Institutional investors overtook real estate investment trusts (REITs) as the largest purchasers of U.S. office buildings in the first quarter, and a revival in the commercial mortgage-backed securities (CMBS) market is boosting credit availability as investors seek higher yields, Bloomberg reported.

CoStar Group Inc. said buyers added a net $1.39 billion to their office-building holdings in the first three months of 2011, compared with $1.1 billion for REITs.
The shift could lead to higher property prices as buyers expand their holdings, Bloomberg said.

“Hopefully that means that they’re down to their core portfolio and they’re going to start adding to it,” said Christopher Macke, senior real estate strategist with CoStar. “Assuming that the institutional folks continue their net buying and the REITs continue that as well, that should portend a positive direction for pricing in commercial real estate.”

Demand for commercial real estate is on the rise as the economy improves. CoStar said investment-grade commercial property prices increased 2.2 percent in March from a year ago.