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
Rise of the Secondary Markets Job growth leaders: 1Q 2013 over 1Q 2012, YOY % change Houston Austin, Texas San Francisco San Jose, Calif. Dallas Boulder, Colo. Nashville, Tenn. Louisville, Ky. Jacksonville, Fla. Bismarck, N.D. Seattle Tampa, Fla. Denver Phoenix Atlanta Baltimore United States 4.2% 3.7% 3.4% 3.3% 3.3% 3.0% 3.0% 2.9% 2.9% 2.8% 2.8% 2.7% 2.7% 2.6% 2.4% 2.4% Blue text = secondary market 1.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Source: Cassidy Turley Research; BLS sf today, according to a CoreNet Global survey. Other studies suggest that while certain industries, such as law frms and tech companies, are decreasing their space needs by 20 percent to 30 percent, most other tenants are simply renewing at their current requirements. Whether it is a dramatic shif to less space or an incremental one, the trend is clearly downward. Yet, from an investor's perspective, it is worth noting that newly built class A ofce space is performing exceptionally well in this recovery. In fact, since 2010, more than 70 percent of net growth in the ofce sector has been concentrated in this high-quality segment of the market. Te fight to quality has many investors looking at older buildings as great opportunities to retroft and earn higher returns. Retail. Te retail sector is similar to the ofce sector. It is recovering, and vacancy has trended down slowly for six consecutive quarters. But only the higher-quality retail spaces in densely populated areas are experiencing consistent leasing demand. With e-commerce continuing to gain market share, even if the Marketplace Fairness Act is signed into law, many of the traditional brick-and-mortar retailers will continue to face an uphill climb. Credit Starts to Flow Te Federal Reserve's third round of quantitative easing is fnally helping to free up credit. Since September 2012, the Fed has been buying $40 billion worth of Treasury securities and $45 billion of mortgage-backed securities each month. Tis aggressive monetary move is keeping interest rates low, which, in turn, is incentivizing 32 July | August | 2013 investors and lenders to seek higher returns in riskier assets. Te strategy is working: CMBS issuance totaled $31 billion in the frst four months of the year, putting it on pace to provide $93 billion in loan volume by year-end. Tese levels are akin to those achieved in 2004, which is the frst year of the last real estate boom. Tis is just one of many positive trends taking place on the lending side. Te net percentage of banks reporting "stronger demand for commercial real estate loans" in 1Q13 was the highest it has been since the height of the Internet-technology boom in 1998, according to the Fed's Senior Loan Ofcer Opinion Survey on Bank Lending Practices. Afer three years of deleveraging, total loan volume from large banks for commercial real estate is a net positive thus far in 2013. Of course, unprecedented monetary stimulus doesn't come without long-term risks. Te Fed has more than tripled its asset holdings since 2008 and now holds more than $3 trillion of Treasury securities and mortgage-backed securities on its balance sheet versus $750 billion prior to the recession. Clearly, as money trickles of banks' balance sheets and enters the economy, there is a high probability of upward pressure on prices and interest rates. It's likely the 10-year Treasury will hold close to 2 percent this year, but it will begin rising in 2014 and firt with 5 percent in 2015. Delayed Celebration Te trends seen thus far in 2013 have been solid if not upbeat, but that was before fscal headwinds arrived in full force. Te drag will come from two places. First, the U.S. economy is still processing the Commercial Investment Real Estate