CHICAGO, IL, Jan. 10, 2011 - Realty markets are rebounding,although at a slow and sporadic pace. Each property sector shows varied investor demand, strictly driven by location, quality and cash flow dynamics as broadly outlined below:
Jeanne Peck (top right photo), director of the Real Estate Capital Institute, predicts, "The new year brings more optimism and hope as the worst seems to be behind us."
Peck says, "While economic recovery is in motion, throwing caution in the
wind is a reckless investment strategy. Market volatility is very property-type and location-driven and proper due diligence is more important than ever"
Multifamily -- As has been the case for most of this decade, investors clamor
for Class A apartments in major markets. Extremely aggressive pricing leads
many to consider new construction in the major markets based on rapidly rising rental rates and tight supply. In many cases, investor demand is overflowing into secondary markets, driving up pricing across the entire sector. As long as the GSEs are active players in the financing arena, expect the apartment sector to maintain peak prices, often valued with below 6% cap rates.
Net Lease -- Single-tenant, net lease properties in nearly all categories enjoy strong investor demand. Overall pricing ranges from 6% cap rates or more, depending upon credit and length of lease term. This market segment is the most sensitive to interest rate volatility and should continue to show solid performance gains, depending upon cost of capital.
Industrial/Warehouse -- Economic recovery helps this property sector maintain a strong foothold of investor demand. Industrial properties tend to rebound faster than other commercial property sectors as overbuilding as "spec" development is closely linked to the overall economy, keeping capital in check with supply and demand. Expect solid pricing in the "gateway" markets along the coasts and in the Midwest. Cap rates will mirror net lease
assets.
Retail -- Retail properties are more location-driven than any other asset class. While credit tenancy is important, sales performance of each location drives pricing as many retailers represent marginal credit. Existing and new-construction infill properties are in strong investor demand with cap rates mirroring the highest quality properties in other property sectors.
Office -- Office property values have been vacillating during the past year as office space dynamics greatly vary in different parts of the country and downtown vs. outlying locations. "Core" CBD properties maintain strong pricing with cap rates hovering in the 6% to 7% range for newer, multitenant
assets with long-term leases. Conversely, many investors avoid the suburbs
as oversupply and employment fundamentals lag.
Lodging, senior housing, recreational and other property types are also rebounding, but on an extremely selective basis. These "business-type"
properties vary widely in values and are heavily linked to sponsorship and
performance. As such, valuation metrics continue to emerge.
The Real Estate Capital Institute(r) is a volunteer-based research organization that tracks realty rates data for debt and equity yields. The Institute posts daily and historical benchmark rates including treasuries, bank prime and LIBOR.Call the Real Estate Capital RateLine at 7RE-CAPITAL (773-227-4825) for hourly rate updates.
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Jeanne Peck, Research Director
Toll Free 800-994-RECI (7324)
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