“It’s a Great Time to be Buying in Middle America” – CBRE
A recent report from real estate services firm CBRE suggests that, not only are today’s sale prices valid, but there is room for pricing to move higher still. “I think prices are pretty well-supported,” says Richard Barkham, Ph.D., global chief economist with CBRE in London. Several factors are supporting those prices and a healthy outlook for rising values—namely, good economic and job growth, along with rising occupancies and rents. “We see quite strong rental uplift over the next several years, which will lift cash flow,” says Barkham.
“As the U.S. economy continues to grow and the recovery spreads out into the second-tier cities and now the third-tier cities, we will see that same pattern of rising values and prices emerge in the second and their tier cities,” says Barkham. Essentially, it is a great time to be buying in Middle America, he adds.
Values are chasing prices. But that does not necessarily mean that sale prices have reached the ceiling, agrees Ken Riggs, president of Situs RERC, a real estate firm that specializes in property valuation management, appraisal, research and risk analysis. “I think prices will move higher for another 12 months,” he says.
The question becomes: “Where are the best opportunities?”
Most of the bargains have disappeared. Investors also will have to go into smaller markets that offer higher yields. According to Situs RERC’s Metro Ranking Index, the majority of metros on its top 20 list of cities offering the “best relative value” for commercial real estate investment are secondary markets. The top five cities on that list are Austin, San Antonio, Raleigh, Dallas and Orlando. Noticeably absent are major metros such as New York City, Los Angeles, Boston and Washington, D.C. “I think we are just at the crux where values in the big markets are pushed as hard as they can,” says Riggs.
The risk for investors buying properties today at exceptionally low cap rates is that they may need to sell those assets in five to seven years when there is the potential that interest rates may be 200 or 300 basis points higher. Higher interest rates have the potential to take away value very quickly as cap rates generally rise along with interest rates. As such, today’s investors have to have a longer term view and stronger confidence in the strength of the assets they are buying, says Riggs. “As long as the U.S. economy continues to grow and generate jobs, then I think that current cap rates are well-supported,” adds Barkham.
Alteza Residences above the Grand Hyatt are experiencing the increased sales momentum in Downtown San Antonio. The private luxury residences enjoy seclusion and privacy on the top 10 floors of the building that rises high above the River Walk and Hemisfair, a world-class urban city park set to open later this Fall. Alteza recently recorded it’s 111th sale in September, reaching its 75% sold out milestone. Thirty-six residences remain, including two expansive penthouses with panoramic views of the City of San Antonio.
To read the original story in National Real Estate Investor, click here.