The Top 10 Markets for Investment Sales
The top 10 markets with the highest first half of the year sales volume include the following:
Certainly, that doesn’t show a precipitous drop. However, there are several factors contributing to that slowdown. “You can’t ignore the fact that we are in an environment where there is more uncertainty,” says Sean Coghlan, director of investor research with real estate services firm JLL. Elevated political risks, regulatory risks, rising interest rates and geopolitical issues are among the top concerns. JLL is reporting a bigger decline in first half of the year investment volume of 13 to 15 percent across the four major property types of office, industrial, retail and multifamily. (RCA also tracks hotels and development sites.) There is a shortage of opportunities that is happening at the same time as buyers are becoming increasingly selective. “So we are seeing a little bit of an imbalance between the supply side and the demand side of capital,” adds Coghlan. “I believe that there is still a lot more equity demand than there are deals out there,” notes Michael T. Fay, a principal and managing director in the Miami office of real estate services firm Avison Young. Pricing has become much more of a factor today. “There is a pricing gap between a seller’s expectations and where underwriting has come in on some of these properties,” he says. The one sector that is out-performing is industrial. According to RCA, industrial sales increased 10 percent during the first half to reach $30.1 billion. “A big factor in that is that we are seeing a wave of new portfolio transactions that are over $250 million,” says Coghlan. According to JLL, an estimated $3 billion in industrial portfolio transactions have closed in the first half of the year and over $13 billion in portfolio sales are expected to close in the second half of the year. Hotel sales remained flat, while other major property sectors also posted a drop in sales, led by development sites that fell by 20 percent; followed by apartments at 17 percent; retail at 16 percent and office at 2 percent, according to RCA. Even with a decline in transaction volume, sales remain relatively robust in most major metros. Combined, the top 10 most active sales markets during the first half of the year accounted for 35 percent of total sales at $74.4 billion. The top 10 markets with the highest first half of the year sales volume include: Los Angeles The $12.60 billion in total sales the city saw in the first half of 2017 is down 11 percent year-over year. Two of Los Angeles’ largest deals were the sale of SunAmerica Center and One California Plaza. Blackstone sold its two-thirds ownership share of SunAmerica Center to JMB Realty Corp. for an undisclosed price, while One California Plaza sold for $459 million. Manhattan, N.Y. Larger gateway markets continue to generate big sales volumes. The one market where there has been a notable drop-off is in New York City. Although Manhattan continued to see some mega deals during the first half, the $10.62 billion in total property sales is down 55 percent year-over-year. One notable big sale during the period was the $2.2 billion deal for 245 Park Avenue.
A factor that may be contributing to the slowdown is that there has been more foreign capital that has come into that market that prefers to buy and hold assets over the long term. So there are fewer buying opportunities, notes Coghlan. Dallas The Dallas metro saw investment sales rise 21 percent during the first half of 2017, with $9.2 billion in property that traded hands. “Dallas and Atlanta are the two most active multifamily markets in the country right now and you will find that there is a fairly strong amount of activity happening in that sunbelt, southeast part of the country that is being driven by private equity and institutional investors,” says Coghlan. For example, Blackstone Real Estate Income Trust purchased a six-property apartment portfolio valued at $430 million, with assets located in Dallas, Chicago and Orlando. Boston Sales held steady in Boston at $8.25 billion. One of the notable office transactions included the $528.8 billion sale of One Federal Street. Atlanta Atlanta held onto its number five spot again this year, with $7.13 billion in sales during the first half of the year, which represented an 18 percent year-over-year increase. Population growth and a more affordable cost of living are two of the factors attracting investors to southeastern U.S. markets such as Atlanta. Chicago Chicago’s investment sales volume dropped by nearly one third during the first half of the year, with sales totaled $5.99 billion. The largest office property to sell was the 181 West Madison building for $355.0 million. Houston The Houston metro reported a hefty 33 percent jump in sales to $5.6 billion. “There are a lot of interesting things going on in Houston and there is interest from a lot of different investment groups,” says Fay. Earlier this year, Columbia Property Trust sold three Houston office properties for a combined $272 million. Seattle First half sales declined 20 percent to reach $5.22 billion in Seattle. One major sale was the Midtown 21 office building, which sold for $330.2 million or about $885 per sq. ft. San Francisco Sales levels held relatively steady in San Francisco, with transaction volume that declined by a slight 3 percent to $5.20 billion. One of the largest sales to close in the first half of the year was 44 Montgomery for $474.2 million. Northern New Jersey Investment sales remained relatively flat here, inching just 1 percent higher to $4.58 billion. One notable deal was the Hampshire Cos.’ $146.85 million sale of a six-building industrial portfolio totaling 1.2 million sq. ft.
Beth Mattson-Teig | Aug 02, 2017