The Investment Market Rebounds

By Andrew Merin, Vice Chairman, Cushman & Wakefield’s Metropolitan Area Capital Markets Group: In a climate of uncertainty, investors should make hay while the sun shines.

Andrew Merin from Cushman & Wakefield New Jersey

Reports continue about commercial real estate investment sales volume being “off,” but in reality we are seeing a healthy level of activity. Yes, year-over-year national transaction totals are down across sectors. However, the fact that this slowdown comes on the heels of a very strong (even great) year in 2015 and a rough start to 2016 provides important context.

The first-quarter stock market volatility created an atmosphere of uncertainty, which kept some players on the sidelines as they waited for clarity on the direction of the economy. They now have a clearer picture, and many are back in action. Bidding activity has picked up nicely–not at the same volume as 2015, but enough to ensure multiple healthy bidders per transaction.

We are seeing a significant amount of overseas money coming into the New York-New Jersey regional market. Interest rates remain attractive, although financing is becoming more challenging as CMBS slows down. Banks are increasingly cautious, and many are requiring sweep accounts and other measures to enhance their safety.

Sector by sector:

  • Industrial. Investment remains particularly strong. E-commerce and same-day delivery requirements are driving historic levels of leasing volume, which has piqued investor interest. This is especially true for close-in urban locations and intermodal hubs.
  • Multifamily. Capital also continues to chase multifamily, with institutions more focused on development plays than built properties. Apartments are doing well, commensurate with a continued preference among many consumers to rent versus own.
  • Office. After several years of weaker demand, office product is rebounding. Investors are targeting both value-add and stabilized assets. Buyers are showing a clear preference for urban centers over suburban campuses.
  • Retail. Limited retail offerings are coming online. As e-commerce continues to transform the industry, grocery-anchored properties or those that offer experience or service draws (i.e. entertainment, restaurants, gyms) have become favorites among investors.

Looking ahead, we have some concerns about what the balance of 2016 will bring. Economic growth remains lackluster. The improving employment numbers are subject to interpretation (4 percent looks good, but what jobs are people taking, and how many have dropped out of the market altogether?). Beyond that, this is an election year–and a strange one, at that.

As such, if the news from Wall Street again takes on an ominous air, we may see people choose to sit still and wait out the storm. If the market takes another hit during the second half of the year, it will undoubtedly impact real estate. That said, if the economic news remains relatively positive, we could again be on our way to a record year.

Our advice? Property owners should sell what they want to sell now, in order to take advantage of the current momentum. In other words, make hay while the sun shines.