Heading into 2017, key market indicators related to trends in all asset classes show continued growth in both new housing supply and office space. The Federal Reserve opted to raise interest rates for only the second time this decade. Construction financing guidelines are increasingly become more stringent. Here's a recap of what I saw in each sector
2016 sales of multifamily assets, be it existing or new construction, still outperformed market expectations. CoStar data indicates that nearly 3,300 transactions took place this year in the 5+ unit range. This includes all regions in the Greater L.A. Market. Not too shabby for a point in the cycle where everyone is starting to get weary of pricing. Investors are still actively chasing higher-yielding assets, while larger funds continue to acquire lower CAP rate assets. There is still some room for compression, but it will be severely lower than previous years.
Foreign capital continues to land on our shores, thereby looking for safe haven assets. Apartment buildings and new development small lot subdivision and condominium projects are still very attractive for overseas investors who look to build and find an exit after construction. Small lot and condo development deals are two different animals, and each with it's own set of pros and cons to be considered when buying.
Ground-up development projects set to deliver in the following months will be absorbed quickly in most markets due to the housing shortage plaguing the city. Expect 2017 to be another brisk year for this space.
Nine-figure transactions on both the Westside and DTLA topped the news in office transactions this year. Notably the Oppenheimer Tower in Westwood, which traded as part of a $1.3B dollar acquisition by Douglas Emmett. Over 1,150 deals took place in L.A. this year, which indicates that major REITs and publicly traded companies continue to find a home for their cash. Leases are taking longer in some areas than others, due mostly to the sometimes extreme price per sf being sought by landlords in prime locations.
2017 should start to show signs of long term lease deals being negotiated due to uncertainty in financial markets.
This year saw the retail space have a relatively stable amount of volume. New development projects set to break ground at the Warner Center have made headlines as of late. The Sunset, a prominent shopping center in West Hollywood traded recently for over $200m. Several key indicators should come to light in 2017 as to where the retail sector is heading. L.A. continues to be the hot place for thriving businesses to land, so volume should remain steady moving forward.
Ah... The space at which deals seem to continuously make headlines. The L.A. Times building was sold this year for $120m, even though the Times will hold their lease in place until 2023. Plenty of industrial warehouses all over the county traded in a wave of buying that was a bit more accelerated this year. With all the continues to go on and appreciation still in the downtown core, expect more deals to make headlines in 2017.
If you were asking for my 2 cents for what types of investment deals to look out for next year, I would venture to say you will need to be a bit more aggressive in finding well priced assets being offered. In my experience, it is almost always worth the extra ask when a property looks to have differed maintenance or is being under-utilized. You usually make your money on the buy!
Cheers to a fruitful and rewarding new year!