GLOBAL - The residential sector continues to lead the real estate recovery in the US, with capital values up 12.3% since the start of the year, according to Investment Property Databank (IPD).
Commercial property values have risen just over half this amount in 2010, at 6.5%, according to the latest IPD US Quarterly Property index, although the recovery started later than it did in residential.
Commercial capital appreciation only returned to positive territory in the second quarter of 2010, when it was recorded at 2.1%.
It gained momentum in the third quarter, rising to 5.5% between July and September, but still lags behind the residential market, which saw capital appreciation of 4.6% in the second quarter and 6.9% in the third.
European pension funds have identified the multi-family residential sector as the best destination for their capital when making new allocations to the US.
Simon Fairchild, managing director at IPD North America, said: "Returning capital to the apartment sector is attracted by the favourable demographics in the multi-family housing market as home-ownership has been falling in favour of rented-occupancy."
The company attributed the rebound in prices across the market as a whole to cap rate (or yield) compression, which fell by 60 basis points to 6.5% at the end of the third quarter.
Retail and office cap rates contracted by 40bps and 30bps, respectively, to 6.5% and 6.9%, while the industrial sector saw a cap rate compression of 7%, although the latter actually saw the shallowest rebound in prices.
IPD said this was driven by investors targeting prime assets almost exclusively, mirroring the experience of the UK approximately nine months ago.
"The rebound in US real estate markets reflects the continued flight to quality as investors move toward core assets, where prices continue to rise despite the fragile broader economy," Fairchild said.
"Capital is returning to the market, and assets are beginning to trade as new lending is increasingly available."
The correlation of US and the UK capital growth confirms the theory the UK can be used as a forward-looking indicator for the future capital growth trends of the US, IPD concluded.
That said, the recovery in the US has not been as strong as what is seen in the UK, which saw capital growth of 9.8% in the first six months of its recovery.
Fairchild added: "While there are similarities between the two markets in terms of the way capital values have changed, the decline in the US was not as steep - 33.6% compared with 42.4% - which may suggest the recovery will also be slower."
IPD's US index measures $80.9bn (€59.3bn) worth of properties, predominantly held in core open-ended funds.