The apartment sector within the commercial real estate industry is poised for a strong new year, according to data in the latest quarterly release of the PwC Real Estate Investor Survey.
According to survey findings, the apartment sector is nearly fully recovered, driven by low vacancy levels in apartments and a continued shift toward renting versus buying homes. The survey predicts that a combination of low vacancy rates, a historically low level of homeownership and an adequate level of construction financing will pave the way for an increased volume of development of rental apartments.
‘Surveyed investors continue to view the apartment sector as an attractive play in delivering steady cashflows driven by solid rental demand and rising rents,’ says Susan Smith, editor-in-chief of PwC's quarterly survey. ‘As a result, investors view this sector as a hotbed for further investment activity. While government-sponsored entities Fannie Mae and Freddie Mac have historically propelled sales activity in this sector as the primary sources of debt, stellar apartment market fundamentals are attracting debt capital from other sources, such as banks and life companies, increasing the competitiveness among lenders and buyers.’
The fourth-quarter survey also predicts that office markets with a strong quantity of high-tech or energy-sector tenants are piquing investor interest. At the same time, government cutbacks are making some investors hesitant about government dependent cities, such as Washington, D.C. The average office rent growth assumptions reported by surveyed investors this quarter show promise for many office markets in the coming year, led by San Francisco (5.75%), New York (5.21%) and the Pacific Northwest (4.17%).
‘Despite a sluggish U.S. economic outlook, the majority of surveyed investors view commercial real estate as favorably priced and a good play,’ adds Mitch Roschelle, partner and U.S. real estate advisory practice leader at PwC. ‘The bullishness on the part of investors in the office sector comes as more office tenants are staying put and prospects for rent growth are improving. Looking ahead to 2012, our report suggests that investing in U.S. commercial real estate is an attractive play and will gain increasing global attention due to its hard asset nature and current income-producing characteristic, along with its total return potential.’
