Optimism abounds in the Twin Cities apartment market, and for good reason. It’s a top performer in the Midwest, and ranks high in the nation overall. The key indicators are compelling: low vacancies with rental rates rising; steady apartment sales; robust new development, especially in core urban and first-tier markets; and flowing pipelines. Among 52 metropolitan areas showing the most economic momentum heading into 2014, Minneapolis/St. Paul ranked No. 14, according to the Praxis Strategy Group. Criteria included GDP growth, job growth, real median household income growth and current unemployment. Property owners, buyers, developers and funding sources are all benefiting from a strengthening apartment market, a trend that began in 2009. Although statistics vary by source, there is consensus on future apartment trends in the seven-county metro area. For apartment owners, a tight rental market means growing revenues, a far cry from the glut of vacant units that existed a few years ago. Last year, vacancy rates averaged 2.8 percent, compared to 7.9 percent in 2009, according to real estate research firm Reis. A boon for landlords, rising rents are forcing many lower-income renters out of the cities into the suburbs. Statistics show the average rent in the Twin Cities …
Market Reports
The year 2013 marked a turning point for the Triangle office market. While overall vacancy remains stubbornly high, ending the third quarter at 17.2 percent, Class A vacancy is rapidly approaching equilibrium, spurring increased investment and development activity in the region. A lack of new construction in recent years has led to a shortage of large blocks of prime office space. Class A vacancy ended the third quarter at 13.7 percent, down by 260 basis points year-over-year. As a result, owners of select properties are finding themselves with more leverage, and tenants are increasingly turning to their second and third choices when securing space. This lack of quality options kept a lid on absorption through most of 2013. Annual absorption stood at just 107,306 square feet through the third quarter, well below historical norms for a recovering market. This figure, however, is not a true reflection of leasing activity. Faced with limited choices, some growing and new-to-market tenants turned to developers, preleasing 700,000 square feet and driving a wave of new construction activity in the second half of the year. Duke Realty broke ground on two new office buildings in the I-40/RTP submarket. Perimeter Two and Perimeter Three will total …
New paradigms in tenant demand and workplace trends have dramatically altered Los Angeles’ office market in the past three years. Internet, creative and entertainment (ICE) tenants have primarily pushed demand and new trends in adaptive reuse, while finance, insurance and real estate (FIRE) end users — along with their law firm counterparts — have contracted. This is often due to lower spatial requirements per employee, coupled with the rising trend of collaborative space. The segments of LA with repurposed and renovated office properties are white hot. This is especially true in Santa Monica’s Silicon Beach area where rents average $50 but can get as high as $70 per square foot. This new coastal, high-rent district benefits its surrounding areas, as well as the city’s CBD and Downtown, where tenants are seeking lower-cost space. Despite an overall market vacancy of about 18 percent, Downtown rents are holding steady due to a concentration of Class-A owners holding firm or even slightly escalating rates. Considering the real estate fundamentals — relatively high vacancy and 9.5 percent unemployment — there may be a disconnect in the investment market. Los Angeles office investment is generally still a bargain compared to other global gateway markets, however. …
After years of trailing cities such as Dallas, Memphis and Indianapolis as major bulk distribution centers, Kansas City has emerged as a significant and large hub for the development of Class A industrial logistics centers whose development is backed by institutional money. The trend is transformational for our market and here to stay for three primary reasons: (1) Institutional money — namely life insurance companies — has always allocated a portion of its funds for real estate. That money has found Kansas City. (2) Local Kansas City developers, brokers and property managers are well-suited and eager to accommodate non-operating entities like life insurance companies to buy land, build projects on a speculative basis, lease up and manage the new developments, and sell them when the financial backers decide to cash in on their investments. Kansas City has traditionally been a family-owned real estate development community comprised of five or six major players. None of these families has sold its portfolios to industrial REITs. Thus, there is a niche for institutional-backed, Class A development that is financed with deep pockets and brought to market by local developers. (3) The biggest reason for large-scale Class A industrial development in Kansas City is …
The Dallas/Fort Worth industrial market is one of the healthiest in the country and dodged the recession unscathed. Texas leads the nation in job growth and has now enjoyed six years of economic growth, and the cold hard facts underpin our high-performance industrial marketplace. Some 548,000 jobs have been added to the state of Texas since 2008, and Dallas/Fort Worth ranks third among metro areas in the state for job growth, according to the U.S. Bureau of Labor Statistics. Approximately 1.2 million new residents were added to the Dallas/Fort Worth area from 2000 to 2010. Business Facilities magazine ranks Dallas as the No. 3 center in the U.S. for logistics and distribution, while Fort Worth is ranked No. 5 for aerospace and manufacturing. We know about Houston’s oil and gas-fueled economy, San Antonio’s growing entertainment and defense sector and Austin’s phenomenal growth backed by tech companies and anchored by state government. But what’s up with North Texas and the Dallas/Fort Worth economic drivers? For readers in the developer camp, they will be pleased to know that DFW was on track to have a record year of absorption in 2013 by the time we went to press with this article in …
With an economy that’s normalizing with improving fundamentals, the Atlanta retail market is on the right track for sustained growth. Throughout 2013, Atlanta experienced a drop in vacancy rates along with the unemployment rate. In addition, retail sales rose nearly 3.5 percent over last year, provoking a rise in consumer confidence. The unemployment rate in Georgia fell from 9 percent in 2012 to 8.3 percent in 2013. This is still a full point below the national average. For 2014, the unemployment rate in Georgia is expected to reach well under 8 percent. During the last 12 months, Atlanta has experienced job growth of 2.5 percent. Retail payrolls are also expected to continue improving in 2014, pushing a near 3 percent gain as a result of both increasing existing stores sales as well as modest new store opening growth. Vacancy Rates, Rent Growth Since the beginning of the year, overall metro retail vacancy rates have dropped below 11 percent, which is a 50 basis point decrease over last year. Neighborhood and community retail centers still maintain the highest vacancy of just under 15 percent. Power centers have experienced a strong year-over-year recovery, averaging a 7.5 percent vacancy across the region. Tenant …
Boston is at the beginning of an unprecedented demographic shift and the strongest fundamentals we have seen in over a decade. With just under 4,000 units a year scheduled to deliver through 2016 and more than 7,000 renter households being created annually over that same time period, we are not building enough units to meet this wave of demand. Boston is the Place to Be The Boston multifamily market remains ones of the best-performing markets in the country. As a result, institutional investors view Boston as one of the top three most desirable markets, alongside New York and San Francisco. Their eagerness to deploy capital into Boston multifamily has resulted in unprecedented asset pricing and has stimulated new development throughout the region. Institutional developers such as Hines, Jefferson Apartment Group, Mill Creek and Gerding Edlen have started their first projects in Metro Boston. Additionally, historically prolific developers in the area such as AvalonBay, Hanover, Criterion, National Development and Wood Partners have continued to build on their success. Solid Fundamentals Relative to most cities, Boston’s employment remained insulated through the downturn thanks in large part to a heavy concentration of jobs in healthcare, high-tech and life sciences. These sectors weathered the …
While economic uncertainty still abounds, the Los Angeles County retail market remains on the road to recovery. Several significant leases were signed during 2013, representing an expansion of both value retailers and luxury brands. Also contributing to positive market momentum was the lack of massive closures by big box retailers, such as Borders and Blockbuster, which were seen in previous years. Los Angeles also maintained its status as a primary market for investors. Cap rates trended in the low- to mid-5 percent range for core grocery/drugstore-anchored product and around the 6 percent range for power/promotional shopping centers. Investor demand was strong for high-profile and street-front retail in Hollywood and Beverly Hills, resulting in aggressive acquisition terms and cap rates falling into the four percent range and below. Los Angeles’ retail market overall experienced moderate leasing activity in 2013. CoStar reported a positive net absorption of 850,112 square feet in the third quarter. However, one submarket that saw significant activity—retail and otherwise—was Downtown LA with the FIGat7th open-air shopping center leading the renaissance. In addition to CityTarget, which opened here in 2012, FIGat7th recently signed a 27,000-square-foot lease with Spanish clothier Zara for a flagship location and a 32,000-square-foot lease with …
Looking back five years ago to the outset of 2009, new construction was the hot topic in the San Antonio office market. In 2008, 12 new office buildings were completed, adding approximately 1.5 million square feet to the market. That equated to a 6 percent increase in existing office inventory, with the new product concentrated in the key Northwest and North Central office submarkets.Of course, new development slowed considerably as the recession set in and wore on. Fast-forward to 2013, and as of press time the San Antonio office market only added 166,630 square feet of new product. The good news, though, is that San Antonio metro employment suffered much shorter and shallower losses than other metro areas as a result of the Great Recession. What’s more, the recovery from these losses has been sharp, with nearly 58,000 jobs added since local employment hit its lowest point in 2009, or approximately three new jobs for every one lost in the local downturn.One-third of these new jobs (or about 19,000) were created in office-using sectors such as finance, insurance and engineering. As a result, the office market is recovering, led by Class A space. The rapid decline in Class A vacancy …
The Raleigh industrial market dipped slightly in the third quarter of 2013 with negative net absorption, yet overall it improved from a year earlier, in part because of the general health of the North Carolina economy. Four factors are pushing the state’s economic recovery: a manufacturing revival, a construction surge, a boost of college graduates who are attracting knowledge-based industries and an influx of retirees, according to Dr. Michael L. Walden, a North Carolina State University professor and author of a report on the North Carolina economy that was published in the summer of 2013. The combination of factors led Dr. Walden to forecast that North Carolina’s Research Triangle, which includes Raleigh, would have an unemployment rate below 6 percent by the end of 2014. Ironically, some of the positive news for the state’s economy is putting pressure on the region’s industrial marketplace and driving these trends in Raleigh: • Net positive migration and population growth, year-after-year • The loss of industrial development opportunities to the homebuilding industry • Local pressure to prioritize live/work/play environments and de-emphasize industrial development • Constrained land supply • A lack of institutional grade space Consistently ranked by Forbes as one of the best places …