Archives for November 2017

“Gateway market office volumes peaked in 2015 and are now declining, while secondary Sunbelt office market investment sales volumes continue to rise,” says Noble Carpenter with Cushman & Wakefield.
Carpenter says the trends favoring Sunbelt markets are poised to continue through 2019.
Evidently it’s not only lower prices, and therefore higher yields, that draw investors to office properties outside the six gateway markets. It’s also comparatively strong fundamentals.
Research from Cushman & Wakefield Capital Markets shows that secondary office markets, mainly in the Sunbelt, are outperforming when it comes to rent growth and net absorption. On a year-over year-basis through June 30, for example, rent growth in secondary Sunbelt markets has been 4.5%, compared to an average of 3.2% for the likes of San Francisco or Manhattan. Leading the way are Nashville (9.9% Y-O-Y), Austin (8.7%), Baltimore (8.3%), Miami (6.5%) and Phoenix (5.8%).
Looking ahead, office rent growth through 2019 is projected at 2.6% for these markets in the so-called “smile states”—including Atlanta, Dallas, Charlotte, Miami and Phoenix—or twice as fast as the 1.3% projected for the gateway cities. That dovetails with projected growth in office-using jobs of 2.3% for secondary Sunbelt cities and 1.1% in gateway markets.
Cushman & Wakefield’s research also shows that secondary Sunbelt markets have absorbed office space at 3.3% of the average inventory over the past eight quarters compared to 1.7% in the six gateway cities. As a result, vacancy in these markets has fallen, while vacancy in the gateway markets has risen 72 basis points since hitting its low point in 2015. At the same time, the spread between gateway and secondary Sunbelt market vacancies has shrunk to 240 bps, the lowest point this century.
“Reflecting these strong fundamentals, investment capital is shifting to secondary office markets, where properties are generally undervalued,” said Noble Carpenter, Cushman & Wakefield president, capital markets, Americas. “Gateway market office volumes peaked in 2015 and are now declining, while secondary Sunbelt office market investment sales volumes continue to rise. We project these trends will continue through 2019.”
Citing Real Capital Analytics’ Commercial Property Price Index, Cushman & Wakefield says that gateway office prices were 70% above their previous cyclical peak as of this past June, while secondary markets are 8% above their previous peak. Undervaluation extends to cap rates, too: in the previous cycle, the spread between gateway and secondary Sunbelt office market cap rates averaged 105 bps, but has since expanded to 163 bps on average. In recent quarters, though, the spread has begun to compress.
The continued undervaluation occurs at a time when the gateway markets have a construction pipeline equal to 3.3 times the annual average absorption over the past two years, as compared to only 1.3 times for the secondary Sunbelt markets. The pattern persists when looked at relative to inventory, Cushman & Wakefield says. Office product under construction in the gateway markets amounts to 2.7% of inventory as opposed to 2.1% in the secondary Sunbelt markets.
“Secondary Sunbelt markets continue to offer highly attractive yields on a risk-adjusted basis, with upside from further cap rate compression at a time when many asset classes, particularly Gateway-market office, are fully valued,” says David Bitner, senior director and head of Americas capital markets research at Cushman & Wakefield. “We see a wave of investment opportunity in secondary office markets, particularly with suburban assets, which have stronger momentum and have been less picked over by investors so far in this cycle.” Since 2010, 72% of CBD office inventory has traded, compared to just 65% in the suburbs, he adds.
By: Paul Bubny (GlobeSt)
Click here to view source article.

Average-to low-performing retail centers are seeing value declines, but there’s “no evidence” of such declines for high-performing malls and shopping centers, says Melissa Reagen with TH Real Estate.
Dire reports of the retail sector’s struggling segments are extrapolated to the entire industry, Reagen says.
It’s a time of evolution in retail, yet early-stage evolution should not be confused with end-stage disease for the sector. “Doomsday scenarios cited in news coverage are extrapolated to the entire industry, rather than to the vulnerable segments which are truly struggling,” says Melissa Reagen, Americas research head at TH Real Estate. “In our view, the average-to low-performing retail centers are seeing value declines, while there is no evidence of the same for high-performing malls and shopping centers.”
Moreover, a new report from TH Real Estate doesn’t anticipate value declines occurring for these better-positioned retail centers, either, “as long as the operating performance of these properties continues to be strong and owners are able to access the debt markets.” Reagen says the firm sees “compelling buying opportunities for high-performing power centers, lifestyle centers, neighborhood/ community centers, grocery-anchored centers and malls.” High-performing retail assets are characterized by “a strong experiential component, continual adaptions that complement e-commerce, and strategic, forward-looking capital improvements that address shifts in consumer behavior and adapt to current technology.”
Accordingly, TH Real Estate’s report says the firms expects these high-performing properties to thrive in the coming decades, “while average and low-performing retail centers will die a slow death or be repurposed. Rising online retail sales have been one of the catalysts behind the shuttering of mediocre retailers and shopping centers, however it has also provided retailers with greater operating efficiency and the ability to offer a more curated, personalized shopping experience.”
And while reports of large-scale store closings and faltering operators filing for bankruptcy cast a pall over retail generally, TH Real Estate notes that class A and A-plus malls and four- and five-star shopping centers are outperforming average and low-performing retail centers in terms of occupancy, sales productivity and rental rates. Citing data from General Growth Properties, the report notes that A-rated malls experience 1.5 times more traffic than class B properties and almost 2.5 times more traffic than C-rated malls.
“Data from the NCREIF Property Index (NPI), which serves as a proxy for high-performing institutional-quality retail properties, suggests that retail operating fundamentals have been solid during this most recent cycle,” the report states. Vacancy rates for retail properties in the NPI have fallen more than 350 basis points since 2010, and stood at 7.4% as of the second quarter. On average, NOI has grown around 3.5% annually since 2010 for retail properties in the NPI, similar to the growth seen for offices and warehouse properties during the same time period.
This growth continues even as e-commerce claims an increasing share of retail sales. Yet the report notes that while “the convenience and ease of online shopping is undeniable,” it cannot replicate the experience of shopping in a physical store. “Ultimately, online will make retailers more efficient, but it will require substantial investment to create a seamless, interactive in-store experience that resonates with consumers,” the report states.
Increasingly, that in-store experience is, well, an experience rather than simply buying things. “Consumers of all ages, not just millennials, are spending more on experiences and less on material goods,” according to TH Real Estate. “Among all consumer spending categories, Mintel expects spending on experiences, such as dining out and vacations, to grow the fastest during the next five years.”
This change in consumer preferences is reflected in a changing mix of tenants and uses at the nation’s top malls and shopping centers. TH Real Estate cites GGP data showing that entertainment and food accounted for 40% of the REIT’s leasing activity in 2017, compared with 24% in 2013. The proportions were roughly reversed for apparel’s share of this year’s leasing compared to four years ago.
By: Paul Bubny (GlobeSt)
Click here to view source article.

Thanks to all of the brokers, sponsors, and guests who attended the November 2017 CCIM NM Deal Making Session & Forum and to those who shared the November 2017 CCIM NM Properties.

Over 7 million dollars of commercial real estate properties available for sale were presented from all over New Mexico.
Click here to view source PDF.
Click here to view CCIM NM Deal Making Sessions Thank You’s.

1.	Todd Strickland	10010 Indian School Rd	Office	$819,000
2.	Anne Apicella	2240-2320 Grande Blvd SE	Office	$165-175/sf
3.	Todd Strickland	601-607 Paragon Rd SE	Industrial	$2,663,142
4.	Matt Reeves, Michael Reneau	2900 E Main St, Farmington, NM	Retail	$1,980,000
5.	Matt Reeves, Michael Reneau	2400 Cerrillos Rd, Santa Fe, NM	Retail	$2,200,000
6.	Nicole Rhodes, Steve Kraemer, CCIM	240 Charleston St NE	Multi-Fam	$395,000