Auto parts stores remain in high demand by net lease investors in the $2 million and under sales category, according to The Boulder Group. Small investors favor auto parts stores over dollar stores because they tend to be located in primary and secondary markets near bigger retailers. Cap rates for the auto parts sector compressed 27 bps from 4Q14 to 4Q15 and offer the same premium over the general retail net lease market. With today's car averaging 11.5 years of service, DIY auto repair is a necessity more than a hobby, with Advance Auto Parts, AutoZone, and O'Reilly Auto Parts capturing the majority of demand. 4Q15 cap rates for the three brands were 6.35 percent, 5.75 percent, and 5.68 percent respectively. Advance Auto carries a higher cap rate due to a higher percentage of older stores with lower lease terms.
“Despite the improving economy and dearth of large, available blocks of space, rent levels do not justify new [office] construction in many markets - particularly given rising development costs - which has limited the options for tenants requiring large footprints.”
What Office Tenants Want
Amenity space has grown from 3 percent of the available square footage to 10 to 12 percent of space in offices. Here are some of the most requested amenities.
1. Fast entry: reliable elevators, efficient security
2. Food: healthy options in the building
3. Common space: rooftop decks, lounges, game rooms
4. Fitness centers: convenient exercise space
5. Commuting options: walking, public transportation, biking; bike storage rooms
6. Wi-Fi that works: It's a deal breaker.
Source: NAI Global
Should hotel owners and investors fear Airbnb? Probably, if they have assets in certain markets, says a CBRE Hotels report. By comparing the growth of Airbnb and its average daily rates in specific markets, CBRE determined that hotels in New York, San Francisco, Miami, Oakland, Calif., and Oahu, Hawaii, were most at risk from Airbnb growth. “It seems reasonable that Airbnb will impact hotels in two ways,” says R. Mark Woodworth, senior managing director of CBRE Hotels. “For existing hotels, the growth of average daily rates will most likely be curtailed. The fluid nature of Airbnb's supply suggests that traditional hotel's historic price premiums realized during peak demand periods will be mitigated. The other impact may be on new hotel construction. Airbnb may be an impediment to traditional hotel construction and could reduce traditional hotel supply growth in many markets.”
From October 2014 to September 2015, users spent $2.4 billion on Airbnb lodging, according to CBRE, with more than 55 percent of that amount spent in five markets: New York, Los Angeles, San Francisco, Miami, and Boston. But consumers take note: Airbnb is not always the lowest price option. After studying 59 U.S. cities, encompassing 229 submarkets, CBRE determined that Airbnb's average rate was $148.42 - 25 percent higher than the average hotel rate of $119.11 reported by STR.
Hospitality - Has the hotel sector shifted to a buyer's market? “There's a reduction of leverage and the headwinds of a smaller number of buyers in the buying pool right now,” says Drew Noecker, VP at CBRE Hotels' Houston office at the Hospitality Law Conference. Previous leverage levels at 70 percent are now around 60 to 65 percent, although it varies by market, he says. For additional value stick with branded properties: “If it's a quality brand, retain that to maximize your proceeds.”
Industrial - NAIOP has reduced its level of industrial demand in its 1Q16 forecast, due to global uncertainties. “The forecast remains positive but trends lower, to quarterly rates of around 54 msf by the end of 2016, dropping to roughly 48 msf by mid-2017. This is down from the high of more than 60 msf absorbed on a quarterly basis last year.”
Multifamily - Las Vegas, Orlando, Fla., and Austin, Texas, show the greatest growth for millennial renters this year, according to Marcus & Millichap, with each market posting a 2 to 3 percent YOY growth in 20- to 34-year-old renters. As vacation destinations, Las Vegas and Orlando offer a strong supply of hotel and entertainment employment, while Austin's tech sector attracts young professionals to the area.
Office - Five secondary markets - Las Vegas, Cleveland, Salt Lake City, Orange County, Calif., and Baltimore - top Marcus & Millichap's high-yield markets list for 2016. These markets' three-year average cap rates are above 8 percent and offer “assets that have potential NOI improvements yet to be baked into pricing, leaving non-risk-averse investors with unique opportunities.”
Retail - REIT landlords are sacrificing short-term cash flow for long-term gain, according to Shopping Centers Today. Federal Realty Investment Trust is letting 465,000 sf of leasable space in 10 properties go empty this year, giving up about $6 million in rents to redevelop and retenant. “We expect to significantly exceed the prior in-place rent of approximately $1,350 psf … to deliver better retailers at better rents and significantly improve these assets,” says CFO and treasurer Jim Taylor.