APRIL ISSUE: Attractive Investment

While certain cities have attracted real estate capital, though, others still have not recovered from the 2007 crash.
INVEST3

Investment in commercial real estate generally remains an attractive opportunity, with modest and relatively safe expected returns compared to many alternatives. Last year’s gains in the stock market and an increase in home prices—on top of the significant increase in global wealth over the past decade—have resulted in an abundant amount of capital available for investment. While certain cities have attracted real estate capital, though, others still have not recovered from the 2007 crash.

CRE Market Picks Up Steam: The U.S. CRE market continued to gain momentum in 2013, with fundamentals improving across all property types. From a cyclical standpoint, most property types are finally either in recovery or expansion mode, led by full-service and limited-service hotels, industrial warehouses and regional malls. According to the Urban Land Institute and PricewaterhouseCoopers’ Emerging Trends in Real Estate report, the industrial and distribution sector is expected to lead the way for investment prospects over the coming year. Hotels—which came in a solid second—continue to thrive from strong business travel and tourism, as well as a relative lack of new supply. Conversely, a significant pipeline of new units is creating a situation of oversupply in the apartment sector. Assuming job growth continues, activity in both the retail and office sectors is expected to keep strengthening.

Supply Drives Demand in Prime Locations: Global wealth increased 68 percent over the last decade to reach an all-time high of $241 trillion in September 2013, adding liquidity to the investment market, according to an annual survey conducted by Credit Suisse Group. In 2013, stocks soared and many less risk-averse investors were rewarded with strong returns. Many investors, believing CRE is less risky than stocks, sought it out as an alternative. The subsequent volume of liquidity in the market has created a CRE environment with an abundance of money chasing limited desirable supply, driving up prices in coveted areas.

Read the full article in the April 2014 issue of CPE. Access is free!