UNITED STATES – Real estate investors are now turning their attention to returns as cap rates on real estate investments in the United States were unaffected through the second quarter despite earlier volatility in the debt markets, suggests Pramerica’s latest US Quarterly market perspective report.
Pramerica is predicting cap rates will move up a fraction as some leveraged buyers may have been taken out of the market with the recent change in the debt markets.
These latest predictions were made prior to volatility in the credit markets of the last week but Philip Conner, principal in the research department for Pramerica believes the market is unlikely to be heavily hit by credit volatility.
"There is no indication from out data that cap rates have changed and there is still plenty of capital in the marketplace going after real estate," said Conner.
The prediction is returns on core real estate will still be kept at historical low levels, as seen one of Pramerica’s investments - a three million s.f. (0.278709m2) industrial portfolio being sold in the Inland Empire West submarket of Los Angeles at a cap rate in the mid 4% range.
That said, Pramerica is said to be keeping an eye on investments in apartments, as Conner noted should trends continue, demand for residential property investments could be hit.
"Vacancy rates for apartments have increased slightly from last year. This is a little surprising, given some of the problems that are going on in the single family market currently. So we will be watching this in the future," continued Conner.
Transaction volume is up industry wide in the United States, with most capital flowing to the East and West Coasts of Southern California and Florida where there is a great deal of job and population growth occurring.
"Transaction volume for the whole industry in the United States should be at around $400bn (€289.7bn) by the end of the third quarter. This is more than was done all of last year," added Conner.