At the TCN Worldwide recent national convention in San Francisco, affiliates from across the country reported strong leasing and sales activities in their office, industrial, retail and investment markets.
In the office market, vacancies are continuing to fall in all major cities, although not at the same pace as last year. Rental rates in these markets have seen high single-digit to double-digit rental increases. With the slowdown in downtown residential condo conversions in these same markets, developers are once again looking to office development or office renovation as rental vacancies fall into the low teens.
The retail market continues to be strong. Investors are still bullish on retail strip centers. Recent retail sales are mixed in most markets, but expansion of retail centers is continuing across the country.
Of note is that smaller independent retail chains are having a tough time breaking into retail centers as owners continue to strive for more formula-type centers. The fear is that with every center offering similar branding, some centers will lose their appeal in the long run given the lack of a true difference between centers in close proximity.
The industrial market is stable. In large urban areas such as San Francisco, new industrial development is virtually nonexistent as developers seek higher and best-use alternatives for high investment returns. This has significantly lowered industrial vacancy rates, while rental rates have climbed. The concern in this sector is that companies will be forced to move their industrial and warehousing needs farther away from large urban markets, forcing more trucks onto freeways for longer hauls and adding to already dire traffic congestion.
The investment market continues to see large amounts of available buying power with limited product to buy. Average cap rates are holding at less than 7% in stronger markets. Fear of cap rate erosion due to higher interest rates seems to have eased thanks to recent mortgage rate declines and the belief that the feds will at worst hold the line on current rates as the economy appears to be slowing in the face of a possible recession.
International TCN affiliates reported similar trends in their markets.
Starboard TCN Worldwide is TCN’s San Francisco affiliate, which hosted this year’s national event. |
