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
| Aug 11, 2010
Will Alsop to head up new RMJM studio
Will Alsop, the internationally acclaimed British architect and designer of the Glenwood Waterfront project on the Hudson River, is to turn his attention once again to the U.S. after announcing he is to create a studio called “Will Alsop at RMJM,” as part of the RMJM worldwide architectural firm.
| Aug 11, 2010
AECOM, WATG top BD+C's ranking of the nation's 75 largest hotel design firms
A ranking of the Top 75 Hotel Design Firms based on Building Design+Construction's 2009 Giants 300 survey. For more Giants 300 rankings, visit http://www.BDCnetwork.com/Giants
| Aug 11, 2010
Parsons Brinckerhoff, Dewberry among nation's largest multifamily design firms, according to BD+C's Giants 300 report
A ranking of the Top 75 Multifamily Design Firms based on Building Design+Construction's 2009 Giants 300 survey. For more Giants 300 rankings, visit /giants
| Aug 11, 2010
USGBC’s Greenbuild 2009 brings global ideas to local main streets
Save the planet with indigenous knowledge. Make permanent water part of your life. Dive deep water for clues to environmental success. Connect site selection to successful creative concepting. Explore the unknown with Discovery Channel’s best known guide. These are but a few of the big ideas participants can connect to at USGBC’s Greenbuild International Conference and Expo, taking place on November 11-13, 2009 in Phoenix, Ariz.
| Aug 11, 2010
Goettsch Partners wins design competition for Soochow Securities HQ in China
Goettsch Partners (GP) has been selected as the winning firm in the competition to design the Soochow Securities Headquarters, the new office and stock exchange building for Soochow Securities Co. Ltd. The 21-story, 441,300-square-foot project includes 344,400 square feet of office space, an 86,100-square-foot stock exchange, meeting rooms, classrooms, a cafeteria, and underground parking for 400 cars and 800 bicycles.
| Aug 11, 2010
RMJM unveils design details for $1B green development in Turkey
International architecture company RMJM today announced details of the $1 billion Varyap Meridian development it is designing in Istanbul’s new residential and business district, which will be one of the "greenest" projects in Turkey. The luxury 372,000-square-meter development on a site totalling 107,000 square meters will be located in the Atasehir district of Istanbul, which the Turkish government intends to transform into the country’s new financial district and business center.
| Aug 11, 2010
Urban Land Institute honors five 'outstanding' developments in Europe, Middle East, and Africa
Five outstanding developments have been selected as winners of the Urban Land Institute (ULI) 2009 Awards for Excellence: Europe, Middle East, and Africa (EMEA) competition. This year, the competition also included the announcement of two special award winners. The Awards for Excellence competition is widely regarded as the land use industry’s most prestigious recognition program.