Market Data

Market Trends

Industrial Strength Year

The overall national industrial vacancy rate ended 2014 at 6.8 percent, the lowest level since 1Q 2001, according to Cushman & Wakefield. The vacancy rate was down 70 basis points YOY and 400 bps from its 10.8 percent peak in early 2010. There was 340.3 million sf of industrial leasing activity in 2014, a rise of 3.6 percent over 2013. Markets seeing huge leasing gains include Atlanta, up 51.5 percent YOY, and central New Jersey with a 21.7 percent increase. “In almost every market, industrial property demand continues to surpass supply,” says John Morris, leader of C&W industrial services. The nation’s 159.1 msf of occupancy gains in 2014 was up 35.7 percent YOY, which, with low supply, has resulted in healthy rent growth. At year-end, 105.1 msf of industrial inventory was under construction in the U.S. “The industrial market is well positioned to gain further momentum in 2015,” Morris adds. “The battle between major retailers to make optional a ‘last mile’ experience that could be nearly instantaneous for customers will only accelerate in the coming year. Overall, industrial square feet are replacing some retail space needs in the U.S. now, and for the foreseeable future.”

“By a wide margin, the U.S. was voted the most stable and secure country for investment, outstripping both second-place Germany by 55 percentage points, and third-place U.K. by 60 percentage points.”

—Association of Foreign Investors in Real Estate 23rd Annual Survey

Briefly Noted

Hospitality — In 2014, “The market was dominated by the sale of select-service hotels,” said Suzanne Mellen, HVS senior managing director, at the Americas Lodging Investment Summit in January. That activity also kept price growth per key at around 4 percent. Hotel transactions increased 22 percent last year, with hotels above $10 million showing the biggest price increase: 25 percent YOY. Hotels selling in the $2.4 million to $10 million price range showed price per key amounts still well below 2008 peak levels, Mellen said.

Industrial — There is still plenty of upside in the industrial market, according to CBRE, which sees rents rising 4 to 5 percent this year and reaching full recovery in late 2016. Although this will be a strong year for new development, supply will still lag behind demand by more than 20 msf.

Multifamily — “Apartment values now measure 13 percent above the 2007 peak and overall cap rates have decreased over the past year to 5.7 percent,” says Marcus & Millichap’s 2015 National Apartment Report. With class A acquisitions priced at a premium to replacement costs, new development and class B renovations offer a better value for investors.

Office — JLL foresees a 25 percent increase in absorption for 2015, according to its 4Q14 office report. However construction is happening in 38 of the 48 markets tracked, much of it speculative and almost half of it projects with no lease commitments. In late 2016, the market could shift from undersupply to oversupply, JLL warns.

Retail — “In 2014, private investors accounted for 60 percent of net lease retail transactions, a significant increase when compared to 42 percent in 2013,” according to the 4Q14 Boulder Group Net Lease Market Report. “Private buyers continue to dominate the net lease market in the low cap rate environment as institutions cannot typically pay the cap rate premiums due to yield restrictions.”