Rising land and construction costs should put constraints on the current supply of industrial properties nationwide, paving the way for favorable investment conditions for warehouse and research/development facilities, according to research released in the Fourth Quarter 2006 RERC/CCIM Investment Trends Quarterly, a national analysis on commercial real estate.
Institutional survey respondents gave the warehouse sub-sector a 6.4 out of 10 for the third quarter, which was one of the highest ratings for any property type this year. The research/development sub-sector scored slightly lower at 5.7, an increase from the previous quarter's rating of 5.5.
When analyzing the sector's investment return potential, industrials netted an 8.5% pre-tax yield, just below the national RERC Portfolio Index of 8.6%. RERC's required going-in and terminal capitalization rates for all property types either declined or remained steady when compared to the second quarter, with warehouse and research/development being no exception. The third quarter going-in and terminal cap rates for the sector decreased 20 to 40 basis points from the previous quarter.
The RERC survey revealed that commercial real estate remains a solid investment vehicle, with institutional quality properties estimated at $4.2 trillion in 2006, an increase of around 16% over the past 12 months.
There was no consensus on property sectors to avoid or seek out, however. Retail continued to draw concern due to overpricing, decreases in consumer spending and tenant risk.