Market Reports

Downtown Milwaukee Is Experiencing Booming Development Across Sectors

by Kristin Harlow February 15, 2018

In 2017, downtown Milwaukee was unrecognizable from its former self — a year that brought additional outside investment, both public and private development and a rethinking of how we utilize office space. Developers broke a decade-long dry spell in 2016, and now nearly 500,000 square feet of office space is under construction downtown. It’s a story of persistence, as an overhaul of available office product has occurred over the past few years. Now, a vast majority of outdated Class B and C office product has been removed from downtown, bolstering rent growth and enticing the outside investment that Milwaukee deeply needed. Outside investors Prior to the close of 2017, one of downtown Milwaukee’s largest office buildings and the third largest multi-tenant office complex in the state, 310 West Wisconsin Avenue, sold to an investment group based in New York. Just as Millbrook Real Estate Co. and Fulcrum Asset Advisors finished renovating, rebranding and reopening the Two-Fifty office building — a downtown tower that struggled for years — Milwaukee’s second largest office tower, 411 East Wisconsin, sold to Middleton Partners. The repositioned property sold for $50 million more than it fetched just three years prior. Both projects are a testament to …

February 15, 2018

Industrial Market Reports Northeast Northeast Market Reports Pennsylvania

Job Growth Bodes Well for Greater Philadelphia Market

by Taylor Williams February 14, 2018

Philadelphia’s office and industrial markets have been on a hot streak for the past year, with lower vacancy rates and greater rent growth than the national average. Office vacancies are enjoying far lower vacancy rates than regional and national averages for both Class A and Class B properties in the central business district and the suburbs. Flex and industrial vacancy rates are below 7 percent overall, well below regional and national averages, with average asking rents at about $5 per square foot. We see this upswing continuing in 2018 as demand keeps pace with or exceeds new development. Philadelphia has experienced seven years of uninterrupted job growth across all sectors, with 1.8 percent growth between August 2016 and August 2017 — outpacing the national average of about 1.5 percent, according to the U.S. Bureau of Labor Statistics. We saw job growth across the board, including the education, health, and leisure and hospitality sectors. But the biggest gain was in business and professional services, where Philadelphia added 16,700 jobs over 12 months. That represents a 3.6 percent year-over-year growth rate in high-end office jobs, compared to a national average of 3 percent. Manufacturing employment declined over the past 12 months, despite …

February 14, 2018

Market Reports North Carolina Office Southeast Southeast Market Reports

Tenants Gain Leverage in Raleigh-Durham Office Market as Supply Comes On Line

by John Nelson February 12, 2018

Eight years into the recovery, Raleigh-Durham’s office market conditions remain decidedly in favor of landlords, but increased construction following years of limited development activity is at last providing much needed new leasing opportunities for tenants. While a combination of factors, including new construction, drove office vacancy higher by the second half of 2017, the market began the year with the tightest Class A leasing market witnessed since the dot-com boom. Class A vacancy bottomed out in the first quarter of 2017 at 9.1 percent, down from a cyclical peak of 17.6 percent in the third quarter of 2009, and the lowest level since fourth-quarter 2000. Class A vacancy rose to 11 percent in the third quarter of 2017 as a wave of new deliveries hit the market. Total vacancy ended the third quarter at 13.5 percent, up 70 basis points year-over-year. It is worth noting that this figure includes a handful of large, formerly corporate-owned facilities in the Interstate 40/Research Triangle Park (RTP) submarket. Originally constructed for single tenants such as GlaxoSmithKline, Dupont and Reichold, these facilities are likely to need substantial retrofitting to achieve lease-up. While they are certainly a factor in the market, they are not an option …

February 12, 2018

Market Reports Multifamily Texas Texas Market Reports

Austin’s Declining Homeownership Rate Bolsters Demand for Apartments

by Taylor Williams February 9, 2018

Since the Great Recession, a strong, steady pace of job creation has attracted thousands of new residents to the Texas capital. This growth has subsequently provided numerous job options for locals, pushing the area’s unemployment rate to 3 percent, one of the lowest in the country. Sinking unemployment, along with wages that have grown faster than the national rate, have spurred robust household formation trends over the last few years, benefiting the local housing market. Rents vs. Mortgages While the volume of apartment deliveries remains elevated compared to historical averages, favorable demographics and a shift in residents’ attitude toward homeownership keep demand for units strong. Rising home prices, especially within the city of Austin, have many residents looking to apartment living, as the concept of homeownership is fiscally out of reach. At the end of last year, the average effective rent of approximately $1,200 per month was $750 less than the monthly mortgage payment on a median-priced home, a disparity that has nearly doubled since 2012. As a result, the area’s homeownership rate has plummeted, clocking in at just over 50 percent in the third quarter of 2017, down from a high of 71 percent in 2006. As the renter …

February 9, 2018

Hospitality Illinois Market Reports Midwest Midwest Market Reports

Chicago Hotel Supply Growth Is in Line With Other Markets

by Kristin Harlow February 8, 2018

Back in mid-2017, in a piece that was published right here in Heartland Real Estate Business, I talked about what might be in store for the remainder of the year. Specifically, I wrote that while “concerns about oversupply will likely persist in many [Midwestern] markets,” the outlook was not as grim as some industry analysts had been forecasting — a “second wind in the hotel sector” was “helping to calm the waters.” The general sense was that we would continue to see moderate growth. Happily for hoteliers across the Midwest, the market has played out fairly close to those predictions. A generally better-than-expected second half of the year didn’t allay everyone’s concerns, of course. I participated in an investor call recently with some of our lenders and their local analysts, and they were still talking about the threat of oversupply. They expressed some concerns about the prospect of the hotel boom in my home market of Chicago turning into a bust. Oversupply is a valid concern. From where I stand, however, the pattern over the past six to 12 months is not showing any real sign of changing. While the rate of growth has slowed slightly, the demand side of …

February 8, 2018

Market Reports Multifamily Northeast Market Reports Pennsylvania

Philadelphia Suburbs Attract Apartment Construction, City Draws Investors

by Taylor Williams February 7, 2018

Suburban Philadelphia Update The suburban Philadelphia apartment market had a very successful 2017, with no slow down anticipated for 2018. Fundamentals remain strong with low interest rates and increased demand from outside buyers, which is compressing cap rates even further than historical lows. Some highlighted sales include Willowyck Apartments in Montgomery County, which sold at a sub-5 percent cap rate on trailing 12-month numbers, and Declan House in Ardmore, which recently sold at a pro forma cap rate of 5 percent. These are two of numerous transactions that have sold at historically low cap rates over the last 12 months in suburban Philadelphia. We are also seeing more newly constructed Class A, highly amenitized properties in suburban Philadelphia that are targeting rents at north of $2.75 per square foot. Some successes have included the Maybrook, a 250-unit newly constructed property in Narberth/Wynnewood, Pennsylvania. The complex opened for leasing in late 2017 and they have been achieving rents in the $2.75- to $3-per-square-foot range. Another new construction success story is the influx of more than 800 apartments located in close proximity to Towne Center in King of Prussia. The properties include Indigo 301 and Hanover Valley Forge, among others. Both properties …

February 7, 2018

Industrial Market Reports North Carolina Southeast Southeast Market Reports

High Demand, Low Vacancy Push Triangle’s Industrial Rents to New Heights

by John Nelson February 5, 2018

The Raleigh-Durham industrial and flex market, totaling approximately 129 million square feet, continues to be strong with overall positive absorption. Vacancy is trending lower, making the region a landlord and seller’s market. With increasing construction costs, lower vacancy and solid demand, the rental rates and sales prices are now the highest of any city in North Carolina. Available industrial land is diminishing for development in high-demand areas, and that typically signifies a significant barrier to entry for developers helping keep supply in check. The rental rate for new industrial product is currently in the mid-$5.00 per square foot range and trending higher. Some developers and brokers speculate the Triangle may become a $6.00-plus per square foot market for institutional-grade warehouse space. However, when comparing rental rates to markets like Austin and Boston, Raleigh-Durham is still a very competitive option. Ground zero for the region’s warehouse market is in the general vicinity of Raleigh-Durham International Airport. Most of these distributors are delivering to the local market and need the central location and access to Interstate 40. The highest rates and prices can be found in this submarket and then start to decrease further out. Due to the lack of available land …

February 5, 2018

Market Reports Retail Texas Texas Market Reports

A Retail Recalibration in Houston

by Taylor Williams February 2, 2018

For retail tenants and developers alike, Houston’s Space City moniker could easily be interpreted as a kind of tongue-in-cheek double meaning, mainly because space is one thing Houston always has plenty of. Commercial developers have taken full advantage of that space in recent years, adding an eye-opening 16.3 million square feet of retail product over the last 36 months, according to a report from Colliers International. Houston added somewhere between 4 million and 4.5 million square feet of new retail during last year alone. That pedal-to-the-metal pace has been the clear headline for so long now that it almost feels odd to talk about a change of pace. But that’s exactly what seems to be taking place in Houston, as the commercial development marketplace is in the midst of transitioning from the explosive growth of recent years into a more demand-based dynamic. This is not a slowdown so much as a stabilization or a recalibration — a sprinter taking a breath between laps. This is an interesting and perhaps even necessary turn of events. Houston is a development-friendly city with a relative abundance of available and affordable land and a streamlined and generally permissive regulatory environment that makes permits, zoning …

February 2, 2018

Illinois Market Reports Midwest Midwest Market Reports Retail

How to Find the Formula for Success in Chicago’s Retail Market

by Kristin Harlow February 1, 2018

Successful retail development, especially in today’s evolving retail environment, needs constant re-evaluation by developers as well as municipalities. In some cases, the old rules are being rewritten to allow for more creative uses of otherwise stagnant — and sometimes historic — properties. The city of Chicago’s Industrial Corridor Modernization Initiative, designed to relax zoning in areas once reserved for manufacturing, is an excellent example of a notable shift that will allow developers to execute new strategies for retail development, often in combination with other uses. The recently adopted guidelines for the North Branch Industrial Corridor, the first of 26 such areas in Chicago to be evaluated, suggest the formula that will be needed to help realize the city’s ambitious vision. Neighborhood workforce With employers increasingly focused on attracting and retaining talent in a tight labor market, they are seeking locations with a mix of retail amenities that their employees can take advantage of before, during or after the workday. Increasingly, this mix is found in neighborhoods outside the downtown core that offer a relative value when it comes to office rents — another benefit for companies looking to make a move. In some cases, office and retail are located in …

February 1, 2018

Florida Market Reports Retail Southeast Southeast Market Reports

Seller’s Market for Jacksonville Retail Creates Opportunities for Investors

by John Nelson January 29, 2018

The Jacksonville and North Florida retail markets are seeing an increase and influx in new investment activity. Analysts are watching the volume, vacancy rate and new construction, and all signs point to a seller’s market, but compared with other Florida cities, the cap rate and the opportunities are still attractive to retail investors. What sets Jacksonville apart from other cities in Florida and across the country is the area’s strong employment growth and the amount of developable land still available. The rate of employment in Jacksonville is growing at double the national average. In addition, the city continues to attract back-office facilities for major banks and for Amazon, and its seaport is busier than ever. Housing also continues to boom in areas like Northern St. Johns County. According to third-quarter 2017 analyst reports, Jacksonville’s retail vacancy rate went down slightly from 4.6 percent in the previous quarter to 4.5 percent, or 93.5 million total square feet. Absorption totaled 710,101 square feet through the first three quarters of 2017, with about 590,000 square feet ready for occupancy or delivered, and 700,109 square feet under construction. Retail Tenant Shift Nationally, we saw stalled volume of sales during the downturn along with declining …

January 29, 2018

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