NNN Investors Anticipate Opportunities in Commercial Real Estate in 2013
According to surveyed participants, yields have compressed
too much for well-leased strip shopping centers that some are considering
buying value-add in great locations due to a lack of new supply. For power
centers, challenges mainly stem from rising Internet retail sales, merchant
consolidations, and an inability to easily shrink into urban streetscapes.
In the fourth quarter of 2012, the average overall cap rate,
the initial return anticipated on an acquisition and a reflection of an
investment's anticipated ownership risk, decreased in 24 of the surveyed
markets, held steady in seven, and increased in just one of them. The overall
cap rate shifts remain irregular with tech office markets (i.e. San Francisco)
and the warehouse sector both showing some of the steepest declines. The
national warehouse market's cap rate compression, where the average overall cap
rate declined 40 basis points, reflects the optimistic outlook held by most
surveyed investors.
The average overall cap rate declined again in the Survey's
national Central Business District (CBD) office market, marking nearly ten
instances of quarterly declines since the first quarter of 2010. Moreover, the
current average of 6.70% is the lowest reported for this market since the
second quarter of 2008. Due to this cap rate compression, some Survey
participants are taking time to identify CBD assets to sell – while others
remain in search of select buying opportunities.
In the apartment sector, surveyed participants believe
market conditions continue to favor sellers, but some investors sense that
rents may have peaked for now and that certain markets have become overpriced.
In addition, investors remain attentive to the near-term impact of new
construction. Consequently, this market's average initial-year market rent
change rate dipped for the second consecutive quarter, suggesting less upside
in this market.
