Cross-border investors target industrial properties in 2015. (Photo via GlobeSt)
Cross-border investors seized a larger share of the U.S. market in 2015, continuing a buyer spree that has fueled the market for several years.
Research from Real Capital Analytics’ latest U.S. Capital Trends Report found that deal volume for cross-border investors rose 123 percent from 2014 to 2015. That gave that class of investors a 16 percent share of the deal activity in the market.
RCA found that cross-border investors targeted properties in both gateway cities and secondary markets. JLL reported similar findings in its latest U.S. Investment Outlook report. According to JLL, foreign investment in the U.S. broke a seven-year-old record high by more than $30 billion.
As Steve Collins, international director and president of JLL Capital Markets—Americas, told GlobeSt, “While we’re seeing volatility and uncertainty in parts of the financial markets, the relative strength of economic and leasing fundamentals continues to position the United States as an attractive, healthy and transparent market for cross-border investment.”
GlobeSt has a close look at the reports from Real Capital Analytics and JLL.
Other highlights from RCA’s report include:
- Overseas buyers dominated U.S. industrial assets, purchasing more than any other group.
- Institutional/fund capital sources represented 35 percent of apartment, office and hotel portfolios in 2015.
- Digging deeper, those buyers accounted for 43 percent of apartment portfolio sales, a leap up from 24 percent in 2014.
- Public investors fell back in the past year as volume dropped five percent.
The Wall Street Journal has the latest on Open Slate client 90 North Real Estate Partners and its $123M acquisition near Philadelphia. Based in the UK, 90 North is known for its deep understanding of the global investment market and focus on stability and long-term value.
The 320K SF, two-building campus includes office and research and development space. 90 North and a unit of Arzan Financial Group of Kuwait bought the 65-acre campus in Malvern, PA, outside Philadelphia. Dan Cooper, head of North America for 90 North, had this to say about their strategy for buying the Saint-Gobain corporate HQ:
“We look for assets that can weather any industry or market cycle” — As global investors, 90 North looks at properties in the US and abroad and is drawn by assets that have the security of strong tenancy and the stability that the US market affords. “At the end of the day, we need to know that the asset will perform well and can weather any cycle or market downturn,” Cooper says. “When you have a tenant that has committed millions of dollars into renovating a building and then signs a long term lease, that’s what helps us sleep at night.”
“It is a validation that suburban marketplaces remain extremely viable — The Saint-Gobain campus is 30 minutes outside of Philadelphia and is a sizable campus within a submarket known as the High Tech Corridor. With immediate access to the entire area—including downtown Philadelphia, the submarket is home to numerous innovative technology, medical, and pharmaceutical firms as well as excellent schools and residential neighborhoods.
“This type of scenario is playing out in many cities across the country,” Cooper says. “We saw it in Raleigh when we purchased the Lenovo Campus last year and we see it in cities such as Austin, Denver, Chicago, Atlanta and Dallas.”
Check out the Wall Street Journal story here.
If you pay any attention to the global economy, you know January wasn’t a ton of fun.
But still, it was just one month. Can it really say anything about the future of the commercial real estate market in the United States? Bisnow.com got the opinions of six top economists, and as you might expect, those opinions vary.
Stockbrokers struggled through the worst January since 2009 this year.
Some cautioned against paying too much attention to the market (and the resulting bluster from politicians and cable news). Others predicted pain in the short-term but economic success in the long-term. The general feeling seemed to be: “Be patient, we’ve seen this before.”
Here are the highlights:
- Robert Bach, director of research – Americas for Newmark Grubb Knight Frank: Bach confessed some angst, but told Bisnow, “If the economy muddles through, so will commercial real estate.”
- Ray Torto, Harvard lecturer and former global chief economist at CBRE: Torto predicts a positive long-term outlook for CRE and pins the blame for short-term struggles on factors like low oil prices and China’s drooping stock market. “Hope is not a tactic to pursue right now,” he told Bisnow. “Implement careful planning and executions.”
- George Ratiu, director of quantitative and commercial research for the National Association of Realtors: Have no fear; the CRE market has seen this before (and recently, too). “Looking at the post-recession recovery, we’ve had other periods of volatility … which had minimal impact on CRE performance,” Ratiu told Bisnow.
- Jack G. Kern, director – research and publications for Yardi: Kern says CRE is naturally affected by global stock markets, but doesn’t see an issue as long as proper precautions are taken. “Properties bought based on solid underwriting and reasonable fundamentals will continue to do fine,” he told Bisnow. “Those acquired without recognizing the risks properly will be back on the market soon enough.”
- Victor Calanog, chief economist at Reis: Calanog isn’t expecting 2016 to mimic last year. “Property fundamentals rocked 2015, but we expect 2016 to be a bit rockier,” he told Bisnow.
With January (thankfully) in the rearview mirror, this CRE topic will be worth monitoring as we wait to see if the global economy improves.
San Diego is an 18-hour city that is gaining popularity.
The Urban Land Institute has released its annual Emerging Trends in Real Estate report, painting a picture of a real estate market that might not be down but is certainly changing.
GlobeSt.com has the full report, but here’s a quick snapshot of some of the emerging trends highlighted by ULI:
- 18-hour cities: The rise in interest among markets like Austin, Denver, and San Diego was detected in last year’s report, and ULI sees that movement outside of 24-hour gateway cities continuing.
- Moving to the suburbs: Within gateway markets, rising prices are leading investors to consider suburban opportunities. Millenials may favor downtown areas and urban environments now, but it’s only a matter of time until marriage and family push them to the suburbs. Suburbs that also offer the benefits of an urban setting should do well.
- Office strength: Look no further than the office sector for signs of continued economic recovery. Office jobs have accounted for more than one third of the employment gain, bringing vacancy down and pushing rents up. That’s a trend that should hold in 2016.
- Moving forward: Home ownership rates dropped drastically during the global financial crises, settling in at 63.4 percent in the second quarter of 2015. ULI expects the future housing to be shaped by a necessity to improve housing options for everyone.
Keep an eye out for more on ULI’s findings in the weeks ahead.
Three fast-rising cities have broken into the top five of the annual City Momentum Index published by brokerage firm JLL and reported by GlobeSt.
The City Momentum Index highlights the top cities in the world for creating environments that attract business, technology and foreign investment. Innovation-rich cities dominated the top 10, illustrating the importance of building an economy through technology and creating new businesses.
Boston ranked second nationally — behind Silicon Valley, CA — and fifth globally. Now, thanks to record rent growth, its lowest vacancy rate in eight years and strong global investment, Boston has given the United States two cities in JLL’s top five.
“This year was further recognition that Boston is one of the most important ‘innovation hubs’ in the world,” JLL New England research manager Lisa Strope told GlobeSt.com.
The City Momentum Index is published annually. To arrive at its rankings, JLL studied 120 global cities and used 37 social and economic indicators.
The full list of the global top 10 is:
- Silicon Valley
- Bangalore, India
- New York City
- San Francisco
New capital is entering the real estate market. Where will it end up?
Money is flowing into the U.S. real estate market, and that trend is expected to continue in 2016. The big question: Where will all that new capital go?
Total acquisition volume for the 12 months ending June 30, 2015, was $497.4 billion (up 24 percent year-over-year), according to the 2016 ULI Emerging Trends Report. That type of growth isn’t likely to be sustainable, but the fact remains that investors will have capital to spend in 2016.
As we try to figure out where that new money could flow, here are a few options:
- Secondary markets: We’ve written about the rise of 18-hour cities before, and this seems to be a likely place for investors to spend capital. Markets like Austin, Denver, San Diego, and San Antonio are “cool,” “hip” and starting to grow.
- Outside the box: Investors may rethink their definition of real estate, or at least expand it. ULI highlighted the expansion of Real Estate Investment Trusts (REITS) to include cell towers and outdoor advertising. The market could grow by offering investors more opportunities to invest in infrastructure.
- Comeback story: Old properties are becoming new again thanks to the popularity of renovation and redevelopment. Consider the number of companies that are re-thinking the design of their office spaces. In some cases, the current demands of millennial workers can make rehabbed industrial space even more desirable than new Class A options.
- Going alternative: Properties that have traditionally been of interest to a small number of investors (medical offices, senior housing, data centers, labs) may find themselves in demand on a larger scale.
Clearly, CRE investors will be looking at their full range of investment options in 2016. The U.S. market offers plenty of choices, and now investors have the capital to match.
What’s Ahead for Hotel Construction?
The new Four Seasons hotel in Fort Lauderdale is slated for completion in 2018
Hotel occupancy, construction and sales are approaching peak levels and 2016 could be the last strong year for this expansion cycle. Recent analysis from Marcus & Millichap and JLL provides these details:
- Room occupancy rates are near an all time high, reaching 65.6 percent by December 2015, says a recent Marcus & Millichap report.
- Room rents are on the rise, increasing 5.2% to $120.99 on average. With more tourists and business travelers occupying rooms, owners and investors are enjoying an average revenue per available room of $80. So, of course, an increase in interest is sparking near-record levels of new construction.
- Hotel sector capital markets also remained strong, with global hotel deal volume rising by 10 percent to nearly $60 billion in 2014, says JLL. Both Wall Street and Main Street are currently lending on hotels and transaction volumes could reach $68 million in 2015. See JLL’s Hotel Investment Outlook Report for more.
Caution for investors
Analysts are also warning investors to think ahead when building new hotels: assets that takes three years to build could open after the demand for hotels starts to drop again. As a result, developers are focusing on select service hotels that are less expensive and faster to build than full-service hotels:
- Courtyard by Marriott
- Holiday Inn
- Hampton Inn
These service hotels are making up a good portion of the 4,038 projects currently under construction, which will bring 507,221 new hotel rooms on the market in 2016. That may seem like a lot, but it’s a far cry from the 5,883 new hotels that came online in 2008. Also, cross-border transactions should account for one-third of deals in 2015, with the U.S., China, Singapore and the Middle East as the biggest capital exporters.
Amenities: More Over-the-Top Than Ever
Attempts to one-up other management companies to gain new student tenants have reached new heights, says the Wall Street Journal. Landlords are now partnering with corporations like Uber, Best Buy and bike-sharing service Zagster to offer promotions and discounts to students living in their buildings.
Good or bad approach? Some management companies love the way this helps them compete at a low cost, while others are skeptical of interfering with students’ consumer relationships. Where is this all going? Find out
Photo: Al Payne of A.F. Payne Photographic Inc.
Should We Scale Back?
National Real Estate Investor interviewed several student housing owners to analyze trends. While most say student housing is gaining value and becoming a more mainstream asset, Campus Apartments CEO David J. Adelman notes that high-level amenities often increase construction costs and only appeal to high-income students. Find out more here. Read more
E-commerce sales continue to grow—by an estimated 4.2% in the second quarter—while overall retail sales grew just 1.6%, according to the Commerce Dept. Online sales still only make up 7.2% of total sales; however, this shifting in consumer behavior and supply chain usage has retailers and CRE developers rethinking how to reach those powerful consumers. Here’s a look at current trends:
Third-party logistics providers see strong demand due to changes in the supply chain. 3PLs are in big demand right now for transportation, warehousing, and fulfillment services, particularly in the next-day and same-day delivery arena. 3PLs are in the highest demand in dense metro areas like Chicago, New York, Dallas, and New Jersey. Click here for more on where this is headed.
E-commerce boosting sales of traditional retailers as some successfully tap into the supply chains. Big U.S. retailers such as Home Depot, Target, and Wal-Mart are building fulfillment centers to package and ship goods to consumers more productively and profitably. Home Depot and Target saw their online sales grow by 25% and 30%, respectively, in the second quarter. Click here for more.
Bricks and mortar retail redevelops to compete. Westfield Corp. will spend millions on LA’s Century City Mall to compete with local retailers and the rapid growth in e-commerce. Click here for more on their attempts to make the mall an irreplaceable “lifestyle center” (which cannot be duplicated online).
Retailers are following you online—and here’s why that’s good. Forbes’ writer Erika Morphy moves us past Amazon and digs into how technology, such as SmarterHQ, can help online retailers predict buying patterns and serve up online options accordingly. Check out this e-commerce and overall retail story.
Coastal markets hot for retail investment–As retail rebounds post recession, Real Capital Analytics looks at what markets are hot. Seven of the top 10 are coastal, with Chicago, Dallas and Houston the exceptions. The top? Manhattan, which accounted for 42 percent of the total investment sales. Click here for more.