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Slow, Steady And Strong Growth Primes Investment Market Into 2013

# 1: Multifamily:

As the top sector in demand, competition for the high performing "flight-to-safety" product has been prevalent. The saturation and competition at the top of the market has been compressing yields, and driving investor demand for secondary and tertiary assets.  The strength of the lending markets is fueling multifamily trades with Freddie Mac lending up to an 80 percent LTV ratio (based on the purchase price) for Class A in primary locations and a LTV ratio of up to 75 percent for secondary assets and locations.

"The apartment development pipeline has amplified and investor appetite for core multifamily properties has pushed towards peak levels. We anticipate a spike in transaction volume as sentiment toward risk aversion fades, investors pursue higher yields and entrepreneurial value-add strategies re-emerge," said Jubeen Vaghefi, Managing Director and leader of Jones Lang LaSalle's Multifamily Capital Markets business. "While investor appetite is strong now and will remain so in 2013, the compounding occupancy and rent growth the multifamily market is experiencing now may begin to lessen in 2015 and beyond." 

#2 Office:

Prime office is still a top investment as evidenced the estimated $19 billion in office product that traded in the third quarter of this year, and the secondary ranking by the Cross Sector Survey respondents.

Investment interest tends to follow occupier growth regions given the increase in corporate demand for space which increases the value of office properties. The growth in technology and energy sectors, while slowing, has supported office leasing and sales volumes particularly in markets such as parts of Manhattan, Houston, Silicon Valley, San Francisco and Seattle, with absorption traveling westward across the United States. View this video:

#3: Industrial:

As the third highest product preferred, buyers in the industrial market this year have remained tightly focused on fully-leased Class A properties in the nation's primary distribution hubs. Both publicly held and privately held REITs have been the dominant player in this sector, bolstered by immense buying power.  To date, U.S. REITs have accumulated $44 billion in fundraising which is likely to outpace the 2011 level of $51 billion raised. In the industrial real estate sector, institutional investor Blackstone has been the most active buyer in 2012 due to its unique ability to complete extremely large portfolio acquisitions. 

"Industrial is on the short list for investors, but the active players are beginning to be priced out of the primary markets and are starting to look at well-located properties in secondary markets," said John Huguenard, International Director of Jones Lang LaSalle's Industrial Capital Markets.  "While demand for single-tenant properties has been higher, value-add plays are still relatively rare due to the spread between sellers' expectations and buyers' pricing. Speculative development is now occurring in both primary markets and the best secondary markets, though it is still limited to a handful of players. The industrial owner's opportunity area in 2013 will be to attract the active e-commerce and food & beverage industry tenants to boost portfolio value and potential trades next year."

#4: Retail:

While retail ranked the fourth priority for investors as they look toward 2013, there are a number of institutional buyers looking for core product, particularly grocery-anchored and trophy malls, in major markets. The challenge is finding those assets as supply is still very limited. When sold individually, single-tenant drugstores are still hot commodities, especially those with 10 to 20-year leases in place. Investors interested in this segment are optimistic about retail occupancy and rental rates as new long-term anchor leases continue to drive long-term growth in the sector.

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