Rising interests rates will have a major impact on REIT investment activity this year, according to Doug Ressler, a senior research analyst at Yardi's Commercial Café. Yardi recently released a new report analyzing office investment activity in the Los Angeles market. The report suggests minimal growth this year for the L.A. market, and pegs the area as a mid-strength market. To find out more about how REIT investment will change this year, and how the office performance is impacting REIT acquisition strategy, we sat down with Ressler for an interview.
GlobeSt.com: How is the office performance in Los Angeles in the fourth quarter going to impact REIT acquisitions this year?
Doug Ressler: Investors and REITs will need to change tack, acquiring for “strategy-to-suit” tenants. This is a more proactive approach where your improvements revolve around who your tenants will be and the rents they will support. Another thing they'll have to monitor is area demographics to support anticipated work force, plus more rigid expense control in building cost efficiencies, especially energy, adapting and installing “Smart” technologies.
Then there's planning for longer sustainability and “hold” strategies for assets, as well as collaboration with community and public policy from initial design concept to receive public value/tax advantage and or $ to supplement assets acquisition or build.
GlobeSt.com: How will investment activity from other capital sources be impacted in Los Angeles?
Ressler: According to Yardi Matrix data, all the California office markets we analyzed recorded a drop in sales from Q3 to Q4, with the exception of Los Angeles and Sacramento, which saw an uptick in investment activity. Additionally, L.A. and the Bay Area were the only two markets to draw the quarterly tally above the $1 billion mark. Nearly half of the top 10 California office sales of the year were recorded on the Los Angeles market.
GlobeSt.com: How are investors changing their operating strategies on office investments?
Ressler: REIT investments in CBD buildings, have had to adapt to changing trends and are becoming more creative in providing greater amenity content, like conference centers and lobbies with restaurants, retail and co-working space, due to the fact that CBD properties have experienced the largest vacancy rate of all location classes.
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Kelsi Maree Borland
