PwC: Commercial Real Estate Investors See Less Risk in Q210
Commercial real estate investors are eager to get in on quality buying opportunities that have yet to materialize in Q210, according to a survey conducted by PricewaterhouseCoopers. The quarterly survey covers the top-30 markets in the US. In 17 of those markets surveyors reported average capitalization rates, or returns on investments, declined. It’s an indication, according to PwC, that investors are perceiving less risk in the industry, especially for prime and healthier markets. There are signs of life in on the secondary side of commercial real estate as well. Last week, JPMorgan (JPM) sold $716.3m of commercial mortgage-backed securities (CMBS), the second such deal in 2010. “The 'bottoming' of the industry continues to be recognized by investors' expectations that overall cap rates will either decline or hold steady in most markets over the next six months,” according to the PwC report. Susan Smith, director of real estate advisory practice at PwC and editor-in-chief of the survey, said top-tier locations are leading the recovery, but leasing trends have yet to fully strengthen. “While most investors sense that the worst is over in terms of market deterioration, supply greatly outweighs demand across all property sectors keeping overall vacancy rates high and rental rates on a downward trend," Smith said. Investors did say financing has become more readily available for those seeking quality, low-risk assets in healthier markets. But markets are “extremely bifurcated.” Financing is highly available in some areas but barren in others. "There is a tremendous amount of capital targeting institutional-grade, quality assets. In fact, survey participants cited that strong competition among well-capitalized buyers is helping to elevate sale prices and lower overall cap rates for many prime properties,” Smith said. “Furthermore, the low percentage of distressed trades as of late reflects investors' preferences as most buyers are steering clear of "junk" and focusing only on core assets according to survey participants." Write to Jon Prior. The author holds no relevant investments.