Market Data
Market Trends
3 Trends for 2015
Raymond Torto, Harvard
University lecturer and recently retired CBRE global chief economist, and
Douglas Poutasse, executive vice president and head of strategy and research at
Bentall Kennedy, cited three positive real estate trends in their remarks at
the Counselors of Real Estate annual convention in Boston last fall.
- Foreign investors continue to look favorably at the U.S. “They are taking a longer view, more than the
traditional five-to-seven year outlook,” said Torto.
- Workforce housing is both a need and a driver in many markets,
according to Poutasse. Both he and Torto cited examples of affordable housing
built near medical centers such as the Cleveland Clinic in Cleveland, Ohio, and
near the tech industry in Austin, Texas, as key to driving real estate growth
in those markets. In particular, today’s workers look for housing that eliminates or reduces commute time —
opening up new potential locations for new condo and multifamily development.
- Secondary cities with direct flights to major cities are prime
candidates for growth, according to Torto. “International airports bring in capital,” he said, explaining that foreign investors are
more likely to invest in cities they can easily reach by air.
2015 Property Snapshots
With the capital markets
back at 2006 levels and a growing economy, Cassidy Turley’s U.S. property market forecast portends healthy
times ahead for the major property sectors. Multifamily: While vacancy rose in
3Q14 for the first time in this cycle, demand remains strong from 85 million
echo boomers in the market. However, the delivery of 443,000 new apartment
units in the next couple of years will push up vacancy to “5.3 percent by the end of 2016, and rent growth
will soften to 2 percent during this period.” Industrial: “Ecommerce fulfillment centers have accounted for 45 percent of the
industrial market’s net
absorption since 2011. … In
terms of demand, the industrial sector will flirt with record-setting territory
in 2015 and vacancy will drop below 7.5 percent by year-end. Industrial rents
will soar next year.”
Office: “Strengthening
job trends indicate that pent-up demand is rising beneath the surface. … Most firms have outgrown their current space.
This, in combination with the stronger job numbers, leads us to believe that
net absorption will go from modest to robust in 2015.” Retail: “To characterize the retail sector as weak would be inaccurate; it is simply
all over the map. Retail will remain a tale of multiple stories with one
general theme: the closer to the core of the city, the better the retailer will
perform.”
Briefly Noted
Hotel — New York, Houston,
Washington, D.C., Los Angeles, and Miami top the lodging pipeline as of 3Q14,
according to Lodging Econometrics, with Houston showing the largest YOY
increase in rooms at 41 percent, followed by Miami at 38 percent. The pipeline includes
projects in the early planning stages, scheduled in the next 12 months, and
those already under construction. Projects under construction have increased
the most in the past year, up 50 percent YOY, as developers take advantage of
near-perfect conditions for new supply.
Industrial — Warehouse
remains the top investment and development property choice of Emerging Trends
in Real Estate 2015 survey respondents, according to the report. Favored cities
include Nashville, Tenn., St. Louis, Charlotte, N.C., and Louisville, Ky., because
“you
can build industrial in these markets and get good returns.”
Multifamily — Vacancy
rates are expected to reach 4.3 percent by 4Q15 up from 4.0 in 2014, according
to Laurence Yun, National Association of Realtors’ chief economist. Areas with the lowest multifamily
vacancy rates currently are Orange County, Calif., and Sacramento, Calif., at
2.2 percent; Providence, R.I., and New Haven, Conn., at 2.3 percent; and
Hartford, Conn., at 2.5 percent. Still considered a landlord’s market, apartment rents should rise 4.0 percent
in 2014 and 4.1 percent in 2015.
Office — Eight msf of
medical office space was brought on line in 2014, up from approximately 6 msf
in 2013, according to Marcus & Millichap. While newer properties capture
new tenant demand, older buildings remain popular, particularly those built in
the 1990s, which average 8.7 percent vacancy, compared with a national average
of 9.9 percent. Pre-1990s properties’ vacancy is “more
likely to soften further in years to come amid ongoing healthcare industry
consolidation and accelerating physician retirements.”
Retail — Retailers are
converting bricks-and-mortar stores to concept stores, blending physical
inventory, online access, and experiential retailing, according to the Deloitte’s 2015 Commercial Real Estate Outlook. This
translates into increased technology demands from retail tenants, as they
redesign to meet the technology needs of today’s customer.