Market Data

Market Trends

Beyond Amenities

Multifamily property owner Castle Lanterra is offering a tenant scholarship program to residents in six of its properties across the country. The firm owns nearly $850 million in multifamily properties across the country. High school seniors and those enrolled in two and four-year colleges or vocational technical schools for the 2016-17 academic year can submit essays to compete for one $5,000 and two $1,000 scholarships.  

Another real estate scholarship program, the Simon Youth Foundation, awards more than $1 million in scholarships yearly to graduating high school seniors who live within 50 miles of Simon Property Group malls or outlet properties. In 2105, SYF awarded $1.2 million to 300 students. SYF has also created and funds 25 Simon Youth Academies, alternative schools located primarily in Simon malls, that offer educational opportunities to at-risk students.  

“If you want to increase the traffic to your website, open stores. High-end malls continue to experience growth in sales per square foot, making them an attractive option for evolved retailers looking for brick-and-mortar spaces.”
- Scott Galloway, professor of marketing at NYU Stern School of Business
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Residential Ups and Downs

The National Association of Realtors is forecasting moderate growth in home sales for 2016, according to its chief economist Lawrence Yun. Existing home sales grew 6.5 percent to 5.3 million in 2015, making it the best year since 2006 but about 25 percent below peak year 2005's total of 7.0 million. Yun expects 1 percent to 3 percent growth in sales this year, targeting rising mortgage rates, higher home prices, and stagnant wage growth as obstacles to stronger sales.

On the multifamily side, a 4Q15 drop in rental rates may signal lower rent growth expectations for 2016, according to CoStar. For 1H 2015, CoStar analysis shows that rents grew at an annual rate of 9.4 percent. However, in the second half of the year, rents slowed to a 2.7 percent annualized growth and actually declined in 4Q15. This was most noticeable in major markets such as San Francisco and Washington, D.C., in newer, higher-quality apartments built since 2010. Industry watchers have questioned the major influx of new luxury projects in mostly urban areas commanding higher rents - more than 80 percent of new construction built between 2012 and 2014 fits that profile, according to CoStar. Another troubling sign is that new projects opening in 3Q15 were 49 percent unleased, compared with 29 percent unleased in 3Q14, according to CoStar.

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Briefly Noted

Hospitality - Excluding mergers and acquisitions activity, last year saw 1,575 individual hotel and portfolio transactions in the U.S., up from 1,491 in 2014, reports Lodging Econometrics. Although 2015 marked an eight-year high, hotel sales were still 28 percent lower than 2007's peak at 2,178 transactions.

Industrial - Industrial topped January's Ten-X Commercial Real Estate Nowcast. It showed the greatest increase in valuations - 215 bps - according to the pricing index, which combines Google Trends data, Ten-X's proprietary transaction database, and investor surveys to forecast commercial real estate pricing trends in real time. Altogether, commercial valuations in January increased 19 bps from December 2015, the slowest increase since early 2014 across the five major commercial real estate sectors.

Multifamily - The multifamily boom is not over, according to the Yardi Matrix report. Recent deals “indicate that the biggest and most sophisticated investors in commercial real estate are betting on the multifamily sector over the long term. Given that other capital sources traditionally mimic the activities of the Blackstones and Starwoods of the world, there is not likely to be a shortage of equity capital in the sector anytime soon,” the report says. Cap rates on apartments dropped to 5.8 percent nationally and 3 to 4 percent in gateway markets in 4Q15.

Office - Office is the most popular sector for investment in 2016 among both investors and fund managers responding the Pension Real Estate Association's 2016 Investment Intention Survey. While international investors continue to target the major markets, domestic U.S. investors are more geographically diverse in their choices, eschewing San Francisco and Washington, D.C., in favor of less-well-known markets.

Retail - Off-price is where it's at in brick and mortar retailing, as TJX - the parent company of T.J. Maxx and Marshall's - has become the top clothing seller in the U.S. and possibly the world, according to The Economist. Investors love off-price retailers as well: As the Dow Jones U.S. Apparel Retailers Index fell by 6 percent during 2015, the shares of Ross and TJX rose by 15 percent and 4 percent respectively.

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Foreign Investment in U.S.

64% of foreign investors plan modest or major CRE investment increases

60% said U.S. was most stable and secure country for CRE

46% said U.S. offered best capital appreciation

Most Favored Property Types

1. Multifamily/Industrial (tie)

2. Retail

3. Office

4. Hotels

Source: Association of Foreign Investors of Real Estate

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