Metro Volume and Pricing
Investment runs strong.* The total for 21 deals completed through the first half of 2012 was $907 million, 73.0% of the more than $1.2 billion in sales accumulated in all of 2011’s 49 transactions. The total for the latest quarter alone was $177 million for nine deals. The average selling price was $154 psf, down from first quarter’s $230. In the latest quarter’s highest-priced (psf) sale, AEW Capital Management paid Legacy Partners II $26.66 million ($406 psf) in June for the 6.0%-vacant, 65,712-square-foot multi-tenant 1660 Wynkoop Building in downtown Denver’s Union Station area. The Class B/C building was completed in 1983 and renovated in 1994. In the largest sale of the quarter by dollar total, Westfield Capital Partners paid Hines US Office Value Added Fund $92 million ($199 psf) for the 8.0%-vacant, 461,438-square-foot, Class A Mountain View Corporate Center in Broomfield. The sale closed in May at a 6.4% cap rate.
Since the quarter ended: “Institutional investors had a busy August snapping up trophy-asset office buildings in the southeast metro Denver market, totaling $120 million for three separate sales,” the Denver Business Journal reported in late August. Cole Capital Partners LLC, bought the 167,917-square-foot, 100.0%-leased Waterview IV in Centennial for $32.5 million. KBS Realty Advisors paid $54 million for the 264,149-square-foot, Class A Peakview Tower, also in Centennial. Crescent Real Estate Equities was the seller. And Westfield Development Company paid $33.5 million for both Belleview Corporate Plaza I and II and 6.4 acres of developable land in the Belleview Station area west of Belleview Avenue and I-25. Occupancy in the two building’s combined total of 172,220 square feet was 93.2% at time of sale.
Two submarkets have dominated recent sales activity. Midtown reports 4.2 million square feet sold, all told, during the year for a total of $949 million at an average of $224 psf. The Southeast Suburban submarket was second with 2.5 million square feet exchanged for $370 million at a $148 psf average. Southeast and Northwest followed with 746,152 and 520,659 square feet trading for $75 million and $96 million, respectively.
Cap Rate Comparisons and Forecasts
Average cap rates measured by the quarter have been somewhat erratic. The 8.3% calculated for the latest quarter, highest since the third quarter of 2010, was up from 6.9% the quarter before and from 7.4% a year earlier. The 12-month rolling cap rate has taken a steadier course, showing small changes amid an overriding gradual descent since 2010. The 12-month rate for the latest quarter was 7.5%, up from 7.0% the quarter before, down from 7.6% as of second quarter 2011. The rate should remain in the vicinity of 7.5% in the period ahead. Second quarter 12-month rolling cap rates for the Western and national office markets were 7.4% and 7.5%, up from 7.2% and 7.4% a quarter earlier.