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Investment Trends
• A healthy economic outlook and higher cap rates than many
Local Retail Yield Trends
other markets attract buyers to Houston retail properties.
Retail Cap Rate 10-Year Treasury Rate
With an average multi-tenant retail cap rate of 7.7 percent,
yields in the metro are some of the highest in the country
12%
and the highest in the state.
9% • Hurricane Harvey’s impact on the retail market remains to be
Average Rate
10%
• The fl ooding from Hurricane Harvey prompted intense hir-
0%
5% ing in the construction sector over the past year. Nearly
19,300 workers were added to payrolls in the segment, a
8.9 percent year-over-year increase.
Year- over-
-5% • The metro’s jobless rate shrank 40 basis points over the
past 12 months to 4.5 percent in the second quarter.
-10%
08 09 10 11 12 13 14 15
16 17 18*
CONSTRUCTION:
Retail Completions
Completions Absorption
4.6 million square feet completed Y-O-Y
10,000 • In the past 12 months, deliveries fell 28 percent when
(thousands
2,500
0
08 09 10 11 12 13 14 15
16 17 18*
VACANCY:
Vacancy Rate Trends 30 basis point increase in vacancy Y-O-Y
Metro United States • Retail vacancy reached a cyclical low during the third
10% quarter of 2016 and has risen 80 basis points since to
5.8 percent at midyear.
8%
Rate
6%
also recorded vacancy increases over the past year. The
cy
2%
08 09 10 11 12 13 14 15 16 17 18*
RENTS:
8%
four quarters, reaching $17.16 per square foot.
4%
• The Inner Loop posted one of the strongest paces of
-Year
-4%
-8%
08 09 10 11 12 13 14 15 16 17 18*
* Forecast
Retail Research | Market Report
DEMOGRAPHIC HIGHLIGHTS
* FORECAST **2017-2022
on
10%
Southwest 6.3% 40 $15.06 -1.4%
Year
-10%
Austin County 13.8% 110 $10.05 10.7%
-20%
Overall Metro 5.8% 30 $17.16 1.5%
08 09 10 11 12 13 14 15 16 17 18*
2
8
0
b
p
s
10-Year Treasury vs. 2-Year Treasury By DAVID SHILLINGTON, President,
Yield Spread Tightens Marcus & Millichap Capital Corporation
10-Year Treasury 2-Year Treasury
Fed raises benchmark rate, plans for additional increases.
8%
0 bps
26
0b
ps
20bps
Rate
6%
conclusion of its September meeting. The Fed noted infl ation has
4% broadly reached its target, while household spending and corporate
investment remain robust. The Fed indicated an additional rate hike
2% this year and projects as many as three increases in 2019.
CAPITAL MARKETS
0%
04 06 08 10 12 14 16 18* Lending costs rise alongside Fed rate increase. As the Fed lifts
rates, lenders have been tightening margins to compete for loans.
Despite these efforts, borrowing costs remain on an upward
Retail Mortgage Originations by Lender trajectory, which is tightening returns and pushing some investors to
seek greater yields in secondary markets. However, though buyers
100% may try to push back on pricing due to increased loan costs, some
sellers remain convinced that the strong economy and sturdy NOI
75% performance substantiate aggressive pricing and a widening
Total
National Bank
International Bank expectation gap is the result. If interest rates rapidly surge upward,
50% Regional/Local Bank this gap could quickly widen, slowing transaction activity.
of
CMBS
Perce
Insurance
nt
Scott M. Holmes
Senior Vice President, National Director | National Retail Group
Tel: (602) 687-6700 | scott.holmes@marcusmillichap.com
Price: $250
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information;
however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-
level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise
noted. This is not intend-ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specifi c investment
advice and should not be considered as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; Moody’s Analytics; Real Capital Analytics; TWR/Dodge
Pipeline; U.S. Census Bureau