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I researched all of the sale transactions from 1.1.15 to 4.30.15 reported in Xceligent and plotted the city locations of the buyer entities in the map above. The heat map is weighted by building size. Click here to download the KML file to upload in your Google Earth to see the results for yourself.
Commercial real estate in Austin, Texas is on fire. I have personally seen capitalization rates compress up to 200bps for income producing assets within the last 3 years and supply thin. Currently, I have direct access to owners of off market assets in nearly every asset type with permission to present to select principals. Multifamily class A can be purchased at 4.75% cap rate. Neighborhood retail with a moderate mix of national credit tenants could be purchased in the 7% cap range. Class C Multifamily is running in the low 6% cap range. Garden office class A can be purchased in the low 7% cap range. High quality single tenant net lease assets are in the low 5% cap range.
Is this a bubble or the "new normal"? Many local buyers are frustrated. We are in the expansion phase of the real estate cycle and the US is considered to be the "safe haven" for international investors. Some institutional investors in Canada now view Austin and San Antonio to be one consolidated market and consider this market to be Tier 1 status. In Europe, a 2% return is acceptable to some investors. This trend will continue to be a driving force in the US, but, my research shows the majority of the investors who purchased property in Austin this year live in the US.
In my opinion, as long as the supply continues to be absorbed, this trend of compression will continue, until interest rates rise. When interest rates rise, cap rates will increase in order to maintain positive leverage. Many of the buyers willing to pay aggressive prices live outside of Austin. If you own income producing assets in Austin, consider selling NOW before interest rates cause your property value to drop.
Longbow Real Estate Group uses marketing techniques to reach nearly 200,000 commercial real estate practitioners across the US within 1 week of marketing an asset. The results from our direct marketing generate on average 67% more downloads of flyers than LoopNet.
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Nick Nelson, CCIM, ASC
Longbow Real Estate Group
Partner
2015 Central Texas CCIM Chapter President
Cell 512.906.6757
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