UNITED STATES - ING Clarion is expecting to invest $5bn (€3.44bn) in real estate in the United States and Mexico in 2008 - equal to its accomplishments in 2007 despite the recent market downturn.

In a discussion about the outlook for the US economy in 2008, David Lynn, head of US research and strategy for ING Clarion, said the real estate manager - which works for many of the US' largest pensions funds - is already on target to reach the $5bn figure..

"Even though we are only about one and a half months into the year, things are looking good. Just this week, we had five deals come through our investment commitment for possible investment," he said.

Overall, Lynn still thinks the commercial real estate market fundamentals are looking good. "We are not seeing on a nationwide basis any major vacancy issues. One of the main reasons for this is that we haven't had any significant over building in the past few years."

The housing slump and the changes in the debt markets have impacted the market and there is now an existing supply of housing units of 400,000 to 500,000 units nationwide, so it is anticipated it will take one to two years for these to be reabsorbed by the markets.

Some of the areas around the country to be most affected by what is now seen as excess residential property are Florida, Arizona and San Diego, Inland Empire and Central Valley areas of California.

But changes in the debt market have taken out the leveraged buyers who were using 80-90% leverage to buy properties and one of the effects of this is cap rates have started to inch up on the core property types.

"We think that cap rates on apartments will be moving up by 50 basis points, while for industrial, office, and retail it will be 25-50 basis points," said Lynn.

That said, the ‘24/7' cities with supply constraints will continue to see most demand from investors, including places like New York, Boston, San Francisco and Los Angeles.  Second and third tier cities will get less interest from buyers.

Topics