SHORT HILLS, NJ—The new year is likely to continue record-breaking trends seen in 2016, says market veteran José Cruz, senior managing director of Holliday Fenoglio Fowler, which provides capital markets transaction services to the commercial real estate industry. Cruz provided his insights for the coming year exclusively to GlobeSt.com.

Q: José, what sectors are getting most of your focus for 2017? Is there any major shift from 2016?

A: As we begin to focus on 2017, our investment outlook remains very similar to this past year: Significant activity in all four food groups with continued record pricing being achieved for the most special of assets. In the last twelve months, we had retail cap rates in the 4s for multiple assets both core and core plus. Industrial will continue to be a desired property type for the short term as leasing momentum continues to increase and the lack of supply available for purchase will hold prices high and cap rates low throughout the upcoming year. The institutional buyers are under-allocated in industrial product in the NJ market, which is one of the largest in the country.

Q: What about retail?

A: As some investors rotated out of other asset classes, retail began to move up to the top of the list. Grocery-anchored shopping centers remain in top demand by institutional and private buyers, particularly those with 1031 exchange requirements. Several value-add retail opportunities have also priced well as buyers are taking on the repositioning risk.

Q: There have been some big transactions in multifamily, as some older North Jersey properties have changed hands late last year.

A: Multifamily has been, and continues to be, the most sought after asset class given its stability, combined with annual rent growth providing an inflation hedge. Most submarkets experienced activity in 2016, and that demand from the investment community is anticipated to be even stronger in 2017 as the early signs of inflation become more evident.

Q: Office seemed to be moving more toward class A properties in 2016.

A: We expect to see more demand for office deals during the new year. In 2016 we had more office trades than any time since the recession in the state despite the degree of difficulty in getting these office transactions completed. Both class A and value add deals were in demand. We saw cap rates for the premiere properties reach into the 5s for the 'best of best' pricing. While per square foot pricing was paramount for the secondary product and that ranged from $50psf to $110psf. Core plus office deals continue to find buyers as the upside of leasing space attracts capital from both institutions and private buyers

Q: 2016 was a big year for construction in the submarkets close to New York.

A: We do expect construction activity to level off, especially on the waterfront, as several of the largest institutions have 'placed their bets' in the last 24 to 36 months. However, we do see a continued need and funding for repurposing of assets in both the urban and suburban markets throughout the state.

Q: With a new administration in Washington, attention always turns to interest rate policy. What do you think is going to unfold there?

A: The current buzz centers around interest rates and the most recent fed increase. We expect rates will continue a steady climb throughout 2017. To date, the impact on pricing has not been significant as a 25 to 50bps increase had been underwritten for the past year, and there continue to be large sums of both debt and equity that need to find a home. Also, we are forecasting spreads tightening after the first of the year as financial institutions would like to continue to make loans.

One last trend evident in 2016 that will carry over into the new year is the continued presence of international capital. Whether it's Middle Eastern money or Asian capital, the desire to own good suburban real estate in the suburban New York area is very strong.

In summary, we expect 2017 will be active for all product types as real estate continues to emerge as the 4^th asset class behind securities is solidified and the dark clouds of interest rate increases will not drive the capital from real estate.

Instant Insights /

What Asset Classes Will Rise in 2017? A Chat with HFF's José Cruz

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