Commercial Investment Real Estate March/April 2018 | Page 30

Las Vegas and the Twin Cities Show
Different Office Yields
Facts about Office
10-Year Treasury Rate
Minneapolis-St. Paul
Office Cap Rates
Las Vegas
Office Cap Rates
12.0%
• The balance between density and col-
laborative space has become increasingly
significant for workplace design.
• The fast-growing technology industry often
seeks office space in secondary markets,
boosting its expansion.
10.0%
8.0% • The cost per workstation in the U.S. jumped
by 4.2 percent in 2017.
6.0% • As user experience gains relevance in the
workplace, more offices will be designed to
make each member of staff more comfort-
able, happy, and productive.
4.0%
Source: Cushman & Wakefield
2.0%
0.0%
2001
2003
2005
2007
2009
2011
2013
2015
2017
Trailing 12 months through 1Q 2017
Sources: Marcus & Millichap Research Services; Co-Star Group; Real Capital Analytics
Overall Office Vacancy Declines in Omaha
16%
14%
Historical Average = 12.6%
12%
10%
8%
2012
2013
2014
2015
2016
2017
Source: Cushman & Wakefield
Niche Office Markets
Buyers continue to fuel a very hot sales market for
small office and medical office buildings priced under
$3 million, according to Ross Hedlund, CCIM, senior
vice president of corporate services at Frauenshuh
28
March | April 2018
Commercial Real Estate Group in Minneapolis.
“We have been seeing a ton of investors, even first-
time investors in real estate, who are buying up smaller
Class B and Class C office buildings and smaller medi-
cal and dental buildings.”
People have done well with other investments and
have capital to spend. At the same time, some are wor-
ried about high values in the stock market and are look-
ing for other places to put their capital, he adds.
In Minneapolis, rents have been rising, with increases
in the past year of about 3 percent. “I think that is help-
ing to drive values up too,” Hedlund says. “When people
are underwriting with future cash flows and cap rates,
they are able to pencil out a better purchase price.”
Even some of the properties that traded a few years
ago are re-trading, maybe at the same cap rate, but with
higher in-place income and higher values, he says.
Generally, a lot of capital continues to be available
for office properties both on the equity and debt side.
“Lenders are still being extremely aggressive to place
their capital, and a lot of the equity guys are anxious to
place their capital,” Hedlund says. “At the moment, it
definitely seems that the future is still bright for con-
tinuing to have strong sales volume and potentially sale
prices that are inching up.”
Beth Mattson-Teig is a business writer based
in Minneapolis.
COMMERCIAL INVESTMENT REAL ESTATE