Magazine article American Banker

Despite General Real Estate Rebound, Outlook for Retail Properties Off

Magazine article American Banker

Despite General Real Estate Rebound, Outlook for Retail Properties Off

Article excerpt

Though rapid economic growth has propelled demand for all kinds of real estate, the prospects for some properties are radically different.

The multifamily sector is in solid shape, and the office market is full of opportunity.

But supply and demand are still out of balance in the retail sector, market experts said at the Mortgage Bankers Association's commercial real estate finance and multifamily conference here this week.

Industry leaders stressed that economic forces that have fueled real estate growth are bound to contract in the near term. Therefore, lenders should carefully examine the varying supply-demand dynamics across property types, they said.

"Over the last five years growth has been well dispersed around the U.S., and most markets have participated in the real estate recovery," said Tony Pierson, managing director of research for Cigna investment management, Hartford, Conn.

"Over the next five years it's going to be very difficult to replicate that growth," he said.

But there is still room for lenders to finance new construction, especially in the office market, said Jeanette Rice, vice president of research at Amresco Inc. of Dallas. She said she expects occupancy rates to rise 1.5% in the near term and rents to climb by 5% on office properties.

"It has been the most exciting story for the last two years and will continue to be for the next two," Ms. Rice said.

Demand for office space is spilling from the suburbs into downtown areas, she added. But Ms. Rice urged lenders to proceed with caution.

"Pent-up demand provides good opportunity now, and there is still room to play market recovery," Ms. Rice said. "The first round of office development will see good absorption, but the subsequent building may produce oversupply."

Retail properties, on the other hand, face what Mr. Pierson called a "different and difficult situation. …

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