CBRE Cap Rate Survey. A CBRE Publication. First Half Click to Enter

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1 CBRE Cap Rate Survey A CBRE Publication pg 2 pg 8 pg 17 pg 26 pg 36 pg 41 pg 45 Click to Enter

2 United States Key National Observations The CBRE Cap Rate Survey for mid-year 2014 points to meaningful declines in national average cap rates for the following property sectors:»» (approximately basis points (bps)»» Class A, Neighborhood Centers and Power Centers (both by approximately 30 bps)»» Central Business District (20-35 bps) Cap rates for office, multifamily, and suburban hotel properties saw little change at the national level. Rising cap rates in a number of gateway office markets and declining cap rates in a number of non-gateway office markets essentially offset each other, leaving the national statistics virtually unchanged, but pointing to a shift in investor focus. High street retail exhibited the greatest absolute change in cap rates with a 36 bps decline, taking it to a national average cap rate of 4.45%, compared to 4.81% from the previous half. High street retail represents the smallest sample size in the survey; this property subtype is comprised solely of prime retail shopping thoroughfares in ten urban submarkets serving as focal points for high-end shops and luxury retailers. The decline in high street retail cap rates is aligned with the trend of increased demand for this investment type as the recovery progresses and has now pushed the average cap rates for this sector below that of in-fill Class A multifamily assets. Class A neighborhood center cap rates declined by 32 bps; Class B neighborhood center cap rates were essentially flat; Class C neighborhood center cap rates rose by 29 bps, pointing to a perception of greater variation in risk across the various retail asset classes and subtypes. Power center cap rates moved in a more uniform fashion, however, with all classes declining by approximately 30 bps. The greater differentiation in cap rates seen in neighborhood centers has not carried over to power centers in our survey results. Across all of the property types surveyed, CBRE Capital Markets and Valuation professionals anticipate that between 75% and 80% of markets will see little to no change in cap rates over the next six months, while 20% to 25% of markets will see contracting cap rates. Only a handful of markets are anticipated to see rising cap rates over the next six months, and in most cases, the rise in cap rates in these markets are anticipated to be less than 25 bps. Along with an exploration of the survey results, CBRE analyzes the expectations and realities of recent and potential future movements in interest rates and cap rates, with a focus on the industrial sector. 2

3 United States (continued) National Level Capitalization Rates (by section, class and/or segment) Sector Class/Segment 2013 Q Q2 BPS Change BPS Spread to Treas. A 5.49% 5.53% CBD B 6.92% 6.91% C 8.95% 8.85% A 6.67% 6.63% Suburban B 7.95% 7.81% C 9.41% 9.30% A 6.25% 5.97% B 7.36% 7.04% C 8.56% 8.33% A 6.25% 5.93% Neighborhood Centers B 7.15% 7.14% C 8.43% 8.72% A Power Centers B 7.72% 7.41% C 8.71% 8.44% High Street A 4.81% 4.45% A 4.64% 4.59% nfill B 5.16% 5.18% C 5.93% 5.95% A 5.32% 5.29% Suburban B 5.93% 5.82% C 6.89% 6.75% Economy 9.03% 8.69% CBD Full Service 7.54% 7.54% Luxury % Select Service 8.06% 7.88% Economy 9.62% 9.60% Suburban Full Service 8.03% 8.14% Luxury 7.48% 7.35% Select Service 8.38% 8.32% Source: CBRE Cap Rate Survey; Federal Reserve for Treasury rates,

4 United States (continued) nterest Rates and : Expectations and Reality Last year, the investment markets were in turmoil after the Federal Reserve Bank announced its intentions to begin tapering its Quantitative Easing (QE) program. There was a great deal of fear at this time that this tapering would sink the commercial real estate market, but the reality has been far gentler. The QE program helped hold down the long-end of the yield curve in an attempt to incentivize long-term investments that might Ten Year Treasury, % Trend for the 10-year Treasury did not Quite Hit Fears from a Year Ago August 2013 Consensus Reality Trend Source: WSJ Consensus Survey August 2013, CBRE Research Calculations, spur economic growth. The long-end of the yield curve surged on this news and between May 1 and August 1, 2013, the 10-year Treasury (UST) shot up 110 bps. The fear at the time was that this turmoil with interest rates would boil over to push up cap rates. That turmoil is well in the past and did not impact the commercial property markets negatively. This says something about where cap rates will likely be headed in the future. Every month the Wall Street Journal conducts a survey of professional economists asking for their views on future trends on a variety of economic indicators. The following chart highlights the consensus view for the UST in August of At the time, these economists expected the UST to climb to 3% by mid-year n reality, the average for the second quarter was 2.62%. While the simple explanation for this is that economists sometimes get things wrong, there are other factors that were holding back the expansion of rates on the long end of the yield curve. The consensus published in August 2013 was set in the previous months when the averages for the second quarter were not yet in place. Participants expected that the UST would go up, just not as quickly as it did, as many simply could not quantify the fear reaction that took hold when the tapering of the QE program was announced. The animal spirits of the market moved much more quickly in the near-term than economic models could anticipate. After that initial shock, the modeled approach also failed relative to reality. Along the way, expectations for future growth shifted downward. There is a simple relationship one can use to determine where interest rates should be given expectations for economic growth rates and the overall rate of inflation, and any downward shift 4

5 United States (continued) in growth expectations should lead to lower levels on the long end of the yield curve. The expectations on growth have moved a great deal over the last year. As shown in the following chart, the expectations for future growth domestic product (GDP) growth by participants in the Open Market Committee of the Federal Reserve Bank have shifted down significantly from March 2013 to June The views of these Committee members are important as this is the interest rate setting board for the Federal Reserve Bank During this timeframe, as future growth expectations have downshifted, cap rate spreads to Treasuries have generally narrowed as well. For example, the mid-year 2014 CBRE Cap Rate Survey shows that in the industrial sector, the average cap rate for stabilized Class A assets now stands at 5.97%. Throughout the second quarter, the 10-year UST averaged 2.62%, yielding a 335 bps spread between the risk-free asset versus the 426 bps spread observed six months ago in our last survey. Has the spread of Class A industrial asset cap rates over Treasuries now reduced as far is it might? Would a move to 4.25% for the 10-year Treasury imply a corresponding cap-rate shift up to 7.60% for high-quality industrial assets? f cap rates for stabilized Class A industrial assets move from 5.97% to 7.60% in two years, asset values would be obliterated, suffering a roughly 27% decline assuming there are no changes in property income. This line of thinking is flawed, however, as there is not a constant spread between cap rates and interest rates over time. The following chart shows the appraisal-based cap rate data for high-quality industrial assets held by investment managers contributing data to National Council of Real Estate Growth Expectations of Federal Reserve Open Market Committee Members Downshifting Number of Participants Ranges on Long-Term GDP Growth Expectations March 2013 June 2013 June Source: Federal Open Market Committee (FOMC) Meeting Notes, CBRE Research Calculations, nvestment Fiduciaries (NCREF) have exhibited a roughly 300 bps spread to the 10-year Treasury. The comparable spread for the CBRE Cap Rate Survey figure would be roughly 360 bps, given CBRE s inclusion of data in secondary and tertiary markets where NCREF is typically under-represented. The spread between cap rates and interest rates has not remained constant over time, just as investor perceptions of the risks in the industrial sector have not remained constant. This is true for all major property sectors, with the perception of risk rising and falling. For high quality industrial assets, it appears that 5

6 United States (continued) Cap Rate Spreads to the Ten-Year Treasury are Not Constant BPS Spread, Warehouse to Ten Year Spread Source: NCREF, Federal Reserve Bank, CBRE Research Calculations, the risk spread over Treasuries remains at a reasonable level, and based on historical data, may even have room to narrow a bit more in response to rising interest rates, while still remaining within the range of the historical observations noted in the chart above. Review of Fundamentals by Property Sector Average of 300 BPS Spread since to 2014 Average By mid-year 2014, the office vacancy rate was at 14.5% nationally, versus 15.2% for mid-year This 70-bps decline in the office vacancy rate came about from declining vacancy in both CBD and suburban submarkets. The vacancy rate for CBD submarkets fell 50 bps from one year earlier to hit 11.8%. The vacancy rate for suburban submarkets fell more quickly, however, dropping 90 bps from a year earlier to hit 15.9%. Overall, there is still more slack capacity in the suburban submarkets, making it easier for the figure to fall more quickly. Of note, the 15.9% level is now just under the 16.1% average level recorded since 1988 and rent pressures should begin to build in many suburban submarkets. CBD vacancy rates, by contrast, are now well below the long-term average of 12.8%, with many CBD submarkets exhibiting healthy rent trends for some time now. The national industrial availability rate reduced to 10.8% as of mid-year 2014, from 11.9% at mid-year This year-overyear improvement is in keeping with a trend of approximately 100 bps improvements over each year since the worst of the recession in 2008 when the availability rate stood at 14.5%. Should this trend continue, the national availability rate for industrial would reduce to a level below the long term average of 10.0% by the first half of As a result of the tightening availability rate, average asking rents have risen 4.4% over the past year, following several years of declining or flat rent growth throughout the early stages of the recovery from the recession. The retail sector has lagged other property types throughout the recovery period; however, retail leasing is now catching up with other property sectors and availability rates are down 50 bps from a year earlier, having fallen to 11.7% by mid-year Nationally, net absorption has improved significantly over the last two years with average annual absorption of over 25 million square feet. This level is half of the long term average seen from , 6

7 United States (continued) but represents a significant turnaround from the extremely limited absorption of the early period of the recovery from the recession, and a dramatic improvement from the negative net absorption of 28 million square feet that occurred in continues to enjoy the healthiest fundamentals among the main property sectors. Vacancy stood at 4.4% at mid-year 2014, down from 4.6% a year earlier. The long-term average vacancy rate for the sector is between 5.0% and 6.0%, and as demand continues to grow, rents are climbing as well, albeit at a slower pace than the prior two years. Effective market rents are up 2.6% from a year earlier, but rents were up nearly 5.0% in Renters can absorb only so much of a rent increase. Still, while rents are not growing as quickly as they have in the past, cap rates for the multifamily sector remain the lowest among the major property sectors. For Class A stabilized assets in urban locations, cap rates came in at a national average rate of 4.59%, a 5 bps decline from the last survey in March nfill urban Class B and C average cap rates were nearly unchanged at 5.18% and 5.95%, respectively. n the hotel sector, the revenue per available room (RevPAR) continued to grow throughout the first half of 2014.n the full-service segment, RevPAR was up 7.5% from a year earlier, while the limitedservice sector RevPAR was up 10.7% from mid-year 2013.This pace of RevPAR growth is up compared to the growth rates seen in 2013, when growth in RevPAR slowed somewhat following the 8.0%-9.0% pace of n the limited-service sector, for instance, the average pace of annual RevPAR growth from the middle of 2010 through the middle of 2012 was 8.0%. The supply of rooms was fairly constrained during that time frame, however. The CBRE Cap Rate Survey shows that investors are placing the most value on the RevPAR trends from the luxury segments for assets in CBD locations, with an average 6.66% cap rate across markets. The economy segments meanwhile have an average cap rate of 8.69%, though the range is fairly wide, with markets falling anywhere from 7.25% to 10.88% on the spectrum. 7

8 nvestment volume in the office sector in the 12 months ending at mid-year 2014 was up 30.9% compared to the year-earlier period, with total volume of $115.8 billion, according to Real Capital Analytics (RCA). To put this figure into perspective, office transaction volume averaged about $108 billion per year from 2004 to Volume is still down from the record $213 billion pace recorded in 2007, but those figures represented an artificial high from the unwinding of RETs to the private market. The volume of sales in suburban submarkets has been growing at a faster pace than in the CBD submarkets. Of note, the suburban submarkets accounted for approximately 51% of office transaction volume during the past 12 months. This shift towards greater volume in suburban submarkets is significant, as that segment saw sales grow at a slower pace in the early stages of the economic recovery when investors were mostly focused on CBD office investments. This edition of the CBRE Cap Rate Survey reflects very limited change in both CBD and suburban office cap rates. The greatest change was in Class C suburban office which saw a 10 bps contraction in the national average cap rate. Going forward, CBRE Capital Markets and Valuation professionals expect that across the 40 suburban markets surveyed, cap rates for stabilized Class A assets will contract in 23 markets over the next six months, while 17 markets are expected to be flat. n CBD submarkets, the same basic pattern is in place, with cap rates for stabilized Class A expected to contract in 18 markets, remain flat in 22, and expand slightly in one market. Overall, where cap rates are expected to contract, the movement will be less than 25 bps, but greater contraction is anticipated in Atlanta, Charlotte and Detroit. Aside from the pivot towards greater interest in suburban investments, another notable trend in the office sector is a shift toward somewhat higher cap rates in a few key gateway and major markets and lower cap rates in a few non-gateway and secondary markets. Notable examples of stabilized Class A office cap rates rising in this survey as compared with the last edition include New York (+50 bps); Los Angeles (+75 bps); and Dallas (+50 bps). Secondary and tertiary markets showing contracting Class A stabilized office cap rates include Baltimore, Charlotte, ndianapolis, Austin, Orlando, Albuquerque, and Denver; all with reductions of bps. Clearly investors have broadened their horizons well beyond gateway CBD markets as both the volume of transactions and cap rates reflect this trend. click to download Select from the list below to access the current office key ratios, forecasts and maps. CBD Complete CBD Current Key Ratios Chart (PDF) Complete CBD Current Forecast Chart (PDF) Complete CBD Current Key Ratios Map (PDF) SUBURBAN Complete Suburban Current Key Ratios Chart (PDF) Complete Suburban Current Forecast Chart (PDF) Complete Suburban Current Key Ratios Map (PDF) 8

9 CBD Eastern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Baltimore 6.25% % 8.00% % 8.00% % 9.00% N/A N/A N/A N/A Boston 4.50% % 6.00% % 5.75% % 7.00% % 6.50% % 9.25% % Charlotte 6.25% % 8.00% % 7.00% % 8.50% % 8.00% % 10.00% New York 4.50% % 6.00% % 5.00% % 6.50% % N/A N/A N/A N/A Philadelphia 6.50% % 7.50% % 7.50% % 8.50% % 8.50% % 9.50% % Pittsburgh 7.00% % 8.00% % 8.50% % 9.00% % 11.00% % 11.00% % Raleigh 6.25% % 7.50% % 7.25% % 8.75% % 8.00% % 9.50% % Washington, D.C. 4.50% % 5.50% % 5.00% % 6.50% % 7.50% % 7.50% % Baltimore Boston Charlotte New York Philadelphia Pittsburgh Raleigh Washington, D.C. ncrease 9

10 CBD Midwestern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Chicago 5.00% % 7.00% % 6.75% % 8.50% % 7.50% % 8.75% % Cincinnati 7.50% % 8.50% % 8.50% % 10.00% % 10.00% % 12.00% % Cleveland 9.50% % 10.00% % 10.00% % 11.00% % 12.00% % + Columbus 7.50% % 8.00% % 8.50% % 9.75% % 10.00% % 11.00% % Detroit 9.00% % 9.50% % 10.00% % 10.00% % 12.00% % 12.00% % ndianapolis 7.50% % 8.50% % 8.00% % 9.50% % 8.75% % 10.00% % Kansas City 8.25% % 8.25% % 9.50% % 9.50% % 11.00% % 11.00% % Minneapolis 5.50% % 7.00% % 7.50% % 9.00% % 9.00% % 11.00% % St. Louis 8.00% % 7.50% % 8.50% % 8.00% % 9.50% % 9.00% % Chicago Cincinnati Cleveland Columbus Detroit ndianapolis Kansas City Minneapolis St. Louis ncrease 10

11 CBD Southern Region Atlanta 6.00% % Austin 5.00% % Dallas 6.50% % Compared to 2H13 Compared Compared Compared to 2H13 to 2H13 to 2H % % 7.00% % 7.50% % 8.00% % 6.00% % 6.50% % 7.00% % Compared to 2H13 Compared to 2H % % 8.00% % 8.50% % 8.50% % 8.00% % 10.00% % 9.00% % 11.00% % Houston 5.50% % 7.00% % 6.50% % 8.00% % 8.00% % 10.00% % Jacksonville 8.00% % 9.50% % 9.50% % 10.00% % 10.50% % 12.00% + Memphis 8.50% % 9.00% % 9.00% % 11.00% % 11.00% % 12.00% + Miami 5.00% % 6.50% % 6.00% % 6.75% % 7.00% % 7.50% % Nashville 6.50% % 7.50% % 8.00% % 9.00% % 9.00% % 10.00% % Orlando 6.00% % 6.50% % 6.50% % 7.00% % 7.50% % 8.00% % San Antonio 6.50% % 7.75% % 7.75% % 8.25% % 8.50% % 8.75% % Tampa 6.50% % 7.00% % 7.75% % 8.00% % 8.50% % 9.00% % Atlanta Austin Dallas Houston Jacksonville Memphis Miami Nashville Orlando San Antonio Tampa ncrease 11

12 CBD Western Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Albuquerque 8.00% % 9.00% % 8.50% % 9.50% % 9.00% % 10.00% % Denver 5.50% % 6.50% % 6.00% % 7.50% % 7.50% % 9.00% % Las Vegas 7.50% % 8.00% % 7.50% % 9.00% % 8.50% % 10.00% % Los Angeles 5.00% % 7.50% % 6.25% % 8.50% % 7.50% % 9.50% % Orange County 5.50% % 6.75% % 6.25% % 8.00% % 7.75% % 9.50% % Phoenix 6.00% % 7.00% % 7.00% % 8.00% % 8.50% % 10.00% % Portland 6.00% % 6.75% % 7.00% % 7.50% % 8.00% % 8.50% % Sacramento 6.50% % 7.50% % 7.25% % 8.00% % 8.00% % 9.00% % Salt Lake City 5.50% % 7.25% % 7.00% % 7.75% % 8.00% % 9.00% % San Diego 6.25% % 6.50% % 6.50% % 7.00% % 7.25% % 8.25% % San Francisco 3.00% % 6.50% % 4.00% % 7.00% % 6.50% % 8.50% % San Jose 6.50% % 7.00% % 7.00% % 7.50% % 8.00% % 9.00% + Seattle 4.75% % 5.75% % 5.75% % 6.75% % 7.00% % 8.50% % Albuquerque Denver Las Vegas Los Angeles Orange County Phoenix Portland Sacramento Salt Lake City San Diego San Francisco San Jose Seattle ncrease 12

13 Suburban Eastern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Baltimore 6.50% % 8.00% % 8.00% % 9.00% N/A N/A N/A N/A Boston 6.00% % 7.00% % 6.75% % 8.50% % 8.00% % 9.50% % Charlotte 6.50% % 8.50% % 7.25% % 9.00% % 8.50% % 10.00% Philadelphia 6.25% % 7.50% % 7.50% % 9.00% % 8.50% % 10.00% % Pittsburgh 7.00% % 8.50% % 8.75% % 9.50% % 11.00% % 11.00% % Raleigh 6.50% % 7.75% % 7.50% % 9.00% % 8.25% % 9.75% % Washington, D.C. 5.00% % 6.50% % 5.50% % 7.50% % 8.00% % 8.50% % Baltimore Boston Charlotte Philadelphia Pittsburgh Raleigh Washington, D.C. ncrease 13

14 Suburban Midwestern Region Compared to 2H13 Chicago 7.25% % 9.00% % Compared to 2H13 Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H % % 10.00% % 10.25% % 12.00% % 11.00% % 10.00% % 12.50% % 9.00% % 12.00% % 10.00% % 13.00% % % 8.50% % 10.50% % 11.50% % 10.50% % 10.00% % 12.00% % 8.00% % 8.75% % 9.00% % 9.50% % 8.50% % 8.50% % 10.00% % 10.00% % 8.00% % 10.50% % 10.00% % 12.00% % Cincinnati 8.00% % 9.00% % 9.00% % Cleveland 8.75% % 10.00% % Columbus 7.50% % 8.00% % Detroit 7.00% % 9.50% % 9.50% % ndianapolis 7.75% % 8.50% % Kansas City 7.25% % 7.25% % Minneapolis 6.75% % 8.25% % St. Louis 7.00% % 8.00% % 8.00% % 10.00% % 9.00% % 12.00% + Chicago Cincinnati Cleveland Columbus Detroit ndianapolis Kansas City Minneapolis St. Louis * Forecast trends represent the CBRE professionals opinion on where ratios are likely to trend in 2nd half of 2014 in their local market. ncrease 14

15 Suburban Southern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Atlanta 6.50% % 7.25% % 7.50% % 8.00% % 8.50% % 9.50% % Austin 5.50% % 6.50% % 6.50% % 7.00% % 8.00% % 8.50% % Dallas 6.25% % 7.00% % 6.50% % 9.00% % 8.50% % 10.50% % Houston 6.00% % 7.50% % 7.75% % 8.50% % 9.00% % 10.00% % Jacksonville 7.50% % 9.00% % 8.50% % 10.50% % 9.00% % 12.00% + Memphis 7.50% % 8.25% % 8.50% % 10.00% % 9.00% % 11.00% % Miami 6.00% % 7.25% % 7.00% % 7.75% % 7.50% % 8.50% % Nashville 6.50% % 7.50% % 8.00% % 9.00% % 9.00% % 10.00% % Orlando 7.00% % 8.50% % 7.50% % 8.50% % 8.50% % 10.00% % San Antonio 7.50% % 7.50% % 8.00% % 8.00% % 9.00% % 8.50% % Tampa 7.00% % 7.50% % 7.75% % 8.25% % 9.00% % 9.75% % Atlanta Austin Dallas Houston Jacksonville Memphis Miami Nashville Orlando San Antonio Tampa ncrease 15

16 Suburban Western Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Albuquerque 8.00% % 9.00% % 8.50% % 9.50% % 9.50% % 10.50% % Denver 6.25% % 7.00% % 6.75% % 8.50% % 8.75% % 10.25% % Las Vegas 7.00% % 7.50% % 7.50% % 7.50% % 8.50% % 10.00% % Los Angeles 5.50% % 7.00% % 6.50% % 8.00% % 7.50% % 9.00% % Orange County 5.50% % 6.75% % 6.25% % 8.00% % 7.75% % 9.50% % Phoenix 6.00% % 6.50% % 7.00% % 7.50% % 9.50% % 11.00% % Portland 7.00% % 7.75% % 7.50% % 8.50% % 8.50% % 8.50% % Sacramento 7.00% % 7.75% % 8.00% % 8.75% % 9.00% % 9.75% % Salt Lake City 6.50% % 7.50% % 7.50% % 8.00% % 8.75% % 9.25% % San Diego 5.75% % 6.00% % 6.75% % 7.00% % 7.25% % 8.00% % San Francisco 5.50% % 5.00% % 6.50% % 6.00% % 7.50% % 7.50% % San Jose 5.75% % 7.00% % 6.50% % 7.50% % 8.00% % + Seattle 5.75% % 7.00% % 6.50% % 8.00% % 7.25% % 8.50% % Albuquerque Denver Las Vegas Los Angeles Orange County Phoenix Portland Sacramento Salt Lake City San Diego San Francisco San Jose Seattle ncrease 16

17 Among all sectors of commercial real estate investment, multifamily saw the earliest turnaround in investor interest, as the positive trends in income fundamentals seen over the past few years had been widely expected. The stabilizing influence of the debt provided by the government-sponsored enterprises (Freddie Mac and Fannie Mae) was an enormous boost to market liquidity as well. transaction volume for the 12 months ended June 30, 2014 totaled $98.4 billion, according to RCA. This figure is down from the total volume of a year earlier which totaled $106.8 billion. pricing has become expensive and while fundamentals remain strong, with growing rents and still record-low vacancy rates, investor demand has shifted somewhat. cap rates show little change in this edition of the cap rate survey. The greatest change was in Class C suburban multifamily, where the average cap rate contracted by 14 bps to 6.75%. CBRE Capital Markets and Valuation professionals expect that of the 42 multifamily markets surveyed, only 12 will experience further compression in cap rates for Class A stabilized assets in infill locations over the next six months. With the exception of San Diego, the markets where further compression is expected are secondary and tertiary markets. CBRE does not expect further compression in all secondary and tertiary markets. The expectation is that cap rates for Class A stabilized assets will be flat in most secondary and tertiary markets with selected markets such as ndianapolis, Kansas City, Minneapolis, St. Louis, Memphis, and Nashville seeing compression of less than 25 bps. click to download Select from the list below to access the current multifamily key ratios, forecasts and maps. nfill/urban Suburban Complete nfill/urban Current Key Ratios Chart (PDF) Complete nfill/urban Current Forecast Chart (PDF) Complete nfill/urban Current Key Ratios Map (PDF) Complete Suburban Current Key Ratios Chart (PDF) Complete Suburban Current Forecast Chart (PDF) Complete Suburban Current Key Ratios Map (PDF) 17

18 nfill/urban Eastern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Baltimore 4.25% % 4.75% % 5.00% % 5.50% % 6.00% % 6.75% % Boston 4.00% % 4.75% % 4.50% % 5.50% % N/A N/A 5.75% % Charlotte 4.75% % 5.00% % 5.25% % 5.25% % 6.25% % 6.25% % New York 4.00% % 5.00% % 4.50% % 5.50% % 5.00% % 6.50% % Philadelphia 5.00% % 6.50% % 5.50% % 7.00% % 6.50% % 7.50% % Pittsburgh 6.00% % 6.50% % 6.50% % 7.00% % 7.50% % 8.50% % Raleigh 4.75% % 5.00% % 5.25% % 5.25% % N/A 6.25% % 6.25% % N/A Washington, D.C. 4.25% % 4.75% % 5.00% % 5.50% % 6.25% % 6.75% % Baltimore Boston Charlotte New York Philadelphia Pittsburgh Raleigh Washington, D.C. ncrease 18

19 nfill/urban Midwestern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Chicago 4.50% % 4.50% % 5.00% % 5.00% % 5.25% % 5.00% % Cincinnati 5.00% % 6.00% % 6.00% % 7.00% % 7.00% % 8.00% % Cleveland 6.50% % N/A N/A 7.00% % N/A N/A 8.00% % N/A N/A N/A Columbus 5.75% % 6.00% % 6.75% % 7.00% % 7.50% % 8.75% % Detroit 7.50% % 7.75% % 8.00% % 8.25% % 9.00% % 10.00% % ndianapolis 5.75% % 6.00% % 6.75% % 7.00% % 8.00% % 8.50% % Kansas City 5.25% % 5.75% % N/A 5.75% % 6.50% % N/A 6.75% % 7.50% % N/A Minneapolis 4.50% % 4.75% % 5.25% % 5.25% % 5.75% % 6.25% % St. Louis 5.50% % N/A N/A 6.50% % N/A N/A 7.75% % N/A N/A Chicago Cincinnati Cleveland Columbus Detroit ndianapolis Kansas City Minneapolis St. Louis ncrease 19

20 nfill/urban Southern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Atlanta 4.25% % 5.75% % 5.00% % 6.00% % 6.00% % 7.00% % Austin 4.25% % 4.50% % 4.75% % 5.00% % 5.00% % 5.00% % Dallas 4.25% % 4.50% % 5.50% % 5.50% % 5.75% % 6.25% % Houston 4.50% % 4.75% % 5.50% % 5.75% % 6.00% % 6.25% % Jacksonville 4.25% % 5.75% % 5.00% % 6.00% % 6.25% % 6.50% % Memphis 5.50% % 5.75% % 6.00% % 6.25% % 8.00% % + Miami 4.00% % 4.50% % 4.25% % 5.00% % 5.00% % 6.50% % Nashville 5.00% % 5.75% % 6.00% % 6.50% % 7.00% % 7.25% % Oklahoma City 5.50% % 7.50% % N/A 6.00% % N/A N/A 7.25% % N/A N/A Orlando 4.75% % 5.00% % 5.25% % 5.50% % 5.75% % 6.25% % San Antonio 5.25% % N/A N/A 5.75% % 6.00% % 6.25% % 6.50% % Tampa 4.50% % 5.00% % 5.25% % 5.50% % 6.50% % 7.00% % Atlanta Austin Dallas Houston Jacksonville Memphis Miami Nashville Oklahoma City Orlando San Antonio Tampa ncrease 20

21 nfill/urban Western Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Albuquerque 5.75% % 7.00% % N/A 6.00% % 8.00% % 6.75% % 9.50% % Denver 4.50% % 5.00% % 5.00% % 5.75% % 5.75% % 6.50% % nland Empire 4.75% % 5.00% % 5.00% % 5.50% % 6.00% % 6.50% % Los Angeles 4.00% % 4.25% % 4.25% % 4.75% % 4.75% % 5.50% % Orange County 3.75% % 4.75% % 4.50% % 5.75% % 4.75% % 6.25% % Phoenix 4.75% % 5.25% 5.25% % 5.50% % 6.00% % 6.25% % Portland 4.00% % 4.00% % 4.50% % 4.50% % 5.00% % 4.75% % Sacramento 4.50% % 4.75% % 5.25% % 5.50% % 5.75% % 6.00% % Salt Lake City 5.50% % 5.75% % 5.75% % 6.00% % 6.00% % 6.25% % San Diego 4.00% % 4.00% % 4.50% % 5.25% % 5.00% % 5.25% % San Francisco Bay Area 3.50% % N/A N/A 3.75% % 3.75% % 4.00% % 3.75% % San Jose 3.75% % N/A N/A N/A 4.00% % N/A 4.00% % N/A 4.50% % N/A 4.25% % N/A Seattle 4.00% % 4.50% % 4.75% % 5.00% % 5.50% % 5.25% % Albuquerque Denver nland Empire Los Angeles Orange County Phoenix Portland Sacramento Salt Lake City San Diego San Francisco Bay Area San Jose Seattle ncrease 21

22 Suburban Eastern Region Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 Baltimore 5.25% % 5.75% % 5.50% % 6.25% % 6.50% % Boston 4.50% % 5.00% % 5.00% % 6.00% % 6.25% % Charlotte 5.00% % 5.25% % 5.25% % 5.50% % 6.50% % Philadelphia 5.00% % 6.50% % 5.75% % 7.00% % 6.25% % Pittsburgh 6.00% % 6.50% % 6.50% % 7.00% % 7.50% % Raleigh 5.00% % 5.25% % 5.25% % 5.50% % 6.50% % Washington, D.C. 4.75% % 5.25% % 5.75% % 6.00% % 6.50% % Compared to 2H13 Compared to 2H % % 7.25% % 6.50% % 7.50% % 8.50% % 6.50% % 6.75% % Baltimore Boston Charlotte Philadelphia Pittsburgh Raleigh Washington, D.C. ncrease 22

23 Suburban Midwestern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Chicago 5.25% % 5.50% % 5.75% % 5.75% % 6.50% % 6.50% % Cincinnati 5.50% % 6.50% % 6.50% % 7.00% % 8.00% % 8.50% % Cleveland 6.75% % 7.75% % N/A 7.00% % 8.00% % N/A 7.50% % 9.00% % N/A Columbus 6.00% % 6.25% % 7.00% % 7.25% % 8.00% % 8.75% % Detroit 6.75% % 7.75% % 7.50% % 8.25% % 8.50% % 10.00% % ndianapolis 6.00% % 6.50% % 7.00% % 7.50% % 8.00% % 8.50% % Kansas City 5.50% % 6.00% % 6.00% % 6.75% % 7.00% % 7.50% % Minneapolis 5.00% % 5.50% % 5.50% % 6.00% % 6.25% % 7.25% % St. Louis 5.50% % N/A N/A 6.50% % N/A N/A 7.75% % N/A N/A Chicago Cincinnati Cleveland Columbus Detroit ndianapolis Kansas City Minneapolis St. Louis ncrease 23

24 Suburban Southern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Atlanta 5.00% % 6.00% % 5.50% % 6.75% % 6.50% % 7.50% % Austin 5.00% % 5.25% % 5.50% % 5.75% % 6.00% % 6.25% % Dallas 5.25% % 5.25% % 5.50% % 5.50% % 7.25% % 7.25% % Houston 5.50% % 5.75% % 6.25% % 6.25% % 7.25% % 6.75% % Jacksonville 4.75% % 6.00% % 5.00% % 6.50% % N/A 6.00% % 7.00% % N/A Memphis 5.50% % 5.75% % 6.00% % 6.25% % 8.00% % + Miami 4.50% % 5.00% % 5.00% % 5.25% % 6.00% % 6.00% % Nashville 5.50% % 5.75% % 6.00% % 6.50% % 7.00% % 7.50% % Oklahoma City 5.75% % 8.00% % N/A 6.00% % 9.00% % N/A 7.75% % N/A N/A Orlando 4.75% % 5.00% % 5.50% % 5.75% % 6.25% % 6.50% % San Antonio 5.25% % 5.50% % 5.75% % 6.00% % 6.25% % 6.50% % Tampa 4.75% % 5.25% % 5.50% % 6.00% % 7.00% % 7.50% % Atlanta Austin Dallas Houston Jacksonville Memphis Miami Nashville Oklahoma City Orlando San Antonio Tampa ncrease 24

25 Suburban Western Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Albuquerque 5.75% % 7.00% % 6.00% % 7.75% % 7.00% % 8.25% % Denver 5.00% % 5.50% % 5.25% % 6.25% % 6.00% % 6.75% % nland Empire 4.75% % 5.25% % 5.00% % 5.50% % 6.00% % 6.50% % Las Vegas 5.00% % 5.50% % 5.50% % 6.00% % 6.00% % 6.50% % Los Angeles 4.50% % 5.00% % 4.75% % 5.25% % 5.50% % 5.75% % Orange County 4.25% % 4.75% % 4.75% % 5.75% % 5.00% % 6.00% % Phoenix 5.00% % 5.50% % 5.00% % 5.75% % 6.00% % 6.50% % Portland 5.00% % 4.75% % 5.50% % 5.25% % 5.75% % 5.75% % Sacramento 5.00% % 5.50% % 5.25% % 5.75% % 6.25% % 6.50% % Salt Lake City 5.50% % 5.75% % 5.75% % 6.00% % 6.00% % 6.25% % San Diego 4.25% % 4.25% % 4.75% % 5.50% % 5.00% % 5.50% % San Francisco Bay Area 4.00% N/A N/A 4.25% 4.00% % 5.00% % 4.00% % San Jose 4.00% % N/A N/A N/A 4.50% % N/A 4.25% % N/A 4.75% % N/A 4.25% % N/A Seattle 4.50% % 4.75% % 5.00% % 5.25% % 6.00% % 6.00% % Albuquerque Denver nland Empire Las Vegas Los Angeles Orange County Phoenix Portland Sacramento Salt Lake City San Diego San Francisco Bay Area San Jose Seattle ncrease * Forecast trends represent the CBRE professionals opinion on where ratios are likely to trend in 2nd half of 2014 in their local market. 25

26 The retail sector continues to see increases in sales volume, despite lagging other property sectors into the early stages of the recovery. For the 12 months through mid-year 2014, sales volume reached $76 billion, up from the $54.1 billion pace set during the previous 12 months. This 40.6% increase for retail overall is generally reflected in the trends seen among retail subtypes sales volume for strip-center retail was up 37.8% from a year earlier, hitting $31.7 billion in the 12 months through mid-year 2014, while the mall segment saw volume of $44.3 billion during the same period, up 42.6% from a year earlier. Our survey results show that high street retail cap rates contracted by 36 bps and Class A neighborhood center cap rates declined by 32 bps. Power centers also registered meaningful declines in cap rates of approximately 30 bps. Class B neighborhood center cap rates were little changed while Class C neighborhood center cap rates increased by 29 bps, pointing to greater dispersion of the perceptions of risk across the retail sector classes and locations. For Class A stabilized neighborhood center assets, CBRE professionals expect that over the next six months cap rates will remain flat or increase in 27 of the 40 markets surveyed, slightly decrease in 10 markets, and decrease more significantly in four. The same basic patterns are seen in the power center subtypes going forward. As one moves up the risk spectrum to lower-grade assets, cap rate compression is expected to dwindle in virtually all markets. click to download Select from the list below to access the current retail key ratios, forecasts and maps. NEGHBORHOOD/COMMUNTY CENTER Complete Neighborhood/Community Center (Grocery Anchored) Current Key Ratios Chart (PDF) Complete Neighborhood/Community Center (Grocery Anchored) Current Forecast Chart (PDF) Complete Neighborhood/Community Center (Grocery Anchored) Current Key Ratios Map (PDF) POWER CENTER Complete Power Center Current Key Ratios Chart (PDF) Complete Power Center Current Forecast Chart (PDF) Complete Power Center Current Key Ratios Map (PDF) HGH STREET Complete High Street Current Key Ratios and Forecast Charts (PDF) Complete High Street Current Key Ratios Map (PDF) 26

27 Neighborhood/Community Center (Grocery Anchored) Eastern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Baltimore 5.50% % 7.00% % 6.50% % 8.00% % 7.75% % 9.50% % Boston 5.00% % 5.50% % 6.25% % 7.25% % 7.75% % 8.75% + N/A Charlotte 5.75% % 7.00% % 6.75% % 7.75% % 8.00% % 9.00% % Philadelphia 5.75% % 7.25% % 6.75% % 8.50% % 7.50% % 9.50% % Pittsburgh 6.50% % 8.00% % 6.75% % 9.00% % 9.50% % 11.00% % Raleigh 5.75% % 7.00% % 6.75% % 7.75% % 8.00% % 9.00% % Washington, D.C. 5.00% % 6.50% % 6.00% % 7.50% % 7.00% % 8.50% % Baltimore Boston Charlotte Philadelphia Pittsburgh Raleigh Washington, DC ncrease 27

28 Neighborhood/Community Center (Grocery Anchored) Midwestern Region Chicago 5.50% % Cincinnati 6.00% % Cleveland 6.25% % Columbus 6.25% % Detroit 7.00% % ndianapolis 6.00% % Kansas City 6.00% % Minneapolis 5.75% % St. Louis 6.00% % Compared to 2H13 Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H % % 6.75% % 7.25% % 7.75% % 8.25% % 6.75% % 7.00% % 7.50% % 8.00% % 8.50% % 7.00% % 7.25% % 7.75% % 8.25% % 8.75% % 7.00% % 7.00% % 7.50% % 8.00% % 8.50% % 8.00% % 8.00% % 9.00% % 9.50% % 10.00% % 6.75% % 7.00% % 7.50% % 8.00% % 8.50% % 6.75% % 7.00% % 7.50% % 8.00% % 8.50% % 6.50% % 6.75% % 7.25% % 7.75% % 8.25% % 6.75% % 7.00% % 7.75% % 8.00% % 9.25% % Chicago Cincinnati Cleveland Columbus Detroit ndianapolis Kansas City Minneapolis St. Louis ncrease 28

29 Neighborhood/Community Center (Grocery Anchored) Southern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Atlanta 5.50% % 6.00% % 6.50% % 7.00% % 7.50% % 8.00% % Austin 5.00% % 5.50% % 7.00% % 7.50% % 9.25% % 9.75% % Dallas 5.25% % 5.75% % 7.00% % 7.50% % 9.00% % + Houston 5.00% % 5.50% % 7.00% % 7.50% % % + Jacksonville 5.75% % 6.50% % 6.75% % 7.00% % 8.00% % + Memphis 7.00% % 8.00% % 7.50% % 8.50% % 9.50% % 10.50% % Miami 5.50% % 6.50% % 6.00% % 7.00% % 7.50% % 8.00% % Nashville 7.00% % 8.00% % 8.00% % 9.00% % 9.00% % 10.00% % Orlando 5.75% % 6.50% % 6.50% % 7.00% % 8.00% % + San Antonio 5.50% % 6.00% % 7.25% % 7.75% % 9.50% % + Tampa 5.75% % 7.00% % 6.50% % 7.00% % 8.00% % + Atlanta Austin Dallas Houston Jacksonville Memphis Miami Nashville Orlando San Antonio Tampa ncrease 29

30 Neighborhood/Community Center (Grocery Anchored) Western Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Albuquerque 6.75% % 7.75% % 7.50% % 8.50% % 8.75% % 9.00% % Denver 5.50% % 6.25% % 6.75% % 7.25% % 8.50% % 9.00% % Las Vegas 6.75% % 8.00% % 7.25% % 9.00% % 8.00% % 10.00% % Los Angeles 4.75% % 7.00% % 6.25% % 7.50% % 8.50% % 9.00% + Orange County 4.75% % 7.00% % 6.25% % 7.50% % 8.50% % 9.00% + Phoenix 5.25% % 7.00% % 6.25% % 7.50% % 8.50% % 9.00% + Portland 5.25% % 7.50% % 6.50% % 8.00% % 9.00% % 9.00% % Sacramento 5.75% % 7.00% % 7.00% % 8.00% % 8.00% % 9.00% % Salt Lake City 5.25% % 7.00% % 6.25% % 7.50% % 8.50% % 9.00% + San Diego 4.75% % 7.00% % 6.25% % 7.50% % 8.50% % 9.00% + San Francisco 4.75% % 7.00% % 6.25% % 7.50% % 8.50% % 9.00% + San Jose 4.75% % 7.00% % 6.25% % 7.50% % 8.50% % 9.00% + Seattle 5.00% % 6.50% % 6.00% % 7.00% % 6.75% % 7.50% % Albuquerque Denver Las Vegas Los Angeles Orange County Phoenix Portland Sacramento Salt Lake City San Diego San Francisco San Jose Seattle ncrease 30

31 Power Center Eastern Region Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 Baltimore 6.50% % 8.00% % 7.00% % 9.00% % 8.50% % Boston 6.25% % 6.50% % 6.75% % 7.00% % 7.75% % Charlotte 6.50% % 7.50% % 7.25% % 8.25% % 7.75% % Philadelphia 6.00% % 7.75% % 6.75% % 9.00% % 7.50% % Pittsburgh 6.50% % 8.00% % 7.50% % 9.00% % Raleigh 6.50% % 7.50% % 7.25% % 8.25% % 7.75% % Washington, D.C. 5.75% % Compared to 2H % % 8.75% + Compared to 2H % % 10.00% % 11.00% % 12.00% % 9.00% % 7.50% % 6.50% % 8.50% % 7.25% % 10.00% % Baltimore Boston Charlotte Philadelphia Pittsburgh Raleigh Washington, DC ncrease 31

32 Power Center Midwestern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Chicago 6.25% % 7.00% % 7.00% % 7.75% % 7.75% % 8.50% % Cincinnati 6.50% % 7.25% % 7.25% % 8.00% % 8.00% % 8.75% % Cleveland 6.75% % 7.50% % 7.50% % 8.25% % 8.25% % 9.00% % Columbus 6.75% % 7.50% % 7.25% % 8.00% % 8.00% % 8.75% % Detroit 7.00% % 8.00% % 8.00% % 9.00%-10.00% 9.50% % 10.00% % ndianapolis 6.50% % 7.25% % 7.25% % 8.00% % 8.00% % 8.75% % Kansas City 6.50% % 7.25% % 7.25% % 8.00% % 8.00% % 8.75% % Minneapolis 6.25% % 7.00% % 7.00% % 7.75% % 7.75% % 8.50% % St. Louis 6.25% % 7.25% % 7.00% % 8.00% % 8.50% % 8.75% % Chicago Cincinnati Cleveland Columbus Detroit ndianapolis Kansas City Minneapolis St. Louis ncrease 32

33 Power Center Southern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Atlanta 6.25% % 6.75% % 7.25% % 7.75% % 8.25% % 8.75% % Austin 6.25% % 6.75% % 7.25% % 7.75% % 9.25% % 9.75% % Dallas 6.25% % 6.75% % N/A 7.25% % 7.75% % N/A 9.00% % + N/A Houston 6.25% % 6.75% % 7.00% % 7.50% % 9.50% % + Jacksonville 6.25% % 7.00% % 7.25% % 8.00% % 8.50% % + Memphis 7.75% % 8.25% % 8.75% % 9.50% % 10.00% % 10.50% % Miami 6.00% % 6.50% % 6.75% % 7.25% % 7.50% % 8.00% % Nashville 7.00% % 8.00% % 8.00% % 9.00% % 9.00% % 10.00% % Orlando 6.25% % 7.00% % 7.25% % 8.25% % 8.00% % San Antonio 6.50% % 7.00% % 7.25% % 7.75% % N/A N/A 10.00% + Tampa 6.25% % 7.00% % 7.25% % 8.25% % 8.00% % + Atlanta Austin Dallas Houston Jacksonville Memphis Miami Nashville Orlando San Antonio Tampa ncrease 33

34 Power Center Western Region Compared to 2H13 Albuquerque 6.75% % 8.00% % 7.50% % 8.50% % 8.50% % 9.00% % Denver 5.75% % 6.25% % 6.75% % 6.75% % 9.00% % 10.75% % Las Vegas 6.00% % 7.50% % 7.25% % 8.50% % N/A N/A 10.00% % Los Angeles 5.50% % 7.50% % 7.00% % 8.00% % 7.75% % 10.00% + Orange County 5.50% % 7.50% % 7.00% % 8.00% % 7.75% % 10.00% + Phoenix 5.50% % 7.50% % 7.00% % 8.00% % 7.75% % 10.00% + Portland 5.75% % 8.00% % 7.25% % 8.50% % 9.00% % 10.00% % Sacramento 6.00% % 7.00% % 7.00% % 8.00% % 9.00% % 9.00% % Salt Lake City 5.50% % 7.50% % 7.00% % 8.00% % 7.75% % 10.00% + San Diego 5.50% % % 7.00% % 8.00% % 7.75% % 10.00% + San Francisco 5.50% % 7.50% % 7.00% % 8.00% % 7.75% % 10.00% + San Jose 5.50% % 7.50% % 7.00% % 8.00% % 7.75% % 10.00% + Seattle 6.00% % 7.00% % 6.50% % 8.00% % 7.00% % 9.00% % Compared to 2H13 Compared to 2H13 Compared to 2H13 Compared to 2H13 Compared to 2H13 Albuquerque Denver Las Vegas Los Angeles Orange County Phoenix Portland Sacramento Salt Lake City San Diego San Francisco San Jose Seattle ncrease 34

35 High Street National Class A Compared to 2H13 Boston 4.00% % Chicago 4.25% % Honolulu 4.75% % N/A Los Angeles 3.75% % Manhattan 3.50% % Miami 4.50% % Philadelphia 4.75% % San Francisco 3.75% % Seattle 4.25% % Washington, DC 4.00% % Boston Chicago Honolulu Los Angeles Manhattan Miami Philadelphia San Francisco Seattle Washington, D.C. Class A ncrease 35

36 Through mid-year 2014, transaction activity in the industrial sector was $54.4 billion, up 28.3% over the year-earlier period. Most of this growth came in the warehouse segment, which saw volume of $38.3 billion through mid-year 2014, up 34.6% from a year earlier. The flex segment, by contrast, experienced only 15.4% growth to hit $16 billion in volume. f total volume for the remainder of 2014 continues on the pace set in the first half of the year, 2014 calendar year industrial sales volume could reach $61 billion. By comparison, the peak volume set in 2007 was $61.7 billion. The market is on pace to come close to the previous peak but according to figures from RCA, the average prices are still lower. The average industrial deal traded at $68.12 per square foot in the second quarter of 2014 versus a peak of $75.06 back in 2007, so there is likely some run room left on pricing. CBRE Capital Markets and Valuation professionals report that on average, industrial cap rates declined by bps across all classes. Our professionals further expect that cap rates for Class A industrial assets will decrease over the next six months in 29 of the 41 markets included in the survey. Most of these markets are anticipated to see less than 25 bps reductions, although five markets are anticipated to see bps reductions. Markets showing larger cap rate contraction on the horizon include Cleveland, Detroit, Austin, Jacksonville, and Orlando. Similar results hold true for Class B and C industrial, albeit with a somewhat greater proportion of the Class B and C markets anticipated to see cap rates basically unchanged. click to download Select from the list below to access the current industrial key ratios, forecast and map. Complete Current Key Ratios Chart (PDF) Complete Current Forecast Chart (PDF) Complete Current Key Ratios Map (PDF) 36

37 Eastern Region Compared to 2H13 Baltimore 5.75% % 6.50% % 6.00% % Boston 6.75% % 7.75% % 7.25% % Charlotte 6.00% % 7.00% % 7.00% % Northern New Jersey 4.75% % 5.75% % 5.50% % Philadelphia 5.50% % 6.50% % 6.25% % Pittsburgh 6.75% % 7.75% % 8.00% % Raleigh 6.00% % 6.50% % 7.25% % Washington, D.C. 5.50% % 6.00% % 6.00% % Compared to 2H13 Compared to 2H13 Compared Compared Compared to 2H13 to 2H13 to 2H % % 8.00% 9.00% % % 8.50% % 9.75% % % 9.00% % 9.00% % 6.50% % 7.00% % 8.75% % 7.50% % 7.75% % 9.50% % 8.75% % 9.50% % 10.50% % 7.75% % 8.25% % 8.50% % 7.00% % 7.00% % N/A N/A Baltimore Boston Charlotte Northern New Jersey Philadelphia Pittsburgh Raleigh Washington, D.C. ncrease 37

38 Midwestern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Chicago 5.25% % 6.75% % 7.00% % 8.00% % 7.50% % 10.00% % Cincinnati 6.25% % 7.00% % 7.00% % 8.50% % 9.50% % 10.50% % Cleveland 6.50% % N/A N/A 7.50% % N/A N/A 8.50% % N/A N/A Columbus 6.25% % 7.75% % 7.25% % 8.75% % 9.50% % 10.75% % Detroit 7.25% % 7.00% % 8.00% % 7.50% % 9.00% % 10.00% % ndianapolis 5.75% % 6.75% % 7.50% % 7.50% % 9.25% % 8.50% % Kansas City 6.25% % 7.75% % 7.75% % 8.75% % 8.75% % 9.75% % Minneapolis 6.00% % 7.00% % 7.50% % 8.50% % 9.00% % 10.00% % St. Louis 6.25% % 7.00% % 7.75% % 9.00% % 9.50% % 10.00% % Chicago Cincinnati Cleveland Columbus Detroit ndianapolis Kansas City Minneapolis St. Louis * Forecast trends represent the CBRE professional's opinion on where ratios are likely to trend in 2nd half of 2014 in their local market. ncrease 38

39 Southern Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Atlanta 5.75% % 6.75% % 6.50% % 7.50% % 8.50% % 9.50% % Austin 6.00% % 7.00% % 6.75% % 8.00% % 8.50% % 8.75% % Dallas 5.00% % 5.50% % 6.00% % 6.75% % 7.00% % 7.50% % Houston 4.75% % 5.00% % 5.75% % 6.25% % 7.00% % 8.00% % Jacksonville 6.75% % 8.00% % 8.00% % 9.00% % 9.00% % 10.00% % Memphis 6.75% % 7.75% % 7.75% % 8.50% % 9.00% % 10.00% % Miami 4.75% % 6.00% % 6.00% % 6.50% % 6.75% % 7.50% % Nashville 6.50% % 7.25% % 7.25% % 8.25% % 9.00% % 10.00% % Orlando 6.25% % 7.00% % 7.00% % 7.75% % 8.50% % 9.00% % San Antonio 6.25% % 7.50% % 7.50% % 8.50% % 8.50% % + Tampa 6.50% % 7.25% % 7.50% % 8.50% % 9.00% % 9.50% % Atlanta Austin Dallas Houston Jacksonville Memphis Miami Nashville Orlando San Antonio Tampa ncrease 39

40 Western Region Compared Compared Compared Compared Compared Compared to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 to 2H13 Albuquerque 7.75% % 8.50% % 8.00% % 9.00% % 9.00% % 10.00% % Denver 5.50% % N/A N/A 6.00% % 7.50% % 7.50% % 8.25% % nland Empire 4.50% % 5.50% % 5.50% % 6.75% % 6.25% % 7.50% % Las Vegas 6.00% % 6.50% % 6.50% % 7.00% % 8.00% % 8.00% % Los Angeles 4.50% % 5.50% % 5.50% % 7.00% % 6.25% % 7.00% % Orange County 5.00% % 6.50% % 5.25% % 7.00% % 5.50% % 8.00% % Phoenix 6.00% % 6.50% % 7.00% % 7.50% % 8.00% % 9.00% % Portland 6.00% % 7.00% % 6.50% % 7.50% % 7.50% % 8.50% % Sacramento 6.50% % 7.25% % 7.00% % 8.00% % 8.00% % 9.00% % Salt Lake City 6.00% % 6.50% % 6.50% % 7.00% % 7.00% % 7.50% % San Diego 5.75% % 6.25% % 6.25% % 6.50% % 7.25% % 7.75% % San Francisco Bay Area 5.00% % 5.75% % 5.50% % 6.50% % 7.00% % 8.00% % Seattle 5.00% % 6.50% % 5.75% % 6.75% % 6.50% % 7.50% % Albuquerque Denver nland Empire Las Vegas Los Angeles Orange County Phoenix Portland Sacramento Salt Lake City San Diego San Francisco Bay Area Seattle ncrease 40

41 The CBRE Cap Rate Survey provides information on the hotels sector that is unavailable elsewhere. With transaction volume representing roughly 10% of total activity across all commercial property types, the hotel sector often does not offer a sufficient number of transactions to develop reliable benchmarks of sales comparables at the market level. For markets in which comparable sales are thin, we combine the insights of CBRE Capital Markets and Valuation professionals to gauge the levels at which assets will trade. Hotel transaction activity through mid-year 2014 was up 18.3% from the year-earlier period. According to RCA, investment volume in the past 12 months stood at $29.8 billion. This increased activity was heavily weighted in the full-service segment, which has seen volume growth of 29.5% relative to the period a year earlier. The limited service segment has actually exhibited decreased volume, down 3.2% to $8.3 billion, but in part, this decline is just a reflection of the outstanding period it had a year earlier when volume spiked at 102% annual growth. The Cap Rate Survey results for hotels point to somewhat divergent paths for CBD and suburban hotels. CBD hotel properties generally registered meaningful declines in cap rates at the national level of about bps while suburban hotel cap rates were little changed. Going forward, CBRE Capital Markets and Valuation professionals anticipate that four of every five markets will see little to no change in cap rates over the next six months. Of the markets expected to see contracting cap rates, the majority are CBD markets. Seattle is perhaps the best example of this trend, where office and residential development within and adjacent to the CBD is driving expectations of improved CBD hotel fundamentals and rising interest in these properties for investors. click to download Select from the list below to access the current hotels key ratios, forecast and map. Complete Current Key Ratios Chart (PDF) Complete Current Forecast Chart (PDF) Complete Current Key Ratios Map (PDF) 41

42 National CBD Albuquerque 7.75% % Luxury Compared to 2H13 Suburban Compared to 2H13 CBD Full Service Compared to 2H13 Suburban 8.50% % Compared to 2H % % 8.25% % Atlanta 6.50% % 7.00% % 7.50% % 8.00% % Austin 6.75% % 7.00% % 7.00% % 7.25% % Baltimore 7.50% % 8.00% % 8.00% % 8.25% % Boston 5.00% % N/A N/A 6.00% % 8.50% % Charlotte 7.00% % 7.00% % 7.50% % 8.00% % Chicago 6.00% % 7.00% % 7.00% % 7.50% % Cincinnati 7.00% % 8.00% % 7.50% % 8.50% % Cleveland 7.00% % 8.00% % 7.50% % 8.25% % Columbus 7.50% % 8.50% % 7.50% % 8.50% % Dallas 7.25% % 7.25% % 7.50% % 7.50% % Denver 7.25% % 7.75% % 7.50% % 7.75% % Detroit 8.00% % 8.50% % 8.50% % 9.50% % Houston 7.00% % 7.50% % 7.25% % 7.75% % Jacksonville 7.25% % 7.25% % 8.00% % 8.25% % Kansas City 7.50% % 7.50% % 8.00% % 8.00% % Las Vegas 7.00% % 7.00% % 7.50% % 7.50% % Los Angeles 6.00% % 6.00% % 6.50% % 7.00% % Miami 5.00% % 5.75% % 6.50% % 7.00% % Minneapolis 6.00% % 7.00% % 6.50% % 7.50% % Nashville 7.50% % 8.00% % 8.00% % 8.50% % New York 4.00% % 5.00% % 5.50% % 6.50% % Orange County 6.00% % 6.00% % 6.50% % 7.00% % Orlando 6.00% % 6.25% % 6.75% % 7.00% % Philadelphia 6.00% % 6.50% % 6.50% % 7.50% % Phoenix 7.50% % 7.00% % 8.25% % 8.25% % Pittsburgh 7.00% % 8.00% % 7.50% % 8.50% % Portland 6.75% % 7.50% % 7.25% % 8.00% % Raleigh 7.50% % 8.00% % 8.00% % 8.50% % Sacramento N/A N/A N/A N/A 8.00% % 9.00% % Salt Lake City 5.75% % 6.50% % 7.75% % 8.50% % San Antonio 7.50% % 7.50% % 7.75% % 7.75% % San Diego 6.00% % 6.00% % 6.50% % 7.00% % San Francisco 5.00% % 6.00% % 6.00% % 7.50% % San Jose 6.50% % 6.50% % 7.00% % 6.00% % Seattle 6.25% % 7.50% % 7.00% % 8.00% % St. Louis 7.00% % 8.00% % 7.00% % 8.00% % Tampa 6.25% % 6.50% % 7.00% % 7.25% % Washington, D.C. 5.50% % 6.00% % 7.00% % 7.50% % 42

43 National CBD Albuquerque 8.25% % Select Service Compared to 2H13 Suburban Compared to 2H13 CBD Compared to 2H13 Economy Suburban 8.50% % 9.00% % 9.25% % Atlanta 8.00% % 8.50% % 9.00% % 10.00% % Austin 6.75% % 7.00% % 8.00% % 8.25% % Baltimore 8.00% % 8.25% % 8.50% % 9.25% % Boston 7.00% % 7.50% % N/A N/A 10.00% % Charlotte 8.00% % 8.00% % 10.00% % 10.00% % Chicago 7.50% % 7.50% % 8.00% % 8.50% % Cincinnati 8.00% % 8.50% % 9.00% % 10.00% % Cleveland 8.00% % 8.50% % 9.00% % 10.00% % Columbus 8.00% % 8.50% % 9.00% % 10.00% % Dallas 7.25% % 7.25% % 8.25% % 8.25% % Denver 7.75% % 8.25% % 7.75% % 8.25% % Detroit 8.50% % 9.00% % 10.00% % 10.50% % Houston 7.00% % 7.50% % 8.25% % 8.50% % Jacksonville 9.00% % 9.00% % 10.00% % 10.00% % Kansas City 7.50% % 8.00% % 9.50% % 9.50% % Las Vegas 8.50% % 8.50% % 8.75% % 8.75% % Los Angeles 6.50% % 7.00% % 7.00% % 7.00% % Miami 7.00% % 7.50% % 8.00% % 8.50% % Minneapolis 7.00% % 8.00% % 9.00% % 10.00% % Nashville 8.50% % 9.00% % 9.00% % 9.50% % New York 7.00% % 7.00% % 8.00% % 8.00% % Orange County 6.50% % 7.00% % 7.00% % 7.00% % Orlando 8.00% % 8.25% % 9.25% % 9.25% % Philadelphia 7.00% % 8.00% % 8.50% % 9.00% % Phoenix 8.00% % 8.00% % 9.50% % 9.50% % Pittsburgh 8.00% % 8.50% % 8.50% % 9.50% % Portland 7.75% % 8.50% % 9.00% % 9.50% % Raleigh 8.50% % 9.00% % 9.00% % 9.50% % Sacramento 8.00% % 9.50% % 9.00% % 9.00% % Salt Lake City 6.75% % 7.50% % 7.75% % 8.50% % San Antonio 7.50% % 7.50% % 8.50% % 8.50% % San Diego 6.50% % 7.00% % 7.00% % 7.00% % San Francisco 7.00% % 8.00% % 8.00% % 9.00% % San Jose 7.50% % 7.00% % 9.00% % 9.00% % Seattle 7.50% % 8.25% % 9.00% % 9.50% % St. Louis 8.00% % N/A 8.50% % N/A 9.00% % 9.00% % Tampa 8.00% % 8.50% % 9.25% % 9.50% % Washington, D.C. 7.00% % 7.50% % 8.00% % 8.50% % Compared to 2H13 43

44 National Albuquerque Atlanta Austin Baltimore Boston Charlotte Chicago Cincinnati Cleveland Columbus Dallas Denver Detroit Houston Jacksonville Kansas City Las Vegas Los Angeles Miami Minneapolis Nashville New York Orange County Orlando Philadelphia Phoenix Pittsburgh Portland Raleigh Sacramento Salt Lake City San Antonio San Diego San Francisco San Jose Seattle St. Louis Tampa Washington, D.C. CBD Luxury Full Service Select Service Economy Suburban CBD Suburban CBD Suburban CBD Suburban ncrease 44

45 Definitions (,,, and Hotel) Cap rate ranges are best estimates provided by CBRE professionals based on recent trades in their respective markets as well as recent communication with investors. The ranges represent those cap rates that a given property will trade at in the current market assuming that the asset is leased at current market rents with typical market lease terms. Use this assumption of leasing to current market rents to calculate gross rent potential, then subtract the standard economic loss factors, including vacancy, that would be considered representative of a stable property in your market to achieve the effective gross income estimate. Reduce the effective gross income by the projected stabilized expenses to derive the NO. The cap rate is then calculated as the NO divided by the purchase price. The going-in cap rate refers to the initial yield and is calculated as the ratio of the projected net income in the first year of the holding period over the acquisition price of the property. This measure also represents the investor s income return in the first year. Cap rates within each subtype will vary, occasionally falling outside of the stated ranges, based on asset location/quality and property-specific opportunities for NO enhancement. Equation - 1 st year proforma NO divided by purchase price. ( only) Cap rate ranges are based on an estimated NO derived by annualizing the last 90 days of revenue and subtracting buyer s estimated stabilized year-one expenses after adjustments for real estate taxes and reserves. Cap rates within each subtype will vary, occasionally falling outside of the stated ranges, based on asset location/quality and property-specific opportunities for NO enhancement. Equation - NO includes the 90-day trailing gross revenue annualized less stabilized first-year expenses divided by the purchase price. 45

46 Definitions (continued) Return-on-Costs Properties Return-on-Cost Calculation The return-on-cost calculation is based upon the investor s projected gross revenue assumption at stabilization, less the standard economic loss factors, including vacancy, to achieve the effective gross income estimate. Reduce the effective gross income by the projected stabilized expenses to derive the NO. The NO becomes the numerator for the Return-on-Cost calculation. The denominator is the investor s purchase price plus all capital improvements incurred to reach the stabilized NO (tenant improvement cash outlay, commissions and property upgrades). Typically, for a value-add investment, capital expenditures will be approximately 10% to 20% of the purchase price of the asset. The return on these costs once leased at market rents is a measure investors can use to estimate the arbitrage opportunity that exists in stabilizing a value-add property. The measure is directly comparable to the market cap rate of comparable stabilized assets with the spread between the two indicating the arbitrage opportunity. Equation - Projected NO at stabilization divided by the sum of the purchase price plus all capital costs incurred to achieve the stabilized NO. Property A property that has an occupancy level at or above the local average and is leased at market rents. CBD The Central Business District of a major city. Suburban Mainly residential area proximate to a major city. Class A The most prestigious buildings competing for higher-quality tenants with above-average rental rates for the area, along with high-quality finishes, state-of-the-art systems, exceptional accessibility and a definite market presence. Class B Buildings competing for a wide range of tenants with rents in the average range for the area. Building finishes are fair to good for the area and the systems are adequate, but the building does not compete with Class A at the same price point. Class C Buildings competing for tenants requiring functional space at rents below the average for the area. 46

47 Definitions (continued) Hotel-Specific Definitions Full Service A hotel property with more than 150 rooms, room service, an on-site restaurant and a concierge service. Luxury Hotel chains that are priced in the top 15.0% in terms of average annual room rates, according to Smith Travel Research. Select Service A hotel property with less than 150 rooms, no room service and no on-site restaurant or concierge service. Economy Hotel chains that are priced within the 20.0% to 40.0% range in terms of average annual room rates, according to Smith Travel Research. -Specific Definitions Neighborhood/Community Center (Grocery Anchored) Open-air retail center that is anchored by a grocery store and, in the case of community centers, a second major retail anchor. Can range from 75,000 to 350,000 square feet. Power Center Open-air retail center typically occupied by large-format, big-box and value-oriented retailers, with very limited small-shop tenant space. Can range in size from 100,000 square feet to over 600,000 square feet. High Street The primary retail shopping thoroughfare in the premiere location of an urban submarket, serving as a focal point for high-end shops and luxury retailers. 47

48 Definitions (continued) -Specific Definitions nfill/urban Area considered inner-city plus built up environs, characterized by high population density and vast human features in comparison to surrounding areas. Suburban Surrounding residential areas of a larger city. Outer edge of a large city, or several aggregates of distant residential area. 48

49 Chris Ludeman Global President CBRE Capital Markets Brian Stoffers Chief Operating r, Capital Markets President, Debt & Structured Finance CBRE Capital Markets Thomas McDonnell President CBRE Valuation and Advisory Services spencer levy Head of Americas Research CBRE Global Research & Consulting Ray Wong Managing Director, Americas Research CBRE Global Research & Consulting christopher d. boehm U.S. Director of Research Operations CBRE Global Research & Consulting Copyright 2014 CBRE nformation contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. t is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.