Market Data

Market Trends

The Great Retail Class Divide

According to Cassidy Turley’s Spring Retail Report, national credit tenants rule the roost today and their rule is class A shopping centers or nothing at all. Class B centers should be upgrading to compete with class A, but even that is not a sure thing. “Increasingly, [national credit] tenants are willing to hold out until either new product becomes available, or they are going to other markets where they can find the class A space they need, rather than staying put in one geographic area,” the report says. “As for class C product, there will continue to be only minimal relief as far as occupancy growth goes and certainly nothing in the way of overall rental rate growth.”

“During the fourth quarter [2013], commercial and multifamily mortgage debt outstanding reached a new high, erasing the declines caused by the recession.”

— Jamie Woodwell, vice president of commercial real estate research, Mortgage Bankers Association

Office Sector to Rebound in 2014

“Office Sector Primed for Dynamic Performance in 2014,” is a headline from Marcus & Millichap’s National Office Report, which issues a strong forecast, not only for the office market but the economy in general. A strengthening housing market supporting robust retail sales and a forecast of 3 percent GDP growth have companies moving off the sidelines to hire and expand their office space. In turn, investors are looking for higher risk deals in smaller markets and new development opportunities in low-vacancy markets. Most of the development action this year will happen in 15 markets, each with more than 1 msf of new construction scheduled to come online.

Briefly Noted

Hospitality — Major-market hotel occupancy is forecast to grow by 4 percent this year, according to TravelClick, with smaller markets seeing larger increases, including Tampa, Fla., 14 percent; Denver close to 11 percent; and Atlanta, San Francisco, San Diego, at or near 9 percent growth. That outlook is boosting hotel prices, according to a Hotel News Now report: From 2012 to 2013, the number of U.S. hotels transacting at a price of $1 million per room grew from five to more than 20.

Industrial — Net absorption for this year could surpass 250 msf, according to the NAIOP Industrial Space Demand Forecast. The report projects a quarterly demand of 62.7 msf, due to pent-up demand and increased construction and retail spending from a strong housing rebound. Given an improving job market and economy, 2015 should follow the same trend with quarterly absorption averaging between 58.5 and 64.5 msf.

Multifamily — While the outlook for all seniors housing sectors is positive, the independent living sector is attracting the most attention from multifamily investors, as transaction velocity increased more than 50 percent last year, according to Marcus & Millichap. Median sales price was $135,400 per unit with cap rates in the high 6 percent range.

Office — A 2.8 percent office-using job growth and tightening space availability should push tenant demand for office space to 135 msf this year, more than double the 56 msf scheduled to come online, says Marcus & Millichap. This sets up a strong scenario for a 120 bp drop in the national vacancy rate and a 3.5 percent rise in asking rents.

Retail — The flight to quality is playing out in neighborhood strip centers where overall vacancy is around 10 percent but class A vacancy is closer to 6 percent, according to Cassidy Turley. Neighborhood centers will make the most gains this year, helped along somewhat by their tenant mix of grocery, drug, restaurant and retail services — retail categories least affected by ecommerce.

Foreign Investment Grows

Offshore investors, mostly from China, continue to flood the U.S. real estate market with capital, according to speakers at the Akerman U.S. Real Estate Summit. Inbound investment is up 40 percent and doesn’t appear to be slowing, said Tim Gifford, senior vice president of international capital markets at CBRE. Global transaction volume for 2013 was $1.1 trillion, the highest volume since 2007, according to E&Y. About 18 percent of that amount accounts for cross-border transactions, with the U.S. remaining the strongest market for international capital.

Source: Hotel News Now