X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

CHICAGO-Commercial real estate may be on the verge of entering a year of lower expectations as investors have started to “push the envelope” on asset prices and expected rates of return. That’s the latest view from Real Estate Research Corp.’s most recent survey of investors.

“For the most part, the high returns of yesteryear are no longer available, regardless of the type of investment,” says Real Estate Research Corp. chief executive officer Ken Riggs. “Investing in real estate is not without risk and the returns may be less than in years past, but at least investors can understand how real estate fundamentals relate to their investment.”

By two measures, real estate returns may be peaking, Riggs suggests.

“As of this writing, 10-year government bonds are near 3.8% while expected real estate yields cling towards 11.5%, resulting in a yield spread of 7.7 (percentage points)—the widest gap ever witnessed over the 20 years that RERC has tracked this relationship,” he explains.

Additionally, expected returns dropped for all property types in the third quarter, led by hotels, where investors’ expected capitalization rate of 13.6% is down 50 basis points from the previous quarter; and retail power centers, where expectations are down 40 basis points to 11.6%.

Nonetheless, a fire hose of capital continues chasing after the relative trickle of deals. A change depends on Wall Street, and Riggs expects that to occur in 2003.

“Until the stock market re-establishes a positive upward trend, probably some time next year, RERC looks for real estate to attract a disproportionate share of investment capital,” he says.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.