Survey of Investors Uncovers Optimism for CRE Recovery

There are a growing number of distressed commercial real estate assets trading as bank regulators put more pressure on lenders to deal with nonperforming loans, according to ""PricewaterhouseCoopers LLP"":http://www.pwc.com (PwC).

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This, the company says, is one of several signs that the U.S. commercial real estate (CRE) industry is on the mend.

Despite a skittish U.S. economy, most commercial real estate investors remain upbeat and cautiously optimistic about the industry's future, with very few being dissuaded from acquiring assets and seeking opportunities across all commercial real estate sectors, according to PwC.

In fact, the company's second-quarter ""PwC Real Estate Investor Survey"":http://www.pwc.com/us/realestatesurvey found that many investors are aggressively pursuing deals as they continue to see signs the industry's overall fundamentals are stabilizing.

""The trajectory of the commercial real estate industry's recovery is largely dependent on the health of the U.S. economy. The ability of the economy to add jobs instills optimism in both businesses and consumers,"" said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC.

""Despite recent disappointing labor reports and falling home prices, commercial real estate investors continue to look to the positive aspects of the industry as they remain cautiously optimistic that the recovery path will continue,"" Roschelle said.

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He notes that the significant lack of new supply over the past several years serves as the catalyst of the ongoing recovery. As tenant demand continues to grow, positive absorption has begun to drive rents up, which has incited much of the aggressive bidding by investors in top-performing markets, Roschelle explained.

According to PwC, most institutional investors, particularly pension funds, are targeting top-performing assets in strong markets with some surveyed participants indicating that they're concentrating on opportunistic plays.

Susan Smith, editor-in-chief of PwC's quarterly survey, points out, however, that surveyed investors are treading carefully because they realize troubles could arise if interest rates rapidly increase and they are keenly aware that a large pool of commercial maturities peaks over the next two years.

""If those factors play out, overall cap rates would likely rise and negatively impact property values,"" Smith said. ""Luckily, though, most of the participants have told us that they maintain an optimistic outlook for now, even if cautiously so.""

The PwC Real Estate Barometer that's included within the survey tracks the anticipated performance of the four main property sectors.

Most of the U.S. office stock is expected to be in recovery by year-end 2011. The bulk of the retail sector, on the other hand, will be in recession through the end of 2012, according to investors.

The industrial market has been helped by improvements in manufacturing, capital goods shipments, and business and consumer spending. The portion of industrial stock in recovery is expected to surge over the next 15 months.

PwC's survey shows that the best-performing sector in the industry is the multifamily market, which is already dominated by the recovery phase of the cycle. In fact, not one of the 81 multifamily metro areas covered in the study is projected to be in recession over the next four years.