Prudent Growth Partners, LLC  (2017)    1829 E. Franklin St, Suite 800-F, Chapel Hill, NC 27514  (919) 590-4119

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Demand Driving Prices in Japan and U.S.

September 16, 2015

Good interview published yesterday in Bloomberg news with JLL CEO Colin Dyer on the state of the Commercial Real Estate market.  Most of his comments are more applicable to the big deals being done in the large coastal cities, but his point on the market staying strong for at least the next two years is a good one.

 

From the article:

 

The commercial property cycle has another two years to go with prices in some of the world’s largest cities set to extend gains, underpinned by office demand and attractive returns amid low interest rates, according to the chief executive officer of property-services company Jones Lang LaSalle Inc.

 

"There is enough robust demand in the market," Colin Dyer said in an interview in Tokyo Monday. We see a "very similar phenomenon around the world, so it is ok for now. In two years’ time, that may change. This cycle could end in excessive pricing."

 

We believe that the “excessive pricing” is most likely to occur in the cities where Class A multifamily and office space is getting bid up to very expensive cap-rates – in the 4.00 range – which is well under the long term average.

 

By contrast, the properties that PGP are acquiring are much better priced – generally in the 8.00 or higher cap-rate range – and will easily withstand a slow down or “correction” in the larger market.

 

The final paragraph makes a good point as well:

 

The growth "is driven by an awful lot of equity and comparatively less debt during the last cycle,” he said. “That is a much healthier market."

 

Certainly the leverage being used today is lower than in 2007 and the more prudent firms are locking in lower interest rates for longer periods of time on their financing – this should help the entire market if there should be any sort of correction or slowdown in the market.

 

Full article here:  http://www.bloomberg.com/news/articles/2015-09-15/jones-lang-ceo-dyer-sees-rising-property-prices-in-japan-u-s-

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