Survey Conveys CRE Prices are at Fair Value
While there has been little change in mood among occupiers over the third quarter, investor sentiment is less negative than before.
Real estate investors are starting to feel a little bit better about things.
While there has been little change in mood among occupiers over the third quarter, investor sentiment is slightly less negative than the previous quarter, according to the RICS’ Global Commercial Property Monitor, a quarterly guide to the trends in the commercial property investment and occupier markets.
Sentiment among both occupiers and investors has improved since record lows in the second quarter.
The picture varies among different segments of CRE. Occupier demand for office and retail space are at record lows. At the same time, the appetite for logistics sites continues to grow, as do the rent expectations for better-located properties, according to the Monitor.
Over the next 12 months, US respondents expect to see rental growth of around 4% for prime logistics and industrial space and a 2% rent increase for secondary sites. The other asset classes covered in the Monitor are likely to face rent declines. Those include secondary retail (-14%) and hotels (-13%) at the bottom of the pile.
Mark Fogel, CEO of ACRES Capital and the president and CEO at Exantas Capital Corp., believes investments in these hard-hit sectors could make sense at the right price.
“Every time you think something is dead and every time you think that a sector doesn’t work anymore, somebody comes up with a great idea and creates value,” Fogel told GlobeSt.com in an earlier interview. “I know that there are really good real estate people out there that know what they’re doing, and those are the people I’m going to back on the lending side.”
Roughly half the respondents to the Monitor are starting to see “fair value” in pricing, according to RICS. Still, between one-third and two-fifths perceive real estate to be expensive. Alongside this, roughly two-thirds of contributors in the US and Canada believe the market is in the early to mid-phase of a downturn.
Others believe values are yet to hit bottom. Moody’s Analytics REIS predicts that a rise in cap rates will prompt a decline in value ranging anywhere from 7% to 9% in multifamily and industrial to 20% or more for office, retail and hotel.
The Moody’s Analytics Commercial Property Price Index projects similar declines. From peak to trough, values are expected to fall 10.6% for multifamily, 23.2% for office, 31.6% for retail and 9.7% for industrial.
Outside of logistics, new inquiries into real investments remain very subdued, according to RICS. There is generally little interest in office and retail, except for some opportunistic buyers.