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Outlook Brightens For Commercial Real Estate
Continuing good economic news and signs of increased activity among companies
looking to add space are helping to convince real estate investors that better
days are ahead, according to the PricewaterhouseCoopers second quarter 2004
Korpacz Real Estate Investor Survey.
“While soft market conditions are likely to linger for the remainder of
2004 and into 2005, it is apparent that real estate investors have become more
optimistic now that the worst seems to be behind us,” said Peter Korpacz,
director, PricewaterhouseCoopers’ Global Strategic Real Estate Research
Practice. “Nevertheless, many markets remain saturated with available
space - thereby offering tremendous opportunities for tenants looking to either
upgrade
their space or relocate.”
While there has been a recent upswing in “space shopping” by tenants
in a number of markets, there appears to be no great urgency to lock into specific
details - a situation that keeps rental rate growth to a minimum and encourages
tenants to continue to ask for and receive favorable concession packages.
“Until companies become less hesitant about taking space and moving forward,
market conditions will continue to provide tenants with the upper hand during
lease negotiations,” the report notes.
But when it comes to sales transactions, landlords and existing owners should
enjoy a decided upper hand, especially for transactions involving stable assets.
Thanks to a lack of alternative investment options and pent-up demand from
non-leveraged buyers, the amount of capital targeting commercial real estate
is huge, with
prices for the best assets remaining “unbelievably aggressive,” the
report finds.
Faced with extremely aggressive bidding competition for the top assets, a
number of investors are turning to so-called distressed properties - typically
assets
with either current or near-term risks attached to them, such as large amounts
of vacant space, upcoming lease expirations, and/or tenants with low-rated
credit. But even these properties are being priced aggressively by sellers
who have taken
note of the strong demand for real estate, says the report, and it may take
a rise in interest rates to bring about some much-needed relief for investors.
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