US - Real estate investors are getting bolder as the US economy continues its slow recovery, gravitating towards industrial and warehouse properties and broadening their office outlook, according to the PwC Real Estate Investor Survey for the first quarter.

The industrial sector is benefiting from supply constraints just as economic demand is picking up, according to PwC.

It said less than 50m square feet of space was added during 2010 and 2011 compared with the more than 200m square feet that was added in 2007 and 2008.

Tenant-retention rates are also improving, noted Mitch Roschelle, a partner and US real estate advisory practice leader at PwC.

While industrial properties are relatively inexpensive to build, especially compared with CBD office, "people overlook what goes on inside the box", much of which is financed by the tenant, Roschelle said.

He cited light manufacturing plant, refrigeration and high-tech R&D set-ups as examples of costly adaptations paid for by tenants, which encourage tenancy length. 

"It's not as sexy of an asset class, but, on a risk-adjusted basis, compared with Treasuries, it's looking pretty good," he said.

Investors are focusing on industrial in areas with healthy high-tech and energy sectors, such as Austin, Texas and the Silicon Valley, and on warehouse in areas with international port access.

The survey also highlighted other asset classes that were again attracting investor interest.

Office properties in secondary markets are appealing to investors that want to break out of the herd mentality that has been keeping the focus on gateway cities since the downturn.

In response, the survey has begun collecting data on office properties in 20 secondary US cities.

Overall cap rates for this market averaged 8.1%, though there was a distinct disparity between CBD markets (7.7%) and suburban markets (8.4%) in this sector.

"We are bullish on the office sector," said Roschelle, "and every month that goes by it looks better to invest in a secondary city if you have the right property" with the right tenants, such as the regional office of a Fortune 50 company.

There are indications in the survey that suburban office may also see a resurgence in investor interest.

Roschelle noted that rising gas prices were contributing to employee dissatisfaction with long commutes.

Companies that consolidated in urban centres got out of the suburbs at the expense of "driving their employees crazy".

"We may see some gravitation back to the suburbs by some companies," Roschelle predicted.

The survey also notes that certain surveyed investors are becoming "more aggressive" with the market rent growth rate assumptions used in cash flow analyses.

The average initial-year market rent change increased by 27 basis points this quarter, reaching 1.5%, achieving an average that is 400bps higher than two years ago, PwC said.

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