Market Data

Market Trends(20)

Aboard the QE2

The second round of qualitative easing is expected to boost the GDP by 60 basis points and generate 500,000 new jobs, including 93,000 office-using jobs and 45,000 manufacturing positions — good news for office and industrial markets, according to Kevin Thorpe, chief economist for Cassidy Turley. The Federal Reserve’s purchase of up to $500 billion in Treasury securities over the next six months also could produce the following positive effects, Thorpe says:

  • Increased liquidity should result in “increased loan volume.”
  • A mild case of inflation and upward pressure on rents will spur “slightly better demand for value-add assets.”
  • “The anticipation of QE2 has driven the value of the U.S. dollar against other foreign currencies down. … A weak dollar is spurring increased foreign demand for U.S. real estate … and fueling demand for U.S. exports — up 18 percent compared to a year-ago in August — helping to lift demand for industrial warehouse space.”

North America Office Stats 3Q10



YTD net absorption (% of inventory)


Average rent

Under construction

United States

3.7 billion sf



$27.28 psf

19.2 million sf


440.4 million sf



$30.49 psf

6.6 million sf

Source: Jones Lang LaSalle

Worth Quoting

“Few compact, walkable neighborhoods have been built relative to demand, [driving up] real estate prices. This gives the impression that such neighborhoods are only popular with the affluent, when in fact millions of middle-class Americans would likely jump at the opportunity to live in them.” — “The Next Real Estate Boom,”

Briefly Noted

  • Hospitality — A lack of construction financing is constricting the supply of new hotels, according to Lodging Econometrics. Only 562 new hotels will come on line in 2011 and 515 in 2012, the lowest levels since the early 1990s. Industrial — By 3Q10, trade volume for the top 10 U.S. port cities was up 17.1 percent YOY, a great improvement over last year’s 14.6 percent YOY decline, contributing to a growing demand for industrial product, according to Cushman & Wakefield. National YTD leasing activity is up 11.9 percent over last year.
  • Multifamily — Apartments had “the second-greatest cap rate compression” after office in 2010, says David Young, managing director of Jones Lang LaSalle Capital Markets. Apartment cap rate levels are close to those at the peak of the market three years ago, he says. “We are now seeing national cap rate averages in the low 6 percent range.”
  • Office — Pittsburgh and Washington, D.C., are past bottom on the Jones Lang LaSalle office leasing cycle, signaling increasing rents. The majority of other markets tracked are in the bottoming-out phase, with the exception of several Florida markets where oversupply and low demand still favor tenants.
  • Retail — Overall net lease retail sector cap rates rose by 10 basis points in 3Q10, despite the fact that cap rates for Walgreens and other long-term credit tenants compressed by as much as 40 basis points, according to the Boulder Group, illustrating the continuing demand for core assets.

Latin America: Class A Office 3Q10



Rental psf US$

Buenos Aires



Mexico City



Santiago, Chile



Source: Marcus & Millichap

3Q10 Cap Rates






Range (%)






Median (%)






Source: Real Estate Research Corp.

Determining Downturns

Savvy investors looking for long-term economic trends often study the equity markets, but they shouldn’t, says Tim Koller in the October McKinsey Quarterly. “Equity markets don’t predict downturns effectively. Credit markets are a better place to look for signs of impending trouble.” His research suggests that equity markets give too much weight to current economic activity, rather than future events. “The credit markets are where crises develop — and then filter through to the real economy and drive downturns in the equity markets. Indeed, some sort of credit crisis has driven most of the major downturns over the past 30 to 40 years,” including the recent U.S. property crisis, Japan’s 1990 crisis, and several other global economic downturns. “Executives who find reasons for optimism in today’s equity market levels might be less sanguine looking at today’s credit markets,” he warns. It’s still not clear whether prices have stabilized in once-overheated real estate markets. Banks are still somewhat vulnerable. And the level of government debt in the United States and elsewhere is still an issue.” Read the complete article, "A Better Way to Anticipate Downturns,” at

2011 Construction Starts

msf – million square feet


2011 Increase

Percentage increase

2010 YOY change


20 msf




58 msf




170,000 units




59 msf




95 msf



Source: McGraw-Hill Construction


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