Recent Commercial Real Estate Updates
November 26th, 2013 by Diane Moore
Despite the slow recovery of the US housing market, steady growth is expected for the commercial sector. Investors are feeling more optimistic, and capital goes wide as foreign firms pump their money into US properties.
An increased buying activity has been observed in commercial real estate. Firms and investors from Canada, South Korea, China, and Singapore are purchasing trophy buildings or partnering with US-based developers for multi-million projects.
Here, we take a look at the latest news in the US commercial real estate market. We focus on key states in the country. Among them is California.
Non-US Investors Invade American Commercial Properties
As to the fresh from the oven news, the commercial real estate market in the United States is a hot commodity among non-American investors. While US and European firms are putting in their money elsewhere in Asia, the wealthy in Canada, South Korea, and China are crossing borders to expand their property.
PricewaterhouseCoopers (PwC) says that last year, Canadians have bought US properties that amounted to $27 billion. This is higher than the amount of purchase Americans made in the past four years.
According to The Financial Post, Canada’s increased purchasing activity is brought about by a simple fact – that in Canada, there is less property available for purchase. Other triggers were also mentioned; namely, depressed commercial property prices in the US, strong performance of the Canadian dollar, and the presence of cheap Canadian financing.
For Canadian investors, the office, apartment buildings, and industrial sectors are the most attractive business opportunities.
Over at Asia, investors from South Korea, Singapore, and China poured in a total of $7 billion worth of commercial real estate investment to date. Compared to last year, investment volume from the continent rose to almost 100%. The $7 billion investment comes from a variety of sources.
There are several reasons why the US is attractive to Asian investors these days. One of them is diversification. To the wealthy Chinese who are very careful with where they put their money in, purchasing US properties is part of their long-term strategy.
Experts say that these new breed of investors are looking into long-term opportunities heeding the Japanese experience. It can be noted that in the past, some Japanese firms who bought trophy properties in the 80’s (e.g., Manhattan’s Rockefeller Center) were forced to sell their purchase when the market collapsed.
According to the Wall Street Journal, Asian investors have shelled out their money into the following commercial properties: a resort in Hawaii, office tower in Chicago, and condo developments in the New York area. Other hot investments are located in the California region, particularly San Francisco.
Commercial Real Estate in California is Expected to Rise
The Los Angeles Times reports that in California, the biggest growths will come from the non-residential sector. Developers have expressed their optimism by announcing their plans within the next year.
Expected commercial properties to rise throughout the state include multifamily housing units and mixed-use buildings. These developments will most likely be built near transportation hubs.
In PwC report on emerging trends for 2014, San Francisco topped the list of US cities to watch. Other cities in California made the list, including:
- San Jose
- Orange County
- Los Angeles
- San Antonio
- San Diego
According to PwC, San Francisco has once again topped the list since last year. The area has a high confidence rate, and it is the perfect market for all types of investment. Best of all, capital is plenty for both existing and new projects. In 2014, both the market and the economy are expected to enjoy a steady growth. Job opportunities will rise, and more people will want to move into the city.
San Jose’s strength is its technology industry. Investors are positive that the rise in income and number of jobs is enough to support the real estate market in the area. Orange County, in general, is expected to experience a flat growth next year.
Los Angeles jumped three places up to make it to the top 15 this year. The industrial sector is looking up, and the office sector is expected to rebound together with the housing market.
Although the San Antonio market is projected to remain “modestly good,” it has several opportunities to offer. Investors are looking into the manufacturing and housing sectors as the key drivers in the area.
San Diego’s forecast is optimistic. The market is seen to strengthen in the next two years, and employment rates will be slightly better than the national average. The office sector will enjoy an increase, while the apartment, hotel, and retail sectors will experience a flat growth.
Recent Commercial Real Estate Projects and Purchases in California
Real estate activity in the state is high, especially in the key markets mentioned in the last section. Here, we list the recent projects and purchases in the state of California.
1. Condominium Project in San Francisco
China Vanke Co., a China-based property developer, has partnered with New York-based Tishman Speyer to develop two residential towers in the San Francisco area. The condominium project is said to be China Vanke’s first venture overseas. According to reports, the Chinese property juggernaut has contributed $175 million while Tishman Speyer shelled out $75 million. The total cost of the project is estimated to be about $620 million.
Called the Lumina towers, these residential towers are located at 201 Folsom Street, south of the financial district. One of the towers will be 37 stories high while the other will be 42 stories. Amenities include concierge services, spa-like facilities, and a 75-foot lap pool.
Although no price was set for any of the units yet, each of the 655 units in the tower will be sold at high-end prices. In San Francisco, condo prices have risen to about 27% in the last three months.
Vanke President Yu Liang says this deal with Tishman Speyer represents the start of Chinese developers going global. It can be remembered that prior to this teamup,Vanke had also purchased a residential site in Hong Kong, which costs $439 million.
2. Creative Office Space Construction in Los Angeles
Market Wire reports that Hudson Pacific Properties has acquired a $65-million loan from US Bank for the development of Element LA, a 12-acre site in West Los Angeles. This site is intended for the construction of creative office spaces. In recent years, the demand for creative offices has increased especially from the technology and creative industries.
Element LA’s five existing buildings are being renovated. Upon completion, amenities such as high-ceiling workplaces, saw tooth skylights, and outdoor patios will make Element LA as the most creative office campus in the region.
3. Mini-Apartment Complex in Santa Monica
The multi-family sector has grown rapidly following the economic downturn. Many consumers are still wary about signing a mortgage, so they choose to live in a rented housing unit. As a response, investors and developers have capitalized on this demand by rushing in to develop apartment complexes.
While most of the cases presented here are properties bought by high-profile companies, let’s not forget that there are small-time developers who want to give consumers some options.
Biz Journals reported last July that NMS Properties has completed an apartment complex in Santa Monica. The complex boasts micro-sized starter apartments. These are ideal for students and young professionals who meet the property’s income requirements.
On the subject of apartment complexes, three multifamily projects from Meta Housing Corporation target the senior population. These projects include two senior communities and one apartment complex for families.
In an article published at World Property Channel, builders have high confidence on the senior housing market. More importantly, it has not reached its saturation point yet. In fact, experts say that there is much room for the senior housing sector to grow.
4. Mixed-Use Projects in Los Angeles
Because mixed-used complexes offer the best of commercial and residential real estate, they are seen as a good investment. The recovery from the 2008 global recession has been slow, so investors reduce risk by turning into these projects.
Sonny Astani, one of the well-known commercial real estate developers in California, is planning to set up a mixed-use complex along Hollywood Boulevard. The complex costs $100 million. Astani plans to build an apartment complex with 280 units. Amenities include a public park, private park for residents, and a swimming pool. Construction is expected to start next year.
5. Purchases of Trophy Properties in California
Here are some notable purchases made by the world’s biggest firms and investors. These purchases range from sites to existing buildings within California.
Among the Asian countries, Singapore emerged to be the top buyer of US properties. Singapore-based Overseas Union Enterprise was reported to have completed its purchase of the tallest building in California. For $367.5 million, the US Bank Tower (Los Angeles) was acquired by Overseas.
Also in 2012, Bloomberg reported that the Government of Singapore Investment Corp. (GIC) invested in a tower in downtown San Francisco. The tower was bought at a whopping $851 million.
Shanghai-based Greenland Group announced that it will invest $1 billion in a project in Los Angeles. This investment will be used to develop a 25,600 sq m site the company has agreed to purchase from the California State Teachers Retirement System (CALSTRS). The investment is a Metropolis project, and developments are expected to include hotels, apartments, offices, and luxury residences.
Greenland Group is also aggressively diversifying in several key markets. Earlier, it acquired a project in Melbourne which costs $498 million. In October, the company was reported to have acquired a $4 billion project in New York.
Blackstone Group LP is making headlines recently for investing billions of dollars in real estate. In June, it was reported that the company is rushing to buy homes (such as single-family units) as prices unexpectedly increased.
But aside from the housing sector, Blackstone is also investing in commercial properties. The Wall Street Journal reports that the company is set to buy commercial properties with a combined worth of $800 million. Some of these properties are office buildings such as the Aventine in California.
Commercial Real Estate Updates Across the United States
Aside from California, key markets are reported to enjoy high commercial real estate activity. Some of the most notable updates include the following:
1. Warehouses Across the Country
A $1 billion project that focuses on building large warehouses was reported by World Property Channel. The project is the initiative of Hillwood Investments and an unnamed sovereign wealth fund.
2. R-Shaped Tower in Miami
Miami-based developer, Jeff Berkowitz, has unveiled his plans to construct a 1000-ft tower in downtown Miami. The tower is said to be the tallest in the state if completed. Images of the structure shows a hurricane-proof, R-shaped building.
The tower’s height has already been approved by the Federal Aviation Administration. But it has yet to be given the go-signal by the government of Miami.
3. Miami’s Booming Industrial Market
Miami’s industrial market is on the rise again. According to Jones Lang LaSalle, Miami is now a tier-1 city as far as investment is concerned. Some of the booming sectors in the city include warehouse and distribution spaces. These industrial spaces can command up to $1 million per acre.
4. New York Is a Top Favorite City for Investors
Cushman Wakefield reports that in New York, investors completed property deals that amounted to $49.2 billion in 2012. This makes New York the most attractive city among investors. Rounding up the top five are London, Los Angeles, Tokyo, and San Francisco.
Confidence in the American commercial real estate is definitely building up, thanks to strong statistics from key markets. According to the World Property Channel, the office market has shown a rent growth of 1.4% during the third quarter of this year. Demand for apartment complexes is also enjoying a steady growth. Vacancy rates are pegged at 4.6% last quarter.
In the next two to three years, experts project a positive growth in commercial real estate. Although it is not as high as pre-recession levels, it will nevertheless be steady.
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