Cassidy Turley: Report Paints 'Promising' Picture

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A regional vice president at commercial real estate firm Cassidy Turley says recent national retail sales numbers point to the potential for continued economic expansion through the rest of the year. Jason Tolliver says an improving jobs picture is the catalyst for growth in Indiana. The firm's third quarter retail and multi-family market report shows increasing demand for space, even among smaller retailers. Tolliver says that shows consumers are feeling more confident in their paychecks and the economy in general.

October 6, 2014

News Release

Indianapolis, Ind. -- Cassidy Turley, a leading commercial real estate services provider in the U.S., announced today that recent retail sales reaffirm its forecast for continued economic expansion and indicate the retail market may be on the cusp of a breakout.

Additionally, absorption in the multi-family market continues at a historically impressive clip, and occupancy is expected to remain stable over the balance of 2014. Despite the delivery of new units, strong underlying demand metrics and favorable demographics will be sufficient to translate into continued declines in vacancy.

For retail in the third quarter, sales rose in August amid back-to-school spending and an economic backdrop of lower gas prices and better job growth that encouraged shoppers to spend. An increasingly emboldened consumer should translate into solid sales for retailers and restaurants and bodes well for a solid holiday shopping season.

"Back-to-school sales provided a nice pop for retailers, but I believe the most encouraging trends are the widespread uptick in discretionary spending and signs that wage growth are on the horizon," said Jason Tolliver, Regional Vice President in Cassidy Turley's Indianapolis office. "Consumers remain confident that the economy is growing but are concerned their earnings aren't. I anticipate that we will see wage growth in the quarters ahead, and this will be a game changer that will allow the retail market to kick into another gear."

Regarding the national multi-family outlook, Mr. Tolliver added, "The multi-family recovery led all other segments of commercial real estate, and the fundamentals underlying this segment remain strong. You can go to almost any major metro and see cranes in the air, and almost always those are multi-family developments. Demand for apartments has exceeded new supply for over three straight years, and the construction we are witnessing now is a reflection of that. The apartment sector has at least another five to seven years of strong fundamentals, so it is a good time to be in this segment of the market."

Q3 2014 Highlights:

Retail

• Quick Summary: The market registered 97,472 SF of positive absorption in the quarter, raising net occupancy gains for the year to 317,207 square feet.

• Growth Areas: Through the third quarter,115,326 square feet of retail product has been delivered, and 93% is pre-leased. An additional 140,149 square feet is under construction and slated to be delivered in the next two quarters.

• Vacancy Rates: Deal velocity on a square-foot basis remains solid, with over 1.09 million square feet of leasing thus far in 2014. Grocery concepts have signed deals for more than 288,000 square feet in the past three quarters. Fitness concepts, restaurants, small shops of all types and a growing craft beer segment are helping to drive leasing demand.

• Outlook: Small-shop leasing will reach pre-recession levels. Class A/B in desirable trade areas will remain in high demand, but the uptick in small-shop leasing will support stronger Class C absorption. Increased demand and limited new supply will result in year-over-year vacancy declines of 80-90 basis points bps) in 2014. Average asking rents should see an annual advance of 1.5 to 1.8%, with the highest rental rate appreciation occurring in the prime trade areas

Multi-family

• Quick Summary: The market absorbed 1,309 units during the third quarter, elevating net absorption for the year to 2,373 units and continuing a five-year streak of uninterrupted occupancy growth. The vacancy rate for all classes of product currently registers 5.8%, a decline of 30 bps from a year prior.

• Growth Areas: Strong demand metrics continue to drive new development, with 1,771 units delivered thus far in 2014 and another 3,729 units under construction. Growth is most pronounced in the Downtown, Fishers, Zionsville and Carmel submarkets.

• Investment Sales: Transaction volume remains solid with more than 4,500 units sold in the greater Indianapolis market in 2014. Investor interest in Central Indiana has compressed cap rates for Class A, suburban properties to the mid-to-low 6% range, nearly 100 bps below prior-year levels.

• Outlook: Despite a large volume of new product, vacancy will remain lower than at any time since the mid-1990s and will track in the mid-to-high 5% range. Delivery and stabilization of new units will once again garner interest from REITs and other institutional investors. Private capital buyers will remain both engaged and focused upon Class A/B multi-family properties.

About Cassidy Turley

Cassidy Turley is a leading commercial real estate services provider with more than 4,000 professionals in more than 60 offices nationwide. With headquarters in Washington, DC, the company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $25.8 billion in 2013, manages approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 24,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting.

Cassidy Turley announced in a press release on September 22 that it has entered into an agreement with an affiliate of DTZ Investment Holdings, backed by TPG, PAG Asia Capital and Ontario Teachers’ Pension Plan (the Consortium that agreed to acquire DTZ), to sell 100% of the equity interests of Cassidy Turley. The agreement is subject to customary closing conditions and is dependent on Cassidy Turley’s combination with the operations of DTZ Group (DTZ) to create a global, full-service commercial real estate services company. The Consortium’s acquisition of DTZ is currently scheduled to close in early November 2014. The acquisition of Cassidy Turley is expected to close on December 31, 2014.

Source: Cassidy Turley