Market Data

Market Trends

Developers Get Ready

While new multifamily construction may not be out of the ground yet, developers are busy with “land acquisition, lining up financing, and getting building permits,” according to the 1Q12 Quarterly Survey of Apartment Market Conditions, conducted by the National Multi Housing Council. More than half of the senior apartment company executives surveyed indicated that developers in their markets are preparing for new construction, while another 20 percent said that developers have been “breaking ground at a rapid clip.” However, more than half of the respondents indicated that sales volume was unchanged from three months ago, most likely indicating a lack of desirable product on the market.

“Most national department stores now open or maintain locations in blue-chip malls and urban centers, vacate mid-level malls as leases expire, and open outlet stores.”

—Marcus & Millichap, Retail Outlook 1Q12

Briefly Noted

• Hospitality — The lodging industry will experience “greater profitability for the next two years and an increase in hotel investment,” reports PKF Hospitality Research, forecasting solid 2012 fundamentals: a 5.8 percent increase in room revenue, a 1.6 percent occupancy increase, and a 4.1 percent gain in room rates. PKF also predicts an “unprecedented six-year run of occupancy growth,” based on a limited new supply and increasing demand.

• Industrial — NAIOP forecasts industrial space demand to grow at 1.01 percent for 1Q12, at “the low end of normal,” but predicted that demand would pick up substantially in second or third quarter, barring economic shocks.

• Multifamily — Fannie Mae and Freddie Mac multifamily originations hit an all-time high in 4Q11, according to the Mortgage Bankers Association, which reported that all 4Q11 multifamily loan originations were up 31 percent over 4Q10 and up 29 percent over 3Q11, in both cases the second-highest increase among the five major property types.

• Office — In the first six weeks of 1Q12, medical office sales totaled $352.7 million with another $1.2 billion in pending transactions, according to Real Capital Analytics. But investors are paying on average 97.8 percent of replacement cost, with the average overall capitalization rate falling to a pre-recession level of 7.9 percent, reports the 1Q12 PwC Real Estate Survey.

• Retail — Transaction volume in the $1 million to $10 million range decreased 14 percent, according to Marcus & Millichap, reflecting private buyers’ limited access to capital for purchases. Since 2008, the percentage of private buyers in the retail market has been cut in half, while activity by equity funds has increased the most.

2011’s Top 5 Commercial Lenders

Wells Fargo

MetLife Real Estate Investments

PNC Real Estate

Deutsche Bank Commercial Real Estate

Prudential Mortgage Capital

Source: Mortgage Bankers Association

CCIM Survey, 1Q2012

What types of non-retail tenants are leasing retail space?

“We are seeing dental, chiropractic, family medicine — small-office tenants looking for more walk-ins and parking associated with retail.”

— Chad Gleason, CCIM, Kent, Wash.

“Some retail is going for the rates of warehouse space, which opens it up to both office and industrial users.”

— Joe W. Edge, CCIM, Augusta, Ga.

“For anchor boxes, higher education colleges with associate degree programs, churches, storage facilities, and call centers.”

— Andrew Loveman, CCIM, Birmingham, Ala.

“Medical marijuana tenants and marijuana collective growers utilizing indoor agricultural techniques.”

— Gary N. Hunter, CCIM, Seattle

“Lots of requests from churches, and in some cases, charter schools.”

— Brian Sorrentino, CCIM, Las Vegas

“Mortgage companies, wholesale distributor and showroom, professional office, restaurants.”

— Paul F. Kenny, CCIM, Ketchum, Idaho

Dollar Stores Go Big

Spurred by consumers’ continuing economic insecurity, the top three extreme-value retailers will add more than 1,200 stores in 2012, encouraging news for single-tenant net lease investors who like these credit-tenant properties with high yields. Deal volume increased 42 percent year over year, and the median sales price was up 9 percent to $102 psf, according to Marcus & Millichap, with capitalization rates averaging mid- to high 8 percent. Dollar General leads the expansion trend with 600 free-standing stores planned in mostly rural locations, where they face less potential competition from big-box retailers.