Although 2013 isn’t likely to be anyone’s idea of a blockbuster year for real estate performance, landlords across an array of commercial property types are gaining pricing control and increased rental income from their assets. Keys to the equation for property types other than apartments are construction volumes near 40-year lows and incremental job gains from a handful of growth sectors, including energy and technology.
“The lack of new construction has been a saving grace since the beginning of the recession,” said Jay Koster, Americas President for Capital Markets at Jones Lang LaSalle. “We’re also seeing accelerated obsolescence among older buildings as tenants upgrade to higher quality and more efficient space, and that is helping to fill marketable properties and drive up rents, even with only slow underlying growth.”
Multifamily retains strength: Rental apartments, by contrast, have far surpassed other property types in the development cycle and are approaching peak performance levels in many markets, according to Jones Lang LaSalle’s First Quarter 2013 Cross Sector Outlook, distributed today during the Urban Land Institute’s 2013 Spring Meeting, in San Diego, May 14-17th. The report tracks and compares the relative health of property sectors nationally and by local markets.
“Multifamily rents across the U.S. climbed to historic highs at the end of 2012, up 4.4 percent year-over-year,” said Marisha Clinton, Director of Capital Markets Research at Jones Lang LaSalle and one of the report’s authors. “Short-term setbacks may occur, particularly in overbuilt submarkets, but we believe demand from an expanding renter population will keep apartment fundamentals strong into 2017.”
Retail improving: Even the retail sector, which is more of a “wild card” and appears to be bottoming out, has been weighed down by constrained consumer spending and competition with online retailers but has showed slight net absorption in the first quarter. That means that the leased portion of available space across the nation increased by 0.3 percent.
Retail tenants are soaking up available space fastest in a handful of markets, most of which enjoy either a booming energy sector or a recovering housing market. Markets to watch include Broward County, Tampa and Orlando in Florida; Charlotte and Raleigh in North Carolina; Dallas and Houston in Texas; Minneapolis, and Seattle.
Retail construction volume will remain low for the next few years as investors focus on redevelopment of existing properties in order to attract and retain tenants. As with all property types, low interest rates have enabled more investors to afford acquisitions and retail investment sales volumes have risen steadily over the past 12 months. Private investors and real estate investment trusts (REITs) accounted for more than 68 percent of acquisitions in that period.
Anita Kramer, vice president at the ULI Center for Capital Markets and Real Estate, says retailer performance as a whole will continue to drag as long as unemployment is high and consumer spending is constrained, with only slow increases in retail demand to serve a growing population.
“We’re all hoping retail will make a comeback, but there’s really concern about whether consumers are loosening up,” Kramer said. “There are clearly a lot of people out there that aren’t spending. When they start spending, that’s when we will have an incremental kick to retail.”
Investors follow the big picture
Real estate investors need to consider cross-sector performance measures because the strengths and weaknesses of one sector can affect properties of another type, Kramer observed. She points out that a mixed-use development will typically begin with a single use, such as retail, that provides a draw for other uses to be developed in later phases, perhaps adding multifamily or office space.
The same relationships exist between individual projects in many submarkets, particularly in central business districts that are enjoying an inflow of employers and workers with a strong desire for rental housing, dining and entertainment nearby. In those cases, a stronghold in one property type may create opportunities in other sectors down the road.
“Anybody who is thoughtfully in any sector of real estate at this point needs to monitor all sectors,” Kramer said.
Additional First Quarter 2013 Cross Sector Outlook highlights:
- Strong hotel sector performance underpins a buoyant transactions market. Hotel property sales are on track to reach $17 billion in 2013, up from $16.4 billion in 2012.
- The national office market was markedly healthier in the first quarter from a year ago, with a dramatic decline in sublease space, increase in occupancy, and rent growth in more than 80 percent of major markets.
- Modern, functionally superior industrial space is in high demand, with occupancy at post-recession highs. Look for demand to broaden as mid-sized tenants return to the market.
Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2012 alone, Jones Lang LaSalle Capital Markets completed $63 billion in investment sale and debt and equity transactions globally. The firm’s dealmakers completed $60 billion in global investment sales and buy-side transactions, equating to nearly $240 million of investment trades completed every working day around the globe. The firm’s Capital Markets team comprises more than 1,300 specialists, operating all over the globe.
For more news, videos and research resources on Jones Lang LaSalle, please visit the firm’s U.S. media center Web page. Bookmark it here: http://www.us.am.joneslanglasalle.com/UnitedStates/EN-US/Pages/News.aspx
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSale operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management. For further information, visit www.jll.com.
Related Stories
| Jan 19, 2011
Museum design integrates Greek history and architecture
Construction is under way in Chicago on the National Hellenic Museum, the nation’s first museum devoted to Greek history and culture. RTKL designed the 40,000-sf limestone and glass building to include such historic references as the covered walkway of classical architecture and the natural wood accents of Byzantine monasteries. The museum will include a research library and oral history center, plus a 3,600-sf rooftop terrace featuring three gardens. The project seeks LEED Silver.
| Jan 19, 2011
Architecture Billings Index jumped more than 2 points in December
On the heels of its highest mark since 2007, the Architecture Billings Index jumped more than two points in December. The American Institute of Architects reported the December ABI score was 54.2, up from a reading of 52.0 the previous month.
| Jan 19, 2011
Large-Scale Concrete Reconstruction Solid Thinking
Driven by both current economic conditions and sustainable building trends, Building Teams are looking more and more to retrofits and reconstruction as the most viable alternative to new construction. In that context, large-scale concrete restoration projects are playing an important role within this growing specialty.
| Jan 10, 2011
Architect Jean Nouvel designs an island near Paris
Abandoned by carmaker Renault almost 20 years ago, Seguin Island in Boulogne-Billancourt, France, is being renewed by architect Jean Nouvel. Plans for the 300,000-square-meter project includes a mix of culture, commerce, urban parks, and gardens, which officials hope will attract both Parisians and tourists.
| Jan 10, 2011
Michael J. Alter, president of The Alter Group: ‘There’s a significant pent-up demand for projects’
Michael J. Alter, president of The Alter Group, a national corporate real estate development firm headquartered in Skokie, Ill., on the growth of urban centers, project financing, and what clients are saying about sustainability.
| Jan 7, 2011
BIM on Target
By using BIM for the design of its new San Clemente, Calif., store, big-box retailer Target has been able to model the entire structural steel package, including joists, in 3D, chopping the timeline for shop drawings from as much as 10 weeks down to an ‘unheard of’ three-and-a-half weeks.
| Jan 7, 2011
How Building Teams Choose Roofing Systems
A roofing survey emailed to a representative sample of BD+C’s subscriber list revealed such key findings as: Respondents named metal (56%) and EPDM (50%) as the roofing systems they (or their firms) employed most in projects. Also, new construction and retrofits were fairly evenly split among respondents’ roofing-related projects over the last couple of years.
| Jan 7, 2011
Total construction to rise 5.1% in 2011
Total U.S. construction spending will increase 5.1% in 2011. The gain from the end of 2010 to the end of 2011 will be 10%. The biggest annual gain in 2011 will be 10% for new residential construction, far above the 2-3% gains in all other construction sectors.
| Jan 7, 2011
Mixed-Use on Steroids
Mixed-use development has been one of the few bright spots in real estate in the last few years. Successful mixed-use projects are almost always located in dense urban or suburban areas, usually close to public transportation. It’s a sign of the times that the residential component tends to be rental rather than for-sale.