AUSTIN—You'll find good news and bad when you engage in a discussion with Steve Pumper on the state and expectations of the capital markets. The good news, according to the executive managing partner at Transwestern and featured speaker at next month's CCIM THRIVE Conference here, comes in the current and mid-term outlook for the capital markets. The bad news…well…we'll get to that in a bit.

For now, there's clearly more upside than down, and Pumper says the major capital-markets headlines revolve around deal volume. “For the first half of the year,” he tells GlobeSt.com, investment sales for the five major real estate food groups “was $255.1 billion. That's ahead of the 2006 pace, but not quite up to '07.

“Pricing has come back dramatically,” he continues, crediting the still-low interest rate environment. “When you can finance deals starting around 3%, that's beneficial.”

And it speaks well for real estate as an alternative asset class: “Given the alternatives, where are you going to put your money if not real estate?” Even if a bit of froth is entering the market, “It's still outperforming the other fixed-income investment alternatives.”

Pumper tracks activity not only in the obvious large barriers-to-entry markets but in the secondary and tertiary markets as well, and in all of these, the bulk of the money is headed to the CBDs. Suburbs are being left out in the investment cold unless they can boast a Town Center-type focus and walkable amenities, all the rage with, yes, millennials.

But Pumper indicates as well that there is a diminishing return in the Town Center concept. “If you think of the suburbs as circles around the city core,” he says, there's less density in those outer rings, “and it becomes negligible how beneficial it is to have that walkable distance to those office buildings. There's a drop off in achieving lease rates despite the amenities.”

Capital is gravitating to such industries as healthcare, energy and biotech, he says. Money also wants to be near education, in locales that promise “density, pro-growth, pro-business initiatives, barriers to entry and good transportation hubs. That's how investors are sorting through the winners.” 

If readers followed our Research Series on such cities as Denver, Boston or Los Angeles, those vertical industries are heading to the American CBD as cities across the nation continue their core revitalizations. “As you go back into the CBDs, you have the millennials who want the pulse of the urban core. They want that walkability to the office and to the restaurants. The cities that provide that are the cities that are doing well. There has been an amazing resurgence in the urban cores over the past five to 15 years.”

In all, the capital markets picture is healthy, and Pumper's outlook is good. “Inflation seems to be in check right now, corporate America is sitting on a lot of cash and making some investments, development is being monitored—although there's always a little froth in certain areas—but it's in equilibrium for the most part.”

He believes that interest-rate hikes will remain off the table through the end of the year: “because there's still a lot of fragility in the economy, but I think there are two hikes baked in for next year,” but nothing that will send shivers through the market. “Next year will be a good year.”

But we promised some bad news, and here it comes, under the heading Nothing Lasts Forever. “You might see some signs of overheating in 2017 and probably substantial interest-rate movement after the election,” says Pumper. “That will have negative impact on activity in 2018.”

As we said, nothing lasts forever. The message Pumper is sending out is clear: Enjoy it while you can.