Commercial Investment Real Estate

JUL-AUG 2017

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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Page 12 of 54

COMMERCIAL INVESTMENT REAL ESTATE 8 July | August 2017 T R E N D S MARKET Briefl y Noted Hospitality — While U.S. hotel occupancy reached a new record level during 2016, refl ecting its continued rigor, growth is becoming more uncertain in major markets. Houston, Miami, and New York City have experienced negative growth for hospitality. In 2017 so far, the strongest performers have been secondary markets along the West Coast and Washington, D.C., according to JLL. Industrial — With sales growing at a 13 percent clip, e-commerce continues to fuel the industrial market, according to CBRE. Other drivers include an uptick in home furnishings, building suppliers, and factory orders overall. Additionally, inventories, shipments, and consumer confi dence continue to rise, which is a good indication that production, investment, and growth will persist. Multifamily — The gap between renters-by- necessity and lifestyle renters has accelerated. As of March 2017, Yardi Matrix reports the average difference between the segments has climbed to 180 basis points compared to 80 basis points more gains for RBN than lifestyle in November 2016. Markets in the Pacifi c Northwest led rent increases: Sacramento, Calif., at 10.1 percent; Seattle at 7.5 percent; and Portland, Ore., at 6.8 percent. The markets with the lowest increases refl ected a combination of oversaturation, affordability, and a slowing economy. These markets included Houston at –0.2 percent; San Jose, Calif., at 1.1 percent; and Washington, D.C., at 2 percent. Offi ce — The attraction of urban offi ces for millennials lifted the offi ce sector out of the Great Recession, but the suburbs continue to gain market share, according to Marcus & Millichap. This year will mark the high point in construction completions for the current cycle, adding 82 msf of space, slightly exceeding the new space developed during 2016. The high absorption rate of 83 msf in 2016 spurred a 20-basis-point decline in the U.S. vacancy rate to 14.3 percent, and will result in an increase for average asking rent of 3.5 percent. Retail — Cushman & Wakefi eld predicts store closures will most likely intensify during 2017. To achieve growth for traffi c in malls, food and entertainment will move from secondary to primary positions. Inventories for both brick-and-mortar and online merchandise have to become the right inventory close to the customers, which is available to them at the right time. For all retailers, the biggest hurdle continues to be moving products the last mile for buyers. 2017 Medical Offi ce Building Forecast Source: Marcus & Millichap Pablo_K/Thinkstock 8.5 million square feet Construction: Completions increased from 2016 as more than 8.5 msf of medical offi ce space is underway and slated for completion during 2017. Developers' focus is shift- ing from Southern states, and the Midwest will lead deliveries with 2.1 msf of all medical buildings. 40-basis-point decline Vacancy: Strong absorption trends push down the medical offi ce vacancy rate to 7.8 percent. Minimal supply additions in the Pacifi c Northwest and Central Plains regions during 2017 maintain the tightest vacan- cies in these areas. 0.3% increase Asking Rent: Industry consolidation is allowing major medical providers to control a large share of leasing activity, producing modest and steady rent gains. This year's uptick will match 2016's activities as the average rent progresses to $22.81 psf by year's end. Most of the highest rental rates nationwide are found in California and the Pacifi c Northwest.

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