US - Institutional investors, including pension funds, remain optimistic about the US real estate market, where they see a large pipeline of deals across all sectors.
According to a report published by accountancy firm PwC, investors are aggressively pursuing deals as they continue to see signs the industry's overall fundamentals are stabilising and even improving in certain sectors and regions.
The survey shows rental rates remain below peak levels for most property types and regions, and investors surveyed believe those rental rates have stabilised.
Mitch Roschelle, partner US real estate at PwC, said: "Despite recent disappointing labour 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.
"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. The prospects of rent growth have driven much of the aggressive bidding by investors in certain top-performing markets."
He added: "In addition to improving fundamentals, the volatility of the stock market, weakening currencies and the low fixed income coupons have fuelled a rotation into hard assets such as precious metals, commodities and commercial real estate."
The survey also reveals that pension funds are seeking to invest in high-value commercial real estate assets.
Roschelle said: "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."
Contrary to the residential sector, which has experienced continued cap-rate compression over the last 18 months, the office sector was slow to rebound due to a sluggish labour market.
However, the survey shows that the commercial real estate industry's recovery depends on the health of the US economy. As employment has improved and business profits have risen, the sector has gained traction.
As a result, more investors are focused on acquiring office buildings, causing overall cap rates to decline - especially for core assets in top markets.
Over the next six months, the survey found that participants expect overall cap rates to hold steady or decline due to strong buyer interest, low interest rates and a positive economic outlook.
Roschelle added: "Moreover, there are a growing number of distressed assets that are trading as bank regulators put more pressure on lenders to deal with nonperforming loans - yet another sign the US commercial real estate industry is on the mend."