Market Data
Market Trends
Canadian Investors Buy
Elsewhere
Given the small size of
Canada’s commercial real estate market, many domestic commercial real estate
investors have been actively acquiring properties in the U.S. and other markets
according to Jones Lang LaSalle. Canada’s assets are clustered in nine cities,
with the domestic office market comprising only about 400 million sf, roughly
the size of Manhattan’s office market, according to JLL. As a result, Canadians
purchase more direct real estate outside of their country than inside. For
2013, Canadian institutional investors were on pace to invest more than $7.5
billion in direct commercial real estate investment in international
properties. While Canadians have concentrated on U.S. and Western Europe for
acquisitions, in recent years they have spread their geographic reach to Asia
Pacific, Latin America, and Southern and Eastern Europe. In the U.S., Canadian
investors have targeted assets in Chicago, Dallas, Denver, San Francisco,
Phoenix, Portland, Ore., Seattle, and Sacramento, Calif.
CCIMs See an Improving
Market
Based on their responses
reported in 4Q13 CCIM Quarterly Market Trends, CCIM members say the commercial
real estate market has decidedly improved.
CCIM member responses:
57% indicated more deals
in 4Q13 compared to same period the year before.
46% reported higher prices
for acquisitions
48% indicate higher rents
versus the prior year
51% expect improving
credit conditions
Look for the 1Q14 CCIM
Quarterly Market Trends in early April.
Briefly Noted
Hospitality — Low new
supply trends and an improving economy foretell a strong market for value-added
hotel investors, according to CBRE. New product was about 1 percent of the
national supply in 2013 and is expected to increase to 1.3 percent this year
and 1.6 percent in 2015. Revenue per available room could grow between 6.0 and
7.7 percent this year and the trend of double-digit net operating income growth
should also continue through 2015.
Industrial — If real GDP
growth averages 3 percent this year as economists forecast, it will create a
record year for industrial demand, one of the top three years since 1990,
registering around 140 million sf in net absorption, says Cassidy Turley’s 4Q
2013 Industrial Report. E-commerce demand for large distribution centers
accounted for 40 percent of 2013’s net absorption, a trend that should continue
this year.
Multifamily — The recovery
came later to low and mid-tiered apartments and secondary markets but those
assets and markets enjoyed effective rents gains of 4.2 percent in 2013 while
class A assets struggled against new product, posting only 2.6 percent in
effective rent, according to Marcus & Millichap’s 2014 Annual Apartment
Report.
Office — “By the second
half of next year, the majority of the country will see [office] rents pushing
upwards,” says Cassidy Turley’s 4Q13 U.S. Office Trends Report. In 2013,
vacancy declined in 48 of the 82 markets CT tracked, and while top rent growth
occurred in tech and energy markets, cities like Denver and Columbus, Ohio, saw
respective 7.8 percent and 7.1 percent YOY jumps in office rent.
Retail — “Franchisee
credit restaurant properties remain one of the few bright lights in the net
lease sector as astute investors continue to seek out proven locations with the
hopes of achieving cap rates of 7 percent or better,” says NNNet Advisors in
its 4Q13 Net Lease Property Report. At the same time, cap rates on corporate
backed leases dropped to “historical national lows” of 6.01 percent from 6.53
percent in 4Q12.
Medical Office Trends
“The medical office sector
could reach a tipping point over the next several years, as many long-term
tenants of aging medical office buildings, primarily independent physicians,
retire or opt for hospital employment,” says Marcus & Millichap’s 2H 2013
Medical Office Report. A preference for post-2007 properties and larger
hospital campus facilities is reducing the demand for older independent
properties. “Properties built in 2007 or later comprise less than 15 percent of
the nation’s medical office stock but accounted for nearly all net absorption
in recent quarters,” the report says. While most new construction is driven by
larger, hospital-related development, some speculative development is occurring
in the 20,000-sf to 50,000-sf range. However only about 25 percent of this
space is preleased, whereas larger affiliated facilities are close to 96
percent preleased.
“Over the next five to 10 years millennials will replace the baby boomer generation as the stewards of the office
market. … It makes buildings without a sense of place, without amenities, without transit, without a story probably a bit more challenged than what they’ve experienced over the past 20 years.”
—John Sikaitis, managing director local markets and office research, Jones Lang LaSalle