The coming year should bode well for the commercial real estate industry, according to a recent report by the Real Estate Research Corporation (RERC). These findings confirm much of the information projected here on GRS Group’s blog.
Among the findings in RERC’s quarterly report are that: “commercial real estate values have recovered about 25 percent from the bottom of the crash several years ago,” according to Ken Riggs, the research firm’s president and chief executive officer. Within another year, the recovery is supposed to reach 30 percent, the report reveals.
Average core CRE assets are projected to supply 8.5 percent unleveraged returns, while properties outside the core can range from 8.5 to 10 percent. It also states that capitalization rates were at 5.1 percent in the apartment sector and 5.7 percent for central business district office assets.
Though these cap rates are new lows for both sectors, and the overall commercial real estate industry is experiencing rates similar to before the recession, Riggs pointed out that 10-year Treasury yields are lower than in 2008, which serves as a “cushion” for falling cap rates.
The report also found that there is more money out there than there are good deals to transact, according to a GlobeSt.com article on the RERC report. On a scale of one to 10 with 10 being the highest, the availability of capital for deals is at 8.2, while the discipline of capital was lowered to 6.2. Availability of capital has not ranked this high since the second quarter of 2007, while underwriting criteria hasn’t been deemed this low since 2011’s second quarter. Despite that, due in part to expected continued low Treasury yields, an uptick in commercial real estate returns is still presumed, the article says.
In general, these findings are in line with the views of GRS Group professionals. On the heels of RECon, Allen Brown, national accounts manager and Arizona operations manager at GRS | Title pointed to the strength of the retail real estate industry. Suzette Hinds, a GRS | Title director, has stressed the formidable performance of REITs.
What are your views on the commercial real estate industry? Do you see strong returns in the near future as well or are is overheating starting to take place?