January 31, 2017
If you missed CBRE’s Western U.S. Industrial and Office Conference last week in DTLA, here’s a quick recap of what was presented, discussed and shared. Connect Media was among the more than 500 real estate investors and CBRE professionals that attended to exchange insights on industry trends.
A recurring theme heard throughout the day was that opportunities abound for CRE investors in the coming year. To be sure, optimism was tempered with the uncertainty that comes from the first few days of a new presidential administration, as well as a host of other factors. Yet, a strong sense came through that there’s a bit more runway left in the current market cycle.
CRE icon Dick Ziman, who leads SoCal REIT Rexford Industrial, shared an interesting bit of advice. During a keynote conversation with CBRE’s Chris Ludeman, he advised success was based on controlling the sell side of transactions more so than the buy side.
CBRE’s Darla Longo said the big takeaways from this year’s conference included strong demand for industrial product, lack of available land, conversion of existing buildings, rising rents, tenant concessions disappearing, as well as increasing development and construction costs.
Other tent poles from the conference included:
- 2017 is expected to be a great rate market that investors might find pleasantly surprising
- Capital became more discerning in 2016, tending to favor credit and new assets in CBD locations
- Investment in San Francisco and Los Angeles CBD’s increased to 28% of 2016’s total, compared to 25% in 2015
- Los Angeles is the top investment target market nationally, in 2016 notching a 20% higher level than the previous high in 2007
- L.A.’s Westside is now considered the top supply constrained market in the U.S.
- Capital markets, life companies, banks, debt funds and CMBS sources are all in play now, albeit encroaching into each others’ space
- 2016’s mega deals typically involved Blackstone
- 1031 exchange transactions were up in 2016, but could be impacted by changes in tax treatment codes and interest rates
- Savvy investors will look to lock in rates now, before interest rates rise
- Trump’s effect is expected to be largely positive for CRE, and should allow the current cycle to continue for six months or more, though not indefinitely
- The Fed is one of the biggest risk factors on the horizon, especially if it raises rates too quickly in an effort to curtail inflation
- For large corporations seeking to drive top lines, labor is a major consideration, and as a result, drives location decisions since talent gives companies a competitive edge
- Foreign capital is expected to be more aggressive pursuing more U.S. assets, given the difficulty of repatriating capital
- Sales volume is anticipated to exceed 2016 levels, with per-square-foot prices increasing, especially for West Coast markets, though pricing on a cap rate basis expected to be flat
- Larger transactions will be coveted by lenders, making it a great time to be a borrower
- Industrial markets recorded 27 straight quarters of positive net absorption, though absorption was down due to a lack of supply
- Dallas topped L.A./Inland Empire in terms of industrial positive net absorption for the first time
- In 27 markets CBRE surveyed nationally, 50% of industrial demand came from e-commerce, 3PLs, food and beverage and consumer goods
- 71% of the industrial development pipeline is concentrated in just eight markets, Inland Empire, Dallas/Ft. Worth, Chicago, Philadelphia, Atlanta, Central New Jersey, Kansas City and Houston
For comments, questions or concerns, please contact Dennis Kaiser