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Soaring Commercial Real Estate Volumes

Commercial real estate volumes are back, and note the last paragraph of the article - strong activity in the office space with average cap rates around 7.00% - and it certainly looks like rotation out of multi family and into other asset classes (office and retail), which is where we see value as well.

Also notice that there is movement into the secondary markets - which is also where we are seeing opportunities in

smaller sized deals.

From the article:

For the first half of 2015, volume in U.S. commercial real estate – properties like office buildings, shopping malls, and apartment complexes priced above $2.5 million – grew 36% compared to the same time last year, according to data compiled by Real Capital Analytics. At $255.1 billion, transactions were just ahead of the pace set in 2006....

Some smaller markets saw much larger percentage upticks. Orlando’s $4 billion of transactions from January to June 2015 was more than three times the previous year. Places like San Antonio, St. Louis, Raleigh/Durham, and Palm Beach doubled their deals amounts from last year.

“We’re starting to see capital move into some of these secondary cities in ways that they’ve been doing traditionally with the primary markets of the U.S.,” said Jim Costello, senior vice president at Real Capital Analytics, adding that Houston’s $6.3 billion in “deal volume has been increasing at such a pace that it’s helping to bring prices up to levels higher than seen before the financial crisis.” ...

Properties that saw the most year-over-year volume growth in the second-quarter were industrial (40%) and suburban offices (37%). Those sectors showed a cap rate – a property’s net operating income relative to value – of around 7%. The weakest volume growth was in apartment complexes, which saw just 13% increases. Apartments had a lower average cap rate of 6%.

Like the relationship between bond prices and yields, property prices are inversely related to cap rates. Thus apartment complexes were at a higher valuation relative to higher-growth sectors like industrial and suburban offices.

“The price-per-unit of apartment complexes… is at a record-high level,” Costello said. “Investors are looking at that and thinking about other commercial real estate investment classes. They see some good yield opportunities in things like suburban office, industrial properties – properties that haven’t seen as strong of a price recovery yet.”

“They look at this as maybe an opportunity to move into something with some additional gains in the years ahead,” he added.

Full article here:

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