Transaction volume for properties valued over $5 million increased among all commercial real estate sectors, with retail and hotel transactions nearly doubling the previous quarter, according to CCIM Institute and Real Estate Research Corp.’s 3Q11 RERC/CCIM Investment Trends Quarterly. Deal volume also increased among all property types for transactions valued between $5 million and $2 million and closings under $2 million.
Investors continue to view commercial real estate as the highest-rated investment alternative, according to the report, which aggregates CCIM members’ transactions and investment conditions sentiment with current property market data. The next highest-rated investment alternative is cash, indicating that investors are focused on the safety of their investments overall and find commercial real estate and cash most attractive for that purpose, explains Kenneth P. Riggs Jr., CCIM, chief real estate economist of CCIM Institute and president of Real Estate Research Corp.
“With volatility in the U.S. stock markets, volatility in European economies, and lack of confidence in the political climate and capability in Washington, D.C., investors are looking for safety and stability wherever they can find it,” Riggs says. “Although there is plenty in the commercial real estate market to worry about, especially in markets hard hit by high unemployment, real estate is tangible and transparent — it is real, and it is something you can actually see.”
CCIM members who were surveyed rated apartments as the most stable investment during 2Q11, followed by industrial properties. Investors are also looking for safety in their property holdings, says Riggs, adding that apartments provide security due to the depressed single-family home market, pent-up demand from first-time renters, and restrained new supply.
The search for safety is further demonstrated by CCIM members’ return vs. risk ratings, with the apartment sector achieving the highest rating of 6.7 (on a scale of 1 to 10, with 10 being highest), indicating members’ views that this sector offers higher return levels compared to investment risk levels. Industrial ranked second with a return vs. risk rating of 5.1.
The outlook for commercial real estate continues to hinge on the broader economy’s performance. “The commercial real estate market has been improving in the coastal areas, and we were starting to see some improvement in secondary and tertiary markets. The big concern now is whether the recovery will be delayed due to the recent economic downturn,” Riggs concludes.