Commercial Investment Real Estate March/April 2018 | Page 28

Do you favor well-certified
buildings during site selections?
13%
53%
34%
No impact
Marginal preference for
WELL-certified buildings
Strongly favor
WELL-certified buildings
Do you run an employee
wellness program?
9%
15%
76%
Yes
No, and have
no plans to
No, but plan
to introduce
Source: CBRE survey of global corporate real estate executives
lot of big players and big money looking for deals here.”
Sales for the first three quarters of the year totaled nearly
$700 million, which is up 14 percent year-over-year,
according to Avison Young.
National data points to an office market that is
stable — and perhaps a bit stagnant. Construction and
absorption both have been moving forward modestly,
which has been producing a net neutral effect on occu-
pancy levels.
U.S. vacancies have remained flat during the past two
years at an elevated rate of about 16 percent, according
to Reis. Yet the tide is not lifting all boats the same,
and investors are taking a deeper dive into secondary
and tertiary markets.
Changing Markets
For example, Omaha, Neb., is experiencing an uptick
in sales activity that is coming from local as well as
regional and national investors. The metro had
several properties traded in 2016 and 2017 for cap rates
at 10 percent.
“Those are very, very high capitalization rates for
good product,” says Ember Grummons, CCIM, an
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March | April 2018
investment sales broker at Investors Realty in Omaha.
Cap rates have since dropped below 10 percent, but they
are still high compared to other markets. Those yields
are attracting more investors to the market, he adds.
Buyer attention also is expanding to include best-in-
class suburban assets. “Single-tenant office has been hot
all along,” Grummons says. “But suburban multitenant
office has been out of favor for a long time, and I feel
like it is starting to come back.”
Nationally, 2017 office investment sales through
November topped $126.9 billion, which is down 11
percent year-over-year. More telling is that suburban
office sales remained relatively flat at $71.1 billion, while
CBD sales dropped 25.2 percent to $41.6 billion.
Class B properties also are becoming more attractive
to investors, as vacancies start to shrink and rents start
to rise. In Omaha, the Class B sector was hurt by the
flight to quality that occurred several years ago.
Vacancies have since improved to 10.6 percent, and
Class B buildings are beginning to fill up again. Rents
for Class B have been flat for some time, while the cost
for tenant improvements has gone ballistic.
That has lowered returns for owners and made Class
B office investments less attractive for buyers, according
to Grummons. “We are just starting to see a little creep
up in Class B rents, and, personally, I think that will
accelerate,” he says.
Revitalizing Smaller Cities
Even tertiary markets are getting a lift from a stronger
economy. Columbus, Ga., has seen a return of positive
leasing and expansion during the past two years. Much
of that activity is focused squarely on the city’s down-
town, due to ongoing revitalization and new invest-
ment that has occurred over the past 12 years.
For example, the city has worked to create a hub
of activity ranging from a thriving restaurant scene
to outdoor recreation, with a new man-made white
water course that opened on the Chattahoochee River
in 2012. “Our downtown is really a model downtown
that you will hear a lot about in the future,” says Leah
P. Braxton, CCIM, vice president, Brokerage Services
at W.C. Bradley Co. Real Estate LLC in Columbus.
Recent redevelopment projects for W.C. Bradley
include Eagle & Phenix Mills, a mixed-use historic
redevelopment along the river that has created condos,
apartments, office space, and ground-floor retail and
restaurant space. Last year, the company also announced
plans for The Rapids at Riverfront Place, a $52 million
development that will include apartments, retail, and
restaurants. The growing residential and retail space
also is beginning to attract more office users that are
relocating from the suburbs, Braxton notes.
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