CBRE CAP RATE SURVEY

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IN THIS ISSUE: Overview Office Multihousing Retail Industrial Hotels Hotel Appendix United States | Overview (continued) Cap Rate Survey February 2013 > technology-focused markets, our survey of cap rates shows that stabilized Class A assets in these markets are in the 5.5% range. By contrast, the distribution hubs noted have cap rates in the 5.25% range. The retail sector has lagged other property types throughout the recovery period. The leasing side has been weak relative to other sectors, with year-end availability rates for neighborhood and community centers down a mere 40 bps from the high-water mark set in the middle of 2011. Still, even though demand is weak, the growth in supply has been weaker with only about a one quarter of one percent of existing stock having been built in 2012. When looking at the income potential of the sector, the results of our Cap Rate Survey suggest two patterns in investor behavior. Broadly speaking, the markets with the most inventory have the lowest cap rates. Chicago, Atlanta and Houston have cap rates ranging from 6% to 6.25% for stabilized Class A neighborhood centers. Investors always place value on the exit liquidity implied by larger markets. Some markets stand out from this pattern, however, with Gateway markets posting lower cap rates even if they are smaller than other major markets. Boston and Seattle have stabilized Class A cap rates of 5.9% and 5.6%, respectively, with San Francisco posting a 4.9% cap rate. Multihousing continues to enjoy the healthiest fundamentals of the main property sectors. Vacancy stood at 5.3% at year-end, down from 5.6% at the end of 2011. The long-term average vacancy rate for the sector is anywhere between 5% and 6%, and as demand continues to grow, rents continue to climb as well. Effective market rents are up 4.2% from year-end 2011. Still, rents were up nearly 5% in 2011. Renters can absorb only so much of a rent increase, and demand for apartment units actually cooled in 2012. Net absorption came in at some 38,000 units in 2012, versus roughly 41,000 in 2011. Still, despite this slight slowdown in demand, cap rates for the multihousing sector are the lowest across the major property sectors. For Class A stabilized assets in urban locations, cap rates came in at 3.8% at yearend in San Francisco and at 3.9% in Los Angeles. Suburban assets in markets like San Jose and Orange County have stabilized Class A cap rates at 4% as well. In the hotel sector the revenue per available room (RevPAR) continued to grow in 2012. In the full-service segment, RevPAR was up 7.5% from a year earlier, while the limited-service sector is up 8.4% from 2011. This pace of RevPAR growth has been fairly constant since the economic recovery started in 2010. With a one-night lease term, the hotel sector was the first to show an improvement. Our Cap Rate Survey shows that investors are placing the most value on the RevPAR trends from the luxury segments, with an average 7% cap rate across markets. The economy segments have an average cap rate of 9.6%, though the range is fairly wide, with markets falling anywhere from 8% to 11.5% on the spectrum. 4
IN THIS ISSUE: Overview Office Multihousing Retail Industrial Hotels Hotel Appendix Office | Overview Cap Rate Survey February 2013 > Investment volume in the office sector in 2012 was up 19.4% compared to 2011. The total volume came in at $77.6 billion, according to figures from RCA. To put this figure into perspective, office transaction volume averaged about $76 billion per year from 2003 to 2005. Volume is still down from the average pace of $176 billion per year recorded in 2006 and 2007, but those figures represented an artificial high. Suburban submarkets accounted for more than 71% of 2012’s volume. This shift is significant, as this segment has seen sales grow at a slower pace in the recent past. While total volume is up and starting to lift suburban office markets, the <strong>CBRE</strong> Cap Rate Survey provides insight into market expectations on how these trends will evolve in 2013. <strong>CBRE</strong> Capital Markets and Valuation professionals expect that across the 38 suburban markets surveyed, cap rates for Stabilized Class A assets will continue to compress in 2013 in 12 of these markets. By contrast, in the CBD submarkets, it is expected that only 12 out of 38 will continue to see cap rate compression. With current cap rates at 8.75% for this high-quality product-type in Memphis, our professionals expect cap rates to increase in the CBD there in the year ahead. Select from the list below to access the current CBD office cap rates and forecast. Download a Complete Office CBD Current Cap Rates Chart (PDF) Download a Complete Office CBD Cap Rate Forecast Chart (PDF) Select from the list below to access the current suburban office cap rates and forecast. Download a Complete Office Suburban Current Cap Rates Chart (PDF) Download a Complete Office Suburban Cap Rate Forecast Chart (PDF) 5
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CBRE CAP RATE SURVEY

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