CRE Investors Revise Expected Return Upward

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Commercial real estate equity investors now expect a 9.1 percent return for the year, a 50 basis point increase over last quarter's annualized expectation, reported the Pension Real Estate Association, Hartford, Connecticut in its Second Quarter survey results. The same basic pattern of forecast returns holds across the individual property types as well, with the exception of office.

This quarter’s survey represents a significant pick up in bullish sentiment among forecasters. The most dramatic rise is in the retail sector. Retail is now expected to lead the property types in 2013 with a total return of 9.5%, which is fully 120 basis points above what was expected in last quarter’s survey. Following a first quarter in which office did not perform as well as the other sectors, office properties are now expected to substantially lag the other property types for 2013 as a whole.

According to the survey, while an average forecast of 8.3% for 2013 puts the office sector far behind the other sectors, office returns are not expected to drop off as much in 2014 as are in other sectors, and returns are actually projected to experience a slight uptick in 2015. Over a five-year horizon, office actually stacks up quite well against the other sectors with the second highest expected return (after industrial).