At the Asia-Pacific Hotel conference this fall, one of the big players in the China market focused on the U.S. market, according to a HNN.com report. “One of the more interesting strategies we have is in the U.S.,” said Kenneth Gaw, president and managing principal for Hong Kong-based Gaw Capital Partners, an equity firm with 72 properties throughout the world. “We're going into small college towns - towns dominated by universities. We're buying hotels that are poorly run and turning them into lifestyle hotels.” Under the brand Graduate Hotels, Gaw and AJ Capital Partners have invested about $500 million to buy up about 20 old college-town properties and retool them as boutique hotels targeted at alumni and other upscale guests. Heavy on design to capture the quirky charm - and memories - of university life, Graduate Hotels have opened in Oxford, Miss., Tempe, Ariz., Madison, Wis., and Charlottesville, Va., with additional properties scheduled for Ann Arbor, Mich., Berkeley, Calif., Richmond, Va., and Durham, N.C., later this year.
“2016 is the year of the secondary and tertiary markets: Nashville, Charlotte, Indianapolis, Louisville, Portland, Austin, Raleigh, Durham. They are manageable environments and have a better value proposition.”
- Emerging Trends in Real Estate 2016
Hospitality — With its $12.2 billion purchase of Starwood Hotels & Resorts Worldwide, Marriott International is now the world’s largest hotel chain, with more than 1 million rooms, 5,500 properties, and 30 brands, according to HNN.com. As for the combined 75 million-member loyalty program, it’s great news for Marriott Rewards members, providing access to the more upscale Starwood properties, according to thepointsguy.com. For Starwood Preferred Guest members, there’s not so much excitement about all those Courtyard and Fairfield Inns.
Industrial — New construction is finally catching up with warehouse demand, as several 1 msf-plus big boxes came online in 3Q15, according to CoStar. More than 6 msf in warehouse and distribution space was added, which kept the logistics vacancy rate unchanged at 8.1 percent. Rent growth in logistics and light industrial sectors is up 5.4 percent and 5.7 percent respectively, more than five times the historical average.
Multifamily — The Mortgage Bankers Association reported an 11 percent YOY increase in multifamily lending for 3Q15 and an 8 percent decrease from 2Q15. Despite the talk of interest rates rising, MBA is predicting a 6 percent increase in commercial and multifamily lending in 2016, with multifamily mortgages reaching $225 billion by year-end.
Office — Class A CBD vacancies have fallen to single digits in many midsize markets, according to JLL. The result is higher rents: Since 2010, CBD class A rents have risen by 22.7 percent to an average of $47.19 psf. CBD trophy property rents have risen 28.3 percent to $57.97 psf. These tight office segments will continue boosting rents to more than twice average market asking rates probably through 2017.
Retail — Cap rates for net lease drugstores compressed significantly in 3Q15, and that has led to a 20 percent increase in sales as investors take their profits, according the Boulder Group. Rite Aid saw the greatest compression, with a loss of 77 bps YOY, followed by CVS dropping 30 bps, and Walgreen’s 10 bps. Walgreen’s $17.2 billion acquisition of Rite Aid should be “a major positive for all Rite Aid owners as their store values would move substantially higher and now trade at Walgreens cap rates,” says Boulder Group’s president, Randy Blankstein.
“During the four quarters ending with the third quarter 2015, the number of new seniors housing units added to inventory exceeded the number of units absorbed on a net basis, resulting in the occupancy rate having been pushed down by 30 basis points from the year-earlier levels.”
- Chuck Harry, NIC’s managing director and director of research and analytics
Law Firms Hold Steady
As one of the major occupiers of office space, particularly in CBDs, law firm leasing has remained stagnant of late, with organizations focusing on efficiency more than shiny new office space. Law firms occupy about 17 percent of CBD space nationwide; however, they accounted for only 7 percent of leasing volume in the past year in transactions over 20,000 sf, according to JLL. More than 4 million sf of law office space is leased in primary markets New York, Chicago, Los Angeles, and Washington, D.C., comprising just over 50 percent of the total national law office leasing. Other strong law office markets include Dallas, San Francisco, Denver, Boston, and Minneapolis, according to JLL.