Commercial Real Estate Ranks as Highest Investment Alternative in 3Q11
Multifamily continues to lead recovery according to new CCIM Institute and RERC data.
In 3Q11, commercial real estate ranked highest among investment alternatives, followed by cash, in CCIM Institute and ’s 4Q11 RERC/CCIM Investment Trends Quarterly. “Despite the investment losses taken with commercial real estate during the past few years, it is still a relatively stable investment compared to the volatility of the stock market and the potential is there for reasonable returns,” said Ken Riggs, CCIM, CRE, MAI, chief real estate economist of the CCIM Institute and chairman and president of Real Estate Research Corp. “Unlike other investment alternatives, there is a transparency associated with commercial real estate that gives us some sense of security about our investment — we can actually see the tenants use the buildings and get a better sense of the actual value and risk with our investment.”
Multifamily continued to lead the industry in 3Q11 with CCIM members increasing their investment conditions rating for the apartment sector to 7.2 on a scale of 1 to 10, with 10 being high. “The apartment sector is still strong. The positive returns on this property type compared to the risk are likely to continue for the near term,” Riggs added. “However, we are seeing increasing pressure on some of the other property types. And, as demonstrated by CCIM members’ ratings, the returns compared to the risk for all the other property sectors are flat or declining.”
On a 12-month trailing basis, total transaction volume for all sectors increased during 3Q11. In addition, volume increased for each property type in each of the transaction volume categories. On a quarterly basis, total transaction volume for the office, industrial, apartment, and hotel sectors also increased during 3Q11.Total transaction volume, as well as volume for each of the transaction volume categories, declined significantly for the retail sector from 2Q11.
The 12-month trailing overall size-weighted average price per square foot increased for the office and retail sectors and the overall size-weighted average price per square foot/unit for the office, apartment, and retail sectors also rose in 3Q11. “Commercial real estate’s saving grace is that it was not overbuilt when the recession began,” Riggs explains. “As a result, property fundamentals continue to improve — vacancy rates are declining and rents are increasing slightly. This is what needs to continue for property prices to inch up.”
Read the entire 4Q11 RERC/CCIM Investment Trends Quarterly report.