After three years of dislocation and unprecedented loss, commercial real estate industry investors and professionals hint at hopeful signs of tempered commercial real estate market improvements, according to respondents of the Emerging Trends in Real Estate® 2011 report, released today by PwC US and the Urban Land Institute (ULI).
Survey respondents indicate a lowering of performance expectations, anticipating high single digit returns for core properties and mid-teen returns for higher risk investments. Without ample leverage and attendant risk, real estate assets cannot sustain higher performance, according to survey respondents. The survey finds that lenders with strengthening balance sheets finally step up foreclosure activity and dispositions of properties during 2011 and 2012, helping values reset 30-40% below 2007 peaks.
“The market is predicting extreme bifurcation as the capital flight to quality creates a greater separation between the trophy and less desirable assets,” said Mitch Roschelle, partner, US real estate advisory practice leader, PwC. “Well-located and well-tenanted properties that can generative strong cash flow over the next several years are exactly what buyers and lenders want, according to survey respondents. As a result, prime apartments and office buildings in gateway cities are generating the most attention from the increasing pent-up sidelined capital.”