Commercial real estate has held varying degrees of value throughout history, but compared to the banking industry and other investment alternatives, it has always been tangible, mostly transparent, and has served as a secure investment to which we have retreated when times were tough.
Given the uncertainty we are experiencing, this security is a very appealing place to be — an investment foundation that is relatively stable fits our needs quite well and, from an investment perspective, will continue to for the next decade.
Commercial real estate is able to deliver what cannot be delivered by the alternatives. With higher prices for institutional properties in the major markets, as well as increasing prices in the secondary and tertiary markets, 2016 should see more assets brought to market as sellers recognize an opportunity to take advantage of the favorable pricing. In 3Q15, Situs RERC’s rating to “sell” commercial real estate increased to 7.7 on a scale of 1 to 10, with 10 being excellent. This is the highest sell rating since 2Q07. Meanwhile, the ratings for “buy” and “hold” decreased to 5.3 and 6.5, respectively.
However, even with the decline in the buy and hold ratings, it is worth stating that these ratings remain above 5.0, the midpoint of the scale, indicating that the buy and hold strategies are still rational, depending on the property type and expected return on investment.
Situs RERC’s Ratings of Investment Alternatives: