14 Predictions for 2014, Part II
It takes a bold person to go on record with a forecast, but we found 14 of them. Today, we round out our installment with some industrial, retail, and financing predictions. (Miss the first seven? Check them out here.)
8) Big-dollar industrial sales
Stream Realty’s Michael Flowers (here with colleague Jon Farris) thinks Class-A bulk distribution product will trade at over $80/SF this year. (If you are standing in an industrial building right now, don't move unless someone gives you $80 cash.) 2013, especially Q4, saw a tremendous amount of investment sales activity across all submarkets, and Michael expects that high demand to continue. Bulk distribution pricing has been steadily increasing over the past few years and was already trading in the high $70/SF last year, so it doesn’t have far to go. CBRE SVP Tom Lynch adds that the $80 pricetag would be a new high; our upward trajectory is pushing us into a whole new ballgame (an institutional, core ballgame).
9) Industrial vacancy will increase
NAI Houston partner John Ferruzzo (here with Chris Kugle) is watching a glut of new construction hitting the market soon. He tells us 5.8M SF is in the ground, with almost all of it projected to come online in the first half of the year. 1.3M SF of that is preleased, but that leaves 4.5M SF available. Between this and normal consolidation activity, he forecasts vacancy will increase by a percentage or two. (Forklift supply just cant keep up with all the space.)
10) Target will finally build again
Rumor has it that Target is actively looking for a development site here. Stream managing directors Mark Sondock and Ralph Tullier (above) tell us that would be great news for Houston: We haven’t seen soft good anchor tenants of this kind expand for nearly five years. A new Target would signify confidence in the market and would drive junior anchor traffic towards traditional power centers and would likely spark further development in this arena.
11) The grocer race won’t stop
We spent a lot of time in 2013 talking about the heavy competition among grocers, and Baker Katz founder Jason Baker (pictured between his brothers) says 2014 will have the same story. (The winner of the grocer wars will sit on a throne of canned goods with a crown made of fresh produce.) Announcements keep coming: Right before Christmas, Aldi declared it wants to open 650 new locations across the country in the next five years. (It’s already shown it loves Houston; look for many of those to come here as it tries to build market share.) Jason predicts 60 new grocery stores will be built in Houston over the next 18 months.
12) Lenders still love multifamily, but equity placements will ease
ARA VP Adam Allen tells us lenders will still be aggressive for multifamily this year. They’ll get creative to win deals, including putting permanent financing on projects still in lease up, forward commitments, increasing LTVs, longer I/O terms, and greater prepayment flexibility. He’s also forecasting more assumptions on acquisitions due to existing below-market debt and possible rising interest rates. But look for JV development equity to slow thanks to rising construction costs, increasing supply, and slower job growth. (Hey, it can’t all be good news.)
13) Maturities are coming
Grandbridge SVP Greg Young (celebrating his golf prowess) believes transactional volume will increase 20% to 30% as a result of the beginning of the maturity swell (when will that swell hit our brother-in-law?). That’ll include a spike in defaults as new equity requirements will be trumped by borrower unwillingness or inability to feed assets that are overleveraged and upside down. Greg thinks this’ll push more properties to trade via auction houses, and we all can expect transactions to take longer to process. (You might want to go ahead and call your mortgage pro now.)
14) More sale-leaseback and net-lease sales
To combat the inflating cost of capital from increasing interest rates, owner-occupants will look to liquidate assets this year, say Transwestern managing directors Andrew Watson and Marc Imrem (above, they’re sporting nametags at a Transwestern Chicago event in September). That’ll come across in both sale-leasebacks and net-lease properties, which are very attractive to investors because they come ready-made with long-term tenants. These might come in the form of really large deals, like the $17M sale-leaseback Andrew and Marc closed late last year for Flagler Construction Equipment.