{"id":1004186897,"date":"2017-08-18T01:30:02","date_gmt":"2017-08-18T09:30:02","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004186897"},"modified":"2022-12-08T18:00:15","modified_gmt":"2022-12-09T02:00:15","slug":"mixed-signals-will-deal-volume-pick-up-in-the-second-half","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/mixed-signals-will-deal-volume-pick-up-in-the-second-half\/","title":{"rendered":"Mixed Signals: Will Deal Volume Pick Up in the Second Half?"},"content":{"rendered":"

By Robyn Friedman<\/p>\n

\"\"<\/a>

Image by Jordi Delgado\/iStockphoto.com<\/p><\/div>\n

At the beginning of 2017, many forecasters predicted a robust performance for office investment, even in the face of political and economic uncertainty. Though industry veterans maintain an upbeat outlook, signs for the rest of the year are not all promising.<\/p>\n

Despite solid gains by suburbs (up 11 percent year-over-year) and secondary metros (up 10 percent), volume slipped 2 percent to $64.6 billion during the first half, according to Real Capital Analytics Inc. Cap rates, meanwhile, have shown little movement over the past couple of years and averaged 6.7 percent at midyear.<\/p>\n

\u201cTrading volumes are down, and some product types are down more than others,\u201d said Christopher Ludeman, global president of CBRE Capital Markets. \u201cBut pricing hasn\u2019t really fallen off dramatically.\u201d In large part, that\u2019s because well-capitalized buyers are hunting for trophy properties, value-add plays and everything in between.<\/p>\n

This year, office values are expected to rise at least 2 percent in 47 percent of the nation\u2019s big-city central business districts, according to Integra Realty Resources\u2019 survey of appraisers and consultants. In another telling finding, the IRR survey projects that values will rise 4 percent or more in seven markets: Dallas, Los Angeles, Miami, New York City, Philadelphia, Raleigh, N.C., and Las Vegas. On the minus side, declines may be in store for Baltimore, Houston and Dayton, Ohio.<\/p>\n

Some attribute the drop in volume partly to seller skittishness. \u201cThere\u2019s still so much uncertainty around the economic policy picture, and if investors sell, they need to have a redeployment strategy,\u201d said David Bitner, senior director & Americas head of capital markets research at Cushman & Wakefield. \u201cPeople need to be confident about making that next commitment.\u201d<\/p>\n

The resulting dearth of product on the market boosted prices 13.4 percent year-over-year through April, according to the Moody\u2019s\/RCA Commercial Property Price Index. Suburban assets gained a more modest 7.5 percent during the stretch.<\/p>\n

Ready to launch?<\/h2>\n

\"Denver<\/a><\/p>\n

As sellers adjust to a new political climate and observe how the economy reacts, deal volume should pick up over the next six to 12 months, Bitner predicted. \u201cThere is a ton of capital out there that wants to deploy,\u201d he explained. Institutions, REITs, private equity and foreign players are all generating notable deals.<\/p>\n

David Steinbach, chief investment officer of Hines, ties investment strategy to a market\u2019s place in the cycle. \u201cYou can\u2019t put the entire U.S. office market into one bucket,\u201d he said. For a market in a mature part of the cycle, like San Francisco, Steinbach said that he\u2019d be sure to do some \u201cpretty heavy scrutinizing.\u201d<\/p>\n

At least one Bay Area property has passed the Steinbach test this year. In March, Hines and an affiliate of Oaktree Capital Management bought Dublin Corporate Center, a 440,266-square-foot campus in Dublin, Calif. The partners cited the area\u2019s high-quality office product, access to San Francisco and Silicon Valley, and rental pricing that compares favorably to other Bay Area cities.<\/p>\n

Foreign buyers, meanwhile, are looking at \u201csuper-core trophy assets,\u201d said Steve Pumper, executive managing partner for Transwestern\u2019s capital markets group. \u201cThey\u2019re investing in the best and most stable assets as wealth preservation versus wealth creation.\u201d That explains why 21 of the 25 biggest deals reported by RCA
\nduring the first half originated in just six high-barrier coastal markets: Boston, New York City, Washington, D.C., Seattle, San Francisco and Los Angeles.<\/p>\n

In May, Ivanho\u00e9 Cambridge, the Montreal-based investment manager, teamed up with Callahan Capital Properties in a $650 million deal for 85 Broad St., a 1.1 million-square-foot downtown Manhattan tower. Meanwhile, foreign investors are also chasing $40 million to $60 million deals in markets like Seattle, Chicago and South Florida, reported Tim Lee, vice president of corporate development and legal affairs for Los Angeles-based Olive Hill Group. Another favorite: Silicon Beach, the high-tech L.A. hub.<\/p>\n

Institutions seek out \u201camenity-rich, transportation-rich major metro opportunities,\u201d said Alan Pontius, senior vice president & national director of Marcus & Millichap\u2019s specialty divisions. \u201cSome are more core in nature and want to buy well-leased, best-in-class opportunities, and some are value-add, still targeting the same areas but looking for some vacancy so they can come in and put their own mark on an asset,\u201d he said.<\/p>\n

New Directions<\/h2>\n

Notwithstanding the recent slowdown in sales, office assets continue to attract intense interest from buyers of all stripes. Demand in the most coveted markets often outstrips availability, however, so industry veterans suggest keeping an eye on less-heralded locations, many of which have been overlooked since the Great Recession.<\/p>\n