Underwater, Mouth Watering or Sea Change?
In 2012, the market may well resemble a black and white movie - things will be in stark contrast, with few shades of grey. Equally, there will be success or failure, but again, little in between. There will also be opportunity, as that is what markets like this bring.
For example, extremes have been amplified in the last few weeks with Battersea Power Station being placed in administration and at the other end of the spectrum, a possible sale of Deutsche Asset Management. The Power Station has been plagued with bad luck or some may say failure, but both the Power Station and Deutsche offer great opportunity.
In a retail context, the gap in the market will increasingly widen between assets which are under water, and those which may be described as mouth watering. The former asset class warrant a significant valuation correction and that is likely to be further manifested this year. This may well prove to be the lifeline these assets need to create a lower valuation benchmark to re-engineer the occupational platform to a sustainable and profitable level.
In practice however, are we really talking about something more akin to a sea change? Increased online activity, a 10 year development boom, a bloated lease expiry pattern coupled with constrained consumer spending is likely to lead in 2012 to a reduction in the amount of floor space acquired by occupiers. Market intelligence therefore on the depth of occupational interest and the specific space requirements of occupiers has never been more important or valuable, and this is one of the commodities agents bring to the party.
In 2012, there will be a real need for quality active asset management and one of my expectations for the year is that particularly in the secondary market previous sacred cows will be challenged and probably overthrown. This will extend to a reduction in rental level, reduced lease length and revised rent review structures. If a common agenda can be found between owners and occupiers, then the opportunity which in some instances will exist within the secondary market can be capitalised upon, so that assets may slowly rise from under water.
In conclusion, the expectation for 2012 is that the market will continue to polarise, the term sink or swim being never more evident. My anticipation is for a sea change in many parts of the real estate market and how assets are ranked. The art is to be organised to seize upon these opportunities. I for one am looking forward to 2012 and beyond.