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CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $105 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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AMERICAS WATCH

We are mere weeks away from the current U.S. expansion being declared the longest in the post-WWII era. Notwithstanding the panic around the brief yield curve inversion recently, there are not many signs of the expansion dying of old age any time soon. But to exercise caution at this point in the cycle is justifiably prudent. “Slowing but growing” and still leading the developed world, the U.S. economy is on a strong footing, with a robust assist from the labor market, healthy levels of consumer spending and business inventories. However, a fading fiscal stimulus and a tight labor market will weigh on future growth. Trade-related issues also remain unresolved. At the same time, the Federal Reserve Bank’s pivot from a tightening policy to an accommodative policy has calmed investor fears. Whether that lower-for-as-long-as-it-takes policy breeds complacency relative to interest rate movements remains to be seen, but investors are acutely aware that the era of easy returns is behind us and that their capital must work harder.

OFFICE SECTOR WITNESSING LATE CYCLE UPSIDE

The recent performance of the office sector has been a welcome relief after an extended stretch of tepid absorption and rent growth trends through much of 2016-17. Absorption levels have rebounded over the last four quarters as tax cuts and a strong labor market have boosted expansion efforts by tenants. Those especially in tech, finance and coworking have lowered vacancies to 12.5%, 50 bps lower than a year ago and within 10 bps of its prior trough in mid-2007. Asking rents (gross and net) jumped up in Q1 2019 as market conditions tightened more than anticipated and newer space commanded higher rents. There is also a robust pipeline of deliveries that will shift the dynamics in favor of tenants but for now, landlords have the upper hand. Western U.S. markets were the predominant outperformers and about 15 metros now have vacancies in the single-digits.

MAY 2019

2,945.52

3.9%

S&P 500

2.25-2.50%

Fed Funds Rate

2.51%

10 bps

10-yr. T-Note

$63.91

6.3%

Oil*

*WTI Crude Oil Spot Price. Data points through end of April 2019. Change represents month-over-month change.

OFFICE

Source: CBRE EA

PRINCIPAL CONTRIBUTORS:
 
Shubhra Jha
Rene Moreira
INDUSTRIAL SECTOR HUMMING ALONG

The outperformance of the industrial sector remains enduring. Going on 36 quarters of positive absorption, market fundamentals for the sector are the strongest they have been since 2000. Vacancies have been in the 4% range for three years, quite remarkable given the supply response that has been in high gear for over five years now. Persistently low vacancies continue to push rents though the pace of growth has decelerated in recent months. E-commerce is the driving force in leasing across the country, gobbling up space as quickly as it delivers. Demand for warehouse space has been highly concentrated in the five mega-distribution hubs – Atlanta, LA/Riverside, Chicago, New York/NJ and Dallas/Fort Worth.

INDUSTRIAL
Source: CBRE EA
RETAIL, THE SECTOR WITH A SPECTRUM

The resiliency of the retail sector is constantly being tested with each segment reacting differently to the persistently increasing role of e-commerce. The neighborhood and community shopping center category, the bulk of the retail stock, continues to show modest improvement in demand and rent growth. Its availability rate fell below 9% in Q1 2019. The lifestyle and mall segment also improved steadily, though store closures are a significant problem in many secondary and Class B malls. The power center segment is the most impacted by store closures and continues to struggle with rising vacancies. However, consumer fundamentals are strong supported by a strong labor market, rising wages, and tax cuts which should bode well for near term momentum.

RETAIL
Source: CBRE EA
APARTMENT FUNDAMENTALS IN THE BALANCE

The apartment sector remains in good overall health as the supply challenge has been met with solid demand and positive rent growth which has surprised to the upside. Strong job growth and household formation, plus headwinds to homeownership and delayed construction are helping keep the sector afloat. Developers are still active despite an extended construction cycle as vacancies are still sub-5% and well below long-term averages. Permit issuance picked up the pace again in 2018 which means that the anticipated slowdown in construction after 2019 may be a more distant mirage. New supply is unleashing concessions and negatively impacting NOI growth in certain infill submarkets in major metros which have witnessed robust supply pipelines.

APARTMENTS
Source: CBRE EA
HOTEL SECTOR REBOUND IN CHECK

The hotel sector’s performance in early 2019 has softened from a year ago. Occupancy in Q1 2019 was 61.8%, up 40 bps from a year ago as demand from domestic and business travelers remained on a positive trajectory and outpaced supply by just a little bit. However, gains in ADR YoY for Q4 were a modest 1.1%, the slowest YoY growth rate since Q2 2010. RevPAR gains were also positive at 1.5% YoY but the slowest since early 2010. On the supply side, approximately 201,000 rooms were under construction in March 2019, up nearly 8% YoY. At the metro level, the top demand markets were made up of secondary and tertiary non-coastal markets indicating the broad-based nature of market conditions. San Francisco had the highest YoY growth in ADR and RevPAR with no gains in occupancy as tech industry growth continues to strengthen. It was followed by Atlanta, host of Super Bowl LIII.

HOTELS
Source: CBRE EA
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy & Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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