Industrial Real Estate Investment Still Strong

Industrial Real Estate Investment Still Strong

RCM Media image1 SOCIAL

A Real Capital Markets and SIOR Report found investors bullish on industrial real estate heading into 2018.

Industrial real estate investment is expected to continue its healthy run into 2018, as strong leasing, construction, and investment sales fuel the market, according to the recent Real Capital Markets (RCM)/SIOR Investment Sentiment Report. What’s driving this record investment? It’s easy to point to e-commerce as a major force, but that is just one part of the story, according to survey respondents.

Here are 5 key findings from the report:

  • Volume for 2018? — 90.3% of investors and brokers across the country say investment levels will at least stay the same going into 2018, with many predicting a slight increase in activity.
  • E-commerce Effect — E-commerce is having the greatest impact on market activity, but is not the only factor driving industrial activity. There is growth in light manufacturing, specialty food manufacturing and general corporate distribution space, for example. Also, many corporations are expanding their distribution space needs, moving to larger or newer facilities. Other companies are using warehouse and distribution space for newer manufacturing needs — such as recycled materials or green energy related uses.
  • Investment sales pricing — is expected to stay the same (92.7% of respondents) or rise by 5% or more going into 2018 (33.8% of respondents).
  • Watch out for overbuilding — 40.6% of investors say that overbuilding is the greatest threat to the industrial market.
  • Mid-size and modern new buildings win out — 35.8% of respondents prefer new, mid-size, modern, multi-tenant building

This current industrial market is unique in its longevity — and the array of market fundaments that are propelling activity. With growth in the supply chain, corporate distribution space realignment, and the continued expansion of e-commerce, it’s difficult to see an end in sight for investment in industrial real estate.

Commercial Real Estate Trends for 2017

Commercial Real Estate Trends for 2017

The commercial real estate industry has been on a strong cycle for several years. The big question is: How long will it continue? The latest Emerging Trends Report by PWC (PricewaterhouseCoopers) and the Urban Land Institute, has the long view on the market. Here’s the latest.

The Strong Investment Sectors for 2017?

pjp_interior-industrial-center

Supply chain and e-commerce growth continues to drive Industrial real estate leasing and investment.

Industrial — continues to top the charts, due to the growth in e-commerce and the general supply chain.  Well located, institutional quality distribution space has been in short supply for several years across the country. While new construction has been strong, it will take time to lease and sell the buildings and, thus, fill all the demand. Bottom line: investors like the stability and long-term growth of this sector and will continue to seek strong assets in primary, secondary and even outlying markets.

Senior Housing/Retirement Homes — these will continue to be in favor, due to the aging population and need for community residences and related services.

 

oakland-urban-retail-centerUrban Mixed-Use Developments — these vibrant, urban developments that combines residential, retail, offices and more continue to draw Millennials and Baby Boomers alike — and should guide development going into 2017 and beyond.

The Emerging Trends report also predicts:

nyc skyline

Global commercial real estate should be stable in 2017

More stability in market cycles — Look for less volatility, as lessons learned from the global financial meltdown will guide decisions moving forward. While construction still lags during this post-recession era, it should continue at a tempered pace.

Multi-Use– or “Optionality” is in — the trend toward developers and investors seeking flexible, multi-use projects. In this commercial real estate market, buildings that can be adjusted to satisfy multiple tenants and changing neighborhoods are ideal. It lets owners maximize rents and seek the highest and best use.Bisnow multifamily yardi

Construction costs to rise due to labor issues — Workers who left during the recession have been slow to return, slowing production and increasing costs. With vacancy rates at record lows in many markets, construction has been a big factor in filling long-term demand. Without an adequate number of workers, costs will rise.

Cap rates could go lower in 2017 — As investors continue to chase deals and limited supply and tempered construction present continued challenges.

 

 

Retail Market Review: What’s Ahead for Holidays?

Retail Market Review: What’s Ahead for Holidays?

December 2016

We’ve made it past Cyber Monday, which became Cyber Week this year. As we head into the main holiday shopping season, all eyes turn to retail sales. Who will show strength this holiday season? Target? Nordstrom? Macy’s? Will shoppers turn out in force or wander around the malls without showing much purchasing power?

Here’s a recap:

rossevelt-field-mallShopping malls in trouble? — According to Fortune, the decline of department stores and other factors are a black cloud hanging over mall owners and a big factor in retail sales. Click here for more details.

Sales steady — Sales of electronics, apparel and other holiday favorites are expected to rise 4.1 percent this year, compared with 2.5 percent last year and 4.8 percent in 2014. Check out Kiplinger’s retail update for more.

Stretching the season — National Real Estate Investor talks about retail promotions and efforts to stretch the holiday shopping season from early November into January. To note — U.S. total store sales fell by about 4 percent during the Black Friday weekend compared with 2015. But — ICSC research found that more than 75 percent of shoppers spent as much –if not more — in 2016 versus 2015.

nyc-fifth-ave-hmkmcg

Consumer spending risesCommercial Property Executive details how consumer spending rose during Q3 to 3.2 percent– the highest level in two years. This is mainly due to business spend and an increase in imports, but overall…good news!

 

Self-Storage Market Continues to Offer Investment Opportunities

Self-Storage Market Continues to Offer Investment Opportunities

Self-storage

An iStorage facility in California.

Sept. 2016

With the self-storage industry on a roll of late, one Colorado-based REIT is betting that storage will continue to be a good investment.

Commercial Property Executive has a story detailing National Storage Affiliates Trust’s forming of a joint venture with a major state pension fund to purchase a 66-property iStorage portfolio for approximately $630 million. The deal includes between 4 and 5 million square feet of rentable self-storage space in more than 36,000 storage units across 12 states.

NSA also acquired the iStorage property management company and brand in a separate deal.

The purchase strengthens NSA’s hold in many of its existing markets — most notably California and Florida, where iStorage had a major presence — and introduces it to new markets in New Jersey, Ohio, Pennsylvania, and Virginia.

Marcus & Millichap Report

NSA isn’t alone in seeking out self-storage property. Marcus & Millichap has released a research report that projects good things for the self-storage market in the second half of 2016. Demand for storage, combined with a lack of supply, is driving a rise in occupancy and rents. That’s true for both climate-controlled facilities and properties without climate controls.

Investors are likely drawn to self storage because of its status as a secure option for long-term profits. With that in mind, look for similar acquisitions of storage properties the rest of the year.

Indianapolis Sees Rising Demand for Multifamily Housing

Indianapolis Sees Rising Demand for Multifamily Housing

Indianapolis is known for its strong industrial real estate market, but it’s the Midwestern hub’s multifamily

Multifamily trend

Multifamily rent trends in Indianapolis via Multihousing News and Yardi Matrix.

sector that is making news right now.

Multihousing News broke down the Yardi Matrix “Indianapolis Rebounds” report, highlighting the surging demand for multifamily housing in Indy. With steady job creation, rising wages and low cost of living, Indiana’s capital has the perfect environment for multifamily growth.

As the story points out, Indianapolis has added more than 10,000 jobs in the transportation and distribution sector over the past year, further cementing its status as a major player in the Midwest. Its centralized location makes it attractive to companies like Amazon and Walmart (as well as others), and those companies are expanding. More of the same is expected going forward.

The addition of those jobs – plus jobs in the hospitality and health care sectors – attracts workers, and those workers need somewhere to live. Indianapolis has also added downtown hotels in the past year.

San Diego's downtown is a big draw for multifamily developers.

San Diego’s downtown is a big draw for multifamily developers.

Is Indianapolis a top multifamily market on par with California cities like Oakland, San Diego, San Francisco and San Jose, or even spots like Portland, Miami or Houston? Not quite. Multihousing News points out that even though multifamily demand has a record number of units coming by the end of the year, Indianapolis’ rent growth rate is expected to remain modest. However, it is clear that multifamily demand is picking up.

 

 

Cautious Optimism on Investment; Non-Gateway Markets Rule

Cautious Optimism on Investment; Non-Gateway Markets Rule

May 2016

Investment

Austin, Texas

How long will this strong CRE investment cycle last? That’s what’s on the minds of many CRE executives surveyed recently by DLA Piper. Among the key findings from the survey are:

  • Cautious optimism: We all know that CRE is cyclical. It’s been a good seven years of growth. About 62 percent of the executives surveyed are bullish about investment during the next year — down from 89 percent in the 2014 survey.
  • Non-gateway markets are king: As pricing in core markets continue to push out investors, cities such as Austin, Seattle, Denver and Raleigh are becoming the hot spots. This is particularly true among domestic investors, according to the report.
  • Record pricing, but reduced transaction volume: There was just $25.1 B in commercial property sales in February of 2016, down almost 50 percent from the previous year.
  • Foreign investment will continue: The U.S. is considered a safe haven and will continue to draw foreign investors into non-gateway markets and core markets (which are considered an even safer bet).
    Seattle

    Seattle, Washington

Among the top non-gateway cities to watch, according to the survey respondents, are:

  • Austin
  • Seattle
  • Miami
  • Denver
  • Nashville

See the law firm’s “State of the Market” survey for more.

Will the Tech Sector Slow?

Will the Tech Sector Slow?

Tech sector

The tech sector has been growing at a rapid pace.

April 2016

The tech sector has been surging, but can it continue its torrid pace?

The short answer is no. The tech sector will continue to grow, but it can’t hope to sustain its incredible growth forever.

Office and multifamily markets in tech-heavy communities like San Francisco, New York City, Seattle and Los Angeles will see a slowdown due to decreasing demand from tech tenants. Attribute that to the fact that those tenants have been growing at an unsustainable pace. Available office sublease space in San Francisco has already jumped, moving from 1.3 million square feet in February 2015 to 1.9 million just one year later. This is according to CoStar reports cited by Bisnow.

Fitch Ratings reports that while office and multifamily owners could see some risk from lower tech-tenant demands, industrial and healthcare REITs should see little (or no) risk unless the regional markets are subject to economic softening. Retail owners will experience less risk (compared to office) because they tend to have longer leases and lower rates of tenant failure.

Owners might not want to hear it, but it sounds like demand will return to more normal levels over the next few years.

Multifamily growth expected to be slow, steady in Q2

Multifamily growth expected to be slow, steady in Q2

Multifamily growth

Multifamily growth in Houston was downgraded in a recent report by Yardi.

April 2016

After adjusting their estimates for the second quarter of 2016, commercial real estate experts are anticipating a period of slow, but steady, multifamily growth over the next three months.

Rents on multifamily properties reached an all-time high of $1,181 last month, rising 0.5 percent over February, according to the Yardi Matrix Monthly report. But the report also predicts that rent appreciation will taper off soon. National rents are already showing the signs, decreasing by 20 basis points from February 2015.

Of the 30 major metropolitan markets for which Yardi creates forecasts, 13 were downgraded from the end of first quarter, 11 were increased and six remain the same. The top markets and their expected rent growth included:

  • Portland (14.1 percent)
  • San Francisco (11 percent)
  • Sacramento (10.6 percent)
  • Denver (10.3 percent)

Mid-Atlantic markets Richmond, Va.; Washington, D.C.; and Baltimore were the only markets to fall below their long-term average for growth. This is likely due to their weakness in the high-end lifestyle rent sector.

See this Commercial Property Executive story for more.

What’s Behind Manhattan Land Sales Slowdown?

What’s Behind Manhattan Land Sales Slowdown?

According to The Real Deal, Manhattan land sales slowed during the first part of 2016.  Data and analytics firm Real Capital Analytics (RCA) shows that there were only $90 million worth of development deals in January and zero on record in February. Land sales slow

What’s going on? Looks like three main factors are at play–stringent financing, lackluster luxury condo sales and the termination of the 421a tax abatement program. Another key factor is that buyers are not willing to pay the high prices sellers are touting. This is having a ripply effect on development sites. Click here for more.

Retail Sales Still on the Rise Early in 2016

Retail Sales Still on the Rise Early in 2016

February 2016Retail sales

When it comes to shopping, U.S. consumers aren’t being swayed by snow, nor rain, nor … well, you get the idea.

The month of January brought bad weather for much of the country. But that didn’t stop consumers from heading to brick-and-mortar stores or online retailers in droves. The fact that overall retail sales grew in January is remarkable considering the volatility in global markets and overseas economies. The rise in retail sales is in line with other indicators of growing economic strength.

Still, it’s a small sample size, right? Well, last month actually stands as part of a greater trend. Total retail sales jumped 3.4 percent over the 12 months that ended Jan. 31, according to research by Marcus & Millichap.

There are two factors most responsible for the growth:

  • The price of gas is low enough that consumers find themselves with more money to spend.
  • Consumers have proven themselves willing to spend that money.

Spending in categories like food and drink (as well as more frivolous pursuits) is up across the board over the last 12 months. Further evidence of consumer confidence comes in the form of a rise in sales on larger, long-lasting items. Building materials and furniture sales rose over the past 12 months. Marcus & Millichap projects U.S. retail vacancy to drop 30 basis points to 5.9 percent in 2016.

It appears consumers are taking advantage of stable employment outlook and loosening up a bit. That’s great news for retail sales.

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