Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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volume decreased to $40.5 million in 3Q12, which was down from YOY volume and from prior-quarter volume. Te size-weighted average price of retail space decreased to $136 psf in 3Q12. Apartments. Although fundamentals continue to improve for the multifamily sector, volume and price declined in 3Q12. Te vacancy rate for the apartment sector declined to 4.6 percent during 3Q12 compared to 5.6 percent a year ago, according to Reis. Net absorption began to slow, but asking and efective rents increased $35 to $40 per unit during the year. According to RERC's transaction analysis, total transaction volume for the apartment sector decreased to nearly $56.8 million in 3Q12 on a 12-month trailing basis, which was higher than year-ago volume, but less than 2Q12 volume. Te size-weighted average price per apartment unit increased to $90,848 on a 12-month trailing basis, which was higher than the year-ago average price but lower than the 2Q12 price. Hotels. T ird-quarter 2012 hotel sector occupancy rose to 64.2 percent, a 2.5-percent YOY increase, according to Smith Travel Research. Te average daily rate was up 5.4 percent to $106.60, and revenue per available room increased 8.0 percent to $68.43. However, RERC's transaction analysis indicates that total sales volume for the hotel sector declined to more than $12.3 million on a 12-month trailing basis in 3Q12, which was lower than both year-ago volume and prior-quarter volume. Te price for hotel rooms also declined compared to both year-ago and previousquarter pricing, with a size-weighted average price per unit of $89,832 on a 12-month trailing basis in 3Q12. Secondary and Tertiary Markets: Better Times Ahead With respect to commercial real estate returns in the secondary and tertiary markets, Charlotte, N.C., has seen total returns of 13.55 percent and income growth of 6.99 percent during the past year, according to RERC's analysis. Apartment vacancy declined 180 basis points during the past year in Charlotte, with effective rental growth increasing approximately 3.5 percent, according to Reis. Industrial sector vacancy declined 30 basis points and saw 2.16 percent effective rental growth over the past year, while retail sector vacancy declined only slightly and effective rental growth increased 0.51 percent. In contrast, office sector vacancy increased slightly and rental growth was meager. Table 2: Required Return Expectations by Property Type CBD Office Industrial Suburban Warehouse R&D; Retail Regional Power Mall Center Pre-tax Yield (IRR) (%) Flex Neigh/ Comm Apartment Hotel RERC Average All Portfolio Types Index 5.5 - 10.0 7.0 - 12.0 6.3 - 10.0 8.0 - 11.0 8.5 - 12.0 6.5 - 10.0 7.3 - 12.0 6.0 - 11.0 5.0 - 10.0 9.5 - 12.0 5.0 - 12.0 5.0 - 12.0 Range 2 Average 8.0 BPS Change4 9.1 8.2 9.1 9.6 8.3 8.9 8.4 7.5 8.7 -10 8.4 -10 -30 0 -10 10.5 8.8 8.3 0 Weighted Average3 20 0 0 8.4 0 20 10 -20 -20 10 Going-In Cap Rate (%) Range 5.0 - 8.0 2 Average 6.0 - 9.0 5.5 - 7.5 6.0 - 8.0 6.5 - 9.0 5.0 - 8.0 6.3 - 9.0 5.3 - 8.0 6.2 7.3 6.6 7.4 7.8 6.6 7.2 6.9 5.4 6.8 0 6.8 -10 -20 0 -20 8.3 7.0 6.5 -30 Weighted Average3 BPS Change4 4.5 - 7.3 7.0 - 10.0 4.5 - 10.0 4.5 - 10.0 10 -10 0 6.7 -20 30 -10 -20 -20 0 Terminal Cap Rate (%) Range 5.0 - 8.5 2 Average 6.5 - 9.5 5.8 - 8.5 6.8 7.9 7.2 8.0 8.5 7.2 7.9 4.8 - 7.8 8.0 - 10.0 4.8 - 10.0 4.8 - 10.0 7.4 6.0 Weighted Average3 BPS Change4 7.0 - 9.0 7.0 - 10.0 5.5 - 9.0 7.0 - 10.0 5.5 - 9.0 -10 7.3 -10 -10 -20 -10 -20 8.9 7.6 7.1 -40 7.4 10 -10 -10 7.3 0 20 0 -30 0 1 This survey was conducted in July, August, and September 2012 and reflects expected returns for third quarter 2012 investments. Ranges and other data reflect the central tendencies of respondents: unusually high and low responses have been eliminated. 3 Weighting based upon 3Q12 NCREIF Portfolio market values. 4 Change (+/–) in basis points (BPS) from quarter immediately preceding current rate. Source: RERC Investment Survey 2 CCIM.com January | February | 2013 29