PwC: Commercial real estate starts 2011 on 'right foot'
A PricewaterhouseCoopers survey of commercial real estate investors shows a market coming off a bottom, albeit slowly and unevenly. During the recession, the U.S. economy lost 8.4 million jobs. And some experts don't expect to reach pre-crisis employment levels until 2013. But new jobs are trickling in. In February, the economy added 192,000, pushing the unemployment rate below 9%, according to the Bureau of Labor Statistics. As a result, the fundamentals in the commercial real estate industry are beginning to improve, according to the survey results. Many investors said they were focused on acquiring assets in anticipation of a continued recovery. Investors were split on what property types they were targeting. One respondent was bullish on the office sector, while another saw "very little opportunity" for rent growth. However, the apartment sector's growth continues to drive the industry overall. Pent-up demand from relocation due to foreclosures and a lack of new supply sparked interest from investors, who are acquiring properties "aggressively," PwC said. Markets offering the most attractive discounts were Atlanta, Boston and Charlotte. Some investors noted still rising oil prices, upcoming debt maturities and a residential housing sector mired in its inability to recover. But the overall consensus of respondents believe the worst is behind the industry, and most noted a slight hint of competitive paranoia that disappeared in the fall of 2008 has returned. "As investors become more confident about the long-awaited recovery of the industry, the volume of capital chasing deals is expected to increase in all sectors as investors work to deploy capital before interest rates rise, overall cap rates increase, and the industry shifts more in favor of sellers," said Mitch Roschelle, partner for U.S. real estate advisory practice leader at PwC. Meanwhile, the value of loans collateralized in CMBS priced by The Debt Exchange inched up in February, the loan sale adviser said. DebtX said the February index was 79.9%, up from 79.8% at the end of January and up from the 76.5% a year earlier. The values are based on loans priced by Boston-based DebtX. In November, the company priced 55,094 commercial real estate loans with an aggregate principle balance $657.1 billion that collateralize 621 CMBS trusts. "In February, loan prices rose modestly for a second straight month," according to DebtX Chief Executive Kingsley Greenland. "Since July 2010, prices for commercial real estate loans have remained at approximately the same level due largely to modestly improving fundamentals in the commercial real estate market." Jason Philyaw contributed to this report. Write to Jon Prior. Follow him on Twitter @JonAPrior.