I have been trying to absorb as much information about the state of capital markets for Real Estate as I can. Reports on the “State of the Market” always pop up around the new year and I have been reading as many of them as possible. Below are a few interesting notes I have read.

  • Washington DC is the number 4 city in the United States for foreign capital investment
    • Up from #5 last year
    • London passed NYC for #1 internationally
    • Washington fell from 15th place last year to 25th place internationally
    • Of the top 10 investors in the DC Metro Area in 2017 – 7 of them were foreign entities
  • Foreign investors are more interested in Industrial than any other asset class
    • Followed by Multifamily, Office, Hotel and Retail
  • Current Cap Rates are at or near record lows
    • Washington, DC and Seattle have hit their all time lows in Cap Rates
    • CBD Cap rates rose 20 bps from 2016 but were still 110 bps lower than average
  • Deals are moving out the risk spectrum to chase returns
    • Record Low cap rates force investors to chase returns from riskier assets
    • Suburban Office deal volume hit a record high
    • Medical Office Space deal volume increased 22%

Clearly, foreign investors are driving the investment in CBD properties. With a future of higher interest rates, investors cannot underwrite cap rate compression and are chasing more development, construction and suburban deals to get their desired returns.

Thanks in particular to REAL Capital Analytics for most of the data used.

Posted by Matt Brown, Director of Acquisitions