CHICAGO – Dec. 10, 2012 – Investment conditions have improved modestly across all property sectors, while property values remain flat and transaction volumes have decreased, according to the CCIM Institute’s third-quarter survey of CCIM members conducted by Real Estate Research Corp. (RERC). The CCIM designation stands for Certified Commercial Investment Member.

Slow economic growth, high unemployment and anticipated federal tax increases are factors that continue to negatively impact the commercial investment environment, based on the CCIM Institute report. The climate remains challenging for commercial real estate investors, who struggle to find viable opportunities in a slow-growth environment. A small silver lining – commercial real estate remains a reasonable and sturdy investment choice for investors seeking realistic returns and minimal volatility, according to CCIM members.

“Returns on investment income from commercial real estate can still be achieved over time for those with patience,” said Kenneth P. Riggs Jr., chief real estate economist for the CCIM Institute, and chairman and president of Real Estate Research Corp. “There are plenty of investors seeking to avoid the volatility of the stock market, and who require higher yields than those offered by bonds and cash investments. Commercial real estate is a good alternative for such investors, particularly those who are looking for income in a slow economy.”

Investment conditions improve
Investment condition ratings for all property types – office, industrial, retail, apartments and hotel – improved during third-quarter 2012, with the apartment sector receiving the highest score at 7.6 (on a scale of 1 to 10, with 10 being highest.) The hotel and industrial sectors’ ratings rose to 5.9 and 5.6, respectively, followed by the 5.4 rating for the retail sector. The office sector investment rating rose to 4.8.

CCIM members said that the best investment strategies in this environment include buying low, keeping cash on hand for future opportunities and investing in foreclosed or distressed properties. Members also suggest looking long-term and advise patience when investing.

Return vs. risk and value vs. price ratings rise
CCIM members raised the return-versus-risk ratings and value-versus-price ratings for all property types and for commercial real estate overall during third-quarter 2012.

Specifically, the overall return-versus-risk rating for commercial real estate increased to 5.5 during third-quarter 2012, according to CCIM members. Likewise, the return-versus-risk ratings for all of the property types increased. At 7.2, the apartment sector earned the highest rating. The industrial sector rating, at 5.7, pulled away from the hotel sector rating of 5.6. The rating for the retail sector increased to 5.3, while the office sector rating remained the lowest, at 4.9, during third quarter.

CCIM members noted that the value-versus-price for commercial real estate increased during third-quarter 2012, with the overall value-versus-price rating increasing to 5.6. Although the overall value of commercial real estate improved only slightly, the value-versus-price ratings also increased for every property sector. The industrial sector rating increased to 5.6, and retained the highest rating among the property sectors. Similarly, while the retail sector’s rating rose to 5.3, the ratings for the office and apartment sectors each increased to 5.2. At 5.1, the hotel sector rating also increased, although the rating remained the lowest compared to the other property types.

Property values remain flat
While commercial real estate seems to be holding its own with respect to income performance, property values remain flat and transaction volume declined in third-quarter 2012.

On a 12-month basis, transaction volume for all property types decreased with the exception of the industrial sector volume, which increased slightly. More specifically:

• Hotel sector volume fell 25 percent.
• Office and retail sectors volume declined approximately 15 percent and 10 percent, respectively.
• Apartment sector volume decreased about 5 percent from the previous quarter.

“Get used to it, as this is the ‘new normal’ for the economy and we should expect this investment environment for the foreseeable future,” said Riggs. “The low-hanging fruit has been picked, and investors are adapting to the challenges we face. Risk-adjusted returns for commercial real estate are down from what we have seen, but fundamentals are steady and even improving slightly. With volume and prices for commercial properties flat or down on average (except for apartments) during third quarter, plus assurance from Federal Reserve Chairman Ben Bernanke that interest rates will be low until mid-2015, opportunities with reasonable prices may be found in increasing numbers of secondary and tertiary locations.”

Property sector highlights
Continuing a positive trend, the national vacancy rate for all property types continued to decline during third-quarter 2012. Only the retail sector vacancy rate remained unchanged.

Other property sector highlights gleaned from the survey of CCIM members include:

• The apartment sector remained the safest and best investment compared to the other property types during third-quarter 2012.
• Compared to other property types, distressed and foreclosed office properties sold the best during third-quarter 2012.
• Industrial properties are currently underpriced. Members suggest that investors should buy low, lease at market value and hold. There is not much demand for industrial properties in the East region due to oversupply.

The complete survey findings can be found on The CCIM Institute’s website.

Real Estate Research Corp. conducts the analysis provided in the RERC/CCIM Investment Trends Quarterly. The information is gathered in raw form from surveys sent to CCIM designees and candidates, and from sales transactions collected from various sources, including CCIM members, various key commercial information exchange organizations (CIEs), the media, assessors’ offices, RERC contacts in the marketplace, and other reliable public and private resources. All sales transactions are aggregated, analyzed and reported on by RERC.

© 2012 Florida Realtors®