US commercial real estate slowing, but remains healthy, says PREA
GLOBAL - The US commercial real estate industry is expected to slow down in the coming quarters, though the industry outlook remains healthy, according to a latest survey of industry forecasts by the Pension Real Estate Investment Association (PREA).
PREA asked 20 of the leading US real estate industry actors for their forecasts for the commercial real estate industry as represented by the NCREIF Property index (NPI), the common benchmark for commercial real estate industry in the US.
The industry growth rate, after surging by 7.4% in the first half of this year, is expected to slow to 4.1% in the second half, based on the full-year forecast of 11.8%, PREA said.
Investors also believe returns in the sector will decelerate further in 2012-13 due to the uncertain state of the economy.
PREA, however, said this trend needed to be put into proper perspective, as the projected figures do not look bad when seen against the historical norm, though they pale in comparison to the strong first-half figures.
The long-term average return of the NPI is 9%, which actually put the projected growth in 2011-12 in line with historical norms, PREA said. In addition, the forecast return for the next five years is above the long-term average.
Though the growth rate is expected to decelerate in the second half, it is a "deceleration back to a healthy normal" from the fast pace of growth of recent quarters.
The forecast for all segments of the commercial real estate industry in 2011 remains strong, and the strength of the market "continues to surprise forecasters", PREA said.
The average forecast for 2011 rose by 120 basis points from last quarter's survey.
Meanwhile, the forecast returns for office, apartment and industrial all rose significantly from last quarter's survey, though retail's forecast for 2011 declined by 10bps to 11.1%, the survey showed.
PREA said: "The forecasts in the survey were being produced at a time of increased capital market volatility and economic uncertainty. The US economy has underperformed, with very slow GDP growth in Q1 and Q2 and no net new jobs added in August."
In terms of sector, apartment is expected to lead the pack for full-year 2011. However, industrial - traditionally seen as a laggard among the property types - is seen as outperforming the others in 2011.
The expected weakness in 2012 applies to both the index and all other property types except apartment.