PwC: Investor Interest in Offices, Apartments to Gain Steam Next Year

Investor interest in the office market will gain some steam in 2012, as per results of the PricewaterhouseCoopers' Real Estate Investor Survey, and the apartment sector will continue to attract a great deal of attention -- as well as development dollars.

December 27, 2011
By Barbra Murray, Contributing Editor

Investor interest in the office market will gain some steam in 2012, as per results of the PricewaterhouseCoopers L.L.P.’s Real Estate Investor Survey, and the apartment sector will continue to attract a great deal of attention — as well as development dollars.

Strongly dependent on the jobs market, the office sector has not yet regained its luster, but high hopes for tenant retention and rent growth are keeping buyers interested. As rents increase, office occupants frequently prefer to negotiate more favorable deals with their landlord than to go on the hunt for new space that will likely come with a higher price tag.

Higher rents and the prospect of maintaining high occupancies have investors searching for opportunities across the country, but markets with a strong technology or energy presence are at the top of the list. Survey respondents site San Francisco, New York and the Pacific Northwest as the areas that are expected to experience a notable growth in rent. However, usual favorites like markets flush with government offices are falling out of favor somewhat, as government cutbacks cause some investors to ponder any sudden moves.

The apartment sector was a favorite among investors in 2011, and the sentiment will likely continue into 2012, as per results of the survey. Buoyed by residents’ growing preference for renting instead of selling, the occupancy levels for apartments has been on a steady incline. “Surveyed investors continue to view the apartment sector as an attractive play in delivering steady cash flows driven by solid rental demand and rising rents,” Susan Smith, editor-in-chief of PwC’s quarterly survey, noted. “As a result, investors view this sector as a hotbed for further investment activity.”

And that that eagerness to invest in the apartment sector extends beyond acquisitions and into construction. The sector’s strong fundamentals will spur development activity, aided by a lenders’ willingness to make construction loans and low interest rates.

Whether its office or apartments, commercial real estate is still considered a preferable place for investors to put their money, the PwC survey finds. “Despite a sluggish U.S. economic outlook, the majority of surveyed investors view commercial real estate as favorably priced and a good play,” said Mitch Roschelle, partner, U.S. real estate advisory practice leader with PwC. “The bullishness on the part of investors in the office sector comes as more office tenants are staying put and prospects for rent growth are improving. Looking ahead to 2012, our report suggests that investing in U.S. commercial real estate is an attractive play and will gain increasing global attention due to its hard asset nature and current income-producing characteristic, along with its total return potential.”