Seattle, Atlanta, Austin Lead Metros for CRE Investment

Michael Tucker mtucker@mba.org

June 21, 2018


Seattle, Atlanta and Austin, Texas are excellent metros for commercial real estate investment from a relative value vs. price perspective, while New York and Los Angeles rank among the worst, reported Situs RERC, Houston.

Situs RERC surveyed institutional investors about the value of CRE assets compared to their prices for different markets and property types across the country. It found "substantial" population growth and solid employment continued to boost Seattle.

"The city is home to such corporate giants as Amazon, Starbucks, Expedia and Microsoft, which help attract highly educated talent to the area who are likely to earn higher-than-average wages, boosting the CRE market," the Situs RERC Metro Investment Rankings Index said. "The growing number of tech companies has helped grow the office space in downtown Seattle, and the high-paid workers at these companies have helped increase the demand for surrounding multifamily assets."

Atlanta also continues to provide strong value relative to the prices of its commercial real estate assets due to the city's robust economic, job and wage growth, Situs RERC noted. "Investors have long been attracted to Atlanta, causing the price of trophy towers to reach record levels," the report said. But a supply shortage is causing investors to look to Atlanta suburbs, including Kennesaw and Duluth nearly 30 miles away. "This is especially attractive to smaller firms and back-office operations that do not want or cannot afford the city's high rents."

In addition, Atlanta has become a logistics hub, largely due to the UPS headquarters office there. The metro is also in the running to host Amazon's second headquarters, the report said.

Investors ranked New York and Los Angeles the least attractive metros among major markets, Situs RERC said. Both metros boast high transaction volume but lag in population and income growth and affordability challenges haunt both cities, the report said.

Among slightly smaller cities, Austin and Denver ranked highest among middle-market metros. Situs RERC classifies "middle markets" as metros with lower transaction volume, lower liquidity, smaller populations, lower price per square foot sales and less inventory on average for a given property type compared to major markets.

"Austin enjoys strong market fundamentals regarding population growth, incomes and jobs and is experiencing high transaction volume," the report said. "The metro's growth is driven by employers such as Dell, IBM, Apple and AT&T and the metro should continue to thrive."

Like Austin, Denver has experienced "healthy" population, income and job growth, the report said. Financial services, health care and information technology jobs support continued growth in the Mile-High City.

Houston and Philadelphia ranked among the least attractive middle-market metros for CRE investment based on relative value vs. price Situs RERC. Though Houston and Philadelphia have large populations, Situs RERC's investment ranking model placed them in the middle market due to their lower relative CRE fundamentals.

"Tepid population and income growth were the primary reasons [Houston and Philadelphia] ranked toward the bottom of the list," the report said.

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