Commercial real estate investments will likely appeal to investors looking for dependability in 2012 amid economic uncertainty, according to Matthew Kimmel, principal and U.S. real estate services leader with Deloitte Financial Advisory Services LLP.
Kimmel, one of the authors of “Expectations & Market Realities in Real Estate 2012: New Foundations in an Uncertain World,” published jointly by Deloitte, the Real Estate Research Corporation (RERC) and the National Association of REALTORS® (NAR), spoke with REIT.com about this year’s forecast and ongoing conditions in the capital markets.
REIT.com: Do you think that commercial real estate will continue to be an attractive asset class for investors, especially as they seek stability in an uncertain environment?
Matthew Kimmel: Yes, given the current overall market conditions, including recent stock market volatility, the level of national debt and the associated credit rating and the looming possibility of a double-dip recession, it is my perspective that these conditions generally result in commercial and institutional real estate being an appealing investment alternative.
REIT.com: While the apartment sector has been one of the strongest performers in commercial real estate since the recession, which sectors do you think are next on the road to recovery?
Kimmel: My view is that the apartment sector will likely see another robust year or two. This will be driven by the shift in homeownership, lack of new supply and the availability of financing for apartments. Apartment rent growth rates will likely be above normal levels the next couple of years.
Other property sectors will likely exhibit moderate strength, driven largely by local or sub-market demand factors. Sub-sector property types are displaying pockets of strength, such as large class-A distribution assets located in certain markets. They are experiencing favorable rent growth compared to the broader industrial property market. There are a number of sub-sector property types that seem to be outperforming their broader property sector.
REIT.com: What are some of the primary challenges or headwinds in the market right now that may have an impact on REITs in particular?
Kimmel: From my vantage point, the significant challenges are really strategic and market-positioning opportunities to drive growth. One example of this may be the amount of fresh or available capital they possess and how they determine the most strategic and efficient means to deploy their capital. It may mean building more effective internal processes, acquiring additional assets, buying out partners, developing or expanding existing assets, etc.
REIT.com: Do you anticipate that REITs will continue to find success with raising capital in 2012?
Kimmel: If the 2011 trend continues, and it is generally expected to, 2012 should be a solid year for REITs to raise capital, particularly secondary equity. It seems that investment diversification, REIT dividends, moderate levels of leverage and a platform to create value are generally attractive to investors.