Investors are looking beyond distressed commercial real estate and may start buying up more better-performing properties, reports the Charlotte Observer.
According to a Price Waterhouse Coopers survey, Wall Street firms are also eyeing secondary markets such as Charlotte, suggesting buyers – and lenders – are more confident in the economy and the real estate industry.
“This time last year investors were solely focused on ‘treasures’ or ‘traumas,’… and there was no appetite for assets in the middle of the spectrum,” said Mitch Roschelle, the U.S. real estate advisory practice leader with Price Waterhouse Coopers, which sponsored the survey. “Now, many of them are looking to… take on additional risk as they see signs that the economy and the industry are slowly healing.”
Charlotte’s office market is particularly well-positioned, according to the fourth quarter 2010 edition of the PWC Real Estate Investor Survey.
About 200 investors were surveyed for the national report, which has been produced quarterly for 23 years.
Respondents for the second straight quarter projected that a key measure for valuing properties, called a cap rate, will continue to fall – which is a good sign for Charlotte. Falling cap rates suggests an investment is less risky and hints at growing interest from buyers. Investors typically pay more for properties with low cap rates.
“It shows the increase in optimism for the office market in Charlotte continues,” Roschelle said. “That really bodes well for the investor sentiment of Charlotte. You could find in the future you’re having some bidding wars.”
Analysts have said they don’t expect much new development in offices, industrial buildings or retail space in the next couple of years. But while new building activity is dormant, the action is in the buying and selling of existing properties.
Since the recession, companies that bought property focused on the safest investments, typically distressed properties or prime buildings in prime locations. But growing competition has pushed up prices, leading investors to look elsewhere.
Next year, expect more investors to “move up the risk ladder,” the report says, “and move beyond core assets and prime markets for opportunities.”
Local commercial real estate broker Ryan Clutter said he’s seen an increase in investors interested in buying property in the Carolinas.
“Overall, investor appeal of the Carolinas has been a favorable trend over last decade,” said Clutter, an investment sales specialist with CB Richard Ellis. “I think it will only continue.”
Although retail is considered weak and among the last sectors to rebound, some national mall owners are performing well. Simon Property Group, which owns Charlotte’s SouthPark and Concord Mills, posted third-quarter gains in occupancy, rents and retail sales.
Apartment buildings remain a popular buy, thanks to a growing number of renters and a lack of new projects in the works.
Sales of apartment buildings nationally surged 63 percent in the third quarter and totaled $8.5 billion, according to Real Capital Analytics. As one survey participant said: “Everyone is betting on the future and expecting growth in this sector over the next three years.” Read More