The U.S. commercial real estate market – including Philly office space and Philly retail space – continued to record strong demand midyear as measured in both occupancy and rent growth, and analysts even found optimism in the slowing trend in investment sales activity seen year-to-date.
Office net absorption rebounded from a slow first quarter, matching year-earlier levels, and vacancies continue to fall to a cyclical low in the second quarter of 2016. Although easing slightly this year, office rent growth ended the quarter with a strong 4% increase, according to Walter Page, director of U.S. Research, Office for CoStar.
First-half office sales were down 20% from the same period last year, largely reflecting the smaller pools of buyers for marketed properties in the U.S. and Philadelphia commercial real estate market and diminished investor appetite for higher-risk assets, Page said.
“While the 10-year Treasury rate has hit a record low, our view is that cap rates for real estate in general are likely to remain fairly flat,” said Page, who will elaborate on office market trends in CoStar’s Midyear 2016 Office Market Review and Forecast presentation on July 21.
This report on national and Philadelphia commercial properties was made through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
Evidence is beginning to emerge of an uptick in foreign buyers seeking the security and economic stability of U.S. and Philadelphia commercial real estate properties and markets, including the warehouse market, as a result of the Brexit. And some of those international bidders and buyers are popping up in markets outside the Washington D.C./New York City/San Francisco triangle, such as downtown Chicago and Austin.
In one instance, a number of foreign bidders were reported to have put in offers for 1K Fulton, a 10-story, 531,190-square-foot Class A office building that serves as Google’s Midwest headquarters in Chicago.
There is also mounting evidence that events in Europe and around the world are making national and Philadelphia commercial real estate listings more appealing to investors interested in pursuing similar defensive strategies.
While a decrease in office sales in the U.S. commercial real estate market – including Philly office space and Philly retail space – was expected this year following 2015’s breakneck pace, steady debt and equity flows and improving asset performance have continued to generate steady sales activity, and investors continue to see upside potential in office properties, which are the only major property type that has yet to reach pre-recession peak pricing levels.
Average office pricing for both U.S. and Philadelphia commercial real estate listings have risen nominally from a year ago, while the average cap rate was essentially unchanged in the low-7% range. Office investors saw a slight rise in first-year returns in primary markets, contributing to a narrower spread between cap rates in tertiary markets.
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