Commercial Investment Real Estate

NOV-DEC 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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COMMERCIAL INVESTMENT REAL ESTATE 8 November | December 2017 T R E N D S MARKET Briefly Noted Hospitality — Showing the industry is poised for a comeback, a variety of international investors continue to snap up U.S. hotel properties, while capital is flowing at an increasing pace into public REITs. REITs acquired 16 percent of hotel sales as of May 2017 compared to 6 percent as of May 2016, according to JLL. Experts elevated their forecast of RevPAR growth from 2.5 percent to 3 percent for year-end 2017. Best of all, hotels are competing aggressively and competitively with alternative choices, such as Airbnb, JLL reports. Industrial — The fortunes of the industrial sector keep rising — with expected absorption of more than 200 msf and addition of 2 million jobs — due to rapid expansion of online retail and improvements in the U.S. manufacturing sector. Major seaport markets, such as Seattle, Los Angeles, and Orange County, are reaping the greatest benefits and lowest vacancy rates, according to Marcus & Millichap. Investors are finding the best return on investment in smaller markets, with a cap rate spread of 350 basis points between primary and tertiary markets. Multifamily — Overall, Reis predicts 2017 is the year when supply growth will offset the demand for multifamily, leading to higher vacancies. But rents showed resilience in July for multifamily when the lifestyle rent segment gained 0.6 percent, surpassing the rent-by- necessity rent increase of 0.5 percent for the second consecutive month, according to Yardi Matrix. This increase in lifestyle comes after a downturn for many months and the comeback of renters in markets such as Boston, Seattle, Atlanta, and Sacramento, Calif. Occupancy rates are falling significantly in high-supply markets like Portland, Ore., and Austin, Texas. Office — Continuing its ho-hum pace during the last seven years, national office vacancies were 16 percent nationwide in second quarter 2017 compared to 16.1 percent in 2016. During the last expansion, office vacancies decreased from a high of 17 percent to a low of 12.5 percent in 2007, while the vacancy high was 17.6 percent in 2010 for this cycle. Overall, tenants are leasing far fewer square feet per employee compared to previous cycles, according to Reis. The lowest vacancy rates are occurring in New York City at 8.8 percent; Washington, D.C., at 9.2 percent; and San Francisco at 10.2 percent. Retail — The most competitive retailers are strong when they focus on targeting consumers across multiple channels. CBRE Research predicts brick-and-mortar stores will become the hub for the delivery and return of products. Despite its resilience, prime retail rents plummeted by 4.6 percent, primarily resulting from declines in Philadelphia, New York City, and Miami. H1 2017 CMBS Bounces Back to $31.7B Loans by Property Type* * A sizable portion of loans categorized as mixed-use include collateral consisting of both office and retail space. Source: Trepp Glow Images, Inc/Getty Images Retail 13.56% Office 27.20% Hospitality 20.46% Industrial 3.01% Mixed-Use 19.75% Multifamily 4.20% Other 11.81%

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