Market Data

Market Trends

Briefly Noted

Hospitality — With more money available for construction lending, Pittsburgh has become a mecca for limited-service hotels, with the number of rooms increasing more than 1,000 percent since 2007, according to a HotelNewsNow.com analysis of STR data. Other markets experiencing exponential hotel growth include Scranton, Pa., southern Missouri, and San Jose and Santa Cruz, Calif.

Industrial — Overall industrial rents are expected to increase by 26 percent in the next three years, as vacancy rates continue their decline to 7.1 percent in 2017, according to Cushman & Wakefield. At the same time, 380 msf of new product is expected to come online, with a number of 1 msf-plus big boxes being built in both major and secondary markets.

Multifamily — Concerns about overbuilding are “mostly exaggerated,” according to Cassidy Turley. Given the fact that homebuilders have been underbuilding relative to household formation by 40 percent for the past five years, CT predicts the 1Q14 4.0 percent vacancy rate ticking up to 4.3 percent by year-end and 4.5 percent by 2015, with the majority of this year’s 160,000 new units absorbed by 2016.

Office — While 17 msf of trophy office space is under construction in the U.S., most of it is concentrated in New York, Houston, and San Francisco, according to JLL. Of the 40 other markets it tracks, JLL reports an average of less than 200,000 sf under construction. Growing demand sets the stage for rent growth in the next couple of years: 10 markets now have single-digit class A vacancy rates, with seven showing no development in progress.

Retail — In 2013, new shopping center completions increased for the first time since 2007, according to Cushman & Wakefield, with 400 new centers bumping up the total gross leasing area by 12.7 percent. During the next three years, the U.S. will add 758 new centers, Canada, 42, and Latin America, 115.

Most Attractive Investment Option

Significantly higher cap rates for stabilized class B assets have perked investor interest, according to CBRE’s “Investor Intentions Survey, 2014.” While a majority of respondents (57%) chose opportunistic/value-added assets, 20 percent of investors chose class B assets, compared to 17 percent for class A core assets and 6 percent for distressed assets.

“New construction [bank] properties with long-term ground leases are in the highest demand amongst 1031 exchange investors and private buyers as they offer long-term leases to investment grade tenants with historically low lease default rates.” - The Boulder Group

“As the global economy recovers, the potential flow of funds into commercial real estate is staggering.” -Peter Linneman, chief economist, NAI Global

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