The tide of investment in US real estate is rising, according to Jones Lang Wootton. Research by the firm shows that vacancy rates are declining, rents and capital values are increasing for office, retail and industrial space, while new construction is minimal, reports Karen Lennox.
Although the market has been in the upswing for two years, the bull market could have another four years to run, said the firm: “This predictable upward portion of the real estate cycle has not approached its pricing and rental growth peak . . . There should be another three to five years of acceleration before the cyclical peak is reached.”
Office rents have been steadily improving since 1993 – national indices show office rents rising an average 6% in 1994. However, these figures mask local “hot spots”. Selected suburbs of Atlanta, Georgia, for instance, reported rental increases of 30% last year, said JLW.
Total returns, according to the NCREIF property index, are at the highest level – 6.7% pa – since 1988. Strong income returns and the tailing off of property value write-downs in the institutional owners’ portfolios have strengthened returns. Based on the first two quarters of 1995, JLW considers that the index may show a total return of 8% for the year.
Throughout 1994 capital flows into US real estate increased 3.6%. Buyers now include entrepreneurial sources of capital (including off-shore groups), opportunity funds, REITs and institutional investors.
“The return of the institutional investor to real estate equity investment is a vital indicator of the shift to a rising market, given the risk-averse behaviour of such institutions,” said JLW.
