Performance Summary for
Commercial Real Estate
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Net Lease Properties: Average cap rates for last quarter are up slightly to 7.86% for retail, 8.25% for office and 8.67% for industrial. Cap rates for high quality core assets have declined slightly.
Retail: Continued store closures and soft consumer demand due to unemployment will be partially offset by retailers that are aggressive, taking advantage of the current market to expand. Average cap rates for 2009 ranged from 7% to 9.8% for regional malls with strip centers averaging between 7.5% and 10.5%.
Office: The recent unemployment drop bodes well for office. Although employment is starting to stabilize, unemployment is expected to remain high; creating a drag on the demand for office space through 2010. In 2009 office cap rates have ranged from 7% to 12.5%.
Medical Office (MOB): The combination of aging baby boomers and potential in expanding health care continue to draw investors to this niche product. If the estimated 30 million uninsured gain coverage it could translate to an additional need for 59 million square feet above normal demand. In 2009 MOB cap rates have ranged from 7% to 9.8%.
Industrial: Activity for industrial properties is being driven by the bottoming out of inventories and the increase in global trade volume. Properties positioned to shortened supply side chains to major consumer populations are best positioned to lead the recovery in industrial properties. In 2009 industrial cap rates have ranged from 7.5% to 11.5%
Multi-Family: National vacancies appear to be stabilizing as extreme levels of job cuts subside. Short leases can produce a good hedge against inflation, providing investors have long term fixed rate debt. First quarter of 2010 should mark the bottom for multi-family. In 2009 multi-family cap rates have ranged from 6% to 9.8%.
The shadow rental markets created by the oversupply of non owner occupied single family residential real estate continues to negatively impact Fort Lauderdale, Las Vegas, Miami, Orlando, Phoenix, Riverside-San Bernardino, Sacramento and Tampa-St Petersburg.
Potential upward pressure on rents and values is being set in motion by the slow creation of new rental units. For example only one apartment is being built for every 15 people between ages 20 to 34 compared to the average ratio of 2.6.
Hospitality: Demand should firm in 2010, which should slow the precipitous declines in ADR, occupancy and RevPAR seen in the last two years. Eighty one percent (81%) of the hospitality properties that are in default have loans that originated in 2006-07. More foreclosures are predicted for 2010 with an uptick in sales of quality properties in strong locations.
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