A year ago we were saying pricing in the nation's leading markets looks mighty rich and asking whether an investor could feel comfortable buying existing assets with the risk of rising interest rates. Well, today we are contemplating the very same question as more international money looks to park itself in our 24-hour cities, prices have edged even higher and the economy has perked up to the point where the Fed may be more inclined to start adjusting up rates in the direction of more normalized levels. At the same time, comfort with secondary and tertiary markets has only marginally improved—continuing lackluster tenant demand does not justify an enhanced outlook and the potential for higher interest rates poses a greater threat for the prospects of commodity properties.

The appetite for multifamily development appropriately has begun to slacken after the recent construction spurt. Apartments remain in a strong position, but rent growth forecasts bend against the force of the improving housing market and ongoing relative wage stagnation for most Americans. The other institutional core favorite—industrial warehouses—has rebounded predictably in the traditional hub markets and some new development will do well, but the opportunities are relatively limited. The dearth of recent construction has allowed hotels to recover too—the always volatile lodging sector may be reaching its latest peak as new projects ramp up and new rooms get added in leading urban markets. On the retail side, urban high streets and the fortress malls standout as strong holds, but the country almost certainly needs less store space not more in the wake of internet intrusions and the technological remaking of how Americans buy more of their stuff. Can I sell anyone some suburban strip centers down the hill from the 30-year-old office park? And while I am at it, do you have any interest in that office park? Oy.

Meanwhile, obsolescence—buildings seem to age at a faster rate--poses an increasing peril to older office even in the prime markets. That's where build-to-core strategies can look attractive—LEED certified projects with flexible design features, higher techno capacities, and healthier environments capture the fancies of higher paying tenants, who will readily abandon what just a few years ago was labeled class A space. Ageing “brown” buildings take a haircut unless they can retrofit and upgrade—an expensive process. We told you so years ago on this one. And as mentioned again last week—more commodity suburban office just looks destined for an ash heap. Investors increasingly realize they must factor how changing technology poses a major investment risk and increasingly will be willing to pay a significant premium for modern facilities.