CHICAGO-After sluggishness overtook the general economy in the third quarter and well after the terrorist attacks on the US Sept. 11, average commercial property capitalization rate had dropped to 9.44%, according to a national study by the CCIM Institute and Landauer Realty, the lowest rate since 1995. Simply put, the stock market’s losses has resulted in commercial real estate’s gain in popularity, with an 18.75% increase in money invested in property during the second quarter.

The stock market’s performance, which has included a downward slide upon renewal of trading, should continue to make real estate a “safe haven” for investors, says Hugh F. Kelly, CRE, chief economist for Landauer Realty Group, Inc. and author of the report.

Kelly concedes the cap rate may bounce up to 10% in the second half of 2001. “There’s a reasonable probability of that because of uncertainty,” he tells But Kelly quickly points out that 9% to 10% cap rates equate to price-earnings ratios of 10 to 11 for equities, much lower than the overall market.

“You’re likely to see a mild rise in cap rates in the third quarter,” Kelly says. “There was a sense that capital appreciation was not going to be robust, so investors’ returns have to come from initial cash flows.”

However, institutional investors still have ample funds to invest, Kelly notes.

Office buildings continue to be the overwhelming favorite of investors, with 55% of investment dollars pouring into the sector, led by the $1.85-billion sale of Rockefeller Center in Manhattan. The median price for an office building sale was $32 million nationally, according to the report.

However, the terrorist attacks are likely to make institutional investors hold off on decisions along the hot “I-95 Corridor” from Boston to Washington, DC.

Meanwhile, sales under the $5-million mark accounted for 31.7% of the deals, even though their number dropped 25% from the first quarter.

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