Market Data

Market Trends

Invest in Detroit Now

Despite the dire bankruptcy headlines, the time to buy in downtown Detroit is now, if Dan Gilbert hasn’t already bought it. Since 2007, the founder of Quicken Loans moved his corporate headquarters and 7,000 employees from the suburbs to Detroit’s CBD and has purchased more than 15 buildings. His vision is “a lively live-work-play district in the heart of the city based around entrepreneurial companies in the digital economy,” according to a Brookings Institution report. And he’s not alone: New market-rate apartment complexes — the 124-unit Broderick Tower and the 58-unit Auburn — have gone up, and St. Louis-based developer McCormack Baron Salazar is planning a $60 million riverfront residential and retail development. “These are practical real estate strategies that we know will have a lot of market acceptance,” said Sue Mosey, president of Midtown Detroit, which has spearheaded $1.8 billion in public-private investment in Detroit’s urban core.

“For commercial real estate, higher rates [of inflation] mean the end of (some would say) the artificial boost to the capital markets and an eventual return to more pricing power for landlords as leasing market fundamentals continue their oh-so-gradual tightening.”

—Robert Bach, national director, market analytics, Newmark Grubb Knight Frank

Briefly Noted

Hospitality — Atlanta, New Orleans, and Houston were among the most active hotel acquisition markets for the first half of 2013, according to Jones Lang LaSalle. “These large secondary markets will remain targets for investors, as their revenue per available room growth should outpace national averages,” said Art Adler, Americas CEO of Jones Lang LaSalle’s Hotels & Hospitality Group. As of midyear, U.S. hotel transaction volume was up 50 percent over 2012 to $8.0 billion, and Adler predicts a $17.5 billion total by year-end.

Industrial — For the first half of 2013, sales of industrial properties are up 25 percent YOY, according to Cassidy Turley, totaling $13.8 billion in the first five months of 2013. Most of the sales were warehouse product, up 42 percent YOY.

Multifamily — No surprise, cap rate compression is strongest in the Pacific regional market, where the overall apartment cap rate — now at 4.92 percent — has lost 237 basis points in the past three years, according to the 2Q13 PwC Real Estate Investor Survey. Southeast cap rates now average 5.80 percent, down 213 bps since 2010, and Mid-Atlantic asset cap rates have lost 173 bps in three years, currently at 5.67 percent.

Office — Occupancy gains are small, but widespread: 62 of the 80 markets tracked by Cassidy Turley increased office occupancy in 2Q13. And rent growth is coming — by year-end 2014, 80 percent of major metros should experience rising office rents.

Retail — The nation’s second largest retailer, Kroger, plans to buy the 212-unit Southern-based upscale grocery chain Harris Teeter for $2.5 billion, hoping to gain entrée to a class of affluent shoppers as well as counter Walmart’s expansion into the grocery arena. Kroger will maintain the Harris Teeter brand as it does with its five other regional chains.

Favorite Grocery Stores

A survey of 6,600 consumers reveals where they spend their food dollars. What do they like most about their favorite grocery store? The convenient location.

Northeast: Stop N Shop

South: Kroger

Midwest: Kroger

West: Safeway

Canada: Loblaws

Source: Chain Store Age

Job Growth Isn’t the Problem

2Q13 office absorption ticked up 14.9 msf from 1Q13 and vacancy fell 20 basis points — clearly upward movement but at a subpar pace, says Kevin Thorpe, Cassidy Turley’s chief economist. However, the economy has created an average of 189,000 jobs per month since January 2012, above the 2004–07 prerecession pace of 160,000 jobs per month, so what’s inhibiting office space use? Due to telecommuting, open space plans, and cost-cutting strategies, companies are leasing less space, upending the traditional ratio of job growth to worker psf.