"Over time, when we start to see negative leverage, it will change things," Kincaid said during this week's Citigroup 2006 REIT CEO Conference. "You could be borrowing money at 6% in the next 12 months. That could have a big impact."
For now, though, Kincaid says the office market sees buildings selling at internal rates of return of 6.5% to 7%. "We're out of the market," he says.
Equity Office Properties Trust managed to buy four million sf of office space last year for $1.4 billion, more than it had anticipated, at an average capitalization rate of 7.2%.
Kincaid sees upward pressure on wages, at least in his own business. For example, Equity Office Properties Trust was prompted to do a mid-year salary update in the Washington, DC area to fill building engineer vacancies. "We had 150 positions open at the end of the year, and it's tougher and tougher to fill them," Kincaid says. "There's more inflation out there than people think."
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