Real Estate Valuations Continue Slow Recovery

Commercial real estate properties are continuing to recover their values despite headwinds preventing significant growth, according to Jeffrey Rogers, president of Integra Realty Resources (IRR), a real estate valuation, counseling and advisory firm.

In an interview with REIT.com, Rogers says the prospects for continued recovery are fragile, adding that a further downturn in the housing market or a worsening of the European debt crisis could stall recovery efforts in all sectors.

REIT.com: In your latest Viewpoint report, you mentioned that the value of real estate assets continued to recover in 2011. How do you think that commercial real estate property values will hold up in 2012, and can any momentum be sustained?

Jeffrey Rogers: Albeit recovery is slower in some parts of the country, commercial real estate continues to recover overall. Construction activity is still very low and certainly lower than the 25-year average for construction starts. However, vacancies are declining, and leasing is showing signs of life. Also providing a boost is pent-up demand. Most companies have been conservative for so long that any improved performance in their businesses will force demand. Most companies feel better about their businesses than the prior year, and that sentiment helps sustain the momentum.

REIT.com: What are some of the economic indicators that you are watching that may affect commercial real estate valuations?

Rogers: We monitor and analyze a number of key economic indicators daily. Of course, the overall economy is a major key indicator. Factored into the strength of the economy are measures such as the unemployment rate, GDP, inflation, manufacturing activity and retail sales, just to name a few. Interest rates and bank lending policies are also very important and have a broad impact across the industry. Also, due to the severity of the most recent recession, government legislation is now more important than ever in our industry and must be monitored. This is not an exhaustive list, but some of the key metrics we watch, analyze and discuss daily.

REIT.com: With the multifamily sector having fully recovered, are there any other sectors that are close behind in terms of a more robust recovery?

Rogers: This really depends on what part of the country you are in, but generally speaking, the only property type which is keeping up with multifamily is medical office. In the 24-hour cities, hospitality has had a significant recovery, and in some submarkets of the major cities, office vacancies have declined significantly.

REIT.com: How about REITs specifically? What kind of shape would you say that they are in now as compared to last year this time?

Rogers: In 2011, REIT returns increased four times more than S&P. This type of performance attracts capital and is the reason REITs raised a record amount of capital ($52 billion) in 2011. REITs will again be big players in 2012, and we expect them to raise significant capital, outpacing 2011.