Investors Weigh In on Outlook for 2012

U.S. investors should prepare for commercial real estate’s sluggish growth rate to continue in 2012, according to the 33rd annual Emerging Trends in Real Estate® 2012, a joint report from PricewaterhouseCoopers and the Urban Land Institute that surveys 950 commercial real estate industry executives.

Prevailing economic woes and a lack of employment opportunities are key factors impacting real estate market growth. “The hard reality is businesses have learned they can increase profits with less space,” according to the report. While the dour U.S. employment outlook is preventing occupancy increases in the office market, the related sluggishness in consumer spending is hampering retail and industrial occupancies and rents. “Job creation is clearly the critical ingredient for a sustained recovery in commercial real estate and the market participants we surveyed uniformly struggled to identify new employment engines,” said Mitch Roschelle, a partner in PWC’s U.S. real estate advisory practice.

While next year will see an increased supply of for-sale properties, buyer interest may diminish due to economic uncertainties, survey respondents said.“In 2012, investors expect pricing to level off in the top markets and overall buy sentiment will subside, selling appetites will increase, and more owners will hold until the economy untracks. This is part of the new normal as investors are coming to grips that they may not be selling for more than they paid,” Roschelle noted.

Key sentiments for 2012 among the survey participants include:

  • Investors should concentrate on the few markets that are showing hiring and leasing gains.
  • Top assets in 24-hour gateway cities dependably outperform because they lie on important global commercial routes and attract money from all over the world.
  • Employment upticks are most likely in gateways and markets that rely on energy, high-tech, and healthcare-related industries, as well as universities and government offices.
  • Look for value-add opportunities in class B properties in good infill markets that have been overlooked in recent years.
  • Property owners should lock in long-term fixed-rate financing on assets while rates remain attractive.