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January | February | 2015 CCIM.com
Table 1. RERC Historical Value vs.
Price Ratings
Figure 6. Commercial Real Estate Value
(Gross) Outlook
Figure 5. Spreads Between RERC
Pre-Tax Yield Rates and Going-In Cap
Rates and 10-Year Treasurys
erties seem to be moving further out from core urban areas for
example, Long Island, N.Y., versus Manhattan.
Value Expectations for 2015
Commercial real estate is a favored investment alternative compared
to stocks, bonds, and cash, especially in these uncertain times. Not
only does commercial real estate generate high risk-adjusted returns
compared to other investments, property is tangible, transpar-
ent, a hedge against inf ation, and of ers reason-
able return performance on capital and income.
(Income is currently approximately 60 percent of
returns.)
Commercial real estate has more than recov-
ered the value it lost in the Great Recession, as
shown in Figure 6, and with respect to return
performance, broad market prices and values
have room to grow for approximately 12 to 18
months. T is does not mean that commercial
real estate prices and values are sustainable,
but for many investors, there are no other good
alternatives, and as a result, many investors will
continue to pay nearly any price for the value
commercial real estate of ers.
enneth P. Riggs Jr., CCIM, CRE, MAI, FRICS, is
president and CEO of Real Estate Research Corp.
(www.rerc.com), a Situs company, and publisher of
the RERC Real Estate Report. For more information,
or for a special CCIM member discount to the report,
please contact RERC at publications@rerc.com.
according to RCA, while the price per unit increased to $154,798.
RERC's required cap and discount rates for this sector decreased
more than for any other property type on a YOY basis in 3Q14,
as RERC's required pre-tax yield rate and required going-in cap
rate declined by 80 bps to 9.2 percent and 7.2 percent, respectively.
PKF predicts that hotel sector occupancy will reach 65 percent in
2015, which would be the highest occupancy achieved since the
recording of this rate started. Investment trends for hotel prop-
Source: RERC, 3Q 2014
Ratings are based on a scale of 1 to 10, with 10 being high.
Source: RERC, NCREIF, 3Q 2014
Shaded area refl ects RERC's outlook scenarios from 4Q 2014 to 2Q 2017.
Source: RERC Institutional Investment Survey, Federal Reserve, 3Q 2014
Basis
points
Basis
points