High-Tech on a High Tear
High-tech job growth is fueling office absorption in more markets than expected, according to Jones Lang LaSalle. Access to talent is the No. 1 location driver, along with creative space requirements: large open floor plates close to urban transit and amenities. Secondary cities seeing positive rent growth in high-tech sub sectors include Seattle; Vancouver, B.C.; Denver; Pittsburgh; Houston; Portland, Ore.; Austin, Texas; San Diego; and Montreal.
High-tech annual job growth 5.2%
Percentage of office-using jobs created 8.5%
New demand net absorption 30%
Source: Jones Lang LaSalle
Retail Construction Costs Rise
Replacement costs are a big factor in today’s market, and for new store construction, material and labor costs are rising for the majority of today’s retailers, according to Chain Store Age’s 2012 retail construction survey. Construction costs for new freestanding stores average $48.67 psf and build-out costs for new shopping center tenants average $40.28 psf. Specialty apparel stores have the highest new construction costs, followed by supermarkets, big boxes, home center stores, and convenience stores.
“The apartment sector again earned CCIM members’ top investment conditions rating in first quarter 2012, followed by the hotel sector, the industrial warehouse sector, the retail sector, and the office sector.”
—RERC/CCIM Investment Trends Quarterly, 2Q2012
2Q12: Outlook Improving but …
In the Real Estate Roundtable’s 2Q12 Sentiment Survey, 13 percent more respondents thought overall market conditions and asset values were better than a year ago, and 19 percent more thought capital availability had improved. However, the overall index of market conditions rose just two points from 1Q12 to 2Q12, and more than one-third of respondents saw future conditions remaining the same or worsening between now and 2Q 2013. “Fostering a commercial real estate recovery that extends beyond so-called class A or trophy assets in gateway markets still depends on an improved jobs picture, more confidence among businesses and consumers, and reduced uncertainty on looming tax and budget issues,” said Roundtable Chairman Daniel M. Neidich of Dune Real Estate Partners.
Hospitality — California markets such as Sacramento, Riverside, and San Bernardino, as well as Portland, Ore., and Bellevue, Wash., offer lower operating costs, value-add opportunities, and “double-digit returns,” according to institutional buyers at a Los Angeles hotel conference. “The real opportunity is to buy a full-service asset for 50 cents on the dollar and move into the area,” said Christopher Pfohl, senior vice president at Pyramid Hotel Group in a HotelNewsNow.com report.
Industrial — The national industrial vacancy rate dropped to 9.6 percent in 1Q12, the lowest level since 2008. Top leasing activity occurred in Indianapolis, Seattle, Atlanta, and the Bay Area, all of which posted the largest YOY gains, according to Cushman & Wakefield.
Multifamily — “The lack of available institutional grade product is the major factor behind surging rents and aggressive pricing,” according to Cassidy Turley, which found cap rate compression in 37 of the 50 multifamily markets it tracked in 2011. Even in challenged markets such as Las Vegas, top properties are still trading at 7 percent or below.
Office — Lack of large blocks of class A space could lead to a return to build-to-suit construction in some major office markets in the near future, according to Cushman & Wakefield’s 1Q12 report. However, any speculative development is at least six quarters to eight quarters out in most markets.
Retail — Increasing occupancy in 2011 helped to move the retail market closer into balance, and the time expected to absorb market supply fell from 4.2 years to 4.0 years, according to Integra Realty Resources. New construction pipeline estimates also shrunk from 78.7 msf to 66.7 msf for the period 2012–2015, far below 2008’s peak of 185 msf.