As noted in the July/August 2012 issue of Commercial Investment – Real Estate, the office
investment market is at a cross-road. The spread in capitalization rates between office properties
in core markets vs. office properties in secondary and tertiary markets reached a 10-year high
in the first quarter 2012, according to Real Capital Analytics. “This has to change,” says Dan
Fasulo, managing director of RCA. “Either major metro cap rates will start to rise, or secondary
and tertiary market cap rates will fall. Investors are better in the latter.”
Year over year increases in secondary office markets saw increase in the 4Q11 and 1Q12,
tertiary markets showed no or negative growth overall. Is now the time to move into the office
markets in the tertiary markets?
“It seems logical that investors would expand to tertiary markets, if they are willing to take on
more risk,” says Kenneth P. Riggs, CCIM, CRE, MAI, chief real estate economist for CCIM
Institute and president of Real Estate Corp. “In secondary and tertiary markets, there are better
risk-adjusted returns, and better pricing opportunities, including diversification and geography.”
What’s the right move for your real estate investment? Is this the right time for a purchase or
disposition of an existing property?
Patrick L. Reynolds, CCIM