A Statement On Ukraine from Kevin Maggiacomo, SVN President and CEO

Loading...

Dallas, TX | 2016 Top #CRE Markets to Watch: Office

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Office Markets to Watch. Not the largest or the most actively contested markets, the 2016 Office Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Office Market to Watch: Dallas, TX

Dallas - top office market to watchDallas remains one of the fastest growing employment centers in the nation, even with the energy price declines of 2015. According to the Bureau of Labor Statistics, the unemployment rate sits near record lows at 3.8% as of January ‘16, with the city creating over a half million new jobs since the recession. The office markets have fared well, as key office sectors of Financial Activities and Professional and Business Services have grown at strong annualized rates of 4.8% and 2.3%, respectively. Information has remained fairly flat at 0.4% annualized growth. As Dallas has become a modern international city with the help of the DFW airport, it is perhaps the best positioned market in the oil-producing region of the U.S. to weather any pain from the petroleum industry. The office market should remain stable and growing in 2016 and beyond.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top office markets, download the full version of the 2016 Office Market Outlook report here.

2016 Office Market Outlook

[bctt tweet=”Dallas, TX is one of 2016’s top office #CRE markets to watch.” username=”svnic”]

Dallas, TX | 2016 Top #CRE Markets to Watch: Industrial

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Industrial Markets to Watch. Not the largest or the most actively contested markets, the 2016 Industrial Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Industrial Market to Watch: Dallas, TX

Dallas - top industrial market to watchThe Dallas economy remains one of the strongest of the major metros in the nation with unemployment at 3.8% as of January ‘16 and steadily rising total employment at a 3.4% annualized rate, according to the Bureau of Labor Statistics. The fastest growing sector of employment in Dallas is an industrial space using Trade, Transport, and Utilities, which is growing at an annualized rate of 5.2%. This is the sector, where most of the 2016 and beyond gains in the industrial space market will be generated. Dallas has unparalleled airport and rail access making it an ideal business and distribution hub. In fact, the area surrounding the DFW airport is best poised to expand. Manufacturing is the weakest sector declining at a –1.6% annualized rate. This sector touches oil and gas production and exploration, and is thus most at risk for declines in 2016 and beyond.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top industrial markets, download the full version of the 2016 Industrial Market Outlook report here.

2016 Industrial Market Outlook

[bctt tweet=”Dallas, TX is one of 2016’s top industrial #CRE markets to watch.” username=”svnic”]

2016 Commercial Real Estate Market Outlook

As we progress through the start of a new year, I am pleased to share my thoughts on the robust 12 months past and to offer my outlook for the commercial real estate market in 2016. Before I do, I would be remiss if I did not thank the SVN Advisors, staff, and fellow brokers for their contributions to driving our market forward in spite of changing times. I know that I speak for all SVN Advisors and staff when I wish you a prosperous year ahead.

The Year Ahead in the Commercial Real Estate Market

Uncertainty Breeding Opportunity

After several years of increasing domestic economic expansion and an ever-recovering and ever-growing real estate market, 2016 opens with the return of global economic uncertainty as China’s economic growth moderates, energy prices decline significantly, and geopolitical threats such as ISIS, pose a consistent threat to Europe and the rest of the world. While it remains unclear how today’s macroeconomic conditions will impact commercial real estate markets, there are two scenarios. The first is that global market weakness will impact domestic financial markets, the second is that market impacts remain moderate and commercial real estate remains stable and continues to grow due to strengths in core fundamentals. We believe that the second scenario is more probable given the unique opportunities being posed by forces – like demographic shifts – that are proceeding independently of macroeconomic trends.

Manhattan - commercial real estate market
Manhattan, NY

As for the commercial real estate markets themselves, 2015 was an amazing year. Real Capital Analytics reported a total of $533 billion in sales representing a 23% gain over 2014, and the second highest level of investment volume over time behind the peak $573 billion in activity seen in 2007. Further, the Moody’s/RCA CPPI has given an initial estimate of 12% year over year price appreciation in 2015. These trends are more likely than not to persist throughout 2016 for several reasons. First, global pressures will have two effects:  One, keeping interest rates low (despite the best intentions of the Federal Reserve) and keeping foreign money flowing to the United States, a decent amount of which will flow to real estate. Second, fundamentals are strong – in fact, many markets in almost all property type segments experienced rising lease rates and falling occupancies for most of 2015 and are forecast to continue such growth. Third, new supply remains balanced with demand growth and thus oversupply seems unlikely. The lack of increasing new supply given the growth of rental rates amidst falling vacancies can largely be attributed to rising construction costs and relatively tight lending standards for new development.

What happens in the broader United States macro economy is far more difficult to predict. First, the decline in oil and energy prices is absolutely going to cause highly localized and specific harm to those sectors and in turn cause some level of harm to the real estate markets dependent on energy production, such as those in Texas and the Midwest. Historically, oil price declines acted like a tax break or stimulus package for consumers and businesses and the overall economy thus prospered; since the United States has significantly increased its production of oil and energy following the pre-recession oil price spikes, the effect is less certain today. High price markets like those found in the Northeast and California and parts of Florida are likely to benefit the most from energy price declines as it lowers transit and utilities costs and could boost employment via the stimulus effect.

Overall, we expect that the United States economy will grow more slowly in 2016 than 2015 while still remaining positive and thus avoiding recession. Therefore, we do not see any major risks to the commercial real estate markets as long as fundamentals remain relatively strong.

Investment Outlook

commercial real estate market - chicago
Chicago, IL

Commercial real estate investors who made acquisitions during the downturn are now reaping the benefits of taking such risks. Despite, or in fact, because of these significant gains, many investors and market participants are now openly opining on the possibility of a new downturn in the real estate asset cycle. We do not find such arguments to be very compelling for several reasons. First, many of the causal conditions present before the 2008 economic turmoil are not present in 2016 and are not likely to appear in the near-term horizon. The most meaningful indicator of a potential bubble or overpricing of commercial real estate is the spread between cap rates and underlying treasury rates. According to RCA, cap rates averaged 6.5% nationwide during 2015, while the 10-year treasury rate averaged in the low 2% range for most of 2015 and early 2016. This implies a spread of over 4% (or 400 basis points). Today’s spreads are significantly higher than those observed pre-crash where they averaged slightly below 200 basis points and even below 100 basis points for class A assets in top markets according to the commercial real estate economics researchers at the Lakemont Group. In summary, the market is not presenting the same risk/return profile observed before the 2007 peak of pricing. Further, debt availability is far more constrained post crisis with total leverage utilization down significantly (in fact, the percentage of all equity transactions in many markets is staggering) and therefore the risk of default is relatively low for most investors and deals. Thus, we believe pricing in commercial real estate markets does not represent a new bubble or other significant source of risk.

This conclusion is further strengthened by our belief that interest rates will not experience significant upward pressure in 2016. The energy sector declines and overall global pressures will likely start impacting GDP and employment statistics by the end of the first quarter of 2016.  The likely result will be the Federal Reserve slowing or even pausing further rate increases in 2016. Debt markets should remain open and active in 2016 as they did in 2015. If debt costs do not rise and fundamentals remain stable or growing (even if at slower rates than in 2015), it is not logical to expect price declines. In fact, we expect modest price appreciation for most markets.

Top Markets for Property Sales in 2015

(Ranked in terms of total dollar volume)

  1. Manhattan – $55.9B
  2. Los Angeles -$27.6B
  3. Chicago – $22.6B
  4. Dallas – $19.5B
  5. Atlanta – $16.9B
  6. Boston – $16.4B
  7. Seattle – $14.9B
  8. San Francisco – $14.3B
  9. San Jose – $12.5B
  10. Phoenix – $12.1B
Source: Real Capital Analytics

The list of top markets for commercial real estate sales in 2015 appears relatively similar to lists for the past 5 years with the new additions of Phoenix and San Jose. These markets attract institutional capital from private equity, REITs, and foreign buyers and have been the most competitive to find deals, especially with attractive yields. Overall, given the increasing level of global macroeconomic uncertainty, we expect these and related top tier markets to gather an increasing share of commercial real estate investment activity in 2016 as money moves to areas of perceived lowest risk.

Top Growth Markets for Property Sales in 2015

(Ranked in terms of YOY percentage increase in sales volume)

  1. DC/Virginia Burbs – 121%
  2. Baltimore – 71%
  3. Orange County – 70%
  4. Northern New Jersey – 69%
  5. Seattle – 68%
  6. Orlando – 68%
  7. Portland – 61%
  8. Central California – 60%
  9. Inland Empire – 58%
  10. Phoenix – 54%
Source: Real Capital Analytics

The above list of markets may present some of the best opportunities for growth and price appreciation given their relative strength. Capital is starting to rotate to these markets and further price increases may potentially follow. There will likely be expansion in cap rate spreads between primary and secondary markets in 2016, especially if foreign capital flows increase as predicted and those funds seek assets predominantly in only the largest markets. Thus, yield-seeking investors will likely find the best opportunities in the non-top tier markets (such as most of those on the list above).

Miami - commercial real estate market
Miami, FL

Beyond market, property sector is equally important in terms of forecasting investment performance. According to RCA, the apartment sector has been the top performer, up 38% from the peak (defined as Q4 ’07), followed by office, up 18% from the peak. Retail and industrial have lagged at -1% from peak and up 3% from peak respectively but performed well in recent years. We find it impractical to give overall guidance for property sectors on a nationwide basis and encourage investors to work with Advisors who are knowledgeable about each sector in their respective market as finding the best performer can be challenging. Industrial properties offer a prime example of such quandaries – industrial real estate in energy markets should face decreased space demand as that sector contracts in 2016. By contrast, industrial distribution facilities in areas of high population growth (like Florida) may over-perform as retailers shift distribution from stores to warehouses as online sales continue to dominate.

Trends to Watch

Perhaps the most discussed trend in commercial real estate in recent years has been the Millennials, the age cohort who are changing work and living arrangements across the nation. A relatively less covered demographic trend of greater size and perhaps importance is the aging population. According to data from the U.S. Census Bureau and analyses by the Lakemont Group, the overall population in the United States is forecast to grow by 11.55% in the next 15 years while the population above the age of 75 is forecast to grow 69.21%. In fact, those over 75 years old will represent almost 10% of the population by 2030 (those above 65 will be over 20% as well). While many real estate market participants correctly use these statistics to justify the need for more senior housing, there are actually many other real estate  opportunities to service this growing segment of the population. Market rate apartments with features and locations this demographic wants, can use, and can afford is one such example. Properties to house medical services and activity retail is another. We encourage investors to think long-term when making acquisition, disposition, and asset management decisions. This is one long-term trend that could shape demand for many property types for decades into the future.

Concluding Thoughts

2016 has started with higher levels of volatility in United States equity markets as a result of justifiably significant fears of global economic pressures causing falling demand domestically. While some investors are taking a fearful stance, we see a different outcome. It is probable that global uncertainty will serve to keep interest rates low and allow for growth of fundamentals in the commercial real estate markets and in the broader domestic economy. Furthermore, even in the event of a domestic economic slowdown, the global uncertainty could lead to lower interest rates and even greater inflows of foreign capital, supporting the domestic commercial real estate market (the current risk / reward proposition of U.S. investment is unbeatable).

Commercial Real Estate Market - Los Angeles
Los Angeles, CA

If such occurs, it is likely for 2016 to be another strong year for commercial real estate transaction volume, net operating income growth, and even price appreciation; however, expect all to grow at a slower rate in 2016 than in 2015. Investors and property owners should be aware that today’s commercial real estate economy has little in common with previous downturns. As such, we believe that the risk and return profile of commercial real estate is still attractive in 2016 and is likely to remain so for at least the near-term horizon.

 


Follow Kevin Maggiacomo on Twitter: @Maggiacomo.

[bctt tweet=”We believe that the risk and return profile of commercial real estate is still attractive in 2016. #CRE “]

Dallas, TX | 2015 Top #CRE Markets to Watch: Office

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Office Markets to Watch. Not the largest or the most actively contested markets, the 2015 Office Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Office Market to Watch: Dallas, TX

Dallas: 2015 Office Markets to WatchOffice absorption topped 2 million square feet in Dallas last year, fueled by exceptional office-use job growth, corporations relocating to the Dallas Metroplex, or expanding their operations in this business-friendly locale. Among last year’s notable moves, Toyota North America announced that it would build its $350-million, 1.8-million-square-foot corporate campus in the Legacy West mixed-use complex in West Plano. State Farm is moving into its 2.1-million-square-foot space at the sprawling CityLine campus in Richardson. Other companies, like Omnitracs and Active Network, took space for their corporate headquarters in existing central business district office towers, where the vacancy rate fell below 20% for the first time since before the recession.

Dallas’ Uptown submarket is booming with the first of several new developments pre-leasing in the range of $50 per square foot. Activity in Uptown is expected to radiate out to other submarkets, as some professional services tenants, like law firms and accountants, seek protection from the rapidly increasing rents at their current locations.

Investors should be cautious of the outlook for new supply in Dallas and the surrounding area. While two-thirds of the 6 million square feet of office space under construction in the Metroplex is pre-leased, that still leaves roughly 2 million square feet of new supply entering the competitive inventory. That new supply may slow the pace of effective rent growth and drag on occupancy levels.

To read more on Dallas and other top office markets, download the full version of the 2015 Office Market Update report here.

2015 Office Market Outlook

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

Dallas, TX | 2014 Top CRE Markets to Watch : Apartment

Sperry Van Ness International Corporation’s (SVNIC) 2014 Top Markets to Watch Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2014. Today we are delving into the 2014 Top Apartment Markets to Watch. Not the largest, or the most actively contested markets, the 2014 Apartment Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

TOP APARTMENT MARKET TO WATCH : Dallas, Texas

DallasCombine low taxes, mild winters and a business-friendly climate with Dallas’ central location relative to both U.S. coasts, and it’s easy to see why this North Texas metro is enjoying annual economic growth of more than 3.5 percent. Reports early this year that logistics technology firm Omnitracs Inc. may bring as many as 1,000 jobs to the Dallas central business district simply added to the list of more than 50 major employers that have relocated to the metro area in the past two years, adding jobs and fueling population growth that will top 2 percent in 2014 alone. Renters in the Dallas-Fort Worth metro absorbed more than 16,600 apartment units in 2013, more than any other U.S. market, yet average vacancy of approximately 5.5 percent is well below the 10-year historical average of around 8 percent. While these fundamentals suggest good development prospects, the metro is also turning out apartments far faster than any other major market, completing nearly 13,000 units in 2013. That new supply could temporarily hamper rent growth in some submarkets.

To read more on Dallas, and other top office markets, download the full version of the Top Apartment Markets to Watch report below.

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisers with more than 180 locations in 200 markets.

Download the Top Trends and Markets to Watch Reports

Chandan-Apartment-CoverApartment Trends and Markets to Watch
Office Trends and Markets to Watch
Industrial Trends and Markets to Watch
Retail Trends and Markets to Watch
Commerical Real Estate Trends and Markets to Watch