Overall for 2013, the capital markets are expected to hit $340 to $350 billion total volume for office, industrial, multifamily and retail assets, representing a 15 to 20 percent increase in volume over 2012. Investors have shown a strong appetite for income-producing assets, and the real estate sector continues to outperform fixed-rate investments. The stock market is expecting flat to modest gains in 2014, so real estate assets are expected to continue garnering high interest from investors.
Recently, the improvement in the Texas economy has increased demand from investors. In addition, the recovery in other Sun Belt markets has prompted investor demand outside of the highly competitive coastal gateway cities. Some of these markets include Austin, Dallas, Houston, Denver, Phoenix, Miami, and Atlanta. In our estimation, this recovery will continue into 2014 and beyond. Recent rent spikes in the Sun Belt have been led by the markets with outpaced job growth. For those markets that have already experience d rent spikes, we expect that trend to continue into 2014. For the Sun Belt markets that have not yet experienced rent spikes, we expect them to see increases within the next 12 to 18 months.
Investors who acquired assets in the downturn have started to reap those rewards during the last 12 months. One trend that occurred this past year is the increase of portfolio transactions, which we expect to continue into 2014 as sellers are realizing a premium in these portfolio transactions. Throughout 2013, there has been an increased investor appetite for healthcare, hotel and net-lease acquisitions that we believe will continue into 2014 as well.
As far as development goes, multifamily continues to lead the way, followed by industrial. There has been selective office development in the best submarkets across the country. Regardless of property type – multifamily, industrial or office – the development pipeline appears to be in good shape, without any real concern for overbuilding.
The main question is what will happen with interest rates in 2014. Right now, interest rates are around 2.88 percent for 10-year Treasuries. By next summer, the conventional wisdom is that rates will increase to 3.25 to 3.50 percent for 10-year Treasuries, which will impact pricing and the cost of development. The hike in interest rates will make development slightly more difficult, which overall is healthy for the real estate industry. Cap rates should continue to see some downward movement for assets in highly sought after markets, but the interest rate movement could impact on this trend.
As Executive Managing Director of capital markets, Steve Pumper has more than 28 years of commercial real estate experience. He oversees all aspects of Transwestern’s investment and finance platform including, asset sales, financial advisory, and corporate real estate finance for all product types including office, industrial, retail, healthcare and multi-family.