US CAPITAL MARKETS REPORT

Transcription

1 US CAPITAL MARKETS REPORT Capitalization Rates By Property Type Fall 2016

2 US Capital Markets Report Capitalization Rates By Asset Type OVERVIEW Year-to-date investment sales volume lagged on a year-over-year basis due to the Brexit hiccup. Although volume has picked up, it will be a challenge to hit 2015 deal volume. However, capital flows are strong and the global uncertainty, amplified by the downturn in China s economy has held down already low U.S. Treasury yields and set the stage for an additional surge of foreign capital into the U.S. as global investors search for stability and a safe haven. Sales volume is still strong, with $319 billion of U.S. sales as of the third quarter. While that is a 9% decline from a year ago, current volume is at its second highest year-to-date level of this most recent real estate cycle. Portfolio transactions were down and single asset sales were flat year-over-year. While we are still seeing positive appreciation in the market, one-year NCREIF returns, 9.2% as of 3Q 2016, are moderating. Private lending has been strong in 2016 with year-to-date (as of Q3) bank issuance up 2 year-over-year and Life companies up 3% over the same period. However, the recently released Federal Reserve s Senior Loan Officer Opinion Survey points to a tightening in lending standards by banks. Approximately one-third of respondents said they were tightening standards for construction and development loans, and nearly one-half were tightening multifamily loans. CMBS lending has begun to pick up after lenders struggled with the implementation of new risk retention guidelines that will go into effect at the end of the year. CMBS lenders will be required to take a 5% slice of every issuance, to be held for 5 years. Extending the real estate bull market, Fall 2016 capitalization rates compressed from 10 basis points (bps) for multifamily properties to 30 bps for warehouse properties from their respective Fall 2015 levels. Office cap rates were essentially flat compared to the prior survey, while strip centers increased 10 bps. MARKET OBSERVATIONS While published cap rate series currently exist, commonly used indices generally do not distinguish between class A and B assets, resulting in index volatility as the product quality mix of traded assets (RCA) and owned assets (NCREIF) changes. The cap rate ranges provided herein are current executable ranges provided by local brokers by class (A, B, or C), together with their assessment of market momentum for the next six months in light of investor appetite and transaction pipelines. The following are some overall observations by property type. Capitalization Rates By Property Type 9% 8% 7% 6% 5% 4% Office CBD A Office CBD B Office Non-CBD A Office Non-CBD B Warehouse A Warehouse B C&W Class A Cap Rate Range C&W Class B Cap Rate Range C&W Class C Cap Rate Range RCA Reported Cap Rate on Transactions in 2Q 2016 Source: Real Capital Analytics, C&W Capital Markets Multifamily A Multifamily B Multifamily C Strip Centers CBD A Strip Centers CBD B Strip Centers Non-CBD A Strip Centers Non-CBD B

3 Office Office Fundamentals Despite the expected acceleration in second-quarter GDP growth, payroll employment a key driver of the office market has been on a bit of a roller coaster ride. With job creation decelerating a function of tightness in the labor market and not an economic slowdown, office-using employment is expected to slow to 600,000 jobs in 2016 and 500,000 in The result is a gradual deceleration in demand for office space. Net absorption is expected to total about 60 msf for the year, down from 81.9 msf in Through the third quarter, absorption is at 42.2 msf, down 31% year-over-year. Net absorption is lower year-to-date in 45 of the 87 markets tracked by, but remains positive in 70 markets. New supply totaled 36 msf and trailed net absorption (demand) through the first three quarters and caused the national vacancy rate to drop 50 bps year-overyear to 13.2%. Nashville boasted the lowest vacancy rate in the country of 4.7%, followed by Midtown South in Manhattan (6.7%). Steadily declining vacancy over the past several years has put upward pressure on asking rents. The U.S. average asking rent reached a record high of $29.45 psf in the third quarter, a 5.5% increase from a year ago, but on a quarterly basis, rent growth is slowing from its first quarter peak. Significant year-over-year rent growth continued in Palm Beach (2), Brooklyn (+15%), San Francisco-North Bay (+14%), and Dallas/Fort Worth (+13%). Vacancy Rate Sales of office properties totaled $96 billion through the third quarter, with 48% of that capital invested in CBD assets. The pricing recovery in the suburban office markets has lagged major markets and pricing is currently on average still 9.3% below peak 2007 levels according to Moody s/rca CPPI index. Conversely, gateway (Boston, Los Angeles, New York, San Francisco, and Washington, D.C.) CBD office prices have exceeded prior peak levels by 21% on a price per square foot basis. National Vacancy Rates Across CBD Markets 3 25% 2 15% 1 5% Vacancy Under Construction (as % of Inventory) 11.8% Gateway office markets have exceeded prior peak pricing by 21% East Bay CA Austin TX Midtown South NY Brooklyn NY St. Petersburg FL Boston MA San Francisco CA Midtown NY Portland OR Downtown NY Orlando FL Sacramento CA Orange County CA Ft. Lauderdale FL Philadelphia PA Washington DC US Average Columbus OH Chicago IL Denver CO Charlotte NC Tampa FL New Haven CT San Jose CA Houston TX Atlanta GA Baltimore MD Miami FL Cincinnati OH San Diego CA Detroit MI Palm Beach FL Dallas/Fort Worth TX Los Angeles CBD Phoenix AZ Hartford CT Westchester NY Fairfield County CT 25% 2 15% 1 5% UC as % of Inventory Source: C&W Research, C&W Capital Markets

4 Office Cap Rate Survey Results Investor interest in urban opportunities that capitalize on the changing demographic and economic landscape remains high. With the preference of younger employees for a live/work/play balance, companies have continued to expand their presence in urban core markets. This trend is not limited solely to the major coastal gateway markets, but is also occurring within higher density downtown areas in some secondary markets including Seattle, Portland and Denver. Investors are aggressively seeking opportunities to capitalize on urbanization/densification trends. The strong demand, coupled with the dwindling number of opportunities, has created upward pricing pressure on the assets in these markets as well. For suburban properties, shifting from class A to class B increased the cap rate by 110 bps, with trades in the 7.5% to 8.4% range, relatively flat from a year ago. With suburban and secondary markets trading at wide spreads relative to gateway CBD markets, we would expect to see more bargain hunting in these markets in the next year by medium- to long-term investors. For additional insights on suburban office markets, please refer to C&W s recent publication: Suburban Office: Is this the Next Play?. Suburban construction remains subdued at 1.6% of total inventory. Cap rates for office buildings were relatively flat across markets, according to s latest cap rate survey. CBD class A assets trade in a range of 5.4% to 6.3%, relatively flat from fall 2015 levels. Top assets in prime gateway markets are trading more than 130 bps lower in the 4.2% to 4.8% range. New York City, which consistently ranks as the top global market for volume, has among the lowest vacancy rates in the country. Manhattan likewise continues to have the lowest cap rate range of any U.S. market, ranging from 3.5% to 4.3%. Class A assets in secondary locations are trading between 5.8% and 6.7%. Shifting from class A to class B properties in the CBD generates 100 bps of incremental yield. CBD class B assets are trading for 6.4% to 7.2% cap rates. For class A assets, shifting from the CBD to the suburban markets increased the average cap rate by 100 bps, with suburban class A assets trading for 6.4% to 7.2%. Vacancy Rate National Vacancy Rates Across Non-CBD Markets 25% 2 15% 1 5% Vacancy Under Construction (as % of Inventory) 14.2% San Francisco CA San Mateo CA Charlotte NC San Jose CA SF/North Bay CA New Orleans LA Austin TX East Bay CA St. Louis MO Tampa FL Denver CO Boston MA Portland OR Indianapolis IN Orange County CA Inland Empire CA Orlando FL Miami FL New Haven CT Sacramento CA Los Angeles Metro Philadelphia PA Baltimore MD Columbus OH US Average Long Island NY Ft. Lauderdale FL San Diego CA Dallas/Fort Worth TX Southern NH Central NJ Atlanta GA St. Petersburg FL Detroit MI Hartford CT Phoenix AZ Palm Beach FL Chicago IL Northern NJ Houston TX Fairfield County CT Suburban VA Suburban MD Westchester County NY 25% 2 15% 1 5% UC as % of Total Inventory Source: C&W Research, C&W Capital Markets

5 Office CBD SUBURBS TOP BIDDER TYPES TOP BIDDER TYPES TOP BIDDER TYPES TOP BIDDER TYPES Class A Trend Next 6 Class B Trend Next 6 Class A Trend Next 6 Class B Trend Next 6 Atlanta GA % % Baltimore MD 6.75% % 7.25% % Boston MA 3.75% % 4.25% % % Charlotte NC % % % Chicago IL 5.25% % % % Cincinnati OH Dallas TX 5.75% % Denver CO % 6.25% % Houston TX % % 6.25% % Los Angeles CA 3.75% % % Miami FL % % % Minneapolis MN % % New Haven/ Stamford CT % 7.25% % % Manhattan NY % Northern New Jersey % % % % NYC Suburbs/Westchester 5.75% % % 8.25% Orlando FL % % % Philadelphia PA % Phoenix AZ % % 7.25% % Portland OR 4.25% % % % Sacramento CA % % San Diego CA % % 5.25% % San Francisco CA 4.25% % % 6.25% San Jose CA % 6.25% % % Seattle WA % 5.25% % % St. Louis MO % % Tampa FL 5.75% % % % % Washington DC 4.75% % 5.25% % % CLASS A 5.44% % CLASS B % CLASS A 6.38% % CLASS B 7.51% - 8.4

6 Office Portland CBD Class A: 4.25% % Class B: % SUBURBAN Portland Class A: Class B: % Sacramento CBD Class A: % Class B: % SUBURBAN Sacramento Class A: San Francisco CBD Class A: 4.25% Class B: 4.75% SUBURBAN San Francisco Class A: % Class B: 6.25% San Jose CBD Class A: % Class B: 6.25% SUBURBAN San Jose Class A: % Class B: % Los Angeles CBD Class A: 3.75% Class B: 5.25% SUBURBAN Los Angeles Class A: % Class B: San Diego CBD Class A: % Class B: % SUBURBAN San Diego Class A: 5.25% Class B: % Seattle CBD Class A: % Class B: 5.25% SUBURBAN Seattle Class A: 5.25% Class B: % Phoenix CBD Class A: % Class B: % SUBURBAN Phoenix Class A: 7.25% Class B: % Minneapolis CBD Class A: % Class B: SUBURBAN Minneapolis Class A: Class B: % Denver CBD Class A: Class B: % SUBURBAN Denver Class A: 6.25% Class B: 7.25% St. Louis CBD Class A: Class B: SUBURBAN St. Louis Class A: 7.25% % Class B: Dallas CBD Class A: 5.75% % Class B: SUBURBAN Dallas Class A: Class B: Houston CBD Class A: % Class B: % SUBURBAN Houston Class A: 6.25% Class B: 7.75% Chicago CBD Class A: 5.25% % Class B: SUBURBAN Chicago Class A: % Class B: % Cincinnati CBD Class A: Class B: SUBURBAN Cincinnati Class A: Class B: Northern NJ CBD Class A: % Class B: SUBURBAN Northern NJ Class A: Class B: 8.25% Boston CBD Class A: 3.75% % Class B: 4.25% SUBURBAN Boston Class A: 6.25% Class B: 7.75% New York City CBD Class A: % Class B: % Atlanta CBD Class A: Class B: 7.25% % SUBURBAN Atlanta Class A: Class B: Tampa CBD Class A: 5.75% % Class B: SUBURBAN Tampa Class A: 6.75% % Class B: % Miami CBD Class A: % Class B: % SUBURBAN Miami Class A: Class B: % New Haven/ Stamford CBD Class A: % Class B: 7.25% SUBURBAN Class A: 6.25% % Class B: NYC Suburbs/Westchester CBD Class A: 5.75% Class B: SUBURBAN Class A: Class B: 8.25% Philadelphia CBD Class A: Class B: 6.75% SUBURBAN Philadelphia Class A: Class B: Baltimore CBD Class A: 6.75% Class B: % SUBURBAN Baltimore Class A: 7.25% Class B: % DC CBD Class A: 4.75% % Class B: 5.25% SUBURBAN DC Class A: Class B: % Charlotte CBD Class A: Class B: % SUBURBAN Charlotte Class A: Class B: 6.75% % Orlando CBD Class A: Class B: SUBURBAN Orlando Class A: 6.75% % Class B: % LEGEND Cap Rate Trend Next 6 months FLAT DOWN UP

7 Industrial - Warehouse Industrial Fundamentals Record setting net absorption, up 18% year-over-year, pushed the vacancy rate down to 5.6%, falling by 20 bps from the second quarter and 90 bps lower than one year ago. Industrial vacancy is currently tracking at its lowest level of the past 30 years and is a full 280 bps below the 10-year historical average of 8.4%. Vacancy rates declined or held firm during the quarter in 64 of 79 markets tracked by. Growth in industrial absorption has been led primarily by strong ecommerce demand. The Amazon effect on warehouse has increased new user demand with nearin locations gaining popularity. Growth in net absorption is also supported by an improved manufacturing sector as the recent ISM index showed factory activity expanded in the third quarter of However, there still are some headwinds, including a stronger U.S. dollar and sluggish global growth. As a result of improving fundamentals, new supply is ramping up with msf completed through the first three quarters. Healthy demand from logistics and distribution users, combined with supply constraints continue to fuel rent growth. Asking rents increased 5.1% year-over-year on a national basis and in 64 out of 79 markets we track. In fact, over 27 of the nation s markets reported double-digit gains. Cap Rate Survey Results Having lagged other property types in the recovery, industrial cap rates compressed the most among all property types in Cap rates fell 45 bps from 2015 levels. Cap rates are now between 5.3% and 6.1% for class A markets (about 20 bps lower than office) depending on location. Per our survey, secondary market cap rates dropped 55 bps year-over year, while gateway markets decreased 15 bps. Class B warehouse dropped 15 bps from Distribution markets located near major population centers continued to dominate investment activity and are trading at cap rates between 4.5% and 5.3%. Southern California markets continued capture the focus of investors with $5.0 billion of transaction volume through third quarter with cap rates there are in the low 4% to 5% range. The San Francisco metro captured $4.1 billion in investment volume and had the most compression in cap rates, as class A assets traded in the low to mid 4% range. The Northern New Jersey/New York metro area, Chicago and South Florida rounded out the top five in terms of dollar volume and for the most part traded at sub-5.5% cap rates for class A assets. Shifting to secondary market class A product adds 110 bps to cap rates. Shifting from class A to class B assets results in a 130 bps increase across the board. National Warehouse Vacancy Rates Across Industrial Markets Vacancy Rate 18% 16% 14% 12% 1 8% 6% 4% 2% Vacancy Under Construction (as % of Inventory) 5.6% 1/4 of the nation s industrial markets are reporting double-digit rent gains Greater Los Angeles Orange County CA Santa Clara County CA San Mateo County CA East Bay CA Nashville TN Indianapolis IN Palm Beach FL Charlotte NC Denver CO I-81/I-78 Dist Corr PA Detroit MI Cincinnati OH Lakeland FL Central NJ Portland OR Miami FL Inland Empire CA Philadelphia PA San Diego CA Orlando FL Ft. Lauderdale FL US Tampa FL SF North Bay CA St. Petersburg FL Northern NJ Columbus OH Chicago IL Raleigh/Durham NC Stockton/Tracy CA St. Louis MO Long Island NY Jacksonville FL Dallas/Ft Worth TX Houston TX Boston MA Baltimore MD Kansas City MO Dayton OH Atlanta GA Sacramento CA Suburban VA Phoenix AZ Suburban MD Hartford CT New Haven CT Southern NH 16% 14% 12% 1 8% 6% 4% 2% UC as % of Inventory Source: C&W Research, C&W Capital Markets

8 Warehouse TOP BIDDER TYPES TOP BIDDER TYPES Class A Trend Next 6 PRIVATE CAPITAL Class B Trend Next 6 Atlanta GA Austin TX 5.75% % 7.25% Baltimore MD % Boston MA 6.25% % Charlotte NC % Chicago IL 4.75% % 6.75% Cincinnati OH % % Cleveland OH % Columbus OH Dallas TX % 6.25% Denver CO 5.75% % Detroit MI Houston TX % % Indianapolis IN % Kansas City MO 6.25% % Los Angeles CA Memphis TN % 7.25% % Miami FL % Minneapolis MN % 7.25% Nashville TN % Northern New Jersey Orange County CA 3.75% % Orlando FL 5.25% % Philadelphia PA Portland OR 5.25% Riverside/Inland Empire CA 4.25% Sacramento CA 4.25% % % San Antonio TX % % San Diego CA 4.75% % 5.25% % San Francisco CA 4.25% % San Jose CA % 4.75% Seattle WA 4.25% % % St. Louis MO 6.25% % Tampa FL 5.75% % CLASS A 5.31% % CLASS B 6.54% % PRIVATE CAPITAL

9 Warehouse Denver Class A: 5.75% Class B: 6.75% Minneapolis Class A: % Class B: 7.25% Chicago Class A: 4.75% % Class B: 6.75% Detroit Class A: Class B: Portland Class A: 5.25% Class B: Sacramento Class A: 4.25% Class B: 5.25% % San Francisco Class A: 4.25% Class B: % San Jose Class A: % Class B: 4.75% Los Angeles Class A: Class B: Orange County Class A: 3.75% % Class B: San Diego Class A: 4.75% % Class B: 5.25% % Inland Empire Class A: 4.25% Class B: St. Louis Class A: 6.25% % Class B: Austin Class A: 5.75% % Class B: 7.25% Houston Class A: % Class B: % San Antonio Class A: % Class B: % Indianapolis Class A: % Class B: Kansas City Class A: 6.25% % Class B: Memphis Class A: % Class B: % Nashville Class A: Class B: % Dallas Class A: % Class B: 6.25% Columbus Class A: Class B: Cleveland Class A: % Class B: Cincinnati Class A: Class B: 7.75% % Charlotte Class A: Class B: 6.75% Atlanta Class A: Class B: Orlando Class A: 5.25% Class B: 6.25% Miami Class A: Class B: % Tampa Class A: 5.75% % Class B: Boston Class A: 6.25% Class B: 8.25% Northern NJ Class A: Class B: Philadelphia Class A: Class B: Baltimore Class A: Class B: % LEGEND Cap Rate Trend Next 6 months FLAT DOWN UP

10 Multifamily Multifamily Fundamentals The multifamily sector has continued to benefit from demographic and economic trends which favor landlords. Homeownership rates have fallen from 69% in 2004 to 63% as of Q3 2016, creating a rentership by choice group which is led by Millennials, the largest age cohort in the U.S. Additionally, 24 and 25 year old Millennials are currently the largest population segment in nation. Construction levels increased 6% year-over-year through the third quarter, while net absorption was up 0.5%, causing occupancy to slip 10 bps year-overyear to 95.6%. Effective rents increased 3.8% yearover-year, led by the west coast markets of Seattle, Portland, and Sacramento. Inventory growth is accelerating, as construction completions averaged 1.9% of total national inventory through the third quarter, roughly on par with the prior year. Absorption is expected to fall short of new supply over the next few years, but occupancy is nonetheless expected to remain above 94%. Survey Results The extended health of the multifamily investment market is supported by strong demographics, despite some of the lowest cap rates in the market. Investors continue to flock to the sector searching for assets with strong underlying demand drivers. Multifamily transaction volume through the third quarter increased 1 year-over-year to $105 billion. Class A assets are essentially flat from fall 2015 levels, with cap rates in the 4.3% to 5. range. Class A properties in Manhattan and San Francisco, markets with the highest rents in the country, have the lowest cap rates at 3.2% and 3.75%, respectively, driven by a highly competitive investment climate. Investor shift to higher yielding secondary markets is evident in transactions volumes. Through the third quarter, gateway market volume fell 1 year-overyear and secondary markets increased 2 as investors searched for greater yield opportunities. Class A cap rates were flat year-over-year, albeit with gateway markets at a 40 bps lower level. Class B and C cap rates continued to compress, dropping 15 bps from their fall 2015 levels, with class B product in gateway markets dropping by 20 bps. Class A apartments in Chicago, Inland Empire, Los Angeles, Minneapolis, New York, Orange County, Orlando, San Diego, San Francisco, Seattle, South Florida and Washington DC are now trading at or below the low-4% to low-5. range. Shifting from class A to class B assets nationally adds an additional 80 bps of incremental yield, while shifting B to C adds another 100 bps. National Vacancy Rates Across Multifamily Markets Vacancy Rate 8% 7% 6% 5% 4% 3% 2% 1% Vacancy Completions as % Inventory 4.4% Increased construction is tempered by drops in multifamily permitting. San Diego Westchester Philadelphia Long Island Los Angeles Baltimore Orange County Minneapolis Chicago Richmond Las Vegas New York St. Louis Dallas Tampa Suburban Virginia US Metro Total San Francisco Suburban Maryland Phoenix Northern NJ Miami Atlanta Fort Lauderdale Boston Columbus Denver Seattle Nashville Portland Raleigh-Durham Indianapolis Palm Beach Orlando Charlotte District of Columbia Charleston Austin Houston Memphis Source: Reis, C&W Capital Markets 9% 8% 7% 6% 5% 4% 3% 2% 1% Completions

11 Multifamily Class A Trend Next 6 TOP BIDDER TYPES TOP BIDDER TYPES TOP BIDDER TYPES Class B Trend Next 6 Class C Trend Next 6 Atlanta GA % 5.25% Baltimore MD 4.85% % 5.75% % % Birmingham, AL 4.75% % 5.75% % Boston MA % % % Chicago IL % 4.75% % Dallas TX 4.25% % % Denver CO 4.75% % 5.75% % Houston TX % Inland Empire CA 4.25% % 4.75% % Jacksonville FL % % 6.25% % Las Vegas NV % % Los Angeles CA 3.75% % 4.25% % 5.25% Manhattan NY % 3.35% % Minneapolis MN 4.25% % % % Nashville TN 4.75% % 5.25% NYC Boroughs Northern NJ % 4.75% % Orange County CA 4.25% % % Orlando FL 4.25% % % Philadelphia PA % % Phoenix AZ % % Sacramento CA % 5.25% % Salt Lake City UT 4.75% % San Antonio TX % 5.75% % 6.25% San Diego CA 4.25% % 4.75% % San Francisco CA % % % Seattle WA % South Florida 4.25% % % % Tampa FL 4.75% % % Washington DC 4.25% % % CLASS A 4.34% % CLASS B 5.05% % CLASS C 6.12% %

12 Multifamily Denver Class A: 4.75% % Class B: 5.75% Class C: 6.25% Minneapolis Class A: 4.25% % Class B: Class C: 5.75% % Chicago Class A: % Class B: 4.75% % Northern NJ Class A: % Class B: 4.75% Class C: % Boston Class A: % Class B: % Class C: % Seattle Class A: Class B: 5.25% Class C: Sacramento Class A: % Class B: 5.25% Class C: % Salt Lake City Class A: 4.75% Class B: 5.25% Class C: San Francisco Class A: Class B: 4.25% Class C: 5.25% % Los Angeles Class A: 3.75% % Class B: 4.25% % Class C: 5.25% Orange County Class A: 4.25% % Class B: Class C: 5.25% San Diego Class A: 4.25% % Class B: 4.75% Class C: 5.75% Inland Empire Class A: 4.25% % Class B: 4.75% Class C: 5.75% Phoenix Class A: Class B: 5.25% % Class C: Las Vegas Houston Class A: Class A: % 5.0 Class B: % Class B: Class C: % Class C: San Antonio Class A: % Class B: 5.75% % Class C: 6.25% Birmingham Class A: 4.75% % Class B: 5.75% % Class C: Dallas Class A: 4.25% Class B: 5.75% Class C: % Orlando Class A: 4.25% Class B: Class C: 5.75% % South Florida Class A: 4.25% % Class B: Class C: 5.75% % Tampa Class A: 4.75% % Class B: % Class C: Manhattan Class A: 2.95% % Class B: % Philadelphia Class A: Class B: % Class C: % Baltimore Class A: 4.85% % Class B: 5.75% % Class C: % DC Class A: 4.25% Class B: 5.25% Class C: 6.75% Nashville Class A: 4.75% % Class B: 5.25% Class C: Atlanta Class A: % Class B: 5.25% Class C: Jacksonville Class A: % Class B: % Class C: 6.25% % LEGEND Cap Rate Trend Next 6 months FLAT DOWN UP New York City Boroughs Class A: Class B:

13 Retail Retail Fundamentals Despite recent news of retailer bankruptcies and increased store closures, the retail market posted fairly healthy occupancy gains through mid-year Overall shopping center vacancy in the U.S. was 7.4% as of third quarter, down 10 bps from the previous quarter and down 40 bps from one year ago. Year-todate net absorption, while still positive, decreased 4.7% compared to the first three quarters of Discounters, dollar stores, off-price apparel, and food related concepts are the sectors currently driving growth. Through August 2016, mall and other retail property (including urban retail) volume is down by 24% yearover-year, but retail strip center investment sales is down only 6%. Sales volume for retail strip center properties totaled $20.4 billion, compared to $24.0 billion for the mall and other sector. Survey Results Class A strip centers in CBD locations are trading for cap rates in the 5.2% to 6. range, flat from Fall 2015 levels. Shifting to class B strip centers in CBD locations garners an additional 90 bps of incremental yield with cap rates in the 6.2% to 7. range. Cap rates held steady overall for class A strip centers in CBDs, but widened 10 bps in gateway markets while compressing 10 bps in non-gateway markets. Cap rates for gateway class A assets are between 4.5% and 5.3% and are about 80 bps higher in nongateway markets, between 5.5% and 6.2%. Suburban class A strip centers range from 5.9% to 6.7% nationally and have widened 20 bps in the past year. Shifting to class B assets increases the yield by 100 bps to 6.9% to 7.7%, and are trading today where they were a year ago. National Vacancy Rates Across Retail Markets Vacancy Rate 12% 1 8% 6% 4% 2% Vacancy Household income growth is expected to lead to increased retail sales Under Construction (as % of Inventory) 7.4% 12% 1 8% 6% 4% 2% Miami Boston Raleigh/Durham San Francisco DC Los Angeles San Diego Seattle Palm Beach Charlotte Portland NYC Metro Houston Fort Lauderdale Denver Indianapolis NATIONAL Tampa-St. Petersburg Columbus Dallas/Ft Worth Philadelphia Orlando Atlanta Cleveland Inland Empire St. Louis Memphis Las Vegas Chicago Phoenix Source: CoStar, C&W Capital Markets

14 Retail: Strip Centers PRIMARY SUBURBAN TOP BIDDER TYPES TOP BIDDER TYPES TOP BIDDER TYPES TOP BIDDER TYPES Class A Class B Class A Class B Trend Next 6 Trend Next 6 Trend Next 6 Trend Next 6 Atlanta GA % % % Austin TX 6.25% % % 7.75% % Boston MA % % 5.25% % Chicago IL % 5.75% % Dallas TX 5.75% % % 7.25% Denver CO 5.25% % % 6.75% % Houston TX % 6.75% % 6.75% % Las Vegas NV % % 5.75% % Los Angeles CA 4.25% % % % 5.75% % Miami FL % % 5.75% % Minneapolis MN % % Northern New Jersey 4.75% % % Orlando FL 5.75% % 7.25% Philadelphia PA % 5.75% % % Phoenix AZ % 6.75% Portland OR % % San Antonio TX % 7.25% % % CLASS A 5.24% % CLASS B 6.16% CLASS A 5.93% % CLASS B 6.91% %

15 Retail: Strip Centers Portland CBD Class A: % Class B: % SUBURBAN Portland Class A: Class B: Los Angeles CBD Class A: 4.25% Class B: 4.75% SUBURBAN Los Angeles Class A: 4.75% % Class B: 5.75% % Las Vegas CBD Class A: % Class B: % SUBURBAN Las Vegas Class A: 5.75% Class B: % Denver CBD Class A: 5.25% % Class B: SUBURBAN Denver Class A: % Class B: 6.75% % Minneapolis CBD Class A: Class B: SUBURBAN Minneapolis Class A: % Class B: % Chicago CBD Class A: % Class B: 5.75% SUBURBAN Chicago Class A: Class B: % Boston CBD Class A: % Class B: % SUBURBAN Boston Class A: 5.25% Class B: 6.75% Northern NJ CBD Class A: 4.75% Class B: 6.25% SUBURBAN Northern NJ Class A: 4.75% Philadelphia CBD Class A: % Class B: 5.75% SUBURBAN Philadelphia Class A: 5.25% Class B: % Phoenix CBD Class A: Class B: SUBURBAN Phoenix Class A: % Class B: 6.75% Austin CBD Class A: 6.25% Class B: % SUBURBAN Austin Class A: % Class B: 7.75% % San Antonio CBD Class A: 6.75% % Class B: % SUBURBAN San Antonio Class A: 7.25% % Class B: 8.25% Dallas CBD Class A: 5.75% Class B: % SUBURBAN Dallas Class A: % Class B: 7.25% Houston CBD Class A: % Class B: 6.75% % SUBURBAN Houston Class A: 6.75% Class B: 7.75% Atlanta CBD Class A: % Class B: SUBURBAN Atlanta Class A: 6.25% Class B: 7.25% Miami CBD Class A: % Class B: % SUBURBAN Miami Class A: 5.75% Class B: % Orlando CBD Class A: 5.75% Class B: SUBURBAN Orlando Class A: % Class B: 7.25% LEGEND Cap Rate Trend Next 6 months FLAT DOWN UP

16 Outlook We are at the beginning of our eighth year of economic expansion and low and long growth together with low interest rates have created an extended commercial real estate appreciation cycle. Despite slightly lower sales volume on a year-over-year basis due to China s economic slowdown and the Brexit vote, real estate cap rates have remained resilient. We expect 2016 volume to approach $450 billion on par with 2006 and 2014 levels. We are cautiously optimistic as we head into the final quarter of 2016, and our forecast continues to reflect a moderate growth path for the U.S. economy. Although the equity markets are jittery as a result of a contentious election and an expected Fed move on interest rates, economic data on GDP and job growth are holding up. Our 2016 GDP forecast of 1.6% and our job growth forecast of 2.2 million new jobs is followed by reasonably healthy 2.1% GDP and 1.8 million new jobs in The unemployment rate is expected to fall to the mid-4% range. Job growth will provide sufficient demand for real estate, with occupancy holding steady despite higher construction, and positive though decelerating rent growth across most markets and property types. Cap rates are expected to remain firm in the vast majority of markets. Investor appetite for real estate remains ample. Through August, cap rates have compressed 25 bps according to Real Capital Analytics. Tier 1 (gateway) markets have compressed only 10 bps while Tier 2 and 3 markets have dropped 30 bps and 25 bps, respectively. Well-capitalized investors, particularly foreign buyers, insurance companies and pension fund advisors are focused on major gateway markets. Domestic buyers are likewise focused on core assets and markets, and are achieving higher yields through executing build-to-core strategies. Looking forward, we are seeing increasing amounts of fundraising being directed at value-add strategies. Treasury rates are forecasted to increase slowly through 2017 which will exert upward pressure on cap rates. Current cap rate spreads to 10-year Treasuries remain near long term averages. However, investors will have to moderate real estate return expectations in order to avoid cap rate increases. The Fed has expressed some concern around CRE pricing, with Janet Yellen stating in September my colleague has focused on commercial real estate where price to rent are very high and cap rates are very low. That s something that has caught our attention. However, it was also noted that while values are high, we are seeing some tightening of lending standards and less debt growth associated with that rise in commercial real estate prices, tempering their immediate concerns around pricing. In light of recent economic volatility, real estate debt and equity investors have been disciplined. While risks have shifted to the downside, leasing fundamentals remain solid, providing for NOI and cash flow growth. In the global context, the U.S. remains a safe haven and the top global market for investors seeking stability and returns.

17 Conclusion Office CBD office cap rates were mostly flat over the past year. Demand for class A assets in prime CBDs held firm, with cap rates in the 4.2% to 4.8% range and lower in Boston, Los Angeles, Manhattan and San Francisco. We expect cap rates in most markets to remain flat over the next 6 months but with upward pressure in 6-12 months. Rent growth, rather than cap rate compression, will drive future value enhancement. Second tier office markets may provide investors interesting yield opportunities over the long term. Class A assets in secondary CBDs are trading for 5.8% to 6.7%, while suburban class A assets in those markets range from 6.6% to 7.3%. Industrial - Warehouse With the highest cap rates among the four major property sectors, warehouse cap rates continue to fall and have room to compress further. Cap rates for class A assets dropped 45 bps year-over-year, with rates falling between 5.3% and 6.1% on a national basis. In the gateway markets, cap rates are about 60 bps lower in the 4.5% to 5.3% range. Class B industrial assets provided 140 bps of incremental yield, ranging from 6.5% to 7.6% on average, with gateway markets about 90 bps lower. Our outlook is for further downward movement in class A assets, particularly in secondary markets. Multifamily Having reached record lows, multifamily has among the lowest cap rates in our survey and appear be bottoming out as class A cap rates essentially did not move since the last survey. Class A assets trade in the 4.3% to 4.9% range, with core markets about 40 bps lower. Continuing strong capital flows, along with a dearth of class A product on the market have led investors towards development plays as well as class B and C assets, which trade roughly 80 and 180 bps higher, respectively. Class B product in gateway markets trades 70 bps below non-gateway markets, while class C assets in gateway markets trade only 30 bps below non-gateway markets. Our aggregate outlook for this sector calls for cap rates to hold steady over the next six months. In the class B and C space, however, we believe there is additional room in select markets for further cap rate compression. Retail Strip Centers Cap rates for strip centers were flat year-over-year, as the only significant movement was for class A suburban assets which increased 20 bps. Class A strip centers in Downtown areas are trading for cap rates in the 5.2% to 6. range, with class B strip centers in these same markets trading in the 6.2% to 6.9% range, a shift of about 90 bps from A to B. In the suburbs, class A assets are trading between 5.9% and 6.7%, and class B assets range from 6.9% to 7.7%, a 100 bps spread between class A and B. Our outlook for retail cap rates is for them to remain mostly flat into 2017.

18 ABOUT CAPITAL MARKETS is a world-leading provider of real estate Capital Markets expertise. Our Group provides comprehensive advisory and execution services to clients engaged in buying, selling, investing in, financing or developing real estate and real estate-related assets. Our solutions are tailored to meet the objectives of private and institutional owners and investors, as well as corporate owners and occupiers. OUR CAPITAL MARKET SERVICES Investment Sales & Acquisitions Equity, Debt & Structured Finance Corporate Finance & Investment Banking CONTACT JANICE STANTON Executive Managing Director Investment Strategies janice.stanton@cushwake.com ROB MILLER Research Director Capital Markets and Forecasting rob.miller@cushwake.com SANDY ROMERO Senior Analyst Investment Strategies sandy.romero@cushwake.com is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit or on Twitter.