SOURCE: Integra Realty Resources

Integra Realty Resources

January 12, 2015 11:09 ET

2015 Commercial Real Estate Projections Revealed in Integra Realty Resources' Viewpoint

25th Edition of Signature Report Provides Trends, Forecasts for All Property Types Across the United States

NEW YORK, NY--(Marketwired - Jan 12, 2015) - A new report from Integra Realty Resources (IRR), the nation's largest independent commercial real estate (CRE) market research, valuation, and counseling firm, reveals that real estate values are expected to appreciate across all property types nationally in 2015. According to IRR's Viewpoint 2015 report, improving property fundamentals are expected to continue driving positive yields and attract additional capital to the sector, while loan volumes simultaneously increase in anticipation of a three-year run of strong refinancing opportunities. In another major market development, capitalization rates are expected to stabilize in many sectors throughout 2015.

IRR Viewpoint 2015 is the industry's annual compendium of real estate valuation, investment, and leasing trends and forecasts, and the report provides data, analysis, and forecasts on local and national market conditions for seven industry sectors throughout the United States, including capital markets, office, multifamily, retail, industrial, lodging, and self storage. The 25th edition of Viewpoint 2015 also includes a comprehensive IRR Forecast section that provides forward-looking analysis and commentary on all CRE markets and property types. 

"With our independent position in the marketplace, in IRR Viewpoint we have been able to create an incisive and unbiased report that the industry relies on year after year as a primary resource for research and analysis of the commercial real estate industry in the United States," said John Albrecht, CEO of Integra Realty Resources. "This past year we also completed the largest technology investment that IRR has ever made, giving us even more advanced capabilities to research local and national markets and provide our clients with the benefits of our industry-leading expertise on commercial real estate assets."  

Raymond Cirz, MAI, CRE, FRICS, and Chairman of the Board at IRR, reflected on a year of recovery in the market and growth at Integra Realty Resources: "2014 was a strong year as multiple commercial real estate sectors continued to rebound in the aftermath of the recession. In step with that recovery, our firm celebrated its 15th anniversary and reached an industry landmark by employing a greater number of MAI-designated members of the Appraisal Institute than any other firm. It is with the help of those 200-plus MAIs, and the more than 900 professionals across IRR's 66 offices nationwide, that we are able to produce this outstanding report each year."

Key findings of IRR Viewpoint 2015 include:

Office

  • The office property sector continued its relatively steady recovery in 2014, though the sector lags behind other property sectors in the latest national recovery cycle. More local office markets -- both Central Business District (CBD) and Suburban -- are now mired in the recessionary phase and many more are just beginning a recovery.
  • After decades of suburban corporate campus building, a key national trend is the return to new CBD construction, as today's younger workforce wants tech-driven office spaces in populous areas. While developers and investors seemingly prefer the CBD office property sector, property fundamentals for the Suburban office sector strengthened just as much as those in the CBD sector nationally in 2014.
  • Recent changes in stabilization expectations reversed the trend from the previous few years and now indicate that the Suburban office sector nationally is more likely to stabilize before the CBD sector, albeit at materially lower rental rates and marginally lower occupancy rates.
  • 2014 was another robust year for transaction volumes, with most cities experiencing strong volume increases over five-year historical averages. Activity was notably strong in Cincinnati, Boston, Jacksonville, San Francisco, and Philadelphia; transaction volumes were down only in a handful of cities, including Pittsburgh, Seattle, Cleveland, Hartford, and Richmond.

Multifamily

  • The multifamily market sector leads the recovery, with almost 60% of IRR markets experiencing material expansionary activity. While these markets remain strong and new supply will be competitively absorbed, the risk of sliding into hypersupply is greatest within the next one- to two-year period.
  • Major market transaction volumes are up in Columbus, Seattle, Philadelphia, Nashville, Detroit, Kansas City, Denver, Portland, Sacramento, Orange County, East Bay, California, and Atlanta.
  • Despite stagnation in transaction volumes, Washington, D.C. experienced mid- and high-rise multifamily prices appreciate 23%. Prices also rose in the tech hubs of Austin (43%) and San Jose (29%), where strong job growth among high-earning workforces has driven up demand for limited rental inventory.
  • A slight increase in Class A vacancy rates is the beginning of a modest trend as more product supply comes online. This will put downward pressure on occupancy and rental rates, and will lead to greater concessions over the next 12 to 36 months.

Retail

  • By the end of 2014, nearly half of IRR markets reported seeing expansionary activity in their local market, which is up by almost 10% from 2013. New supply appears to be fairly disciplined, with no markets reporting that its local retail dynamics are entering hypersupply.
  • Retail transaction prices were up significantly in Jacksonville, Memphis, Austin, and Indianapolis. In contrast, Richmond, Northern New Jersey, and Philadelphia may be experiencing some headwinds, as investors' appetites to pay high dollar prices in these markets seem to be suppressed.
  • While cap rates continued to contract across the neighborhood, community, and regional mall sectors, the pace of the national average cap rate contraction fell off considerably for neighborhood and community centers. Cap rate stagnation in the East and rate widening in the Central region will act as a counterweight to continued improved property fundamentals in these regions, leaving values relatively unchanged; values are expected to continue appreciating in the West and South.

Industrial

  • Pricing in the traditional industrial sector saw significant appreciation in many major markets, such as Manhattan, Washington, D.C., San Francisco, Miami, Cleveland, and Detroit. Interestingly, while prices were up in Washington, D.C., San Francisco, and Broward County, Fla., the transaction volume activity was down, likely indicating that some investors feel that 2014's pricing wasn't supportable in the long run.
  • Cap rates in the traditional industrial space compressed much faster than cap rates for flex industrial product. The squeezing of the national average in the traditional industrial sector caused cap rates to reach a new all-time low. Flex industrial rates are also approaching all-time lows.
  • IRR projects more smooth sailing for this sector, with only limited pockets of concern as increased supply will affect occupancy rates and valuation in a handful of markets over the next 12 to 36 months.

Lodging

  • The hospitality market has returned to levels last seen before the recent recession and is approaching peaks from 2006 in almost all performance metrics. Fueled primarily by substantial increases in Average Daily Rates, the hotel industry is expected to generate double-digit net operating income growth for the fifth consecutive year.
  • The strong bull market continues to funnel capital into the sector as delinquency rates for CMBS loans on hospitality properties are among the lowest of all property types. Interest rates for select product could fall to sub-5% to 5.5% levels. With attractive leverage ratios and increasing traveler demand, urban infill construction can be anticipated.
  • Transaction volumes are up substantially in Manhattan, San Francisco, Broward County/Southwest Florida, and San Diego. Markets showing decreases in volume include Washington, D.C., Boston, Inland Empire, California, and Pittsburgh.

Self Storage

  • Cap rates are at historic lows, with many of the most recent transactions being in the 5.25% to 6.5% range.
  • The inventory of for-sale properties remains low, which will fuel continued aggressive pricing of facilities by investors in 2015. Combined with 62.2% of self-storage CMBS loans coming due within the next 36 months, this will likely cause the number of for-sale facilities to increase in the next three years.

The full IRR Viewpoint report comprises additional resources, including methodology, forecasts, and 40 graphs and tables and -- new in 2015 -- heatmaps covering transaction volume by market for five key property types. A free download of the publication is available on IRR's home page at www.irr.com.

About Integra Realty Resources
With corporate headquarters in New York City, Integra Realty Resources (IRR) is the largest independent market research and commercial real estate valuation and counseling firm in North America, with 66 offices and more than 200 Members of the Appraisal Institute (MAI) who are among its approximately 900 employees located throughout the United States and the Caribbean. Founded in 1999, the firm specializes in real estate appraisals, feasibility and market studies, expert testimony, and related property consulting services. Many of the nation's largest and most prestigious financial institutions, developers, corporations, law firms, and government agencies are among its clients. For more information, visit www.irr.com or blog.irr.com.

Contact Information

  • Press contact:
    Leigh Minnier
    Associate Vice President
    Gregory FCA
    Direct: 610-228-2108
    Email Contact

    Company contact:
    Andrew Ludwig
    Chief Marketing Officer
    Integra Realty Resources
    Main: 212-255-7858
    Email Contact