Green Street’s Commercial Property Price Forecast released “bullish” indicators in their latest report. The commercial property real estate forecast was released by the firm December, in efforts to assist in the prediction of real estate values in 2016.
The forecast integrates two main areas. First, the signal valuations which is measured by a comparison of real estate pricing against yields in the corporate bond market. Lastly, the signal valuations measured along with the Real Estate Investment Trusts (REITs) price listed which are trading at relative to the underlying value of their properties.
“Green Street’s Commercial Property Price Forecast sent very bullish signals for real estate values from 2009 up until the first quarter of this year,” stated Andy McCulloch, managing director of Real Estate Analytics for Green Street Advisors. “Since then, however, the signals have become notably more bearish, and there is now a good chance that commercial real estate prices will be lower within the next twelve months.”
“Property values posted robust gains in 2015, like they did in each of the prior five years. That said, investors would be wise to discount a continuation of that streak in 2016,” stated Peter Rothemund, Senior Analyst at Green Street Advisors. “Whether compared to yields available on long-dated investment grade bonds or riskier junk bonds, cap rates on commercial property look too low at today’s levels. Higher cap rates — which mean lower property values — seem like a very real possibility in 2016.”
According to TIAA, “Forecasters are not losing sight of performance constraints. TIAA’s Q315 PREA consensus survey shows NPI total return expectations 8.5 percent for 2016. Despite real estate total returns expected to weaken in 2016, returns continue to be attractive compared to other asset classes.
Orlando, Florida was recently noted as one of the best real estate value areas for U.S. markets for 2016 in an annual forecast jointly produced by the National Association of Realtors, Situs and Deloitte. Twenty cities were ranked based on the Situs RERC Value vs. Price Index,with top potential for office, industrial, apartment and retail returns.
“We seem to be entering a new phase of the cycle, where commercial real estate is fully priced and where the asset class is considered mature,” the forecast’s conclusions state. “Values and prices are beginning to flatten, and Situs RERC expects them to level off in 2016. We can still expect reasonable return performance, although returns will be based primarily on income (vs. capital appreciation) in 2016.