US Quarterly Investment Real Estate Outlook

The Quarterly Report on the U.S. real estate investment market, including a lengthy analysis of the current REIT (real estate investment trust) environment, is now out from Prudential Real Estate Investors, a sister firm to Prudential CRES. Here is the executive summary:

• Despite higher long-term interest rates in the second quarter
and a modest slowdown in transaction activity, commercial
real estate loan origination and securitization activity in
2006 should surpass the record levels set last year.

• REITs rebounded sharply in the third quarter from their
relatively weak second-quarter showing and should
outperform the broader equity markets for a remarkable
seventh consecutive year.

• Although the near-term outlook for the U.S. property
markets remains healthy, slower economic growth will
affect investor and tenant demand for most, if not all,
property types.

• With space market fundamentals across all major property
types healthier than they have been in years and with little
evidence that supply will outstrip demand in the next 12
months or so, private real estate should continue to perform
well. This year, we expect the NCREIF Property Index
(NPI) will deliver a total return at the high end of our
forecast range of 12% to 15%. Returns will likely moderate
further next year, but as long as the economy does not
weaken suddenly and long-term interest rates do not stray
too far from the 4.5% to 5.25% range they’ve been in for
most of 2006, the NPI should still deliver 9% to 12% in
2007.

For a copy of the full report, drop me a note and I will email the PDF.