills Research

  10. But the UK recovery isn’t just about housing Source: Markit/CIPS

  11. People are less worried about losing their jobs

  12. And consequently are saving less Source: ONS

  13. But earnings growth is still weak

  14. Companies are also planning on spending

  15. So, the outlook is for faster and more balanced growth

  16. What could go wrong?

  17. Political risk USA • Debt ceiling reached again (Mar/June 2014) • End of QE Europe • Default hasn’t gone away • What happens when Greece doesn’t need the EU’s money? UK • The real housing crisis? • Households take on more debt to fund house moves • Higher housing activity drives up consumer spending and GDP • Unemployment goes below 7% faster than expected • Inflation rises and then rates rises • More debt and earlier rate rises lead to financial stress? • Vote winners – mansion tax etc

  18. What does this mean for office markets in the UK?

  19. Rising leasing volumes everywhere Source: Savills

  20. And a return to a normal split between London and the regions Source: Savills

  21. Regional spread is still interesting (as is prime/secondary) Source: Savills

  22. Three key themes for UK offices over the next five years

  23. Theme 1 – The return of the empowered employee Employment is at a record high Significant questions around immigration Employers have got used to not raising salaries – can they compensate with workplaces? Employees (especially graduates) might start having a choice of employer again ... Once again the workplace will be a tool to attract and retain talent

  24. What is important to employees? Source: Savills, YouGov

  25. What is important to employees in London? Source: Savills, YouGov

  26. The return of the empowered employee:Implications for the market SME demand, unwilling self-employed and part-timers In-movers to CBD’s e.g. Telefonica, Amazon, Jacobs The return of the softer factors – social, place, environment Transport hubs: travel costs, housing costs, rising fuel prices The workplace as home space?

  27. Theme 2 – Austerity Public sector cuts will continue to bite nationally Retail is still dealing with structural change Some occupiers will want to be seen as austere, others will have no choice Implications: • Stronger demand for the fringe than the core • Some businesses will drift out-of-town for great buildings • Rise of blingteria

  28. Theme 3 – TMT, tMT, mobile, big data, bricks versus clicks, gamification, social media

  29. Technological changeImplications for the market Generally over-forecast, occasionally under forecast Not a bubble, a fact of life Workplaces and outside spaces shouldn’t be a barrier to adoption Tenant demands are no more homogenous than Professions or Finance Creatives create the buzz that others aspire to

  30. Final thoughts The recovery is underway and there are even some upside scenarios The “new normal” isn’t as new as many would like you to believe The next decade in offices will again be about people and places Watch out for: • Electioneering politicians • Rising rates • Sustainability shocks

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