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.