US CAPITAL

MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
1 CUSHMAN & WAKEFIELD
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
O
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With the firming of the US economy, C&W has seen investors start to
gradually move up the risk-reward spectrum. After having been focused
primarily on core assets in gateway cities for several years, many
institutional investors are showing renewed interest in secondary
markets and assets.
This appetite is due to a combination of low core yields versus
historically wide secondary market spreads, renewed CMBS lending in
secondary markets, and firming fundamentals.
In an effort to help investors evaluate this move to the secondary
markets, C&W is presenting the first of a two part series. This first paper
Market Observations will help identify the current yield spread between
class A and class B assets across property types and geographic
markets. The second paper Market Insights will evaluate geographic
markets relative to their historical performance and potential (rent
performance and volatility, current fundamentals and expected growth).
Taken together we hope that these papers are a useful tool in assisting
investors in their evaluation of primary versus secondary market
investment potential.
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. This is particularly apparent when,
like today, investors start to move up the risk/reward spectrum. The cap
rate ranges provided herein are todays executable cap rate ranges
provided by local C&W brokers, together with our brokers assessment
of market momentum for the next 6 months in light of investor appetite
and transaction pipelines. The following are some overall observations
by property type.
Source: Real Capital Analytics, C&W Capital Markets
CAPITALIZATION RATES BY PROPERTY TYPE
MAY 2013
US CAPITAL MARKETS REPORT:
CAPITALIZATION RATES
BY ASSET TYPE
O V E R V I E W
*
*
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 1Q 2013
* RCA reported only 3 cap rates for malls (CBD: 7.9%, Non-CBD: 9.8%), representing
just 3 transactions and is therefore not indicative of market trends.
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
2 CUSHMAN & WAKEFIELD
C8u
OFFICE FUNDAMENTALS
Fundamentals are firming for national office markets. Private payroll
employment has recovered to 98% of its peak 2007 levels, with
unemployment falling 250 bp from 2009 highs to the current 7.5% level.
Corporate profits have surpassed prior peak levels, and layoffs are abating.
However, economic uncertainty has delayed hiring; there were on average
180,500 private payroll jobs added per month for the 12 months ending April
2013. Despite sluggish job creation, the acceleration in 2013 together with
historically low average construction levels have contributed to national CBD
vacancy rates tightening by 50bp to 13.0% and suburban market vacancy
falling by 100bp to 17.5% for the four quarters ending 1Q 2013.
Given the recovering office market fundamentals and strong capital flows,
investors are focused on office acquisitions. Appetite for acquisitions is
bifurcated into the top assets and markets and other commodity type
acquisitions, as investors are keenly aware of the widely divergent
performance between gateway markets and secondary markets-clearly
reflected in historically wide cap rate spreads between these sectors.
CBD gateway markets have outperformed the overall market, with the lowest
vacancy rates in the country in San Francisco (8.9%), Manhattan (9.1%), and
Boston (10.3%). Unsurprisingly, CBD office values in these top six markets
have recovered on average to prior peak levels, while suburban appreciation
has lagged, having recovered only 17% of peak/trough losses. As a result,
many institutional investors and off-shore buyers are focused on the gateway
office markets: NY, Washington DC, San Francisco, Boston, Chicago and Los
Angeles. But as the CMBS market revives, debt is returning to the secondary
markets at very accretive levels (in part because CMBS debt pricing is not
materially more expensive in such secondary markets); this has caused
investors to increasingly reach for yield in top assets in secondary markets.
NATIONAL VACANCY RATES ACROSS CBD MARKETS
13.0%
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
25%
30%
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Vacancy % UC
CAP RATE SURVEY RESULTS
For current acquisitions, average class A CBD cap rates are between
6.0-6.7% nationally. Unsurprisingly, the lowest cap rates (Manhattan)
coincide with the lowest vacancy rates (Midtown South is the tightest office
market in the US). Within primary markets, CBD cap rates are in the 4%
range and secondary market cap rates average in the 6% range, with
tertiary markets in the 7% range.
Moving from class A CBD to class A suburban properties on average
provides an incremental 65 bp of yield (to 6.7-7.4%), while moving from
class A to class B CBD assets provides approximately 75 bp of incremental
yield (to 6.8-7.5%).
A more major move from Class A CBD to Class B suburban properties
provides approximately a 175 bp increase in going in cap rate on average,
but this can be as high as 450 bp depending upon the markets being traded.
This incremental yield comes with occupancy challenges, as average
suburban vacancy rates are 4.5% higher than in the CBD (17.5% versus
13.0% on average in Q1 2013).
Overall, market indicators point towards gateway markets (which recovered
first) remaining in high demand with flattening but very low cap rates,
barring a sustained spike in interest rates. Second tier markets are poised
to experience increasing cap rate compression over the next six months as
financing becomes increasingly available. Cap rate compression is
expected in the Texas markets driven by strong employment from the
energy sector, as well as the secondary markets, particularly those with a
tech component: Denver, San Jose and Seattle all show strong momentum.
Primarily suburban markets (Atlanta, Phoenix, Dallas) and West/
Southwestern suburban markets also have strong opportunity for cap rate
compression. These include class B assets in suburban markets, many of
which have going in cap rates in excess of 8.5%, and are trading at
historically wide spreads. NATIONAL VACANCY RATES ACROSS NON-CBD MARKETS
17.5%
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
25%
30%
S
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Vacancy % UC
OFFICE
Source: C&W Research, C&W Capital Markets
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
3 CUSHMAN & WAKEFIELD
OFFICE
Class A Trend
Next 6
Mo.
Top Bidders Class B Trend
Next 6
Mo.
Top Bidders Class A Trend
Next 6
Mo.
Top Bidders Class B Trend
Next 6
Mo.
Top Bidders
Atlanta, GA
6.50% - 7.25%
!
Public REITs, Equity
Fund, Operators
7.50% - 8.25%
!
Equity Fund,
Operators, Private
7.50% - 8.25%
!
Equity Fund,
Operators, Private
8.50% - 9.25%
!
Private, Operators
Baltimore, MD 7.50% - 8.00%
!
N/A (Nothing has traded
in a few years)
N/A (Illiquid
Market)
!
Opportunistic,
Redevelopment
7.25% - 8.00%
"#
Private Equity, Value
Add Buyers
8.50% - 9.25%
!
Private Equity, Value Add
Buyers
Boston, MA 4.50% - 5.25%
"#
Pension Fund Advisors,
Foreign, Public REITs
5.00% - 5.75%
"#
Funds, Foreign, Local
Operators
5.75% - 6.50%
"#
Private REITs, Pension
Fund Advisors
8.50% - 9.25%
"#
Funds, Local Operators
Charlotte, NC
6.75% - 7.50%
!
Public REITs, Private
REITs
7.25% - 8.00%
!
Equity Fund,
Operators, Private
7.75% - 8.50%
!
Equity Fund,
Operators, Private
N/A N/A N/A
Chicago, IL 5.50% - 6.25%
"#
Institutional, Foreign 6.50% - 7.25%
"#
Equity Fund,
Operators, Private
7.00% - 7.75%
"#
Private REITs, Pension
Fund Advisors
7.75% - 8.50%
"#
Private Equity, Value Add
Buyers
Minneapolis, MN 6.25% - 7.00%
"#
Private REITs, Private
Equity
7.50% - 8.00%
"#
Private Equity 7.50% - 8.25%
"#
Private Equity 8.25% - 9.00%
"#
Private, Local
Northern New Jersey 6.50% - 7.00%
"#
Institutional, Foreign 7.50% - 8.25%
"#
Opportunity Funds,
Private
7.50% - 8.00%
"#
Private, Raised Funds 8.75% - 9.50%
"#
Private, Raised Funds
New York (NYC) 4.00% - 4.50%
"#
Institutional, Foreign,
REITs
4.75% - 5.50%
"#
Private Capital, Local
Operators
N/A
N/A N/A
N/A
N/A N/A
Orlando, FL 6.50% - 7.00%
"#
Private Equity Funds and
Advisors
7.50% - 8.00%
"#
Private Equity Funds 7.00% - 7.50%
"#
Private Equity and
REITs
8.00% - 8.50%
"#
Private Equity Funds
Philadelphia, PA 7.00% - 7.50%
"#
Equity Funds, Private,
REITs
8.00% - 8.50%
"#
Equity Funds, Private,
REITs
6.50% - 7.25%
"#
Pension Funds, Equity
Funds, REITs
10.00% -
11.00%
"#
Equity Funds, Private
Miami, FL 5.75% - 6.25%
"#
Pension Funds, Private
Equity Funds and
Foreign
6.25% - 6.75%
"#
Private Equity Funds,
Foreign
6.50% - 7.50%
"#
Advisors, Private
Equity Funds, Foreign
7.00% - 8.00%
"#
Private Equity Funds
Tampa, FL 7.00% - 7.50%
"#
Private Equity Funds 8.00% - 8.50%
"#
Private Equity Funds 7.00% - 7.50%
"#
Private Equity, REITs 8.00% - 8.50%
"#
Private Equity Funds
Washington DC 4.75% - 5.50%
"#
Institutional, Foreign,
REITs
5.50% - 6.25%
"#
Funds, Private,
Advisors
5.75% - 6.50%
"#
REITs, Funds,
Advisors, Pension
Funds
7.50% - 8.50%
"#
Pension Fund Advisors,
Local Operators, Funds
AVERAGE 6.04% - 6.60% 6.77% - 7.42% 6.92% - 7.63% 8.25% - 9.02%
WESTERN
MARKETS
Class A Trend
Next 6
Mo.
Top Bidders Class B Trend
Next 6
Mo.
Top Bidders Class A Trend
Next 6
Mo.
Top Bidders Class B Trend
Next 6
Mo.
Top Bidders
Austin, TX 6.00% - 6.75%
!
Institutional 6.50% - 7.25% ! Private 6.00% - 6.75% ! Institutional 6.50% - 7.25% ! Private
Dallas, TX 6.25% - 7.75%*
!
Private, Funds 7.25% - 8.75%*
!
Private 6.00% - 6.75% ! Institutional 8.50% - 9.25% ! Private
Denver, CO 5.75% - 6.75% ! Institutional 7.00% - 7.75% ! Private, Institutional 6.75% - 7.25% ! Private, Institutional 7.50% - 8.25%
"#
High Net, Private
Houston, TX 5.75% - 6.50% ! Institutional, Foreign 6.50% - 7.25% ! Private 6.00% - 6.75% ! Institutional 7.50% - 8.25% ! Private
Los Angeles, CA 5.00% - 5.75%
"#
Institutional 5.75% - 6.50%
"#
Opportunity Funds 6.25% - 7.00% ! Opportunity Funds
Phoenix, AZ 6.25% - 7.00%
!
Foreign, Public and
Private REITs
7.25% - 8.00%
!
Value Add and
Opportunistic
6.50% - 7.25%
!
Foreign, Public and
Private REITs
7.00% - 7.75%
!
Value Add and
Opportunistic
Portland, OR 6.50% - 7.00%
"#
Pension Fund Advisors 7.50% - 8.00%
"#
Private Equity 7.50% - 8.00%
"#
Private Equity 8.00% - 8.50%
"#
Private Equity
Riverside, CA 6.00% - 7.25%
"#
Institutional 7.00% - 7.75%
"#
Private 7.00% - 7.75% ! Private
Sacramento, CA 7.50% - 8.25%
"#
Institutional 8.00% - 8.75%
"#
Operators with JV 8.00% - 8.75% ! Operators with JV 8.25% - 9.00%
"#
Operators with JV
San Antonio, TX 7.00% - 7.75% ! Private 8.00% - 8.75% ! Private 7.75% - 8.50% ! Private 8.50% - 9.25% ! Private
San Diego, CA 6.00% - 6.75%
"#
Institutional 7.00% - 7.75%
"#
Private Capital 5.75% - 6.50%
"#
Institutional, Private
Equity
7.50% - 8.25%
!
Private Capital,
Institutional, REITs
San Francisco, CA 4.75% - 5.50%
"#
Institutional, Foreign,
REITs
4.75% - 5.50%
"#
Institutional 6.25% - 7.00%
!
Institutional 7.00% - 7.75%
"#
Operators with JV
San Jose, CA 6.50% - 7.25% ! Institutional 7.50% - 8.25% ! Institutional 6.25% - 7.00% ! Institutional 7.00% - 7.75% ! Institutional
Seattle, WA 5.00% - 5.75%
"#
Institutional 5.00% - 5.75%
"#
Institutional 5.00% - 5.75% ! Institutional 6.00% - 6.75%
"#
Operators with JV
AVERAGE 6.02% - 6.86% 6.79% - 7.57% 6.50% - 7.21% 7.44% - 8.17%
OVERALL CBD MARKETS OVERALL SUBURBAN MARKETS
CLASS A
6.03% - 6.73%
CLASS B
6.78% - 7.50%
CLASS A
6.69% - 7.40%
CLASS B
7.83% - 8.58%
C8u Su8u88S
*Dallas low end of CBD ranges
reect the uptown submarket.
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
4 CUSHMAN & WAKEFIELD
C8u
INDUSTRIAL FUNDAMENTALS
The industrial sector is firming rapidly, at a current 8.2%
vacancy rate (down 70 bp YOY) with 78.5% capacity
utilization. Rents are up 2.6% YOY through 1Q 2013 and
construction remains significantly below long term averages
at 0.5% of total inventory.
These firming conditions are expected to continue, buoyed
by a firming economy and m-commerce and e-commerce
trends stimulating industrial demand for pick and pack
facilities. This has led some investors to refer to industrial
as the new multifamily sector.
Industrial demand is expected to accelerate in late
2013-2014 as the global slowdown abates and the
emergent rent recovery accelerates as we approach
equilibrium vacancy rates.
INDUSTRIAL CAP RATE SURVEY RESULTS
Industrial cap rates for class A assets ranged between
6.2-6.9% nationally, the highest across all major property
sectors, as industrial lagged the multifamily and office
recovery. Unsurprisingly, some of the lowest cap rates are
in the key industrial markets of Southern California: LA,
Orange County and Riverside (4.5-5.0% for class A), Miami
(5.0-5.5%) and Northern NJ (5.3-6.0%), all markets with
vacancy rates below US averages.
Moving from class A to class B industrial assets provided
approximately 100 bp of incremental yield nationally to cap
rates of 7.2-7.9%.
Amongst all property types, industrial exhibited some of the
greatest expected cap rate compression in our survey, with
lower cap rates forecasted for the majority of markets
across both A and B sectors, and cap rates in 41 of 66
discrete markets expected to compress over the next six
months.
NATIONAL WAREHOUSE VACANCY RATES ACROSS INDUSTRIAL MARKETS
8.2%
0%
5%
10%
15%
20%
25%
30%
0%
4%
8%
12%
16%
20%
L
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Vacancy Under Construction (as % of Inventory)
INDUSTRIAL - WAREHOUSE
Source: C&W Research, C&W Capital Markets
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
5 CUSHMAN & WAKEFIELD
EASTERN MARKETS Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders
Atlanta
6.00% - 6.75%
!
Institutional, Equity Fund, Private REITs 7.00% - 7.75%
!
Operator, Private
Baltimore 5.80% - 6.90%
"#
Institutional, Pension Advisors, Private Equity, Private
REITs
5.85% - 7.80%
"#
Institutional Pension Advisors, Private Equity, Private
REITs
Boston 7.50% - 8.25%
"#
Funds, Private REITs 9.00% - 9.75%
"#
Local Operators
Central PA 6.00% - 6.75%
!
REITs, Private Investors, Fund Managers, Financial
Institutions
7.25% - 8.00%
!
REITs, Local Fund Managers, Privately Held Investors
Charlotte
6.75% - 7.50%
!
Private REITs, Equity Fund, Operator 8.00% - 8.25%
!
Operator, Private
Chicago 6.00% - 6.50%
!
Pension Funds, REITs, Investment Fund Managers 7.25% - 7.75%
!
Private Equity Industrial Funds, Leveraged Private
Investors
Cincinnati 7.50% - 8.00%
!
Private Equity Industrial Funds, Fund Managers,
REITs
8.25% - 9.00%
!
Private Equity Industrial Funds, Leveraged Private
Investors
Columbus 7.50% - 8.00%
!
Private Equity Industrial Funds, Fund Managers,
REITs
8.50% - 9.25%
!
Private Equity Industrial Funds, Leveraged Private
Investors
Indianapolis 6.50% - 7.25%
!
Pension Funds, Private Equity Industrial Funds,
Investment Fund Managers, REITs
7.50% - 8.25%
!
Private Equity Industrial Funds, Leveraged Private
Investors
Lehigh Valley 5.75% - 6.50%
!
REITs, Private Investors, Fund Managers, Financial
Institutions
7.00% - 7.75%
!
REITs, Local Fund Managers, Privately Held Investors
Memphis
7.00% - 7.75%
"#
Equity Fund, Operator, Private 8.00% - 8.75%
"#
Operator, Private
Miami 5.00% - 5.50%
!
Pension Funds, Private Equity Industrial Funds,
Investment Fund Managers, REITs
5.50% - 6.25%
!
Pension Funds, Private Equity Industrial Funds,
Investment Fund Managers, REITs
Minneapolis 6.75% - 7.50%
!
REITs, Private Equity 8.00% - 8.75%
!
REITs, Private Equity
Nashville
7.00% - 7.75%
!
Private, Operator 7.50% - 8.25%
!
Operator, Private
Northeastern PA 6.75% - 7.50%
"#
Private Investors, Fund Managers, Financial
Institutions
8.00% - 8.75%
"#
Local Fund Managers, Privately Held Investors
Northern New Jersey 5.25% - 6.00%
!
Institutional, REITs 6.25% - 6.75%
!
Institutional, REITs, Private
Orlando 6.00% - 6.50%
"#
REITs, Advisors, Private Equity Funds 6.75% - 7.75% "# REITs and Private Equity Funds
Philadelphia Metro 6.25% - 7.00%
!
Fund Managers, REITs 7.50% - 8.25% "# Local Fund Managers, Privately Held Investors
Tampa 6.25% - 6.75%
"#
REITs and Private Equity Funds 7.00% - 7.75% "# Private Equity Funds
AVERAGE
6.04% - 7.09% 7.37% - 8.15%
WESTERN MARKETS Class A Trend Next 6
Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders
Austin 6.50% - 7.00%
!
Institutional 7.50% - 8.25%
!
Private
Dallas 5.50% - 6.25%
!
Pension Funds, Private Equity Industrial Funds,
Investment Fund Managers, REITs
7.00% - 7.75%
!
Pension Funds, Private Equity Industrial Funds, Investment
Fund Managers, REITs
Denver 6.25% - 6.75%
!
Institutional 7.25% - 7.75%
!
Private
Houston 5.50% - 6.25%
!
Pension Funds, Private Equity Industrial Funds,
Investment Fund Managers, REITs
7.00% - 7.75%
!
Pension Funds, Private Equity Industrial Funds, Investment
Fund Managers, REITs
Los Angeles 4.50% - 5.00%
"#
REITs, Pension Funds 5.25% - 6.00%
"#
REITs, Pension Funds, Opportunity Funds
Orange County 4.50% - 5.00%
"#
REITs, Pension Funds 5.25% - 6.00%
"#
REITs, Pension Funds, Opportunity Funds
Portland 6.75% - 7.25%
"#
Pension Fund Advisors 7.50% - 8.00%
"#
Private Equity
Riverside 4.50% - 5.00%
"#
REITs, Pension Funds 5.75% - 6.50%
"#
REITs, Pension Funds, Opportunity Funds
Sacramento 7.00% - 7.75%
!
Institutional 8.00% - 8.75%
!
Operator w JV Equity
San Antonio 6.50% - 7.25%
"#
Private 8.00% - 8.75%
"#
Private
San Diego 6.00% - 6.75%
"#
Institutional, REITs, Private Capital 7.00% - 7.75%
"#
Institutional, REITs, Private Capital
San Francisco 5.50% - 6.25%
!
Institutional 6.00% - 6.75%
!
Institutional
San Jose 7.00% - 7.75%
!
Institutional 7.00% - 7.75%
!
Institutional
St. Louis 6.75% - 7.50%
!
Pension Funds, Private Equity Industrial Funds,
Investment Fund Managers, REITs
7.75% - 8.50%
!
Private Equity Industrial Funds, Leveraged Private
Investors
AVERAGE
5.91% - 6.55% 6.88% - 7.59%
OVERALL
CLASS A
6.19% - 6.86%
CLASS B
7.16% - 7.91%
WAREHOUSE
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
6 CUSHMAN & WAKEFIELD
C8u
MULTIFAMILY FUNDAMENTALS
The national multifamily vacancy rate of 4.65% is below its
2007 level, making it the first property sector to reach pre-
recession levels in terms of pricing and vacancy rates.
According to Moodys May Commercial Property Price Index,
major multifamily markets have surpassed their January
2008 peak pricing by 6.9%. Market momentum is strong with
vacancy rates falling 79 bp YOY and rents increasing 13%.
Despite a move towards building to core returns,
construction doubled over the year, but remained near
historically low levels at 0.27% of total inventory. Strong
fundamentals, spurred on by pent up household formations
from the boomerang generation, are expected to continue to
propel rent growth in this sector throughout 2013.
MULTIFAMILY CAP RATE SURVEY
Multifamily pricing recovered ahead of the other property
sectors and has outperformed them in terms of total return as
well as rent growth. As a result of these factors and
continued supply of GSE financing, cap rates are the lowest
of all property sectors. Cap rates average 4.8-5.5% for Class
A assets, with an incremental 100 bp for class B assets and
about 200 bp for class C assets. Despite the low levels of
Class A cap rates, investors are applying a material risk
premium in B and C quality assets. Class A assets in the
tightest markets are trading at 3.75% (LA, Orange County,
San Diego, SF, NYC, and Washington DC) while secondary
Class B assets are trading at 7.50-7.75% (St. Louis and
Indianapolis), making the risk spread a substantial 375+
basis points.
The movement by multifamily investors beyond exclusively
primary markets to secondary markets in a search for yield
began in 2012, and future appreciation is expected to come
primarily from income growth in these markets as opposed to
cap rate compression. Secondary assets and markets,
however, are expected to experience continued cap rate
compression due to limited availability of product and strong
appetite from investors. Market momentum points towards 50
bp of cap rate compression in 2013 in secondary markets
and assets in markets such as Charlotte, Las Vegas, and
Raleigh-Durham.
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vacancy Compleuons (as of lnvenLory)
MULTIFAMILY
Source: Reis, C&W Capital Markets
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
7 CUSHMAN & WAKEFIELD
EASTERN MARKETS
Class A Trend
Next 6 Mo.
Class B Trend
Next 6 Mo.
Class C Trend
Next 6 Mo.
Atlanta 4.75% -5.50% "# 5.75% - 6.50%
!
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Boston 4.00% - 4.50% "# 5.00% - 6.00% "# 7.00% - 8.00%+
!
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!
7.00% - 8.00% "#
Chicago 4.75% - 5.50% "# 5.50% - 6.50% "# 6.50% - 8.00% "#
Columbus 6.00% - 7.00% "# 7.00% - 8.00% "# 8.00% - 9.00% "#
Indianapolis 6.25% - 7.50% "# 7.75% - 8.50%
!
9.00% - 11.00%
!
Jacksonville 5.00% - 5.50% "# 6.00% - 6.50% "# 7.00%+ "#
Minneapolis 5.00% - 5.50% "# 6.00% - 7.00% "# 7.00% - 8.50% "#
Nashville 5.00% - 5.50% "# 6.00% - 7.00%
!
7.00% - 8.00% "#
Northern New Jersey 4.50% - 5.00% "# 5.50% - 6.00% "# 6.50% - 7.50% "#
New York (NYC) 3.75% - 4.00% "# 4.50% - 5.00% "# 5.50% - 6.50% "#
Orlando 5.50% - 6.00%
!
6.00% - 6.75%
!
6.75%+ "#
Philadelphia 5.00% - 5.75%
"#
6.00% - 6.75%
"#
6.75% - 7.50% "#
Raleigh-Durham 4.50% - 5.25%
!
5.50% - 6.00%
!
6.75% - 7.50%
!
South Florida 4.50% - 5.00%
!
5.50% - 6.25%
"#
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Tampa 5.50% - 6.00%
!
5.90% - 6.75%
!
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Washington 3.75% - 4.25%
$
5.25% - 5.75%
"#
6.00% - 7.00% "#
AVERAGE
4.79% - 5.43% 5.80% - 6.54% 6.88% - 7.93%
WESTERN MARKETS
Class A Trend
Next 6 Mo.
Class B Trend
Next 6 Mo.
Class C Trend
Next 6 Mo.
Austin 4.50% - 6.00% "# 6.00% - 7.00%
!
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Dallas 5.00% - 6.25% "# 6.50% - 8.25%
!
8.00% - 10.00% "#
Denver 4.50% - 5.00% "# 5.50% - 6.00%
"#
6.25% - 6.75% "#
Houston 5.00% - 6.25% "# 6.25% - 8.00%
!
7.25% - 9.00% "#
Inland Empire 5.00% - 5.50% "# 5.50% - 6.00%
!
6.00% - 7.00% "#
Las Vegas 5.50% - 6.00%
!
6.00% - 6.50% "# 7.00%+ "#
Los Angeles 3.75% - 4.25% "# 4.75% - 5.50% "# 5.50% - 6.50% "#
Orange County 3.75% - 4.25% "# 4.75% - 5.25% "# 5.25% - 6.00% "#
Phoenix 4.75% - 5.50% "# 5.75% - 6.50% "# 6.50% - 7.50%
$
Portland 4.75% - 5.25% "# 5.50% - 6.00% "# 6.00% - 7.00% "#
Sacramento 5.00% - 5.50% "# 5.75% - 6.50% "# 6.50% - 7.50% "#
Salt Lake City 5.50% - 6.00% "# 6.00% - 6.75% "# 7.00%+ "#
San Antonio 5.50% - 6.50%
!
6.00% - 6.75%
!
7.50% - 8.50% "#
San Diego 3.75% - 4.50% "# 4.50% - 5.00% "# 5.50% - 6.00% "#
San Francisco 3.75% - 4.50% "# 4.90% - 5.50% "# 5.50% - 6.50% "#
Seattle 4.00% - 4.50% "# 5.00% - 6.00% "# 6.00% - 7.00% "#
St. Louis 6.50% - 7.50% "# 7.50% - 8.50% "# 8.50% - 9.50% "#
AVERAGE
4.74% - 5.49% 5.66% - 6.47% 6.54% - 7.57%
OVERALL NATION
CLASS A
4.76% - 5.46%
CLASS B
5.73% - 6.51%
CLASS C
6.71% - 7.75%
MULTIFAMILY
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
8 CUSHMAN & WAKEFIELD
RETAIL FUNDAMENTALS
Retail was the last property sector to demonstrate
rental growth, however, it too has turned the corner.
Retail sales grew by 0.6% in the first quarter of 2013
despite a March drop attributable to tax increases and a
spike in fuel prices which slowed consumer spending.
The US consumer has remained resilient despite the
2% Social Security payroll tax increase and fiscal cliff
concerns, and consumer sentiment rose in March
reflecting a stabilizing job environment.
The national vacancy rate for retail properties fell 27 bp
YOY to 10.7%, and retail rents turned the corner in
2012, increasing by 0.6% YOY.
RETAIL CAP RATE SURVEY
Cap rates for strip centers are compressing with Class
A properties trading at going in cap rates of 5.5-6.3%,
with an incremental 50 bp for secondary market assets
of similar quality and 100 bp of incremental yield on
class B properties. Class A malls are trading at
5.3-6.0% on average, with cap rates in the mid 4%
range in markets such as Los Angeles. High street
retail in luxury corridors in NYC are in high demand,
trading in the sub-4% range. Cap rates for class B
malls in the secondary markets are trading at a wider
range of 7.4-8.3%.
Retail represents the widest trading band of all property
types, reflecting the bifurcated nature of retail, which is
either highly occupied, or highly vacant (once an
anchor is lost).
Looking forward over the next six months, retail cap
rates are expected to compress modestly, particularly in
the secondary markets which have not rallied to the
same extent as the top primary markets to date. Texas,
Denver, and Southern California are all expected to
experience material cap rate compression in the
second half of 2013.
C8u
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RETAIL
Source: Reis, C&W Capital Markets
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
9 CUSHMAN & WAKEFIELD
EASTERN
MARKETS
Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders
Atlanta 5.00% - 6.00%
!
Public, Institutional 7.00% - 7.75%
"#
Public,
Institutional,
Private
5.50% - 6.50%
!
Public, Institutional 7.00% - 7.75%
"#
Public, Institutional, Private
Boston 4.25% - 5.00%
"#
Institutional 6.25% - 7.00%
"#
Institutional 5.75% - 6.50%
"#
Institutional, Private 7.00% - 7.75%
"#
Institutional, Private
Charlotte 6.00% - 7.00%
"#
Public, Institutional,
Private
7.00% - 8.00%
"#
Private 6.00% - 7.00%
"#
Public, Institutional,
Private
7.00% - 8.00%
"#
Private
Chicago 5.00% - 5.75%
!
REITs, Private
REITs, Private Equity
6.50% - 7.25%
"#
REITs, Private 6.25% - 7.00%
!
REITs, Private REITs,
Private
7.50% - 8.25%
"#
Private REITs, Private
Miami 4.50% - 5.50%
!
Public, Institutional 6.50% - 7.50%
!
Public,
Institutional,
Private
5.00% - 6.00%
!
Public, Institutional 6.50% - 7.50%
!
Public, Institutional, Private
Minneapolis N/A N/A N/A N/A N/A N/A 7.50% - 8.00%
"#
Institutional N/A N/A N/A
Northern NJ N/A N/A N/A N/A N/A N/A 5.00% - 5.75%
"#
Institutional Investors 6.25% - 7.00%
!
Institutional, REITs
Orlando 5.75% - 6.50%
"#
Public, Institutional 7.00% - 8.00%
"#
Private 5.75% - 6.50%
"#
Public, Institutional 7.00% - 8.00%
"#
Private
Philadelphia 6.00% - 6.75%
"#
REITs, Private,
Funds
6.75% - 7.5%
"#
Private, Funds 7.50% - 8.25%
"#
REITs 8.25% - 9.00%
"#
Private, Fund Operators
Tampa 5.75% - 6.50%
"#
Public, Institutional 7.00% - 8.00%
"#
Private 5.75% - 6.50%
"#
Public, Institutional 7.00% - 8.00%
"#
Private
AVERAGE 5.28% - 6.13% 6.75% - 7.63% 6.00% - 6.80% 7.06% - 7.92%
WESTERN
MARKETS
Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders
Austin N/A N/A N/A N/A N/A N/A 6.25% - 7.00%
!
Pension Funds,
Institutional
8.50% - 9.00%
!
Private, Local Buyers,
Private REITs, Public
REITs
Dallas N/A N/A N/A N/A N/A N/A 6.25% - 7.00%
!
Pension Funds,
Institutional
8.50% - 9.00%
!
Private, Local Buyers,
Private REITs, Public
REITs
Denver N/A N/A N/A N/A N/A N/A 5.00% +/-
!
Public REITs 7.00% - 9.00%
"#
Private
Houston N/A N/A N/A N/A N/A N/A 6.25% - 7.00%
!
Pension Funds,
Institutional
8.50% - 9.00%
!
Private, Local Buyers,
Private REITs, Public
REITs
Las Vegas 4.75% - 5.25%
"#
Pension Funds 6.25% - 7.00%
"#
Institutional,
Regional
5.50% - 6.25%
"#
Regional, Private 8.00% - 8.75%
"#
Regional, Private
Los Angeles 4.50% - 5.00%
"#
Pension Funds 5.75% - 6.50%
"#
Institutional,
Regional
5.00% - 5.50%
!
Pension Funds,
Advisors, Regional
6.75% - 7.25%
!
Regional, Private REITs,
Public REITs
Portland 6.50% - 7.00%
"#
Pension Fund
Advisors
7.25% - 7.75%
"#
Private Equity 6.50% - 7.00%
"#
Pension Fund
Advisors
7.50% - 8.00%
!
Private Equity
Riverside 6.25% - 7.00%
"#
Regional, Private
REIT
7.25% - 8.00%
"#
Regional 6.50% - 7.00%
!
Pension Funds 8.00% - 8.75%
"#
Regional, Private
San Antonio N/A N/A N/A N/A N/A N/A 6.25% - 7.00%
!
Pension Funds,
Institutional
8.50% - 9.00%
!
Private, Local Buyers,
Private REITs, Public
REITs
San Diego 4.75% - 5.25%
"#
Pension Funds N/A N/A N/A 5.00%
!
Pension Funds 6.50% - 8.00%
"#
Regional, Private REITs,
Public REITS.
AVERAGE 5.35% - 5.90% 6.63% - 7.31% 5.85% - 6.72% 7.78% - 8.85%
OVERALL PRIMARY MARKETS OVERALL SECONDARY MARKETS
CLASS A
5.31% - 6.04%
CLASS B
6.71% - 7.52%
CLASS A
5.93% - 6.76%
CLASS B
7.43% - 8.26%
PRIMARY SECONDARY
RETAIL: MALLS
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
10 CUSHMAN & WAKEFIELD
EASTERN
MARKETS
Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders
Atlanta, GA 5.75% - 6.50%
!
Public, Institutional,
Private
6.75% - 7.50%
"#
Public,
Institutional,
Private
6.00% - 6.75%
!
Public, Institutional, Private 7.25% - 8.00%
"#
Private, Public
Boston, MA 4.25% - 5.00%
"#
Private, International 5.25% - 6.00%
"#
Institutional,
Private
6.50% - 7.25%
!
Institutional, REITs 7.25% - 8.00%
!
Private, Institutional,
REITs
Charlotte, NC 6.25% - 7.00%
"#
Public, Institutional,
Private
7.00% - 8.00%
%
Private 6.50% - 7.25%
"#
Public, Institutional, Private 7.50% - 8.25%
%
Private
Chicago, IL 4.25% - 5.00%
!
Institutions, Public
REITs, Private REITs
5.50% - 6.25%
!
Institutions,
Private REITs
5.75% - 6.50%
!
Institutional;, Sovereign,
Private
6.75% - 7.50%
"#
Institutions, Private
REITs, Public REITs
Miami, FL 5.25% - 6.00%
!
Public, Institutional 6.00% - 7.00%
!
Public,
Institutional,
Private
5.25% - 6.00%
!
Public, Institutional 6.25% - 7.25%
!
Public, Institutional,
Private
Minneapolis,
MN
N/A N/A N/A N/A N/A N/A 6.00% - 6.50%
"#
All types 7.50% - 8.00%
"#
Non-institutional
Northern NJ 5.50% - 6.00%
"#
Institutional 6.25% - 7.00%
!
Institutional, REITs
New York
(NYC)
4.25% - 5.00%
"#
Private, Local Capital N/A N/A N/A N/A N/A N/A N/A N/A N/A
Orlando, FL 6.00% - 6.75%
!
Public, Institutional,
Private
7.00% - 7.75%
!
Public,
Institutional,
Private
6.00% - 6.75%
!
Public, Institutional, Private 7.00% - 7.75%
!
Public, Institutional,
Private
Tampa, FL 6.00% - 6.75%
!
Public, Institutional,
Private
7.00% - 7.75%
!
Public,
Institutional,
Private
6.00% - 6.75%
!
Public, Institutional, Private 7.00% - 7.75%
!
Public, Institutional,
Private
AVERAGE 5.25% - 6.00% 6.36% - 7.18% 5.94% - 6.64% 6.97% - 7.72%
WESTERN
MARKETS
Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders Class A Trend Next
6 Mo.
Top Bidders Class B Trend Next
6 Mo.
Top Bidders
Austin, TX 6.75% - 7.50%
"#
Public & Private
REITs
7.50% -8.25%
"#
Private REITs,
Private Investors
7.00% - 7.75%
"#
Public REITs, Private
REITs, Institutional,
Pension Funds
7.75% - 8.75%
"#
Public REITs, Private
REITs, Private
Investors
Dallas, TX 5.50% - 6.25%
!
Public REITs, Private
REITs, Institutional,
Pension Funds
7.25%-8.00%
!
Private REITs,
Private Investors
5.75% - 6.50%
!
Public REITs, Private
REITs, Institutional,
Pension Funds
7.50% - 8.25%
!
Public REITs, Private
REITs, Private
Investors
Denver, CO N/A N/A N/A N/A N/A N/A 6.00% - 7.00%
!
Public REIT 7.50% - 8.50%
"#
High net
Houston, TX 5.75% - 6.75%
"#
Public REITs, Private
REITs
7.50% - 8.25%
"#
Private REITs,
Private Investors
6.00% - 6.75%
"#
Public REITs, Private
REITs, Institutional,
Pension Funds
7.75% - 8.50%
"#
Public REITs, Private
REITs, Private
Investors
Las Vegas, NV 4.00% - 5.00%
"#
Institutional 5.25% - 6.00%
"#
Regional 6.25% - 6.75%
"#
Institutional 7.00% - 7.50%
"#
Regional, Local
Los Angeles,
CA
4.75% - 5.50%
"#
Institutional 5.25% - 6.00%
"#
Various 5.25% - 5.75%
"#
Institutional 6.00% - 6.75%
"#
Regional, Local
Phoenix, TX 6.00% - 6.75%
"#
Institutional,
Regional
7.25% - 8.50%
"#
Regional, Private
Investors
6.00% - 6.75%
"#
Institutional, Regional 7.25% - 8.50%
"#
Regional, Private
Investors
Portland, OR 6.50% - 7.00%
"#
Pension Fund
Advisors
7.25% - 7.75%
"#
Private Equity 7.00% - 7.5%
"#
Private Equity 7.75% - 8.25%
!
Private Equity
Riverside, CA 6.50%- 7.25%
"#
Regional 7.25% - 7.75%
"#
Regional 6.50% - 7.00%
"#
Various 6.75% - 7.50%
"#
Regional, Local
San Antonio, TX 6.75% - 7.75%
"#
Public REITs, Private
REITs
7.75% - 8.75%
"#
Private REITs,
Private Investors
7.25% - 7.75%
"#
Public REITs, Private
REITs, Institutional,
Pension Funds
8.00% - 8.75%
"#
Public REITs, Private
REITs, Private
Investors
San Diego, CA 4.75% - 5.50%
"#
Institutional 5.75% - 6.50%
"#
Various 5.25% - 5.75%
"#
Institutional 6.50% - 7.25%
"#
Regional, Local
San Jose, CA N/A N/A N/A N/A N/A N/A 5.50% - 6.25%
"#
Mixed 6.50% - 7.25%
"#
Mixed
AVERAGE 5.73% - 6.53% 6.80% - 7.58% 6.15% - 6.79% 7.19% - 7.98%
OVERALL PRIMARY MARKETS OVERALL SECONDARY MARKETS
CLASS A
5.51% - 6.29%
CLASS B
6.62% - 7.41%
CLASS A
6.06% - 6.73%
CLASS B
7.10% - 7.87%
PRIMARY SECONDARY
RETAIL: STRIP CENTERS
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
11 CUSHMAN & WAKEFIELD
Investor capital flows remain quite strong for real estate, and most investors
are increasing acquisitions targets on a year-over-year basis. This strong
equity and debt appetite together with solid fundamentals point to flat to lower
cap rates across property sectors barring an economic setback-either a
downturn in the economy or materially higher interest rates.
As a result, the C&W survey points to lower to flattening cap rates across
property sectors with only isolated pockets of upward cap rate pressure (in
DC for example given the fiscal cliff cutbacks).
While multifamily has the overall lowest cap rates across property sectors,
further cap rate compression is expected in the secondary multifamily markets
in 2013 as investor appetite remains quite strong. The industrial sector has
the most momentum and is expected to sustain significant cap rate
compression in 2013 with the majority of markets/sectors expecting lower cap
rates. And while suburban office product has the highest cap rates for Class A
assets, cap rates are expected to compress for prime suburban office product
as CMBS lending revives in 2013.
OFFICE
Class A CBD cap rates are between 6.0-6.7%, Class A suburban properties
on average provide an incremental 65 bp of yield (to 6.7-7.4%), and Class B
CBD assets provide approximately 75 bp of incremental yield over Class A
CBD assets (to 6.8-7.5%). And Class B suburban assets trade at a premium
of 100 bp to Class B CBD assets (7.8-8.6%).
Overall, market indicators point towards gateway markets remaining in high
demand with flattening but very low cap rates, and second tier markets poised
to experience increasing cap rate compression over the next six months as
they are trading at historically wide levels.
INDUSTRIAL WAREHOUSE
Class A assets ranged between 6.2-6.9% nationally, with some of the lowest cap
rates in the key industrial markets of Southern California. Class B industrial
assets provided approximately 100 bp of incremental yield nationally to cap rates
of 7.2-7.9%.
Industrial exhibited some of the greatest expected cap rate compression in our
survey, with falling cap rates forecasted for the majority of markets across both
A and B sectors, and cap rates in 41 of 66 discrete markets expected to
compress over the next six months.
MULTIFAMILY
Class A cap rates average 4.8-5.5%, with an incremental 100 bp for class B
assets and 200 bp for class C assets.
As multifamily investors moved to secondary markets in 2012, future appreciation
in 2013 is expected to come primarily from income growth in the primary markets.
Secondary assets and markets are expected to experience 50 bp of further cap
rate compression due to limited availability of product and strong appetite from
investors.
RETAIL
High street retail in luxury corridors in NYC is trading in the sub-4% range. Class
A malls are trading at 5.3-6.0% on average, with cap rates in the mid-4% range in
markets such as Los Angeles. Cap rates for Class B malls in the secondary
markets are trading at a wider range of 7.8-8.9%. Strip Centers are trading in a
tighter band. Class A properties are trading at going in cap rates of 5.5-6.3%.
Secondary market assets trade at an incremental 50 bp for similar quality assets,
and Class B assets trade at 100 bp of incremental yield.
Retail cap rates are expected to compress modestly, particularly in the secondary
markets which have not yet rallied to the same extent as the top primary markets
to date. Texas, Denver and Southern California are all expected to experience
material cap rate compression in the second half of 2013.
CONCLUSION
US CAPITAL
MARKETS REPORT:
CAPITALIZATION
RATES BY ASSET
TYPE
12 CUSHMAN & WAKEFIELD
ABOUT CAPITAL MARKETS
Cushman & Wakefield 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.
CONTACT
GREG VORWALLER
Executive Vice President
Global Head Of Capital Markets
+1 312 470 1855
greg.vorwaller@cushwake.com
CURTIS MAGLEBY
Senior Managing Director
Western Capital Markets
+1 213 955 6467
curtis.magleby@cushwake.com
STEVEN WEILBACH
Senior Managing Director
Multifamily Capital Markets
+1 415 773 3510
steve.weilbach@cushwake.com
FRED HARMEYER
Senior Managing Director
Eastern Capital Markets
+1 212 841 7515
fred.harmeyer@cushwake.com
JANICE STANTON
Senior Managing Director
Investment Strategies
+1 212 841 5025
janice.stanton@cushwake.com
Investment Sales & Acquisitions
Equity, Debt & Structured Finance
Corporate Finance & Investment Banking
Cushman & Wakefield is the worlds largest privatelyheld commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has
established a preeminent position in the worlds major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 253
offices in 60 countries and nearly 15,000 employees. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance
and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than $3.7 billion in assets under management
globally. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge.
OUR CAPITAL MARKET SERVICES