Sales Volume Rises Amid Pickup in Economy

HOUSTON—Investment sales volume has been on the rise, and a CBRE study that GlobeSt.com reported Monday afternoon posited one reason: increasing lender activity. Transwestern, in its “The Briefing” newsletter compiled by CIO Tom McNearney, provides another: a pickup in domestic economic activity.

Among other indicators compiled by McNearney, second-quarter GDP grew by 4.2%, the consumer confidence index jumped to 90.0 in July from 86.4 in June, and industrial production rose 4.3% year over year. Further, the US trade deficit shrank by 0.6% in July vs. June to a seasonally adjusted $40.5 billion, leading to Q3 growth revision upward to 3.1% from 2.7%.
“The US is showing indications of increasing economic activity, while both Europe and Asia are showing signs of reaching stall speed,” McNearney writes. “The sole exception for the US economy gaining speed is that consumption and same-store retail sales appear to be stubbornly flat. However, if job growth continues to be strong, we should see some lift in consumption and retail sales in the third and fourth quarters.”

Conversely, McNearney observes that it's clear that the Federal Reserve will end its $3-trillion-plus bond purchase/stimulus program in October. “The Fed's withdrawal of stimulus and ultimate rate increases will provide some drag to the economy,” he writes.

However, he adds, “the Fed will be very slow and deliberate in raising the Fed funds rate. Growth should improve to a pace of 3.0%.” That being said, McNearney writes, “it appears it will take some time to fully recover from the excesses of the 50-year debt supercycle.”

In the meantime, McNearney cites Real Capital Analytics figures showing Y-O-Y increases in investment sales during the first half of 2014, although not all sectors showed improvements during Q1 and Q2. Office led the way in Q2 with sales of $27.7 billion, for a 25% Y-O-Y increase. For the first six months of the year, office's sales volume was $51.3 billion, up 30% from the year prior. Cap rates for CBD office compressed further in Q2, while those for suburban properties were flat.

Multifamily slipped to second place with Q2 total volume of #26 billion, although its Y-O-Y increase of 39% was greater than that of office. The sector's six-month total reached $45.6 billion, a 9% decline from the year prior, although the total for the first half of 2013 was inflated somewhat by the sale of the Archstone portfolio to Equity Residential and AvalonBay Communities, a deal valued at $16 billion. Cap rates rose slightly to 6%, which McNearney says might be explained by a shift to secondary and tertiary markets.

Retail's sales were up only slightly on a Y-O-Y basis in Q2, but the first-half total of $36.9 billion represented a 57% Y-O-Y gain. Included in that tally is $5.2 billion of single-tenant net leased properties.

Industrial's sales volume base is smaller, but its growth has been steadier. Q2 sales totaled $11.0 billion, up 13% Y-O-Y, while 1H sales were up 36% Y-O-Y to $24.8 billion. Cap rates have compressed to 7%, compared to an average of 7.5% in each of the two prior years.

Sales of development parcels were up 45% from the prior period in 2013 through 1H of this year, reaching $28.7 billion. The average pricing, $4 million per acre, has doubled from 2009 levels.