Real Capital Analytics (RCA) recently joined with Integra Realty Resources (IRR) to present an overall summary of performance in the U.S. from January to June of 2013—including a comparison of the U.S. to other countries— on Thursday, August 16th, in Midtown Manhattan.
“We’ve had a good first half, transaction activity was up about 25% over 2012,” said Bob White, President of RCA. “It’s going to be tough to match that in the second half of the year. The activity at the end of 2012 because of the capital gains tax year pushed a lot of activity to early 2013. Now, we’re seeing a slowing in the rate of acceleration but I don’t think that’s evidence of any impact of rising interest rates; we haven’t seen the market respond to the run up of rates in May and June. A handful of deals fell through but that actually made investors eager to get deals done, in order to lock in rates.”
Sector wise, there were several noteworthy shifts, White said. “We’re seeing dynamic changes among property types. Apartments and major office towers were sort of perfectly priced, and now we’re seeing a plateau. Office is starting to outperform CBDs, retail has had the biggest pop in volume and price appreciation while unflagged hotels have seen the most activity this year.”
“So riskier investments are coming back,” White declared. “Meanwhile, industrial has been a laggard. Prices are up about 8% over last year, that’s about 17% off peak. Apartments are at peak, CBD’s are at or above peak and suburban markets are about 30% off.
“Things that were close to the top of value and considered risk averse have peaked and those that were farther from peak are heading to that level,” he noted. “That’s a sea change, that investors are embracing risk. Before, all we heard was ‘core market’ and ‘buy risk averse.’ ”
White had other surprises to report. “We’re seeing suburban office outperform CBDs for the first time and unanchored shopping centers are up 12% in price; that’s strong.”
In terms of investor type, those leading the pack and those falling behind were literally all over the map, he said. “Private investors have returned, they tend to be able to smell the opportunities first. They were the most impacted by the credit crunch so now that it’s easier to finance properties, they’re back in the market. We’re also seeing the ‘1031 market’ kick in. Public REIT’s should be bigger buyers than they’ve been. We are seeing some IPOs that could be game changers, whether it’s the Empire State Building or Blackstone throwing out Brixmor, La Quinta or Hilton. It all will happen in the next six months, and those are just the ones we know about, so keep your eyes on the sector.” Of institutions, he said, “they’re deploying the most capital. Some of them reported record fund-raising levels in the second quarter, so the inflow is good.”
Less surprising, perhaps, but worth noting, is the strong performance of the U.S. against the rest of the world. “The US looks like a bastion of stability compared to Europe and Asia,” White asserted. “And we’re seeing a lot of foreign capital flows. Australia is coming in as well as new markets from Asia, including Korea, Malaysia, China and Hong Kong.”
Market by market, in terms of pricing, he reports, “The Northeast has been the stellar performer, with Manhattan and Washington DC driving the recovery. The West Coast was lagging, with Southern California and Las Vegas dragging the region down. The story of the day is the Southwest, with Phoenix’ recovery, and I think a big story is the Southeast, where parts of Florida are rebounding and Atlanta has finally popped through. The Midwest has lagged but Chicago has done ok.”