U.S.
Research Report
CAPITAL FLOWS
2017 Midyear Update
U.S. Property Markets Shake Off Slowdown
and Power On
Andrew J Nelson, Chief Economist | USA
The slowdown in U.S. commercial property markets that began
last year has continued into the first half of 2017, though activity
picked up during the second quarter and transactions levels remain
relatively robust by historical standards. After peaking in Q4 2015,
year-over-year transaction volumes have declined in five of the last
six quarters, including Q1 and Q2 this year. However, the rate of
decline has been falling, perhaps suggesting markets are stabilizing.
More encouraging for investors and landlords is that price
appreciation has renewed after some market weakness this
winter. Price gains have been broad-based across most sectors,
particularly in the major markets. Nonetheless, pricing per square
foot has been flat to falling in some sectors, reflecting the inferior
quality of buildings being offered for sale. But prices for assets of a
given quality and especially trophy assets are pushing further
into record territory, even if the investor pool is shrinking.
The news of the summer was Chinas announcement that offshore
investment will receive greater scrutiny from Beijing, likely sharply
reducing direct acquisitions from Chinese entities, particularly for
big-dollar properties. But impacts from any Chinese pullback are
likely to be relatively limited and focused on a few key markets
(especially New York), and overall demand for U.S. property
remains robust.
Key Observations
> Overall transaction volumes for the first half of 2017 (1H 2017)
are down 19% from 2H 2016 and down 7% from a year ago (1H
2016). While these are meaningful declines, the rate of decrease
has been falling in the last two quarters. Indeed, volumes gained
modestly in Q2, up 4% since Q1.
> Investment capital flows remain robust by historical standards.
Sales volumes are on pace to log the third greatest annual total
since the recession.
> Portfolio and entity purchases continue to account for a
disproportionate share of the recent sales declines, while
individual property transactions have been relatively stable.
> Office and industrial buildings account for larger shares of all
transactions than they did a year ago, while retail and especially
multifamily transactions have decreased.
> Investment momentum continues to shift from primary into
secondary markets, and from CBDs into inner suburban
submarkets, particularly for offices and apartments, as both
foreign and domestic investors eschew premium pricing in the
top markets.
> Despite the slowdown in sales activity this year, pricing remains
strong and most sectors saw increased values per square foot
in 1H 2017 over 2H 2016 and a year ago. Appreciation was
particularly strong in Q2 2017 after several quarters of moderate
gains and losses. In general, appreciation was greater in the
primary markets, especially for office and industrial properties,
while multifamily and especially retail property prices lagged.
> The relative strength and stability of the U.S. economy and ultra-
low interest rates will continue to make real estate a compelling
option for investors, which is likely to keep property capital
markets strong, attracting offshore capital to our markets.
Overall Transaction Volumes and Investment Flows
Top Global Investment Markets
Property markets in the United States continued to slow during
METRO 1H 2017 VOLUME YOY% CHANGE
the first half of 2017, though they remain relatively robust. After
peaking in Q4 2015, year-over-year transaction volumes have New York City $20.2 billion -40.0%
declined in five of the last six quarters, including both this year. Los Angeles $15.1 billion -7.0%
Though the U.S. markets remain attractive globally, the foreign
London $14.8 billion 0.0%
share of acquisitions has been falling.
San Francisco $11.9 billion 0.0%
> U.S. property markets saw an estimated $214.2 billion in property
transactions in 1H 2017, down 19% from 2H 2016 and 7% from Hong Kong $8.3 billion +5.0%
1H 2016. Nonetheless, investment volumes remained strong Boston $8.1 billion +1.0%
by historical standards. Sales volumes are on pace to log the Dallas $8.0 billion +27.0%
third greatest yearly total since the recession. In fact, volumes
this year are 20% higher than the average of all first-half-year Washington, D.C. $7.8 billion -3.0%
periods since the economic recovery began in earnest in 2011. Atlanta $6.5 billion +27.0%
Tokyo $6.2 billion -33.0%
Transaction Volumes 20102017
Source: Real Capital Analytics
$300
Billions

$250
Property Sector Trends

$200
The composition of transactions by property type has shifted over
the past decade away from office and hotels and decisively toward
$150 apartments, though these trends have reversed somewhat in the
past year. Every property sector experienced lower transaction
$100 volumes in 1H 2017 compared to 2H 2016, though some more
than others.
$50

> Hotels and multifamily have declined the most this year, while
$0 industrial, development sites, retail and office declined more
2010 2011 2012 2013
1H 2H
2014 2015 2016 2017
modestly. Apartments and hotels are losing favor with investors,
Source: Real Capital Analytics despite strong tenant/lodging rates, although both sectors
also saw volume increase in the second quarter over the first.
> Individual asset sales have accounted for 78% of the transaction However, the drop-off in both sectors also reflected exceptionally
volume this year, up from its historical average of 70%. While strong comparisons in 2016, where a few huge deals swelled the
overall deal volume is down 7.2% over the past year, single- totals (e.g., the $1.95 billion Waldorf Astoria hotel acquisition in
property deal volume is down only 4.5% over this period and the early 2016).
single-property deal volume in Q2 2017 was up 5.3% above Q1
> Compared to volumes a year ago, development sites and
2017, compared to +4.0% for all transactions. On the other hand,
apartments saw the biggest declines, while industrial gained over
portfolio and entity deals are down substantially so far this year
the year.
versus a year ago, at 10.1% and 35.5%, respectively.
> The U.S. is still viewed as a safe haven for global investors,
though its share of the global market has dipped slightly this Change in Transaction Volumes by Property Type
year to date. Overall the United States accounts for virtually half 1H 2017 VS. 1H 2017 VS. Q2 2017 VS.
of all property investment globally, though the share declined 2H 2016 1H 2016 Q1 2017
year-over-year from 47.2% to 46.9%. One factor is the drop in
Office -16.2% -1.4% -6.2%
the foreign capital inflows, as the offshore share of U.S. property
transactions fell from its peak of 22.3% in 2015 to just 13.3% in Industrial -7.4% +12.0% +5.6%
1H 2017. Retail -13.0% -13.2% -22.5%
> Focusing on the top investment markets, U.S. metros account for Multifamily -25.4% -16.4% +29.1%
seven of the top 10 markets globally, with 73% of the investment Hotel -39.3% +2.8% +16.7%
volumes in these top 10 markets, about the same share as last
year. New York and Los Angeles remain the two top markets Development Site -11.3% -18.7% +14.8%
globally, as they were last year, though volumes have slid this All -19.4% -7.2% +4.0%
year, by 40% and 7%, respectively, year over year. Dallas and
Source: Real Capital Analytics and Colliers International
Atlanta both gain significantly year-over-year (both +27% year-
over-year), though they are much smaller markets than New York
and Los Angeles.

2 U.S. Capital Flows Research Report | 2017 Midyear Update | Colliers International
Transaction Volumes by Property Type > Industrial has been the strongest sector, the only sector to gain
$90
both over the past six months and the past year, helped by falling
cap rates. These trends reflect the consumer shift from in-store
Billions

$80

retail to e-commerce, which favors warehouses over

$70
shopping centers.
$60

$50
> Quarterly pricing figures tend to be volatile as a few
$40
unrepresentative transactions can swing the averages. As such,
$30
price shifts between quarters are best viewed as directional
$20
gauges. On this basis, prices seem to have stabilized during the
$10
second quarter or even increased modestly, after falling in
prior quarters.
$0
Office Industrial Retail Apartment Hotel Dev Site

1H 2016 2H 2016 1H 2017

Source: Real Capital Analytics Change in Price per Square Foot

1H 2017 VS. 1H 2017 VS. Q2 2017 VS.
The composition of transactions by property type has changed 2H 2016 1H 2016 Q1 2017
significantly in recent years:
Office +4.2% -2.2% -8.4%
> In 2007, at the last investment peak, office buildings accounted
for 37% of all property sales by dollar volume, far outpacing all Industrial +2.1% +3.2% +1.0%
other sectors. The distribution across property types is more Retail -16.5% -11.2% +8.0%
balanced now, with the office share falling to 27% in the second Apartment -4.6% -2.6% +3.6%
half of 2015, before inching back up to 30% in 2017.
Hotel -5.2% -2.2% +5.6%
> Apartments surged from just 18% in 2007 to 32% last year,
Development Site +10.7% -32.3% +20.1%
falling back to 30% this year. The industrial and retail sectors
gained since 2007, though less dramatically while hotels and Source: Real Capital Analytics and Colliers International
development sites lost shares. Note: Change is expressed per unit for apartments and hotels

Commercial Property Investment Volume Change in Capitalization Rates (in Basis Points)
1H 2017 VS. 1H 2017 VS. Q2 2017 VS.
$600
Billions

5%

$500 14%
2H 2016 1H 2016 Q1 2017
4%

Office +7.96 +5.24 -8.14

7%

$400 18%

32% Industrial +0.06 -15.16 -56.67

$300 14%

Retail +1.19 +0.23 +6.26

11% 16%
4%
$200
12%
6%
Apartment -7.88 -14.26 +3.36
30%

$100
37%
16% Hotel +4.03 +10.77 +8.40
29% 14%

30% Source: Real Capital Analytics and Colliers International

$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H 2017

> Looking at the long term trends illustrated by the chart below,
Office Industrial Retail Apartment Hotel Development Site

Source: Real Capital Analytics

apartments and office buildings have made the greatest gains
overall in terms of pricing. Appreciation in the industrial and retail
Property Prices sectors has lagged.
The continued slowdown in sales activity is starting to impact > In the last two years only industrial has continued to log
pricing, though prices have recovered some lost ground in recent consistent gains while retail and apartments both have seen
months. However, with cap rates generally stable even falling declining average prices, again mostly attributable to the lower
modestly for industrial and apartments the average price quality of product being sold. Rents and income generally
declines mostly seem to reflect lower asset quality rather than more continue to rise while cap rates are stable overall.
general price weakness.
> Excluding the volatile land sector, retail has experienced the
greatest price declines both over the past six months and the
past year, though the sector did gain back some ground in the
second quarter. Since cap rates for this property type were
essentially unchanged, one can assume the primary driver was
the lower quality of product transacting this year.

3 U.S. Capital Flows Research Report | 2017 Midyear Update | Colliers International
Sales Prices by Unit: Two-Quarter Moving Average > CBD office and industrial properties in the major markets have
seen by far the greatest gains this year, though apartments and
$300 $160
suburban office both saw decent appreciation, both in major and

Thousands
$150
$250
$140
non-major markets. However, retail continues to struggle, flat for
$200
$130 the year in the top metros and down slightly in non-major markets.
> Overall, appreciation in the primary markets continues to outpace
$120

$150 $110

$100
that in the secondary and tertiary markets, despite the pickup in
$100
$90 absorption and property sales outside these top markets.
$50
$80
> Over the past decade, price gains have been concentrated within
$70

$0 $60
the major markets, particularly for apartments and CBD offices,
which are now each up at least 70% over their prior peaks in
Q4 209

Q2 2010

Q2 2011

Q2 2012

Q2 2013

Q2 2014

Q2 2015

Q2 2016

Q2 2017
Q1 2010

Q1 2011

Q1 2012

Q1 2013

Q1 2014

Q1 2015

Q1 2016

Q1 2017
Q4 2007

Q4 2008
Q2 2007

Q2 2008

Q2 2009
Q1 2007

Q1 2008

Q1 2009

Q3 2010

Q3 2011

Q3 2012

Q3 2013

Q3 2014

Q3 2015

Q3 2016
Q3 2007

Q3 2008

Q3 2009

Q4 2010

Q4 2011

Q4 2012

Q4 2013

Q4 2014

Q4 2015

Q4 2016
Apartment Office Industrial Retail
nominal (not inflation-adjusted) terms.
Source: Real Capital Analytics > The gains for retail and industrial have been much more modest,
up 17% and 29% respectively over their 2007 peaks.
A more accurate gauge of price movements is afforded by the RCA
Commercial Property Price Indices (CPPI), which measures price Property Prices Over Time | Indexed to 2001
changes in U.S. commercial real estate based on repeat sales, or Top Six U.S. Metro Markets
completed sales of the same properties, which implicitly controls Percent over prior peak
for product quality (unlike in the prior data). 375
Apartment = +78%

Properties have broadly continued to appreciate this year, with 325

CBD Office = +70%

gains this spring overcoming some temporary weakness this

winter. Looking back over the past decade, price gains have 275
Retail = +17%

been concentrated within the major markets,1 particularly in 225 All Properties = +26%

Industrial = +29%
the multifamily and office sectors while the gains for retail and 175
industrial have been much more modest. Outside of the major Suburban Office = +3%

markets, only the apartment sector has established new pricing 125

peaks significantly above those reached in the prior cycle. 75

Q1 2010

Q1 2011

Q1 2012

Q1 2013

Q1 2014

Q1 2015

Q1 2016

Q1 2017
Q1 2001

Q1 2002

Q1 2003

Q1 2004

Q1 2005

Q1 2006

Q1 2007

Q1 2008

Q1 2009

Q3 2010

Q3 2011

Q3 2012

Q3 2013

Q3 2014

Q3 2015

Q3 2016
Q3 2001

Q3 2002

Q3 2003

Q3 2004

Q3 2005

Q3 2006

Q3 2007

Q3 2008

Q3 2009
> The index for all property types nationally rose 7.9% over the past
year and 3.5% during 2017. However, all gains this year occurred
National: All Properties Apartment Retail Industrial CBD Office Suburban Office

during the second quarter, up 4% over the first quarter, which Source: Real Capital Analytics and Colliers International
actually saw a net decline overall.

Change in Price per Square Foot

Q2 2017 VS. Q2 2016 Q2 2017 VS. Q4 2016 Q2 2017 VS. Q1 2017
National: All Properties +7.9% +3.5% +4.0%
MAJOR MARKETS (TOP SIX METROS)
Apartment +8.5% +2.8% +3.6%
Industrial +13.0% +6.1% +7.8%
CBD Office +19.5% +11.4% +12.2%
Suburban Office +9.0% +6.5% +4.3%
Retail +0.0% +0.1% +2.2%
SECONDARY AND TERTIARY MARKETS
Apartment +9.8% +4.6% +4.0%
Industrial +4.6% +0.5% -1.3%
CBD Office +4.3% -5.0% -1.2%
Suburban Office +4.1% -0.6% +0.4%
Retail -1.0% -0.3% +1.8%
Source: Real Capital Analytics and Colliers International

1
The top six markets are Boston, New York, District of Columbia, Chicago, San Francisco, and Los Angeles. All other metros in this report are considered secondary or tertiary.

4 U.S. Capital Flows Research Report | 2017 Midyear Update | Colliers International
> Outside of the primary markets, only the apartment sector has Acquisitions by Type of Investor
established new pricing peaks significantly above those reached
in the prior cycle. Prices for industrial and CBD offices in the
$140

Billions
secondary markets have only recently regained new peak levels $120

over those reached a full decade ago. $100

> Both retail and suburban office outside of the major markets are $80

still well below their prior peaks, reflecting consumer and tenant
$60
shifts away from these product types, especially for
secondary locations. $40

$20

Property Prices Over Time | Indexed to 2001 $0

Secondary and Tertiary Markets Cross-Border Institutional/Equity Fund

1H 2015 2H 2015
Listed/REITs

1H 2016 2H 2016 1H 2017

Private User/Other

240
Source: Real Capital Analytics
220

200
> All capital sources purchased less this year than they did in the
180

160
second half of 2016, but foreign entities and institutions represent
140
the most substantial declines, 34% and 26%, respectively,
120
compared to only 6% drops for REITs and owner/users. The
100
volume from private buyers fell 19%. However, year-over-year,
80
REITs experienced a significant 78% increase, followed by private
60
buyers at +18%, but foreign entities and institutions together
declined about 11%.
Q1 2010

Q1 2011

Q1 2012

Q1 2013

Q1 2014

Q1 2015

Q1 2016

Q1 2017
Q1 2001

Q1 2002

Q1 2003

Q1 2004

Q1 2005

Q1 2006

Q1 2007

Q1 2008

Q1 2009

Q3 2010

Q3 2011

Q3 2012

Q3 2013

Q3 2014

Q3 2015

Q3 2016
Q3 2001

Q3 2002

Q3 2003

Q3 2004

Q3 2005

Q3 2006

Q3 2007

Q3 2008

Q3 2009

National: All Properties
Source: Real Capital Analytics and Colliers International
Buyers and Sellers
Private Investors were once again the dominant buyers of U.S.
property in 1H 2017 and increased their share of acquisitions,
while foreign and institutional shares declined. However, the dollar
value of acquisitions declined for all capital sources in the year
through mid-2017, though both REITs and private buyers increased
their acquisitions in the first half of this year versus the second
half of 2016. Public pension funds have reduced their real estate
commitments by 30% in the first half of 2017 compared to a year
early, according to an industry report.
Taking dispositions into account as well, foreign entities, REITs
and private sources of capital were all net buyers in the first half
Apartment Retail Industrial CBD Office Suburban Office
> Despite their decline in acquisitions, the share of total U.S.
property holdings owned by foreign sources continued to rise
modestly in 1H 2017 as new acquisitions virtually doubled the
volume of dispositions (+95%). Foreign buyers are likely attracted
by the relative strength and stability of the U.S. economy, as well
as compelling returns compared to returns in their home markets.
> Domestic capital sources collectively were net sellers (-7%).
Within this group, however, only institutional investors and
owner/users were strong net sellers (each about -25%). REITs
and private investors were modestly net buyers (+5% and 4%,
respectively). For REITs, this marks the first half-year of net
buying since early 2015.
Net Investment by Type of Investor
$40
Billions

of 2017, while institutional investors and owner/users were once $30

again net sellers. Collectively, all domestic sources together were $20

net sellers. In contrast, foreign buyers again led all capital sources
in net acquisition volume, as they have almost every quarter since $10

late 2013. 0

> Private buyers accounted for almost half (49.3%) of the total -$10

transaction volume while institutional buyers comprised a fifth -$20

(21.8%), with both buyer types increasing their shares of the

market. On the other hand, both foreign entities and institutions -$30
Cross-Border Institutional/Equity Fund Listed/REITs Private User/Other

registered declines in their shares. 1H 2015 2H 2015 1H 2016 2H 2016 1H 2017

Source: Real Capital Analytics

5 U.S. Capital Flows Research Report | 2017 Midyear Update | Colliers International
> Despite the modest net acquisition this year, REITs have disposed past half year among all investors, the drop was greater among
of roughly $43 billion more in property than they purchased domestic investors (-5.4%) than for foreign buyers (-2.7%). On
over the past two years. Moreover, they have been raising an top of also being net buyers, it is clear foreign entities are less
increasing stockpile of both debt and equity. motivated by short-term yield and less comfortable investing in
smaller, less familiar metros.
Debt and Equity Capital Raising by REITs Domestic vs. Foreign Capital
160 Top Six U.S. Metro Markets
140 80%

120 70%

100 60%

80 50%

60 40%

40 30%

20 20%

0 10%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Pace

Total Capital Raised Unsecured Debt

0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H 2017
Source: National Association of Real Estate Investment Trusts (NAREIT) Domestic Foreign Domestic Average Foreign Average

Source: Real Capital Analytics and Colliers International

Where Foreign and Domestic Capital Buy U.S.
Properties
The top six U.S. markets still account for a disproportionate share
of investment activity nationally, but their share continues to drop
as investors seek out greater returns (and risk) in secondary
markets. However, relative to domestic investors, foreign buyers
tend to focus on the leading markets.
> The top six metros accounted for 39.5% of investment dollars this
year, but this share has been declining since peaking at 47.4%
in 2011.
> There is a huge spread between U.S. and foreign buyers: the top
six share is just 37.2% among domestic investors, compared to
57.1% for offshore.2 And while the top six market share fell this
> Manhattan is the dominant metro market for attracting offshore
capital. Thus far in 2017, foreign investors purchased twice as
much property in Manhattan ($5.4 billion) as in the next-largest
metro (Washington, D.C. with $2.6 billion). New York has taken in
more than one-fifth of the dollars that flowed into the U.S. from
overseas this year. Manhattan is clearly seen as the investment
destination of choice for overseas investors
> However, New York has relinquished its crown among U.S.-based
investors this year. So far, Los Angeles has edged out New York,
with 9.9% of the domestic capital, just ahead of New Yorks 9.8%
> Together, the top nine metros account for two-thirds of foreign
capital invested in U.S. property markets but for less than half of
the domestic capital.

Top Markets for Domestic and Foreign Buyers of U.S. Property

FOREIGN CAPITAL DOMESTIC CAPITAL
VOLUME VOLUME
RANK METRO SHARE METRO SHARE
(MILLIONS) (MILLIONS)
1 New York $5,384.20 21.5% Los Angeles $18,638.90 9.9%
2 Washington, D.C. $2,595.90 10.4% New York $18,482.20 9.8%
3 Los Angeles $1,874.20 7.5% San Francisco $12,688.70 6.7%
4 San Francisco $1,761.40 7.0% Dallas $8,865.60 4.7%
5 Boston $1,653.70 6.6% Boston $7,536.40 4.0%
6 Seattle $909.80 3.6% Atlanta $7,008.80 3.7%
7 Houston $764.30 3.1% Miami/South Florida $6,506.80 3.5%
8 Chicago $761.10 3.0% Washington, D.C. $6,119.60 3.2%
9 Miami/South Florida $743.90 3.0% Chicago $5,426.10 2.9%
10 Other $8,609.00 34.4% Other $97,280.40 51.6%
Total $25,057.40 100% Total $188,553.40 100.0%
Source: Real Capital Analytics
2
Note that these figures are not additive. Rather, these figures refer to the proportion of each sources investments that are concentrated in the top six metros.

6 U.S. Capital Flows Research Report | 2017 Midyear Update | Colliers International
 Top Foreign Sources of Capital
1H 2017 2016
VOLUME VOLUME
RANK COUNTRY SHARE COUNTRY SHARE
(MILLIONS) (MILLIONS)
1 Canada $7,161.80 28.6% China $13,757.80 20.7%
2 China $5,335.10 21.3% Canada $13,367.50 20.2%
3 Singapore $3,495.60 14.0% Germany $6,185.90 9.3%
4 Germany $2,339.00 9.3% South Korea $3,912.00 5.9%
5 Japan $1,390.20 5.5% Singapore $3,355.40 5.1%
6 Israel $901.10 3.6% Hong Kong $3,352.40 5.1%
7 Hong Kong $738.30 2.9% Switzerland $3,301.90 5.0%
8 Denmark $584.20 2.3% Qatar $3,198.70 4.8%
9 Norway $540.30 2.2% Japan $2,590.40 3.9%
10 Other $2,571.80 10.3% Other $13,285.00 20.0%
Total $25,057.40 100.0% Total $66,306.90 100.0%
Source: Real Capital Analytics

> Last year saw major shifts in the source of foreign capital as
China surged past Canada to outpace all other countries. This
year is seeing a return to customary patterns as Canada again
tops the rankings of foreign investors. Nonetheless, the Chinese
share rose from last year (+0.6 percentage points), but not nearly
as much as Canada (+8.4 percentage points).
> Countries climbing the ranks this year include Singapore, Japan
and Israel, while Germany, Hong Kong and especially South
Korea all fell.
> The Mortgage Bankers Association reports that lending by
commercial banks is down about 20% over the last year, life
insurance company lending is about flat and agency lending is up
26%. Year to date, life insurance companies are still about flat,
commercial banks are down modestly and the agencies continue
to increase their lending.
> Looking forward, the MBA reports that lenders still have a
strong, but declining, desire to make loans, and borrowers have
comparable strong, but declining, desire to take out loans.

Commercial Real Estate Lending

Debt Markets
$140
Billions

Despite the decline in property transactions, debt originations for $120

commercial real estate are up versus a year ago, though down

$100
so far this year. Commercial mortgage-backed securities (CMBS)
issuances rose the most in the past year, though levels are still a far $80

cry from volumes during the last cycle. On the other hand, lending $60

from commercial banks, life insurance companies and the agencies $40

(Fannie Mae and Freddie Mac) are up slightly over a year ago, but $20

their combined lending volumes are more than double than at the
$0
peak of the last cycle.
Q2 2012

Q2 2013

Q2 2014

Q2 2015

Q2 2016

Q2 2017
Q1 2012

Q1 2013

Q1 2014

Q1 2015

Q1 2016

Q1 2017
Q3 2012

Q3 2013

Q3 2014

Q3 2015

Q3 2016
Q4 2012

Q4 2013

Q4 2014

Q4 2015

Q4 2016

> Debt originations are up 6% over midyear 2016 but down almost CMBS Non-CMBS

10% since year end 2016. Declining transaction volumes are Source: Real Capital Analytics
restraining the lending volume, but low interest rates and expiring
CMBS loans are encouraging refinancings.
> CMBS issuances rose the most in the past year, up 40% over 1H
2016, compared to just 2% for non-CMBS lending. Still, CMBS
levels are far below those during the last cycle, when CMBS
accounted for two-thirds of the CRE lending volume, compared to
just 14% currently.

7 U.S. Capital Flows Research Report | 2017 Midyear Update | Colliers International
 What to Expect in Late 2017
U.S. property transaction volumes are continuing to trend down
this year, while price appreciation generally remains moderate,
consistent with our conclusion that we are nearing the end of this
real estate markets cycle. While property markets seem to have
peaked for this cycle, they are by no means crashing, or even
falling. Transaction levels remain relatively robust by historical
standards while prices continue to edge further into peak territory,
particularly in major markets.
The increase in leasing and sales transactions during the second
quarter was encouraging and likely reflected the improvement in
GDP and job growth this spring. But absent significant changes in
policy directions from Washington that would recharge economic
growth, we anticipate the recent slowing trends in the property
markets to continue. Consensus economic forecasts call for
continued moderate growth during the rest of this year and into
2018, providing little additional fuel for space absorption or
rent growth.
On the other hand, the fed is unlikely to raise rates again more
than once this year, if at all. This should keep interest rates down
and financing expenses relatively affordable for funding new
acquisitions. Moreover, risk-adjusted rates of return for U.S. real
estate remain attractive for domestic and foreign investors alike,
which will keep attracting more capital to the sector.
Finally, concerns about the Chinese pullback are likely to be
relatively isolated to a few markets, as investors from other
countries are stepping up to acquire. The exception may be for
trophy assets, where Chinese investors had been emerging as the
top bidders in many transactions. Pricing for these assets may be
less aggressive without Chinese buyers.

FOR MORE INFORMATION RESEARCH CONTACT

Andrew J Nelson Pete Culliney
Chief Economist | USA Director of Research | USA & Global
+1 415 288 7864 +1 212 716 3698
andrew.nelson@colliers.com pete.culliney@colliers.com

Colliers International
101 Second Street, 11th Floor
San Francisco, CA 94105
+1 415 788 3100
Copyright 2017 Colliers International.
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every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No
responsibility is assumed for any inaccuracies. Readers are encouraged to consult their
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professional advisors Flows
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contained
North American Research & Forecast Report | Q4 2014 | Office Midyear
International
this report.
Market Outlook | Colliers International