Property Details


1616 E Roosevelt Rd
Wheaton, IL 60187

For Lease
$13.50/MG

Property Type  Office
SF 13280
Available 750-2450
Built  1963/Reno
Floors  2
Acres .32
Zoning B-3
Parking 48
Signage Monument
Rate $13.50/SF MG


Description


High visibility Professional Office building with monument sign on busy Roosevelt Rd in Wheaton minutes from I-355 N-S. Ample 48 car parking lot. Recently renovated and very well maintained with an attractive front foyer and rear entrance. 750 SF, 2,200 SF and 2,450 SF Office Suites available for lease at a very competitive rate.


Highlights


  • Attractive Professional Office Building
  • High Visibility Roosevelt Rd Location with Monument Sign
  • Minutes from I-355 N-S Tollway
  • 750 - 2450 SF Suites Immediately Available

[pw_map address="1616 E Roosevelt Rd Wheaton IL 60187"]

Contact

reis-apartments

Armageddon on Hold for Four Quarters

  • The national vacancy rate for multifamily remained moored at 4.4% in the third quarter, unchanged since the fourth quarter of 2015 despite the large number of new deliveries.
  • This confirms what we have posited thus far about demand remaining robust even as supply growth increases. With that said, this equilibrium is tenuous and likely won’t last.
  • For markets that experienced either a large increase in rents over the last few years, or a steady influx of new buildings – or both – landlord pricing power is being tested.
  • Market conditions in the apartment market softened a bit in the third quarter, a period they generally see the highest activity and strongest rent growth.

reis-office

On Pause, Those Fine Hopes for 2016

  • We started 2016 feeling fairly optimistic about the prospects of the office sector. With the national vacancy rate declining by 40 basis points last year, we were poised to finally see an acceleration in improvement in fundamentals for the office sector.
  • With national vacancies remaining stuck at 16.0% in the third quarter, it appears that optimistic hopes about the prospects of the office sector have been put on hold – at least till the fourth quarter.
  • While the numbers disappointed in the quarter, much of the decline was a lagged response to tepid employment and economic conditions in the first quarter.

reis-retail

Two Steps Forward, One Step Back

  • The national neighborhood and community center retail vacancy rate increased by 10 basis points during the third quarter to 10.0%; the retail mall vacancy rate decreased by 10 basis points to 7.8%.
  • Both minor changes represent a reversal in the second quarter when the neighborhood and community center vacancy rate decreased and retail mall vacancy increased, both by 10 basis points.
  • Neighborhood and community centers have lagged due to the slow growth in median household income that has kept a lid on discretionary spending over the last few years.
  • Both neighborhood and community centers and regional malls face competition from newer and fresher retail concepts as well as e-commerce.

reis-industrial

A Downshift in Demand

  • The momentum in the industrial market slowed a bit as demand growth decelerated. Nevertheless, vacancy held steady in the warehouse and distribution sector as net absorption exceeded new construction by a small margin.
  • Although the industrial sector has outperformed other property types in terms of occupancy growth, the down-shift observed in the third quarter puts the asset class on par with office and retail which followed a similar pattern.
  • Echoing the sentiment we expressed last quarter, the slow but steady rate of growth should continue going forward as most metros continue to see demand growth for industrial space.
  • Vacancy declined in the Flex/R&D subsector largely due to a sharp drop in new construction.
  • Net absorption slowed somewhat but remained positive. Market rents increased but also at moderate rates, similar to the second quarter.
  • Once again, every metro posted positive rent growth for the quarter, although some outperformed others.

reis-construction

New Construction at the Cusp of Economic Change

  • The third quarter of 2016 was marked by a somewhat consistent trend – a pronounced pullback in new completions, relative to recent quarters.
  • This is readily apparent in the apartment and office sectors, but less so in neighborhood and community shopping centers where supply growth has been anemic for several years anyway.
  • What caused this pullback – especially in multifamily where we were expecting a deluge in new supply?
  • Any pickup in activity for new completions is likely to be driven by projects that are already in the pipeline, just waiting to come online in what may well be a deluge for the apartment sector in the fourth quarter.

Source: REIS

A California real estate investment firm bought a Naperville office complex for $18 million, 29 percent less than the property's pre-recession price in 2007. Irvine, Calif.-based Sperry Equities bought Washington Commons, an approximately 200,000-square-foot office complex on Diehl Road, according to DuPage County records. The deal comes nine years after the complex sold for $25.2 million, before the recession hammered suburban values. In many cases values have never fully recovered. Although the property's value remains below pre-crash levels, Sperry believes it can cash in on the lowest suburban office vacancy in 14 years, allowing it to charge higher rents than those in deals signed in the past few years. Suburban vacancy was 18.5 percent to end 2015 and 18.6 percent in the western part of the east-west corridor, according to Chicago-based Jones Lang LaSalle. “They bought it in 2007 at the peak,” said Burton Young, a Sperry Equities principal. “Rents haven't recovered to where they were in 2007, but we believe we can capitalize on market timing. There are some rents there that are low relative to the market, and there's room to increase the occupancy. We think it's a market-timing play.” The seller was a Denver-based venture of real estate investment firm EverWest Real Estate Partners and real estate investment trust Dividend Capital Diversified Property Fund. EverWest was known as Alliance Commercial Partners at the time of the deal. Alliance lost a few other suburban buildings to foreclosure during the downturn. The Alliance venture that bought Washington Commons faced a potential loan default on the complex in 2011 because of rising vacancy, according to a Bloomberg loan report. But the owners later that year negotiated a maturity extension of four years, to February 2016, on the $21.3 million securitized loan, according to Bloomberg. The Alliance venture also made a $4 million equity contribution and split the loans into A and B notes as part of the 2011 modification, according to the loan report. EverWest, which changed its name in 2014, and Dividend Capital representatives did not return calls requesting comment. Washington Commons, at 450-500, 550-700 and 750-900 E. Diehl Road, consists of 10 single-story buildings connected by foyers and hallways, on 21 acres, Young said. The complex was 77 percent leased when Sperry Equities struck the deal to buy it, and several small new leases have boosted occupancy to about 85 percent, he said. The largest tenants are a regional headquarters of Toyota's Lexus division, with 31,000 square feet, and a 17,000-square-foot Bright Horizons daycare, Young said. Sperry Equities, once affiliated with brokerage Sperry Van Ness but now independently owned, plans upgrades including building out move-in-ready suites, he said. “We love Naperville and the surrounding area," Young said. "It's a good long-term hold right off the I-88 tollway and Diehl Road.” Sperry Equities owns about 6 million square feet of commercial real estate, including office and industrial space in Bolingbrook, Hoffman Estates and Tinley Park, Young said.

 A California real estate investment firm bought a Naperville office complex for $18 million, 29 percent less than the property's pre-recession price in 2007. Irvine, Calif.-based Sperry Equities bought Washington Commons, an approximately 200,000-square-foot office complex on Diehl Road, according to DuPage County records. The deal comes nine years after the complex sold for $25.2 million, before the recession hammered suburban values. In many cases values have never fully recovered. Although the property's value remains below pre-crash levels, Sperry believes it can cash in on the lowest suburban office vacancy in 14 years, allowing it to charge higher rents than those in deals signed in the past few years. Suburban vacancy was 18.5 percent to end 2015 and 18.6 percent in the western part of the east-west corridor, according to Chicago-based Jones Lang LaSalle. “They bought it in 2007 at the peak,” said Burton Young, a Sperry Equities principal. “Rents haven't recovered to where they were in 2007, but we believe we can capitalize on market timing. There are some rents there that are low relative to the market, and there's room to increase the occupancy. We think it's a market-timing play.” The seller was a Denver-based venture of real estate investment firm EverWest Real Estate Partners and real estate investment trust Dividend Capital Diversified Property Fund. EverWest was known as Alliance Commercial Partners at the time of the deal. Alliance lost a few other suburban buildings to foreclosure during the downturn. The Alliance venture that bought Washington Commons faced a potential loan default on the complex in 2011 because of rising vacancy, according to a Bloomberg loan report. But the owners later that year negotiated a maturity extension of four years, to February 2016, on the $21.3 million securitized loan, according to Bloomberg. The Alliance venture also made a $4 million equity contribution and split the loans into A and B notes as part of the 2011 modification, according to the loan report. EverWest, which changed its name in 2014, and Dividend Capital representatives did not return calls requesting comment. Washington Commons, at 450-500, 550-700 and 750-900 E. Diehl Road, consists of 10 single-story buildings connected by foyers and hallways, on 21 acres, Young said. The complex was 77 percent leased when Sperry Equities struck the deal to buy it, and several small new leases have boosted occupancy to about 85 percent, he said. The largest tenants are a regional headquarters of Toyota's Lexus division, with 31,000 square feet, and a 17,000-square-foot Bright Horizons daycare, Young said. Sperry Equities, once affiliated with brokerage Sperry Van Ness but now independently owned, plans upgrades including building out move-in-ready suites, he said. “We love Naperville and the surrounding area," Young said. "It's a good long-term hold right off the I-88 tollway and Diehl Road.” Sperry Equities owns about 6 million square feet of commercial real estate, including office and industrial space in Bolingbrook, Hoffman Estates and Tinley Park, Young said.
Naperville Office Complex Sells for $18 Million

A California real estate investment firm bought a Naperville office complex for $18 million, 29 percent less than the property's pre-recession price in 2007.

Irvine, Calif.-based Sperry Equities bought Washington Commons, an approximately 200,000-square-foot office complex on Diehl Road, according to DuPage County records.

The deal comes nine years after the complex sold for $25.2 million, before the recession hammered suburban values. In many cases values have never fully recovered.

Although the property's value remains below pre-crash levels, Sperry believes it can cash in on the lowest suburban office vacancy in 14 years, allowing it to charge higher rents than those in deals signed in the past few years.

Suburban vacancy was 18.5 percent to end 2015 and 18.6 percent in the western part of the east-west corridor, according to Chicago-based Jones Lang LaSalle.

“They bought it in 2007 at the peak,” said Burton Young, a Sperry Equities principal. “Rents haven't recovered to where they were in 2007, but we believe we can capitalize on market timing. There are some rents there that are low relative to the market, and there's room to increase the occupancy. We think it's a market-timing play.”

The seller was a Denver-based venture of real estate investment firm EverWest Real Estate Partners and real estate investment trust Dividend Capital Diversified Property Fund.

EverWest was known as Alliance Commercial Partners at the time of the deal. Alliance lost a few other suburban buildings to foreclosure during the downturn.

The Alliance venture that bought Washington Commons faced a potential loan default on the complex in 2011 because of rising vacancy, according to a Bloomberg loan report. But the owners later that year negotiated a maturity extension of four years, to February 2016, on the $21.3 million securitized loan, according to Bloomberg.

The Alliance venture also made a $4 million equity contribution and split the loans into A and B notes as part of the 2011 modification, according to the loan report.

EverWest, which changed its name in 2014, and Dividend Capital representatives did not return calls requesting comment.

Washington Commons, at 450-500, 550-700 and 750-900 E. Diehl Road, consists of 10 single-story buildings connected by foyers and hallways, on 21 acres, Young said. The complex was 77 percent leased when Sperry Equities struck the deal to buy it, and several small new leases have boosted occupancy to about 85 percent, he said.

The largest tenants are a regional headquarters of Toyota's Lexus division, with 31,000 square feet, and a 17,000-square-foot Bright Horizons daycare, Young said.

Sperry Equities, once affiliated with brokerage Sperry Van Ness but now independently owned, plans upgrades including building out move-in-ready suites, he said.

“We love Naperville and the surrounding area," Young said. "It's a good long-term hold right off the I-88 tollway and Diehl Road.”

Sperry Equities owns about 6 million square feet of commercial real estate, including office and industrial space in Bolingbrook, Hoffman Estates and Tinley Park, Young said.

Source: Chicago Real Estate Daily Ryan Ori April 7th, 2016

Buildings with reflections2

Q4 2015 Office Cap Rate Trends

During the fourth quarter the mean office cap rate increased very slightly, but when rounding to tenths of a percent remained unchanged at 6.9%. This is actually up 10 basis points from the level during the fourth quarter of 2014. Meanwhile, the 12-month rolling cap rate was also essentially unchanged versus last quarter at 6.8%. These signals are largely the same ones that we received last quarter. Over the last year cap rate compression for office has slowed. We all know that the in-quarter mean cap rate can be a bit volatile, but the 12-month rolling cap rate is clearly showing some signs of stalling. While this merely looks like a pause, it is important to note that office fundamentals continue to offer attractive upside. In many markets across the country the outlook is brighter over the next five years than was has transpired over the previous five years. But is this true for all markets? Is it impacting transactions and pricing at a more micro level? For now it is important to note that in the historical context, cap rates remain near historically-low levels.

During the fourth quarter the mean office cap rate increased very slightly, but when rounding to tenths of a percent remained unchanged at 6.9%. This is actually up 10 basis points from the level during the fourth quarter of 2014. Meanwhile, the 12-month rolling cap rate was also essentially unchanged versus last quarter at 6.8%. These signals are largely the same ones that we received last quarter. Over the last year cap rate compression for office has slowed. We all know that the in-quarter mean cap rate can be a bit volatile, but the 12-month rolling cap rate is clearly showing some signs of stalling. While this merely looks like a pause, it is important to note that office fundamentals continue to offer attractive upside. In many markets across the country the outlook is brighter over the next five years than was has transpired over the previous five years. But is this true for all markets? Is it impacting transactions and pricing at a more micro level? For now it is important to note that in the historical context, cap rates remain near historically-low levels. When we compare the current 12-month rolling cap rate to the mean 12-month rolling cap rate, we find that it is under by about 40 basis points. This is roughly in line with the difference from last quarter and 10 basis points narrower than what we observed in the apartment market. We mentioned last quarter that the shifting pool of properties traded from quarter to quarter could cause cap rates to rise in short term. While that is what we observed (albeit slightly), the market nonetheless remains incredibly pricey.

When we compare the current 12-month rolling cap rate to the mean 12-month rolling cap rate, we find that it is under by about 40 basis points. This is roughly in line with the difference from last quarter and 10 basis points narrower than what we observed in the apartment market. We mentioned last quarter that the shifting pool of properties traded from quarter to quarter could cause cap rates to rise in short term. While that is what we observed (albeit slightly), the market nonetheless remains incredibly pricey.

Source: REIS Ryan Severino on Mar 18, 2016

U.S. Office Sector Enjoys Steady Leasing Momentum

2015 Best Year for U.S. Office Sales Since 2007

2015 Best Year for U.S. Office Sales Since 2007

National Office Vacancy Rate Tightens to 10.8% As New Supply Deliveries Hold Steady

U.S. office net absorption topped 100 million square feet for the first time since the Great Recession and the national office vacancy rate declined another half-percentage point in 2015 as broadening demand and constrained levels of construction contributed to tightening space availability in virtually every metro area.

The U.S. office vacancy rate declined from 11.3% in 2014 to 10.8% at the end of 2015, continuing its downward trend from the 13.2% vacancy rate at the worst of the economic downturn, according to data presented at CoStar's recent State of the U.S. Office Market 2015 Review and Forecast.

Vacancies declined in 64% of the nation’s office submarkets and 56% of metro office markets during the fourth quarter of 2015. CoStar analysts expect office vacancy to continue trending lower to approximately 10% in 2017.

"The market is overwhelmingly strong at this point in the cycle. With the momentum in the market, I’m sure the next quarter will also be strong," said Hans Nordby, managing director of CoStar Portfolio Strategy, who presented the findings along with CoStar Director of Office Research Walter Page and Vice President and Research Director Dean Violagis.

The strong metrics fueled a white-hot investment market, with preliminary office asset sales up nearly 18% in 2015 to $152 billion, Violagis said.

2015 Best Year for U.S. Office Sales Since 2007

Atlanta, Miami and Nashville were among the markets showing the largest annual vacancy improvement. Each showed larger vacancy decreases than San Francisco, Seattle, and Boston, demonstrating a momentum shift in office market strength from the technology and energy metros that have driven the economy's recovery and expansion to markets that suffered during the recession era housing bust. San Francisco's vacancy rate declines showed evidence of slowing in the fourth quarter as new office supply began to enter the market, Page said.

Unsurprisingly, Silicon Valley markets posted the strongest annual occupancy gains. That said, 8 of the 13 markets with the highest year-over-year changes in occupancy are not driven by either energy or technology, much different than just a year ago, Nordby said.

2015 Best Year for U.S. Office Sales Since 2007

"Big-tenant markets like Atlanta and Dallas are doing well. It's their turn," he said.
Editor's Note: For expert analysis of commercial property markets, CoStar subscribers can register for CoStar's State of the CRE Market 2015 Review & Forecast webinars for the upcoming retail (2/11) and apartment (2/18) sectors -- or view recordings of the office and industrial webinars -- by logging on and clicking the Knowledge Center tab.

While consumers are enjoying lower prices at the gas pump, some parts of the U.S. and parts of the economy are feeling pressure from global economic volatility along with falling energy prices and their ripple effect in equities markets, Nordby said. The S&P 500 has fallen about 11% since peaking last May, due in part to the weakness in energy-related stocks.

Tech Sector Warning Signs

Technology stocks are down more than 10%. Large companies such as Apple and Samsung Electronics last week warned that global economic turbulence and declining demand will slow the tech sector during 2016.

On Tuesday, Sunnyvale, CA-based Yahoo' CEO Marisa Mayer announced plans to eliminate another 1,700 jobs or 15% of its workforce; along with other measures such as the sale of surplus real estate and closing of five global offices. Yahoo will also explore "strategic alternatives" to potentially sell or spin off its core search engine and web portal business. The company last month was reportedly marketing a 48-acre parcel originally slated for expansion in Silicon Valley near Levi Stadium in Santa Clara.

"Tech is volatile. It feels good until it doesn’t’ feel good at all," Nordby said, adding that it's unclear at present when or if lower private and public market valuations might affect hiring in high-tech bastions such as San Jose, San Francisco, Boston, Raleigh, Austin, and Seattle.

However, the strong momentum from last year's strong showing in the office sector and throughout commercial real estate markets is expected to carry well into 2016, the CoStar economists said.

Annual net absorption of office space increased to 101 million square feet in 2015, compared with 93 million square feet in 2014, while developers delivered 64 million space feet, a 41% increase over the previous year. The amount of new space under construction, which has trended downward in the last couple of quarters, stood at 126 million square feet at year end, a modest 7% increase from a year ago, and near the historical yearly average since 2000.

2015's 4.4% annual rent growth topped the previous year’s growth of 3.8%, with rents surging at a particularly strong rate in CBDs such as San Francisco at 19.4% and Raleigh, NC at 13.9%. Even in the urban core of Atlanta and Detroit, rents in the urban core rose at 11.2% and 10.5%, respectively.

Source: CoStar Randyl Drummer February 3, 2016

Q3 2015 Office Trends
Q3 2015 Office Trends

National Office Market

Q3 2015 Office Trends:  Office vacancies fell by 10 basis points to 16.5 percent in the third quarter, after holding steady at 16.6 percent for the first half of the year. The sector is treading a familiar path of a sluggish downward trend in vacancies, which began in late 2010 after the vacancy rate peaked at 17.6 percent.

Given how monthly job growth has actually been weaker in 2015 relative to 2014’s monthly average, this is fairly impressive. Aided by very constrained levels of supply growth, absorption and construction have mostly kept pace, and asking and effective rents also continued their march upwards, albeit at a modest pace.

Asking and effective rents grew by 0.6 and 0.7 percent respectively during the third quarter, marking the twentieth consecutive quarter of asking and effective rent growth. These growth rates are more or less in line with the growth rates from last quarter. However, even though quarterly rent growth did not accelerate, year-over-year rental growth rates for both asking and effective rents did accelerate. Effective rent growth of 3.5 percent is quite strong for a property type with a relatively elevated vacancy rate. We are on track for a 30 basis point decline in vacancies for 2015, the strongest showing for the sector since 2012.

Q3 2015 Office Trends
Q3 2015 Office Trends

Supply and Demand Trends

Very slowly, the recovery in the Office market is gathering pace (as contradictory as that sounds). 2015 is shaping up to be the best year for demand for office space (as measured by net absorption) since 2007, before the recession.

Year-to-date figures for most metrics are already well ahead of last year. Because the improvement in the Office market has been so gradual, it has largely gone unnoticed by many in the industry. However, improvement is becoming stronger and more consistent. Unless we encounter a major downturn in the near future, this argues for better times for the office market over the next five years.

Source: REIS Victor Calanog on Dec 8, 2015

Commercial Loans

Chicago Suburban office vacancy falls to 14-year low

Even as some of their most recognizable tenants continue moving workers downtown, suburban office landlords keep filling up their vacant space.

Overall suburban vacancy fell to 19 percent during the third quarter, the lowest level in 14 years, according to Chicago-based Jones Lang LaSalle. That's a big drop from 20.3 percent vacancy in the second quarter, and 23.4 percent a year earlier.

Vacancy in Chicago's suburbs is in the teens for the first time since 2007. Vacancy peaked at 25.4 percent in 2010 during the early years of a prolonged real estate downturn.

Amid an improving economy, many companies are expanding again or making long-term commitments to office space in the suburbs.

“There's a pipeline of companies that weren't making big decisions, and were doing short-term (lease) renewals instead,” said tenant broker Jim Rose, a JLL vice president who is active in the northwest and O'Hare submarkets. “Those companies that were putting all their decisions on hold are now creating a ton of activity. We see it with contractors, with architects, all across the industry. Tenant confidence is really high right now.”

The vacancy drop belies the broader narrative about the office market that has developed as several big tenants have decided to ditch the suburbs for the city. The latest round of high-profile moves downtown includes Kraft Heinz's deal to move its headquarters to the Aon Center from Northfield and Schaumburg-based Motorola Solutions' headquarters shift to 500 W. Monroe St. Omaha, Neb.-based ConAgra Foods is moving its headquarters to Chicago's Merchandise Mart, a deal that includes closing the company's Naperville office.

Meanwhile, Oakbrook-based McDonald's was close to a lease of more than 350,000 square feet at Prudential Plaza before halting the deal, at least for the moment.

“Those are big-time names, so there's a reason they're grabbing the headlines,” Rose said. “But there's a lot more tenants out there than four. There's still a huge number of tenants that aren't looking downtown and are re-committing to the suburbs.”

Chicago Suburban Vacancy Lowerst in 14 Years

Although some tenants are focused on urban locations in order to recruit and retain younger workers, the suburban market is experiencing a revival in part because of pent-up demand for extra space, Rose said. After years of putting off long-term real estate commitments because of a shaky economy, tenants that are entrenched in the suburbs have now begun relocating to new space or adding on to their longtime offices, he said.

Demand—as measured by net absorption, the change in the amount of leased and occupied space—increased by 603,860 square feet in the third quarter. Net absorption has been greater than 600,000 square feet, or larger than many suburban office buildings, in three of the past six quarters.

Relocations that contributed to absorption included Baxter International spinoff Baxalta's headquarters move to all of a 257,191-square-foot building in Bannockburn, and pasta maker Barilla—which was displaced by the Baxalta deal—relocating its American headquarters to a 75,260-square-foot building in Northbrook.

Large leases signed in the third quarter, which will affect future vacancy figures after the tenants move, include the decision by the North American unit of London-based financial services firm HSBC to consolidate almost 1,500 local employees to 162,396 square feet in Arlington Heights. In the second-largest deal, Horizon Pharma plans to triple its head count when it moves its U.S. headquarters to about 133,000 square feet in the former Solo Cup headquarters space in Lake Forest.

Lake County remained the submarket with the highest vacancy, at 24.2 percent, down from 24.9 percent in the previous period. The lowest vacancy remained in suburban Cook County, at 9.9 percent, down from 12.2 percent a quarter earlier.

Northwest suburban vacancy was the second-highest at 20.4 percent, and that area faces additional space coming back to the market in Schaumburg as Zurich North America prepares to vacate its nearly 900,000-square-foot, two-tower complex for a new campus. Motorola Solutions also plans to sell its excess suburban space after moving the headquarters downtown.

Source: Chicago Real Estate Daily October 12th, 2015 Ryan Ori

High Turnover in Office Ownership Confirms Growing Strength of Secondary Markets

High Turnover in Office Ownership Confirms Growing Strength of Secondary Markets

Office Investors Increasingly Active Across More Secondary Markets Even as Core Gateways Maintain Their Luster.

Last year saw the return of a thriving office investment market, so much so in fact, that several local markets saw significant chunks of their overall stock of buildings change hands in 2013.

Analyzing such office inventory turnover can provide a good barometer of where office investment dollars are flowing, and also reveal markets that offer opportunities for further investment.

"While overall CRE investment volume rose 14% in 2013 from 2012 levels, office sector activity increased 17% to over $104 billion, the highest annual volume recorded for the four major property types,” said Nancy Muscatello, senior real estate economist with CoStar Group.

"Although last year’s haul was still shy of the peak office investment levels we saw in 2007, it does demonstrate the return of strong investor interest in office property, although that wasn’t necessarily the case everywhere.”

Looking at office inventory turnover trends across the top 54 U.S. office markets, five Southern and Western markets saw more 10% or more of their total office market inventory change hands last year: Austin, Dallas/Fort Worth, Atlanta, Houston and Denver. Austin was especially popular with office investors as 13% of its office space was acquired by new owners in 2013.

Six office markets saw just 3% or less of their stock change hands: Long Island, Sacramento, Baltimore, Pittsburgh, Honolulu and Richmond, which posted the lowest turnover of 2%.

The surge in transaction volume in many of these markets was predictable, Muscatello said.

"Houston is a shiny object that investors cannot seem to get enough of, offering a bulletproof demand story and fairly decent yields," as a result trading volume has soared in some key submarkets, she said.

“Austin has also been on the radar of investors for quite some time. The metro had a huge inventory turnover in 2013 (13.1% of inventory,) although a sizable portion of that (40%) was due to portfolio sales," Muscatello noted. The biggest portfolio to trade hands last year in Austin was the sale of the Thomas Properties Group portfolio of five trophy CBD towers as part of the firm’s acquisition by Parkway Properties.

"With a large chunk of the CBD inventory having already traded in this market, I would expect sales to remain strong, but turnover rates to moderate in the near term," Muscatello added.

Chris Hightower, an investment broker with Marcus & Millichap in Austin, said the ownership changes demonstrate the evolution of the Austin market. Historically, big institutional buyers have eschewed the ‘Live Music Capital of the World’ due to its relatively small size compared to major markets.

“However Austin has become real estate darling due to the hard charging Austin economy,” Hightower said.

Meanwhile, some of the nation’s core coastal markets saw relatively lower inventory turnover, including Washington, DC, San Francisco and New York, where just 5% of inventory traded hands. As a way of comparison, the average across the top 54 U.S. office markets was 6.33% turnover.

"Of course, that’s due in part to the size of those markets,” Muscatello noted. “Not only were they at the forefront of investment activity early in the recovery, but markets like New York and Washington DC have office inventories that are much larger than the average market. Investment volume in New York for example, still accounted for 23% of all office sales in 2013, even though New York’s share of the office inventory is only 10%. San Francisco also pulled in an outsized share of sales volume in 2013.”

Andrea Cross, national office research manager for Colliers International, also noted the turnover trend in the gateway markets.

"New York, San Francisco and Boston experienced the strongest demand from investors coming out of the recession, so many office assets in those markets have already traded. Lower inventory turnover in 2013 is attributable to a shortage of available assets and strong price increases in recent years rather than a lack of interest in those markets,” Cross said.

It's not so much that investor interest has waned in those markets, but rather it has expanded to include others.

“Office turnover in markets outside of the core gateway markets has picked up with broader economic growth and higher investor confidence in the office market’s recovery,” Cross said. “We are seeing higher turnover in many markets that were out of favor earlier in the recovery.”

Markets such as Nashville, Jacksonville, New Orleans and Las Vegas all saw 8% turnover in office inventory last year, according to CoStar data.

“Office sales volume is certainly on the rise in secondary markets as the recovery spreads to more markets and investors move out on the risk spectrum in search of higher yields,” Muscatello said.

Source: CoStar Mark Heschmeyer February 26, 2014