A poll of investors, lenders, executives and other commercial real estate stakeholders conducted by accounting firm PricewaterhouseCoopers (PwC) found a generally optimistic attitude towards the industry in 2011.
Of the more than 200 respondents, more than 70 percent indicated that they believe ongoing recovery in the commercial real estate industry has legs. More than half, 56 percent, said that they plan to address their out-of-balance loans by extending their maturities and waiting out the market, which also suggests a positive outlook for the sector in the near future. Thirty-seven percent said they intend to fix such loans through principal pay-downs or discounted payoffs, while 7 percent indicated they would seek principal forgiveness from their lenders without a borrower pay-down.
PwC collected the data during a webcast this month covering the outlook for the commercial real estate industry in 2011.
“Investors see slight, yet promising, signs that the U.S. economy is likely to evade a double-dip recession and that the supply-demand dynamics of the still-frail commercial real estate industry have mostly bottomed,” said Susan Smith, a director in PwC’s real estate advisory practice.
Apartment properties have been some of the industry’s strongest performers in the last two years, so it should come as little surprise that 45 percent of those polled responded that they plan on investing in that sector in 2011, more than any other. Apartment REITs had total returns of 30.4 percent in 2009 and 47.0 percent in 2010, according to data from the FTSE NAREIT Composite REIT Index.
Office properties came in second behind apartments, with 32 percent of respondents indicating that they are looking to invest in the office sector this year. The hotel sector, which had total returns of 42.8 percent in 2010, finished just behind offices, with 30 percent of respondents stating they are pursuing hotel properties in 2011. Twenty-three percent of respondents said they are interested in the industrial sector, while 22 percent said they are looking at assets in the retail sector.
Thirty-two percent of respondents said they were more likely to increase their risk exposure in the commercial real estate sector based on location than any other factor. Property type was the second-most popular factor, receiving 20 percent of votes. Nineteen percent of those polled indicated they were most likely to take on more risk based on tenancy. Just 12 percent said they were most likely to boost their risk by increasing their leverage.
“Although some investors are looking to take on more risk, a full movement to secondary markets and riskier plays won’t likely occur until a healthier U.S. employment picture develops,” Smith said.