top 10 most expensive cities for commercial office investment

Top 10 Most Expensive Cities for Commercial Office

Investment

Top 10 Most Expensive Cities for Commercial Office

Investment

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SAN FRANCISCO$571 PSF Volume: $5.04 B 71 Transactions CHICAGO

Volume: $7.45 B 189 Transactions

BOSTON$367 PSF Volume: $10.36 B 178 Transactions

MIAMI$302 PSF

MANHATTAN$903 PSF Volume: $26.58 B 140 Transactions

WASHINGTON D.C.$560 PSF Volume: $4.14 B

DALLASVolume: $4.46 196 Transactions

ATLANTAVolume: $4.11 B 170 Transactions

LOS ANGELES$335 PSF Volume: $8.84 B 336 Transactions

SAN DIEGO$273 PSF172 Transactions

AUSTIN$273 PSF

SAN JOSE$401 PSF Volume: $4.56 B

ORANGE COUNTY175 Transactions

SEATTLE$339 PSF Volume: $4.99 B 161 Transactions

PHOENIX155 Transactions

Top 10 Most Expensive Cities

Sales Price Per Square Foot Volume in Billions Number of Transactions

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Top 10 U.S. Cities by Sales Price (PSF)Manhattan $903San Francisco $571Washington, D.C. $560San Jose $401Boston $367Seattle $339Los Angeles $335Miami $302Austin $275San Diego $273

Does not include suburban locations or tertiary markets. Includes transactions over $2.5 million for 12-month period ended June 30, 2016.


Top 10 U.S. Cities by Volume (Billions)Manhattan $26.58Boston $10.36Los Angeles $8.84Chicago $7.45San Francisco $5.04Seattle $4.99San Jose $4.56Dallas $4.46Washington, D.C. $4.14Atlanta $4.11



Top 10 U.S. Cities by Transaction VolumeLos Angeles 336Dallas 196Chicago 189Boston 179Orange County 175San Diego 172Manhattan 170Atlanta 170Seattle 161Phoenix 155



Top 10 U.S. Cities ComparisonVOLUME (BILLIONS)

Manhattan $26.58Boston $10.36Los Angeles $8.84Chicago $7.45San Francisco $5.04Seattle $4.99San Jose $4.56Dallas $4.46Washington, D.C. $4.14Atlanta $4.11

PRICE PER SQUARE FOOTManhattan $903San Francisco $571Washington, D.C. $560San Jose $401Boston $367Seattle $339Los Angeles $335Miami $302Austin $275San Diego $273

TRANSACTION VOLUMELos Angeles 336Dallas 196Chicago 189Boston 179Orange County 175San Diego 172Manhattan 170Atlanta 170Seattle 161Phoenix 155



NATIONAL OVERVIEW àU.S. CRE investment in H1 2016 was 16% lower than previous year

� Due to a slowdown in entity-level and portfolio transactions

à Investors have shown interest for major coastal markets and those with high barriers to entry

àMarkets with sustainable job creation and industries will continue to see high demand � Biotech, high-tech, education, healthcare, financial services, energy


ATLANTA àHighest level of investment sales volume since 2007

àStrong rent growth due to healthy job growth and historically low levels of development

àMost sales with a high price PSF have included a mixed-use component

àOffers investors stable cash flow on many investments with room for value-add appreciation

$4.11BN SALES

170TRANSACTIONS


AUSTIN àStrong economic fundamentals attracting investment from regional, national and international groups

àCore and value-add properties in high demand, putting upward pressure on pricing and compressing cap rates

àStabilized suburban office product not attracting high interest due to the lack of up side � Not trading at the same level as core and value-add assets

$275PER SF


BOSTON àPrimary market drivers: higher education institutions, high barriers to entry, vibrant urban core, European feel

àHigh demand for downtown, core assets with heavy investment from foreign capital

àDevelopers increasing projects, locking down anchor tenants and selling upon completion

àCambridge and Burlington seeing influx of foreign capital while outer circumferential 495 belt is still relatively weak for investment

$10.4BN SALES

179TRANSACTIONS

$367PER SF


CHICAGO àContinued rent growth and rock-bottom borrowing costs supporting urban and suburban investment, albeit at a slower pace

àHigh value-add PSF, especially for Class A buildings

à Increased interest in core-plus and value-add investments as well as Class A suburban assets due to low yield on core assets

àGrowing sentiment that office market has peaked is making some sellers anxious to regain profit on assets acquired in 2006-07

$7.45BN SALES

189TRANSACTIONS


DALLAS àDiversified economy with growth in multiple industries combined with relatively low cost of living � Finance, information technology, healthcare

àAttracting major companies to relocate headquarters or regional headquarters, in turn attracting ancillary businesses

àEspecially attractive urbanized suburban locations with live/work/play elements and walkability

àSound office fundamentals driving up rent and lowering vacancy

$4.46BN SALES

196TRANSACTIONS


LOS ANGELES àAverage rental rates have surged past previous cycle peak

àSales volume and pricing returned to levels not seen in 10 years

àUsually recovers later in the CRE cycle from both a property fundamentals and investment perspective � Investors turn attention to Southern California when other gateway markets see frothy office valuations

àTarget for foreign investors, especially from Asia, because of familiarity and close business relationships

$8.84BN SALES

336TRANSACTIONS

$335PER SF


MANHATTAN àAverage sales value PSF has exceeded historical highs in all submarkets

àCross-border investments are primary source of capital, followed by institutional, as public and REIT investment has dried up � Cross-border investment has doubled since 2014, accounting for 45% of investment in 2016

àCapital coming from China, U.K., Saudi Arabia, Germany, Canada and Norway

$26.6BN SALES

170TRANSACTIONS

$903PER SF


MIAMI àSustained investor appetite prompting large and relatively solid pricing levels

àFour CBD assets traded for a combined $456 million, a 6.25-year record

àOne asset traded at $522 PSF � Only two other assets have traded above $500 PSF since 2010

àSuburban assets are being priced and selling competitively

$302PER SF


PHOENIX àUsers opting to purchase buildings rather than rent

� Due to low interest rates near an all-time low and lease rates continuing to rise

àWhile there is some public and REIT investment, the bulk of deals include private investors

155TRANSACTIONS


SAN DIEGO à Investors usually look to Los Angeles and Orange County first, but as those markets see higher pricing, investors look for bargains

àStrong clusters in life sciences, high-tech and defense-related industries drive higher-end niche office buildings that attract buyers

172TRANSACTIONS

$273PER SF


SAN FRANCISCO àPrevailing market drivers: limited deliverable inventory, strong investor demand, immediate opportunity to capture equity growth

àPricing surpassing previous recessions due to lack of inventory

àMaturing investment cycle is causing velocity to taper � Most investors now seeking long-term hold periods

àSmaller assets along with Class B and C product are highly coveted

$5.04BN SALES

$571PER SF


SAN JOSE àTraditionally not a high-volume investment market due to limited trophy assets

à Increased office development pushing up values

àCross-border investment has decreased during last few years

àSince the dot.com era, tech firms have opted to take over existing campuses rather than build new

$4.56BN SALES

$401PER SF


SEATTLE àTech companies like Amazon and Microsoft have been driving expansion but have recently slowed aggressive growth plans

àResidential markets hitting historic highs � Single-family homes and condos saw the best July on record in terms of transactions and on-market listings � Multifamily rents are climbing 4x faster than national average

àOffice development continues to surge to meet high demand

$4.99BN SALES

161TRANSACTIONS

$339PER SF


WASHINGTON, DC àComparatively, the price PSF is one of the highest in U.S. but transaction volume and total volume is quite low

àHigh value due to overall stability as well as foreign and institutional capital

àSeen as extremely safe and stable, due in large part to the presence of the Federal Government

$4.14BN SALES

$560PER SF


Data from Real Capital Analytics and CoStar. Analysis by Transwestern Research and Capital Markets.

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top 10 most expensive cities for commercial office investment

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