With interest rates expected to remain at their current low levels, investors seeking to dispose of commercial real estate assets could be in store for another year of strong returns, according to Robert Bach, national director of market analysis for Grubb & Ellis.
This is a great time to sell properties because buyers will be able to achieve higher leverage than they will in 2005, Bach said.
Speaking to a group of Oklahoma City commercial real estate investors and property owners at Grubb & Ellis/Beffort Brooks Hogan's annual Forecast 2004 Breakfast, Bach predicted that there will continue to be strong amounts of capital chasing commercial property deals throughout the year. Even if interest rates do begin to climb, he noted the increase would be minimal at most and rates would remain relatively low enough to continue spurring investment activity.
Bach added that the recent volatility of the stock market has encouraged investors to take a second look at acquiring commercial real estate assets. He said that investors are discovering that commercial property assets add balance to portfolios due to their steady returns.
Direct ownership of commercial real estate has returned on average about 7.5 percent in 2003, and, over the last 10 years, the annual average has been about 10 percent, he pointed out.
With the national economy showing signs of improvement, Bach said growth in both the national and Oklahoma City commercial real estate markets may not be too far behind. The commercial real estate cycle has historically lagged behind the economic cycle.
The economy will have to show and sustain improvement for at least six months before we feel it in commercial real estate, said Bach.
In examining the national office market, Bach thinks the market has hit bottom and will experience improvement this year. He noted the market has hit bottom in the real estate cycle with overall vacancy currently peaking at 17.6 percent.
Bach indicated the national industrial market hit its peak of vacancy in the first quarter of 2003 at 10.1 percent. The market should see sustained improvement in 2004 with vacancy declining to around 9 percent by the end of the year.
The apartment market is pretty near the bottom of the cycle and that has to do with the affordability of housing and low mortgage rates over the past two years, said Bach.
Out of the four major property types, Bach noted that the retail sector remains the strongest and is at the top of its game. …