Real Estate Forum - January 2012

“After-tax, corporate profits are expected to rise almost 4% from a year ago, slower than in 2011, but still a good year,” she wrote.

Mansour expects “continued but modest growth” in 2012, with
GNP increasing between 1.5% and 2% year over year. For the US,
that rate of growth is “still below the speed limit,” and one factor
in that is what Mansour calls “partisan policy discord, between the
Democrats and Republicans, and between the White House and
Congress. There’s a risk that we may have a fiscal drag or austerity
measure at a time when we don’t want it.”
That squabbling is likely to hang over the campaign trail dur-
ing the long march to the November elections, and Mansour
thinks the economy will pick up speed once the votes are cast—
regardless of the outcome. Whether Barack Obama or his
Republican opponent takes the oath of office on Jan. 20, 2013,
both sides can then sit down and seriously address the US’ own
sovereign debt problems to an extent that they haven’t been able
to manage before, she believes.

Even now, Mansour sees economic fundamentals moving in the right direction. She cites the advanced state of the deleveraging process among both US households and businesses. “If you look at non-financial corporations, they’re actually sitting on about $2 trillion of cash,” she says.

The most recent ADP National Employment Report as well as the Bureau of Labor Statistics charted growth in December—200,000 jobs added according to the BLS, 325,000 by ADP’s account—while unemployment-insurance claims averaged below 400,000 for four consecutive weeks. “Any time you’re below 400,000, that really points to a strengthening in hiring,” says Mansour. Moreover, the latest figures Management indicate that economic activity in both the manufacturing and non-manufacturing sectors has grown for 29 consecutive months.

Amid the still-shaky recovery here and abroad, savvy investors may find 2012 a good time to go hunting. In the Euro zone, for example, the valuations have declined, so it may be a good entry point for a property investor,” Mansour says.

She cautions, however, that “because the growth trajectory in
Europe is going to be weak for at least the next few years, recovery
in the underlying operating income or rents may not be as strong
as investors would like. So they have to be very careful in terms of
their due diligence, including the rent growth they use to under-
write a deal.”
The advice to step warily doesn’t apply only to European prop-
erty sectors, though. “We’re going to continue to see a climate of
volatility and uncertainty” worldwide, Mansour says. “If you notice
the broad equity market, which is a leading indicator, it’s been
really volatile, both in the US and globally.” This uncertainty has
increased significantly over the past six months, and Mansour
expects it to continue.

Given the enhanced volatility, “property investors will have an increased desire for secure yield,” she says. “They’ll continue to

ASIEH MANSOUR

CBRE

move to more primary markets and asset types that provide a much more stable cash flow, at least for the first half of the year.” Naturally, that will continue leading investors to the multifamily sector.

Although Obrinsky says the bottom is in sight this year for sin-gle-family housing prices, “we have a world in which more people are renting.” In recent years, would-be homebuyers who might normally move out of an apartment and acquire their first house or first condominium have been waiting longer to take that step. “So what we call the move-out to homeownership rate has slowed down quite a bit; I think it will remain slower than the average we’ve seen over the past couple of decades,” he says. That means the apartment vacancy rate will continue its downward trend through 2012.

At the same time, Obrinsky says, “we’ve only begun to see a
meaningful pickup in new apartment construction. New starts rose
through 2011, but we still haven’t reached
the level that prevailed between 1997 and
2007. The increase in apartment supply
has been trailing the increase in apart-
ment demand.” As a result, “vacancy rates
have gone down and rents have gone up.
In most metro areas, rents have reached or
surpassed their previous peak.”
Mansour agrees that apartment
demand will keep its momentum
throughout 2012. “The fundamentals
support continued increases in rents in
the multifamily sector, especially in the
major markets in the US,” she says. “At
the same time, I do think we’re going to
see a recovery in for-sale housing. As jobs
come back and household growth in the
US resumes, there will be equal demand
for rental units and owner-occupied
housing.” Both demands can be satisfied,
she adds.

After apartments, Mansour sees office
as the next surest bet, “especially in well-
located CBDs in primary markets. There’s been a lack of construc-
tion, so we really don’t have overbuilding. Finding a core asset
with a long-term, triple-A credit tenant is one way of satisfying the
demand for secure yield.”
How secure that yield is may depend partly on where in the
world the asset is located. Cushman & Wakefield’s recent Global
Office Forecast sees spotty recovery in office rents, with the US
probably not seeing rent growth until 2013. In Europe, an uptick
may not begin even a year from now, according to C&W. Asian and
South American markets will be bright spots.

At AREA, which has invested globally since the 1990s, Mack says core properties haven’t been a priority in the past couple of years because prices “got ahead of themselves,” although he adds that those who got into core early in the recovery have probably done well. Likewise, distressed assets have gotten bid up thanks to too much capital chasing too few assets. The company has focused instead, here and abroad, on value add and mezzanine, he says. “Both of those spaces are becoming more competitive, although we continue to see them as a good strategy for 2012.” ◆