Market Data
Market Trends
Foreign Capital Buys
Offices
In 2014,
foreign capital was particularly focused on office assets, purchasing $17
billion of U.S. office properties, according to CBRE. That amount represents 45
percent of last year’s foreign investment in U.S. commercial real estate. More
than 80 percent of foreign office investment went toward CBD properties, with
New York and Boston being the favored locations. Canada, Norway, and Hong Kong
were the largest sources of international investment capital in the U.S., which
is expected to continue this year. “The U.S. office market remains a safe haven
for foreign investors looking to make their way into the U.S. In 2015, we
anticipate total office investment will rise roughly 15 percent,” said Jeanette
Rice, CBRE’s Americas head of investment research.
“The Q1 2015
Index dropped
slightly to (a still
high) 68 [out of
100]; optimism
is driven by a
growing economy
and improving
job prospects,
while current
fundamentals and
lender discipline
distinguish this
market from
the last cycle’s
peak.”
— The Real Estate Roundtable
Sentiment Index
“Approximately
$30 billion in non-traded REIT funds could enter the seniors housing market
this year, with a significant share targeted at private-pay assisted living
facilities.”
—Marcus
& Millichap’s Senior Housing Report, 1H15
Hotels
Attract Investor Interest
The
hospitality sector saw a 22 percent jump in transaction activity in 2014,
according to the CBRE 2H2014 Cap Rate Survey, reflecting a growing interest in
lodging assets. Limited-service properties jumped 67 percent in transactions,
compared to 5 percent for full-service hotels, a reversal of earlier investment
trends. Also changing was the location of preferred assets: Suburban hotels
showed a greater cap rate compression across all categories, when compared with
CBD locations. Las Vegas, Charlotte, N.C., Albuquerque, N.M., and Kansas City,
Mo., showed the greatest cap rate compression in 2014. CBRE expects almost
two-thirds of the markets to experience downward movement this year, with the
greatest declines occurring in Austin, Texas; Baltimore; Kansas City; Las
Vegas, Nashville, Tenn., Portland, Ore., and Seattle.
Briefly
Noted
Hospitality
— The hotel sector saw the most significant cap rate declines of any property
sector in 2014, according to CBRE’s 2H2014 Cap Rate Survey. Suburban luxury
hotels assets recorded the largest cap rate compression, with a drop of 69 bps
from 7.35 to 6.66 percent. Next was the lodging CBD economy sector, which
compressed 43 bps, from 8.69 to 8.26 percent.
Industrial
— “E-commerce is transforming warehouses into the retail stores of the future,”
according to Cushman & Wakefield’s North American Industrial Real Estate
Forecast 2015–2017, which predicts U.S. warehouse vacancy to tighten from 6.7
percent to 6.3 percent by year-end. Warehouse rents will jump 5 percent this
year and 10 percent by 2017, with the national average forecast at $5.34 psf by
year-end, up from $5.06 psf.
Office —
Investors are moving outside of CBDs in search of better prices and cap rates
on office assets, according to Marcus & Millichap’s 2015 National Office
Report. “Measured on a psf basis, prices for CBD assets are more than double
that of suburban office assets, and cap rates are 120 bps lower,” the report
says. Most suburban investment activity is in major markets, but Atlanta,
Houston, and Dallas/Fort Worth are also attracting buyers.
Multifamily
— For 2015, new apartment construction is “likely to rise 76 percent above the
historical average, to roughly 211,000 units. This would represent the highest
level of new completions in a calendar year since the 1990s,” says Ryan
Severino, Reis senior economist and director of research. Despite this supply
increase, rents will rise 3.7 percent and vacancy will only increase 60 bps, to
4.9 percent by year-end, due to continuing strong demand.
Retail —
U.S. malls are alive and well, according to International Council of Shopping
Centers. Overall, mall occupancy stands at 94 percent nationally, and net
operating income increased 17.5 percent in 2014. Despite retail’s new
omni-channel environment, 78 percent of consumers prefer brick-and-mortar
stores to online shopping, spending an average of $1,710 per month in physical
stores compared with $247 per month online, ICSC reports.