Saturday, April 30, 2011

New PREI Report Backs CoC Projection: Economy Improving, CRE Fundamentals Trending Positive

As I have written in previous posts, and as other prognosticators have indicated as well, things appear to be improving for the commercial/investment real estate market.

And that is good news for investors, tenants, and owner/users alike. Now its not just practioners on the gound saying this. Our sister oranization, Prudential Real Estate Investors, has issued its latest quarterly report on the state of the U.S. real estate market, and it concurs: fundamentals are, indeed, improving.

Here are key points from the Executive Summary:

With the economy growing at a healthy pace, commercial real estate fundamentals are finally moving in a positive direction in all sectors. Fears of a double-dip recession have mostly abated, although turmoil in the Middle East and the disaster in Japan are reminders that exogenous events are always lurking. Questions remain as to how strong the recovery will be and how long it will take the space markets to fully recover from the recession.

• The momentum should continue in the apartment and hotel segments, which bottomed a year ago, due to increased demand for rental units and rising travel. Fundamentals are just shifting to positive in the office, retail and warehouse sectors. Gains in those property types are bound to be inconsistent based on the market and segment.

• Capital continues to flow to commercial real estate, particularly “prime” assets in “gateway” cities. Acquisition yields in a handful of core markets have been reduced to historically low levels. Transaction activity is up about 50% from a year ago and should reach 2004 levels.

I wrote some weeks ago on these pages about e in the eventsMiddle East and Japan continuing to be a concern, but despite nagging worries about inflation (something that still concerns me greatly as a nation that continues to print money 24 hours and day and buys its own debt cannot escape severe inflation if such activities continue), the ship appears to be back on track -- for now. Better properties, properly priced, are finally coming to market. For Tenants, there still is prime space available, and many choices. Owners can rest assured that should they need to sell, the downslide in value appears to have bottomed out. Further, apart from multi-unit housing, other sectors should be seeing their slide in per square foot lease rates bottoming out as well. Bottom line? Everything is up for negotiation.

Click on the highlighted link in the body of my text above to access a copy of the full report. All in all, it backs up what we are seeing out here at the front lines.

Again, that is good news!

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