Skanska eyes commercial development expansion in United States

Wed Apr 20, 2016 11:33am EDT
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By Anna Ringstrom and Oskar von Bahr

STOCKHOLM (Reuters) - Swedish construction company Skanska (SKAb.ST: Quote) plans to expand its commercial property development business in the United States, betting interest rates won't rise fast enough to dent strong investor demand for high-yielding real estate.

Skanska's U.S. chief Richard Cavallaro said the company's goal this year was to identify which U.S. cities were best for investment in commercial development.

"The team is out there to see what the right cities are for us. This year we'll probably know where we want to go," Cavallaro told Reuters. "The west coast and the southeast would be a great fit to our overall portfolio."

Specifically, Skanska has listed San Francisco, Los Angeles, New York, Denver, Dallas, Atlanta and Miami as potential new markets for its commercial property development.

Years of low global interest rates have pushed pension funds and other investors to look beyond bonds for assets with better yields such as real estate, and office blocks with good rental income in particular.

Aware the favorable rate backdrop for commercial real estate won't last forever, Skanska plans to increase investment in its commercial development business and broaden its geographic spread to support long-term profit growth.

Last year, commercial property investment soared 25 percent in Europe, according to consultancy Knight Frank, while consultancy CBRE said U.S. investment rose 19 percent.

"Investor demand at the moment is for good quality real estate in good locations, and let to good quality tenants so that there is a relatively good and secure income stream," CBRE research chief Nick Axford said.   Continued...

A logo of the construction firm Skanska is seen at a construction site in the centre of Warsaw February 6, 2012. REUTERS/Kacper Pempel