Investment Activity Continues at Steady Pace

The report notes that the lack of investment offerings has created a "supply/demand imbalance" which has led to very competitive pricing. Investor demand, it points out, is being fueled by a number of factors including historically low mortgage rates, relatively attractive returns compared to alternative asset classes, portfolio diversification needs, and long-term confidence in the city's economy.

Most institutional investors are still looking to put their money into multifamily residential and grocery-anchored retail properties. Industrial and flex properties are also popular due to the relative stability of the submarkets and the lack of on-going capital demands. Not surprisingly, the report says that suburban office remains the most "problematic" in terms of what it calls the "bid-ask gap" because of the uncertain leasing conditions and investor concerns about the relationship between economic value and replacement cost. These conditions are leading many suburban office owners to remain on the sidelines or to refinance, where they can take of inexpensive debt.

Pricing on Downtown office remains very strong, the report says, despite increased vacancy. However, it emphasizes that investors will only pay a premium for those assets with strong in-place leases and limited near-term roll. Many opportunistic investors are seeking underperforming assets with upside potential across all sectors.

The report predicts that sales volume will not change dramatically this year. The leasing market, it notes, needs to experience some recovery in order for investment offering volume to increase significantly. But there will be what it calls "steady deal flow" from low basis opportunist, corporate owners, re-tooling REITs and, in isolated cases, lenders in foreclosure.