Investment Market 2006

Prepared by:

Larry Drinkard
Office:
(478) 746-9421
Mobile:
(478) 731-3248
e-mail
Larry Crumbley, CCIM, SIOR, CRE, CPM
Office:
(478) 746-9421
Mobile:
(478) 737-3381
e-mail

Demand for investment real estate continued to increase during 2005. Capitalization rates (income less operating expenses and reserves, divided by purchase price) for institutional grade property in the local market remain stable through the 4th quarter of 2005 at 7% to 9%. However, there were some exceptions that fell considerably below the 7% rate. The emergence of the out-of-state investors into the local market has started to impact the selling prices of smaller deals.

The retail sector remains the strongest investment category, especially those with credit-worthy triple net, long-term leases in place. Investors focusing on the net-lease segment often place too much emphasis on the income stream without consideration for the actual asset. Additionally, triple net leased properties are often built for a specific use which may require considerable costs to convert to other uses should the property become vacant.

Short term interest rates experienced a steady increase through 2005 as the Federal Reserve continued to raise the Fed Funds rate. However, this has not affected the investors' appetite for quality real estate.

The first quarter of 2006 is expected to remain stable. However, particular attention needs to be paid to the economy, since energy prices may possibly erode consumer confidence and eventually create investor caution.