Office dynamics are in line with the broader market: An 11.9% decline at midyear paralleled a pullback in large, single-asset transactions across primary and secondary markets. With high barriers to entry and decreased transactions in the urban cores of the primary markets, groups continue to find opportunities in secondary markets, notably in the Sun Belt. A focus on value add will continue to drive office investment through year-end.
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The industrial sector is up 20.7% at midyear, a key factor being the reemergence of large-scale portfolios with $3.5 billion of portfolios, over $250 million already closed this year. An additional $12.5 billion of comparably sized transactions are expected to close by year-end.
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On the heels of three record years of activity, the multifamily sector is seeing activity decline, down 22.3% at midyear. Sentiment remains optimistic for the multifamily sector in the mid- to long term. However, the softening of rent growth across more markets and peak cycle deliveries in urban cores are encouraging suburban- and value-add-centric investment. This has spurred a near 60.0% decline in high-rise transactions year-to-date.
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The question of tenancy risk continues to impact retail dynamics and liquidity. While this risk continues to impact Tier 2 malls and power centers, it is beginning to creep into grocery-anchored assets amid fears of online disruption. This paralleled a 31.1% decline in grocery-anchored transactions at midyear. Well-located, grocery-anchored centers with strong tenants like Whole Foods or Trader Joe’s continue to price aggressively. The retail sector at-large is down 18.7%.
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As pricing and opportunities have started to plateau for the overall sectors, varied sources of capital are increasing their focus on the net lease sector. This has sustained momentum, with volumes stable and cap rates maintaining compression. A continued strong appetite from foreign and institutional investors is providing buoyancy for sales volumes, driving 11 opportunities greater than $250 million to close year-to-date. Comparatively, there were 16 during full-year 2016.
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