Juniper attended the NAIOP breakfast on May 21. The the subject of the presentation was the Brokers Forecast and “are we nearing the next bubble?” The annual Broker’s Forecast details Seattle’s current market and upcoming potential. We always enjoy these informative NAIOP breakfasts and we want to share the information with our blog readers. We also encourage you to join us at one of the next local NAIOP events.*
The NAIOP Seattle Chapter is the fifth largest chapter in the United States, and they hold regular discussions throughout the region. At this discussion, Mike Wood, Principal with NBS Financial Services, was our moderator. The panelists were Stuart Williams, Managing Director of JLL, Justin Dennett, Senior VP with Morrison Street Capital, and Eric Bridges, Sr. Investment Officer and Head of West Coast Production for State Farm Life Insurance
Mike began by stating that the 10 year treasury bond is trading at 2.55% and most large deals are being done at roughly 4% for a 10 year note. So, money is inexpensive and this has fueled a vibrant commercial real estate market in Seattle. Office vacancies hover around 12.5% with an average rent for Class A space at approximately $30.40 per square foot. Industrial property has a vacancy rate of 5.5% with an average rent of $.59 per square foot. Retail vacancy rates are at 5.6% with an average rent of $17.18 per square foot.
Multifamily properties have shown a marked upturn in price per unit and price per square foot. Eric pointed out that approximately 50% of State Farm’s money goes to the multifamily market sector. These figures all point to a real turnaround from the bottom of the market. Click here to see slides.
Justin, a Portland-based fund manager, sees owners pulling equity from properties for leverage at the current low interest rates. He and his firm also notice less refinancing.
Stuart compared LEED Silver to the “price of admission,” as a property needs to have this minimum level of certification to compete in the Seattle marketplace. He also did not think a bubble is near. He pointed out that lease rates are strong and interest rates are low. Eric agreed that the demand continues to grow for these properties and that changing workforce demographics are driving demand. Stuart noted an increase in international investors in 2014, as opposed to 2013 where more traditional institutional investors held sway.
Stuart suggested that the best values in the various segments include multifamily in Capital Hill and Queen Anne; office space in Bothell, Kent, and Renton; and industrial properties with easy access to the Port of Tacoma and Spokane Street. Stuart also stated that the retail sector marketplace was adjusting with traditional malls being redeveloped to emphasize theaters and food service. Justin added that there is good value in suburban office space.
All of the panelists indicated that external factors could force an uptick in rates. Justin stated that he could see some incremental rate increases and theorized that these increases may by driven by housing market demand. Eric suggested that the government (and its debt) will be a significant damper on rates going up. When the audience was surveyed, approximately 25% felt that rates would stay the same, 30% felt they would increase, and 45% had no idea.
Overall, the forecast was generally upbeat, suggesting we are not nearing a bubble in the Seattle market. The number of cranes dotting the skyline seems to confirm that opinion.
Thanks to Ed Scherer of Avidex Industries, LLC for his newsletter article Brokers Forecast: Are We Nearing the Next Bubble?, which was used for this blog.