Investment Outlook
United States | Q2 2016
JLL | United States | Investment Outlook | Q2 2016
2
WHAT YOU
WILL FIND
4
11 Office
12
13
18
WHERE
TO FIND IT
Top 6 investment themes
Overview
Key investment themes
Notable transactions
19 Industrial
20
21
25
Overview
Key investment themes
Notable transactions
26 Multifamily
27
28
32
Overview
Key investment themes
Notable transactions
33 Retail
34
35
39
Overview
Key investment themes
Notable transactions
40 Lodging
41
42
45
Overview
Key investment themes
Notable transactions
46 Net Lease
47
48
52
Overview
Key investment themes
Notable transactions
JLL | United States | Investment Outlook | Q2 2016
3
TOP
6
INVESTMENT THEMES
U.S. Investment (H1 2016)
$198.4
-12.9%
Investment sales (YTD, billions of $US)
YTD investment sale growth (%)
1.
Geopolitics spur second quarter
volatility; limited impact evident in
quick U.S. rebound
U.S. Office Investment (H1 2016)
1.4%
1.3%
12-month net absorption (as a % of inventory)
12-month completions (as a % of inventory)
6.4%
-6.4%
12-month rent growth (p.s.f., %)
YTD investment sale growth (%)
U.S. Industrial Investment (H1 2016)
2.0%
1.6%
12-month net absorption (as a % of inventory)
12-month completions (as a % of inventory)
3.0%
-47.2%
12-month rent growth (p.s.f., %)
YTD investment sale growth (%)
U.S. Multifamily Investment (H1 2016)
1.6%
1.9%
12-month net absorption (as a % of inventory)
12-month completions (as a % of inventory)
4.5%
3.5%
12-month rent growth (p.s.f., %)
YTD investment sale growth (%)
U.S. Retail Investment (H1 2016)
1.0%
0.7%
12-month net absorption (as a % of inventory)
12-month completions (as a % of inventory)
2.4%
-20.5%
12-month rent growth (p.s.f., %)
YTD investment sale growth (%)
U.S. Lodging Investment (H1 2016)
0.1%
3.1%
Year-to-date occupancy growth
Year-to-date RevPAR growth
1.5%
-57.1%
Year-to-date supply growth
YTD investment sale growth (%)
◄ Table of contents
(10-15%)
Full year investment sale forecast (%)
The second quarter of 2016 began with some angst as financial markets
were still recovering from fears of a global economic slowdown and the
large declines seen in stock markets in January and February. As
markets closely watched oil and the equity markets recover slowly,
investors began to feel a sense of safety as volatility averaged only 14.3
on the CBOE volatility index (VIX) and reached a max of 16.3 in April.
Similarly, in May, the VIX averaged 14.9 and reached a max of 16.3. At
the OPEC meeting in June, hopes of an oil production ceiling deal were
quickly dashed, but despite the negative news, oil continued to rally as
outages in Nigeria and decent demand aided in oil reaching its highest
point of the year. Oil pricing and the stock market reached year-to-date
peak levels on June 8 when the S&P 500 reached 2119.12. However,
fears of a possible UK exit from the European Union took over. At this
time, the Credit Suisse Fear Barometer, which measures investors’
appetite for down-side risk protection over the subsequent three months,
reached its highest point since its inception in 1994. The VIX soon
followed with the unexpected “Brexit” vote, reaching 25.8 and its highest
point of the quarter.
Despite being only the tenth most volatile day in 2016, June 24 managed
to lose 75.9 points, the seventh highest, single-day loss in S&P 500
history. Though the selling continued for a few days, the Brexit’s limited
impact on the U.S. market quickly aided in recovery. Prior to Brexit, the
S&P 500 was at its highest at 2119.12, a year-to-date return of 3.7
percent. However, less than a month after Brexit, the market on July 22
was at its new peak of the year at 2175.03, a year-to-date return of 6.4
percent with the VIX again declining and averaging only 13.3 in July. As
the market edges up and is at all-time highs, the focus is now on how
much further the S&P 500 can climb.
On the heels of oil-driven volatility in the first quarter and geopolitical,
Brexit-driven volatility in the second, the roller coaster of macro-driven
uncertainty continues to impact financial markets. With the upcoming
U.S. election, as well as other key political decisions in Europe and the
Asia Pacific, market uncertainty is expected to continue through yearend, leaving U.S. equity markets on alert.
JLL | United States | Investment Outlook | Q2 2016
4
Brexit increased fears, but not like China
Brexit increased volatility more than Grexit, but not as much as earlier concerns over China and a global slowdown.
40
2500
Fear over first Fed
rate hike; Falling
commodity prices
China slowdown; RMB
devaluation
35
China & Global uncertainty; Oil
falls below $27
2100
Brexit
Falling commodity prices;
Currency volatility
1700
China slowdown; Oil falls below
$40; Fed rate hike angst
25
1500
Greece debt crisis
S&P 500
1900
30
Volatility Index (VIX)
2300
1300
20
1100
900
15
Fed rate hike
700
Volatility Index
Jul-16
Jul-16
Jun-16
May-16
Apr-16
Apr-16
Mar-16
Feb-16
Feb-16
Jan-16
Dec-15
Dec-15
Nov-15
Oct-15
Oct-15
Sep-15
Aug-15
Jul-15
Jul-15
Jun-15
May-15
May-15
Apr-15
Mar-15
Mar-15
Feb-15
Jan-15
500
Jan-15
10
S&P 500
Source: JLL Research, CBOE, Bloomberg
Fear Barometer reflecting concerns of a market sell-off
Desire for down-side market protection over three months reached its highest point ever in June.
60
Fear Barometer
Volatility Index
55
50
New Peak
Prior Peak
45
40
35
30
Brexit
25
What next?
20
15
Aug-16
Jul-16
Jun-16
May-16
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
10
Source: JLL Research, Credit Suisse, CBOE, Bloomberg (data as of July 18, 2016)
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JLL | United States | Investment Outlook | Q2 2016
5
After an active 2015—the second strongest year for volumes since 2000,
behind only 2007 by 6.3 percent—and with continued macroeconomic
uncertainty in markets, volumes remained down at mid-year. With yearto-date declines of 12.9 percent, investment sale volumes are
normalizing while remaining above long-term annual averages. With this,
full-year volumes are expected to decline between 10.0 and 15.0 percent
year-over-year, while trending up from 2014. The hotels, industrial and
retail sectors continue to exhibit the highest annual rates of decline,
between 60.0 and 20.0 percent, as well as the office sector, down 6.4
percent. The multifamily sector remains the outlier, experiencing growth
of 3.5 percent at mid-year.
What is driving declines? While select market segments have seen a
decline in liquidity—notably, Class B/C malls, select suburban office
markets and the hotels sector—the scale of sales activity in recent years
and current pricing concerns have spurred a void in opportunities on the
market in the first half of 2016. With these factors and continued macro
market uncertainty, a focus on risk mitigation is emerging. As an
example, in the office sector, second quarter volumes exhibited
increased activity in the primary markets, evidenced by only the second
quarter of the past two years in which primary volumes exceeded 70.0
percent of deal flow. With this, capital is increasing its selectivity on the
submarket level, spurring “clustered” investment activity in urban and
Activity normalizing after six consecutive years of growth
After 25.1 percent growth in volumes at year-end, U.S. investment sales
down 12.9 percent at mid-year; Full year volumes expected to decline
between 10.0 and 15.0 percent.
Forecasted FY
2016: (10–15%)
$500.0
25%
$400.0
19%
22%
$300.0
Excluding multifamily, declining investment sales across sectors
As total U.S. volumes decline 12.9 percent at mid-year, multifamily
continued to outperform with annual growth of 3.5 percent at mid-year.
$80
100.0%
$60
80.0%
60.0%
$40
40.0%
$20
20.0%
$0
0.0%
3.5%
-47.2%
-6.4%
($20)
-20.5%
($40)
H1 2013
-20.0%
-58.0%
-40.0%
-60.0%
H1 2014
H1 2015
H1 2016
Year-to-date change (%)
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
24%
$200.0
$100.0
$0.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016…
Total investment sale volumes (billions of $US)
$600.0
While 2016 is expected to be a year of transition and normalization, we
remain optimistic in our outlook for 2017, due to pent-up demand for
dispositions on the sell-side and a sustained appetite for product on the
buy-side. Pricing will be a key factor going forward with select markets
beginning to see pricing disconnects between buyers and sellers. Those
markets with higher barriers to entry and thus scarcity of product will be
more resilient in sustaining current pricing levels.
Year-to-date change, H1 2016 (%)
2.
leading suburban submarkets. The industrial sector exhibited similar
trends with a high concentration of investment in the sector’s primary and
high-growth secondary markets across single asset and portfolio sales.
Furthermore, capital is favoring assets with in-place tenancy and income
as well as lagging markets perceived to have additional runway for
capital and/or income appreciation in the current cycle. This is benefitting
niche sectors such as net leased assets, driving a shift in the sector’s
buyer landscape toward institutional investors over publicly listed and
non-traded REITs. Similar shifts have been seen in the student housing
and lab sectors in recent quarters.
H1 investment sale volumes (billions of $US)
Investment sale volumes normalizing
with full-year activity expected to
decline 10.0 to 15.0 percent
Multifamily
Industrial
Office
Retail
Hotels
Forecast
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
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JLL | United States | Investment Outlook | Q2 2016
6
3.
Despite decreased cross-border acquisitions this year, foreign appetite
for U.S. product remains strong and focused. With $16.8 billion of activity
at mid-year, the office sector is again capturing the lion’s share of
offshore capital, accounting for 55.1 percent of deployed capital followed
by the multifamily (21.6 percent) and lodging (14.4 percent) sectors. Of
note, the multifamily sector continues to see liquidity deepen to offshore
buyers. Year-to-date cross-border acquisitions increased 13.5 percent to
$3.6 billion, the only sector seeing growth on this metric. Canadian
capital is the primary driver of this, accounting for $2.3 billion of these
acquisitions, two-thirds of which has been via portfolios. Selective
investment criteria and high barriers to entry for retail—with a focus on
global gateway high streets and Class A mall product—and industrial—
with a focus on regional and national portfolios with high exposure to
primary and high-growth secondary markets—assets are limiting
opportunities for the sectors, both receiving less than 6.0 percent of
inbound capital this year. With declines in the larger sectors, the overall
landscape of foreign portfolio acquisitions has also softened, accounting
for 28.9 percent of overall activity at mid-year, the lowest level on this
indicator since 2011. With an increasingly challenging landscape
misaligned between investment criteria and on-market offerings, foreign
investors are seeking opportunities in niche market segments, reflected
in recent transactions in the student housing sector with more expected in
new sectors this year and into 2017.
Return to normalcy: Office sector driving offshore investment
Foreign capital reverting to historic focus on the office sector in 2016,
capturing 55.1 percent of year-to-date offshore investments
Regardless of volumes, foreign capital is expected to increase in scale
into 2017. Outside of the Americas, Asian capital—with three-fourths of
closed transactions coming from China and South Korea this year—
remains active and also expanding in origin. However, European and
Middle Eastern capital is seeing the highest expansion in U.S. deal flow
compared to 2015. European capital is now the most active with 27.1
percent of offshore acquisitions at mid-year. Middle Eastern investors
have seen the largest increase in activity, up to 20.1 percent from 13.8
percent last year. Strong economic and occupier market fundamentals,
liquidity and pricing remain attractive to these groups, especially when
considering volatile global financial markets and increased geopolitical
tension in peer regions. With global uncertainty expected to continue in
the near-term, the U.S. market is well-positioned to benefit.
Cross-border multifamily investments continue to rise
Accounting for nearly $2.3 of the $3.6 billion of offshore multifamily
investment at mid-year, Canadian capital driving foreign capital liquidity
for sector—two-thirds of which has been via portfolios.
$12.0
$11.4
$10.1
$9.2
$10.0
Offshore investment sale volumes
(billions of $US)
Despite sustained yet selective interest,
a gap between opportunities and
investment criteria limiting offshore
investment volumes at mid-year
$6.0
$4.2
$1.7
$2.0
40.7%
21.6%
Retail
14.4%
15.5%
19.5%
2015
16.5%
10-year average
3.6%
Office
36.1%
$0.9
$1.1
$0.6
H1 2015
Retail
Industrial
H1 2016
European and Middle Eastern capital sources ramping up
Europe
23.9%
Americas
25.2%
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
Asia
28.7%
Europe
27.1%
Americas
30.1%
Middle
East
13.8%
Asia
25.2%
Middle
East
20.1%
Australia
2.3%
Australia
3.5%
10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Inbound investment by sector
(as a percentage of overall inbound)
◄ Table of contents
Multifamily Lodging
H1 2014
9.0%
0.0%
$2.1 $1.8
$0.0
2016 YTD
5.4%
9.4%
Industrial
$2.0
European capital re-emerging as most active source of capital in 2016,
accounting for 27.1 percent of inbound investment at mid-year; Middle
Eastern capital seeing highest ramp-up in U.S. deal flow
12.0%
14.4%
Lodging
$3.2
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
27.0%
Multifamily
$3.6
$3.2
$4.0
55.1%
Office
$8.3
$8.0
2016 YTD
2015
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m, All sectors)
JLL | United States | Investment Outlook | Q2 2016
7
Dry powder continues to climb, currently at a record $237 billion and 12.4
percent higher than last reported in December 2015. With this, pension
funds and other institutional investors are making shifts in allocations as
well as being more selective with investment managers and various fund
vehicles, part of which is driven by concerns over high fees and
frustrations over delayed capital deployment. As a result, more small
companies are getting opportunities with larger institutions to invest
capital. Despite lower second quarter fundraising volumes, the dialogue
continues to surround the surplus rather than deficit of real estate
focused capital given continually rising dry powder levels. With no trend
of redemptions domestically, the pressure to deploy and unlock yield
remains, providing opportunities for alternate investment strategies.
Despite fears of slowing CRE, fund raising at healthy levels
2016 year-to-date has seen $36.1 billion of equity raised, a 15.2 percent
increase from the $31.3 billion raised this time last year.
Capital raised (in billions $US)
$80.0
$70.0
$60.0
$18.0
$16.0
$14.0
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 YTD
With recent adjustments to first quarter fundraising figures, the year
started strong with $22.3 billion of closed funds, the highest level of first
quarter fund raising on record. While the second quarter raised only
$13.8 billion, a 5.2 percent quarterly decline, year-to-date fundraising
levels are up 15.2 percent at mid-year. Amid market volatility, the bulk of
fundraising efforts have been with debt and opportunistic funds, raising
$4.0 and $9.2 billion, respectively, in the second quarter. The two
collectively have driven 77.0 percent of all real estate funds raised in
2016 year-to-date. Opportunistic funds, notably, raised the most funds in
the second quarter in over 15 years—some of which are now taking a
more targeted approach at deploying capital, focused on specific markets
or niche sectors. Debt funds, having raised $13.8 billion as of mid-year
2016, are on pace to see a record year, having already raised 87.0
percent of the record set in 2014.
With $13.8 billion raised year-to-date, debt funds have already raised
87.0 percent of full-year, record 2014 levels.
Capital raised by debt funds
(billions of $US)
4.
Debt funds up dramatically at mid-year, set for historic year
Source: JLL Research, Preqin
Record levels of global dry powder in the markets
Historic level of unplaced capital, totaling $237.0 billion globally, sitting
on the sidelines.
$140.0
$120.0
Dry powder (billions of $US)
Opportunistic and debt fundraising
gains reinforcing focus on higher
return transactions
$100.0
$80.0
$60.0
$40.0
$20.0
$0.0
$50.0
$40.0
$30.0
Rest of the world
North America
Source: JLL Research, Preqin (Global data is an aggregate of historic closed funds as
of July 1, 2016)
$20.0
$10.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 YTD
$0.0
Source: JLL Research, Preqin (Data includes North American closed funds as of
June 30, 2016)
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
8
Debt and equity raises driving REIT capital raised, IPOs flat
Total capital raised already at 64.0 percent of full-year 2015 number
$77.0
$70.0
$63.6
$60.0
$50.0
$40.0
$49.0
$38.5
$37.5
$47.5
$36.0
$59.3
$51.3
37.8
$34.7
$30.0 $25.6
$18.0
$20.0
$10.0
IPO
Equity
2016
2015
2014
2013
2012
2010
2009
2008
2007
2006
2005
$0.0
2004
• At mid-year, REIT privatization, merger and acquisition transactions
are already well positioned to exceed full-year 2015 levels. Last year,
markets saw 11 privatizations, and year-to-date, there are already 11
privatizations in the queue with three deals completed and eight deals
either pending or proposed, the largest being Colony Capital’s merger
with NorthStar Asset Management in an all-stock deal that will form a
new company with $58 billion of assets under management. A key
driver of these details remains undervalued portfolios relative to REIT
market cap, a function of recent stock market volatility.
$73.3
2003
• In the second quarter, REIT equity raises were up 14.4 percent relative
to the first quarter, and year-to-date equity raises were up 20.9
percent. This was led by Digital Realty Trust, American Campus
Communities and Brixmor Property Group, all of which raised in
excess of $500.0 million of capital.
Total REIT capital raised (billions of $US)
$80.0
With equity markets volatile, investors have sought out steady, yet
appreciating assets. Among those have been REITs. Due to the steady
yield that REITs provide in addition to its pending sector reclassification
(GICS), REITs have been in the limelight. Despite this fact, yet in line
with overall financial market trends, REIT IPOs remain depressed—53.5
percent below the 10-year annual average—with existing publicly-listed
REITs seeking other means to create value, such as raising equity in the
public markets, mergers and acquisitions, and dispositions.
2011
5.
Meeting the gap: REIT performance
pressures benefitting dry powder
in markets
Debt
Source: JLL Research, NAREIT Publically-traded U.S. REITs
(Data available through June 30, 2016)
• Disposing of valuable REIT-owned real estate has also been a
strategy. With this, while acquisitions increased in the second quarter
in the retail and industrial sectors, REITs at-large remain net sellers.
Amidst depressed acquisition activity, dispositions were notably up at
mid-year in the multifamily and office sectors with 123.1 and 38.4
percent year-to-date increases, respectively.
As acquisitions become harder to come by given current pricing levels,
REITs will continue to choose other means to fund growth whether it be
raising secondary equity, debt, privatizations, M&A or recycling funds
generated from dispositions.
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
9
◄ Table of contents
CMBS financing is down to $30.7 billion versus $54.5 billion this time last
year, a 43.6 percent decline.
$260
$229
$240
$220
$198
$200
$167
$180
$160
$140
$120
$101
$94
$93
$100
$86
$78
$67
$80
$48
$60 $47 $52
$33
$31
$40
$12
$12
$20
$3
$0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 YTD
As CMBS lending has slowed, two lenders have been able to fill the void:
banks and life companies. Life companies recorded a historic year for
originations in 2015 with $76.2 billion, a 25.5 percent annual increase
and the lender group’s highest origination volume on record. With an
additional $14.6 billion of commitments in the first quarter of this year, a
21.0 percent increase year-over-year, life companies will remain key for
financings and refinancings into 2017. One driver of increased
commitments is retail investors, faced with volatile public equity markets.
As a result, capital is shifting into fixed-annuity policies and increasing
the level of capital available for life companies to deploy. Commercial
banks and other balance sheet lenders who have opportunistically filled
the CMBS gap are taking market share. In the second quarter, bank loan
originations increased 33.0 percent year-over-year, more than any other
lender type. However, regulators are taking note of increased bank
(notably, small- and mid-sized bank) exposure to commercial real estate.
A July report released by the Office of the Comptroller of the U.S.
Currency (OCC) reported that at the end of 2015, 406 banks had
commercial real estate portfolios which had grown more than 50.0
percent over the prior three years, and of those, more than 180 had more
than doubled portfolios. With this and talk of loosening underwriting
standards, there is risk that banks will need to slow lending to ensure
regulatory compliance, as well as for risk-management. Construction
lending has become a focal point for banks as risky loans could possibly
trigger a high volatility commercial real estate loan (HVCRE)
classification in some markets and property types. As a result,
construction financing is already slowing and becoming more difficult as
lenders exercise caution to keep lending standards in line.
CMBS issuance takes a hit with market volatility
CMBS issuance (billions of $US)
After a tumultuous first quarter, CMBS volumes remain depressed as a
result of market volatility and its impact on pricing, having nearly froze
the pipeline of deals earlier in the year. In the second quarter, and as
financial markets began to re-establish themselves, CMBS lenders
regained deal flow and continued to build a relatively healthy pipeline of
deals. However, continued volatility in spreads with financial market
shifts spooked borrowers and lenders. This is further complicated by the
added pressure of upcoming risk retention regulations, effective
December of this year. These factors caused CMBS new issuances to
decline 59.0 percent to $11.4 billion in the second quarter, with half-year
new issuances down 43.6 percent to $30.7 billion. Mid-year 2015
volumes reached $54.5 billion. Spreads on highly-rated AAA CMBS
reached as high as 163 basis points in the second quarter but have since
come down to 148 basis points as of the close of the quarter. Despite the
relatively muted pricing reaction to the Brexit announcement, CMBS is
still on pace to have a disappointing year for originations with estimates
between $50.0 and $70.0 billion. One positive, however, is that safe
haven investors have pushed interest rates on the 10-year down to
historic lows, closing the quarter with a yield of 1.5 percent—the lowest
since July 2012. The lower yield environment will continue to be a
positive for real estate as well as a positive for CMBS, a key factor in
refinancing the wall of upcoming debt maturities from the prior peak.
Despite a complex and varied narrative across different lender groups,
lending will continue to be competitive, especially among life companies
and debt funds, with banks expected to steadily slow origination volumes.
With this, momentum seems to be on the side of another possible record
year for life companies. Construction lending will continue, but with
alternative lenders as opposed to banks.
Source: JLL Research, Bloomberg, Commercial Mortgage Alert (through June 30, 2016)
Historic life company origination and commitment levels to CRE
2015 saw $63.4 billion in commitments, and originations of $76.2 billion, a
25.5 percent annual increase. 2016 is starting off strong with commitments
up 21.0 percent year-to-date.
$90.0
$80.0
$70.0
Volume (billions of $US)
6.
Life companies and debt funds poised
to be lenders of choice as risk spooks
banks and CMBS lenders
$60.0
$50.0
$40.0
$30.0
$20.0
$10.0
$0.0
Commitments
Originations
Source: JLL Research, Mortgage Bankers Association (Data available through Q1 2016),
Commercial Mortgage Alert
JLL | United States | Investment Outlook | Q2 2016
10
Office
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JLL | United States | Investment Outlook | Q2 2016
11
OFFICE
With uncertainty, investors reverting to lower risk markets
and submarkets
U.S. Office property market
U.S. Office investment
-73
1.4%
$67.2
-6.4%
12-month change in total vacancy (bp)
12-month net absorption (as a % of inventory)
Investment sales (YTD, billions of $US)
YTD investment sale growth (%)
1.3%
6.4%
4.4%
-36
12-month completions (as a % of inventory)
12-month rent growth (p.s.f., %)
Average cap rate (%)
12-month change in cap rate (bp)
All eyes are on leasing activity. Having dropped by 17.3 percent in the
first quarter, total quarterly leasing activity rebounded by 18.2 percent
during the second quarter, quelling concerns that the first quarter was the
start of a broader slowdown in the office market. Coming in at 59.1
million square feet, 38.4 percent of total leasing volume was driven by
primary markets.
Despite declining activity, asset pricing resilient … but signs of
plateauing are emerging. Pricing overall remains strong with 75.0
percent of markets compressing. In fact, the pace of compression has
increased over the past 12 months, having declined 36 basis points. This
represents the largest annual compression since the 2010-2011 period in
which cap rates compressed 91 basis points.
Occupancy growth keeping vacancy and new supply in sync, for
now. Overall, U.S. vacancy declined by 10 basis points during the
quarter to reach 14.6 percent, while sublease vacancy remained flat at
just 1.0 percent of total inventory. These mark the lowest levels of the
cycle with dwindling supply plaguing the most popular occupier markets
from coast to coast. Notably, however, suburban vacancy declined by 20
basis points during the quarter to reach 16.1 percent, while vacancy in
CBDs has remained at 12.1 percent.
Notable shift back to primary markets indicating a current
resistance to market risk. After the continued expansion into secondary
markets over the last two years, volumes are moving back toward
primary markets. In the second quarter of 2016, 70.1 percent of total
transaction volume took place in primary markets. This represents only
the second occurrence of the last eight quarters in which primary
volumes exceeded 70.0 percent.
U.S. office volumes reforecasted to decline 10.0 to 15.0 percent in
2016. Heightened macro market volatility, beginning in late 2015, has
calmed. With this and following six consecutive years of volume gains,
office investment sale volumes decreased in the first half of 2016 by 6.4
percent, though this was from a high base and the peak of the current
cycle. The first two quarters saw $67.2 billion of office activity compared
to $71.8 billion at this time last year. While activity will be down this year,
there remains a strong pipeline of large office portfolios.
Office investment sales down 6.4 percent at mid-year; 10.0 to 15.0
percent annual decline forecasted for year-end
Q1
Q2
Q3
Despite declining activity, cap rates continue to compress
10-year Treasury (%)
10.0%
Primary cap rates (%)
Secondary cap rates (%)
Q4
5.0%
$200.0
$100.0
◄ Table of contents
2015
2016
2012
2013
2014
2010
2011
2007
2008
2009
2005
2006
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 YTD
0.0%
$0.0
2004
Office investment sale
volumes (billions of
$US)
$300.0
Pullback in risk evident on submarket level as well with investment
clustering increasing. Office investment ‘sprawl’ is declining as
investors adopt a heightened focus on lower risk submarkets amidst
market jitters and cycle longevity concerns. This is evident in both
primary and secondary markets with activity clustered and thus liquidity
strongest in leading CBD and core suburban submarkets.
Source: JLL Research, NCREIF, Board of Governors of Federal Reserve
JLL | United States | Investment Outlook | Q2 2016
12
TOP
All eyes are on leasing activity
Having dropped by 17.3 percent in the first quarter, total quarterly leasing
activity rebounded by 18.2 percent during the second quarter, quelling
concerns that the first quarter was the start of a broader slowdown in the
office market. Coming in at 59.1 million square feet, 38.4 percent of total
leasing volume was driven by primary markets (New York, Washington,
DC, Boston, Chicago, and Los Angeles) where signed leases include:
UBS’ renewal and contraction in New York’s Plaza District (891,000
square feet), McDonald’s relocation from Chicago’s suburbs to the
CBD’s Fulton Market (400,000 square feet), Demandware’s expansion in
Boston’s Northwest suburb (181,000 square feet), FAA’s new location in
Los Angeles’ South Bay (155,000 square feet), and Ernst & Young’s
renewal in Washington, DC’s East End (108,000 square feet).
Leasing activity
60,000,000
Looking ahead, leasing activity will likely continue at a similar 60-millionsquare-foot volume each quarter through the remainder of the year, but
the rate at which expansionary leasing continues will likely begin to
decline in-line with slowing employment growth.
2
Overall U.S. vacancy declined by 10 bps during the quarter to reach 14.6
percent, while sublease vacancy remained flat at just 1.0 percent of total
inventory. These mark the lowest levels of the cycle with dwindling
supply plaguing the most popular occupier markets from coast to coast.
Notably, however, suburban vacancy declined by 20 bps during the
quarter to reach 16.1 percent, while vacancy in CBDs has remained at
12.1 percent since the fourth quarter of 2015, largely the result of 6.2
million square feet of deliveries outpacing year-to-date absorption by
1.6 times.
Total vacancy
50,000,000
Total vacancy fell by 10 basis points despite a surge in completions, but
likely near cyclical low.
40,000,000
20.0%
14.0%
12.0%
13.8% vs. ~14.6%
10.0%
Current cycle will likely have
slightly higher cyclical low
8.0%
2016
2014
2012
2010
2008
2006
2004
2002
2000
6.0%
1998
In addition to a rebound in leasing volumes overall, expansionary leasing
activity for leases of 20,000 square feet or larger regained the lead as the
majority driver of activity, comprising 46.3 percent of signed leases.
While it’s lower than the 48.4 percent average recorded over the past two
years, it remains a good barometer for tenant sentiment toward
expansion. Additionally, tenant contractionary activity remained sub-10
percent during the quarter, consistent with activity recorded over the past
two years. The most notable contraction activity was among financial
16.0%
1996
Source: JLL Research
18.0%
1990
2008 2009 2010 2011 2012 2013 2014 2015 2016
Total vacancy (%)
30,000,000
◄ Table of contents
Occupancy growth keeping vacancy and new
supply in sync, for now
1994
Leasing activity (s.f.)
Leasing bounced back after a sharp pause in Q1; YTD total of 109.1
m.s.f is 8.2% below 2015 YTD
Total leasing activity (s.f.)
70,000,000
4-quarter moving average (s.f.)
services tenants, where shrinking tenants made up 16.7 percent of
activity. However, this is the result of just two large leases: UBS’ lease
(noted above) and Citicorp Credit Services renewal and contraction in
Chicago’s Northwest suburb (146,000 square feet).
1992
1
7
OFFICE THEMES
Source: JLL Research
JLL | United States | Investment Outlook | Q2 2016
13
While development volume looks high at face value considering the
suburban market’s above average vacancy rate, development in the
suburbs remains focused on well-located and amenity-rich locations,
often near transportation and density attractive to today's workforce. In
the largest suburban markets especially, functionally obsolete office
buildings are depressing overall market fundamentals. As the workforce
moves more and more toward dense and urbanized locations, owners
will need to consider making capital investments or alternative uses
altogether as suburban office parks lose out to more attractive locations.
Completions
The 20 m.s.f. of groundbreakings during Q2 pushes up 2017 deliveries
to 45.9 m.s.f.
Speculative (available)
BTS
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
Office investment sales down 6.4 percent at mid-year; 10.0 to
15.0 percent annual decline forecasted for year-end
$250.0
2017
2018
2019
Source: JLL Research
The remainder of this cycle will be marked by ups and downs with new
vacancies, net absorption and deliveries moving in and out of sync
across markets—most notably, those with the largest development
pipelines. Despite the mismatch of timing, risks of oversupply remain
muted outside of Houston and sublease vacancy has yet to show signs
of increase. Should that change with elevated construction starts as
employment growth begins to wane, that story could change, but for now
most markets are well positioned for the remainder of the cycle.
$200.0
$150.0
$100.0
$50.0
$0.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2016
Office investment sale volumes
(billions of $US)
Completions (s.f.)
Speculative (pre-leased)
With this and following six consecutive years of volume gains, office
investment sale volumes decreased in the first half of 2016 by 6.4
percent, though this was from a high base and the peak of the current
cycle. The first two quarters saw $67.2 billion of office activity compared
to $71.8 billion at this time last year. While the first quarter of 2016 was
driven by portfolio acquisitions, this cooled in the second quarter,
declining from 32.3 to 12.3 percent quarter-over-quarter. Looking toward
the remainder of the year, there remains a strong pipeline of large office
portfolios exceeding $1.0 billion which could boost activity—with three
having closed year-to-date and five active transactions on the market.
This metric is expected to be on par with 2015 levels. However, the
profile of these deals is evolving: Compared to last year in which 37.5
percent of large portfolios were multi-market, nearly 90.0 percent are
expected to be multimarket this year. Despite this strengthening, yearend transaction volumes are expected to decline between 10.0 and 15.0
percent, a function of declining single asset activity.
Q1
3
U.S. office volumes reforecasted to decline 10.0
to 15.0 percent in 2016
Heightened macro market volatility, beginning in late 2015, has calmed.
While the Brexit announcement spurred another period of market jitters
and could impact office leasing decision making in the very near term,
U.S. office sector and capital markets conditions could benefit, as
occupiers and investors work through workforce and capital allocation
decisions, respectively. Financial markets are likely to see the highest
impact from Brexit, as was apparent in the currency and stock market
shocks in the immediate aftermath of the referendum. However, in the
weeks post referendum, financial markets have shown signs of recovery,
indicating a Brexit-induced recession is unlikely. With the Federal
Reserve expected to now further delay its next interest rate hike, the cost
of capital will remain low, accretive to market liquidity. One risk to
inbound U.S. capital is the increasing strength of the U.S. dollar.
However, this continues to be countered by the lower perceived risk
of the market relative to the United Kingdom and other global markets
from both occupiers and investors given the stability and transparency
of the market.
◄ Table of contents
Q2
Q3
Q4
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
4
Despite declining activity, asset pricing resilient …
but signs of plateauing are emerging
Evidence that sentiment in the U.S. office sector remains cautiously
optimistic is current pricing levels. Though activity has declined in both
portfolio and single asset trades, pricing overall remains strong with 75.0
percent of markets compressing. In fact, the pace of compression has
increased over the past 12 months, having declined 36 basis points.
This represents the largest annual compression since the 2010-2011
period in which cap rates compressed 91 basis points. This sharpening
in pricing is being led by the primary markets, which have recorded 38
basis points of movement compared to 24 in secondary markets. The
markets leading this are: Washington, DC (down 60 basis points),
Boston (down 50 basis points), Los Angeles (down 40 basis points) and
Seattle (down 40 basis points). However, secondary markets overall are
beginning to tell a different story with select markets softening. As an
example, Raleigh-Durham and Sacramento softened by 30 and 20 basis
points, respectively.
JLL | United States | Investment Outlook | Q2 2016
14
Primary markets driving latter cycle compression of cap rates
Pace of cap rate compression has increased over the past 12 months,
having declined 36 basis points and reaching its highest level since the
2010-2011 period.
-20
-40
After a notable shift into secondary markets over the past two years,
capital is migrating back to primary markets.
-60
100%
-80
90%
2010
2011
2012
2013
2014
2015
2016
YTD
80%
24% 21%
18%
30%
30%
32% 32% 28% 31% 34% 36%
37%
70%
Source: JLL Research, NCREIF; Includes 32 major office markets
60%
71.9 percent of markets are compressing, though signs of
plateauing beginning to emerge
50%
40%
30%
71% 68%
76% 79%
82%
70%
68% 68% 72% 69% 66% 64%
63%
2016 Q1
-100
29% 32%
2015 Q4
Annual cap rate
compression
(basis points)
0
Charlotte, Phoenix, Portland and Salt Lake City have each seen cap
rates compress 50+ basis points year-over-year. With a second wave of
latter cycle office cap rate compression beginning in primary markets,
both volume and pricing analytics are pointing toward a current investor
resistance to market risk, spurring a more granular and heightened focus
on market-, submarket- and even asset-level stability and resilience.
70%
10%
53%
44%
31%
Primary markets
34%
3%
2016 Q2
2015 Q3
2015 Q2
2015 Q1
2014 Q4
2014 Q3
72%
59% 63%
2014 Q2
72%
2014 Q1
84%
66%
2013 Q4
72%
2013 Q3
97%
81%
2013 Q2
0%
2013 Q1
Annual cap rate fluctuations
20%
Secondary markets
Source: JLL Research, NCREIF; Includes 32 major office markets; Stable defined as
markets seeing fluctuations within 10 basis points year-over-year.
Current resistance to market risk spurring increased pricing gap
Compressing
Stable
Softening
Source: JLL Research, NCREIF; Includes 32 major office markets; Stable defined as
markets seeing fluctuations within 10 basis points year-over-year.
Primary markets
Pricing spread
$600
Notable shift back to primary markets indicating
a current resistance to market risk
After the continued expansion into secondary markets over the last two
years, volumes are moving back toward primary markets. In the second
quarter of 2016, 70.1 percent of total transaction volume took place in
primary markets. This represents only the second occurrence of the last
eight quarters in which primary volumes exceeded 70.0 percent of the
total and the highest level since the first quarter of 2015. This especially
is the case for more institutional groups, leading to a cooling off of select
secondary markets. As a result, the pricing spread between primary and
secondary markets has widened. It currently stands at 110 basis points,
the widest level since 2008. This is also apparent in average per-squarefoot pricing metrics, now at its highest point in the cycle with a gap of
$357. This compares to the current cycle average of $235 per square
foot. However, select secondary markets are outperforming peers:
◄ Table of contents
Average per-square-foot pricing ($USD)
5
Per-square-foot pricing spread between primary and secondary markets is
at highest level of the current cycle, reaching $357.
Secondary markets
$500
$400
$300
$200
$100
$0
2013
H1
2013
H2
2014
H1
2014
H2
2015
H1
2015
H2
2016
H1
Source: JLL Research
JLL | United States | Investment Outlook | Q2 2016
15
6
Pullback in risk evident on submarket level as well
with investment clustering increasing
Office investment ‘sprawl’ is declining as investors adopt a heightened
focus on lower risk submarkets amidst market jitters and cycle longevity
concerns. This is evident in both primary and secondary markets with
activity clustered, and thus liquidity strongest, in leading CBD and core
suburban submarkets. In the primary markets, investment into three
submarkets or less of a given market increased from 69.4 to 77.3
percent year-to-date. Submarkets with often highly desirable tenant
characteristics are leading:
• Boston: Financial District as a financial center for New England as
well as Cambridge with access to prestigious academic institutions
and a strong life sciences tenant base.
• Seattle: Lake Union has experienced explosive tech growth over the
past years, transforming from a largely industrial submarket to a
technology hub. New construction centered in Lake Union and the
presence of Amazon are driving capital markets activity.
• New York: Plaza District and Times Square remain the primary office
districts in Manhattan with a deep pool of bidders and the winners
usually in partnerships given current pricing levels. This is supported
by strong long-term tenant demand, heavy amenities and access to
public transit.
• Washington, DC: East End, given its proximity to the Capitol and
Metro line as well as high levels of development over the past two
decades, leading to the highest quality stock and making it standout
as a clustered submarket.
Secondary markets consistently have had a high concentration of
activity in three submarkets or less—over 90.0 percent since 2013—as
a means of mitigating risk. Over 2015 and 2016, all secondary markets
have seen over 50.0 percent of capital invested into three submarkets
or less. In 2015, the lowest of these were Dallas and Orange County
with 58.0 and 68.7 percent, respectively. However, in 2016, these
both shifted to higher concentrations, in line directionally with
primary markets.
How is this impacting office investment? For sellers, the depth of buyers,
and thus liquidity, could prove challenging in those ‘non-core’
submarkets, particularly in the suburbs. For buyers, the current
resistance to submarket risk could prove accretive for value add
acquisitions with opportunities to acquire, reposition and aggressively
market assets in emerging urban or suburban submarkets with a story.
7
Broadening of Class A pricing appreciation as
Trophy opportunities and pricing gains soften
Volumes in the first half of 2016 have increased in Class A, as activity
has been flat in the Trophy segment. Quarter-over-quarter, Trophy
investment sales have decreased 33.0 percent with activity down 29.2
percent year-to-date. This is largely due to a lack of available Trophy
assets as well as the heightened sensitivity to current pricing levels. This
is driving movement in the Class A segment, benefiting Class A asset
pricing amidst a continued robust real estate capital landscape. As a
result, Class A pricing is up 14.7 percent year-over-year in primary
markets and 9.2 percent in secondary markets. In this time, Trophy
pricing gains have been flat overall across primary and secondary
markets with a migration of the buyer universe into Class A from Trophy
space. This particularly has been the case for large institutional groups,
including Blackstone, Jamestown and JP Morgan. Institutional share of
Class A office acquisitions increased from 50.3 percent to 63.9 percent
year-over-year. Looking forward, depressed Trophy returns and an
increased appetite for value add opportunities will push institutional
groups to lower quality assets. With the simultaneous resistance to
market- and even submarket-level risk, this trend will be most evident in
the primary markets.
After large gains in 2015, Trophy activity falls in 2016 while Class A
product sees moderate increase
2013 H1
Trophy
Office investment clustering in majority of primary markets
% of investment into three
submarkets or less
Primary market concentration of investment in three submarkets has
increased from 69.4 percent to 77.3 percent in the year-to-date.
Class A
2014 H1
2015 H1
100%
80%
60%
2016 H1
40%
20%
$0
0%
$5,000 $10,000 $15,000 $20,000 $25,000 $30,000
YTD transaction volume (millions of $USD)
Source: JLL Research
2015 YTD
2016 YTD
Source: JLL Research
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
16
U.S. core product office CBD cap rates
Seattle
4.25 – 5.50%WA
MT
Portland
4.50 – 6.50%
ME
ND
VT
MN
ID
OR
SD
WY
Sacramento
5.75-6.75%
San Francisco
NV
3.00 – 4.00%
CA
East Bay
6.00-7.00%
Los Angeles
4.80-6.00%
San Diego
6.00-7.00%
IA
NE
UT
Denver
CO
5.25-7.25%
NH Boston
NY
4.00– 5.00%
MA
Detroit
9.50 – 10.50% Pittsburgh
CT
MICleveland 8.00 – 9.00%
NewRIYork
Chicago
3.25-3.75%
7.50 – 8.50%
Philadelphia
4.75-5.50%
NJ
5.50– 7.00%
Columbus
Indianapolis
DE
OH
8.00 – 9.00%
PA
IN
IL – 9.50%
8.50
Washington, DC
Cincinnati WV
4.00MD
– 6.00%
8.50 – 9.50%
Minneapolis WI
6.00-7.00%
Kansas City
7.00-8.00%MO
KS
Phoenix
AZ
6.50-6.75%
KY
TN
OK
NM
AR
Dallas
5.00-6.50%
TX
Austin
4.50-5.25% Houston
6.00-6.50%
4.00 – 5.00%
5.00 – 6.00%
6.00 – 7.00%
7.00 – 8.00%
8.00 - 9.00%
9.00% +
MS
VA
Raleigh
6.50 – 7.50%
Charlotte NC
6.25 – 7.50%
Atlanta
5.00-6.00%
GA
AL
LA
Orlando
Tampa FL6.00– 7.00%
6.00-7.00%
Miami
4.50 – 6.00%
U.S. core product office suburban cap rates
Seattle
5.50-6.50%
WA
MT
Portland
6.00%-7.50%
ME
ND
VT
MN
ID
OR
WY
Sacramento
6.75-7.50%
East Bay
6.00-7.00%
CA
Silicon Valley
5.00 – 7.00%
Los Angeles
4.00-7.00%
IA
NE
NV
San Diego
5.00-6.50%
4.00 – 5.00%
5.00 – 6.00%
6.00 – 7.00%
7.00 – 8.00%
8.00 - 9.00%
9.00% +
UT
Denver
CO
6.00-8.00%
Phoenix
AZ
5.00-7.00%
NH Boston
NY
MA 6.25-8.50%
Detroit
8.00 – 9.00% Pittsburgh New Jersey
CT
MI
RI
Cleveland 7.50 – 8.50% 7.00 - 8.50%
Chicago
8.00 – 9.00%
7.00-8.00%
Philadelphia
NJ
Columbus
8.00 – 9.00%
Indianapolis
DE
OH
8.00
–
9.00%
PA
IN
Washington, DC
IL 9.00%
8.00–
WV
6.00 MD
– 8.00%
Cincinnati
8.50 – 9.00%
Minneapolis
7.00-8.00% WI
SD
◄ Table of contents
SC
KS
MO
KY
TN
NM
OK
Dallas
6.50-7.50%
TX
Austin
5.50 – 7.00% Houston
6.50-8.00%
AR
MS
AL
VA
Raleigh
– 8.00%
Charlotte 7.00
NC
6.75 – 8.00%
Atlanta
6.00-8.00%
GA
LA
Tampa
6.25-7.50%
SC
Orlando
FL
6.50-.8.00%
Miami
6.00 – 7.50%
Notable primary market transactions, Q2 2016
Market
Property
Buyer
Seller
Price ($)
Size (s.f.)
New York
Citigroup Building
Citigroup
New York
1285 Avenue of the
Americas
550 Madison Avenue
RXR Realty / David Werner /
China Life Insurance
Olayan Group / Chelsfield
SL Green
$1,767,913,114
2,634,670
$671
AXA / JP Morgan
$1,649,000,000
1,790,263
$921
Chetrit Group /
Clipper Equity
$1,400,000,000
852,830
$1,642
New York
1211 Avenue of the
Americas
1 New York Plaza
Ivanhoe Cambridge / Callahan Beacon Capital
Capital Partners
Partners
China Investment Corp
Brookfield
Property Partners
$894,250,000
2,000,000
$913
$700,000,000
2,521,322
$567
New York
7 West 34th Street
Korea Post
Vornado
$561,000,000
470,000
$2,540
New York
693 Fifth Avenue
FIMALAC
Thor Equities
$525,000,000
101,306
$5,182
Boston
101 Seaport Blvd
Union Investment
Skanska USA
$452,000,000
439,211
$1,029
Seattle-Bellevue
Safeco Plaza
GLL Real Estate Partners
$387,000,000
793,679
$488
Seattle-Bellevue
West 8th
Deutsche Bank
CalPERS /
CommonWealth
Partners
AEW Capital
Management
$370,000,000
516,985
$716
Price ($)
Size (s.f.)
New York
New York
Price ($ p.s.f.)
Notable secondary market transactions, Q2 2016
Market
Property
Buyer
Seller
Dallas / Fort Worth
KPMG Plaza at Hall Arts
Nonghyup Bank
Hall Financial
$225,000,000
459,383
$490
Miami
Miami Tower
Sumitomo Corp
$220,000,000
631,672
$348
Baltimore
100 East Pratt
Vision Properties
$187,000,000
662,708
$282
Oakland-East Bay
Legacy Ygnacio Center
$158,001,000
517,975
$305
Austin
Austin Centre
LaSalle Investment
Management
Prescott Realty
LaSalle Investment
Management
Columbia Property
Trust
Steelwave
TSTA
$139,997,715
326,335
$429
Northern New Jersey
$136,000,000
820,000
$166
$134,150,000
181,422
$739
$122,000,000
423,594
$288
Miami
Warren Corporate Center Rubenstein Partners /
Northwestern
Vision Real Estate Partners Mutual Real Estate
Torrey Pines Court
Regents of the University of Muller Co.
California
525 B
LaSalle Investment
Hines
Management
The Lincoln
Harvest / TIAA
HQ Capital
$109,250,000
160,171
$682
Miami
Aventura Corporate Center Renaissance Properties NY Groupe Pacific
$105,279,981
252,244
$417
San Diego
San Diego
◄ Table of contents
Price ($ p.s.f.)
JLL | United States | Investment Outlook | Q2 2016
18
Industrial
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
19
INDUSTRIAL
While barriers to entry have risen, industrial fundamentals remain
accretive to and attractive for investment
U.S. Industrial property market
U.S. Industrial investment
-40
2.0%
$19.0
-47.2%
12-month change in total vacancy (bps)
12-month net absorption (as a % of inventory)
Investment sales (YTD, billions of $US)
YTD investment sale growth (%)
1.6%
3.0%
5.0%
-27
12-month completions (as a % of inventory)
12-month rent growth (p.s.f., %)
Average cap rate (%)
12-month change in cap rate (bps)
Warehouse rents continue to rise nationally amidst record low
vacancy. Despite a national increase in new speculative completions,
strong net absorption and increased momentum in the preleasing of
speculative space prior to completion continues to tighten vacancy rates.
Increased development volumes continue to fail to satisfy demand, as
quarterly net absorption was 18.9 percent higher than last quarter,
posting 62.0 million square feet. Strong demand continues to push the
national vacancy rate to a record low 6.1 percent.
Industrial volumes down amid heightened global volatility, yet, if
+$250.0 million deals were excluded, declines are less than 10.0
percent. First half year-over-year investment volumes were down 47.2
percent, a drastic reduction in overall activity at first glance. However, if
the five largest industrial transactions—all deals over $250.0 million—
were excluded, total volume for the first half was only down 8.0 percent
since last year.
Single market portfolios a key volume driver. On the heels of a record
2015 with large-scale portfolio transactions, and many to long-term
acquirers, barriers to entry are rising for the sector and at structurally
higher levels than past cycles. Despite the overwhelming ratio of single
asset to portfolio transactions exhibited in the second quarter, portfolios
remain active, accelerating over 30.0 percent since the first quarter.
Single market portfolio activity represented the vast majority of portfolio
transactions, accounting for nearly 75.0 percent of all portfolio volume in
the second quarter.
First half investment volumes down over previous year
Escalation in global market volatility further widens spreads
Total year-to-date investment volume down almost 50.0 percent from
previous year, yet volumes down less than 10.0 percent when 2015’s
five +$250.0 million acquisitions are excluded.
Primary market cap rates displayed moderately stabilized compression
as investors sought safety in 10-year Treasuries, widening spreads by
214 basis points relative to prior peak.
10-year Treasury yield (%)
$100.0
10.0%
$50.0
128
bps
$0.0
0.0%
Q1
Q2
Q3
Q4
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m)
◄ Table of contents
Average weighted primary cap rate (%)
214 bp
spread
differential
4.88%
1.47%
316
bps
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
7/1/2016
Industrial investment
sale volumes
(billions of $US)
Sector sentiment spurring a focus on single asset transactions and
core markets. Single assets represented the vast majority of volume in
2016, outpacing portfolio activity on a 3:1 ratio on a dollar basis. Trends
toward core market opportunities as a means of mitigating risk
demonstrate the increasingly selective approach to acquisitions investors
have undertaken in the midst of increased market volatility.
Class A cap rates continue sustained, quiescent compression
throughout most markets. The first half of 2016 experienced some of
the highest volatility since the Global Financial Crisis (GFC), a result of
fears regarding emerging market growth, the stability of the Eurozone
and the unexpected Brexit vote, to name a few. With capitalization rates
for all assets relative to these long-term Treasury rates now far
exceeding those spreads experienced in the previous cycle, spread
compression is expected over the next 24 months. Nationally, in a
broader asset context, Class A industrial asset pricing across almost all
U.S. markets continued to test or exceed JLL observed ranges. However,
despite the continuance of slight cap rate compression for Class A
assets, buyer selectivity is increasing with a greater focus on maximizing
existing asset cash flows and credit tenant exposure.
Source: JLL Research, NCREIF, Board of Governors of Federal Reserve System
JLL | United States | Investment Outlook | Q2 2016
20
TOP
1
5
INDUSTRIAL THEMES
Warehouse rents continue to rise nationally amidst
record-low vacancy
The second quarter of 2016 exhibited further confirmation of the
sustained and unremitting tenant demand for warehouse space as trend
lines continued to favor warehouse leasing activity. Despite a national
increase in new speculative completions, strong net absorption and
increased momentum in the preleasing of speculative space prior to
completion continues to tighten vacancy rates. In nearly all U.S. markets,
tenant demand exceeds available space, and a push to secure modern
and efficient space has driven the national vacancy rate 10 basis points
lower to a record low 6.1 percent. Increased development volumes
continue to fail to satisfy demand, as quarterly net absorption was 18.9
percent higher than last quarter, posting 62.0 million square feet.
Landlords will continue to enjoy higher rental rates throughout 2016, as
tenant demand for limited available space drives strong leasing activity.
With almost 200.0 million square feet of construction presently
underway, the next 12 to 18 months will be a considerable test for
determining exactly where supply and demand meet, as new
availabilities will likely catch up to net absorption in several markets. The
restrained approach to construction exhibited in the industrial sector will
allow flexibility in testing market fundamentals, assisting in moderating
potential oversupply in the space and positioning the industrial sector to
mitigate and stabilize rental rates in the event of an evident risk of
excess supply.
Frequency of speculative completions increases in Q2
Speculative deliveries up by 13.4% quarter-over-quarter with 36.3 percent
of new space preleased.
Preleasing % at delivery
Net absorption accelerated in the second quarter of 2016, as occupancy
gains continue to outpace new deliveries, particularly in core markets.
Q3
Q4
Total vacancy
2015
2014
2013
2012
2011
2010
2016 YTD
Source: JLL Research
2009
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2008
250.0
200.0
150.0
100.0
50.0
0.0
-50.0
-100.0
-150.0
National vacancy rate (in %)
Q2
2007
Net absorption
(in m.s.f.)
Q1
Speculative construction remains a primary focal point for many
investors, as concerns regarding overbuilding resonate as a primary
source of wariness in investor circles, and potentially could be the largest
deterrent to rental growth in the midterm. Despite an increase in
speculative completions by nearly 15.0 percent over the first quarter to
just over 35.0 million square feet, preleasing prior to completion of
speculative space has improved dramatically. Strong tenant demand for
new space drove 36.3 percent of all speculative space to be preleased
prior to completion, a rise of over 10.0 percent since the first quarter and
nearly double the preleased rate of the fourth quarter of last year.
◄ Table of contents
Industrial completions
(in m.s.f.)
Warehouse rents continue to rise amidst record low vacancy
40.0
30.0
20.0
10.0
17.5%
25.4%
36.3%
Q4 2015
Q1 2016
Q2 2016
0.0
Source: JLL Research
2
Industrial volumes down amid heightened global
volatility, yet, if +$250.0 million deals were
excluded, declines are less than 10.0 percent
First half year-over-year investment volumes were down 47.2 percent, a
drastic reduction in overall activity at first glance. However, if the five
largest industrial transactions—all deals over $250.0 million—were
excluded, total volume for the first half was only down 8.0 percent since
last year. The sustained investment activity despite continued
macroeconomic volatility in 2016 is indicative of the asset class’s ability
to weather global economic and financial uncertainty. Furthermore,
despite shocks in the broader global economy, U.S. industrial tenant
demand continues to set record highs, and a disciplined approach to
development continues to attract investment despite the volatile global
economic environment. The investment environment will remain robust
throughout the close of the year as investor demand for industrial
assets further advances due to the pronounced overall strength of
JLL | United States | Investment Outlook | Q2 2016
21
industrial fundamentals. Total volume is expected to be more subdued
than last year’s record-breaking total. However, excluding the five largest
transactions of last year, volumes will likely continue to experience
growth in the industrial sector.
First half investment volumes down over previous year
$80.0
First Half +$250.0
mil transactions
$60.0
$40.0
Investor focus on single assets and core markets evident
$20.0
Investors looking to gain exposure to industrial sector largely targeted
assets in primary and secondary markets, as tertiary market transactions
represented less than 10.0 percent of activity.
$0.0
Q1
Q2
Q3
Q4
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m)
3
Sector sentiment spurring a focus on single asset
transactions and core markets
The close of the first half of 2016 marked the trending continuation of a
shift in investment strategy for investors, as the prevalence of smaller,
single asset transactions represented the majority of activity in the U.S.
Single asset and portfolio transactional ratios exhibited a persistent
reversal from the first half of 2015, as single assets dichotomously
represented the vast majority of volume in 2016, outpacing portfolio
activity on a 3:1 ratio on a dollar basis. These deals are also getting
smaller with the vast majority of single asset transactions being for
assets under 200,000 square feet. Of second quarter single asset
transactions over 200,000 square feet, investors heavily favored
primary and key geographically-isolated, high-growth secondary
market opportunities, representing 45.1 and 48.3 percent of
activity, respectively.
Industrial investment sale volumes
(in m.s.f.)
Industrial investment sale
volumes (billions of $US)
Total year-to-date investment volume down almost 50.0 percent from
previous year, yet volumes down less than 10.0 percent when 2015’s five
+$250.0 million acquisitions are excluded.
The trend toward core market opportunities as a means of mitigating risk
is reflective of the increasingly selective approach to acquisition
opportunities investors have demonstrated in the midst of increased
volatility in all investment markets. As capitalization rates test or set
record lows in almost all markets, investors continue to focus
underwriting less on near-term residual value and more on rent growth
and tight market fundamentals. As investors continue to target productrestricted markets, the investment volume pendulum is likely to remain in
favor of single asset transactions in 2016. However, a recent uptick in
+1.0 billion, large-scale portfolio offerings in the latter half of the second
quarter could help to normalize 2016’s volume composition to about a
2:1 single asset basis, as these deals are expected close in the second
half of the year.
2.5
2.0
1.5
1.0
2.2
Most active
primary markets
1.5 1.5
1.2
Most active
secondary markets
1.4
1.0 1.0 0.9
0.5 0.5
0.5
0.0
Source: JLL Research (single asset transactions larger than 200,000 s.f.)
4
Single market portfolios a key volume driver
Single asset transactions set activity pace in first half
After volatile first half, large-scale portfolio offerings will likely gain traction
in second half
10-year single asset activity percentage of total volume average: 63.3%
Total industrial
investment volumes by
transactions type
100.0%
15%
24%
80.0% 32% 38% 26%
44% 51% 34% 41% 30% 56%
60.0%
85%
40.0% 68%
76%
62% 74%
56% 50% 66% 59% 70% 44%
20.0%
0.0%
Single asset transactions
Portfolio/entity-level transactions
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m)
◄ Table of contents
On the heels of a record 2015 with large-scale portfolio transactions, and
many to long-term acquirers, barriers to entry are rising for the sector
and at structurally higher levels than past cycles. With this, shifts in how
and where investors are building industrial holdings are continually
evolving, most recently being affected by current investor sentiment that
the cycle is in its latter stages. As a result, with property income
fundamentals increasingly driving returns, exceedingly more weight
is being given to in-place tenants and rental revenue in strong
industrial markets.
Despite the overwhelming ratio of single asset to portfolio transactions
exhibited in the second quarter, portfolios remain active, accelerating
over 30.0 percent since the first quarter. However, the profile of portfolios
is shifting: Single market portfolio activity represented the vast majority
of portfolio transactions, accounting for nearly 75.0 percent of all portfolio
JLL | United States | Investment Outlook | Q2 2016
22
volume in the second quarter. On par with trends in the single asset deal
segment, investor appetite for core market offerings is even further
pronounced with portfolios:
• 37.2 percent of single market portfolios transacted in primary markets;
• 100.0 percent of regional portfolio assets transacted in primary
markets; and
• 52.7 percent of national or multi-state portfolio assets transacted in
primary markets
5
Class A cap rates continue sustained, quiescent
compression throughout most markets
Sustained, quiescent compression throughout most markets
Despite increased volatility throughout global financial markets, strong
investor interest and continually improving property fundamentals are
supporting cap rate compression.
Second quarter transactional volume (by deal type)
52.7% 29.3%
Multi-State
14.2 m.s.f.
27.5%
37.5 m.s.f.
72.5%
Regional
Single Market
Primary
Secondary
Tertiary
18.0%
100.0%
37.2% 36.8%
26.1%
0.0 7.0 14.0 21.0 28.0
Single Asset
Investment sales volume by
market (in millions of s.f.)
Portfolio
Source: JLL Research, Real Capital Analytics (portfolio transactions larger than 200,000 s.f.)
Even within the portfolio segment, deal sizes remain depressed with
transactions falling between $40.0 and $200.0 million, a trend that has
resonated throughout 2016. Nearly 60.0 percent of all +200,000 squarefoot portfolio transactions fell in this range in the second quarter on a
dollar basis. This was the case across portfolio deal types and will
remain the norm throughout 2016. Looking forward, portfolio activity is
expected to maintain current momentum in the second half of the year
as recently announced larger transactions close and new offerings come
to market.
Single market portfolio activity a key volume driver
Portfolio volume activity grew 33.5 percent over the first quarter of this
year, driving almost 75.0 percent of all +200.0 k.s.f. transactional activity
in the second quarter on a square-footage basis.
Single Market
Portfolios
(27.7 m.s.f.)
40.9%
<$40.0 mil
$40.0 - $200.0 mil
+$200.0 mil
Regional
Portfolios
(1.5 m.s.f.)
Multi-State
Portfolios
(8.2 m.s.f.)
51.4%
48.6%
8.6% 50.6%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 YTD
Despite single asset transactions compiling most of overall volume in first
half of 2016, portfolio activity constituted the vast majority of volume in
transactions over 200.0 k.s.f.
Annual cap rate expansion/contraction
experienced in 27 JLL industrial markets
Single market portfolio deals lead +200.0 k.s.f. activity
Compressing
Stablized
Softening
Source: JLL Research, NCREIF; Includes 27 major industrial markets; Stable defined as
markets seeing fluctuations within 15 basis points y-o-y.
The first half of 2016 experienced some of the highest volatility since the
Global Financial Crisis (GFC), a result of fears regarding emerging
market growth, the stability of the Eurozone and the unexpected Brexit
vote, to name a few. With this, despite December’s short-term rate hike,
global long-term yields continue to decline, as pressures on the Fed
mount to hold rates on weaker than expected growth, amongst other
global variables. Yields on the 10-year Treasury have declined nearly
100 basis points year-to-date, as global investors seek the security and
safety of U.S. bonds. Global increases in volatility and the now pressing
unknowns surrounding the European markets due to the pending Brexit
are further benefitting the strength of the U.S. dollar and could further
benefit U.S. assets, particularly within commercial real estate. With
capitalization rates for all assets relative to these long-term Treasury
rates now far exceeding those spreads experienced in the previous
cycle, spread compression is expected over the next 24 months.
Nationally, in a broader asset context, Class A industrial asset pricing
across almost all U.S. markets continued to test or exceed JLL observed
ranges. However, despite the continuance of slight cap rate compression
for Class A assets, buyer selectivity is increasing with a greater focus on
maximizing existing asset cash flows and credit tenant exposure. While
the pace of cap rate compression has slowed and continued
compression is limited, product-restricted markets such as Seattle and
infill Los Angeles will continue to outperform on this indicator, as the
rarity of opportunities will merit more aggressive underwriting.
100.0%
Source: JLL Research, Real Capital Analytics (portfolio transactions larger than 200,000 s.f.)
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
23
Class A cap rate spread relative to long-term Treasury rates now far exceed previous cycle, leaving room for additional modest compression
Seattle
4.00 - 5.00% WA
MT
Portland
5.00 - 6.00%
MN
OR
ID
Sacramento
5.75 – 6.75%
WY
Salt Lake City
5.50 – 6.50%
NV
SF Bay Area
CA
4.00 - 5.00%
Denver
CO - 6.50%
5.50
Las Vegas
6.00 – 6.75%
Kansas City
6.00
KS – 6.75%
Inland Empire
4.50- 5.50%AZ
San Diego
5.75 – 6.75%
Phoenix
5.25 - 6.25%
OK
NM
MI
Eastern PA
5.00 - 6.00%
4.50 - 5.25%
IA
NJ – S. N.J.
Harrisburg Phila.
Columbus
PA
5.75 – 6.50% 5.25 - 6.00% 5.50 – 6.00%
DE
OH
Indianapolis
IN
IL
Cincinnati
5.50 - 6.50%
WVBaltimore/DC
MD
5.75 – 6.50%
5.50 - 6.00%
VA
Louisville
KY
St. Louis
6.00 – 6.50%
6.25 – 7.25%
NC Charlotte
Nashville
6.00 – 6.50%
Memphis
6.00TN– 6.50%
6.00 – 6.50%
Dallas
4.50- 5.50%
SC
MS
AL
Atlanta
5.00 –GA5.50%
LA
Orlando
Houston
5.25 - 6.25%
U.S. core Class A
Industrial cap rates
Boston
NY
AR
TX
NH
MA 6.25 - 7.00%
CT
New Jersey
RI
WI
Chicago
4.75 - 5.75%
NE
UT
VT
Minneapolis
6.00 - 6.75%
SD
Reno
5.75– 6.75%
Southern California
4.00 - 5.00%
ME
ND
FL
6.25 - 7.00%
Tampa
6.25 – 7.00%
Miami
4.50 – 5.25%
4.00 – 5.00%
5.00 – 6.00%
6.00 – 7.00%
Source: JLL Research, July 2016
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
24
Notable portfolio transactions, Q2 2016
Market
Portfolio
Buyer
Seller
Price ($)
Size (s.f.)
Price (p.s.f.)
Los Angeles
Safeway Los Angeles
Portfolio
Goodman Birtcher
Safeway
Not available
2,079,080
N/A
South Bay-Silicon Valley
8-bldg. (7 flex, 1 office) Net
App Portfolio
Google, Inc.
Net App, Inc.
$250,000,000
594,499
$421
Multi-State
Forterra Sale Leaseback (43
WP Carey REIT
blgs US, 3.5 m.s.f.)
Forterra Building
Products
$217,000,000
3,500,000
$62
Regional (Southwest)
CT Realty SW Portfolio
Rexford Industrial REIT
CT Realty Investors
$190,999,859
1,542,989
$124
Multi-State
The National Distribution
Portfolio II
Industrial Property Trust
Ares Management /
DW Mngt. Co.
$187,520,000
2,858,597
$66
Seattle-Bellevue
Calwest Redmond Portfolio
KBS Strategic Opportunity REIT
CalPERS / Deutsche
$128,000,000
778,472
$164
Denver
Hines Seattle Portfolio (10
blgs.)
Investcorp / Griffin Partners
Hines
$88,850,039
488,946
$182
Nashville
Island Capital (13 blgs)
Nashville Portfolio
Silverman Group
Island Capital
$87,000,000
1,134,309
$77
South Bay-Silicon Valley
Lam Research Corp (7 blgs.)
ProspectHill Group / Invesco / SKS
Investments
Lam Research
$82,000,000
430,000
$191
South Florida
Pompano Industrial Center
(4 blgs.)
Clarion Partners
Invesco
$77,250,000
624,531
$124
Notable single asset transactions, Q2 2016
Market
Property
Buyer
Seller
Price ($)
Size (s.f.)
Price (p.s.f.)
Dallas-Ft. Worth
6601 Oak Grove Road, Fort
Worth, TX
Sealy & Co
Crow Holdings
Not disclosed
615,000
N/A
Dallas-Ft. Worth
6445 Will Rogers Blvd, Fort
Worth, TX
Midwest Freightways
Lineage Logistics
Not disclosed
585,000
N/A
Hartford
200 Old Iron Ore Rd, Windsor,
CT
DekaBank
Prologis / Norges Bank
(NBIM)
$105,500,000
1,017,517
$104
Tampa
3350 Laurel Ridge Ave, Ruskin, Cole Office & Industrial REIT
FL
(CCIT II)
USAA Real Estate
Company
$103,600,000
1,017,693
$102
Louisville
12900 Plantside Dr, Louisville,
KY
Setzer Properties
$41,893,500
Portland
8929 N Ramsey Blvd, Portland,
Dermody Properties
OR
Principle Real Estate
Investors
$36,000,000
Phoenix
6200 W Van Buren St, Phoenix,
New York Life Insurance Co.
AZ
Crow Holdings
$35,000,000
Boston
1 Distribution Center Dr,
Littleton, MA
Colony Capital REIT
Square Mile Capital
$35,000,000
Charlotte
12801 Jamesburg Drive,
Huntersville, NC
Industrial Property Trust
Ares Management / DW
Management Co.
$32,200,000
Inland Empire
17300 Slover Ave, Fontana, CA LBA Realty
Sole TechNology, Inc.
$31,510,000
◄ Table of contents
Roebling Investment Company
303,369
527,934
659,618
490,000
457,308
315,430
JLL | United States | Investment Outlook | Q2 2016
$138
$68
$53
$71
$70
$100
25
Multifamily
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
26
MULTIFAMILY
Broadly resilient and strong multifamily sector across markets
supports volume gains
U.S. Multifamily property market
U.S. Multifamily investment
-30
1.6%
$68.2
3.5%
12-month change in total vacancy (bps)
12-month net absorption (as a % of inventory)
Investment sales (YTD, billions of $US)
YTD investment sale growth (%)
1.9%
4.5%
4.4%
-15
12-month completions (as a % of inventory)
12-month rent growth (per unit, %)
Average cap rate (%)
12-month change in cap rate (bps)
An unprecedented streak of employment gains support advances in
multifamily. U.S. employers added 287,000 jobs to their payrolls in
June, surpassing economists’ expectations. This substantial addition has
continued an unprecedented 69-month streak of employment gains.
Employment across the U.S. is at an all-time high. The record-setting
length of job growth gains have resulted in a gradual boost in wage
growth. These steady job and wage gains have supported the continued
strength of the leasing market for multifamily, as effective rents have
steadily grown throughout the current cycle.
continuing in the short-run is likely, a function of resolute demand and the
continued completion of new product.
Leasing markets remain tight in spite of sustained completions,
moderating absorption. Completions nationally edged up 10 basis
points compared to the first quarter of 2015. In conjunction with this,
national absorption with respect to inventory modestly declined 10 basis
points year-over-year. In spite of this divergence, all tracked markets
maintain positive absorption, and the 4.5 percent current national
vacancy rate bests the long-term average by 100 basis points.
Multifamily sales have the potential to outpace 2015’s record-setting
volumes. The multifamily asset type saw nearly $30.6 billion of
investment sales activity during the second quarter of 2016. The year-todate figure of $68.2 billion represents a 3.5 percent increase compared to
the first half of 2015. Cap rates continue to compress in response to
sustained investor appetite, sitting 21 basis points above prior
peak levels.
National annual rent growth softens from peak while maintaining
above average levels. Rent growth softened 50 basis points in the first
quarter of 2016 from the current cycle high of 5.0 percent, set in the
fourth quarter of 2015, to the current rate of 4.5 percent. While annual
rent growth may have peaked for the cycle, 4.0 percent rent growth
Diversified growth and pricing discount retaining investor focus on
secondary markets. Mid- and high-rise activity year-to-date in
secondary markets is up 56.7 percent. With leading economies and
sustained levels of absorption and rent growth, Western region markets
continued to outperform peers, validating their quality and dynamism.
Multifamily investment sales are up 3.5 percent compared to the
first half of 2015, the largest second-quarter figure on record.
$200.0
Q1
Q2
Q3
Q4
Despite sustained, historic levels of deal flow and concerns on
recent deliveries in select markets, cap rates remain stable.
10.0%
10-year Treasury (%)
Primary cap rates (%)
Secondary cap rates (%)
4.8%
5.0%
4.3%
1.5%
0.0%
2002 2004 2006 2008 2010 2012 2014 2016
$100.0
$0.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Multifamily
investment sale
volumes
(billions of $US)
A homeownership bottleneck preserving a stable, strong rental
pool. Existing home sales, which constitute approximately 90.0 percent
of all home purchases in the U.S. climbed in June to the highest level
since February 2007. This has occurred in conjunction with continued
inventory shortages, propelling prices to new peaks throughout the year.
In spite of the gradual gains in the U.S. housing market, renter-occupied
household formations have surpassed owner-occupied household
formations for the past nine years running.
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
◄ Table of contents
Source: JLL Research, NCREIF, Board of Governors of Federal Reserve
JLL | United States | Investment Outlook | Q2 2016
27
TOP
An unprecedented streak of employment gains
support consolidated advances in multifamily
The domestic economy’s resilient expansion reinforces associated
developments in the multifamily sector. Domestic labor markets have
consistently supported this period of economic strength. U.S. employers
added 287,000 jobs to their payrolls in June, surpassing economists’
expectations before the data’s release on July 8th. This substantial
addition has continued an unprecedented 69-month streak of
employment gains. Employment across the U.S. is at an all-time high.
With these gains, the national unemployment rate is currently at 4.9
percent. Sustained sub-5.0 percent unemployment rates encourage
those on the sidelines of the economy to actively seek work. As a result,
more people entered the labor force to look for work in June, signifying
confidence in the job market. Moreover, a healthy domestic economy
encourages employers to attract workers by offering higher pay. This
played out in earnings gains, which grew 2.6 percent for all workers
compared to June 2015’s pace of 2.0 percent with nonsupervisory
workers growing from 2.0 to 2.4 percent over the same period of time.
The record-setting length of job growth gains have resulted in a gradual
boost in wage growth. These steady job and wage gains have supported
the continued strength of the leasing market for multifamily, as effective
rents have steadily grown throughout the current cycle. The
aforementioned strength in job growth combined with generational lows
in homeownership rates indicate a deep pool of renters and prospective
renters for the foreseeable future, more recently spurring the continued
strength of absorption in the multifamily sector.
2
A homeownership bottleneck preserving a stable,
strong rental pool
Continued structural supply constraints throughout the single-family
housing market have resulted in a homeownership bottleneck,
preserving a stable and strong rental pool. Existing home sales, which
constitute approximately 90.0 percent of all home purchases in the U.S.,
climbed in June to the highest level since February 2007 with a
seasonally adjusted rate of 5.57 million. While the gain in momentum for
home sales is a positive development for the domestic economy,
continued inventory shortages have propelled prices to new peaks
throughout the year. Unsold inventory is at a 4.6 month supply at the
current sales pace, down from a 5.0 month supply one year prior and
moving even further away from the 6.0 month equilibrium rate. As a
result, the current median sales price of an existing home is $247,700,
an all-time high and up 4.8 percent year-over-year. The Case-Shiller
National Home Price Index reflects a similar outlook, currently within 4.0
percent of its 2006 peak. These sustained price gains can act as a
barrier to entry, in spite of steady wage growth and cheap mortgage
rates. The rate for a 30-year, fixed-rate mortgage most recently averaged
3.45 percent for the period of July 15–21, down nearly 60 basis points
from 2015’s 4.04 percent.
There were 778,000 single-family housing starts in June 2016
This figure trails the 1,082,000 average rate of single-family starts from
1970–2000 by 28.1 percent.
A 2.6 percent yearly gain in earnings accompanies an all-time high in
employment across the U.S., encouraging consolidated gains in
household formations.
1000
4.0%
2.0%
Housing starts,
(thousands of units)
1200
1,082,000 rate of starts
958,000 rate of starts
800
600
400
200
Total nonfarm payrolls
Average hourly earnings, total private
Average hourly earnings, production and nonsupervisory
Source: JLL Research, U.S. Bureau of Labor Statistics
◄ Table of contents
Single-family
Single-family average, 1970-2000
Single-family average, 2001-present
Jun-16
Jan-16
Aug-15
Oct-14
Mar-15
May-14
Dec-13
Jul-13
Feb-13
Sep-12
Apr-12
Jun-11
Jan-11
0
0.0%
Oct-10
Mar-11
Aug-11
Jan-12
Jun-12
Nov-12
Apr-13
Sep-13
Feb-14
Jul-14
Dec-14
May-15
Oct-15
Mar-16
Payroll and earnings
(Y-o-Y % change)
The U.S. economy added 287,000 jobs to June payrolls
Nov-11
1
6
MULTIFAMILY THEMES
Source: JLL Research, U.S. Census Bureau
JLL | United States | Investment Outlook | Q2 2016
28
In spite of the gradual gains in the U.S. housing market, the millennial
demographic continues to support sustained demand for multifamily
housing. Renter-occupied household formations have surpassed
owner-occupied household formations for the past nine years running.
The 1.605 million renter-occupied household formations in 2015 far
surpassed the 279,000 owner-occupied formations during the same
time. Additionally, these owner-occupied gains were the first annual
gain since 2011. Any gains in the single-family housing space have
been incremental and have not broadly affected the demand for
multifamily housing.
National rent growth up 50 bps in the first quarter
Led by Portland and Sacramento, Western region markets accounted for
six of the top ten gainers.
Rent growth (%)
Single-family housing starts have gradually increased in response to the
gradual improvements in the economy. As of June 2016, the seasonally
adjusted rate of starts on single-family homes was 778,000, while the
average on the year is 776,000. These figures have risen in excess of
13.0 percent year-over-year. Despite continued gains, these figures
remain over 28.0 percent below the 1,082,000 average rate of starts
from 1970 until the end of 2000. Comparatively, the current year figures
trail the 958,000 average rate of starts from 2001 to the present by
18.9 percent.
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
340 bps
320 bps
140 bps
240 bps
170 bps
140 bps
140 bps
200 bps
260 bps 230 bps
50 bps
Q1 2015
Q1 2016
Source: JLL Research, Reis
3
National annual rent growth softens from peak while
maintaining above average levels
National annual rent growth softened 50 basis points in the first quarter
of 2016 from the current cycle high of 5.0 percent, set in the fourth
quarter of 2015, to the current rate of 4.5 percent. While annual rent
growth may have peaked for the cycle at the end of 2015, 4.0 percent
rent growth continuing in the short-run is likely, a function of resolute
demand and the continued completion of new product. The current rate
of growth has actually gained 50 basis points year-over-year. This
sustained growth is the result of consistent positive forces in labor,
housing and demographics—most strongly felt in the Western region.
Western markets continue to lead the way with respect to rent growth,
as the four fastest-growing markets–Portland, Seattle-Bellevue, San
Francisco and Sacramento–have each grown between 7.4 and 9.0
percent year-over-year. Additionally, the Western region features eight of
the top ten markets for annual rent growth with Denver, Oakland-East
Bay, Phoenix and Silicon Valley each seeing annual rent growth gains
between 5.8 and 6.3 percent.
The vitality of rent growth is apparent when considering this is the fifth
consecutive quarter of growth at or above 4.0 percent. Furthermore, all
tracked markets saw gains this quarter with Baltimore (2.9 percent),
Milwaukee (2.7 percent), Washington, DC (2.3 percent) and Pittsburgh
(2.1 percent) lagging peer markets. Unlike last cycle, underlying
conditions indicate that markets have set a new equilibrium for leasing
indicators, and markets are currently able to handle the new equilibrium,
with little evidence of looming, near-term bubbles in the sector. However,
the rate of growth is currently slowing, but remains above average
relative to the current and prior cyclical norms. While affordability
considerations will remain a topic of discussion with respect to rents, the
market has thus far proven its ability to support current rents. Rent
growth of 4.0 percent or greater is likely to continue in the short-run,
especially as the second and third quarters traditionally result in
heightened leasing activity.
◄ Table of contents
4
Leasing markets remain tight in spite of sustained
completions, moderating absorption
Completions nationally edged up 10 basis points compared to the first
quarter of 2015—currently 1.9 percent of inventory. In conjunction with
this, national absorption with respect to inventory modestly declined 10
basis points year-over-year to 1.6 percent of inventory. In spite of this
divergence, all tracked markets maintain positive absorption. Moreover,
while the national vacancy rate has softened 30 basis points from the
cycle peak of 4.2 percent set in the first quarter of 2015, the current 4.5
percent rate bests the long-term average (from 1999–2015) by 100
basis points.
With tight market fundamentals, multifamily units under construction in
the 32 largest markets remains elevated, increasing 34.9 percent yearover-year. While primary markets New York, Houston and Dallas-Ft.
Worth each have over 30,000 units currently under construction,
secondary markets in the Southeastern region have seen the greatest
acceleration in the past year. Raleigh-Durham, Tampa, Nashville,
Charlotte and Orlando comprise five of the top six gainers. Each of these
markets has seen increases of units under construction above 75.0
percent year-over-year. Secondary markets in the South and West led
completions this quarter, as Austin, Orlando and Portland each saw
completions with respect to inventory range between 4.2 percent and 4.5
percent. Orlando notably saw a 120 basis point increase from the 2015
year end figure of 3.1 percent. Denver (3.7 percent), Nashville (3.2
percent) and San Antonio (3.1 percent) were additional secondary
markets in the South and West to deliver in excess of 3.0 percent of
current inventory.
Given the high levels of new deliveries, Western region markets are
further along in supply cycles and more likely to face short-term
imbalances. Of the six markets currently leading with consecutive
quarters of deliveries exceeding absorption, three are from the Western
JLL | United States | Investment Outlook | Q2 2016
29
region–San Francisco, Seattle-Bellevue and Portland. The remaining
three are Austin, Boston and Minneapolis. In spite of these markets
currently seeing outpaced deliveries compared to absorption, Austin,
Portland, Seattle-Bellevue and Boston continue to exhibit strong
absorption at rates +50 basis points above the national average. Going
forward, prudence with respect to multifamily construction will be
necessary as the current cycle matures. Supply-side risks remain
elevated, notably for lower barrier to entry markets. However, economic
and demographic factors remain accretive to multifamily housing
demand, and markets remain in favor of landlords overall.
Select markets have steadily seen deliveries outpace absorption
Austin, Portland, Seattle-Bellevue and Boston are absorbing above
the 1.6 percent national rate.
Boston
Austin
Minneapolis
San Francisco
Seattle-Bellevue
Portland
Los Angeles
Miami
Nashville
Pittsburgh
Silicon Valley
Orange County
Chicago
Milwaukee
San Diego
Denver
Jacksonville
Oakland-East Bay
Philadelphia
San Antonio
U.S.
0
5
10
Portfolio and entity-level transactions are down 41.5 percent quarterover-quarter. That being said, half-year portfolio volumes remain up 5.4
percent year-over-year. The recent decline in portfolio investments
stems from the absence of larger, national opportunities and the shift
toward smaller, single market focused offerings, which have increased
32.3 percent year-to-date. In the largest single market portfolio
transaction of the quarter, Oaktree and Bascom Group acquired nearly
5,000 units across 16 garden-style, multifamily properties in Las Vegas
for $630.0 million. Sunbelt markets drove single market portfolio gains
with a high composition of garden-style units and value add
opportunities. Phoenix additionally saw nearly $300.0 million of such
activity in the second quarter with the vast majority of transacted assets
delivered prior to the year 2000. Looking forward, the current
demographic cycle will continue to mitigate sector risks for investors,
supporting resilient multifamily capital markets and underwriting in CBD
markets, but also for well-located suburban, garden-style product.
National cap rates remain 21 basis points off of previous cycle
peaks; several Southeastern markets remain above prior peaks
Above prior peak cap rates
At or below prior peak
cap rates
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
15
Consecutive quarters of deliveries exceeding absorption
Source: JLL Research, Reis
While the rate of growth is slowing from last year’s unprecedented
record, multifamily sale volumes have maintained the pace of the first
quarter with potential to slightly surpass 2015’s record-setting volumes at
year-end. With $30.6 billion of activity in the second quarter, multifamily
investment sale volumes are up 3.5 percent year-to-date. With this, cap
rates continue to compress in response to sustained investor appetite
and improving sector fundamentals, reaching 4.4 percent and sitting 21
basis points above prior peak levels. This is being driven by secondary
markets, as the primary markets have remained essentially unchanged
for the previous three quarters. Single asset sales of mid- and high-rise
properties have seen growth of 14.7 percent year-to-date, while gardenstyle properties have declined slightly by 3.1 percent. This is supported
by high liquidity for mid- and high-rise product, especially newer product
in the CBD or in close proximity to mass transit. In Boston, General
Investment & Development (GID) acquired Windsor at Cambridge Park
for $215.0 million, or over $540,000 per unit at a 4.1 percent cap rate.
◄ Table of contents
Current cap rate (%)
Prior peak cap rate (%)
Source: JLL Research, NCREIF
Increase in single market focused multifamily portfolios
Sun Belt markets drove gains of single market focused activity, up 32.3
percent year-over-year.
Portfolio transactions by type
5
Multifamily sales have the potential to outpace
2015’s record-setting volumes
100.0%
80.0%
37.0%
39.6%
45.2%
21.0%
21.4%
79.0%
78.6%
60.0%
40.0%
20.0%
89.6%
63.0%
60.4%
54.8%
10.4%
0.0%
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
National / regional
Single market focused
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Assets
over 50 units)
JLL | United States | Investment Outlook | Q2 2016
30
Denver and Portland’s respective 260.7 and 150.8 percent year-to-date
growth highlight increased attention in secondary market activity in midand high-rise properties.
Secondary markets have seen sustained attention in the first half of
2016, as investors seek to acquire well-positioned product aligned with
favorable economic and labor market trends. Mid- and high-rise activity
year-to-date in secondary markets is up 56.7 percent. With leading
economies and sustained levels of absorption and rent growth, Western
region markets continued to outperform peers. Denver continues to
outperform, seeing $373 million in mid- and high-rise investment sales
this quarter and at record pricing levels. While properties in the cities are
perennially attracting sustained investment attention, diversifying
institutional capital and private equity funds are bringing liquidity to the
suburbs as well. IMT Capital bought the 240-unit IMT at the Park in
Denver for nearly $71.0 million, or over $295,000 per unit. In addition to
the notable uptick and diversity of transactions in Denver, Portland is
another growing multifamily market for investment, seeing a 150.8
percent year-to-date increase in mid- and high-rise investment sales.
These markets and others are validating the dynamism of secondary
multifamily markets, notably for quality properties developed within
the past decade in high-growth secondary markets with strong
leasing fundamentals.
Mid- and high-rise volumes (millions of $US)
6
Secondary mid- and high-rise activity jumps 56.7 year-to-date
Diversified growth and pricing discount retaining
investor focus on secondary markets
$500.0
YTD 2015
YTD 2016
$400.0
$300.0
$200.0
$100.0
$0.0
Source: JLL Research, Reis
Primary markets compress 10 basis points; overall cap rates tighten 15 basis points year-over-year
Seattle-Bellevue
4.0 WA
– 4.5%
MT
Portland
4.3 – 4.8%
ME
ND
NH
Minneapolis WI
4.5 – 5.5%
SD
NY
WY
Sacramento
4.4 – 5.0%
Denver
UT
CA
Las Vegas
5.0 – 5.3%
Los Angeles
3.6 – 4.2%
Inland Empire
4.5 – 5.3%
San Diego
4.0 – 4.4%
4.00 – 5.00%
5.00 – 6.00%
6.00 – 7.00%
7.00 – 8.00%
8.00 - 9.00%
9.00% +
IL
Columbus
6.0 OH
– 7.0%
IN
Cincinnati
5.8 - 6.5%
CO4.5 – 5.5%
KS
MO
KY
Phoenix
4.9 – 5.3%
WV
Raleigh
4.8 – VA
5.3%
4.5 – 5.0%
OK
NM
AR
Albuquerque
5.8 – 6.3%
Dallas-Fort Worth
4.0 – 5.5%
AustinTX
4.0 – 5.5%
San Antonio
5.0 – 6.0%
Houston
5.0 - 6.0%
MS
LA
AL
Washington, DC
MD
4.5 – 5.5%
Charlotte
NC
4.8 - 5.3%
Nashville
TN
AZ
Boston
3.9 – 5.5%
MA
CT
New York
RI
New Jersey
2.9 – 3.9%
4.3 – 5.0%
NJPhiladelphia
Pittsburgh
5.8 – 6.5%
4.8 – 5.5%
PA
MI
Chicago
4.0 – 5.0%
IA
NE
San Francisco Bay
NV
3.6 – 4.3%
◄ Table of contents
VT
MN
ID
OR
Atlanta
4.5 –GA
5.0%
SC
Central-North Florida
5.2FL
– 5.5%
South Florida
4.0 – 5.0%
JLL | United States | Investment Outlook | Q2 2016
31
Notable primary market single asset transactions, Q2 2016
Market
Property
Buyer
Seller
Price ($)
Size (units)
Price (per unit)
Washington, DC
Riverside Apartments
WRIT
AIMCO
$244,775,000
1,222
$200,307
Chicago
North Harbor Tower
Crescent Heights
FL State Board of
Admin
$237,000,000
600
$395,000
Boston
Windsor at Cambridge
Park
GID
The Hanover Co
$215,000,000
398
$540,201
San Francisco (Mid-Peninsula)
Franklin 299
TIAA
Greystar
$212,650,000
305
$697,213
Washington, DC
Flats 8300
Invesco
StonebridgeCarras /
Walton Street
Capital
$207,000,000
359
$576,602
Los Angeles
One Santa Fe
Berkshire Income Realty
Cowley RE Partners
JV Canyon Partners
$200,000,000
438
$456,621
New York
Sky
SL Green
Moinian Group
$160,000,000
1,176
$136,054
$140,000,000
198
$707,071
Chicago
850 Lake Shore Drive
JP Morgan
Integrated
Development Group
/ National Real
Estate Advisors
New York
Serrano
Bonjour Capital
Glenwood
Management
$139,600,000
265
$526,792
New York
112-120 East 11th St &
85 East 10th St
Lightstone Group
Manocherian
Brothers
$127,500,000
181
$704,420
Notable secondary market single asset transactions, Q2 2016
Market
Property
Buyer
Seller
Price ($)
Size (unit)
Price (per unit)
San Diego
Summerset Village
Investors Management
Gables Residential
(Clarion)
$214,000,000
752
$284,574
Denver
Alara Union Station
American Realty Advisors
Greystar / Goldman
Sachs
$154,300,000
314
$491,401
Austin
The Catherine
Christopher Commercial Inc
StreetLights
Residential / Hunt
Companies
$144,000,000
300
$480,000
Denver
Joule Apartments
GID
Lynd / Snavely
Group
$120,000,000
224
$535,714
Fort Lauderdale
Edge at Flagler Village
TIAA
Morgan Group
$114,395,000
332
$344,563
Nashville
The Landings of
Brentwood
Steadfast Apartment REIT
Venterra Properties
/ GE Capital
$110,000,000
724
$151,934
New York Boroughs
124-128 Columbia
Heights
Vincent Viola
Jehovah's
Witnesses
$105,000,000
308
$340,909
Phoenix
Citrine
Simpson Housing
JLB Partners
$93,912,000
312
$301,000
Orlando
GrandeVille on Avalon
Park
Oxford Properties / Preferred
Apt Communities
LeCesse
Development Corp
$92,250,000
487
$189,425
Northern New Jersey
Sterling Parc at Hanover
Cornerstone
Invesco
$91,000,000
316
$287,975
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
32
Retail
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
33
RETAIL
Investor selectivity, favoring quality and location, limiting liquidity
of mid-tier product
U.S. Retail property market
U.S. Retail investment
51
1.0%
$32.9
-20.5%
12-month change in total vacancy (bp)
12-month net absorption (as a % of inventory)
Investment sales (YTD, billions of $US)
YTD investment sale growth (%)
0.7%
2.4%
4.6%
-41
12-month completions (as a % of inventory)
12-month rent growth (p.s.f., %)
Average cap rate (%)
12-month change in cap rate (bp)
Second quarter retail volume is down nearly 21.0 percent yearover-year. Investors are hesitant to invest due to geopolitical and
economic uncertainty. Though there is a strong pipeline of activity, the
shifting retail client—the shopper—is expected to impact activity through
year-end.
REIT investment sees growth in the first half of 2016. REIT
investment comprised 39.5 percent of 2016 volume at mid-year with $5.7
billion in acquisitions year-to-date. While REITs remain active, all other
investor types, aside from equity funds, have declined in investment
year-over-year.
Mid-tier mall product with struggling anchor tenants is saturating
the market in the second quarter. There is a lack of Class A malls and
well-located, value-add malls, both of which have potential to appeal to
millennial shoppers. A pricing disconnect between buyers and sellers is
keeping the Class B and C malls on the market, while Class A and valueadd malls are transacting quickly while fetching premium prices.
$50.0
.
Primary markets retail cap rates continue to decline, while
secondary market cap rates remain stable
10.0%
10-year Treasury yield (%)
Average primary market retail cap rate (%)
Average secondary market retail cap rate (%)
4.9%
5.0%
$0.0
4.5%
1.5%
0.0%
Q1
Q2
Q3
Q4
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m)
◄ Table of contents
Though overall urban retail volume has declined, secondary market
urban volume has increased by 34.9 percent. This quarter primary
market urban investment continued to decline, with Chicago as an
exception, experiencing growth. Lack of Trophy product on the market
continues to contribute to this decline.
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 YTD
Retail investment sale volumes
(billions of $US)
Overall U.S. retail transaction volume by quarter
Second quarter of 2016 saw low retail volume with full-year retail
investment sale declines expected.
$100.0
The West Coast sees growth while the East Coast experiences
investment activity lag. West region retail investment sales accounted
for 39.9 percent of total quarter volume. The Northeast and Mid-Atlantic
regions are lagging 2015 activity, decreasing by 50.1 and 16.5 percent,
respectively, year-over-year, though seeing increasing volumes in
respective primary markets.
Source: JLL Research, NCREIF, Board of Governors of Federal Reserve System
JLL | United States | Investment Outlook | Q2 2016
34
Australia
Canada
Taiwan
Switzerland
Brazil
Cyprus
Israel
China
Ireland
Jordan
$231.9
$144.6
$119.6
$51.0
$42.9
$42.7
$31.1
$16.4
$12.0
$6.3
$0.0
$100.0
$200.0
Retail investment sale volumes (millions of $US)
Q1 2016
Q2 2016
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m, shopping
centers over 125,000 s.f., all urban)
Overall retail volumes are low but on trend in 2016
Foreign investment in retail decreased by 80.5 percent, but similarly is on
trend with overall sector.
$32.9
$0.7
$1.4
$24.3
$19.8
$0.7
$10.0
$4.1
$20.0
$24.5
$30.0
$2.1
$40.0
$37.0
$50.0
$3.6
$60.0
$41.4
$55.8
• Retail owners will look to reposition assets to better respond to the
wants of millennials and threats of online shopping
• Though there is a strong pipeline of activity, the shifting retail client is
expected to impact activity through year-end, leading to full-year
activity declines
• With tightening debt markets and loans coming due, over-leveraged
assets may face refinancing pressures or be forced to market.
As 2016 continues, foreign investment slows due to geopolitical
uncertainties; Australian and Canadian investors leading activity.
$9.4
$11.1
$0.6
$4.7
$0.4
$7.7
$0.8
Across retail asset types in the onset of 2016, there is both a lack of
available product and increasing investor hesitation due to political and
economic uncertainty. Investors, especially foreign investors, are waiting
to see what outflows will look like in response to changes in the European
Union and the Chinese economies. Foreign retail volume, though falling
80.5 percent year-over-year, is on trend with global investment, with retail
typically tracking on the more extreme end of overall trends—in this case,
with low volumes. Retail volume year-to-date reached $32.9 billion. With
the rise of e-commerce and slowing tourism, year-over-year retail volume
has declined by 20.5 percent with volume down $8.5 billion. Second
quarter volume was also significantly below second quarter of 2015,
dropping by 7.7 percent. With this, there is a question as to whether the
drop in investment sales is due to investor sentiment or due in most part
to the lack of product. A component of retail investment hesitance
remains the constantly changing retail occupier landscape: Retailers are
shifting their focus to the shopper by incorporating new experiences into
their assets as well as improving retail locations to lend themselves to the
live-work-play mentality. This has spurred a shift in asset management
strategies, increasing a focus on repositioning held assets as well as the
growth of alternative tenants. How do we see this affecting the market
going forward?
Foreign investment into U.S. retail lagging in early 2016
$24.9
Retail investment volumes down nearly 21.0 percent at
mid-year, spurring hesitation in a constantly changing
retail occupier landscape
$2.6
1
5
RETAIL THEMES
Retail investment sale volumes
(billions $US)
TOP
$0.0
Overall retail volume
Foreign retail volume
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m, shopping
centers over 125,000 s.f., all urban)
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
35
2
REIT acquisitions rising in second quarter,
outperforming peer buyer groups
REIT investment comprised 39.5 percent of 2016 volume at mid-year
with $5.7 billion in acquisitions year-to-date and $4.2 billion in the second
quarter alone. This is a minor decrease of 1.7 percent from the second
quarter of 2015. Simultaneously, all other investor groups have seen a
decline in 2016 deal flow, aside from private equity which increased by
14.3 percent due in large part to Blackstone’s purchase of RioCan’s U.S.
portfolio for $1.9 billion, the largest transaction of the second quarter.
This portfolio was comprised of 49 buildings located in the Northeast and
Texas. Although there is still demand from larger institutional investors,
the asset profile sought is currently rare to market and thus will transact
quickly and at premium pricing. Because REITs are eager to buy quality
retail product, and there is sparse inventory available, pricing is
becoming aggressive, creating market congestion. Of note, there was an
influx of REIT investment into the West and Southeast regions this
quarter, comprising 84.9 percent of overall REIT investment. Specifically,
Las Vegas, Fort Lauderdale and Los Angeles were the most active
investment markets for REITs with $1.1 billion coming from the sale of
The Shops at Crystals to Simon Property Group in a joint venture with
Invesco from MGM Resorts and Infinity World, at $3,395 per square foot
at the beginning of the second quarter. There is still significant REIT
desire to purchase retail, and following the overarching trend, REITs are
making moves in a market lacking product. As a result, smaller REITs
are expected to expand investment criteria to include less core
submarkets, bringing more liquidity to segments of the market.
REIT acquisitions led second quarter retail activity
REIT investment totaled $4.2 billion in the second quarter, representing
more than one-third of acquisitions and reaching its highest relative level
in five quarters.
3
Stuck in the middle: Class B and C malls struggle
to transact
Although 2016 mall volume has decreased by 41.8 percent year-overyear, quarter-over-quarter volume has increased by 56.6 percent with
total mall volume of $5.9 billion for the first half of 2016. Though this is
low compared to the first half of 2015, it is on par with activity levels for
the past five years, being 15.1 percent above the first half of 2014 and
only 11.7 percent below the first half of 2013. Generally, mall volume has
fluctuated over the last 10 years, hitting a prerecession peak at $19.7
billion in 2007 and a post recession peak in 2012 with $16.1 billion. At
the moment, extreme ends of the mall risk and quality spectrums are
quick to transact, while mid-tier, Class B and C malls are proving difficult
to sell. Malls are putting up a fight in the struggle to stay relevant with
Class A and Trophy malls having the most appeal to the millennial
shopper, and value-add, well-located assets being repositioned to a
tailored community experience. For example, Burbank Town Center sold
this April for $250 million at a 6.0 percent cap rate from Crown Realty
and Development to Cypress Equities, which plans to invest an
additional $55.0 million into the mall for upgrades as part of a renovation.
Mall investment sale volumes increased 56.6 percent quarterover-quarter
2010
2011
2012
2013
2014
2015
2016 YTD
$0.0
100%
$10.0
Q1
80%
Q2
Q3
$20.0
Q4
Mall investment sale volumes (billions $US)
60%
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m, shopping
centers over 125,000 s.f., all urban)
40%
20%
0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2014 2014 2014 2014 2015 2015 2015 2015 2016 2016
REIT/REOC
Private
Institution/Advisor
Equity Fund
User/Other
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m, shopping
centers over 125,000 s.f., all urban)
.
◄ Table of contents
On the other hand, mid-tier mall product is experiencing a constrained
buyer pool, evidenced by an abundance of Class B and C malls on the
market and coming to market. Current owners of mid-tier malls and
potential purchasers are at a disconnect on pricing, spurred by a
divergence between seller return ambitions and tepid underwriting from
buyers. As a result, opposed to the core and well-located, value-add
deals, leverage has shifted towards buyers in this market segment. The
profile of anchors in these assets is one key underwriting risk: The Class
B and C malls are often filled with struggling anchor tenants such as
Macy’s, JCPenney and Sears, and lack the experiential components that
thriving malls are relying on today. As the disparity in product desire
widens, there are fears that owners will be forced to sell these mid-tier
malls for well below value with the hopes of unloading underperforming
assets and repositioning current portfolios. Class A and Trophy malls, as
well as repositioned value-add malls, however, will continue to be in high
demand, fetching premium prices due to lack of availability and a strong
buyer pool.
JLL | United States | Investment Outlook | Q2 2016
36
4
West Coast investment sees continued growth while
East Coast experiences delay
Over the past five years, the West has consistently seen the highest
retail transaction volume amongst all U.S. regions. In the second quarter
of 2016, West region retail investment sales accounted for $4.7 billion,
which is 39.9 percent of total quarter volume. Further, it comprised $7.0
billion in the first half of 2016, 50.1 percent of that volume invested in
malls and 18.7 percent in shopping centers. Los Angeles and Seattle led
investment in the primary markets, while San Diego and Las Vegas led
in secondary. Los Angeles has consistently outperformed other primary
markets on the West Coast over the last five years with activity making
up 71.0 percent of West Coast, primary market investment sales year-todate in 2016. Las Vegas and San Diego have both increased by at least
64.5 percent year-over-year.
Unlike West Coast retail investment that has seen consistent growth
across major markets, the Northeast and Mid-Atlantic regions are
lagging 2015 activity, decreasing by 50.1 and 16.5 percent, respectively,
year-to-date. Though these regions are seeing a decline in volume, MidAtlantic primary markets increased in volume by 21.1 percent year-overyear with Philadelphia, in particular, increasing 296.3 percent quarterover-quarter due in part to a series of power center transactions. As an
example, Deptford Landing (a power center) was purchased by
Blackstone as part of the RioCan portfolio. On the West Coast, there is a
build-up of capital for core-plus and value-add mall assets, but there is a
lack of attractive properties at the desirable price point. As a result,
second half deal flow will likely be composed of bigger projects that
require more complicated financings—similar to the Sears Holdings
deals—or the repositioning of larger, obsolete centers in urban markets.
On the East Coast, we are seeing rents soften and the occupier market
more tenant-favorable this year, dynamics which are not conducive to
retail underwriting.
West region retail investment leads over the past five years
Retail investment sale
volumes (billions $US)
Other region retail investment fluctuates, with Northeast volume down
50.1 percent year-over-year.
$25.0
$20.0
$15.0
$10.0
$5.0
$0.0
$13.8
$13.2
$17.1
$20.2
$7.0
2012
2013
2014
2015
2016 YTD
Mid-Atlantic
Midwest
Northeast
Southeast
Southwest
West
5
While urban retail volume is down by $1.7 billion yearover-year, secondary markets continue to see growth
Though urban retail investment volumes decreased by 47.3 percent at
mid-year, activity year-to-date in secondary markets has increased by
34.9 percent. Secondary market urban investment is being driven by
Nashville, Northern New Jersey and Phoenix—all of which are seeing
population and employment growth. Primary market urban investment
has decreased by 51.1 percent year-over-year with Chicago an outlier
and leading primary market growth for the quarter. Chicago saw
movement in its prime urban submarkets, including the Gold Coast
where the Urban Outfitters located at 1100 N. State Street sold for $53.2
million, roughly $2,000 per square foot at a 4.3 percent cap rate.
Though New York urban investment volume is down by 72.1 percent
year-over-year, New York remains the most active urban retail market in
the U.S. Furthermore, volume growth is anticipated towards the end of
the year given softening rents and the shift to a more tenant-favorable
rental market—factors which could influence pricing more to the buyers
favor. With foreign tourism declines, luxury spending down, value of the
U.S. dollar up and geopolitical events—most notably, the Brexit—
bringing uncertainty to markets, foreign appetite for urban retail product
is a moving target. Traditionally, foreign investors target primary markets,
and interest from these groups is evident in core markets—New York, in
particular. However, as seen throughout the retail sector, volumes are
down, and there is a lack of product on the market. Optimists are looking
to see if instability in the European Union will spark foreign interest in
U.S. retail, benefitting primary urban markets. However, it is too early to
speak to this directly with the Brexit’s market impact expected to become
clearer later this year.
Secondary market urban investment continues to see growth
Primary market urban investment is volatile year-over-year, lagging in
gateway cities
Urban retail investment sales volume
(Annual change)
.
600.0%
400.0%
200.0%
0.0%
-200.0%
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m, shopping
centers over 125,000 s.f., all urban)
Source: JLL Research, Real Capital Analytics (transactions larger than $5.0m, shopping
centers over 125,000 s.f., all urban)
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JLL | United States | Investment Outlook | Q2 2016
37
Prime urban retail cap rates
The Beverly Hills Triangle sees lowest cap rates this quarter as 5th Avenue begins to soften.
Seattle
Pike St. Corridor
WA
4.5-5.5%
MT
ME
ND
MN
ID
OR
WI
SD
WY
San Francisco
Union Square
3.5-5.0% CA
Los Angeles
Beverly Hills Triangle
2.5-4.0%
NV
Chicago
Oak St.
4.0-4.5%
IA
NE
IL
UT
KS
OH
IN
PA
WV
MO
VA
KY
OK
TX
DE
Washington,
DC
MD
M St.
3.5-5.0%
NC
TN
AZ
AR
SC
MS
◄ Table of contents
MI
CO
NM
2.00 – 3.00%
3.00 – 4.00%
4.00 – 5.00%
5.00 – 6.00%
6.00 – 7.00%
Boston
Newbury
St.
NH
NY MA 4.0-5.0%
CT New York
Philadelphia
RI th
5 Ave.
Walnut St.
NJ
3.0-4.0%
4.0-5.5%
VT
AL
GA
LA
FL
Miami
Lincoln Rd.
3.5-4.5%
JLL | United States | Investment Outlook | Q2 2016
38
Notable primary market transactions, Q2 2016
Market
Property
Buyer
Seller
Price ($)
Size (s.f.)
Price (p.s.f.)
Los Angeles
Burbank Town Center
Cypress Equities
Crown Realty &
Development
$250,000,000
1,000,000
$250
Chicago
River East Center
Madison Capital / Wheelock Street
Capital
Intercontinental
Real Estate
$133,000,000
251,060
$530
Los Angeles
North Ranch Shopping
Center
Retail Opportunity Investments,
Corp.
DSB Properties
$122,800,000
146,625
$838
Philadelphia
The Shops at Valley
Square
Ares Management / Poag Shopping
Center
iStar Financial
$81,500,000
293,000
$278
Los Angeles
Stevenson Ranch Plaza
InvenTrust
DSB Properties
$72,500,000
187,000
$388
Los Angeles
Bouquet Canyon
Retail Opportunity Investments Corp
Dollinger Properties
$59,000,000
148,903
$396
Chicago
1100 N State
STRS Ohio
James Lasky &
David Pisor
$53,200,000
26,343
$2,020
Chicago
Heritage Shops at
Millenium Park (Retail
condo)
Hunt Investment Management
Acadia Realty Trust
$46,500,000
98,547
$472
Seattle-Bellevue
Alderwood Plaza
Merlone Geier Partners
Barclay's Realty
$41,000,000
178,734
$229
Seattle-Bellevue
Tacoma South Shopping
Center
Retail Properties of America
Sterling Realty
$39,400,000
204,966
$192
Notable secondary market transactions, Q2 2016
Market
Property
Buyer
Seller
Las Vegas
Shops at Crystals
Simon Property Group / Invesco
MGM Resorts Int'l /
Infinity World
Fort Lauderdale
Oakwood Plaza & Business
Center
Kimco
Austin
Shops at the Galleria
Raleigh-Durham
Price ($)
Size (s.f.)
Price (p.s.f.)
$1,100,000,000
324,000
$3,395
CPP Investment Board
$215,050,000
871,723
$548
InvenTrust
Christopher Commercial
Inc
$132,000,000
537,685
$245
Renaissance Center
InvenTrust
CBL
$129,200,000
355,000
$364
Austin
Brodie Oaks
Lionstone Investments
L&B Realty Advisors /
Barshop & Oles Co
$93,162,615
322,590
$289
Fort Lauderdale
Promenade Deerfield
Weingarten Realty
The Cornfeld Group
$86,750,000
394,248
$220
Northern New Jersey
The Shoppes at Union Hill
Retail Properties of America
Stanbery
Development/Heitman
$63,060,000
87,732
$719
San Diego
Otay Ranch Town Center
Zurich Financial
Shea Properties
$51,000,000
99,999
$510
West Palm Beach
Lakeside Centre
EDENS
Ocean Properties Ltd
$40,500,000
161,000
$252
Parkline Shopping Center
Sunrise Plaza
H Mart Companies Inc
Ironwood Real Estate
$30,100,000
95,754
$314
Notable portfolio transactions, Q2 2016
Market
Property
Buyer
Seller
Multi-Market
49-building Portfolio
Blackstone
Riocan
San Diego
Mira Mesa Marketplace (3
bldgs)
Stockbridge Capital Group
DSB Properties / Meyer
Nugit
◄ Table of contents
Price ($)
Size (s.f.)
Price (p.s.f.)
$1,900,000,000
13,000,000
$146
$229,000,000
487,807
$469
JLL | United States | Investment Outlook | Q2 2016
39
Lodging
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
40
LODGING
RevPAR growth and deal volume remain stable in Q2 2016 despite
rising supply growth and financial market volatility
U.S. Lodging property market
U.S. Lodging investment
0.1%
3.1%
$11.1
-57.1%
Year-to-date occupancy growth
Year-to-date RevPAR growth
Investment sales (YTD, billions of $US)
YTD investment sale growth (%)
1.5%
3.1%
7.8%
20
Year-to-date supply growth
Year-to-date ADR growth
Average cap rate (%)
12-month change in cap rate (bp)
Key indicators of the strength of the U.S. hotel industry in Q2 2016 continue
to suggest that the sector is stabilizing at normalized performance levels.
National occupancy remains stable at a historic high, and ADR growth for the
first half of the year amounted to a healthy 3.1 percent, compared to national
inflation, as measured by the Consumer Price Index, of just 1.0 percent for
the last 12 months. U.S. hotel transaction volume in Q2 2016 remained
steady compared to the level of deal activity recorded for the prior quarter and
consistent with the current cyclical average. While RevPAR growth and
acquisition activity have certainly softened relative to the extraordinary levels
achieved in 2015, a more historical perspective shows that the current level of
performance is hardly depressed. Accordingly, we maintain a positive outlook
for the sector in 2016.
•
RevPAR growth for U.S. hotels improved to 3.1 percent for the first
half of the year, marking a slight improvement from the first quarter’s
growth rate of 2.7 percent. Year-to-date RevPAR growth varies widely
among the top 25 U.S. markets with six markets experiencing negative
growth, down from nine markets as of the end of Q1.
The number of hotel rooms under construction has steadily
increased but remains consistent with national supply growth at or below
the long-term average of 2.0 percent for the year ahead. The supply
outlook for each of the top 25 U.S. markets, however, varies widely.
Share prices for publicly traded lodging REITs have continued to
recover. As of mid-July, the Dow Jones U.S. Hotel & Lodging REITs
Index had risen approximately 32.0 percent from its mid-January 2016
trough. Share prices generally remain depressed and REITs were
noticeably absent from the pool of hotel buyers in Q2 2016, but the
ongoing recovery in their market valuations is nevertheless encouraging.
•
Cap rates for hotel assets generally increased only marginally in H1
2016. Recent market surveys suggest that cap rates increased between
10 and 20 basis points during the last six to twelve months for most hotel
asset types, while cap rates for select segments actually declined
marginally or held steady.
7.5%
7.6%
7.8%
2014
2015
H1 2016
Billions
7.8%
•
U.S. hotel transaction volume
Actual Going-In Hotel Cap Rates
8.0%
U.S. hotel transaction volume remained steady in Q2 2016. Total
sales volume amounted to $5.6 billion compared to $5.5 billion for the
prior quarter. While sales activity has declined significantly relative to last
year’s trading volume, the current level of quarterly trading volume is
consistent with the current cycle’s average. Foreign investors and private
equity groups have remained active buyers of U.S. hotel assets despite
recent volatility in global financial markets.
7.0%
6.0%
2013
Source: JLL Research
Note: Data exclude transactions for which the recorded going-in cap rate is below 4%
as it is assumed that operating performance is generally not at a stabilized level in
these instances.
◄ Table of contents
$80
$60
$40
$20
$2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
•
•
Q1
Q2
Q3
Q4
Source: JLL Research
JLL | United States | Investment Outlook | Q2 2016
41
TOP
1
5
LODGING THEMES
RevPAR growth improved slightly in the second
quarter of 2016
U.S. hotels realized year-to-date RevPAR growth of 3.1 percent for the
first half of 2016, marking a slight improvement from the first quarter’s
2.7 percent growth rate. Occupancy growth has essentially stalled with
the national occupancy rate hovering at a historic high, and ADR gains
are now driving the entirety of RevPAR growth. While national RevPAR
growth thus far in 2016 still amounts to a noticeable deceleration from
the growth rates of 2014 and 2015, when RevPAR increased 8.0 and 6.3
percent, respectively, the improvement recorded for many individual
markets has been more substantial.
The number of top 25 markets experiencing negative RevPAR growth
declined from nine markets in the first quarter to six markets as of the
close of the first half of the year, as year-to-date RevPAR growth for
Denver, Phoenix and Philadelphia moved into positive territory. While
RevPAR growth for Houston, Miami and New York continue to be
challenged given supply headwinds as well as the impact of weak energy
prices and a strong U.S. dollar, the remaining 3 of the top 25 markets
experiencing negative year-to-date RevPAR growth (Boston, Chicago
and New Orleans) are now on the cusp of returning to positive growth
following improvement in year-to-date RevPAR growth of multiple
percentage points since the first quarter. With the exception of select
markets facing outsized supply growth, a high degree of exposure to the
energy industry or a particular reliance on international leisure travelers,
JLL expects most U.S. markets to continue to sustain positive RevPAR
growth in 2016 and for the year to mark the seventh consecutive year of
national RevPAR growth.
15%
10%
5%
0%
-5%
-10%
Los Angeles
San Francisco
Nashville
Norfolk
Dallas
Atlanta
Tampa
Detroit
Anaheim
Minneapolis
St. Louis
Washington, DC
Total U.S.
Phoenix
Orlando
Oahu
Seattle
Denver
San Diego
Philadelphia
Boston
New Orleans
Chicago
New York
Miami
Houston
June 2016 YTD RevPAR growth for the top-25 U.S. markets
2
Supply growth ticks up but remains relatively
moderate nationally
The number of hotel rooms under construction has steadily increased over
the past 12 months, rising to 3.3 percent of existing rooms supply currently
from 2.6 percent of existing rooms supply a year ago. While supply growth
is expected to constrain national RevPAR growth to some extent, the
number of hotel rooms under construction remains consistent with future
supply growth of less than the long-term national average of about 2.0
percent. Historically, actual supply growth in the year ahead has equaled
approximately half of the active construction pipeline, expressed as a
share of the existing lodging stock, suggesting supply growth over the next
year of 1.5 to 2.0 percent.
Among the top 25 markets, the amount of looming supply growth as well
as the scale of recent changes in the inventory of rooms under
construction vary widely. New York continues to lead the nation in terms of
the number of hotel rooms under construction, with hotel rooms under
construction representing 14.0 percent of the existing rooms supply.
However, supply headwinds are beginning to shift for a number of other
markets. Until recently, Houston and Miami faced the next largest new
supply pipelines with hotel rooms under construction peaking at 9.0
percent of existing rooms supply in Houston in mid-2015 and 8.2 percent of
existing rooms supply in Miami in early 2016. Since then, the looming new
supply has declined to 6.1 percent of existing supply for both markets as of
June 2016. Concurrently, supply headwinds are poised to intensify in other
markets, namely Denver and Seattle. Denver hotel rooms under
construction increased from 4.2 percent of rooms supply a year ago to 9.8
percent currently, partly due to the 1,500-room Gaylord Rockies breaking
ground in mid-2016. In Seattle, hotel rooms under construction have
increased to 7.5 percent of existing inventory from 4.0 percent of inventory
a year ago.
In general, the market appears to be responding to market forces
and warning signs. While both Denver and Seattle have benefited
from rapid economic growth in recent years, the Houston and Miami
lodging economies have been impacted by the interrelated phenomena
of declining commodity prices, a strong U.S. dollar and economic
woes abroad.
Source: JLL Research
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JLL | United States | Investment Outlook | Q2 2016
42
We remain optimistic about the health of U.S. hotel transaction volumes
given that key sources of liquidity remain active in the market:
Percent of Existing Rooms Supply
U.S. Hotel rooms under construction
3.6%
3.4%
3.3%
3.2%
3.0%
2.8%
2.6%
2.6%
2.4%
2.2%
Jun-16
May-16
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
2.0%
Source: JLL Research
• Foreign investors remain active buyers of U.S. hotel assets despite
U.S. dollar appreciation and global economic turmoil. In fact, the
aforementioned factors are potentially tailwinds rather than headwinds
with respect to the proclivity of offshore capital for U.S. real estate. In
Q2 2016, offshore capital accounted for $1.6 billion in U.S. hotel
purchases, representing 29.0 percent of total acquisitions activity. We
expect that the U.S. hotel sector will continue to attract significant
foreign investment given ongoing financial turbulence abroad,
relatively attractive yields in the hotel space, and the country’s
continued status as a financial safe haven.
• Private equity groups were strong net buyers of hotel real estate in the
second quarter, purchasing $2.5 billion in U.S. hotel assets compared
to divestitures totaling $1.5 billion. Private equity groups accounted for
45.0 percent of the quarter’s transaction volume, and given that they
have ample capital to deploy, we expect them to continue to drive
acquisitions activity going forward.
U.S. hotel transaction volume by quarter
$16
Hotel rooms under construction by market
16%
$10
Billions
12%
10%
$8
8%
$6
6%
$4
4%
$2
2%
$0
0%
Source: JLL Research
3
Quarterly Hotel Transactions Volume
$12
14%
New York
Denver
Seattle
Minneapolis
Dallas
Miami
Nashville
Houston
Los Angeles
Philadelphia
Anaheim
Chicago
Tampa
Boston
Washington, DC
Total U.S.
Oahu
Detroit
San Francisco
New Orleans
San Diego
All Other Mkts
Phoenix
Atlanta
St. Louis
Orlando
Norfolk
Percent of Existing Rooms Supply
$14
Transaction activity remains steady in Q2 2016
U.S. hotel transaction volume remained essentially steady at $5.6 billion
in Q2 2016, compared to $5.5 billion in Q1 2016. While this level of
transaction activity represents a sizeable decline from last year, when
quarterly transaction volume averaged $11.3 billion, the magnitude of
U.S. hotel sales in 2015 appears to have been a historical anomaly given
several extraordinary Trophy asset transactions and the Blackstone
Group’s acquisition of Strategic Hotels & Resorts for $6 billion in the
fourth quarter. On the contrary, U.S. hotel transaction volume in both the
first and second quarters of 2016 is approximately in line with average
quarterly transaction volumes in the current cycle, consistent with our
view that sales activity will stabilize at a more “normalized” level in 2016.
◄ Table of contents
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2016
2013
2014
2015
2012
2010 2011
Source: JLL Research
4
Share prices for hotel REITs continued along the
slow path of recovery in Q2
While share prices for publicly-traded lodging REITs remain depressed,
their nascent recovery towards the latter half of the first quarter has
generally continued to gain momentum in the latter half of the second
quarter, following a brief pause earlier in the quarter. Specifically, the
Dow Jones U.S. Hotel & Lodging REITs Index has rallied approximately
32 percent since its recent low in mid-January 2016, significantly
outperforming the S&P 500 as worries about looming interest rate
increases have generally abated and operating fundamentals have
largely remained strong. The Dow Jones U.S. Hotel & Lodging REITs
Index remains 24 percent below its late January 2015 peak, resulting in
an equity position that continues to generally inhibit public REITs from
participating in new hotel acquisitions, but current share prices still
represent a stark improvement in comparison to their levels earlier in the
year, when the index was trading at a 43 percent discount relative to its
prior peak.
JLL | United States | Investment Outlook | Q2 2016
43
Despite ongoing improvement in share prices for publicly-traded hotel
REITs, these buyers have thus far remained sidelined in the current
acquisitions market. In Q2 2016, hotel REITs accounted for hardly more
than $100 million in total acquisitions volume, the lowest quarterly level
recorded since 2009. At the same time, hotel REITs have capitalized on
the disconnect between asset values and share prices by selling assets;
the sector disposed of hotel assets worth $1.3 billion in Q2 2016,
representing 23 percent of the quarter’s total transaction volume.
Historically, hotel REITs have been heavily concentrated in coveted
gateway markets and have been fairly reticent to sell. As a result, the
current phenomenon has presented an opportunity for private equity
groups and international investors to capitalize on a relative abundance
of assets for sale in historically high-barrier-to-entry markets. However,
if the recovery in hotel REIT share prices continues at its recent pace,
hotel REITs could conceivably re-enter the acquisitions market sooner
than has generally been expected.
Dow Jones U.S. Hotel & Lodging REITs Index
160
Jan 26, 2015:
$146.96
150
140
Index
130
July 19, 2016
$111.32
120
110
Recent survey data corroborate our view that cap rates have drifted up
only slightly over the past year. According to JLL’s Select Service Hotel
Investor Survey conducted in May 2016, investors’ targeted
capitalization rates for select service assets increased to 9.1 percent
from 8.9 percent a year prior. With respect to capitalization rates for full
service assets, the Q1 2016 PwC Real Estate Investor Survey reports
that going-in cap rates ticked up approximately 15 basis points during the
last six months for full service assets with midscale or upscale
positioning, and luxury and upper upscale full service hotels actually
experienced a slight decline in surveyed cap rates.
While today’s historically low cap rates, softening transactions activity,
and expectations for an eventual increase in the federal funds rate have
left many investors concerned that cap rates are poised to rise, recent
volatility in global equity markets and persistently low interest rates for
institutional quality fixed-income investments have kept hotel cap rates
low. As long as these market dynamics persist and hotel fundamentals
remain strong, we expect that any increases in hotel cap rates will
remain fairly subdued.
Actual Going-In Hotel Cap Rates
100
8.0%
90
January 19, 2016:
$84.44
2016
2015
7.8%
7.5%
7.6%
7.8%
2014
2015
H1 2016
7.0%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
80
Source: Bloomberg
5
below 4.0 percent from the aforementioned averages given the likelihood
that the assets in question had not yet achieved a stabilized level of
operating performance. However, considering that the pool of assets
trading at cap rates in excess of 4.0 percent likely contained some
properties that had not yet stabilized as well, it is possible that a portion
of the recorded increase in cap rates in 2015 and H1 2016 is related to
improving operating fundamentals in the U.S. As operating fundamentals
have generally improved, stabilized assets can be expected to represent
a greater proportion of transaction activity.
6.0%
2013
Source: JLL Research
Note: Data exclude transactions for which the recorded going-in cap rate is below 4%
as it is assumed that operating performance is generally not at a stabilized level in
these instances.
Cap rates have increased only marginally thus far
in 2016
Recent data suggest that cap rates have increased only marginally in H1
2016. Utilizing JLL’s proprietary U.S. hotel transactions database, we
computed the average going-in cap rate for all of the U.S. hotel
transactions for which cap rate data were available. According to the
data compiled, the average cap rate troughed at 7.5 percent in 2014 and
remained essentially flat at 7.6 percent in 2015. In the first half of 2016,
cap rates rose approximately 20 basis points to 7.8 percent. Notably, we
excluded transactions for which the recorded going-in cap rate was
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
44
Notable hotel transactions, Q2 2016
Transaction
Buyer
Seller
Market
Price ($)
Size (keys)
Price (per key $)
Hersha 7-Hotel Portfolio New
York 2016
Cindat Capital Management Limited
Hersha Hospitality Trust
New York
$571,400,000
1,087
$526,000
Curio Collection LondonHouse
Chicago 2016
Union Investment Real Estate GmbH
Oxford Capital Group, LLC
Chicago
$315,000,000
452
$697,000
Hilton Washington DC 2016
Clearview Hotel Capital, LLC
Lowe Enterprises Investors
Washington DC
$305,000,000
1,070
$285,000
Vintage Estate 2-Hotel Portfolio
Yountville 2016
Brookfield Hotel Properties, Thayer
Lodging Group
Michael Egan
Napa Valley
$197,000,000
192
$1,026,000
11 Howard New York 2016
Commerz Real Estate
RFR Holding LLC
New York
$170,000,000
221
$769,000
Holiday Inn New York
City Midtown 57th St 2016
Woodridge Capital Partners
Meyer Jabara Hotels
New York
$148,800,000
596
$250,000
Ashford Select Service Marriott
Portfolio 2016
Noble Investment Group LLC
Ashford Hospitality Trust
Multiple
$142,000,000
1,396
$102,000
Mandarin Oriental Boston 2016
Mandarin Oriental Hotel Group
KPMG
Boston
$140,000,000
148
$946,000
NYLO Hotel New York City 2016
Ashkenazy Acquisition Corporation
Former Lehman Brothers
Holdings, Inc.
New York
$140,000,000
291
$481,000
Radisson Hotel & Suites Austin
Downtown 2016
Square Mile Capital Management, LLC
Forestar Group
Austin
$130,000,000
413
$315,000
Hilton Tampa Downtown 2016
CrossHarbor Capital Partners, LLC
H.I.G. Realty Partners
Tampa
$101,000,000
520
$194,000
Garrison 2-Hotel Portfolio
Pittsburgh 2016
Lixi Group
Garrison Investment Group
Pittsburgh
$96,000,000
378
$254,000
Marriott Seattle Airport 2016
AWH Partners LLC
Host Hotels & Resorts
Seattle
$91,100,000
459
$198,000
Marriott Manhattan Beach 2016
Cerberus Capital Management, L.P.
Host Hotels & Resorts
Los Angeles
$78,000,000
385
$203,000
Marriott Atlanta Perimeter Center
Atlanta 2016
Integrated Capital
Host Hotels & Resorts
Atlanta
$68,600,000
341
$201,000
Note: For part equity sales, the price per room pertains to the full implied value
Source: JLL Research
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JLL | United States | Investment Outlook | Q2 2016
45
Net Lease
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JLL | United States | Investment Outlook | Q2 2016
46
NET LEASE
Net lease sector benefitting from diversifying buyer pool, favoring
leasehold quality and stability
U.S. Net Lease investment
U.S. Office Net Lease investment
$18.8
6.4%
$8.6
7.4%
Investment sales (YTD, billions of $US)
Average cap rate (%)
Investment sales (YTD, billions of $US)
Average cap rate (%)
U.S. Industrial Net Lease investment
U.S. Retail Net Lease investment
$5.6
6.0%
$4.5
5.8%
Investment sales (YTD, billions of $US)
Average cap rate (%)
Investment sales (YTD, billions of $US)
Average cap rate (%)
While down 36.8 percent relative to a peak year in 2015, net lease
sale volumes are normalizing relative to the three-year average.
Compressed yields in the later stages of the cycle are leading investor
diversification with a shift in the profile of investors and desired product
criteria. Factors such as lease quality, tenant credit and tenant loyalty to
location are further expanding buyer depth in net lease acquisitions.
Cap rates soften in primary markets across all sectors, while
secondary and tertiary markets see mild compression. Investors
seeking yield are extending beyond primary markets and into secondary
and tertiary markets by choosing asset and lease quality over market
quality.
The 1031 market’s influence on overall net lease cap rates is
weakening with a softening of 1031 related cap rates. Tax
advantaged 1031 investors have not paid the historically averaged 18basis-point premium for net lease product through the first half of 2016
with a decreased amount of exchange transactions.
Net lease investment down 36.8 percent year-to-date
Foreign investors are bringing continued attention to the net lease
sector. Net lease acquisitions by foreign capital has increased 27.5
percent year-over-year, most notably in secondary markets.
Changes in acquisition strategies are creating a shift in net lease
buyer dynamics. Institutional investors increase weight in the net lease
sector, while non-trade REITs continue to face capital raising challenges.
Listed equity REIT acquisitions have decreased after a peak year in 2015
as a result of more strategic investment opportunities.
Overall cap rates compress 25 basis points from 2015 average
Primary markets soften across all sectors, most notably the office
sector—up 75 basis points.
10.0%
Transaction volumes normalizing relative to three-year average after
peak year in 2015.
6.9%
6.4%
5.6%
$100.0
1.5%
$50.0
Q1
Q2
Q3
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
◄ Table of contents
Q4
2015
2014
2013
2012
2011
2010
2009
2008
2007
10-Year Treasury (%)
Office net lease cap rate (%)
Industrial net lease cap rate (%)
2016 YTD
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
$0.0
2006
2005
0.0%
2005
Net lease investment
sale volumes
(billions of $US)
New and existing investors look to credit and lease quality as a
means of risk mitigation. The net lease sector’s ability to limit real
estate investment risks is expanding the appetite for single tenant assets
with greater than 10 years of remaining lease term.
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m), NCREIF
JLL | United States | Investment Outlook | Q2 2016
47
TOP
1
6
NET LEASE THEMES
Overall net lease sales volumes down, normalizing
after a peak year
Investor diversification within the net lease sector has continued to shift
through the second quarter of 2016 as the profile of investors and
desired product are changing. Whereas real estate fundamentals were
the key investment criteria for most investors in the early stages of the
cycle, the compressed yields of the later stages of the cycle are leading
investors to narrow their lenses beyond fundamentals and further into
lease quality, tenant loyalty and location. With these, factors such as
remaining lease term, tenant credit and mission critical locations are
further expanding buyer depth in acquisitions. This increased selectivity
has paralleled overall net lease transaction volume declines on the heels
of high deal flow in 2015—down 36.8 percent year-over-year.
Despite transaction volumes declining, the first half of 2016 kept pace
with large deals. There were 24 transactions greater than $100 million
in the first half of the year, compared to 29 at this time last year. New
York led net lease office sales with 53.9 percent of all office activity—a
result of deals including the $1.8 billion Citigroup headquarters
transaction and a $263.7 million Amazon disposition. Manhattan was
also home to the retail sector’s largest transaction, the $105 million
Burton Snowboards flagship.
While down relative to a peak year in 2015, net lease volumes are
normalizing compared to the prior three-year average. The total sales
volume of $18.8 billion in the first half of 2016 is keeping in pace with the
total average sales volume of $18.0 million for the first half of 2012
through 2014. Looking ahead, current sale leaseback activity and
increased upcoming deliveries of build-to-suit product—notably, office
headquarters—are expected to drive sales volumes. These opportunities
will be met by a strong and stable buyer pool of domestic and offshore
investors, favoring the stability of the net lease sector given recurrent
global uncertainty. Investors with cycle longevity concerns may find
ease in global instability creating a more favorable marketplace within
the United States, resulting in an extended peak period.
2
Cap rates soften in primary markets across all
sectors, while secondary and tertiary markets see
mild compression
◄ Table of contents
Primary and secondary office cap rates soften 74 basis points
Investors seeking yield in tertiary markets drive compression down 34
basis points year-over-year.
10.0%
9.0%
6.9%
6.8%
8.0%
7.0%
6.0%
6.5%
5.0%
4.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
YTD
Primary office cap rate (%)
Secondary office cap rate (%)
Tertiary office cap rate (%)
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
A search for yield has pressed many investors out of primary office
markets throughout previous quarters, driving cap rate compression into
secondary and tertiary markets. After cap rates hit record lows for office
product in both primary and secondary markets in the first quarter of the
year, they have since softened overall by 75 basis points year-over-year.
Tertiary markets, however, compressed 34 basis points quarter-overquarter as a result of increased investors seeking yield through lease
quality, with half of all tertiary office transactions being sale leasebacks
with greater than 10 years of remaining lease term.
The industrial sector shares a similar story for net leased assets. As cap
rates for net leased industrial assets in secondary and tertiary markets
dropped to a historic low, falling 19 basis points in the first half of 2016,
primary market pricing softened 51 basis points. Pricing gains this year
have been driven by high volumes of industrial sale leasebacks with
investment grade tenants and over $500 million in build-to-suit deliveries.
Private buyers showed the most interest in these assets.
A pause in retail sale leaseback activity and limited large deals have
paralleled flat and stable pricing. With this, auto-related assets, banks
and restaurants have seen pricing soften modestly, as drug stores and
fast food tenanted assets saw a mild cap rate compression of 25 and 18
basis points quarter-over-quarter, respectively.
JLL | United States | Investment Outlook | Q2 2016
48
Overall net lease cap rates can expect continued softening in primary
and secondary markets through the remainder of the year. Tertiary
markets are likely to compress mildly as investors seek yield through
choosing asset and lease quality over market quality. Overall cap rate
activity is largely dependent on the quality of leases associated with new
product at this stage in the cycle. The net lease sector can expect activity
to stabilize through the remainder of the year with mild cap rate softening
in primary markets and slow cap rate compression in secondary and
tertiary markets, bringing a corrected balance to overall price yields.
Primary industrial cap rates soften 51 basis points year-over-year
Sale leasebacks and creditworthy tenants drive secondary and tertiary
cap rates down 19 basis points.
10.0%
9.0%
7.0%
8.0%
6.8%
7.0%
6.0%
6.3%
5.0%
4.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
YTD
Primary industrial cap rate (%)
Secondary industrial cap rate (%)
Tertiary industrial cap rate (%)
3
1031 investors exchange assets for higher yields
A shift in 1031 exchange related pricing is an indication of the weakening
influence that 1031 buyers have historically had in impacting net lease
cap rates. 1031 transaction activity is continuing its slow down after a
peak year in 2014. While industrial and retail 1031 transaction volumes
are up 18.1 and 3.8 percent, respectively, limited office activity has
brought the aggregate transaction volume to a 16.0 percent decline
quarter-over-quarter. 1031 investors have historically paid higher
premiums for net lease assets due to tax advantages with a ten-year
average premium of 18 basis points, but a softening of 1031 related cap
rates in the second quarter of 2016 created a pricing environment that is
more in line with overall net lease cap rates.
Because of the current pricing environment, many 1031 investors are not
seeing the yield necessary for profitable exchanges, decreasing the
amount of voluntary exchange transactions. 1031 exchange activity for
the remainder of the year will be largely contributed to high net worth
individuals as a result of decreased opportunities for syndicated
investment vehicle funds.
Shift in 1031 exchange pricing indicates fading market influence
Cap rates on 1031 transactions trading at a discount to overall net lease
cap rates in 2016, a shift from prior years.
Retail cap rates diversify deeper into sub-sector in second quarter
Second quarter introduces varied cap rate landscape with some softening;
fast food compresses further with investor demand.
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
1031 cap rate pricing spread to overall net lease
(basis points)
20
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
10
0
-10
-20
-30
-40
-50
4.5%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2014 2014 2014 2014 2015 2015 2015 2015 2016 2016
Auto Repair
Fast Food
Bank
Restaurant
Drug Store
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m), Costar
◄ Table of contents
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
H1 2012
H2 2012
H1 2013
H2 2013
H1 2014
H2 2014
H1 2015
H2 2015
H1 2016
-60
4.0%
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m), Costar
JLL | United States | Investment Outlook | Q2 2016
49
4
Tenancy and lease quality providing risk mitigation
for investors during times of economic uncertainty
Growth investors have been increasingly interested in the net lease
sector’s ability to limit real estate investment risks. With continued
instability in the CMBS markets and global market uncertainty, new and
existing net lease investors are looking to credit and lease quality as a
means of risk mitigation. This is benefitting buyer pools for triple net,
long-term leased assets, especially those backed by single credit-worthy
tenants. In recent quarters, this has benefitted office net lease pricing for
select deal profiles.
Office assets with greater than 10 years of remaining lease term have
traded at a 96-basis-point cap rate premium compared to the overall net
lease office sector on average over the last three years and a 110-basispoint premium when tenancy is investment grade. However, after
continued cap rate compression throughout this cycle, select investors
are now finding required yields by shifting a focus from product type to
lease type. This shift in investment criteria is evident when analyzing
those acquisitions of various investor types with varying yield
requirements:
•
•
•
Over the last three years, institutional buyers have acquired twice
as many assets with remaining lease terms greater than 10 years
than they have with less than 10 years remaining lease term.
Additionally, the amount of net lease investments as a percentage of
the total investments across all real estate sectors for the buyer
group has jumped 64.5 percent year-over-year, showing net lease as
an increasingly favored asset class for institutional investors.
Non-traded REITs are focused on balancing risks and costs,
evidenced in a sudden jump in tertiary market acquisitions with
greater than 10 years remaining lease term and investment grade
tenants. This shifting demand has driven tertiary cap rates down 40
basis points quarter-over-quarter.
Listed equity REITs and private investors are also flocking to
safety with lease-term favorable investments, most recently
evidenced by high levels of participation in industrial sale leasebacks
with long-term leases, comprising 69.6 percent of acquirers for these
deals this quarter.
The pursuit for good credit and strong lease term at the expense of asset
quality and location may provide investors the yield they are seeking, but
purchasing quality-leased assets during peak pricing periods may be
problematic when reviewing exit strategies down the road. Any long-term
leased assets acquired in the currently high-priced environment with 10
to 15 years remaining lease term will be diluted to short-term leases
within the seven-to-ten-year time frame that the average investment fund
holds properties. The pricing environment during that time frame in
comparison to current peak pricing will potentially bring depreciation of
the real estate fundamentals that coincide with a declining lease value,
thus resulting in more spread volatility during later dispositions or liquidity
events. Many investors are mitigating this concern through purchasing
assets that are essential in nature to the tenant’s business operations, or
strategic in location, providing a mission critical component to the asset
profile that equates to higher levels of tenant renewal probability.
◄ Table of contents
5
Net lease sector providing niche investment vehicle
for foreign capital
A focus on niche investment from foreign investors is bringing continued
attention to the net lease sector, as seen with net lease acquisitions by
foreign capital increasing 27.5 percent year-over-year. The preferred
asset type for foreign investors is shifting as the focus moves from office
assets in primary markets to industrial assets in secondary markets.
Foreign allocations in single tenant industrial assets jumped 22.4 percent
year-over-year, likely as a result of this asset class’s underlying lease
quality, lower long term capital expenditure, and less spread volatility in
the later stages of ownership in comparison to all other asset classes.
Secondary markets across all sectors experienced a recent surge in
acquisitions by foreign investors, up 171.7 percent quarter-over-quarter
and reaching $752.3 million year-to-date. This was led by the Sun Belt
markets, receiving 57.2 percent of all foreign investment in office and
retail product across Southern Florida, Raleigh and Nashville. Foreign
capital into secondary industrial markets was focused on warehouses
across the Northwest, Southwest and West regions.
Foreign capital from South Korea and Germany are leading offshore, net
lease acquisitions—collectively accounting for 52.8 percent of all foreign
net lease investment year-to-date—with recent transactions across both
primary and secondary markets.
As global markets remain volatile and fundamentals tighten in the later
stages of the cycle, an increase in foreign participation is expected to
continue and likely expand as a focus on income stability and wealth
preservation remains key for high net worth investors and pension funds.
South Korea, Germany lead foreign liquidity with 52.8 percent
Canadian capital in net lease sector declines year-over-year as
dispositions exceed acquisitions.
4.3%
4.5%
6.0%
27.1%
13.3%
19.1%
South Korea
United Kingdom
United Arab Emirates
All Others
25.7%
Germany
Canada
China
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
6
Net lease leaders and laggards shift in an everchanging buyer universe
Changes in equity fundraising, yield requirement challenges, and
reallocation of institutional funds are creating a shift in net lease buyer
dynamics. Institutional buyers have taken a noteworthy interest in net
lease real estate. Acquisitions by this buyer type have increased 13.3
percent year-over-year, while the overall composition of net lease
investment in comparison to all real estate acquisitions has spiked 64.5
percent year-over-year. Net lease interest from institutional investors is
likely to continue as funds that were previously drawn to London real
estate investments may now shift some capital to preferred properties in
the United States in the wake of instability within the United Kingdom.
After once being the most active buyer type for net leased real estate,
non-traded REIT activity continued to decline with a 60.5 percent drop in
equity fundraising for the first half of 2016 compared to the first half of
2015, and an overall decline of 76.4 percent of total acquisitions quarterover-quarter. The retail sector has been hit the hardest in the declined
activity–down 95.5 percent quarter-over-quarter. Industrial assets are
the preferred class for non-traded REIT investors in 2016, with 64.1
percent of all acquisitions being industrial assets within secondary
and tertiary markets.
Listed equity REITs are being more strategic with the timing of their
acquisition efforts within an environment that is not entirely favorable to
their acquisition goals. Consequently, year-over-year volume for listed
equity REIT acquisitions is down 82.1 percent. Additionally, net lease
concentration of all assets acquired in the second quarter is down 37.8
percent. The volume of declines is not indicative of a weary investor, but
rather a stabilization of investments after a peak year in 2015.
A shift in buyer type can be expected to continue as institutional and
foreign investors seek stable returns through net lease assets, a
reclassification of real estate to its own headline sector through GICS
changes brings more attention and transparency to the industry, and the
non-traded REIT industry seeks to recover from its downfall. Product
availability and coinciding lease quality will create a further shift in
buyer type as investors seek to restructure and adapt their acquisition
criteria to meet the goals of shareholders in an ever-changing real
estate environment.
◄ Table of contents
Institutions drive over one-third of primary market acquisitions
Developers continue to find opportunities in secondary over
primary markets.
2014
2015
2016
YTD
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
#REF!
REIT/REOC
High Net Worth
Corporate / User
Developer / Property company
Equity fund
Institution / Advisor
Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)
Notably primary market transactions, Q2 2016 *
Tenant
Sector
Market
Property
Buyer
Seller
Citigroup
Headquarters
Office
New York
388-390 Greenwich
St
Citigroup
SL Green Realty
Corp.
Amazon
Office
New York
7 W 34th St
Korea Post
Vornado Realty
Trust
Motorola
Headquarters
Office
Chicago
1301 W Central Rd
Oak Street Real
Estate Capital
Netgear
Headquarters
Office
San Jose
3625-3635 Peterson
Way
M Block & Sons
Industrial
Chicago
Church of
Scientology
International
Industrial
Krazy Pats
Price ($)
Size (s.f.)
$1,763,956,557
2,634,670
$263,670,000
477,000
Motorola
$80,000,000
517,000
Griffin Capital
Corporation
KBS REIT II
$43,875,000
142,700
18801 Oak Park Ave
Hillwood Investment
Properties
CalSTRS
$44,750,000
915,643
Los Angeles
6130 Sheila St
Church of
Scientology
Guardian Life
Insurance Co
$32,500,000
168,514
Industrial
Oakland-East Bay
5555 Auto Mall
Pkwy
LBA Realty
Sean Pathiratne
$28,550,000
177,041
Burton Snowboards
Retail
Manhattan
106 Spring St
Carlyle Group
Workspace
$105,000,000
5,980
Boston University
Theatre
Retail
Boston
252 Huntington Ave
Matteson Co
Boston University
$25,000,000
56,176
Mariano's Fresh
Market
Retail
Chicago
678 N York St
Beccaria Partners
IPCC
$25,000,000
75,922
Notably secondary market transactions, Q1 2016 *
Tenant
Sector
Market
Property
West Quest
Technology Park
Office
Baltimore
1580 W Nursery Rd
Buyer
Seller
Price ($)
Size (s.f.)
Northrop Grumman
Lone Star
$79,000,000
315,350
Tri Valley
Office
Technology Campus
Oakland-East Bay 3055 Triad Dr
Jason Chadorchi /
David Balducci
Gramercy Property
Trust
$59,000,000
223,000
Crum & Forster
Office
Northern New
Jersey
305 Madison Ave
United States Fire
Insurance Company
Normandy Real
Estate Partners
$44,300,000
212,000
Amazon
Industrial
Tampa
3350 Laurel Ridge Ave
Cole Capital
USAA Real Estate
$103,600,000
1,100,000
Lam Research Corp. Industrial
Silicon Valley
4000 N 1st St
ProspectHill Group
Lam Research
$82,000,000
430,000
UCSC Extension
Industrial
Silicon Valley
3175 Bowers Ave
Regents of U
California
Irvine Co
$46,500,000
90,000
Nike
Industrial
Portland
20540 NW Evergreen Pkwy
Griffin Capital
Corporation
Washington RE
Holdings
$45,500,000
266,840
Lifetime Fitness
Retail
Philadelphia
3939 Church Rd
National Retail
Properties
Lifetime Fitness
$43,478,889
102,000
Dollar Tree
Retail
Philadelphia
1520 Chestnut St
Post Brothers
PREIT
$25,499,995
27,000
Carmax
Retail
Nashville
2501 Powell Ave
Pete DeLay
TSG Real Estate
LLC
$24,500,000
54,257
* Single Assets
◄ Table of contents
JLL | United States | Investment Outlook | Q2 2016
52
For more information, please contact:
Investor
Sean Coghlan
Director, Investor Research
+1 215 988 5556
[email protected]
Lodging
Geraldine Guichardo
Manager, Hotels Research
+1 312 228 2107
[email protected]
Multifamily
Michael Morrone
Analyst, Multifamily Research
+1 312 228 2304
[email protected]
Retail
Arielle Einhorn
Analyst, Retail Research
+1 312 228 3466
[email protected]
Debt & Equity
Ronak Sheth
Research Analyst
+1 312 228 3471
[email protected]
Industrial
Peter Kroner
Sr. Analyst, Industrial Research
+1 312 228 2744
[email protected]
Office
Rachel Johnson
Analyst, Office Research
+1 312 228 3017
[email protected]
Net Lease
Sarah Henry
Sr. Analyst, Net Lease Research
+1 312 702 4248
[email protected]
Click for more research on: Lodging, Industrial, Multifamily, Office & Retail.
About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased
value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4
billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients,
the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and
completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management,
has $57.2 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For
further information, visit www.jll.com.
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All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the
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