Higher interests rates are unlikely to put a stop to United States investors’ appetite for more commercial real estate, according to a leading US banking industry survey.
According to the Bridger Commercial Fund’s Survey of Lenders’ Commercial Real Estate Perspectives for 2006, which surveyed 200 participants, investors’ expect that commercial real estate will remain relatively healthy with no increases in delinquencies and defaults – despite 60% of bankers surveyed forecasting higher interest rates in 2006.
Of those surveyed, three-quarters of respondents forecast continued stability in rents and occupancy levels in 2006.
Almost 60% of bankers expect cap rates to rise in 2006 and 37% believe they will stabilise at current levels.
More importantly, the survey found not a single banker forecast lower interest rates in 2006.
According to 61% of bankers, despite the spectre of rising rates, acquisition activity will remain at current levels.
However, the same number of bankers believe rising rates could chill refinancing activity, with most bankers expecting refinancing to trend flat or down compared with 2005.
By a 2-to-1 margin, respondents cite rising interest rates as the single biggest factor that could stave off continuing economic recovery.
Overbuilding was cited as the next highest risk factor, by 26% of bankers participating in the survey.
According to the survey, among property types, bankers appear most bullish on multifamily.
Almost half of those surveyed forecast multifamily supplanting retail as the sector leader within commercial real estate in 2006, as apartments continue to recover strength.
“The office sector is most likely to lag the overall market again in 2006, followed, perhaps surprisingly, by retail.
“Only 9% of respondents believe that multifamily will be the biggest laggard in 2006, the lowest percentage for any major property type,” the survey said.
The survey found new supply will remain in check, with 82% of bankers expecting construction activity to either remain at 2005 levels or to drop off.
By Adam Parsons
