Real estate services firm Marcus & Millichap presented its 2019 office and industrial forecast during a webinar on Tuesday, signaling mostly positive outlooks for both sectors as the industry nears the end of this economic cycle. Here are some key points from the presentation.
All suburban office properties are not the same. Prices are at record highs for office assets located in highly walkable suburban areas, particularly compared to somewhat walkable and car-dependent locations, as confirmed by analysis firm Real Capital Analytics (RCA), who had a panelist on Tuesday. The bottom line is that the further out into more car-dependent areas, the higher the cap rate. Localizing the analysis, Austin will have lower caps than Houston - creating a dilemma for investors, when reviewing acquisition prices and IRRs.
Two big inflationary metrics to watch: tariffs and rising construction costs because of labor and material price increases, Marcus and Millichap panelist John Chang said. “Both of these are inflationary in nature,” he added. Chang said the cost of construction labor has accelerated, impacting development pipelines. Meanwhile, rising tariff prices hike up materials costs for new developments, and those hikes could soon be passed on to consumers, Chang said. President Donald Trump on Monday said he expects to boost tariff levels on $200 billion of Chinese goods to 25 percent, the Wall Street Journal reported.
Industrial construction is slowing, but vacancies remain steady. The industry is starting to respond to higher costs, helping to ease construction rush, Chang said. Meanwhile, vacancy rates nationally hover in the 4 percent range. Major industrial hub markets, such as Dallas and Chicago, have seen a flattening of vacancy rates because of construction there. Meanwhile, port markets—such as Houston (as we have personally seen) or Seattle—are very tight, with little room to compress, Chang said. The same goes for local service markets like Cleveland, for example.
With information published by Mary Diduch -