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3Q18 UNITED STATES CAPITAL MARKETS REPORT

October 2018
NKF Capital Markets presents the Third Quarter 2018 United States Capital Markets Report. The statistics and in-depth market perspective contained in the report illustrate current trends with a focus on national investment sales.

Executive Overview

Sales Volume National investment sales volume, across all property types, recorded the highest quarterly total since 4Q15, increasing by 23.9% quarter-over-quarter. Several multi-billion dollar entity-level transactions in tandem with near record levels of multifamily investment, helped account for the surge.
Cap Rates Cap rates, while ticking upward by 6 basis points, have been remarkably resilient to upward pressure from rising interest rates and have benefitted from strong investor demand for real estate.
Rent Growth While office rental growth has been the highest in supply-constrained primary markets such as New York City, San Francisco and Seattle, various secondary markets with high levels of employment growth and Class A construction have seen a healthy expansion of both PSF and rental rates.
Supply and Demand The combination of record levels of dry powder, and near record levels of investment, underline the robust demand for alternative investments. Value-add opportunities, often outside of coastal gateway cities, continue to see a higher level of interest.
International Capital Entity and portfolio level transactions have represented the bulk of international investment in 2018, with groups from Canada, Germany, China and Singapore all acquiring $500+ million portfolios.
Debt Markets The special servicing rate among all CMBS loans has dropped to 4.5%, from just under 14% in 2010, emphasizing the healthiness of the real estate debt sector. Debt service coverage ratios and LTVs have ticked upward slightly this quarter but remain tight compared with the previous cycle.