Investment Outlook Report: Stay Alive 'Til '05

ENCINO, CA-Marcus & Millichap this week released its 2004 Investment Outlook Report, which indicates that business spending is leading to self-sustaining growth and that rental market fundamentals are slowly but surely catching up with pricing.

In the office sector, where owners were forced to reduce asking rents by 13% between 2000 and 2003, the forecast states that investors “will have to wait until 2005 before a sizeable shift in fundamentals signals the beginning of another up-cycle.” The disconnect between pricing and fundamentals should work itself out in the next three to four years, according to the report, and price appreciation likely will slow to a more sustainable pace until vacancy rates drop at least 300 basis points.

The report states that investors can expect office tenant demand to rebound in the first half of 2005 as the economy adds jobs at a steady pace in 2004 and 2005. “The market’s relatively high cap rates will begin to attract the attention of investors from other sectors,” states the report. Office sales volume is forecast to increase in 2004 with Class B and Class C transactions expected to rise the fastest, according to the report.