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Atlanta, Seattle, San Jose lead major metros for CRE investment

Atlanta, Seattle and San Jose ranked at the top among major met­ros for commercial real estate (CRE) investment in 2Q 2018 from a relative value vs. price perspective while New York and Los Angeles were near the bottom, according to recent research from Situs RERC.

Atlanta’s low prices relative to other major met­ros, along with strong population and income growth, put the metro among the top major markets across all property types. The thriving job market, along with relatively afford­able housing, will continue to provide support. A growing tech talent pool is a strong point of attraction for Ama­zon as it decides where to locate its second headquarters.

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Economic expansion: More room to run?

Ken Riggs, president of Situs RERC, believes that, despite its near-record length, the recovery seems far from over, and contends that key indicators point to further growth ahead.

The US economy is approaching its longest expansion in history. If it continues through June 2019, it will reach 120 months and surpass the previous longest-ever expansion, from 1991 to 2001, going back to when records started being kept in the 1850s. As the commercial real estate cycle continues into its ninth year amid rising interest rates, commercial real estate total returns are expected to continue to decline from their recent peaks. With price and value gains now slowing to more of a measured pace, and net operating income (NOI) continuing on pace with a slow level of growth, commercial real estate will rely on income to drive total returns moving forward, versus value or price appreciation. This is especially true of the gateway cities and involves major core assets.

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Situs RERC survey: CRE remains attractive to investors, but stocks are gaining ground

In 2Q 2018, commercial real estate (CRE) remained the most preferred investment alternative compared to traditional assets such as stocks, bonds and cash, but the attractiveness of stocks increased dramatically between 1Q 2018 and 2Q 2018, according to a survey conducted by Situs RERC for its 2Q 2018 Situs RERC Real Estate Report, “The Waiting Game.”

The rating for the attractiveness of CRE held steady at 5.2 in 2Q 2018, based on a scale of 1 to 10, with 10 being excellent, while the preference for stocks soared from 4.1 in 1Q 2018 to 5.1 in 2Q 2018. These ratings are based on Situs RERC’s quarterly survey of institutional investors, representing pension funds, insurance companies, financial institutions and private equity firms, who are asked to provide their sentiment about various CRE trends.

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