Deal Volume to Drive U.S. Commercial Real Estate Recovery, PWC Survey Says
U.S. commercial property sales will climb during the next three years as increased investor confidence drives a recovery in all segments of the market, a report by PricewaterhouseCoopers LLP said.
Buyers, encouraged by job growth and rising business and consumer optimism, will jump into the market before interest rates move higher and competition pushes up prices of office, industrial, multifamily and retail properties, according to the quarterly survey of real estate investors by the company’s New York-based unit.
“As investors become more confident about the long-awaited recovery of the industry, they are eager to get deals done,” Mitch Roschelle, a partner at PricewaterhouseCoopers, said in a statement. “This bodes well for the industry.”
Commercial real estate prices surged 19 percent in 2010, the second-biggest gain on record, according to an index from the Massachusetts Institute of Technology Center for Real Estate in Cambridge, Massachusetts. Transactions for commercial properties may increase 40 percent to $135 billion this year, Chicago-based Jones Lang LaSalle Inc., the second-largest publicly traded broker, said last month.
Strong competition among buyers and low interest rates will continue to boost returns for sellers in nearly all the survey’s regions, the PricewaterhouseCoopers report said. Overall capitalization rates, which decline when property prices rise, decreased in 27 of 31 office markets. Most investors polled expect cap rates for all sectors to hold steady or decline in the next six months.
Office Space
A lack of new office space and decreasing vacancy rates will pull 86 percent of U.S. markets off the bottom by the end of 2012, even as investors remain concerned about unemployment, the survey said. The U.S. jobless rate was 8.9 percent in February, the lowest in two years. Office markets expected to remain in recession through 2012 include Chicago, Las Vegas, Los Angeles and Tampa, Florida.
Most industrial markets will improve during the next two years, with 86.2 percent expected to be in recovery by 2012 as tenant demand increases. The survey defines recovery as a phase of tightening market conditions and a shift in supply and demand balance leading to reduced vacancy rates, more balanced rental growth and a stabilization of overall cap rates.
The multifamily sector has led the recovery, driven by tougher lending restrictions and limited homebuying opportunities that have increased demand for apartments, according to the report. About 30 percent of multifamily stock will be in an expansion phase through 2014, a period of robust rental growth and decreasing overall cap rates, the survey showed.
Retail properties, bogged down by inconsistent growth in consumer spending, will probably lag behind. The sector is expected to pull out of recession in 2013, when 77.1 percent of retail stock should be in recovery, according to the survey.
To contact the reporter on this story: Rebecca McClay in New York at rmcclay@bloomberg.net
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net
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