Despite the declining economy and investment environment, CCIM members report that investors continue to seek apartments, medical office buildings, land, and agricultural properties, according to CCIM Institute and Real Estate Research Corp.’s 3Q12 RERC/CCIM Investment Trends Quarterly. CCIMs also reported upticks in retail and office activity in isolated regions.
Despite a few bright spots, the overall commercial investment conditions rating, economic rating, and trasaction volume have declined at midyear, according to the report. The impending “fiscal cliff,” sputtering global economy, and declining consumer confidence are contributing to a weakening investment climate. “With easy money not so easy anymore, investors are rec¬ognizing that they need to lower their expectations once again,” said Kenneth P. Riggs Jr., CCIM, CRE, MAI, chief real estate economist for the CCIM Institute and chairman and president of Real Estate Research Corp. “As a result, most investments, including commercial real estate, are providing lower returns than in the recent past as risk increases.”
Commercial Real Estate Rated Highest Investment Alternative
Commercial real estate remains the highest rated investment alternative in the current climate due to its long-term stability and strong demand, according to CCIMs . Despite low returns on cash investments, cash was the only investment alternative that was rated higher during second quarter 2012 than the previous quarter.
Among the five major commercial property sectors, apartments received the highest investment conditions rating of 7.3 on a scale of 1 to 10, with 10 being highest, as well as the highest return-versus-risk rating among CCIMs who participated in the survey. Overall risk versus return and value versus price ratings declined in 2Q12. “Given the particularly slow economy in second quarter, the decrease of CCIM members’ value versus price ratings for each of the property types is not surprising, although the value of each sector is still slightly larger or equal to its price,” Riggs said.
Quarter-Over-Quarter Industrial Transaction Volume Jumps
Transaction volume in the industrial sector jumped more than 30 percent quarter over quarter, according to the report. The apartment and retail sectors also saw quatertly transaction volume increases as well. Despite the quarterly upticks, overall transaction volume for the office, retail, and hotel sectors dropped about 10 percent on a 12-month trailing basis. Industrial and apartment transactions increased about 5 percent on a 12-month trailing basis.
Among CCIM members, caution appears to be the overriding near-term strategy, Riggs said. “Many CCIM members reminded investors to limit their exposure and hang on to cash, while others, hopeful of gaining some clarity by the end of the year, continue to advise a wait-and-see approach.”
Read the entire 3Q12 RERC