Commercial Investment Real Estate July/August 2017 | Page 10

MARKET
TRENDS
2017 Medical Offi ce Building Forecast
0.3% increase
Asking Rent:
Industry consolidation is
allowing major medical
Vacancy:
providers to control a large
share of leasing activity,
Strong absorption trends
producing modest and steady
push down the medical
rent gains. This year’s uptick
offi ce vacancy rate to 7.8
will match 2016’s activities as
percent. Minimal supply
the average rent progresses
additions in the Pacifi c
to $22.81 psf by year’s end.
Northwest and Central
Plains regions during 2017 Most of the highest rental
maintain the tightest vacan- rates nationwide are found
in California and the Pacifi c
cies in these areas.
Northwest.
8.5 million square feet
Construction:
Source: Marcus & Millichap
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.
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,
8
July | August 2017
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.
COMMERCIAL INVESTMENT REAL ESTATE
40-basis-point decline