Triangle Continues to Attract Major Commercial Players

$52.35M SALE SHOWS CONTINUED INTEREST IN TRIANGLE MARKET

W.P. Carey Inc. recently paid $52.35 million for a large office building located well at 3900 Paramount Parkway in Morrisville, NC.  W.P. Carey, a net lease real estate investment trust…one of the largest in the country…acquired the significant property in Morrisville proving that the entire Triangle region continues to pace and attract investment from major players from other parts of the country.  Currently the property is home to Pharmaceutical Product Development Inc.  Headquartered in Wilmington, NC they are a player in the research healthcare provider market.

Built in 1998, at time of sale the building was had an assessed value in the $29 million dollar range.  Featuring 224,880 square feet inside, the land had a value of $2.4 million.

3900 Paramount Parkway – Morrisville, NC

Legacy @ Brier Creek Sells For $34.1 Million

Legacy at Brier Creek celebrated a one year birthdate recently with a successful sale.  Heritage Properties Inc. sold the fully leased building to a company owned by insurer Zurich North America.  It appears to be a smart purchase by the Zurich owned company as there remains space to add a second building.  The land that the building sits on…nine acres…is nicely situated on the lot facing Brier Creek Parkway.

The $34.1 million dollar deal is just another example of foreign and out of state investor money coming to the Triangle.  The $28+ per foot average lease rate puts Legacy at or near the top of the market that extends down Glenwood Avenue in Raleigh.  Fully leased with excellent tenants that include yours truly along with Keller Williams Preferred Realty, Infosys (a tech consulting services company) and IRS and Sage Therapeutics among others.

Heritage Properties intends to reinvest the proceeds of the sale back into this market and will continue to grow it’s portfolio.

 

Kima Commercial, Llc. is poised to assist you with all of your real estate needs.

Industrial Real Estate ’17: Continued Growth

Industrial Real Estate ’17: Continued Growth

 

Industrial real estate pros expect the sector to continue posting solid results for developers and investors.

 

Last month, NREI (National Real Estate Investor) released the results of it’s third annual survey of the industrial real estate sector. Year-over-year comparisons reveal where outlooks changed and where they haven’t. Many respondents expect continued improvements in occupancy rates and rents. Here’s what you need to know:

graph kckwCap Rates Will Rise 

For the first time in the NREI survey’s history, the majority of respondents expect industrial real estate cap rates to rise. In the past two surveys conducted by NREI respondents noted cap rate compression. In this year’s survey, the average cap rate came in at 6.1 percent, compared to 6.4 percent in 2016 and 7.1 percent in 2015.

In this year’s survey, 58 percent of respondents expect an increase, while 27 percent expect no change and only 17 percent expect to see further decreases.

Equity & Debt Availability Will Remain Steady

As it relates to equity, 52 percent of participants responded that the availability of capital was unchanged from a year ago, 28 percent said capital was more widely available, meanwhile 10 percent said they were unsure. Similar numbers were received regarding debt. 53 percent said debt availability was unchanged, 23 percent said it was widely available, 16 percent said it was less available, and 8 percent said they were unsure.

Participants were asked how they expect various lending factors to change in 2017. 88 percent responded that they expect interest rate increases and 44 percent responded that they expect a rise in the risk premium. As far as loan-to-value ratios and debt service coverage ratios, respondents don’t expect much change. As that translates to investment activity, 55 percent of respondents said they plan to hold in the sector in the next 12 months. Only 13 percent plan to sell, while 33 percent are looking to buy.

Build Baby, Build  

The outlook among survey respondents is that the level of development is about right for the sector, and there is very little fear that too much space is being built. 58 percent of respondents feel that the level of development is the right amount (probably developers), 21 percent feel there is too little development occurring (probably builders and architects), only 11 percent said too much development is taking place (probably the EPA), and the remaining respondents said they were unsure (probably politicians).

According to a Cushman & Wakefield report, 232.9 million sq. ft. of industrial product was delivered in 2016. Currently, there is an additional 215.6 million sq. ft. of industrial product under construction. NAI Global reports that 15 markets saw net absorption increase, 13 saw construction rise, and 19 experienced increases in asking rental rates; Overall, 10 markets saw increases in all three. In addition, 19 markets recorded positive absorption, with 14 also seeing drops in vacancy, indicating a national trend for industrial space surpassing supply.

Survey participants were also asked to estimate how much additional supply their markets could absorb: 72 percent said their markets could absorb additional supply equal to between 5 and 19 percent of current inventory. 12 percent estimate the market can absorb new supply equal to 25 percent or more of current inventory. Experts at Kima Commercial are reporting a demand for additional supply, in some cases speculative in nature. As a result, another factor affecting supply in some markets is the conversion of old industrial boxes into other uses. Overall, 70 percent of respondents said this activity is taking place in their markets. Kima experts have witnessed this in Raleigh-Durham and several of the surrounding rural markets where large old industrial boxes are common and available.

Conclusion 

As of January 2017, the industrial sector has registered 27 consecutive quarters of net occupancy gains. It is among the strongest three-year periods on records, the most recent of comparison took place from 1997 to 1999. Industrial real estate professionals nationwide expect further gains in 2017. The national industrial vacancy rate for all product types continued to decline in the fourth quarter of 2016 and U.S. industrial asking rents have increased.

Given the information gathered by NREI and what Kima Commercial’s experts are reporting at the local level, it is safe to conclude that most will remain bullish on the industrial real estate sector. It is also important to note that when respondents to NREI’s survey were asked to rank the relative strength of their regions the South ranked second behind the West.

Earlier this year Kima Commerical brokered a historic land transaction in Youngsville, North Carolina for industrial development. The project consists of a 365,000 SF warehouse and manufacturing facility for K-Flex USA, an international manufacturer of elastomeric foam rubber.

 

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Keller Williams Preferred Realty, 7920 ACC Blvd, Suite 210, Raleigh, NC

919-336-1700

Peter@KimaCommercial.com

We look forward to working with you!

Growth in ’17: Coming to a Tertiary Market Near You

Growth in ’17: Coming to a Tertiary Market Near You

 

Over the past decade, as our economy has picked up steam, we’ve witnessed the big city make its long awaited comeback. Cities such as Austin, Denver, Dallas, Phoenix, and our own Raleigh have been prime examples. Capturing headlines daily, large commercial real estate projects are popping up everywhere. A new week, a new twenty story tower somewhere in downtown or mid-town Raleigh.

These trends and investments are no doubt exciting and uplifting news for all. Therefore, it’s no surprise they’ve held a firm grip on commercial real estate news headlines over the last several years. However, as these primary markets have continued to get all of the love and affection, what’s going on in our smaller, tertiary markets?

Where do they fit into the changing real estate landscape? Demographic shifts, technology advances, retail, and investment opportunities in tertiary markets have forced many in the industry, that are looking at buying or selling commercial real estate, to pause and reexamine their strategies.

Demographic Shifts

Millennials, the largest generation in American history, have fueled much of the demand in major downtown cores. The theory is that they dig many of the amenities of urban living, such as foodie spots, breweries, nightlife, and cultural events. But what happens as this generation ages and many couples begin to start families?

The urban boom won’t last forever. History shows us that people relocate when their lives and their needs change. Cost of living, housing availability and size, and school districts are major factors in drawing millennials, and many others to these smaller markets. Additionally, smaller, suburban town centers and continued employment opportunities are drawing people to these outlying areas.

A recent Urban Land Institute study titled “Demographic Strategies for Real Estate” predicts that nearly 80 percent of household growth will occur in the suburbs in the future. And while the projected number for rural growth comes in much lower, technological innovation may provide greater opportunities for those areas long-term.

Technological Advances

In addition to the many amenities offered by primary markets, they also offer the ability to live in close proximity to work. However, technology looks to be changing that. The expansion of high-speed internet and other telecommunication provides the freedom to many consumers and businesses to operate from smaller, less dense communities. People once predicted the end of small-town America because of technology advances that were only accessible in large city centers. However, the evolution of technology has done just the opposite. It allows those in smaller markets to be just as connected as they otherwise would be in any primary market.

Retail and Investment Opportunities

As we look at the big picture, the population increases and technological advances make tertiary markets much more attractive to investors and retailers. These markets offer value opportunities for investors and retailers that want to avoid highly saturated primary markets. Certain retailers may look at towns of 150,000 people or more, yet the highest yield opportunities might exist in towns of less than 50,000. These markets offer benefits such as more available land, lower development and redevelopment costs, and generally less competition.

For investors, such as smaller entrepreneurial developers, less competition generally means lower barriers to entry in tertiary markets. Prices are generally held lower than primary markets, which opens the field to a wide range of investor types.. As PwC and the Urban Land Institute pointed out in their recent “Emerging Trends in Real Estate 2017 Report”, most respondents, unsurprisingly, appreciate markets that can generate attractive cash-on-cash returns. This is much easier to accomplish in tertiary markets due to rising rental rates and the lower investment requirements.

As the economy continues its recovery, we’ll likely see tertiary markets play a more vital role in the real estate game. As populations shift and smaller markets grow, demand for retail expansion will follow suit. With that in mind, and the potential for high yields, we’ll likely see these smaller markets account for a significant portion of the investment sales in the coming years.

Kima Commercial’s team of knowledgeable real estate professionals have a presence the triangle’s many attractive tertiary markets. If you’re a business, investor, or retailer looking for expert advice related to these hot areas please contact us today.

 

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Keller Williams Preferred Realty, 7920 ACC Blvd, Suite 210, Raleigh, NC

919-336-1700

Peter@KimaCommercial.com

We look forward to working with you!

Looking Into the 2017 Real Estate Economy

Looking Into the 2017 Real Estate Economy

 

Per the Kiplinger Letter January 13, 2017, Real Estate agents and Investors need to be on the lookout for vacancies to grow in the retail market sector.  Retailers that have brick and mortar shops are finding it  difficult to compete with e-commerce.  Some retailers such as Macys, Sears, and Kmart are already announcing store closings. Investors need to keep a sharp eye out for these types of closings, which drive vacancy rates up. The local Research Triangle Park and the surrounding Raleigh markets will be affected by this trend.  Restaurant chains are slowing down on opening new locations.  This will only increase the already existing retail market vacancy rate issues. Overall, expect vacancy rates to drop from its current 15.7% in 2016.

dollar-544956_1280With the predicted business sector uptick, there will be a need to hire new employees. Investors should prepare for a high need for office and technology space in 2017.  RTP is already showing the need for more business and tech space.

The Kiplinger Letter on January 13, 2017 echoed that while we should be ready for a steady economy for 2017, we should not except it to “wow” us like some have predicted. The market says the GDP should grow, but only about 2.1%.  If this occurs, it will be a growth year, as 2016 topped out with a GDP of around 1.6%.

One of the largest drivers of the GDP is consumers who are willing and able to spend. Consumers account for about 69% of the national GDP.

Last year wages grew about 2.6%; this year the prediction is that wages will grow about 3%. With wages still growing, households are beginning to climb out of debt, which means more families will have room to take on more debt. Their loan-to-values and income ratios will begin to balance out.

Residential new construction is projected to increase about 10%. Inventory of new homes will still remain limited throughout the year.

All this to say: be careful on bold aggressive business decisions in 2017.

 

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Keller Williams Preferred Realty, 7920 ACC Blvd, Suite 210, Raleigh, NC

919-336-1700

Peter@KimaCommercial.com

We look forward to working with you!