REPORT: U.S. CRE RETURNS TURN POSITIVE FOR FIRST TIME IN 18 MONTHS

- Commercial real estate in the United States delivered its first positive quarterly return in 18 months during the first quarter, said Investment Property Databank, London.

IPD's U.S. Quarterly Property Index showed a 1.2 percent total return of negative 0.5 percent capital growth and 1.7 percent income return. The valuation-based quarterly index was based on 1,863 properties from 16 core funds worth $76 billion at the end of March.

The office sector showed most improvement in capital value growth, to negative 0.7 percent compared to negative 3.7 percent the previous quarter. Office closely followed the residential sector with capital growth of 0.4 percent compared to negative 2.4 percent in the fourth quarter of 2009. Some analysts, however, say office fundamentals may be last to deteriorate based on tenants with long-term leases.

“While most indications are that the worst of the write-downs are behind investors, uncertainties persist on the medium term health of the broader economy,” said Simon Fairchild, managing director of IPD North America. “Preliminary data from the Bureau of Economic Analysis indicated that Q1 GDP [gross domestic product] increased at an annual rate of 3.2 percent, although if economists’ predictions of a sluggish recovery are accurate then so too will be the pace of capital appreciation.”

The index showed “steady quarterly improvement” in U.S. real estate since bottoming out in the first quarter of 2009. Cap rates remained above their long-term average across the sectors, but improved sentiment boosted capital coming back to the market, Fairchild said. Returning investors started to compete on pricing more aggressively than during the past two years because of limited prime-stock supply, and beneath the headline, total return figures slowed market value depreciation and resilient income returns.

Market Snapshot—Monday’s closes (5-17-10) are in parentheses

Treasury Yields Key Indicators Other Key Indicators
2-yr 0.75% (0.78%) DJIA: 10193 (10620) Prime Rate: 3.25%
5-yr 2.00% (2.15%) NASDAQ: 2229 (2347) Fed Reserve Target Rate: 0.25%
10-yr 3.21% (3.46%) S&P 500: 1088 (1135) U.S. Unemployment Rate: 9.90%
30-yr 4.08% (4.34%) S&P 100: 494 (516)

LIBOR NYSE Comp: 6775 (7078)
1- Mo. LIBOR: .34% (.34%) Crude Oil: $71 ($72)
3-Mo. LIBOR: .48 (.44%) Gold: $1177 ($1232)

Brad Cox, CCIM, CPM
Office: (941) 552-9731
Email: bcox@tdwood.com