Commercial real estate investors hungrier for more risk in fourth quarter: PwC
Commercial real estate investors see slight but promising signs in the U.S. economy during the fourth quarter and are more willing to look for riskier buying opportunities going forward, according to the PricewaterhouseCoopers Korpacz Real Estate Investor Survey. PwC, a tax and advisory firm, surveyed investors in 31 separate markets nationwide. According to the survey, investors are looking to branch away from "super core markets" and find buys that could yield more returns than the safer trophy assets or vastly distressed properties. This, according to PwC, suggests both buyers and lenders are gaining more confidence in the overall performance of the economy and the real estate sector. "This time last year investors were solely focused on ‘treasures’ or ‘traumas’ — properties that were either top-notch quality or significantly discounted due to sellers in distress, and there was no appetite for assets in the middle of the spectrum," said Mitch Roschelle, U.S. real estate advisory practice leader, PwC. "Now, many of them are looking to widen their investment parameters and take on additional risk as they see signs that the economy and the industry are slowly healing." Capitalization rates, or the ratio of the net operating income for the investment compared to its cost, declined in 27 surveyed markets, increased in two and held steady in two over the quarter. Cap rates declined 61 basis pints in the national apartment market, the highest of any sector. Investors said the apartment market is poised for positive rental rate trends over the next two years. The market's rent change turned positive in the fourth quarter, the first improvement since the third quarter of 2009. The national office market had a cap rate decrease of 48 bps due to aggressive bidding from enthusiastic buyers for core assets, according to PwC. The survey shows strong buyer interest going forward, which would either keep cap rates steady or push them down over the next six months. Write to Jon Prior.