US CAPITAL MARKETS REPORT: US CAPITAL MARKETS REPORT ... Rate Survey Report_MIDYEAR 201… · us capital markets report: capitalization rates ... us capital markets report: capitalization

US CAPITALMARKETS REPORT: CAPITALIZATION

RATES BY ASSET TYPE

0CUSHMAN & WAKEFIELD

US CAPITAL MARKETS REPORT:

CAPITALIZATION RATES BY PROPERTY TYPE

MID-YEAR 2014


RATES BY ASSET TYPE


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Office C

BD

A

Office C

BD

B

Office N

on-CB

D A

Office N

on-CB

D B

Warehouse A

Warehouse B

Multifam

ily A

Multifam

ily B

Multifam

ily C

Malls C

BD

A

Malls C

BD

B

Malls N

on-CB

D A

Malls N

on-CB

D B

Strip C

enters CBD

A

Strip C

enters CBD

B

Strip C

enters Non-C

BD A

Strip C

enters Non-C

BD B

Capital continues to flow steadily into the U.S. real estate market, as both domestic and foreign investors increase their allocations in search of returns. On a risk‐adjusted basis, U.S. real estate has been a top tier investment relative to other countries and other asset classes, and so foreign capital is coming into the U.S. in a more meaningful way in 2014‐2015. As a result of wealth creation in the Asia Pacific region (APAC), investors there are looking for places to park their money. And Europe’s economy, while still choppy but on the mend, European investors have begun exporting capital once again as well. While domestic investors began moving out on the risk/reward spectrum six to 12 months ago, international investors are now too beginning to search for more yield. Foreign buyers who have been focused traditionally on the core trophy assets in the top gateway markets are now starting to look out the risk/reward spectrum for value‐add plays in primary markets (including buying development deals), as well as larger deals in secondary locations. Fueling this fire is the favorable cost of capital available from a deep pool of sources, including the CMBS market, banks and insurance companies. Investment sales across all property types reached $172.3 billion, a 23% increase from the same time last year and 2014 volume is forecast to approximate 2006 levels.

Cap rates compressed 10 to 20 basis points (bps) during the first half of the year on average, as more capital chases real estate assets. Cap rates in primary markets are already at historical lows, given low interest rates and rent growth expectations and so investors are taking on more risk in these primary markets. There has been even greater compression recently in secondary markets in response to favorable debt pricing and increasing confidence in the broader U.S. economy’s recovery.

MARKET OBSERVATIONSWhile published cap rate series currently exist, commonly used indices generally do not distinguish between class A and B assets, resulting in index volatility as the product quality mix of traded assets (RCA) and owned assets (NCREIF) changes. This is particularly apparent when, like today, investors start to move up the risk/reward spectrum. The cap rate ranges provided herein are today’s executable cap rate ranges provided by local C&W brokers, together with their assessment of market momentum for the next 6 months in light of investor appetite and transaction pipelines. The following are some overall observations by property type.

Source: Real Capital Analytics, C&W Capital Markets

CAPITALIZATION RATES BY PROPERTY TYPE

MID-YEAR 2014

US CAPITAL MARKETS REPORT:

CAPITALIZATION RATES BY ASSET TYPE

O V E R V I E W

*

C&W Class A Cap Rate Range C&W Class B Cap Rate Range C&W Class C Cap Rate Range

RCA Reported Cap Rate on Transactions in 2Q 2014

* RCA mall cap rates are not indicative of market trends. It reported only 2 cap rates for Non-CBD malls (2.5% and 6.2%) in 2Q and no cap rates were reported for CBD Malls in 2014, therefore, the 2013 Q4 rate of 4.5% was used (representing one mall).

*


RATES BY ASSET TYPE


CBD

OFFICE FUNDAMENTALSLeasing fundamentals improved during the second quarter as employment growth translated into tighter conditions and rising rents. The overall vacancy rate fell 70 bps to 15.1% during the first half of the year from 15.8% at year‐end 2013. Strong demand from firms in downtown markets resulted in the vacancy rate in the CBDs declining 80 bps to 12.7% during this period, while the vacancy rate in the non‐CBDs edged down 20 bps to 16.8%. Improving demand fundamentals have also resulted in increasing rental rates. Overall CBD rents rose 1.2% during the first half of the year to $42.24 psf and have surpassed previous peak levels. Non‐CBD rents are approaching previous peak levels and growth is accelerating as rents rose 1.6% during the first half of the year to $25.02 psf.

Construction levels are near a 20‐year low, but are starting to tick up across the U.S. with 9.8 msf completed during the first half of the year, equating to only 0.3% of total inventory with another 49 msf or 1.5% of total inventory under way. The short‐to medium‐term outlook for the leasing market is positive, as accelerating job growth should cause vacancy rates to tighten further despite densification trends. This increasing tenant demand is exerting upward pressure on rental rates which are expected to accelerate in 2015.

The rising tide of both equity and debt capital targeting commercial real estate markets has resulted in an active year thus far for the office investment market. Through the first half of the year, the volume of office sales increased 30% from the first half of 2013 to $49.3 billion. Year‐to‐date through the second quarter, the top six markets garnered 51% of the dollar volume, with Manhattan remaining at the top of the list. Secondary markets are attracting more capital, as Philadelphia moved up into the eighth spot with triple digit growth in sales volume.

NATIONAL VACANCY RATES ACROSS CBD MARKETS

12.7%

0%

5%

10%

15%

20%

25%

30%

0%

5%

10%

15%

20%

25%

30%

Bro

okly

n N

Y

Mid

tow

n S

outh

NY

San

Fra

ncis

co, C

A

Bos

ton,

MA

Dow

ntow

n N

Y

Mid

tow

n N

Y

Den

ver,

CO

Hou

ston

, TX

Por

tland

, OR

Sac

ram

ento

, CA

Phi

lade

lphi

a, P

A

Nat

iona

l U.S

.

Chi

cago

, IL

Oak

land

, CA

Ora

nge

Cou

nty

CA

Tam

pa, F

L

Was

hing

ton,

D.C

.

Orla

ndo,

FL

Mia

mi,

FL

Ft. L

aude

rdal

e, F

L

Bal

timor

e, M

D

San

Die

go, C

A

Atla

nta,

GA

Har

tford

, CT

New

Hav

en, C

T

Pal

m B

each

, FL

Silic

on V

alle

y C

A

Wes

tche

ster

NY

Los

Ange

les

CB

D

Pho

enix

, AZ

Jack

sonv

ille,

FL

Dal

las,

TX

Fairf

ield

Cou

nty

CT

UC

AS

% O

F IN

VE

NTO

RY

VAC

ANC

Y R

ATE

Vacancy % UC

CAP RATE SURVEY RESULTSInvestors continue to seek markets with prospects for strong NOI growth and high quality product. In primary markets, where cap rates for core assets are trading at or below historic lows, investors are focused on rent growth and are moving up the risk spectrum by investing in more value‐add and opportunistic strategies, including repositioning and redeveloping assets as well as development deals. As the economy is firming and CMBS pricing is at present attractive to real estate investors, domestic players are also moving out on the risk/return spectrum by investing in secondary markets.

Cap rates for office buildings on average compressed 10 bps during the first half of the year, according to C&W’s latest cap rate survey. CBD class A assets are trading in a range of 5.8% to 6.5%, down 10 bps from six months ago. Top assets in prime gateway markets are trading more than 130 bps lower in the 4.4% to 5.2% range. Appetite for New York City properties, which ranks as one of the top two global markets for both volume and desirability, has among the lowest vacancy rates in the country. Manhattan has the lowest cap rate range of any U.S. market at 3.8% to 4.5%. Class A assets in secondary locations are trading between 6.1% and 6.8% and are compressing as investor interest is rising. There has been greater cap rate compression in second tier CBDs as cap rates in Philadelphia, San Jose and San Diego have come down 50 bps in the first half of the year as a result of increasing competition for assets.

Shifting from class A to class B properties in the CBD now generates 90 bps of incremental yield. CBD class B assets are trading for 6.7% to 7.3% cap rates, 10 bps less than six months ago, as some investors are being priced out of class A assets. For class A assets, moving from the CBD to the suburban markets increased the average cap rate by 85 bps, with suburban class A assets trading for 6.6% to 7.3%. For suburban properties, shifting from class A to class B suburban properties increases the cap rate by 100 bps, as these properties are trading for 7.7% to 8.4%, 20 bps lower than where they traded six months ago.

NATIONAL VACANCY RATES ACROSS NON-CBD MARKETS

16.8%

0%

5%

10%

15%

20%

25%

30%

0%

5%

10%

15%

20%

25%

30%

San

Fra

ncis

co, C

AS

F Pe

nins

ula

CA

Silic

on V

alle

y C

AH

oust

on, T

XS

an D

iego

, CA

Por

tland

, OR

Den

ver,

CO

Bal

timor

e, M

DFt

. Lau

derd

ale,

FL

Con

tra C

osta

, CA

Mia

mi,

FLS

acra

men

to, C

AS

F N

orth

Bay

CA

Ora

nge

Cou

nty

CA

Phi

lade

lphi

a, P

AN

ew H

aven

, CT

Nat

iona

l U.S

.Ta

mpa

, FL

Bos

ton,

MA

Long

Isla

nd N

YLo

s An

gele

s M

etro

Oak

land

, CA

Cen

tral N

JJa

ckso

nvill

e, F

LA

tlant

a, G

AO

rland

o, F

LS

t. P

eter

sbur

g FL

Dal

las,

TX

Sou

ther

n N

HIn

land

Em

pire

CA

Pal

m B

each

, FL

Wes

tche

ster

NY

Chi

cago

, IL

Fairf

ield

Cou

nty

CT

Har

tford

, CT

Nor

ther

n V

AN

orth

ern

NJ

Sub

urba

n M

DP

hoen

ix, A

Z

UC

AS

% O

F IN

VE

NTO

RY

VAC

ANC

Y R

ATE

Vacancy % UC

OFFICE

Source: C&W Research, C&W Capital Markets


RATES BY ASSET TYPE


OFFICE

EASTERNMARKETS

Class A

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L CLASS B

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L Class A

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L Class B

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L

Atlanta, GA 6.25% - 6.75% • • • 7.00% - 7.75% • • • 8.00% - 8.50% • • • • 8.75% - 9.25% • •Baltimore, MD 7.00% - 7.75% • • • 7.75% - 8.50% • • • 7.25% - 8.00% • • • • 8.00% - 8.75% • •Boston, MA 4.25% - 5.00% • • • 4.75% - 5.50% • • • • 5.75% - 6.50% • • 8.00% - 8.75% • •Charlotte, NC 6.25% - 7.00% • • • 7.00% - 7.75% • • 7.50% - 8.25% • • 8.50% - 9.25% • •Chicago, IL 5.25% - 6.00% • • • 6.25% - 7.00% • • • 7.50% - 8.25% • • • 8.25% - 9.00% • •Minneapolis, MN 6.25% - 7.00% • • • 7.75% - 8.25% • 7.00% - 7.50% • • 8.25% - 9.00% • •Northern New Jersey 6.00% - 6.75% • • • 6.50% - 7.25% • • • • 7.00% - 7.75% • • • • 8.50% - 9.25% • •New York 3.75% - 4.50% • • • • • 4.75% - 5.50% • • • • N/A • N/ANYC Suburbs/Westchester 6.00% - 6.75% • • • • 6.50% - 7.25% • • • • 7.00% - 7.75% • • • • 8.50% - 9.25% • •New Haven/Stamford 6.00% - 6.75% • • • • 6.50% - 7.25% • • • • 7.00% - 7.75% • • • • 8.50% - 9.25% • •Orlando, FL 6.25% - 6.75% • • 7.50% - 8.00% • 6.50% - 7.00% • • 7.50% - 8.00.% •Philadelphia, PA 6.50% - 7.00% • 7.25% - 8.00% • 6.75% - 7.25% • 8.00% - 8.50% •Miami, FL 5.25% - 5.75% • • • 5.75% - 6.25% • • 6.25% - 7.25% • • • 6.75% - 7.75% •Tampa, FL 6.25% - 6.75% • 7.25% - 7.75% • 6.75% - 7.25% • • 8.00% - 8.50% •Washington DC 4.50% - 5.25% • • • 5.10% - 5.80% • • • • 6.00% - 6.50% • • • 7.00% - 7.75% • •AVERAGE 5.72% - 6.38% 6.54% - 7.15% 6.89% - 7.52% 8.04% - 8.79%

WESTERN MARKETS Class A

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L Class B

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L Class A

Trend Next 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L Class B

Trend Next 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L

Austin, TX 5.75% - 6.50% • • • • • 6.75% - 7.50% • • • 6.00% - 6.75% • • • • • 7.25% - 8.00% • •Dallas, TX 6.00% - 6.75% • • • • 7.25% - 8.00% • 6.00% - 6.75% • • • • 8.00% - 8.75% • •Denver, CO 5.25% - 6.00% • • 6.50% - 7.25% • • • 6.25% - 7.00% • • • • 7.00% - 7.75% • • •Houston, TX 5.50% - 6.25% • • • • • 6.75% - 7.50% • • • • 6.25% - 7.00% • • • • • 7.75% - 8.25% • •Las Vegas, NV 7.25% - 8.00% • 8.00% - 8.75% • 6.00% - 6.75% • • 7.00% - 7.75% • •Los Angeles, CA 4.75% - 5.50% • • • 6.25% - 7.00% • • 6.50% - 7.25% • • 7.25% - 8.00% •Phoenix, AZ 5.70% - 6.50% • 6.50% - 7.75% • 6.00% - 6.75% • 6.50% - 7.50% •Portland, OR 6.25% - 6.75% • • 6.75% - 7.25% • 6.75% - 7.25% • • 7.75% - 8.25% •Sacramento, CA 7.00% - 7.75% • • 7.50% - 8.25% • 7.50% - 8.25% • 8.25% - 9.00% •San Antonio, TX 7.25% - 8.00% • • • • 8.50% - 9.25% • • 7.50% - 8.25% • • 8.25% - 9.00% • •San Diego, CA 5.50% - 6.25% • 6.50% - 7.25% • 5.50% - 6.25% • 6.50% - 7.25% •San Francisco, CA 4.00% - 4.75% • • • 4.50% - 5.25% • • 6.00% - 6.75% • • 7.00% - 7.75% • •San Jose, CA 6.50% - 7.00% • 7.25% - 7.75% • 6.00% - 6.50% • 6.50% - 7.00% •Seattle, WA 4.75% - 5.50% • • • 6.00% - 6.75% • • • • 6.50% - 7.00% • • • 7.00% - 7.75% •AVERAGE 5.82% - 6.54% 6.79% - 7.54% 6.34% - 7.04% 7.29% - 8.00%

CLASS A5.77% - 6.46%

CLASS B6.66% - 7.34%

CLASS A6.62% - 7.28%

CLASS B7.66% - 8.38%

CBD SUBURBS


RATES BY ASSET TYPE


Seattle CBDClass A: 4.75% - 5.50% Class B: 6.00% - 6.75% SUBURBAN Seattle Class A: 6.50% - 7.00% Class B: 7.00% - 7.75%

Portland CBDClass A: 6.25% - 6.75% Class B: 6.75% - 7.25% SUBURBAN Portland Class A: 6.50% - 7.25% Class B: 7.75% - 8.25%

Sacramento CBDClass A: 7.00% - 7.75% Class B: 7.50% - 8.25% SUBURBAN Sacramento Class A: 7.50% - 8.25% Class B: 8.25% - 9.00% San Francisco CBDClass A: 4.00% - 4.75% Class B: 4.50% - 5.25% SUBURBAN San Francisco Class A: 6.00% - 6.75% Class B: 7.00% - 7.75% San Jose CBDClass A: 6.50% - 7.00% Class B: 7.25% - 7.75% SUBURBAN San Jose Class A: 6.00% - 6.50% Class B: 6.50% - 7.00%

Los Angeles CBDClass A: 4.75% - 5.50% Class B: 6.25% - 7.00% SUBURBAN Los Angeles Class A: 6.50% - 7.25% Class B: 7.25% - 8.00%

San Diego CBDClass A: 5.50% - 6.25% Class B: 6.50% - 7.25% SUBURBAN San Diego Class A: 5.50% - 6.25% Class B: 6.50% - 7.25%

Denver CBDClass A: 5.25% - 6.00% Class B: 6.50% - 7.25% SUBURBAN DenverClass A: 6.25% - 7.00% Class B: 7.00% - 7.75%

Minneapolis CBDClass A: 6.25% - 7.00% Class B: 7.75% - 8.25% SUBURBAN MinneapolisClass A: 7.00% - 7.50% Class B: 8.25% - 9.00%

Chicago CBDClass A: 5.25% - 6.00% Class B: 6.25% - 7.00% SUBURBAN Chicago Class A: 7.50% - 8.25% Class B: 8.25% - 9.00%

Philadelphia CBDClass A: 6.50% - 7.00% Class B: 7.25% - 8.00% SUBURBAN Philadelphia Class A: 6.75% - 7.25% Class B: 8.00% - 8.50%

Northern NJ CBDClass A: 6.00% - 6.75% Class B: 6.50% - 7.25% SUBURBAN Northern NJ Class A: 7.00% - 7.75% Class B: 8.50% - 9.25%

Baltimore CBDClass A: 7.00% - 7.75% Class B: 7.75% - 8.50% SUBURBAN Baltimore Class A: 7.25% - 8.00% Class B: 8.00% - 8.75% DC CBDClass A: 4.50% - 5.25% Class B: 5.10% - 5.80% SUBURBAN DC Class A: 6.00% - 6.50% Class B: 7.00% - 7.75%

Charlotte CBDClass A: 6.25% - 7.00% Class B: 7.00% - 7.75% SUBURBAN Charlotte Class A: 7.50% - 8.25% Class B: 8.50% - 9.25% Orlando CBDClass A: 6.25% - 6.75% Class B: 7.50% - 8.00% SUBURBAN Orlando Class A: 6.50% - 7.00% Class B: 7.50% - 8.00%

Dallas CBDClass A: 6.00% - 6.75% Class B: 7.25% - 8.00% SUBURBAN Dallas Class A: 6.00% - 6.75% Class B: 8.00% - 8.75%

Miami CBDClass A: 5.25% - 5.75% Class B: 5.75% - 6.25% SUBURBAN Miami Class A: 6.25% - 7.25% Class B: 6.75% - 7.75%

Tampa CBDClass A: 6.25% - 6.75% Class B: 7.25% - 7.75% SUBURBAN Tampa Class A: 6.75% - 7.25% Class B: 8.00% - 8.50%

Houston CBDClass A: 5.50% - 6.25% Class B: 6.75% - 7.50% SUBURBAN Houston Class A: 6.25% - 7.00% Class B: 7.75% - 8.25%

Austin CBDClass A: 5.75% - 6.50% Class B: 6.75% - 7.50% SUBURBAN Austin Class A: 6.00% - 6.75% Class B: 7.25% - 8.00%

San Antonio CBDClass A: 7.25% - 8.00% Class B: 8.50% - 9.25% SUBURBAN San Antonio Class A: 7.50% - 8.25% Class B: 8.25% - 9.00%

LEGENDCap Rate Trend Next 6 months

FLAT

DOWN

UP

Phoenix CBDClass A: 5.70% - 6.50% Class B: 6.50% - 7.75% SUBURBAN PhoenixClass A: 6.00% - 6.75% Class B: 6.50% - 7.50%

Atlanta CBDClass A: 6.25% - 6.75% Class B: 7.00% - 7.75% SUBURBAN Atlanta Class A: 8.00% - 8.50% Class B: 8.75% - 9.25%

New Haven/Stamford CBDClass A: 6.00% - 6.75% Class B: 6.50% - 7.25% SUBURBANClass A: 7.00% - 7.75% Class B: 8.50% - 9.25% NY Burbs/Westchester CBDClass A: 6.00% - 6.75% Class B: 6.50% - 7.25% SUBURBANClass A: 7.00% - 7.75% Class B: 8.50% - 9.25%

Boston CBDClass A: 4.25% - 5.00% Class B: 4.75% - 5.50% SUBURBAN Boston Class A: 5.75% - 6.50% Class B: 8.00% - 8.75% New York City CBDClass A: 3.75% - 4.50% Class B: 4.75% - 5.50%

Las Vegas CBDClass A: 7.25% - 8.00% Class B: 8.00% - 8.75% SUBURBAN Las VegasClass A: 6.00% - 6.75% Class B: 7.00% - 7.75%

OFFICE


RATES BY ASSET TYPE


CBDINDUSTRIAL FUNDAMENTALSOverall conditions are improving in the industrial sector despite some mixed economic signals. U.S. industrial production, a figure closely tied to demand for industrial space, unexpectedly declined in August for the first time in seven months, dropping by 0.4%. The consensus is that this was a blip in the data and that the figures for the remainder of the year will be favorable. Leasing activity for the industrial market totaled 220.7 msf during the first half of the year, 7.4% below mid‐year 2013 levels. The overall vacancy rate, however, continued its downward trend during the second quarter to 7.2%, 80 bps below last year’s rate. Given the tightening market conditions, the supply pipeline is ramping up with 133.4 msfcurrently under construction. Supply is still in check, however, as this amounts to only 1.0% of total inventory. Sales volume during the first half of the year rose to $21.7 billion, up 39% from a year ago, with warehouse transactions dominating the activity. Secondary markets are attracting more investors in search of yield given pricing in the core markets.

INDUSTRIAL CAP RATE SURVEY RESULTSConsistent with the office market cap rate compression, class A industrial cap rates ticked down 10 to 20 bps during the last six months. They are now are between 6.0% and 6.6% depending on location. On average, western markets are trading for 5.6% to 6.2% while eastern markets are 80 bps higher. Core distribution markets located near major population centers continued to dominate investment activity and are trading at cap rates between 5.1% and 5.7%. Southern California markets captured $2.4 billion of transaction volume, and cap rates there are in the low 4.25% to 5.5% range. The Northern New Jersey/New York metro area, Northern California, Chicago and Dallas rounded out the top five in terms of dollar volume and also traded at sub‐6% cap rates.

Secondary locations, including Atlanta, Baltimore, Indianapolis, Sacramento and Seattle are attracting more interest and as a result, cap rates are compressing. Moving out into secondary markets results in an 80 bps increase in cap rates for Class A product, with most assets in these markets trading from a low‐5.0% to mid‐7.0% cap. Shifting from class A to class B assets (within secondary markets) results in a 100 bps increase across the board. Class B assets in the West are trading for 100 bps lower than similar assets in the East.

NATIONAL WAREHOUSE VACANCY RATES ACROSS INDUSTRIAL MARKETS

0%

5%

10%

15%

20%

25%

0%

5%

10%

15%

20%

25%

SF P

enin

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CA

Den

ver,

CO

Gre

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Los

Ang

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Cou

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CA

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CA

St. P

eter

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Phila

delp

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Nor

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ay C

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Port

land,

OR

Hou

ston

, TX

Lake

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FL

Tam

pa, F

LM

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FLC

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a C

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, CA

Nat

iona

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MD

Dall

as/F

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Cor

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New

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, FL

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, MA

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F IN

VEN

TO

RY

VA

CA

NC

Y R

AT

E

Vacancy Under Construction (as % of Inventory)

INDUSTRIAL - WAREHOUSE

Source: C&W Research, C&W Capital Markets

7.2%


RATES BY ASSET TYPE


EASTERN MARKETS Class A Trend Next 6 Mo.

INST

ITU

TIO

NA

L

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L Class B Trend Next6 Mo.

INST

ITU

TIO

NA

L

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DEV

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PER

FORE

IGN

PRIV

AT

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API

TA

L

Atlanta, GA 5.75% - 6.50% • • • 6.75% - 7.50% • • •Baltimore, MD 5.25% - 5.75% 6.00% - 6.75% Boston, MA 6.75% - 7.50% • • 8.00% - 8.75% • •Charlotte, NC 6.25% - 7.00% • • 7.00% - 7.75% • •Chicago, IL 5.50% - 6.00% • • • • • 7.00% - 7.75% • • • • •Cincinnati, OH 6.50% - 7.00% • • • 8.25% - 9.00% • • •Cleveland, OH 8.25% - 9.00% • 9.50% - 10.25% •Columbus, OH 7.00% - 7.75% • • • 8.50% - 9.25% •Detroit, MI 9.25% - 10.00% • 10.50% - 11.25% •Indianapolis, IN 6.25% - 6.75% • • • • • 7.50% - 8.25% • • • •Kansas City, MO 6.75% - 7.00% • • • 8.75% - 9.50% • •Memphis, TN 6.75% - 7.50% • • • 7.75% - 8.50% • •Miami, FL 4.75% - 5.25% • • • • • 5.25% - 6.00% • • • • •Minneapolis, MN 6.00% - 6.75% • • 7.25% - 8.00% •Nashville, TN 6.50% - 7.25% • • • • 7.00% - 7.75% • •Northern New Jersey 5.00% - 5.75% • • • 5.75% - 6.75% • •Orlando, FL 6.00% - 6.50% • • • • • 6.75% - 7.75% • • • •Philadelphia Metro 5.50% - 6.50% • 6.50% - 7.50% • •Tampa, FL 6.25% - 6.75% • • • • • 7.00% - 7.75% • • • • •AVERAGE 6.36% - 6.95% 7.45% - 8.18%

WESTERN MARKETS Class A Trend Next 6 Mo.

INST

ITU

TIO

NA

L

REIT

DEV

ELO

PER

FORE

IGN

PRIV

AT

EC

API

TA

L Class B Trend Next 6 Mo.

INST

ITU

TIO

NA

L

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DEV

ELO

PER

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IGN

PRIV

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API

TA

L

Austin, TX 6.50% - 7.00% • • • • 7.25% - 8.00% • • • •Dallas, TX 5.50% - 6.25% • • • • 7.00% - 7.75% • • •Denver, CO 6.25% - 6.75% • • • 7.25% - 7.75% • •Houston, TX 5.50% - 6.25% • • • • 7.00% - 7.75% • • •Los Angeles, CA 4.25% - 4.75% • 5.00% - 5.50% •Orange County, CA 4.25% - 4.75% • 5.00% - 5.50% •Phoenix, AZ 6.00% - 6.75% • • • 6.75% - 7.25% •Portland, OR 6.25% - 6.75% • • • 7.00% - 7.50% • •Inland Empire, CA 4.50% - 5.00% • 5.25% - 5.75% •Sacramento, CA 6.00% - 6.75% • • • 7.25% - 8.00% • •San Antonio, TX 6.75% - 7.50% • • • 7.50% - 8.25% • •San Diego, CA 5.00% - 5.50% • 5.25% - 6.00% •San Francisco, CA 4.50% - 5.25% • • • • • 6.25% - 7.00% • • • •San Jose, CA 5.50% - 6.25% • • • • • 6.25% - 7.00% • • • •St. Louis, MO 6.50% - 7.25% • • • • 8.00% - 9.00% • • •AVERAGE 5.55% - 6.18% 6.55% - 7.18%OVERALLCLASS A 6.00% - 6.61% CLASS B 7.05% - 7.74%

WAREHOUSE


RATES BY ASSET TYPE



FLAT

DOWN

UP

PortlandClass A: 6.25% - 6.75% Class B: 7.00% - 7.50%

SacramentoClass A: 6.00% - 6.75% Class B: 7.25% - 8.00%

San FranciscoClass A: 4.50% - 5.25% Class B: 6.25% - 7.00%

Los AngelesClass A: 4.25% - 4.75% Class B: 5.00% - 5.50% Orange CountyClass A: 4.25% - 4.75% Class B: 5.00% - 5.50% San DiegoClass A: 5.00% - 5.50% Class B: 5.25% - 6.00%

Inland EmpireClass A: 4.50% - 5.00% Class B: 5.25% - 5.75%

AustinClass A: 6.50% - 7.00% Class B: 7.25% - 8.00%

DallasClass A: 5.50% - 6.25% Class B: 7.00% - 7.75%

TampaClass A: 6.25% - 6.75% Class B: 7.00% - 7.75%

MiamiClass A: 4.75% - 5.25% Class B: 5.25% - 6.00%

AtlantaClass A: 5.75% - 6.50% Class B: 6.75% - 7.50%

CharlotteClass A: 6.25% - 7.00% Class B: 7.00% - 7.75%

CincinnatiClass A: 6.50% - 7.00% Class B: 8.25% - 9.00%

BaltimoreClass A: 5.25% - 5.75% Class B: 6.00% - 6.75%

BostonClass A: 6.75% - 7.50% Class B: 8.00% - 8.75% Northern NJClass A: 5.00% - 5.75% Class B: 5.75% - 6.75% PhiladelphiaClass A: 5.50% - 6.50% Class B: 6.50% - 7.50%

ChicagoClass A: 5.50% - 6.00% Class B: 7.00% - 7.75%

St. LouisClass A: 6.50% - 7.25% Class B: 8.00% - 9.00%

DenverClass A: 6.25% - 6.75% Class B: 7.25% - 7.75%

MinneapolisClass A: 6.00% - 6.75% Class B: 7.25% - 8.00%

PhoenixClass A: 6.00% - 6.75% Class B: 6.75% - 7.25%

HoustonClass A: 5.50% - 6.25% Class B: 7.00% - 7.75%

OrlandoClass A: 6.00% - 6.50% Class B: 6.75% - 7.75%

DetroitClass A: 9.25% - 10.00% Class B: 10.50% - 11.25%

ColumbusClass A: 7.00% - 7.75% Class B: 8.50% - 9.25%

ClevelandClass A: 8.25% - 9.00% Class B: 9.50% - 10.25%

NashvilleClass A: 6.50% - 7.25% Class B: 7.00% - 7.75%

MemphisClass A: 6.75% - 7.50% Class B: 7.75% - 8.50%

Kansas CityClass A: 7.00% - 6.75% Class B: 8.75% - 9.50%

San AntonioClass A: 6.75% - 7.50% Class B: 7.50% - 8.25%

San JoseClass A: 5.50% - 6.25% Class B: 6.25% - 7.00%

IndianapolisClass A: 6.25% - 6.75% Class B: 7.50% - 8.25%

WAREHOUSE


RATES BY ASSET TYPE


CBDMULTIFAMILY FUNDAMENTALSMacro demographic shifts and positive economic trends continue to favor strong tenant demand for the multifamily sector, including the Gen X and Millennial generation’s preference to live in live/work/play environments. Despite an increase in construction levels, the national vacancy rate declined 30 bps year‐over‐year to 4.2%. Effective rents increased 3.4% year‐over‐year with tech, energy and major gateway markets posting stronger rent growth. Inventory growth is accelerating, as construction completions averaged 0.3% of total national inventory through the second quarter, 25% greater than the same period last year. Even with increasing levels of new construction, however, healthy demand from job gains and demographic shifts is expected to keep absorption on pace with supply, maintaining solid market fundamentals with the vacancy rate hovering in the sub‐5% range during the next three years.

MULTIFAMILY CAP RATE SURVEYDespite some of the lowest cap rates, multifamily continues to capture a lot of interest from investors looking for assets with strong underlying demand drivers. Multifamily transaction volume through the first half of the year decreased 12% year‐over‐year to $41.9 billion, largely a result of outsized transaction volume in the first half of 2013 when the Archstone portfolio was sold. Excluding portfolio transactions, sales volume of single assets increased 24% year‐over‐year. Class A assets are trading 10 bps below where they were at the end of 2013, with cap rates now in the 4.6% to 5.3% range. Class A properties in Manhattan and San Francisco, the two tightest markets in the country, likewise have the lowest cap rates in the country at 3.5% to 4.0%, respectively, driven by a highly competitive investment climate.

Given where pricing is for the existing product in core markets, investors in search of yield are now turning their attention to development plays (“build to core”) in primary markets and stabilized assets in second tier gateway markets, including the New York Boroughs and parts of Southern California. Second tier markets are gaining traction with cap rates compressing by 25 bps to 50 bps in the last six months. Class A apartments in Atlanta, Dallas, Denver, Houston, Minneapolis, Philadelphia and Phoenix are now trading for cap rates in the mid‐4% to high‐5.0% range. On average, class A cap rates in the West are 10 bps lower than those in the East. For class A properties, the spread from top gateway markets to second tier markets is roughly 100 bps. Shifting from class A to class B assets nationally adds an additional 90 bps to 125 bps of incremental yield.

NATIONAL VACANCY RATES ACROSS MULTIFAMILY MARKETS

4.2%

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

Orange Co

unty

New

York

San Diego

Minne

apolis

San Francisco

Westche

ster

Long

Island

Portland

Los A

ngeles

Philade

lphia

Chicago

Northern New

Jersey

Seattle

Subu

rban

Maryland

Baltimore

Boston

Fort Laude

rdale

Denver

Miami

National

Nashville

Richmon

dSt. Lou

isSubu

rban

Virg

inia

Raleigh‐Du

rham

Palm

Beach

Phoe

nix

Columbu

sTampa

‐St. Pe

tersbu

rgAu

stin

Dallas

Orla

ndo

District o

f Colum

bia

Charlotte

Las V

egas

Houston

Charleston

Atlanta

Indianapolis

Mem

phis

COMPLETIONS AS

% OF INVE

NTO

RY

VACA

NCY

RAT

E

Vacancy Completions (as % of Inventory)

Source: Reis, C&W Capital Markets

MULTIFAMILY


RATES BY ASSET TYPE


EASTERN MARKETS Class A TrendNext 6 Mo.

Class B TrendNext 6 Mo.

Class C TrendNext 6 Mo.

Atlanta, GA 4.50% - 5.25% 5.50% - 6.50% 6.50% - 7.00% Baltimore, MD 4.75% - 5.50% 6.00% - 6.50% 7.50% - 8.00% Boston, MA 4.00% - 5.00% 5.00% - 5.75% 7.00% - 8.00% Charlotte, NC 4.75% - 5.25% 5.50% - 6.50% 6.75% - 7.50% Chicago, IL 4.50% - 5.50% 5.75% - 6.75% 6.25% - 8.25% Columbus, OH 6.00% - 7.00% 7.00% - 8.00% 8.00% - 10.00% Indianapolis, IN 5.25% - 6.50% 6.75% - 7.75% 7.75% - 9.00% Jacksonville, FL 5.00% - 6.00% 6.50% - 7.25% 7.50% - 8.50% Minneapolis, MN 4.50% - 5.25% 5.50% - 6.50% 6.50% - 7.50% Nashville, TN 5.00% - 5.50% 5.50% - 6.25% 6.25% - 7.50% Northern New Jersey 4.50% - 5.00% 5.25% - 5.75% 6.00% - 7.00% New York (NYC) 3.50% - 4.00% 4.00% - 4.50% 5.00% - 6.00% Orlando, FL 4.80% - 5.50% 5.50% - 6.25% 6.25% - 7.00% Philadelphia, PA 4.50% - 5.00% 5.00% - 5.75% 6.00% - 7.00% Raleigh-Durham, NC 4.75% - 5.25% 5.50% - 6.50% 6.75% - 7.75% South Florida 4.25% - 4.75% 5.00% - 5.50% 5.75% - 6.25% Tampa, FL 4.75% - 5.50% 5.50% - 6.00% 6.00% - 7.00% Washington DC 4.25% - 5.00% 5.25% - 6.00% 6.75% - 7.50% AVERAGE 4.64% - 5.38% 5.56% - 6.33% 6.58% - 7.58%

WESTERN MARKETS Class A TrendNext 6 Mo.

Class B TrendNext 6 Mo.

Class C TrendNext 6 Mo.

Austin, TX 4.50% - 5.50% 5.50% - 6.50% 6.25% - 6.75% Dallas, TX 4.50% - 6.00% 6.00% - 6.75% 7.00% - 8.00% Denver, CO 4.75% - 5.25% 5.50% - 6.00% 6.00% - 6.75% Houston, TX 4.75% - 5.75% 6.25% - 6.75% 7.00% - 8.00% Inland Empire, CA 4.75% - 5.25% 5.75% - 6.25% 6.75% - 7.25% Las Vegas, NV 5.00% - 5.50% 5.75% - 6.50% 6.50% - 7.50% Los Angeles, CA 3.75% - 4.25% 4.75% - 5.25% 5.25% - 6.00% Orange County, CA 3.75% - 4.25% 4.75% - 5.25% 5.50% - 6.00% Phoenix, AZ 4.75% - 5.25% 5.50% - 6.25% 6.25% - 7.00% Portland, OR 4.00% - 5.00% 5.00% - 6.00% 6.00% - 7.00% Sacramento, CA 4.75% - 5.25% 5.50% - 6.00% 5.85% - 6.75% Salt Lake City, UT 5.25% - 5.75% 5.50% - 6.50% 6.00% - 7.00% San Antonio, TX 5.50% - 6.00% 6.00% - 6.50% 6.75% - 7.75% San Diego, CA 3.75% - 4.25% 4.75% - 5.25% 5.25% - 6.00% San Francisco, CA 3.50% - 4.00% 4.25% - 5.00% 5.25% - 6.00% Seattle, WA 4.00% - 4.50% 5.00% - 6.00% 6.00% - 7.00% St. Louis, MO 5.75% - 6.75% 6.75% - 7.75% 8.00% - 9.00% AVERAGE 4.54% - 5.19% 5.47% -6.12% 6.25% - 7.01%

OVERALL NATION CLASS A4.59% - 5.29%

CLASS B5.51% - 6.23%

CLASS C6.42% - 7.31%

MULTIFAMILY


RATES BY ASSET TYPE


SeattleClass A: 4.00% - 4.50% Class B: 5.00% - 6.00% Class C: 6.00% - 7.00%


FLAT

DOWN

UP

PortlandClass A: 4.00% - 5.00% Class B: 5.00% - 6.00% Class C: 6.00% - 7.00%

Salt Lake CityClass A: 5.25% - 5.75% Class B: 5.50% - 6.50% Class C: 6.00% - 7.00% San FranciscoClass A: 3.50% - 4.00% Class B: 4.25% - 5.00% Class C: 5.25% - 6.00% Los AngelesClass A: 3.75% - 4.25% Class B: 4.75% - 5.25% Class C: 5.25% - 6.00%

Inland EmpireClass A: 4.75% - 5.25% Class B: 5.75% - 6.25% Class C: 6.75% - 7.25%

Las VegasClass A: 5.00% - 5.50% Class B: 5.75% - 6.50% Class C: 6.50% - 7.50% AustinClass A: 4.50% - 5.50% Class B: 5.50% - 6.50% Class C: 6.25% - 6.75%

DallasClass A: 4.50% - 6.00% Class B: 6.00% - 6.75% Class C: 7.00% - 8.00%

NashvilleClass A: 5.00% - 5.50% Class B: 5.50% - 6.25% Class C: 6.25% - 7.50%

TampaClass A: 4.75% - 5.50% Class B: 5.50% - 6.00% Class C: 6.00% - 7.00%

South FloridaClass A: 4.25% - 4.75% Class B: 5.00% - 5.50% Class C: 5.75% + 6.25%

CharlotteClass A: 4.75% - 5.25% Class B: 5.50% - 6.50% Class C: 6.75% - 7.50%

Raleigh-DurhamClass A: 4.75% - 5.25% Class B: 5.50% - 6.50% Class C: 6.75% - 7.75%

Washington DCClass A: 4.25% - 5.00% Class B: 5.25% - 6.00% Class C: 6.75% - 7.50%

BaltimoreClass A: 4.75% - 5.50% Class B: 6.00% - 6.50% Class C: 7.50% - 8.00%

BostonClass A: 4.00% - 5.00% Class B: 5.00% - 5.75% Class C: 7.00% - 8.00%

Northern NJClass A: 4.50% - 5.00% Class B: 5.25% - 5.75% Class C: 6.00% - 7.00%

PhiladelphiaClass A: 4.50% - 5.00% Class B: 5.00% - 5.75% Class C: 6.00% - 7.00%

St. LouisClass A: 5.75% - 6.75% Class B: 6.75% - 7.75% Class C: 8.00% - 9.00%

MinneapolisClass A: 4.50% - 5.25% Class B: 5.50% - 6.50% Class C: 6.50% - 7.50%

PhoenixClass A: 4.75% - 5.25% Class B: 5.50% - 6.25% Class C: 6.25% - 7.00%

HoustonClass A: 4.75% - 5.75% Class B: 6.25% - 6.75% Class C: 7.00% - 8.00%

JacksonvilleClass A: 5.00% - 6.00% Class B: 6.50% - 7.25% Class C: 7.50% + 8.50%

OrlandoClass A: 4.80% - 5.50% Class B: 5.50% - 6.25% Class C: 6.25% - 7.00%

ColumbusClass A: 6.00% - 7.00% Class B: 7.00% - 8.00% Class C: 8.00% - 10.00%

IndianapolisClass A: 5.25% - 6.50% Class B: 6.75 % - 7.75% Class C: 7.75% - 9.00%

San AntonioClass A: 5.50% - 6.00% Class B: 6.00% - 6.50% Class C: 6.75% - 7.75%

San DiegoClass A: 3.75% - 4.25% Class B: 4.75% - 5.25% Class C: 5.25% - 6.00%

Orange CountyClass A: 3.75% - 4.25% Class B: 4.75% - 5.25% Class C: 5.50% - 6.00%

New YorkClass A: 3.50% - 4.00% Class B: 4.00% - 4.50% Class C: 5.00% - 6.00%

AtlantaClass A: 4.50% - 5.25% Class B: 5.50% - 6.50% Class C: 6.50% - 7.00%

DenverClass A: 4.75% - 5.25% Class B: 5.50% - 6.00% Class C: 6.00% - 6.75%

ChicagoClass A: 4.50% - 5.50% Class B: 5.75% - 6.75% Class C: 6.25% - 8.25%

SacramentoClass A: 4.75% - 5.25% Class B: 5.50% - 6.00% Class C: 5.85% - 6.75%

MULTIFAMILY


RATES BY ASSET TYPE


RETAIL FUNDAMENTALSRetail fundamentals continue to improve on the heels of an improving economy and rising consumer confidence. Retail sales increased by 0.6% in August, the biggest increase in four months. Given the firming economy, the consumer confidence index rose to 84.6, the highest level in more than a year. Retail sales was bolstered by rising auto sales, which rose to an annualized rate of 17.5 million in August, a 6.7% increase from the previous month and its highest level since January 2006. Improving retail fundamentals pushed the overall vacancy rate down to 9.9% by mid‐year, a 15 bps decline from year‐end 2013. Rents increased 1.9% year‐over‐year on a national basis.

RETAIL CAP RATE SURVEYRecord investment activity in the first quarter of 2014 together with healthy transaction volume in the second quarter resulted in transaction volume in the retail sector increasing 159% year‐over‐year to $33.8 billion. In fact, first quarter volume was the largest since second quarter 2007. While international investors are favoring High Street retail and its double‐digit rent growth in top gateway cities, domestic buyers are chasing malls and strip centers. Class A malls in CBD locations are trading for cap rates in the 5.1% to 6.1% range, 10 bps lower than six months ago. Shifting to class B malls in CBD locations garners an additional 140bps of incremental yield with cap rates in the 6.5% to 7.5% range.

Cap rates compressed 15 to 20 bps for class A strip centers in CBDs, as investors were narrowly focused on high density areas in downtown cores across all property types. Cap rates for these assets are between 5.6% and 6.3%. Shifting to class B assets in downtown markets gains an incremental yield of 80 bps, and such assets are trading today for 20 bps less than they were just six months ago. Class A centers in suburban locations are trading for 6.0% to 6.8% cap rates and have had little to no movement during the past six months as not a lot of product has traded. Class B properties in suburban locations are trading for cap rates in the 7.0% to 7.8% range. Given the deep demand for core assets in major markets, there is potential for additional cap rate compression for well‐located, stable assets.

CBD

NATIONAL VACANCY RATES ACROSS RETAIL MARKETS

9.9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

San

Fra

ncis

coD

C M

etro

New

Yor

kLo

s A

ngel

esS

an D

iego

Bos

ton

Sea

ttle

Mia

mi

Por

tland

Phi

lade

lphi

aP

hoen

ixR

alei

gh-D

urha

mN

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nal

Fort

Laud

erda

leM

inne

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harlo

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olum

bia

Den

ver

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t Pal

m B

each

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vela

ndIn

dian

apol

isC

olum

bus

VAC

AN

CY

RAT

E

RETAIL

Source: Reis, C&W Capital Markets


RATES BY ASSET TYPE


EASTERNMARKETS

Class A

TrendNext 6 Mo. IN

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ION

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FORE

IGN

PRIV

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L CLASS B

TrendNext 6 Mo. IN

STIT

UT

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AL

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L Class A

TrendNext 6 Mo. IN

STIT

UT

ION

AL

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TrendNext 6 Mo. IN

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Atlanta, GA 4.50% - 5.00% • • • 4.50% - 5.00% • 7.00% - 8.00% •Boston, MA 4.50% - 5.00% • • • 5.50% - 6.00% • • • 5.00% - 5.50% • • • 6.25% - 7.00% •Charlotte, NC 5.00% - 5.50% • 7.00% - 8.00% •Chicago, IL 4.25% - 5.00% • • • • • 5.25% - 6.00% • • • • 5.50% - 6.25% • • • • 6.25% - 7.00% • • •Miami, FL 4.50% - 5.00% • • • 7.00% - 8.00% •Minneapolis, MN 6.25% - 7.00% • • 7.00% - 8.00% • •Northern New Jersey 5.25% - 6.00% • • 7.00% - 7.75% • •Orlando, FL 4.50% - 5.00% • • • 7.00% - 8.00% • •Philadelphia, PA 5.50% - 6.00% • • 6.00% - 6.75% • • 5.50% - 6.25% • • • 8.50% - 9.25% • •Tampa, FL 4.50% -5.00% • • • 7.00% - 8.00% •AVERAGE 4.69% - 5.25% 5.58% - 6.25% 5.05% - 5.65% 7.00% - 7.90%

WESTERN MARKETS

Class A

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

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PER

FORE

IGN

PRIV

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API

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L Class B

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

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PER

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IGN

PRIV

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EC

API

TA

L Class A

TrendNext 6 Mo. IN

STIT

UT

ION

AL

REIT

DEV

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PER

FORE

IGN

PRIV

AT

EC

API

TA

L Class B

TrendNext 6 Mo. IN

STIT

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Austin, TX 4.50% - 6.00% • • 6.50% - 7.50% • • • 6.00% - 7.00% • • • 7.50% - 8.50% • • •Dallas, TX 5.00% - 6.00% • • 7.00% - 8.00% • • • 6.00% - 7.00% • • 7.50% - 8.50% • • •Denver, CO 6.25% - 6.75% • • • 7.25% - 8.00% • • 6.25% - 6.75% • • • 7.25% - 8.00% • •Houston, TX 4.50% - 6.00% • • 7.00% - 8.00% • • • 6.00% - 7.00% • • • 7.50% - 8.50% • • •Las Vegas, NV 7.00% - 8.00% • • 8.00% - 9.50% • • 7.00% - 8.00% • • • 8.00% - 9.00% • • •Los Angeles, CA 4.00% - 5.50% • • 5.00% - 6.50% • • 4.50% - 6.00% • • • 5.50% - 7.00% • • •Portland, OR 6.25% - 6.75% • • • 7.00% - 7.75% • • 6.75% - 7.25% • • 7.50% - 8.00% • •Inland Empire, CA 7.00% - 8.50% • • 8.00% - 9.50% • • 6.00% - 7.50% • • • 6.50% - 8.00% • • •San Antonio, TX 5.50% - 6.50% • • 7.50% - 8.50% • • • 7.00% - 8.00% • • • 8.00% - 9.00% • • •San Diego, CA 4.00% - 5.50% • • • 5.00% - 6.50% • • • 5.00% - 6.00% • • • 6.00% - 7.00% • • •San Jose, CA 4.25% - 5.00% • • • • • 5.00% - 6.50% • • • • • 4.25% - 5.00% • • • • • 6.00% - 7.00% • • • • •AVERAGE 5.30% - 6.41% 6.75% - 7.89% 5.89% - 6.86% 7.02% - 8.05%

CLASS A5.13% - 6.10%

CLASS B6.50% - 7.54%

CLASS A5.49% - 6.29%

CLASS B7.01% - 7.98%

PRIMARY SUBURBAN

RETAIL: MALL


RATES BY ASSET TYPE






Minneapolis CBDN/ASUBURBAN MinneapolisClass A: 6.25% - 7.00% Class B: 7.00% - 8.00%



Northern NJ CBDN/ASUBURBAN Northern NJ Class A: 5.25% - 6.00% Class B: 7.00% - 7.75%

Orlando CBDN/ASUBURBAN Orlando Class A: 4.50% - 5.00% Class B: 7.00% - 8.00%

Tampa CBDN/ASUBURBAN Tampa Class A: 4.50% - 5.00% Class B: 7.00% - 8.00%





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Atlanta CBDClass A: 4.50% - 5.00% SUBURBAN Atlanta Class A: 4.50% - 5.00% Class B: 7.00% - 8.00%

Boston CBDClass A: 4.50% - 5.00% Class B: 5.50% - 6.00% SUBURBAN Boston Class A: 5.00% - 5.50% Class B: 6.25% - 7.00%


Inland Empire CBDClass A: 7.00% - 8.50% Class B: 8.00% - 9.50% SUBURBAN Inland EmpireClass A: 6.00% - 7.50% Class B: 6.50% - 8.00%

Charlotte CBDN/ASUBURBAN CharlotteClass A: 5.00% - 5.50% Class B: 7.00% - 8.00%

Miami CBDN/ASUBURBAN Miami Class A: 4.50% - 5.00% Class B: 7.00% - 8.00%

San Jose CBDClass A: 4.25% - 5.00% Class B: 5.00% - 6.50% SUBURBAN San JoseClass A: 4.25% - 5.00% Class B: 6.00% - 7.00%

RETAIL: MALL

Dallas CBDClass A: 5.00% - 6.00% Class B: 7.00% - 8.00% SUBURBAN Dallas Class A: 6.00% - 7.00% Class B: 7.50% - 8.50%


RATES BY ASSET TYPE


EASTERNMARKETS

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Atlanta, GA 5.50% - 6.25% • • • 7.00% - 7.75% • • • 6.00% - 6.75% • • • 7.00% - 7.75% • •Boston, MA 3.50% - 4.25% • • • 5.00% - 5.75% • • • 5.75% - 6.50% • • • 7.00% - 7.75% • •Chicago, IL 4.50% - 5.25% • • • • 5.75% - 6.50% • • • • 5.75% - 6.50% • • • • • 6.50% - 7.25% • • • •Miami, FL 5.00% - 5.75% • • • 6.25% - 7.00% • • • 5.75% - 6.50% • • • 6.50% - 7.25% • • •Minneapolis, MN N/A N/A 6.00% - 6.50% • • 7.50% - 8.00% •Northern New Jersey N/A N/A 5.50% - 6.00% • 7.00% •Orlando, FL 6.00% - 6.75% • • • 6.50% - 7.25% • • • 6.50% - 7.25% • • • 7.25% - 8.00% • • •Philadelphia, PA 5.00% - 5.75% • • • • 5.75% - 6.50% • • 5.25% - 6.00% • • • 6.50% - 7.25% • •Tampa, FL 6.25% - 7.00% • • • 6.50% -7.25% • • • 6.50% - 7.25% • • • 7.25% - 8.00% • • •AVERAGE 5.11% - 5.86% 6.11% - 6.86% 5.89% - 6.58% 6.94% - 7.61%

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Austin, TX 5.50% - 6.25% • • 6.25% - 7.00% • • • • 6.00% - 7.00% • • • 7.75% - 8.50% • • •Dallas, TX 6.00% - 6.50% • • 7.00% - 7.50% • • • • 6.00% - 7.00% • • • 7.50% - 8.50% •Denver, CO 6.25% - 6.75% • • • 7.00% - 7.75% • 5.75% - 6.50% • • • • 7.25% - 8.00% • •Houston, TX 6.00% - 6.50% • • 7.00% - 7.50% • • • • 6.00% - 7.00% • • • 7.50% - 8.50% •Las Vegas, NV 6.50% - 7.50% • • 7.00% - 7.50% • • 6.00% - 7.00% • • • 6.50% - 7.50% • • •Los Angeles, CA 5.00% - 6.00% • • • 5.50% - 6.50% • • • 5.50% - 6.50% • • • 6.00% - 7.00% • • •Phoenix, AZ 6.25% - 7.00% • 6.75% - 7.50% • 6.25% - 7.00% • 6.75% - 7.50% •Portland, OR 6.50% - 7.00% • • 7.00% - 7.50% • • 6.50% - 7.00% • • 7.25% - 7.75% •Riverside, CA 6.00% - 7.00% • • 6.50% - 7.50% • • 6.00% - 7.00% • • • 6.50% - 7.50% •San Antonio, TX 6.50% - 7.00% • • 7.25% - 8.00% • • • • 7.00% - 7.50% • • • 8.00% - 8.50% •San Diego, CA 5.00% - 6.00% • • 6.00% - 7.00% • • • 5.50% - 6.50% • • 6.50% - 7.50% • • •AVERAGE 5.94% - 6.66% 6.63% - 7.41% 6.06% - 6.89% 6.92% - 7.75%

CLASS A5.57% - 6.29%

CLASS B6.41% - 7.16%

CLASS A5.98% - 6.76%

CLASS B7.00% - 7.76%

PRIMARY SUBURBAN

RETAIL: STRIP CENTERS


RATES BY ASSET TYPE






Minneapolis CBDN/ASUBURBAN MinneapolisClass A: 6.00% - 6.50% Class B: 7.50% - 8.00%



Northern NJ CBDN/ASUBURBAN Northern NJ Class A: 5.50% - 6.00% Class B: 7.00%

Orlando CBDClass A: 6.00% - 6.75% Class B: 6.50% - 7.25% SUBURBAN Orlando Class A: 6.50% - 7.25% Class B: 7.25% - 8.00% Dallas CBD

Class A: 6.00% - 6.50% Class B: 7.00% - 7.50% SUBURBAN Dallas Class A: 6.00% - 7.00% Class B: 7.50% - 8.50%

Miami CBDClass A: 5.00% - 5.75% Class B: 6.25% 7.00% SUBURBAN Miami Class A: 5.75% - 6.50% Class B: 6.50% - 7.25%

Tampa CBDClass A: 6.25% - 7.00% Class B: 6.50% - 7.25% SUBURBAN Tampa Class A: 6.50% - 7.25% Class B: 7.25% - 8.00%





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Atlanta CBDClass A: 5.50% - 6.25% Class B: 7.00% - 7.75% SUBURBAN Atlanta Class A: 6.00% - 6.75% Class B: 7.00% - 7.75%

Boston CBDClass A: 3.50% - 4.25% Class B: 5.00% - 5.75% SUBURBAN Boston Class A: 5.75% - 6.50% Class B: 7.00% - 7.75%


Riverside CBDClass A: 6.00% - 7.00% Class B: 6.50% - 7.50% SUBURBAN RiversideClass A: 6.00% - 7.00% Class B: 6.50% - 7.50%

Phoenix CBDClass A: 6.25% - 7.00% Class B: 6.75% - 7.50% SUBURBAN PhoenixClass A: 6.25% - 7.00% Class B: 6.75% - 7.50%

RETAIL: STRIP CENTERS


RATES BY ASSET TYPE


Substantial equity and debt capital continues to flow into real estate, with investors focused primarily on core assets in major cities. While well capitalized investors, particularly foreign buyers, insurance companies and pension fund advisors are focused on major gateway markets, greater numbers of investors are turning their attention to secondary markets in search of higher yield. The financing market is improving as well, as competition from both the public and private market is pushing down the cost of capital. CMBS issuance continues to increase, contributing to the push into secondary markets, and banks and insurance companies are likewise putting out more money. So while rising interest rates is expected to put some upward pressure on cap rates in 2015, stronger NOI growth from rising rents is expected to offset rising debt costs.

The latest C&W survey points to cap rates staying firm in the core markets and inching down in some secondary markets during the next six months as investors search for more yield. Once interest rates start rising in a material way, cap rates could follow suit, ending the prolonged period of cap rate compression. However with interest rates as low as they are today, there is some room to absorb a modest increase.

OFFICEWith pricing in major CBD markets now above prior peak levels, value add and opportunistic plays, as well as secondary markets are gaining favor. Given the strong demand for class A assets in prime CBD locations, cap rates are in the 4.4% to 5.2% range and even lower for the top gateway markets of Manhattan and San Francisco. Considering where pricing is today for these assets, we believe there is little room for further compression of these rates, and value creation will be from rent growth. Secondary office markets, however, are attracting the attention of more investors in search of yield. Assets in these CBD markets are trading for 6.1% to 6.8% and we believe there is some room to tick down further as investor competition increases and fundamentals strengthen.

Suburban markets in proximity to prime gateway cities are garnering more attention as well, as investors move up the risk spectrum. Cap rates for these class A assets have decreased 10 to 20 bps during the first half of the year, ranging from 6.4% to 7.1%, and are expected to compress further with increasing capital flows. Suburban markets supporting secondary cities also have some room for further compression but investors have yet to begin kicking the tires there. These buildings are trading for 6.7% to 7.3%.

Overall, as the economic expansion broadens, positive leasing fundamentals should extend into suburban areas and key secondary markets. Coupled with favorable cost of capital from a competitive and deep debt market, investment in secondary and suburban office markets should likewise increase. While cap rates for trophy assets are at all‐time lows, there is room for additional compression in these other markets.

INDUSTRIAL –WAREHOUSECap rates for class A assets inched down 10 to 15 bps during the first half of the year with rates now falling between 6.0% and 6.6% on a national basis. Cap rates are even lower in the 4.25% to 5.5% range for key distribution markets in Northern New Jersey and Southern California where there is concentrated investor interest. Nationally, compared to class A assets, class B industrial assets provided approximately 110 bp of incremental yield to cap rates, ranging from 7.1% to 7.7% on average.

Our outlook is for further downward movement, in particular for class B assets in major markets and in secondary markets. As industrial fundamentals continue to improve, tightening markets and rising NOIs will attract additional capital to this sector.

MULTIFAMILYMultifamily has among the lowest cap rates in our survey and continue to drop to record lows. Class A assets are trading in the 4.6% to 5.3% range, with core markets 100 bps lower. Increased capital flows and lack of class A product on the market has driven investors to development projects as well as to class B and C assets, which are trading for 100 to 200 bps higher. Our outlook for this sector calls for cap rates to remain relatively unchanged over the next six months, with some markets and asset classes having more room for downward movement, where investors are taking on more risk—including class B and C assets in second tier tech and energy markets such as Denver, as well as markets that were hit hard by the housing crisis such as South Florida.

RETAILCap rates for both mall and strip centers compressed 10 bps on average during the first half of the year and we believe additional cap rate compression is possible in a number of pockets during the next six months. Well‐located class A malls in Downtown areas are trading for cap rates in the 5.1% to 6.1% range, with class B malls in these same markets trading in the 6.5% to 7.5% range. Class A strip center properties in prime locations are trading slightly lower than they were six months ago, at cap rates in a 5.6% to 6.3% range, while cap rates for class A centers in suburban locations have had less movement during this same period. Given the deep demand for core properties in major markets, coupled with limited product on the market, we believe there is room for some additional rate compression. There is also a growing pool of well‐qualified buyers seeking value‐add and opportunistic properties, which will also put downward pressure on cap rates. With historically low levels of new construction, the retail market is on solid footing and should continue to strengthen into the foreseeable future. We expect more capital chasing retail deals, causing cap rates to compress further.

CONCLUSION


RATES BY ASSET TYPE


ABOUT CAPITAL MARKETSCushman & Wakefield is a world-leading provider of real estate Capital Markets expertise. Our Group provides comprehensive advisory and execution services to clients engaged in buying, selling, investing in, financing or developing real estate and real estate-related assets. Our solutions are tailored to meet the objectives of private and institutional owners and investors, as well as corporate owners and occupiers.

CONTACT

STEVEN WEILBACHSenior Managing DirectorMultifamily Capital Markets+1 415 773 [email protected]

FRED HARMEYERSenior Managing DirectorEastern Capital Markets+1 212 841 [email protected]

JANICE STANTONSenior Managing DirectorInvestment Strategies+1 212 841 [email protected]

Investment Sales & AcquisitionsEquity, Debt & Structured FinanceCorporate Finance & Investment Banking

Cushman & Wakefield is the world’s largest privately‐held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world’s major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 250 offices in 60 countries, employing more than 16,000 professionals. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than $3.7 billion in assets under management globally. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge.

OUR CAPITAL MARKET SERVICES

CAROLINE ROONEYManaging DirectorResearch and Capital Markets+1 415 658 [email protected]

Documents

US CAPITAL MARKETS REPORT: US CAPITAL MARKETS REPORT ... Rate Survey Report_MIDYEAR 201… · us capital markets report: capitalization rates ... us capital markets report: capitalization