While investors indicate an interest in more investment activity in 2013, they have a finicky appetite for prime product. The main gateway markets continue to set a solid pace for transactions as the clear preference, but the secondary markets are showing increasing signs of improved transaction activity. While investors want to buy core product in the top cities, the amount of healthy competition is pricing many out of the primary markets and into secondary and even tertiary markets.
"Through September 2012, the share of secondary market transactions in the office sector outpaced 2011 levels with 43 percent of the investment trades compared to 36 percent last year, and even the tertiary markets captured five percent share compared to three percent, " said Marisha Clinton, Director of Capital Markets Research for Jones Lang LaSalle. "Investors are spreading their appetite for calculated risk to a broader set of locations and that should increase in 2013 as property values gain more ground. For example, Seattle and Austin transaction volumes YTD are already aggressively ahead of 2011 levels, with Phoenix not too far behind year ago totals as the strength of technology and energy occupiers drives growth in those markets."
Product DemandInvestors are clear about their property preferences for 2013 investment. They ranked multifamily as the most appealing product type (43 percent), followed by 27 percent who chose office as their secondary preference. Industrial ranked in third at 14 percent, retail fourth with 12 percent, and hotels with 4 percent of respondents ranking it as the fifth most appealing product type. There are several unique factors in each product sector that are influencing investor appetite to purchase and hold in the top sectors of demand: