The fundamentals of the commercial real estate industry are slowly improving, according to the first quarter 2011 PwC Real Estate Investor Survey released by PricewaterhouseCoopers.
The survey tracks the anticipated performances of the four main property sectors – office, retail, industrial and multifamily – from this year through 2014. PwC found that the multifamily sector is well ahead of the other three sectors in terms of recovery. As tighter lending restrictions limit home-buying opportunities, pent-up housing demand will enlarge the portion of multifamily stock in the expansion phase through 2014.
The majority of office stock is predicted to be in recovery by the end of this year, due to a lack of new supply and signs of decreasing vacancy for the U.S. office market. But the recovery will not be uniform, and markets including Chicago, Las Vegas, Los Angeles and Tampa, Fla., are expected to be in recession through 2012.
For the retail market, inconsistent consumer spending and inflationary fears are expected to keep the majority of retail stock (76.6%) in recession through 2012; a recovery will take root by year-end 2013, impacting 77.1% of retail inventory in that phase. Availability rates for the U.S. industrial sector are expected to peak this year as tenant demand strengthens on the heels of a growing economy. As a result, the bulk of industrial stock will be in recovery this year and next year (71.8% and 86.2%, respectively).
The PwC report also found that the average overall capitalization rate – a reflection of an investment's anticipated ownership risk – decreased in 27 of the report's 31 surveyed markets. The highest quarterly decreases occurred in the regional apartment markets, where average capitalization rates compressed between 39 and 73 basis points in the first quarter of this year.
‘This year is a pivotal one for the industry, as 2011 began on the right foot with a string of positive news, giving investors the feeling that the recovery is real,’ says Susan Smith, editor-in-chief of PwC's quarterly survey. ‘That said, there remain concerns among surveyed participants, such as rising oil prices, a still-shaky residential housing sector, and upcoming debt maturities. Despite these challenges, many investors remain focused on acquiring assets in anticipation of a continued recovery. Strong competition among buyers and the low-interest-rate environment continue to push overall cap rates lower for nearly all of the survey's markets.’
SOURCE: PricewaterhouseCoopers
