Campion and Reeder: Total sales volume in the second half of 2017 at $3.8 billion not only outperformed the activity in the second half of the year for the last three years but was the highest sales volume in 10 years (or since the second half of 2007). During the second half of 2017, there were seven investment transactions topping the $100 million mark. The second half of the year also highlighted investor willingness to pay premium pricing for quality assets.
Sales volume in the first half of 2017 at $2.25 billion, however, was the lowest since the mid-2013. Again, this can mainly be attributed to the cautious approach taken by investors who expected we may see a recession, along with heightened investor selectivity met with limited sale supply. At the start of last year, many sellers felt the markets were imbalanced subsequently restricting the amount of properties for sale. Once there was more clarity, sellers began to feel more confident in bringing their product online at good pricing, which loosened the amount of product for sale. Consequently, the total sales volume in San Diego for properties $10 million and greater was lifted by a much more active second half.

GlobeSt.com: What is your outlook for investment activity this year?

Campion and Reeder: We highly anticipate an increase in trading volume given the current pace of deals in the market and BOV activity for office in 2018. It is tough to peg an exact growth percentage but a 10% lift overall above 2017 is certainly not out of the question.
In 2018, “economic activity is forecasted to expand at a moderate pace and labor market conditions are forecasted to remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the 2% objective over the medium term. Near-term risks to the economic outlook appear roughly balanced,” according to March 21, 2018 FOMC statement. The federal funds rate was increased for the sixth time since 2015 to 1.75% and three additional hikes are expected in 2018. Under these conditions, cap rates will slowly adjust to higher interest rates and investors will focus on income instead of appreciation.

GlobeSt.com: How do you expect this to play out in each of the asset classes?

Campion and Reeder: Commercial real estate will remain an attractive investment as investors are looking to deploy the capital and hedge against the anticipated inflation. The industrial market remains on a solid footing and is expected to continue to perform well. Office will perform the best in submarkets preferred by today's workforce near preferred housing, public transit and walkability and amenities. Retail will continue to be under pressure from on-line retailers putting pressure on landlords to attract shoppers to brick-and-mortar stores. Centers offering entertainment along with shopping will continue to perform the best. Multi-family will remain in short supply and among favorite asset classes supported by consistent year-over-year rent growth and the fact that less than one third of San Diegans can afford to buy a house with the affordability index at 26.