Retail, Apartment Sectors See Upturn in Prices

Despite negative reports regarding commercial real estate, this down market may be a window of opportunity for investors. According to the ""CCIM Institute"":http://www.ccim.com/ and the ""Real Estate Research Corporation"":http://research.rerc.com/ (RERC), commercial real estate is positioning itself to be an attractive investment on a risk-adjusted basis in 2010 and 2011.

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Property prices in the retail and apartment sectors showed moderate increases in the fourth quarter of 2009, breaking the string of significant price declines during the previous 12 months. In addition, CCIM and RERC said weighted average capitalization rates for the office, industrial, retail, and apartment sectors increased by 20 to 30 basis points in the fourth quarter.

""The latter part of 2008 and all of 2009 were definitely the shock years, and we're looking to 2010 as the recovery year,"" said Richard Juge, the 2010 president of the CCIM Institute. ""We will see more activity, perhaps not in gross dollar levels, but in the volume of deals that close in 2010. This is the time to buy.""

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In contrast to the cap rate compression era several years ago, cap rates are now expanding to provide a more attractive income component to the investment. This, Juge explained, is part of the market re-pricing of risk.

The RERC/CCIM Investment Trends Quarterly Report showed that 12-month trailing transaction volume increased slightly in the apartment and retail sectors, hinting that volume may be starting to bottom out for these property types. While transaction volume for the office and industrial sectors continued to decline in the fourth quarter, it did so at a much slower rate than in the previous three quarters, the groups said.

""We keep searching for a bottom on prices, but it is an uneven landscape depending on the property type and investor willingness to mark-to-market their properties,"" said Kenneth Riggs, president of CCIM and CEO of RERC. ""But we are seeing a more consistent environment where there is the beginning of a ground swell to sell assets for either strategic reasons or the asset is being sold under a distressed sale scenario. It is all about taking your medicine to get an asset price that will trade in this environment.""

As the last decade has been difficult for so many, riddled with euphoric highs that closed out with below-the-basement prices, Riggs said he is glad to see the shift occurring. This, he explained, is the first step toward recovery. The market is ready to move on and prepare for the next phase, which is capital moving in to buy attractively-priced, quality commercial real estate assets, Riggs said.