US real estate market may be nearing bottom

Research by CBRE Investors warns investors waiting for the assurance that the market is “clearly out of the woods” before acting could face tougher competition when they do take the plunge. Pricing indicators suggested today's market is an “historically favourable” time to invest.

The US real estate market could be nearing bottom with a plethora of pricing indicators suggesting now is an “historically favourable” time to invest.

According to a research paper by CBRE Investors, the next 12 to 18 months will provide access to high quality properties at “historically attractive pricing”, with the Los Angeles-based firm saying the current cycle’s bottom “appears to be close”.

However, the investment arm of the US property broker added: “Investors who are waiting for the assurance that the market is clearly out of the woods before deploying capital may face more competition in acquiring assets when they eventually decide to act.”

The quarterly research report cited three factors that indicated a bottom could be near, including a narrowing bid-ask spread, rising REIT prices and an apparent slowing of declines in transaction volume.

It went on to argue that real estate investment “during and immediately after a recession provides above-average returns”, with opportunistic returns from 2001 vintage year funds averaging more than 25 percent IRRs – around 5 percent more than vintage years.

“During a recession, when debt financing is scarce and most investors are wary of making substantial commitments, well capitalised investors with long-term perspectives are presented with opportunities to buy good-quality assets at sharply reduced prices, often without assuming substantial leasing risk,” the report said.