Economics and markets
Economics and Market Analysis
The focus of this project is on the occupier market in Central London offices (primarily the City and the West End). As the economy and the market emerge from the pandemic the occupational market is under close surveillance.
A healthy occupier market will underpin investment values and reduce risks to new completions and developments. The project is motivated by the differing views about the prospects of the Central London office occupier market ranging from fairly conservative views to more optimistic analyses.
Your team, sitting in a property consultancy firm, has been tasked to assess the current state of this market and provide a well documented view about the outlook of future office demand in Central London.
The recipients of your report (that is the investment committees of your clients) are seeking your objective assessments, supported by appropriate data analysis.
Brief
The mandate given to your team has two segments, which represent the objectives of this coursework.
1. Ascertain the present state of the occupier market in Central London offices.
– This task involves an in depth analysis of how your team assesses current conditions in the occupier market in Central London offices.
Is the occupier market gathering momentum, at what pace, do uncertainties persist? And also, do office occupier market conditions reflect trends in relevant national and local economic data?
2. Outlook
– What is the outlook of office demand in post pandemic in terms of volume, structure (eg sources of demand) and characteristics (eg type of office space demanded)? And importantly, what risks do you envisage?
Guidance and Tasks
This first objective should be tackled by:
⦁ (i) An in depth analysis of occupier market indicators – demand related, supply data, vacancy metrics, various measures of rents (headline, ERVs, effective), other. Your data analysis should bear some attention to the grade B segment of the market. The lack of data for the grade B segment of the market is acknowledged.
⦁ (ii) An analysis of key and relevant to the office market national economic indicators and local (London) economic data, in particular employment.
In assessing the current state of the occupational market the team should synthesise information contained in different market indicators. Attention should be paid to whether market indicators provide conflicting signals or they point to the same direction.
You can confine the analysis to City and/or the West End.
The second objective on the outlook of Central London office demand would require an investigation approach as follows:
⦁ (i) An attempt to quantify future demand, that is take up and in particular net absorption. Broad estimates are sufficient. Own plausible assumptions are acceptable.
State clearly what inputs you use and their sources in order to arrive your assumptions and the near future (2-3 years) demand estimates. Transparency and clarity are appreciated by your clients.
⦁ (ii) An analysis of the characteristics of demand (source of demand, type of space) and trends such as home working and employee wellness. What would be the impact of these factors on office demand in Central London (City or the West End)?
For example, should we expect a permanent impact on take up levels, the natural vacancy rate or other?
These are indicative questions that investors are keen on your views and are important in the assessment of risks in the Central London office market.
Again own reasonable assumptions can be made backed by your desk and data research.
⦁ (iii) What risks does your team foresee (if any)?
Data
Given the nature of this investigation, data of quarterly or monthly frequency should be used (however the use quarterly data will be more likely). Analyse data in the past five to six years, so that economic and market trends in the past five years provide background to compare the current economic and market conditions. This data analysis should also prove useful for both objectives.
Below are key data sources your team should consult in detail, but further sources can of course be used.
Central London office market data (occupier market)
⦁ – CoStar database
⦁ – MSCI database
⦁ – Central London office market reports by property service firms
London economic data
⦁ – NOMIS (www.nomisweb.co.uk) for local labour market data
⦁ – GLA Economics (data.london.gov.uk/gla-economics) for economic data, forecasts and scenarios for the London economy. You must register to access this database.
⦁ – ONS (ons.gov.uk/economy)
⦁ – CoStar
Output
⦁ (i) The output of the project is a written report. Guideline word count of maximum 3,000 (excluding executive summary, tables, graphs, references and any appendices).
Your argument therefore should be succinct and well-focused.
⦁ (ii) The report requires an executive summary with 5-8 bullet points (indicative range) to give brief statements of your findings.
Assessment Criteria
⦁ Thorough data analysis using a range of data
⦁ Synthesising data and market metrics (indicators) to assess the state of the market
⦁ Critical assessment of market views and perspectives based on desk research;
Recognition of the most important viewpoints in your judgment that should be factored in your market assessment.
⦁ Plausibility of arguments and analysis
⦁ Convincing analysis for professional use
⦁ Evidence of research
Note
This is not a statistical project. On the technical side, the project requires diagrammatic analysis, plotting trends if necessary, and calculations of indicators.
The main thrust of the project is a synthesis of data trends and an in depth analysis of factors that will impact office demand. Your own spin to assess and quantify the relevant importance of these factors adds value.
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