Market Reports

New Industrial Supply Struggles to Keep Pace With Absorption in Milwaukee

by Kristin Harlow March 16, 2017

Metro Milwaukee’s industrial market continued to be a strong performer in 2016, and this strength should continue for the foreseeable future. We’re now seeing a healthy uptick in new industrial development, and even speculative development in select submarkets. While the demand for industrial space has continued to increase, the new supply has failed to keep pace. Sustained quarterly absorption without a sufficient corresponding increase in new product coming to market continues to keep vacancy rates hovering around 4 percent, near the record lows, according to Xceligent and CoStar. The new industrial construction that is occurring continues to be driven by users expanding, relocating or consolidating their existing facilities and by limited build-to-suit developments undertaking Milwaukee-based firms such as Wangard Partners Inc., Phoenix Investors LLC and Briohn Building Corp. Spec building returns Speculative development is still relatively rare, but developers such as Zilber, HSA Development and Interstate Partners are all venturing into the speculative realm and with favorable results so far. HSA, for example, recently completed a 214,000-square-foot speculative building in Waukesha, and Zilber continues to build and fill buildings in the I-94 South corridor. In late 2016, Zilber unveiled plans for a 163,716-square-foot facility in Franklin and a 72,324-square-foot facility …

March 16, 2017

Market Reports Massachusetts Multifamily Northeast Northeast Market Reports

Key Factors Driving Greater Boston’s Multifamily Outlook in 2017

by Camren Skelton March 15, 2017

Investors are attracted to Boston due to its diverse economy, education base and strong market fundamentals. In fact, major corporations like GE, Reebok, New Balance, and most recently Asics have all relocated to the city or are in the planning to relocate or rebrand here. As a result of this heightened interest in Boston as a global headquarters destination, the city is expected to grow, which in turn creates housing demand. Rhythm between Cap Rates and Interest Rates As investors know, there is a direct correlation between cap rates and interest rates. However, while a correlation exists, not all buyer profiles are necessarily affected in the same way in a shifting interest rate environment. Highest impact: Leveraged buyers would be most impacted by rising interest rates since they are typically trying to maximize leverage when pursuing an acquisition. With shifting interest rates, higher rates have a direct impact to potential returns. If leveraged buyers can borrow less at high rates, this has a direct impact to pricing/cap rates. Within the leveraged buyer profile, groups possessing strong balance sheets and banking relationships will be less impacted than groups not necessarily in the same financial position. Moderate impact: Cash and low-leverage buyers …

March 15, 2017

Arizona Market Reports Multifamily Western Western Market Reports

Demand, Product Coming to Phoenix’s Multifamily Market

by Camren Skelton March 14, 2017

With record-low cap rates dipping as far as 2.9 percent, the nation’s top multifamily markets have become expensive. In response, investors have turned to secondary markets like Phoenix, where upside potential is still strong, pricing is manageable and cap rates are hovering in the high 4 percent to mid-5 percent range. Although multifamily sales have maintained their accelerated pace nationwide, that pace is being driven by secondary markets — particularly in the West. Metro Phoenix captured more than $5.2 billion of this activity, up significantly from its previous peak of $4.6 billion in total multifamily sales in 2006. As of year-end 2016, the average multifamily price per unit in Phoenix was $110,000, compared to a national average of $145,000 for properties valued at more than $2.5 million. In the eyes of investors, Phoenix offers a stable inventory of existing Class A and B product, and a wave of new Class A units that have taken luxury in the market to a new level. This high-end product provides a key benefit for investors: it attracts residents who are willing and able to pay premium rents for a better lifestyle. The Valley is in a good position to support luxury product, with …

March 14, 2017

Industrial Market Reports North Carolina Southeast Southeast Market Reports

Rents, Occupancy Rise for Triangle’s Industrial Market as Supply Lags Demand

by John Nelson March 13, 2017

The Raleigh-Durham business climate has been on the climb for several years now and it doesn’t seem to be slowing anytime soon. The market continues to outpace most of the mid-tier markets across the country by all metrics of economic stability, quality of life, business environment, education, arts and quality of workforce. As a result, construction of office and retail projects has been strong, yet industrial construction and thus available space is lacking. Average asking rental rates have continued to rise in response to increasing demand and low supply. The remaining 550,000 square feet of industrial space that is expected to deliver has significant prelease commitments, creating competition for tenants looking for space. Raleigh-Durham’s warehouse market sits at a current vacancy of 3.8 percent with average asking rental rates at $5.01 per square foot triple net. The biggest challenge is for new and expanding tenants needing 35,000 to 200,000 square feet of space. Demand has been outpacing supply for several years in the market and industrial developers who recognized this trend were unable to fill the need because of the lack of available financing during the downturn. It has just been in the past 24 months that significant construction has …

March 13, 2017

Market Reports Midwest Midwest Market Reports Office Wisconsin

Developers in Downtown Milwaukee Play With Hot Hand Due to Strong Demand

by Kristin Harlow March 9, 2017

Ben Franklin, one of our nation’s Founding Fathers, famously said, “Well done is better than well said.” Milwaukee has a long history of ideas that are well said. There is no shortage of opinions and sound ideas on how to attract companies to the city, how to improve the public transportation system and how to get more people to live in the city. But these well-intentioned ideas, more often than not, don’t get implemented. Finally, after a decade of virtually no new development, things are happening. In the August 2015 issue of this magazine, I wrote a column focusing on development in downtown Milwaukee titled “Proposed New Arena for Milwaukee Bucks Could Lead to a Development Run.” Indeed, that’s what is happening. After much debate, the arena is finally under construction. It will span 715,000 square feet and hold 17,500 people. Just as impressive is the ancillary development surrounding the arena, including the Froedtert & the Medical College of Wisconsin Sports Science Center that will serve as the new practice and training facility for the Milwaukee Bucks as well as a health center. The new Arena District will also be home to a “live block” comprised of four to five …

March 9, 2017

Industrial Market Reports Northeast Northeast Market Reports Pennsylvania

Philadelphia Continues to Be One of the Top Performing Industrial Markets in U.S.

by Camren Skelton March 8, 2017

Philadelphia is well positioned in the Northeast to flourish in the industrial sector in 2017. With a centralized position in the Boston-New York-Washington, D.C. corridor, Philadelphia has capitalized on its superb location to firmly establish itself as a distribution hub leading to sustained positive momentum in all key market sectors. The e-commerce market has been experiencing significant growth and the demand for near immediacy in delivery has been the driving force behind the strong performance of the industrial sector nationwide over the past few years, especially in the Northeast. In 2016, the industrial sector in greater Philadelphia had a banner year for absorption with a net positive of 9.27 million square feet absorbed. That represents the largest growth in occupancy since the onset of the Great Recession and places Philadelphia among the top performing markets in the U.S. for net absorption in 2016. Vacancy rates for the region have fallen to 6.9 percent — the lowest they’ve been since 2008. Asking rental rates rose steadily throughout 2016 and stood at $4.77 per square foot at year-end – the highest they’ve been since 2008. Following a record year for industrial sales in 2015, sales volume remained strong in the greater Philadelphia …

March 8, 2017

California Industrial Market Reports Western Western Market Reports

Industrial, R&D Development Returns to San Diego In Full Force

by Camren Skelton March 7, 2017

After a decade of scarce industrial development in San Diego County, 2016 marked its strong return. About 1.3 million square feet of industrial/R&D space was completed, which is more than what was delivered between 2013 and 2015 combined. This year is expected to be an even more active year for industrial/R&D speculative and build-to-suit development with an additional 1.4 million square feet currently under construction. North County San Diego has become the concentrated hotspot for both speculative and build-to-suit industrial development. Nearly two-thirds of all new industrial/R&D development completed in 2016 was in North County, including about 233,227 square feet of speculative construction. This new wave of development was triggered by 16 consecutive quarters of rental rate increases and last year’s record-low vacancy rate of 4.7 percent for combined industrial/R&D properties countywide. Average asking rental rates are increasing quicker in North County than anywhere else in San Diego. North County’s average asking rental rates have increased by 5.9 percent since the end of 2015, whereas the countywide rate increased by only 3 percent in the same period. Vacancy will likely fluctuate between 4 percent and 5 percent throughout 2017 as net absorption keeps pace with new construction. Many organizations are …

March 7, 2017

Market Reports North Carolina Office Southeast Southeast Market Reports

Despite Active Construction in Raleigh-Durham, Office Absorption Outpaces Supply

by John Nelson March 6, 2017

At the close of 2016, over 1.9 million square feet of office space was absorbed in the Raleigh-Durham market and overall vacancy increased by one percentage point from 10 percent to 11 percent. Activity was strong and can partially be attributed to a very active suburban Raleigh submarket that absorbed over 1.1 million square feet. Vacancy in this submarket ended the year at 10 percent, down from a high of 17 percent in 2010. It was also an active construction year for Raleigh-Durham, with developers completing over 1.3 million square feet of new office space. There is currently another 2.7 million square feet of new projects underway, and an additional 2 million square feet of proposed projects. Downtown Durham, an approximately 4.5 million-square-foot market, has multiple office projects underway, including: The Chesterfield: Renovation on the 286,000-square-foot building should be completed soon with the first tenants moving in in July 2017. The project, being developed by Wexford Science + Technology, is approximately 75 percent leased. One City Center: The mixed-use, 432,000-square-foot project has 130,000 rentable square feet of office space and should open in late 2017. The office component is 50 percent preleased. Activity in downtown Durham has been driven by …

March 6, 2017

Market Reports Multifamily Northeast Northeast Market Reports Pennsylvania

Philadelphia Multifamily Sees Robust Construction, Expects to Maintain Occupancy

by Camren Skelton March 1, 2017

Center City Philadelphia continues to be one of the most vibrant residential downtowns in the country. Millennials and empty-nesters are attracted to the city’s myriad live, work and play opportunities, and the total number of Greater Center City residents has risen 17 percent since 2000. Overall the market is holding up strong; the average occupancy is 95 percent and it is expected to remain at this level for the foreseeable future. Annual effective rent growth is projected to be 3 percent in 2017 and average 2.8 percent from 2018 to 2020. The MSA’s largest job sector — higher education and healthcare services — has increased by 17 percent since 2005 and now provides 37 percent of all jobs in Philadelphia. Total job growth is projected to be 1.6 percent or more than 15,000 new jobs in 2017. Since the beginning of 2015, 23 companies, including EisnerAmper, WeWork and GSI Health, have established offices in the submarket. Multifamily investors and developers have been focused on Center City for the past few years. However, interest in some suburban markets has increased significantly as evidenced by the development and sale activity in 2016. More than $1 billion of sale transactions were recorded in …

March 1, 2017

California Market Reports Multifamily Western Western Market Reports

OC’s Apartment Market Continues Expansion

by Camren Skelton February 28, 2017

Rent an apartment or buy a home? That is the question now posed to many Millennials as they face the facts about the high barriers to homeownership that generations before them, at the same stage of life, could easily overcome. But since the Great Recession and the loose homeownership qualifications that helped spawn it, banks and other home-lending institutions have been under the tight-fisted control of government regulators who have demanded, rightly or wrongly, that prospective homeowners meet strict and often daunting qualifications to buy a house. While that’s bad news for a generation that was raised by families who owned homes and where a home was the primary financial asset for inheritance, it’s good news for multifamily investors, developers and contractors. The demand for apartments has risen to levels eclipsing demand for homeownership in one of the few times in modern history. This is especially true in Orange County where home prices have always been among the highest in the nation. In fact, demand among multifamily investors is so strong that nearly every recent offering for well-located apartment properties has garnered multiple offers, creating a perfect-storm situation for the sellers. One sale that involved an investment portfolio of four …

February 28, 2017

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