UNITED STATES - Economic and industry fundamentals are still in place to support continued strength in the United States commercial real estate markets in 2007 but returns will be moderate and cap rates will ease, according to ING Clarion.
In a US-focused research report entitled "Real Estate Investment: A Private Party", ING Clarion Partners says the real estate sector is still performing well because money is continuing to flow into the US market, and is likely to help the funding of new projects.
More specifically, David Lynn, head of US research and strategy for ING Clarion, suggests there is no sign of overcapacity despite the number of new build projects emerging.
"There still is a lot of capital coming into the US market. This will keep the pricing and cap rates pretty much where there are now. This would even be the case if lenders start to require more equity for deals and drive out some of the high leverage buyers."
A part of this capital is now just starting to fund new construction activity, and most of these assets are heading for four main property types: office, industrial, retail and apartments.
"We are probably two to three years away from restoring a normal balance of supply and demand," added Lynn.
More interestingly, ING Clarion has added a section for Mexico to the research report for the first time as there are now many institutional investors and managers that are looking to invest capital in this part of the world.
"This is happening as Mexico has more disposable income and there is a cross boarder flow of people and information," suggested Lynn.
The report notes housing is expected to be the fastest growing property type in Mexico over the next several years because, it suggests, there is a current lack of supply, along with favourable demographic trends, a rising middle class, an increase in the availability of mortgage financing and second-home demand from retiring US baby boomers.
ING Clarion argues coastal markets are expected to outperform other parts of the country. The main reason for this is the support coastal cities are getting in on both job creation and business investment.
However, Mexico’s office markets should be viewed with caution, because of high vacancy rates, the firm noted.
This report by ING Clarion also states there will continue to be more public to private real estate deals as around 80% of the recent privatisation volume has been with companies that own office buildings and hotels.
This is the fifth such annual survey conducted by Clarion Partners, produced by contacting 360 real estate-related companies such as brokerage firms, capital providers, developers and lenders.
At the same time as unveiling its latest real estate study findings, ING Real Estate Investment Management has also announced the acquisition of the €50m Marques Avenue Romans factory outlet centre, near Lyon, France.
According to ING, the complex comprises two fully-let units – totalling 11,850 m2 – and houses 66 brands. The scheme has 467 parking spaces. The units have been purchased from ‘an Anglo-Saxon fund’ and from Concept & Romans respectively, it added.