Commercial Real Estate Fall 2008 Market Overview
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Commercial Real Estate Fall 2008 Market Overview as PDF for free.
More details
- Words: 1,518
- Pages: 8
Commercial Real Estate Fall 2008 Market Overview
Page 1
>> CAPITAL MARKETS
CAPITAL MARKETS
Prices are declining as Capitalization (CAP) Rates return to more normalized levels. Investors are facing higher borrowing costs and have access to less leverage. This has forced many previously active buyers to the sidelines. INVESTMENT SALES AND VALUES (DOMESTIC): •
The value cycle has accelerated into a declining market much faster than historical norms would suggest, as the debt markets impact the overall deal flow and subsequently establish a less competitive investment sales market.
•
Investors are facing higher borrowing costs and have less access to leverage. This has forced many previously active buyers to the sidelines driving lower prices and resulting in a lower volume of transactions.
•
Low-leveraged and cash buyers are now taking advantage of the market including institutional buyers and foreign capital.
•
What we are seeing is a simple supply and demand equation; less competition for quality assets equates to lower pricing across the board.
Overall: •
Property sales were off 62% in the first half of the year, but still over $85 billion of significant deals did close. However, the structure and capitalization of these sales has changed dramatically in the wake of the credit crunch.
•
All cash, assumable mortgages or seller financing are behind the majority of successful transactions this year.
•
Page 2
•
Buyers are relying on assumable mortgages, a major shift in lending patterns. Assumable debt is now the financing method of choice: it was used in up to half of acquisitions this year and we are seeing the emergence of a more aggressive seller through seller financing.
•
The credit markets are very tight. While there is some lending occurring with balance sheet lenders - primarily regional and local banks as well as life insurance companies – the deals getting done are high quality assets with credit tenancy and significant equity.
•
The Commercial Mortgage Backed Securities (CMBS) markets have failed to recover in 2008. Through June, $12.1 billion of new issuances hit the market; representing a 91% drop year-over-year. To put that into perspective, CMBS financing accounted for 70% of all CRE financing in ‘07. CMBS spreads indicate a lack of confidence in underlying credit.
Wall Street and the major national banks that financed almost 60% of all deals from 2006 through mid-2007 now account for just 9% of acquisition financings. Buyers are increasingly stepping forward with all cash.
Source: Real Capital Analytics
>> CAPITAL MARKETS OFFICE Capitalization (CAP) rates rose in Q4-2007 by 50 basis points (bps) for suburban office and 25 bps for CBD office. By Q2-2008 we began to see another decline in CAP rates with averages at 5.75% for CBD assets and 7.1% for suburban. •
•
Prices peaked in early 2007 and then began to decline as deal volume declined. With few exceptions, the primary markets with high quality assets are outperforming the national mean and continue to see decent volume of transactions; albeit significantly less than the first half of ‘06 and ‘07.
OFFICE INVESTMENT SNAPSHOT CBD
CBD
INDUSTRIAL AND FLEX Industrial product has seen the largest correction in CAP rates of the four product types; increasing 60 bps on average. Average capitalization rates stand at 7.35%.
INDUSTRIAL INVESTMENT SNAPSHOT
SUBURBAN
FLEX
SUBURBAN
FLEX
WAREHOUSE
WAREHOUSE
Source: Real Capital Analytics
Page 3
RETAIL INVESTMENT SNAPSHOT
>> CAPITAL MARKETS
RETAIL Retail volume is off as well; showing an overall decline of 62% since January 2008. •
The Mid-Atlantic market was down 74%; while the Midwest saw only an 11% decline with several large asset sales in Chicago setting the pace for the region.
•
The Northeast performed better than the national average with a decline in volume of 50% - while the Southeast – including several Florida markets (Orlando and Tampa), Nashville and Atlanta - were off as much as 90%.
•
The Southwest and the West performed slightly better than the national average but have still seen declines in excess of 50% since the beginning of the year.
•
CAP Rates overall have risen to 7% on average, however, some markets have shown improvement.
Source: Real Capital Analytics
Page 4
>> CAPITAL MARKETS MULTI-FAMILY The multi-family market has been the most resilient product type. While sales have declined 45% year-over-year through July, the monthly figures are showing a significant improvement over previous months. CAP rates have risen to an average of 6.6% on Garden Apartments – a rate not seen since 2004 levels. These price declines are thought to have spurred the activity in transaction volume. With CAP rates still low on CBD assets; the volume was off as most buyers shied away from those urban markets. As with all product types, financing is still an issue and most transactions are occurring through debt assumption. Freddie Mac and Fannie Mae are the primary lenders in the multi-family space, and while they have more than doubled their deal volume, they are still far below what the CMBS markets were lending.
MULTI-FAMILY INVESTMENT SNAPSHOT GARDEN
MID/HIGH-RISE
GARDEN
MID/HIGH-RISE
Page 5 Source: Real Capital Analytics
>> MARKET FUNDAMENTALS
OFFICE
INDUSTRIAL
•
The 2nd Quarter of 2008 saw negative net absorption in the office sector and a 20 bp increase in vacancy to 13% nationally, up from 12.6% in January. Expect to see continued increases in vacancy through year end – with a projected rate of 13.7% (a full 100 bp increase over 2007).
While export business has seen a significant increase, many users in the industrial sector are taking the “wait and see” attitude. Net absorption is significantly off this year – down from $39.1 M to $225 K YTD. Vacancy increased to 10.3% (a full 100 bp increase over 2007) and is expected to reach 10.9% by year end.
•
Effective rents will continue to see increases in 2008 of approximately 3.9% as compared to effective rent gains in 2007 of 10.6%. This decline results from an increase in landlord concessions and an overall softening in demand.
Rent growth is expected but the overall increases will be just above inflationary increases at 2.9%.
•
It should be noted, however, that effective rents are 6.6% higher than they were at this time last year; solid growth by any measure.
Average NNN rents today are as follows: Flex: $10.21 Manufacturing: $4.70 Warehouse: $4.60
Source: Reis
Source: Reis
Page 6
RETAIL
>> MARKET FUNDAMENTALS
Consumer confidence has fallen considerably over the past year. This in turn is having an impact in the retail markets. The housing downturn, tighter credit, increased fuel and energy costs and a decline in home values have all taken their toll on the retail markets.
Vacancy and Net Absorption Net absorption for the Quarter was a negative 3.2M sf. Vacancy rates climbed to 8.2% overall – up 50 bps this quarter alone and showing the largest deterioration in retail vacancy since 1995. Rents, while still rising are up only 70 bps annualized. It is expected that vacancies will continue to rise through year end and finish the year at 8.6% with rent growth below 2% overall.
MULTI-FAMILY The decline in the housing sector has had a positive impact on the fundamental picture of the apartment market. •
Effective rent growth in Q2 rose at an annualized rate of 4.4%, while vacancies rose only 10 bps to 6% on average – most of this increase was directly attributable to South Florida and Southwest markets where vacancies saw a faster rise.
•
Many developers, once in the single family home market are focused on developing multi-family projects, as such deliveries will increase and the inventory of available properties will grow.
•
Expect to see an increase in vacancy of 20 bps in the multi-family market to 6.2% with an annual effective rent growth of 3.5%.
Source: Reis
Page 7 Source: Reis
>> INDUSTRY TRENDS/OUTLOOK
THE MARKET •
Expect to see a continued influx of capital in the sector. Equity is not the issue in today’s market.
•
Foreign investors increasing their positions in the U.S. markets – led primarily by European, Australian and Middle East investors.
• Sale inventory increasing significantly but no “fire sales”. •
Institutions and other low leverage buyers taking advantage of increasing capitalization rates and being very active in the market.
• Leverage remains scarce (primarily balance sheet lenders only).
•
Flight to quality assets for investment as CAP rates rise and rental increases slow.
•
Underwriting standards remain tight for both debt and equity.
•
Fundamentals indicating a weakening picture through 2009. A transitioning market but the picture is not an unhealthy one.
•
Deal volume down significantly until debt markets return.
www.cbcworldwide.com
1-800-222-2162
© 2008 Coldwell Banker Commercial Affiliates. A Realogy Company. All Rights Reserved. Coldwell Banker Commercial Affiliates fully supports the principles of the Equal Opportunity Act. Each Office is Independently Owned and Operated. Coldwell Banker Commercial, the Coldwell Banker Commercial Logo are registered service marks licensed to Coldwell Banker Commercial Affiliates.. All Information is from sources deemed reliable. Coldwell Banker Commercial Affiliates does not guarantee the accuracy of such information and cannot be held liable for misinterpreted information.
Page 8
Page 1
>> CAPITAL MARKETS
CAPITAL MARKETS
Prices are declining as Capitalization (CAP) Rates return to more normalized levels. Investors are facing higher borrowing costs and have access to less leverage. This has forced many previously active buyers to the sidelines. INVESTMENT SALES AND VALUES (DOMESTIC): •
The value cycle has accelerated into a declining market much faster than historical norms would suggest, as the debt markets impact the overall deal flow and subsequently establish a less competitive investment sales market.
•
Investors are facing higher borrowing costs and have less access to leverage. This has forced many previously active buyers to the sidelines driving lower prices and resulting in a lower volume of transactions.
•
Low-leveraged and cash buyers are now taking advantage of the market including institutional buyers and foreign capital.
•
What we are seeing is a simple supply and demand equation; less competition for quality assets equates to lower pricing across the board.
Overall: •
Property sales were off 62% in the first half of the year, but still over $85 billion of significant deals did close. However, the structure and capitalization of these sales has changed dramatically in the wake of the credit crunch.
•
All cash, assumable mortgages or seller financing are behind the majority of successful transactions this year.
•
Page 2
•
Buyers are relying on assumable mortgages, a major shift in lending patterns. Assumable debt is now the financing method of choice: it was used in up to half of acquisitions this year and we are seeing the emergence of a more aggressive seller through seller financing.
•
The credit markets are very tight. While there is some lending occurring with balance sheet lenders - primarily regional and local banks as well as life insurance companies – the deals getting done are high quality assets with credit tenancy and significant equity.
•
The Commercial Mortgage Backed Securities (CMBS) markets have failed to recover in 2008. Through June, $12.1 billion of new issuances hit the market; representing a 91% drop year-over-year. To put that into perspective, CMBS financing accounted for 70% of all CRE financing in ‘07. CMBS spreads indicate a lack of confidence in underlying credit.
Wall Street and the major national banks that financed almost 60% of all deals from 2006 through mid-2007 now account for just 9% of acquisition financings. Buyers are increasingly stepping forward with all cash.
Source: Real Capital Analytics
>> CAPITAL MARKETS OFFICE Capitalization (CAP) rates rose in Q4-2007 by 50 basis points (bps) for suburban office and 25 bps for CBD office. By Q2-2008 we began to see another decline in CAP rates with averages at 5.75% for CBD assets and 7.1% for suburban. •
•
Prices peaked in early 2007 and then began to decline as deal volume declined. With few exceptions, the primary markets with high quality assets are outperforming the national mean and continue to see decent volume of transactions; albeit significantly less than the first half of ‘06 and ‘07.
OFFICE INVESTMENT SNAPSHOT CBD
CBD
INDUSTRIAL AND FLEX Industrial product has seen the largest correction in CAP rates of the four product types; increasing 60 bps on average. Average capitalization rates stand at 7.35%.
INDUSTRIAL INVESTMENT SNAPSHOT
SUBURBAN
FLEX
SUBURBAN
FLEX
WAREHOUSE
WAREHOUSE
Source: Real Capital Analytics
Page 3
RETAIL INVESTMENT SNAPSHOT
>> CAPITAL MARKETS
RETAIL Retail volume is off as well; showing an overall decline of 62% since January 2008. •
The Mid-Atlantic market was down 74%; while the Midwest saw only an 11% decline with several large asset sales in Chicago setting the pace for the region.
•
The Northeast performed better than the national average with a decline in volume of 50% - while the Southeast – including several Florida markets (Orlando and Tampa), Nashville and Atlanta - were off as much as 90%.
•
The Southwest and the West performed slightly better than the national average but have still seen declines in excess of 50% since the beginning of the year.
•
CAP Rates overall have risen to 7% on average, however, some markets have shown improvement.
Source: Real Capital Analytics
Page 4
>> CAPITAL MARKETS MULTI-FAMILY The multi-family market has been the most resilient product type. While sales have declined 45% year-over-year through July, the monthly figures are showing a significant improvement over previous months. CAP rates have risen to an average of 6.6% on Garden Apartments – a rate not seen since 2004 levels. These price declines are thought to have spurred the activity in transaction volume. With CAP rates still low on CBD assets; the volume was off as most buyers shied away from those urban markets. As with all product types, financing is still an issue and most transactions are occurring through debt assumption. Freddie Mac and Fannie Mae are the primary lenders in the multi-family space, and while they have more than doubled their deal volume, they are still far below what the CMBS markets were lending.
MULTI-FAMILY INVESTMENT SNAPSHOT GARDEN
MID/HIGH-RISE
GARDEN
MID/HIGH-RISE
Page 5 Source: Real Capital Analytics
>> MARKET FUNDAMENTALS
OFFICE
INDUSTRIAL
•
The 2nd Quarter of 2008 saw negative net absorption in the office sector and a 20 bp increase in vacancy to 13% nationally, up from 12.6% in January. Expect to see continued increases in vacancy through year end – with a projected rate of 13.7% (a full 100 bp increase over 2007).
While export business has seen a significant increase, many users in the industrial sector are taking the “wait and see” attitude. Net absorption is significantly off this year – down from $39.1 M to $225 K YTD. Vacancy increased to 10.3% (a full 100 bp increase over 2007) and is expected to reach 10.9% by year end.
•
Effective rents will continue to see increases in 2008 of approximately 3.9% as compared to effective rent gains in 2007 of 10.6%. This decline results from an increase in landlord concessions and an overall softening in demand.
Rent growth is expected but the overall increases will be just above inflationary increases at 2.9%.
•
It should be noted, however, that effective rents are 6.6% higher than they were at this time last year; solid growth by any measure.
Average NNN rents today are as follows: Flex: $10.21 Manufacturing: $4.70 Warehouse: $4.60
Source: Reis
Source: Reis
Page 6
RETAIL
>> MARKET FUNDAMENTALS
Consumer confidence has fallen considerably over the past year. This in turn is having an impact in the retail markets. The housing downturn, tighter credit, increased fuel and energy costs and a decline in home values have all taken their toll on the retail markets.
Vacancy and Net Absorption Net absorption for the Quarter was a negative 3.2M sf. Vacancy rates climbed to 8.2% overall – up 50 bps this quarter alone and showing the largest deterioration in retail vacancy since 1995. Rents, while still rising are up only 70 bps annualized. It is expected that vacancies will continue to rise through year end and finish the year at 8.6% with rent growth below 2% overall.
MULTI-FAMILY The decline in the housing sector has had a positive impact on the fundamental picture of the apartment market. •
Effective rent growth in Q2 rose at an annualized rate of 4.4%, while vacancies rose only 10 bps to 6% on average – most of this increase was directly attributable to South Florida and Southwest markets where vacancies saw a faster rise.
•
Many developers, once in the single family home market are focused on developing multi-family projects, as such deliveries will increase and the inventory of available properties will grow.
•
Expect to see an increase in vacancy of 20 bps in the multi-family market to 6.2% with an annual effective rent growth of 3.5%.
Source: Reis
Page 7 Source: Reis
>> INDUSTRY TRENDS/OUTLOOK
THE MARKET •
Expect to see a continued influx of capital in the sector. Equity is not the issue in today’s market.
•
Foreign investors increasing their positions in the U.S. markets – led primarily by European, Australian and Middle East investors.
• Sale inventory increasing significantly but no “fire sales”. •
Institutions and other low leverage buyers taking advantage of increasing capitalization rates and being very active in the market.
• Leverage remains scarce (primarily balance sheet lenders only).
•
Flight to quality assets for investment as CAP rates rise and rental increases slow.
•
Underwriting standards remain tight for both debt and equity.
•
Fundamentals indicating a weakening picture through 2009. A transitioning market but the picture is not an unhealthy one.
•
Deal volume down significantly until debt markets return.
www.cbcworldwide.com
1-800-222-2162
© 2008 Coldwell Banker Commercial Affiliates. A Realogy Company. All Rights Reserved. Coldwell Banker Commercial Affiliates fully supports the principles of the Equal Opportunity Act. Each Office is Independently Owned and Operated. Coldwell Banker Commercial, the Coldwell Banker Commercial Logo are registered service marks licensed to Coldwell Banker Commercial Affiliates.. All Information is from sources deemed reliable. Coldwell Banker Commercial Affiliates does not guarantee the accuracy of such information and cannot be held liable for misinterpreted information.
Page 8
Related Documents
Commercial Real Estate Fall 2008 Market Overview
October 2019 28
Tcr Commercial Real Estate Zhb
June 2020 5
3rd Quarter 2008 San Franciso Commercial Real Estate Market Update
November 2019 16
Qatar Real Estate Market Annual Report 2008
December 2019 12
Real Estate
June 2020 26
Colliers 2009 Commercial Real Estate Review
April 2020 9More Documents from ""
2009 Forum Invite
April 2020 12
2009 Kootenai County Market Forum Retail Slides
April 2020 13
