LOS ANGELES—Sales volumes are expected to remain high next year, according to a new report from CBRE. The market next year will be buoyed by demand from private investors and cross-boarder capital, according the report. This year, Los Angeles transaction volume ranked second with $21 billion in transaction volume. $9.9 billion was from private buyers, while $3.7 billion came from foreign buyers. CBRE experts expect 2017 to see strong transaction volumes once again. To find out more about these expectations, we sat down with George Entis, CBRE Capital Markets research analyst, and Chalvis Evans, SVP at CBRE, for an interview.
GlobeSt.com: What is driving this strong performance?
Evans: Strong fundamentals and foreign capital are key. Employment growth has been solid across most industries in Los Angeles, which drives leasing and fuels bullish sentiment. This has been the main differentiator for Los Angeles. While other global cities are seeing some softness at this point in the expansion, Los Angeles has not and that has really turned investor attention to the L.A. market. In addition to the strong labor market, investing in L.A. real estate is a relative bargain to other global gateway cities such as New York or London.
GlobeSt.com: How does job growth factor into all of this activity?
Entis: Job growth simply fuels demand for commercial space, and with such broad-based growth in LA, there continues to be a demand for all sorts of spaces. Not only does Los Angeles have a globally recognizable entertainment industry, it is also home to the largest logistics hub in America as well as a growing tech presence. That fact that economic growth does not depend on any one signature industry here in LA makes it more insulated against a downturn and boosts investor confidence.
GlobeSt.com: Which real estate sectors are seeing the most transaction volume, and do you expect that to change in 2017?
Entis: Office was the leading sector this year with $8.1 billion in investment sales, and a considerable amount of that investment was driven by foreign capital, and the trend is likely to continue into 2017. Interest rates are low across the world and there continues to be a global savings glut that is looking for a source of return and U.S. CRE remains a great option. Multifamily investment was also strong, with $5.0 billion in sales through the third quarter, but trending down locally and nationally. However, sentiment around multifamily remains bullish as demand fundamentals remain favorable.
GlobeSt.com: Transaction volume has increased for the last several years. How long can it continue to increase, or are we heading toward a plateau?
Evans: This year and last year are both amazing years for investment performance, and they are going be comparable in terms of investment volume. There is little historical evidence to suggest that 2017 will reach similar heights. That being said, expect 2017 to be a great year for capital markets. Fundamentals should continue to improve in 2017 and that will ultimately drive investment sales activity. However, as we near the business cycle, measures indicate that a correction is due in the next two to three years.
GlobeSt.com: Transaction volume is important, but is the only metric that we should look at to judge the performance of the real estate market?
Entis: Capital markets are measured by volume, pricing and performance, on both the debt and equity sides, which all influence each other, and all are influenced by outside forces. Analysis of capital markets often focuses on investment volumes—buying activity and/or mortgage production levels. This activity is a huge driver of all other characteristics of capital markets and can be measured fairly well. Cap rates are the most commonly used metric for identifying pricing trends for equity investment, while income and appreciation of property value are the primary measures of investment performance. Still, analyzing market performance goes well beyond the traditional capital markets measures- we need to evaluate real estate property fundamentals, regional and international economies, interest rates, policy and regulation, and even geopolitical issues.
LOS ANGELES—Sales volumes are expected to remain high next year, according to a new report from CBRE. The market next year will be buoyed by demand from private investors and cross-boarder capital, according the report. This year, Los Angeles transaction volume ranked second with $21 billion in transaction volume. $9.9 billion was from private buyers, while $3.7 billion came from foreign buyers. CBRE experts expect 2017 to see strong transaction volumes once again. To find out more about these expectations, we sat down with George Entis, CBRE Capital Markets research analyst, and Chalvis Evans, SVP at CBRE, for an interview.
GlobeSt.com: What is driving this strong performance?
Evans: Strong fundamentals and foreign capital are key. Employment growth has been solid across most industries in Los Angeles, which drives leasing and fuels bullish sentiment. This has been the main differentiator for Los Angeles. While other global cities are seeing some softness at this point in the expansion, Los Angeles has not and that has really turned investor attention to the L.A. market. In addition to the strong labor market, investing in L.A. real estate is a relative bargain to other global gateway cities such as
GlobeSt.com: How does job growth factor into all of this activity?
Entis: Job growth simply fuels demand for commercial space, and with such broad-based growth in LA, there continues to be a demand for all sorts of spaces. Not only does Los Angeles have a globally recognizable entertainment industry, it is also home to the largest logistics hub in America as well as a growing tech presence. That fact that economic growth does not depend on any one signature industry here in LA makes it more insulated against a downturn and boosts investor confidence.
GlobeSt.com: Which real estate sectors are seeing the most transaction volume, and do you expect that to change in 2017?
Entis: Office was the leading sector this year with $8.1 billion in investment sales, and a considerable amount of that investment was driven by foreign capital, and the trend is likely to continue into 2017. Interest rates are low across the world and there continues to be a global savings glut that is looking for a source of return and U.S. CRE remains a great option. Multifamily investment was also strong, with $5.0 billion in sales through the third quarter, but trending down locally and nationally. However, sentiment around multifamily remains bullish as demand fundamentals remain favorable.
GlobeSt.com: Transaction volume has increased for the last several years. How long can it continue to increase, or are we heading toward a plateau?
Evans: This year and last year are both amazing years for investment performance, and they are going be comparable in terms of investment volume. There is little historical evidence to suggest that 2017 will reach similar heights. That being said, expect 2017 to be a great year for capital markets. Fundamentals should continue to improve in 2017 and that will ultimately drive investment sales activity. However, as we near the business cycle, measures indicate that a correction is due in the next two to three years.
GlobeSt.com: Transaction volume is important, but is the only metric that we should look at to judge the performance of the real estate market?
Entis: Capital markets are measured by volume, pricing and performance, on both the debt and equity sides, which all influence each other, and all are influenced by outside forces. Analysis of capital markets often focuses on investment volumes—buying activity and/or mortgage production levels. This activity is a huge driver of all other characteristics of capital markets and can be measured fairly well. Cap rates are the most commonly used metric for identifying pricing trends for equity investment, while income and appreciation of property value are the primary measures of investment performance. Still, analyzing market performance goes well beyond the traditional capital markets measures- we need to evaluate real estate property fundamentals, regional and international economies, interest rates, policy and regulation, and even geopolitical issues.
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