HOUSTON – (By Dale King, Realty News Report) — Despite investor concerns over interest-rate hikes, the economy and the country’s political landscape heading into 2018, overall U.S. investment sales volume in the first half of this year increased 4 percent year-over-year to some $137 billion in markets where commercial real estate services company Avison Young has an office.
“Industrial, retail and multi-family investment sales volume increases contributed to this growth, while office investment decreased slightly,” says the firm’s 88-page fall 2018 North America and Europe Commercial Real Estate Investment Review. “Multi-family investment sales volume represented the largest portion of overall investment sales volume at $48 billion, followed closely by office investment sales at $46 billion.”
The report covers commercial real estate investment conditions in 59 markets in six countries on two continents — North America and Europe. The four major metropolitan areas in Texas recorded similar growth, but Dallas investments hit record figures. Houston’s tallies were ahead of the game and Austin scored big in the multi-family transaction market.
Avison Young’s document listed San Antonio as “a healthy tertiary market [that] has become an attractive target for investors and developers who have been squeezed out of primary and secondary markets.”
Clearly, the report concluded that no Texan should hang his or her head in sadness based on the newest results.
“Again in 2018, there is an abundance of capital chasing a scarcity of quality assets, and when quality inventory is available, pricing is being upheld. Not surprisingly, sales volume for multi-family assets overtook office sales in the first half of this year, a trend we expect to continue,” said Earl Webb, Avison Young’s president of U.S. Operations.
The document says Houston’s multi-family sales kept overall investments on track.
He cited the “continued recovery of the energy market” for helping Houston experience healthy commercial real estate investment.
“Reported sales during the first half of 2018 were strong – only 6% behind the first half of 2017, which turned out to be a record year” for Houston.
“The investment market got off to a fast start in 2018 with 57% of total investments occurring in the first quarter, including the largest office sale of the first half: Marathon Oil Tower, a 1.1 million square foot property in the Galleria area.” CBRE Global Investors Ltd. sold it for $176.5 million to M-M Properties/Baupost Group LLC.
“Multi-family was the lone asset type [in Houston] to show higher sales at mid-year 2018 compared with mid-year 2017 with more than 10,000 additional units sold in first-half 2018,” says the report. “Retail also reported an increase in the number of property sales closed, although not in investment dollar volume, while fewer office and industrial properties changed hands in first-half 2018 compared with first-half 2017.”
Avison Young said 2017 was “a blockbuster year which recorded a 40% jump in sales from 2016 when investor interest in office and industrial product was low and few significant deals were completed” in Houston.
Several large office transactions closed during the second half of 2017 as investment volume in the sector nearly tripled year-over-year.” Among “significant” properties sold were the CBD’s Houston Center, a four-building complex totaling 4.2 million square feet; Energy Center IV and Helios Plaza, both Class A office properties in the Energy Corridor and several large retail properties, including LaCenterra at Cinco Ranch, a 413,000 square foot development in West Houston.
The report concludes that “consistent sales growth is expected to continue [in Houston], even though the overall sales pace has slowed slightly. The area’s steady growth in both employment and population, in conjunction with strong trade through the Port of Houston, is keeping the investment market on track.”
Brief summaries of other Texas metros are:
Dallas/Fort Worth: “The D/FW commercial real estate investment market produced a record total of nearly $20 billion in transactions in 2017. Solid absorption rates, strong construction pipelines, steady vacancy and a booming economy have helped D/FW gain international recognition as one of the strongest and most stable markets available.”
Investment activity in D/FW shows no signs of slowing and is projected to remain strong through the rest of 2018.
Austin: “Low unemployment, rising property valuations and persistent population growth are just some of the main factors that have driven investors to the Austin market in recent years. The metro’s continued economic success powered competition for commercial assets during the first half of 2018, meaning that willing buyers were often unable to find willing buyers. The outlook for Austin’s commercial real estate investment market ‘is positive.’”
San Antonio’s “commercial real estate investment sales activity in the first half of 2018 edged slightly higher than in the first half of 2017, thanks to increased increasing consumer confidence and the continued recovery of the energy industry. All in all, this positive momentum is expected to continue through the rest of 2018 and beyond.”
The report lists the following notable first-half 2018 U.S. investment market highlights:
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Multi-family investment sales volume in the U.S. accounted for a whopping 35% of total investment volume and totaled $48 billion – a 12% increase compared with the same period in 2017.
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Office investment in the first half of 2018 demonstrated a slight decline compared with the same period in 2017, falling 9% to $45.6 billion.
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Industrial investment volume increased by 19% year-over-year to $23.6 billion in the first half of 2018.
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Cap rates have remained stable year-over-year even as interest rates have risen. The average cap rate across all sectors dipped slightly to 6.4% at mid-year 2018 from 6.5% at mid-year 2017.
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Los Angeles was the top market performer overall for the second year in a row with total investment ($11.2 billion) constituting 8% of all U.S. investment sales.
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Washington, D.C., continued to be a favored investment target as its volume increased 22% to $9.8 billion year-over-year.