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
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
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
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. …