Commercial Real Estate Ranks Highest Among Investment Alternatives

In 3Q11, commercial real estate ranked highest among investment alternatives, followed by cash, in CCIM Institute and Real Estate Research Corp.’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.

Multifamily continued to lead the industry in 3Q11 with CCIM members increasing their investment conditions rating for apartments from 2Q11. “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. As demonstrated by CCIM members’ ratings, the returns compared to the risk for office, industrial, retail, and hotels were declining or flat.”

On a 12-month trailing basis, total transaction volume for all commercial real estate sectors increased 3Q11. In addition, volume increased for each property type in each of the transaction volume categories.

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. “Commercial real estate’s saving grace is that it was not overbuilt when the recession began,” Riggs explained. “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.”