US commercial real estate ‘set for 2007 decline’

REAL ESTATE - The peaking US real estate cycle will start declining from 2007, forcing investors to rethink, according to a study by research group the Urban Land Institute and PricewaterhouseCoopers.

The new trend will see investors turning to asset management and operating performance to raise returns, as investment inflows will slow due to lower return expectations, the study says.

The annual report, entitled Emerging Trends in Real Estate 2007, suggests that commercial real-estate, which has exhibited some signs of a bubble in recent years, will start to make a return from its asset class status of the past decade, to become income-producing investment again.

Surveying over 600 developers, investors, brokers, consultants and lenders this summer, the study also showed that the easy lending of the past will tighten from next year onwards, partly due to worries about the economy.

Nonetheless, those surveyed expected commercial real-estate’s cash flow will keep growing, due to for instance reduced vacancies and higher rents, which keep improving across most property types.