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Office Property Price Gap to Narrow and Other Trends: CBRE
Tucker, Michael
The pricing gap between suburban office assets and downtown properties will narrow in 2013, said CBRE Econometric Advisors, Boston.

“There are early signs that spreads are narrowing, first through near-term stabilization of cap rates in the suburbs, and then in later years through compression,” said Jon Southard, director of forecasting with CBRE Econometric Advisors. “During 2013 and 2014, investors will gradually increase their risk appetite and venture beyond cities’ central urban core.”

CBRE examined this and other big-picture real estate trends in its 13 Trends for 2013 report, which also predicts that cap rates will remain steady this year, despite continued uncertainty about federal budget negotiations, Europe’s financial troubles and legislation like the Dodd-Frank Act and the federal healthcare law.

“On average, cap rates are going to remain flat over the next year,” the Trends report said, largely because of the continued loose monetary policy and its resulting low interest rate environment.”   

In addition, the increase in domestic energy exploration will spur office investment opportunities in energy-focused markets this year, CBRE reported.

“Top energy markets in the U.S. are seeing employment growth, particularly in office-using sectors,” Southard said. “These markets, including Dallas, Oklahoma City and Pittsburgh, offer opportunities for investors willing to venture outside of traditional gateway markets, with office valuations well below the national average.”

More investment in energy exploration yields the demand for more office space to house workers, CBRE said. “In many markets, this has already begun to translate into outsized rent growth,” the Trends report said. It cited Houston as a classic example of an energy market that benefits directly from energy industry booms.
 
“Oklahoma City is another market that we expect to stand out in 2013, thanks to its ties to natural gas,” the Trends report added. “The Oklahoma City economy has already transitioned from recovery to expansion, meaning that demand for office space will remain healthy.”