From a small northwestern observatory…

Finance and economics generally focused on real estate

Posts Tagged ‘Marcus and Millichap

Retail — on the mend?

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The Marcus and Millichap 2012 Annual Retail Report just hit my desk.  It’s a great compendium — one of the best retail forecasts in the industry — and not only looks at the national overview but also breaks down the forecast by 44 major markets.

A few key points:

  • What they call “sub-trend” employment growth will prevail until GDP growth surpasses 2.1% (we would add:  “…sustainably passes….”)  Increased business confidence will continue to transition temporary jobs to permanent ones.
  • Most retail indicators performed surprisingly well in 2011, defying a mid-year plunge, a slide in consumer confidence, and a modest contraction in per-capita disposable income.
  • The Eurozone financial crisis could undermine the U.S. recovery, but fixed investment will remain a pillar of growth, with capital flowing to equipment and non-residential real estate.
  • All 44 markets tracked by M&M are forecasted to post job growth, vacancy declines, and effective rent growth in 2012.
  • A rise in net absorption to 77 million square feet in 2012 will dwarf the projected 32 million SF in new supply, with overall vacancy rates tightening to 9.2%.
  • However, some major retailers, most notably Sears and Macy’s, will continue to downsize or close stores that fail to meet operational hurdles.
  • CMBS retail loans totalling $1.5 Billion will mature in 2012, but many may fail to refinance — about 81% have LTV’s exceeding acceptable levels.
  • The limited number of really premier properties in the “right” markets will hit what M&M calls “high-high” price levels, moving some investors into secondary markets as risk tolerance expands and capital conditions become more fluid.

For your own copy of this research report, or to get on M&M’s mailing list, click here.

Written by johnkilpatrick

February 17, 2012 at 9:57 am

Marcus & Millichap’s Apartment Report

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Of the major commercial real estate brokerage firms, Marcus and Millichap seem to consistently do the best job of thoughtful and insightful research.  We track their work regularly here at Greenfield.  Their 2012 Apartment Report just hit our desks, and it follows our expectations of excellent work on their part.

courtesy Marcus & Millichap

The apartment sector is rebounding nicely, but because of the intersection of favorable demographics and unfavorable economics. It’s driven by pent-up demand among “prime renters” (young adults who want to “unbundle” from parents and roommates) who would potentially have become homeowners a few years ago. Development had been stagnant for a few years, leaving the market with a potential shortage in supply. Developers, lenders, and investors had a brief pause late last year, but M&M expects to see steady additions to supply over the next three years.

 

courtesy Marcus & Millichap

As a result of all of this, vacancy rates are trending downward, and are expected to hit 5% this year (down from a peak of about 8% in 2009). This has the effect of driving up rents to historically high levels, even after a net decline from 2008 to 2009. With all this, apartment transactions are back up to pre-2009 levels, while the average price per unit is now topping $90,000 (up nearly to the peak of 2006) and cap rates are down in the 6.5% range (still off the trough of about 5.5% seen in the 2006-2006 period).

 

 

courtesy Marcus & Millichap

The surprising upshot of all of this is that apartment cap rates are still at record high spreads over the 10-year Treasury long-term average.  Market participants got nervous back in the 2006 period, when the spread had shrunk to 90 basis points (from a more “normal” rage of 380 to 430 basis points experienced since the S&L crisis 15 years earlier).  Today, the spread is at 460 basis points, reflecting a bit of continued risk-aversion on the part of market participants, along with historic low rates on treasuries.

Written by johnkilpatrick

February 6, 2012 at 4:02 pm

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