According to a new JLL report, that notes conditions improving across most sectors, offices are the “biggest winners” in the US Secondary and Sunbelt markets.
The Fall 2014 Cross Sector Outlook was released on October 22 at the Urban Land Institute’s fall meeting and forecasts that vacancy rates in the office sector are expected to drop sharply between now and the spring of 2016.
The Outlook makes special note of growing transaction volumes in secondary markets while the Sunbelt is seeing significant improvement in sales activity and key market indicators.
Steve Collins, the president of JLL’s Americas Capital Markets business, points to the amount of capital that has been heading to the secondary and tertiary markets.
He said that investor interest in these areas is expected to remain strong in the coming year in all asset types.
There has been an extraordinary level of interest in the primary real estate market, which includes a large number of foreign buyers who have been interested in acquiring assets. Lack of inventory has led to interest in secondary markets.
According to the report, secondary suburban office sales have outpaced primary suburban sales for the first time in over half a decade.
The Sunbelt markets were most successful in attracting investor attention.
Over the next two years, new development is expected to shift the office sector from being undersupplied to oversupplied.
Over the past three years, very little supply has come to the market, and industrial vacancy rates in the third quarter dropped to below the pre-recession low of early 2008. There is a substantial amount of new supply currently under construction, but the new space is not expected to make a significant impact on rental growth because speculative development is “still very measured.”
The retail market is still sluggish in some sectors. Class A properties in primary markets are attracting a high level of interest from investors and a number of older properties are being repurposed.
Online retailers are continuing to divide bricks and mortar stores into either luxury shops or value centres while mid-range shops are continuing to struggle.
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