As Trophy Property Rates Continue to Increase, More Investors Warm Back Up to Merits of Suburban Office Properties
Suburban workplace home, long dismissed by market onlookers as realty relics to an age passed as employers increasingly follow informed young experts and their recent preference for downtown locales, may be positioned for something of a return, Marcus & & Millichap experts stated today.
While downtown workplace assets remain to attract superior tenancy, lease growth, price development and other steps of operating efficiency, suburban workplace parks may provide investors with the utmost contrarian play, providing maybe greater upside potential relative to pricier CBD assets, said Alan Pontius, Marcus & & Millichap senior vice president and nationwide director of commercial property groups, throughout a webcast today provided on U.S. workplace market trends.
“Downtown towers still get all the interest, however there’s a tremendous quantity of sales volume and activity in the suburbs that we ought to not forget, specifically throughout this part of the cycle,” stated Pontius, who was joined on the webcast by John Chang, first vice president, research services; William Hughes, senior vice president, Marcus & & Millichap Capital Corp. and Ashley Powell, senior vice president with Woodland Hills, CA-based financial investment consultant Bentall Kennedy.
“The suburban areas, even a year back, were deemed dead and illiquid. However this is beginning to move right now and there’s adequate trading in the suburbs, during a time that I would suggest has the capacity for rebounding activity,” Pontius said.
While total workplace assessments are still about 8 % listed below peak levels throughout the last years, costs have actually appreciated steadily at a typical rate of 5 % each year given that the recuperation began, Marcus & & Millichap reported, while typical cap rates are continuing to trend lower at around 7.3 %,
Rural buildings represented 77 % of trading activity based on trailing 12-months totals for sales of workplace buildings of in between $10 million and $25 million in 46 major U.S. city locations, according to Marcus & & Millichap.
Earlier this year, CoStar reported an increase in opportunistic and value-add plays, lots of including job danger that frequently goes hand in hand with rural office financial investments, with buyers tempted back into the market by large prices spreads in between well-leased buildings above 90 % tenancy and occupancy challenged buildings in between 50 % and 75 % tenancy.
One current example of the increasing investor hunger for well-located rural assets is the $111 million sale earlier this month of a five property portfolio in the Highland Oaks workplace park in Tampa, FL location. Prudential Insurance coverage Co. purchased the profile totaling 575,852 square feet. Also last month, Metropolitan Life Insurance Co. sold two workplace parks in Miramar, FL, to Greenwich, CT-based Starwood Capital Group for a reported $82 million.
Those deals follow the $1.1 billion sale previously this year of a suburban profile of 6.7 million square feet throughout 61 structures and 57 acres of land by Indianapolis-based Duke Real estate Corp., sold to a joint venture with the affiliates of Starwood Capital Group, Vanderbilt Partners and Trinity Capital Advisors.
While prices of CBD possession offers of $1 million or greater has increased 39 % considering that bottoming out in 2009, the strong 27 % rate boost given that rural properties hit their trough in 2010 pencils out to a possible value opportunity for financiers seeking break from downtown trophy possession prices, Chang said.
“While there’s definitely some upside capacity right here for both downtown and suburban assets, the suburban areas may be a bit more of a value chance,” Chang stated, noting that suburban cap rates are still trickling lower and may see some further compression, while downtown asset cap rates will likely stabilize in the sub-6 % range.