Commercial Investment Real Estate November/December 2017 | Page 10

MARKET
Other
Retail
11.81 %
TRENDS
13.56 %
Multifamily
4.20 %
H1 2017 CMBS
Bounces Back
to $31.7B
Loans by Property Type*
Office
Mixed-Use
27.20 %
19.75 %
Industrial
3.01 %
* A sizable portion of loans categorized as mixed-use
include collateral consisting of both office and retail space.
Source: Trepp
Hospitality
20.46 %
Briefly Noted
Industrial — The
fortunes of the industrial
sector keep rising — with
expected absorption
of more than 200 msf
and addition of 2 million
8
November | December 2017
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.
COMMERCIAL INVESTMENT REAL ESTATE
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.