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/700533
July | August | 2016 Commercial Investment Real Estate CCIMS REPORT STRONG START IN 2016 "In a lot of markets, they are still getting the rents they are asking, but those rent increases are not going to be as dramatic," says Denham. So much more new supply is coming online than demand can fill, so rent growth will move forward at a much slower rate, she adds. Rent growth that was 5 per- cent in 2015 is expected to decline steadily to 3.5 percent over the next couple of years. The Outlook for 2016 One of the economic indicators to watch closely in the second half of the year will be employment growth. "We are seeing layoffs by Sara Drummond In contrast to commercial real estate's shaky first quarter, with transactions reportedly dropping 20 percent nationwide, CCIMs paint a picture of brisk activity in their local markets, particularly in the Southeast. "We're still seeing a very high volume of transactions along the Northern Gulf Coast," says John Fifer, CCIM, a senior asso- ciate with Beck Partners in Pensacola, Fla. "Institutional owners are active in this tertiary market, helped along by the volatile stock market. Several clients are real estate funds buying shop- ping centers or office buildings. They are being funded by stock market refugees who need a safer place to invest." CCIMs in Savannah, Ga., Charleston, S.C., southern Indi- ana, and Kansas City, Mo., also report strong 1Q16 activity for various reasons. Savannah, like many small markets, lags the larger markets, says Ryan Schneider, CCIM, principal and broker for Pier Commercial Real Estate. "Activity continues to ratchet up as other markets cool. Historically, Savannah trails the Atlanta market by 12 months in both recoveries and declines." He adds that outside investors are primarily seeking relief from the more-competitive larger markets. Charleston's solid local economy is attracting businesses and institutional investors, says Simons Johnson, CCIM, SIOR, vice president and principal of Colliers International in Columbia, S.C., who specializes in corporate industrial. "We are experienc- ing even more demand since the end of 2015, which was also an above-average year for demand," he says. "I see a consis- tent increase for the next 12 to 24 months, with the unveiling of the Boeing, Volvo, and Mercedes manufacturing plants." The southern Indiana market of Jim Baker, CCIM, SIOR, of Baker Commercial Real Estate in Jeffersonville, Ind., is tied to the logistics market of nearby Louisville, Ky. Two new Ohio River bridges opening by year-end have fueled "a land rush in south- ern Indiana for new warehouse and distribution buildings near interstate exchanges," he says. "I expect this year to exceed last year, which was the second best year of my career." Pat Murfey, CCIM, with Evergreen Real Estate Services in the Kansas City metro market has also closed more and larger transactions in 1Q16, compared to last year. Representing local investors and owners, he's selling older industrial prop- erties for value-add conversions into breweries, restaurants, offices, and residential space. Jacci Perry, CCIM, of KW Commercial in Fayetteville, Ark., who focuses on land and industrial, says deals are more preva- lent because the MSA has reached more than 500,000 in pop- ulation. "Northwest Arkansas is now on the radar of companies looking to relocate to small metropolitan areas," she says. But despite the population increase, new home construc- tion remains modest. "Gone are the days of pastures with streets, curbs, and gutters," she says. "Builders typically build two spec homes at a time, and banks work with them. No one builds 15 homes at a time now." Even Houston, hit by layoffs of 115,000 workers, is not as bad as people think, says Sandy Benak, CCIM, leasing man- ager for Granite Properties. The office sales investment market has dried up, but office leasing is holding its own, she says. "There is a perception that things are worse in Houston than they are," Benak says. "The reality is that class A sublease space is abundant, but the rest of the market is holding fairly steady with a slight uptick in concessions but not necessarily rates." Still, several CCIMs commented that nothing lasts forever. Enjoy 2016 but expect a correction in 2017. Sara Drummond is the former executive editor of Commercial Investment Real Estate. and mixed messages on corporate profits. But at the end of the day it all boils down to how the employment market is flowing," says Riggs. Over the past 12 months through March, the country added 2.7 million jobs with a national unemployment rate that has been holding fairly steady at 5 percent. e outlook for interest rates is another key fac- tor for commercial real estate. Barring any unforeseen shocks, the fore- cast for the remainder of 2016 is for the economy to remain on its same steady pace of growth. Economists are predicting that GDP growth over the next 12 to 18 months will range between 2.0 and 2.5 percent through 2018. e upcoming presidential election may slow some decision making as businesses wait to see which political party comes out on top. Investment transaction and leasing activity are both expected to pick up compared to 1Q16. Construction activity also will increase in many markets. "We're in a pretty good place. It's not too hot and it's not too cold, and that is a healthy place to be," Havsy says. Beth Mattson-Teig is a business writer based in Minneapolis.