Market Data

Market Trends

Banks Take It Slow

Banks will continue their slow deleveraging act for at least another year, according to Emerging Trends in Real Estate 2013, holding troubled assets while waiting for values to inch up. “As long as loans are current, lenders are better off to extend than sell loans at discounts, foreclose and recognize losses when markets have further room to improve, or refinance at lower rates,” says the Urban Land Institute/PwC report.

Briefly Noted

Hospitality — Hotel transactions totaled about $8 billion in August and should close out 2012 in the $12 billion to $14 billion range, down from 2011’s $20 billion volume, according to STR Analytics, which attributes the decline to fewer REIT deals. However, hotel investors are feeling more comfortable, says STR director Steve Hennis: “They don’t see as much risk as in 2009.”

Industrial — Demand for class A industrial space continues to drive lease rates up in some markets as well as fuel new construction, mostly at the expense of older buildings, CBRE reports. New construction totaled 11.2 msf in 2Q12, with pockets of spec building occurring in Northern Virginia, Indianapolis, Inland Empire and Orange County, Calif., Salt Lake City, and Atlanta.

Multifamily — Apartment demand “will continue to outstrip supply for the next couple of years at least,” says Mark Obrinsky, chief economist of the National Multi-Housing Conference. “We’re still 100,000 starts a year away from meeting demand — or maybe more.” The situation is not helped by tight financing: NMHC’s quarterly survey indicates that acquisition and construction financing are restricted to top-tier markets.

Office — CBRE economist Arthur Jones recommends Houston and Pittsburgh as strong targets for non-core market office acquisitions. The reason? Both cities have recovered in terms of employment and effective rent for secondary markets. “For investors looking to clear an IRR hurdle on the order of 8 percent, these are among the markets that can provide that sort of return,” he says.

Retail — The number of retail chief financial
officers forecasting a continued economic turnaround nearly tripled this year when compared to 2011, according to a BDO retail survey of CFOs: 32 percent see better days ahead, compared with 11 percent last year. In addition, CFOs forecast a 4.5 percent increase in total retail sales for 2012.

Industrial Sector Improves

As of 3Q12, the industrial sector has added as much space as it shed during the recession, according to Cassidy Turley’s 3Q analysis. Users have leased 166 msf of industrial space in the last 21 months, equal to 900 buildings, according to the U.S. Industrial Trends Report. In the 3Q12 alone, 27.5 msf was absorbed, bringing national vacancy to 9.0 percent. While industrial sales overall were down for 1H12, single-property sales were up 20 percent, along with sales prices. The lack of new supply — warehouse development is 67 percent below peak — and a net demand for 80 msf to 100 msf in 2013 should push rents upward in the new year.

Quantitative Easing Round 3: Good News?

“This action bolsters the mortgage market, and although credit requirements are a hurdle, the Fed has removed much of the near-term interest rate risk, creating more certainty for lenders and borrowers. The commercial sector stands to benefit as well. Increased liquidity will aid in the restructuring of maturing and problematic loans and drive capital into real estate.”

— Hessam Nadji, managing director, research services, Marcus & Millichap


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