US - North American real estate markets are expected to offer high-risk investors "highly attractive" opportunities in 2009, suggests research from RREEF Alternative Investments.
Further distressed sales and the substantial repricing of core commercial properties provide good opportunities for long-term equity investors, argued Deutsche Bank's property arm in a report entitled 2009 US Real Estate Investment Outlook and Market Perspective, adding those who act quickly before an economic and property market recovery stand the chance of achieving good long-term returns.
The report warned investors should be selective and focus on trustworthy metropolitan markets with the least downside risk and most long-term potential, as it predicted the economy and real estate fundamentals will deteriorate further.
Top of the list is Washington DC, followed by Boston, Seattle and San Francisco, all of which are expected to see fewer jobs losses than riskier cities like New York, Miami, Los Angeles and Denver.
The report said investors investing in the mid-term should consider apartments, especially in markets with limited supply, as favourable demographic trends and the forecasted recovery of employment in three to five years are expected to make it the best performing property sector in the future.
Opportunities in real estate investment trusts (REITs) are also expected to open up in the next 18 months as their values have corrected faster than the direct property market.
That said, RREEF has urged investors interested in investing in the near term to avoid office or retail acquisitions, as these are the most problematic sectors and are expected to see a decline in demand for space.
The industrial property sector is expected to be slightly more resilient, but will see rents decline further and vacancy rates rise. Southern California and Florida are expected to be the most volatile areas.
Developments and value-added or opportunistic real estate should be treated carefully this year, as they are expected to suffer devaluations the most.
The report claimed there could be attractive risk-adjusted returns in investment grade commercial mortgage-backed securities (CMBS) but warned investors should be cautious of deals with vintage or underlying loans within the collateral pool.
RREEF said it believed commercial real estate is being shifted from its recent role as a liquid, appreciative asset back to its historical role as an income-producing investment.
Equity buyers using leverage of 60% or under are likely to be the main source of capital for the market in the next two years, it claimed.
The NCREIF property index (NPI) is also forecast to deliver a negative total return of 9-11% during 2009.
However, RREEF is predicting an economic and property market recovery will only begin in late 2010 or 2011, at which point demand for real estate market will resume and rents will stabilise and begin to rise.
RREEF had €53.3bn in assets under management at the end of 2008.
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