Marktbericht USA Apr10

The commercial real estate market regained a little of its mojo in recent months, mostly connected to the capital markets.

Executive Summary

• The decline in property values has stopped, and capitalization rates are starting to drop, particularly for high quality properties in good markets. Property value indexes as measured by advisory firms such as Moody’s and Green Street Advisors have risen in recent months, reflecting the strong demand for stable, core assets in the best markets.
  
• Although vacancy rates are at historical high points, in some markets and sectors the trend was better than expected in the first quarter. Net absorption of apartments in 1Q10 was at its highest first-quarter level in a decade. In other sectors, some tenants are locking in long-term leases in anticipation that lease rates are as low as they will get.
  
• Debt is more available than it has been since the start of the credit crisis, although lenders that are active are focusing on better properties in better markets with stable income streams. Competition for such deals is growing, as evidenced by tightening spreads and somewhat more favorable terms for borrowers. Property types or assets viewed as risky are nearly impossible to finance. Commercial banks continue to struggle with problem loans.
  
• REIT prices are slightly expensive relative to historical levels after another solid performance in 1Q10, in which the NAREIT Equity REIT Index gained 10%. REITs by-and-large have strengthened their balance sheets and have cash or the ability to raise debt and equity at attractive terms.
  
• REITs’ low cost of capital should make them “winners” in competing for acquisition opportunities, although the lack of transaction volume and the competition for the few transactions coming to market has limited their activity.
  
• Coming off a year in which transaction activity was depressed, a growing number of investors are looking to buy primarily core assets at what is perceived to be a low point in the cycle. Property sale prices grew moderately in the first quarter and should keep rising.