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.
Issue link: http://cire.epubxp.com/i/143044
"Over the last year or so, we have started to see investors come back into the market," says Russell Webb, CCIM, a managing partner at Silver Oak Commercial Realty in Southlake, Texas. Last year in particular, Webb saw an uptick in his niche: all-cash buyers looking for 1031 properties in the Dallas-Fort Worth metro, including those from California and the East Coast. Te pending changes to capital gains tax laws sparked a furry of sales transactions during fourthquarter 2012. Silver Oak sold 12 buildings last year by December 31. And Webb is optimistic as buyers have remained in his market. Nationally, ofce sales totaled nearly $80 billion in 2012, which is a 23 percent increase over the prior year, according to New York-based Real Capital Analytics. Even afer a surge of buying boosted 4Q12 sales alone to $31 billion, 1Q13 posted a respectable $16 billion in sales, which is a slight 2 percent gain compared with 1Q12, according to RCA. Confidence Grows Signs that the ofce market has turned the corner are giving buyers added confdence in taking on more risk in what continues to be a highly competitive market for top-quality ofce properties. Ofce tenants continue to chip away at the excess supply of available space. During 2012, the national ofce vacancy rate declined a slight 30 basis points to reach 17.1 percent at the end of the year, according to Reis. Tat trend has continued with a further 10 bps drop during 1Q13 to reach 17.0 percent. Extremely limited new construction is more good news for ofce investors. Only 1.7 million square feet of new ofce space came online during 1Q13, according to Reis, which is the lowest recorded quarterly total for new completions since 1999. In fact, 2013 construction activity could rival the record-low building level of 7 million sf set in 1994 in the wake of the savings and loan crisis. Yet the ofce investment market remains divided into two camps. On one side are those investors focused on core assets in top markets with stabilized occupancies at 85 percent or above. Te other side consists of value-add buyers that are willing to take on a property with 30 to 70 percent occupancy. Although they follow vastly diferent strategies, the two groups both have a strong appetite for ofce properties and a desire to achieve higher yields for the risk they are assuming. Given the fact that the ofce recovery in many metros still has a long road to travel, investors continue to gravitate toward the relative safety of core ofce properties. "Tere still is a fight to quality," says Casey Keitchen, CCIM, a vice president in the national ofce group at Bull Realty in Atlanta. "Investors want the best quality and the best location in the best submarket." However, it is becoming harder for some buyers to compete for well-located, well-leased class A ofce properties in the top 10 U.S. metros. "Investors are getting pushed out of those markets, because there is so much competition," Keitchen says. Tose buyers are turning their attention toward class A properties in secondary markets and top suburban markets, as well as to class B+ and B properties in major metros. "We are defnitely seeing investors willingly go up the risk spectrum in search of yield," he adds. The Value-Add Play Buyers shopping for higher returns are fnding them in the Detroit metro area. "Lately, we are a magnet for out-of-town, value-add investors looking to buy underperforming assets at a fraction of Office Effective Rent Growth and Vacancy Effective Rent % Change 2 Vacancy Rate % 18 17 1 16 0 15 -1 14 Effective Rent (% Change) 2013 Q1 2012 Q4 2012 Q3 2012 Q2 2012 Q1 2011 Q4 2011 Q3 2011 Q2 2011 Q1 2010 Q4 2010 Q3 2010 Q2 2010 Q1 2009 Q4 2009 Q3 2009 Q2 2009 Q1 2008 Q4 12 2008 Q3 -3 2008 Q2 13 2008 Q1 -2 Vacancy Rate (%) Source: Reis CCIM.com July | August | 2013 27