RCA Insights

Los Angeles Overtakes Manhattan as Largest US Investment Market

By on July 20th, 2017

Los Angeles pushed aside Manhattan to become the largest commercial real estate investment market in the first half of 2017, as capital migrated from higher-priced markets. This pullback of capital from markets such as Manhattan outweighed more hopeful signs on deal activity elsewhere in the U.S., preliminary H1’17 data shows.

Figures suggest that U.S. deal activity fell 9% year-over-year in H1’17, with the 6 Major Metros posting a 20% YOY decline.  Secondary and tertiary markets showed more favorable trends, with activity only 3% off the pace set a year earlier.

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Prices continue to tighten despite the fall in deal volume. Retail and hotel cap rates are up from a year earlier, but far less than the change in the 10-year U.S. Treasury over the same time frame. Apartment cap rates are slightly down versus a year ago even though deal activity for this sector has sunk.

Sales of development sites retreated the most in H1’17, with preliminary estimates suggesting a 22% YOY decline. The apartment, CBD office and retail sectors also posted double-digit drops in activity.

Relative bargains are available in the market today. Cap rates are shifting downward in each market in response to global capital market forces, but this shift is not uniform. Next week Real Capital Analytics will publish the new edition of US Capital Trends. In this edition we explore the pricing of assets across markets over time to identify those markets which are priced favorably.

Jim Costello

Jim Costello

Senior Vice President

Jim Costello has worked in the CRE space on issues of urban economics since 1990, including a 20-year stint at Torto Wheaton Research. Jim expanded the reach of the Torto Wheaton Research team developing forecasts of global market fundamentals. He also developed approaches to pair the forecast results with frameworks to answer investor questions on asset values and relative investment opportunities.

In the aftermath of the Global Financial Crisis, Jim provided advice to the Treasury Department and helped educate these professionals on commercial real estate performance. Jim is a member of the Commercial Board of Governors of the Mortgage Bankers Administration, where he helps policy makers understand the commercial real estate industry.

Jim is expanding the capabilities of the Real Capital Analytics team on issues of real estate market dynamics. Jim has a master’s degree in economics and is a member of the Counselors of Real Estate.