Real Estate Indicators from Michael Nachamkin, managing director for HFF New Jersey.
Commercial Real Estate has outperformed corporate bonds, the S&P, commodities and treasuries over the last 10 to 15 years. Institutional capital has taken note of this trend and has continued to increase its allocations to this investment class.
U.S. real estate activity significantly increased in 2015 with single-asset trading activity at an all-time historic high. In 2016, entity-level deals are significantly off from the 2015 levels, as the majority of the core assets/portfolios traded in the prior year and are not currently being considered for disposition.
Individual purchases of industrial real estate in 2015 surpassed 2007 levels, as did portfolio and entity-level transactions for industrial properties. So far, 2016 activity levels are off by 30 percent over Q1 2015, in part due to the volatility in the market, stock market and capital markets. Normalization is anticipated moving forward.
Global capital is increasing its appetite for industrial, not only in the top-five core markets of Los Angeles, Chicago, Dallas, the Inland Empire and Northern New Jersey, but also spreading its footprint into secondary markets in the Northeast and Mid-Atlantic regions.
Many of the secondary markets are seeing some of the highest growth rates in industrial sales volume with markets such as Washington, D.C.,-Virginia, Baltimore, central Pennsylvania and Memphis, which all saw growth rates between 75 and more than 500 percent from 2014 to 2015. The top five markets for industrial still show Los Angeles leading ($5.6B) followed by Chicago ($4B), Dallas ($3.5B), Inland Empire ($3.49B) and Northern New Jersey ($3.4B).
From a national perspective, there is a significant imbalance with an abundance of capital and a shortage of deals. This has caused yields to compress in some core markets. As industrial investors increase their allocation, the market may see increased sales volume and deal size.
Total returns for industrial have been pretty healthy according to the National Council of Real Estate Investment Fiduciaries. Eastern Pennsylvania, Northern and Central New Jersey and Central Pennsylvania are among the best in the nation.
Michael Nachamkin is a managing director in the HFF New Jersey office. The New Jersey team has completed real estate transaction services for commercial properties in the Tri-State area for almost 20 years. The team has been recognized by Mid-Atlantic Real Estate Journal 2015 Rankings as a No. 1 Sale Broker and No. 1 Mortgage Broker, and named a CoStar Power Broker 2015.