Good news for retailers: Rents could drop 5% this year

Retail store expansion could get a boost from lower rents in the next 12 months as real estate investment trusts react to volatility in global financial markets, according to Pacific Investment Management Co.



In a report titled, “U.S. Real Estate: A Storm Is Brewing,” PIMCO portfolio managers John Murray and Anthony Clarke forecasted a drop of as much as 5% in commercial real estate prices due to a confluence of factors including public market volatility, tightened regulations, and uncertain foreign capital flows.



“Much to the dismay of REIT CEOs, daily returns of REITs have had a 71% correlation to the broader S&P Index since the beginning of 2015. The result: Despite private CRE price indexes such as Moody’s/RCA Index increasing over 7% since 2014, REIT prices have been essentially flat,” wrote Clarke and Murray.



The authors pointed out that REITs acquired about $54 billion of private CRE a year from 2012 to 2014, but that acquisitions in the sector plunged to $17 billion in the second half of 2015.