Global Gateway Cities reports on office and retail investment trends in 24 global gateway cities, giving investors a comprehensive overview of pricing and market conditions. Using a mix of proprietary and key external data, CBRE Research provides an analysis of investment activity as well as economic, occupier, supply, rent and yield trends in the third edition of this report series.
The Port of Los Angeles rose to the top of CBRE’s third-annual North American Seaports & Logistics Index, aided by its status as the nation’s strongest logistics real estate market and by its healthy cargo volume growth.
After several years of strong growth, activity at the major North American ports has been somewhat stagnant due to slow global trade and disruptions in the shipping industry. However, recent trends suggest that this slowdown is temporary and growth is returning.
The expanded Panama Canal has been open for just over a year with mixed results. Larger ships are passing through the canal to U.S. East Coast ports, but the number of transits has been lower than expected. The opening of the new, higher Bayonne Bridge in New York will facilitate more port calls by mega ships on the East Coast.
For logistics real estate, the resumption of growth in cargo volumes, increased competition between the coasts, and additional mega ships transiting the Panama Canal will create additional flexibility in the supply chain and more location alternatives for distribution and warehouse users.
The capital markets environment remains strong overall, but is less dynamic than the cyclical high reached in 2015. Cyclical-low unemployment rates and healthy property fundamentals have kept Orange County as a particularly attractive market for investors. Capital flows have shifted from crowded markets like Los Angeles into secondary and tertiary markets as investors explore alternative sectors and regions for higher yields. Overall, volume remains elevated and pricing is stable.
Tight pricing and limited availability of investable stock dampened total acquisitions activity in Los Angeles, but activity in Orange County picked up from last year. In H1 2017, investment reached $3.5 billion, a year-over-year increase of 12.1%. Individual asset sales, the best indicator for investment momentum, jumped by 27.8% year over year. Much of this investment was driven by large jumps in the hotel and retail sectors, while all other sectors remained at levels similar to those seen in H1 2016. Private buyers were the most active in the OC market, accounting for 76% of the total, and looking for value-add opportunities.
After gradual cap rate compression since 2010, local cap rates have largely stabilized in H1 2017, with prices holding relatively firm. Multifamily was the only sector in Orange County that recorded tightening cap rates, while the industrial sector remained unchanged and retail and hotel cap rates pushed upwards. The general outlook for cap rates and returns on cost in the second half of 2017 is for continued stable pricing. The consensus is that if rates do change in H2 2017, they are more likely to increase modestly.
Growth in net absorption of Americas industrial & logistics space continued for the 28th consecutive quarter in Q1, but slowed substantially after near-record user demand last year.
Although net absorption in the U.S. decreased both quarter-over-quarter and year-over-year, the vacancy rate fell by 10 basis points (bps) to 4.8% and the availability rate was up slightly at 8.0%.
For the first time since Q3 2010, leasing demand fell short of new construction, though the gap between the two was narrow and had a negligible effect on overall availability.
As a result of the tight supply, the net rent index increased by 1.6% in Q1 and 6.7% year-over-year to $6.24 per sq. ft. —the highest level since CBRE Econometric Advisors (CBRE EA) began tracking this metric in 1980.
Driven by growth in the national economy, the Canadian industrial market has strengthened with sharp gains in user demand and record-low vacancy rates in Toronto and Vancouver.
Economic uncertainty in Mexico caused a slowdown in the industrial market, with user activity tapering slightly in the quarter and rents declining.
Despite some global and domestic economic uncertainty, the industrial real estate market continues to expand in most parts of the Americas.
The CBRE Americas Investor Intentions Survey 2017 captures the investment sentiment of nearly 1,000 investors focused on the Americas in 2017. While investors largely expect to maintain their 2016 activity levels, they also intend to retreat on the risk curve, becoming more conservative in strategy and risk appetite. This, however, is counterbalanced by their search for yield. Echoing concerns raised at the beginning of 2015, investors perceive global economic shocks and rising interest rates as the greatest threats to property markets. They also continue to have concerns about asset pricing.
This report is a one-page summary of our expecations for the entire Southeast U.S. economy looking forward from the end of 2016. It is one of a series of reports issued as a component of our Southeast Outlook Report (SEOR).
Record-setting fundamentals pushed the national industrial availability rate to compress by 30 basis points (bps) to a 16-year low of 4.3%.
With demand proliferating across nearly all markets, national net absorption topped 6.8 million sq. ft. this quarter.
In response to market conditions, the national average net asking rental rate soared to a record $6.93 per sq. ft. this quarter. This growth of 7.2% year-over-year is the country’s largest in four years.
Although construction activity expanded for the third consecutive quarter to total 11.7 million sq. ft., Canada’s markets will continue to face a supply crunch as construction activity remains below the five-year average of 14.8 million sq. ft.
The industrial sector continued to benefit from the Canadian economy’s yearlong bull run. Year-to-date, more than 92,900 new jobs have been added to the industrial sector and, for the first time in five years, business investment into industrial machinery and equipment was positive, growing by 5.2% in H1 2017.
Marijuana growers occupied 4.2 million sq. ft. in metro Denver’s industrial market in Q4 2016 – an expansion of 14% since our last round of local research into the industry in Q2 2015. Marijuana grow operations were concentrated solely in Class B and C industrial space, with nearly two-thirds (63.4%) in warehouse space.
Based on a sample size of 25 leases signed between 2014 and 2016, the average effective lease rate for marijuana grow houses was $14.19 per sq. ft. NNN—two to three times higher than the average warehouse lease rates in the four top cultivation submarkets.
In May 2016, Denver put a cap on the number of cultivation locations, so we can estimate that most of the 525,000 sq. ft. the market has taken up (on net) since our Q2 2015 research was conducted was absorbed prior to Q3 2016. Since then, the market has been stabilizing and consolidating.
Consolidation has been the theme for some time – to increase their market share and to take advantage of economies of scale, well-established operators have bought smaller mom-and-pop growers.
The updated Viewpoint report also looks into marijuana-occupied property sales, which have seen a 25% price premium over Class B and C warehouses in general. Finally, it discusses some real estate supply and demand dynamics that may influence the applicability of the Denver model in other markets.