Commercial Real Estate: Industrial, student housing property types rule the South

The industrial sector rated highest among all property types in the South region of the US for its return vs. risk, while the retail sector placed last in that category. For value vs. price, the student housing sector rated highest, while the apartment sector fared the worst. That’s according to a recent survey of regional correspondents conducted for the 3Q 2018 Situs RERC Real Estate Report.

Here’s a closer look at some of the major metro areas in the South:

The industrial vacancy rate in Atlanta has remained low throughout the recovery, causing the development pipeline to ramp up to meet demand. With a glut of industrial assets expected to come online in the next 12 months, investors will be watching for signs of pricing getting ahead of the leasing market.

Railway giant Norfolk Southern might build its own 750,000-square-foot headquarters in the metro. This project is expected to add 850 new jobs and retain more than 2,000 existing jobs, help­ing to support the CRE market.

Austin’s thriving local economy and low loan-delinquency rates have made it a top destination for CRE investment. Austin attracts tech profes­sionals because of its relatively low cost of living. Austin is also home to the University of Texas, which supplies a highly educated workforce to IT companies. These jobs provide higher pay and support healthy wage growth, which in turn drives a strong retail market.

High population growth, job growth and healthy household incomes, along with a younger demographic of residents, continue to support the Austin apartment market. Rental demand is expected to remain strong as inter­est rates are expected to rise and single-hous­ing affordability remains an issue.

The Houston office market relies heavily on the energy industry. When the energy sector is struggling, the Houston office market experi­ences negative net absorption and increases in vacancy. However, the metro’s economy is not tied solely to energy. Houston has a strong health care sector that continues to be a major economic driver to the area and helps diversify the metro during economic downturns.

Expansion efforts over recent years have paid off for Port Houston. Port Houston is currently among the top five ports in the U.S. in terms of containers, and is the largest container port in the Gulf of Mexico. The expanded port, strength in trade, and the rise of e-commerce sales will continue to buoy the metro’s industrial market. However, while this could increase the amount of speculative development and drive rates, tar­iffs and a possible trade war could be an obsta­cle for the metro’s industrial outlook.

Previously in Newswatch, we looked at the West and Midwest regions of the US. Next week, we’ll look at the Situs RERC survey results for the East region of the US.

Visit our website or call 319-352-1500 for more information about Situs RERC’s research.

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