NEW YORK--(BUSINESS WIRE)--Integra Realty Resources’ (IRR) annual Viewpoint 2016 report reveals that 2016 will see a positive impact on commercial real estate rents, occupancy, and values due to increased job creation. In the coming year, there will be a return of global capital into mature, developed European economies, but the U.S. will maintain more than its fair share of foreign capital investment allocations. Yet, some abatement in capital inflows would be a welcome cooling to the feverish asset pricing of 2015. IRR’s report also predicts that “home office wealth” will continue to migrate family money directly into U.S. real estate investment.
Viewpoint 2016 is the industry’s annual compendium of real estate valuation, investment, and leasing trends and projections, providing data, analysis, and forecasts on local and national CRE market conditions for capital markets, office, multifamily, retail, industrial, hospitality, self-storage, senior housing, medical office buildings, and auto dealerships.
“Real estate markets are always changing, and as a result, Viewpoint’s comprehensive analyses of the state and direction of industry evolve as well,” said Michael Welch, chairman of Integra Realty Resources. “The aggregated cap rate data we will provide to our clients in 2016 will enable them to drive real-time insights into the changing markets. In addition to a detailed overview of core and specialty property types, Viewpoint 2016 also examines trends from the economy, interest rates, capital markets, and housing and how this will affect CRE markets.”
Key findings of IRR Viewpoint 2016 include:
Office
- The office sector has been growing in lockstep with the economic recovery without much new construction to hinder rent growth. Office tends to be less volatile since rental contracts are longer and often more durable in the long run.
- IRR predicts that 18.6 percent of U.S. markets will experience Central Business District (CBD) Class A value increases of at least four percent in 2016, compared with 8.5 percent for CBD Class B, 6.5 percent for suburban Class A, and just 3.2 percent for suburban Class B.
- Noteworthy cap rate changes in 2016 include Houston expecting to see suburban office cap rates rise up to 50 bps, and Philadelphia expecting cap rates to decline by up to 50 bps. This is compared to CBD office cap rates compressed nationally across both Class A and Class B assets by 19 bps and 20 bps, and suburban office cap rates compressing 23 bps for Class A and 17 bps for Class B.
- Manhattan transaction activity is more than three times the volume of Chicago, the second ranked office market with $8.4 billion in activity in the past year. Top office transaction markets include San Francisco, Los Angeles, Boston, and Seattle, which replaced Houston from last year’s list.
Multifamily
- As the home building industry continues its painfully slow recovery, the multifamily and condo components have been quite active. Millennials simply are not flocking to the ownership pool, a positive trend for multifamily investors.
- Thirteen U.S. markets are calling for a reversal of cap rate contraction, with the largest reversal expected to be felt in Coastal New Jersey, with a cap rate increase of 75 bps for Class B, and up to 50 bps for Class A.
- Ninety-three percent of markets are currently in an expansion phase. Meanwhile, Atlanta, Raleigh, and Washington, DC are exhibiting hyper-supply conditions.
- IRR predicts that 88.7 percent of multifamily markets can expect value increases in the next 12 months, with the exception being markets affected by oil price drops, such as Houston.
Retail
- Retail remains an opportunity investment as recovery in rents and occupancies have been more measured, though steadily improving. Strong housing growth and improvement in consumer confidence favor retail in 2016, except in markets that rely heavily on international tourist sales.
- IRR’s overview of 2015 retail market performance reveals the Central and West regions still have a significant percentage of markets recovering (55 percent and 43 percent). Over the next 36 months, 55 percent of U.S. retail markets are expected to experience annual rent growth rates of one to three percent. Sixty-eight percent of retail markets will see cap rates remain constant over the next year. The remaining 27 percent expect marginal decreases.
- The growth of online shopping is being felt in markets nationwide, as omni-channel strategies emerge. Boise, Jacksonville, and Orlando have been slower to adopt online retailing. The emergence and influence of the fast-casual food segment was felt in Indianapolis, Kansas City, Memphis, Orlando, and Washington, DC.
Industrial
- Industrial assets will face many challenges in 2016, the biggest being global headwinds on trade owing to the continued strength of the U.S. dollar. Primary U.S. logistic distribution hubs will perform well on the back of increased retail distribution activity domestically.
- The most active market was Los Angeles, after experiencing 85.4 percent growth. Chicago fell to second, with comparatively marginal growth at 14.4 percent. Dallas, Inland Empire, and Northern New Jersey round out the top five.
- Cap rate compression continued to be strong in the South in 2015, especially in areas where distribution capabilities are paired with a strong consumer market. The East experienced marginal cap rate compression, specifically with flex properties.
Hospitality
- The hospitality market faces the biggest risks in 2016. The industry is segmented, so generalizations about the impact of inbound international tourism might be hyperbole. But a strong U.S. dollar also favors American travel abroad, which would be even more threatening to average daily rates (ADRs) across almost every sector.
- Hotels located in airport and suburban areas are forecasted to achieve the strongest RevPAR gains in 2016. The continuing return of large conventions is causing compression, which is forcing demand into the suburbs.
The full Viewpoint 2016 report comprises additional resources, including methodology, forecasts, 29 graphs and tables, and a list of “bulls and bears” covering transaction volume by market for major property types. A free download of the publication is available at http://research.irr.com.
About Integra Realty Resources
With corporate headquarters in New York City, Integra Realty Resources (IRR) is the largest independent commercial real estate market research, valuation, and counseling firm in North America, with 58 offices and approximately 850 employees located throughout the United States and the Caribbean. Founded in 1999, the firm specializes in real estate appraisals, feasibility and market studies, expert testimony, and related property consulting services. Many of the nation’s largest and most prestigious financial institutions, developers, corporations, law firms, and government agencies are among its clients. For more information, visit www.irr.com or blog.irr.com.
