Part 7 of 8: 2014 Outlook for Office
2014 will be a year of continued improvement for the U.S. office sector. The forecast of economic expansion and job growth will overcome the uncertainty of murky fiscal policy and potential interest rate increases. This will not be an environment where investment is buoyed by capital markets gymnastics. The next several years will require successful investment managers to employ an asset management program that creates maximum investment value by elevating the tenant experience through innovative operational leasing and management strategies.
This pursuit of risk-adjusted yield at the investment level will result in several trends:
- As occupiers focus on recruiting and retention, they are upgrading to better quality space in high amenity environments, often in urban areas. This will continue to result in a flight to extreme quality space by the highest credit tenants resulting in continued strong institutional interest in these core assets and escalating sales values.
- The aggressive competition for core assets will drive certain investors to secondary markets to deploy capital and achieve required yields. These secondary market deals will require the anticipated increasing amount of debt and equity flows to adjust to this change and price their capital accordingly.
- Additionally, look for corporations to deploy regional headquarters of administrative office components to Sunbelt right-to-work states with business-friendly tax structures. Many of these relocations will be to secondary and tertiary markets.
- New development and investment velocity will be uneven across the country, with the preference being markets driven by technology and energy.
As Transwestern's Southwest President, Kevin Roberts
oversees operations for six offices, including brokerage services, property management and development activities. Roberts also sits on Transwestern's Board of Directors and Executive Committee. He began his career in commercial real estate as an office leasing agent and has completed more than 280 lease transactions totaling more than 1.4 million square feet.