Transaction Volume at Mid-Year Trending Lower

Real estate investors have responded to an especially disappointing year economically (i.e., market uncertainty, sluggish GDP growth, and the lackluster job market) by curtailing their buying activity—or waiting on the sidelines entirely. Consequently, transaction volume during 2Q 2012 has retreated back to near the level observed in 3Q 2010. This reverses the trend seen over the last few years, where sales volumes increased throughout the calendar year. If this trend persists over the second half of 2012, transaction volume will come in below last year’s levels. A definite indicator of lukewarm investor sentiment.

Cap Rates on the Rise

Cap rates have been trending slightly upward for office deals and remain essentially unchanged from one year ago for apartments, while cap rates for retail have been declining. Still, cap rate spreads—calculated as the difference between the 12-month rolling cap rates and the 10-year Treasury yield—for all three sectors have been rising (though the spread in apartment and office are rising faster than the spread in retail). Why? Blame the global phenomenon of investor flight to quality and the safety in capital markets for the record-low levels reached by U.S. Treasuries during the second quarter.

Who’s buying what, where

Investors continue to be a discriminating bunch. Apartment deals this past quarter tended to show a preference for high-priced, high-quality assets primarily focused in a relatively small number of primary gateway markets. However, high prices have some investors shying away from buying existing apartments and considering other alternatives, such as development. Office pricing has also become expensive over the last few years, and it’s likely this development along with the fact that economic growth continues to disappoint and uncertainty in the marketplace persists that investor behavior is being affected. Because of the weakness in retail property fundamentals, selection bias is even stronger for retail than the other major sectors, with a select few high-quality properties trading.

Investments in Top Markets Come at a Price

A comparison of the volume-weighted 12-month rolling cap rate for the top 10 markets by transaction volume and the volume-weighted 12-month rolling cap rate for all other markets clearly shows that investors are willing to pay a cap rate premium to be in the markets with the largest volumes. This premium has been fairly consistent over the last five years. Therefore, although risk aversion persists in the current transactions market, investors prefer deals in these high-volume markets during all types of economic environments, not just the distressed environments of today. The top 10 retail markets present a somewhat different picture, however. The risk premium for high-volume retail markets is not only inconsistent; it is actually negative during certain periods, including the most recent quarter. Local factors– the trade area, the economic and demographic make-up of the consumers in the trade area, and often the characteristics of the property itself—are most important. Consequently, investors focus on local factors while less-important metro-level factors will be largely ignored and do not translate into a transaction premium. What distinguishes a top 10 market? Generally, they have better liquidity—they are large, institutional markets with many properties and a large number of market participants. They also have better market fundamentals and economic prospects.





The Year Ahead

Little is expected to change this year, particularly since continued slow economic growth is forecast. Selection bias in the market should remain as entrenched as ever, even with cap rates ticking up slightly. And, with the recovery in fundamentals failing to spur an interest in a wider swath of the market, expect the transaction volume to remain restrained over the latter half of the year.

Source: ReisReports Connie Vitucci

Going Mobile

I came across this article which I think has some good points to it.

Here is a piece of it.

Going Green | American Apartment Owners Association
By Brett D Furniss


What does this consumer love affair with mobile phones mean to property managers? It means we better get in the game in the mobile realm. Regular websites have worked really well for a while, but change has come again. New renters are going to want to use their smart phones to search for rentals near them (aided by GPS), fill out rental applications, pay application fees, and put down deposits. They want the whole rental process available from their mobile phones.

What specifically does this mean? It means we better have mobile websites that allow them to do this; the mobile websites need to include only succinct information potential renters would want when on the go. It also means we need a mobile application (a custom company “app”) that customers can put on their devices so we own some real estate on their phones. Trends show that home internet connections are on the way of landline phones; the new battleground is the mobile phone. We need to be on as many as possible.

A mobile website is critical when consumers search for property management companies from their smart phones. Will yours come up? If it does, can consumers easily find rental homes, contact you (even text you!), and do everything you want them to do (like they can when you see them in your office or when they are in front of their home computer?)

An app is critical to sealing the relationship with customers. How can they remember you when they are on their mobile phones? Your app (with your company logo) sitting with the rest of the apps they use everyday is a good start. This is a good way to build mindshare and also to make it easy for your customers to contact you and refer you to their friends. Not an apps believer? Apps are set to be a $36B business by 2015- a lot of people use them and will be using them!

Change is hard, but the mobile revolution is not going away. If making a property management company last long term is the goal, mobile websites and apps are now “must-haves”!