U.S. commercial rents will reach their former peak levels by 2015, with growth in office and warehouse rates surpassing the apartment sector in two years, according to a forecast by RREEF.
Buildings in New York, San Francisco, Boston, San Diego and San Jose, California, will have some of the strongest growth after office rents fell 4.9 percent nationally last year, Alan Billingsley, head of research for RREEF, an investment unit of Deutsche Bank AG, said yesterday at a conference in San Francisco.
“Net operating income is still moving downward, but when rent growth starts, it really takes off,” Billingsley said.
U.S. commercial property prices fell 4.3 percent from a year earlier in January, the second straight monthly decline, as distressed sales in all sectors held back values, the Moody’s/REAL Commercial Property Price Index showed March 22. The delinquency rate on loans packaged as commercial mortgage-backed securities rose to a record 9.2 percent in February, Moody’s said March 15.
Property in technology-driven markets including Seattle and Austin, Texas, are among RREEF’s most favored investments, according to Billingsley. Rental housing in “youth magnet” coastal cities that attract workers born between 1981 and 1995, estimated at 60 million people, will also get a boost this decade, he said.
Apartments rents, which increased as millions of U.S. homeowners were foreclosed upon and forced to find other places to live, are projected to grow 4 percent this year and 5 percent in both 2012 and 2013, RREEF estimates. Offices and industrial buildings take the lead in growth in 2013, at 5.1 percent and 5.9 percent respectively.
Office rents will advance 7.7 percent in 2014 and 8 percent in 2015, while industrial rates gain 7.3 percent and 6.3 percent and apartments lag behind at 3 percent and 2 percent, according to Billingsley, who made the presentation at a conference sponsored by the National Association of Real Estate Investment Trusts, a Washington-based trade group.
Retail will trail other sectors until 2014, when its 3.5 percent growth rate will surpass apartments, RREEF said.