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Market Trends | CCIM Institute

November 25, 2013

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Market Trends | CCIM Institute.

Market Trends

High-Priced Office Markets

The location for the top five most expensive streets for office space — San Francisco Bay Area, New York City, Fairfield County, Conn., and Washington, D.C. — haven’t changed in two years, they’ve simply shuffled places, according to Jones Lang LaSalle’s recent report. However, a comparison of the 2013 and 2011 rankings illustrate the difference between the fates of the No.1 and No.5 markets. The Bay Area registered a 30 percent increase in average market rents psf from 2011 to 2013; No.5 ranking Washington, D.C., clocked a 33 percent decrease in average office rents psf. In between, New York, Silicon Valley, and Fairfield County registered increases of 12 percent, 21 percent, and 14 percent respectively.

“The pendulum is slowly shifting from a tenant’s market to a landlord’s market. Supply/demand fundamentals suggest the bulk of the country will be pushing office rents upward by this time next year.”

Kevin Thorpe, Chief Economist at Cassidy Turley, 3Q13 Office Market Report

Briefly Noted

Hospitality — Fifteen of the top 25 hotel markets tracked have recovered their prerecession peak revenue per available room rate as of August, according to STR. Two more markets are expected to recover by year-end, with four more recovering in 2014 and the final four in 2015. San Francisco tops the list with a $148.60 RevPAR, a 20 percent increase over its prerecession peak.

Industrial — No one is sure how etailing will change U.S. logistics, but CBRE suggests that a combination of large national or regional distribution centers and local or urban parcel hubs will be the norm going forward. Online retailing will support “a substantial expansion in leasing demand for smaller cross-docked parcel delivery centers that are close to major urban areas, with parcel courier companies accounting for a growing proportion of demand,” says Richard Holberton, director of CBRE Econometrics.

Multifamily — The average overall apartment capitalization rate is at 5.6 percent, according to the 3Q13 PwC Real Estate Investor Survey, the lowest cap rate in five years. Investors surveyed for the report see cap rates holding steady for the next six months.

Office — Nine of the 13 largest markets issued declining office vacancy rates in 3Q13, according to CBRE. Dallas showed the largest decline — 100 bps — followed by Phoenix, Washington, D.C., and Seattle.

Retail — Is it time for new big-box development? Perhaps says Marcus & Millichap’s 3Q13 Net-Leased Report. While big-box retailers are downsizing to smaller formats in urban areas, elsewhere the infill inventory is shrinking due to re-leasing during the recession. Net lease sales of big-box product increased 16 percent YOY, as appliance, furniture, and DIY enjoyed brisk sales, spurred by a stronger housing market.

“The lack of a knee-jerk reaction to higher interest rates on the part of investors also reflects their confidence in the industry.”

3Q13 PwC Real Estate Investor Survey

Legislative Update: FASB

More than 500 comments were submitted to the Financial Accounting Standards Board and the International Accounting Standards Board’s advisory committee, many of them criticizing the plan to overhaul lease accounting rules next year. CCIM Institute participated in coalitions that submitted comments to FASB/IASB. Concerns specific to the real estate industry include:

•  Increase in recorded lessee liabilities would result in unexpected technical violations of financial debt covenants, offering lenders the opportunity to restrict credit availability.

•  Lenders will likely require monetary penalties that violate debt covenants.

•  Changes would increase the cost of lending and reduce availability of credit.

•  Firms would face increased administrative costs for financial reporting, accounting functions, and internal controls.

•  Companies may seek shorter lease terms, resulting in reduced borrowing capacity for investment real estate.

FASB/IASB plans to make a final decision in 2014 with a goal of implementing new rules in 2017.

Go to CCIM.com for further updates on current legislation and look for the 2014 Legislative Outlook in January/February 2014 CIRE. 

– See more at: http://www.ccim.com/cire-magazine/articles/323307/2013/11/market-trends#sthash.TaSUsCnd.dpuf

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Guy Masse, CCIM, SIOR

Senior Vice President Cushman & Wakefield

2001 University, suite 1950

Montreal, Quebec

H3A 2A6

Tel.: 514 841 3830

guy.masse@ca.cushwake.com

http://guymasse.com

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