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PwC: Investors anticipate opportunities in commercial real estate

By Rob Starr, Content Manager,

As 2012 draws to a close and the industry’s recovery progresses, commercial real estate offers varied investment opportunities across each major sector and a diverse number of cities, even though macroeconomic uncertainties still exist, such as the fiscal cliff, according to the fourth quarter 2012 findings of the PwC Real Estate Investor Survey.

“The commercial real estate industry continues to show its investment durability as assets command attractive spreads over fixed-income investments and offer more stability than stocks, while most property sectors continue to post occupancy gains and rental rate growth,” said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC. “Foreign investors are particularly bullish on U.S. commercial real estate as they look for stable investments during uncertain times abroad. In 2013, Survey respondents expect to see an uptick in sales activity as property owners cull portfolios to take advantage of the low cap rate environment. And as investment capital continues its trend of matriculating beyond just apartments, cap rates are expected to compress across the entire asset class.”

According to the report, investors in the office sector are showing a greater acceptance for slower growth and less apprehension about moving further out on the risk spectrum. Although core trophy assets remain the preferred target of both domestic and international investors, aggressive pricing and improved fundamentals have resulted in certain investors looking to buy either core in strong secondary markets or less-than-core in primary markets.

In the fourth quarter of 2012, the average overall cap rate, the initial return anticipated on an acquisition and a reflection of an investment’s anticipated ownership risk, decreased in 24 of the surveyed markets, held steady in seven, and increased in just one of them. The overall cap rate shifts remain irregular with tech office markets (i.e. San Francisco) and the warehouse sector both showing some of the steepest declines. The national warehouse market’s cap rate compression, where the average overall cap rate declined 40 basis points, reflects the optimistic outlook held by most surveyed investors

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