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/536709
30 July | August | 2015 Commercial Investment Real Estate even the unseasonably cold weather was able to slow industrial absorption in the f rst quarter — which regis- tered another 38.8 msf of demand. U.S. vacancy currently stands at 7.6 percent and is 5 percent or less in nearly one-third of the country. Asking rents are starting to feel the pressure from this demand. Seven markets posted double-digit rent growth in the 1Q15 and another 12 saw 6 percent YOY growth or better. A Record Year for Investment Sales? So far this year, the U.S. is on pace to complete $618 bil- lion in transaction volume, which would eclipse the 2007 high mark. Sales volume is up across all product types compared to a year ago, with 20 percent or higher gains in all product types except retail. T us far, the compo- sition of domestic buyers mirrors what we observed in 2014 with institutional investors, public real estate investment trusts, and private investors accounting for roughly the same share. Despite a stronger U.S. dollar, foreign investors con- tinue to place big bets on U.S. real estate. T roughout April, foreign investment in U.S. commercial real estate was up 90 percent compared to the same period one year ago. T is foreign capital primarily targets the six global gateway cities (New York, Boston, Washington, D.C., San Francisco, Los Angeles, and Chicago) and of ce and mul- tifamily assets. Likewise, commercial real estate values continue to aggressively increase. In 1Q15, capitalization rates fell across all property types. T at being said, six years into the recovery, there are still signs of unevenness in the capital markets. For instance, the multi family sector and CBD of ce have both blown past pre-recession peak pricing. Per square foot pricing for apartments is up 26 percent from the 2007 peak, and CBD of ce is up 22 percent. Meanwhile, sub- urban of ce, retail (outside of down- town prime space), industrial (outside of bulk and built-to-suit) are still down from their peak highs. Will these strong trends end anytime soon? T at is unlikely. T ere is simply more capital in the global economy than there is real estate product to buy. T e global central banks, through vari- ous forms of quantitative easing, have injected $9 trillion into the global econ- omy since 2009. T ey have ef ectively printed the equivalent of China's GDP and dropped it into the world economy. T us far, only a small percentage of these capital injec- tions have made their way to U.S. commercial real estate. Barring something unforeseeable, that alone suggests that there is still a tremendous amount of runaway lef in the capital markets. Plenty of Juice T ere are still threats to global economic growth. Here in the U.S., we have yet to normalize monetary policy, and we will be doing so while other central banks con- tinue their own quantitative easing policies. Oil prices, though stable now, could fall and rise rapidly given the right shock. And, despite the U.S. dollar's slow appre- ciation rate, combined with another oil price shock, we could still see some harm to the U.S. economy. But make no mistake, shocks are not the norm, and the Federal Reserve is being notably careful about its deci- sion of when to raise interest rates. T e underlying U.S. economic fundamentals are as solid as ever, suggesting there is still plenty of juice lef in the current expansion. T e average length of a business cycle should be perceived as nothing more than that: It is just an average. Perhaps, given the slow developing nature of this recov- ery, and the unprecedented moves made by the central banks in shoring up the f nancial system, we are in the midst of the longest expansion in the history of the U.S. T e longest post-WW II expansion was the 10-year growth cycle that spanned from 1991 to 2001. Midway through 2015, six years in, there is little evidence to suggest that this one can't be longer. vin J. Thorpe is chief economist, the Americas, for DTZ, based in Washington, D.C. Contact him at kevin.thorpe@ dtz.com. Industrial Rents Popping Percent change in asking rent growth 4Q2014 over 4Q2013 24% 21% 18% 15% 12% 9% 6% 3% 0% 8% rent growth or better 5–7% rent growth Denver Inland Empire Nashville Austin San Antonio Chicago Oakland Lousiville Baltimore Atlanta Raleigh Charlotte Orlando Phoenix Portland Houston U.S. Miami Los Angeles Dallas-Fort Worth San Jose Source: DTZ Research