"What the real estate industry needs is for corporations to hire employees and take down some of the phantom office space," says Peter F. Korpacz of PricewaterhouseCoopers during a presentation to ULI's Chicago chapter Thursday. Korpacz quickly adds jobs will mean more demand by users of industrial space, increased business travel that will benefit the hotel sector as well as more wage-earners who can afford renting from multifamily owners.
While real estate has outperformed other asset classes over the last three, five or 10 years, the pendulum may be swinging in another direction, Korpacz suggests. While 97% of those responding to the PricewaterhouseCoopers and ULI survey expect real estate to continue to outperform the bond market in 2004, 51% now think the stock market will edge out their industry as the better bet. Last year, only 23% thought so.
Despite capitalization rates reaching limbo-contest depths, the going rate now is at the historic NCREIF average of 7.97%, Korpacz notes. "We don't have an unusual drop in cap rates," he observes. However, the spread between capitalization rates and 10-year Treasuries is more than double the historic average of 210 basis points, Korpacz adds, which could serve as a brake against a sudden drop in values if interest rates rocket upward. "There's a real good cushion right now," he adds.
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