March 2019, Raleigh-Durham
Jim Costello, senior vice president at Real Capital Analytics recently released the US Capital Trends  report for the office real estate market. Real Capital Analytics is the authority on the trends that drive the commercial real estate investment markets and Costello drives research efforts on issues that affect these dynamics.
His overview of the national office market resonated with us and increased our optimism for the Raleigh-Durham office market in 2019.
U.S. cap rate trends in 2018 and predictions for 2019
Costello pointed out interest rates have been volatile, but U.S. cap rates haven’t moved yet in response to the turmoil. Cap rates were flat in 2018. It is unlikely that the fed will do as many raises of the fed funds rate in 2019 as they did in 2018, so we won’t see the pressure on the longer end of the yield curve. Inflation expectations in December and January were low. There were higher inflation expectations into October and November of 2018. But inflation has been described as “muted” by Jerome Powell, chair of the Federal Reserve. So we will most likely see another flat year of cap rates in 2019.
Trends in the U.S. office sector
The national office sector rose slightly in 2018 after two consecutive years of declining activity. Other property sectors had a large volume of entity level transactions which included multi-billion dollar-acquisitions of companies to obtain all of their real estate assets (e.g. Westfield – retail, DCT – industrial). A couple of office portfolio and entity-level transactions closed in December, so perhaps that trend will continue and deal volume will increase in the office sector in 2019.
Within the office sector, the suburban office market was much stronger than the CBD office market. Deal volume in 2018 for the suburban office market was $82.8 billion while the CBD market has $51.8 billion. The $30 billion gap signals a growing divergence between the two markets, as they are typically pretty even. [...]
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 Source for U.S. data: Real Capital Analytics, “U.S. Capital Trends | Office 2018”, released January of 2019