Investors Look for Stable Income Stream and Capital Growth in Acquisitions
Salt Lake City—March 18, 2019—The search for yield in a late-cycle environment is drawing more commercial real estate investors into secondary markets and alternative assets, according to CBRE’s 2019 Americas Investor Intentions Survey.
The survey, which covers all asset types, found that investor appetite for risk is lessening in 2019. The most common motivation for purchasing real estate this year is to secure a stable income stream (32%)—a much higher share than in past years—followed by expectations for capital growth (20%). Value-add remains the preferred asset strategy (37%), with interest in good secondary assets (33%) increasing for the fifth consecutive year.
While Los Angeles/Southern California and Dallas/Ft. Worth maintained the two top-ranked positions for property purchases, more investors are shifting their attention to smaller markets. Several secondary markets have risen in the rankings, with Denver, Phoenix, Orlando, Nashville, Minneapolis/St. Paul and Las Vegas all ranking higher than they did in the prior survey for the third year in a row.
The survey revealed that 40% of respondents are actively pursuing one or more real estate “alternatives”. Real estate debt remains the most common of the niche sectors (52%), with self-storage, seniors housing, and student housing the next most popular—each favored by nearly 30% of investors.
“Continued strong real estate fundamentals, combined with historically deep debt and equity capital markets, provide good momentum for 2019. Investors are reducing risk and protecting income streams through diversification. Pricing is at or near the previous peak for most asset types in prime locations, so investors are seeking yield in secondary markets and alternative asset types,” said Chris Ludeman, Global President, Capital Markets, CBRE.
Overall, the survey shows that investors will remain active in commercial real estate markets this year, with 98% of respondents intending to make acquisitions. There has been a shift toward greater caution, with the share of investors planning to either maintain or increase spending in 2019 falling to 75% (from 88 percent in 2018).
Industrial & Logistics remains the preferred property type for investors (39%). Multifamily, which was displaced from the top sector in 2017, regained considerable ground this year to closely follow in second place (37%). Office is the third most attractive property type for investors (10%). Despite competition from e-commerce, the share of investors focused on the retail sector has held steady over the past three years (9%).
Investors see a global economic downturn as the greatest threat in 2019 (36%), with the share rising for the third consecutive year. Rising interest rates have been the second-biggest concern for the past three years (17%), although this share is essentially unchanged from last year and is less than in 2017.
Survey respondents and methodology
The Americas Investor Intentions Survey 2019 was conducted among CBRE clients during November and December 2018. The Americas survey is part of a larger global survey and covers the responses of nearly 300 investors who indicated the Americas is the global region that they are responsible for in their current position. The Americas respondents represent a diverse range of real estate companies and investor types. The largest investor groups in this year’s survey were developers/owners/operators and private equity, which is a change from prior years. Institutional investors—sovereign wealth funds, insurance companies and pension funds—account for 8% of respondents. Most respondents (68%) have less than $10 billion in assets under management (AUM). Eleven percent have more than $50 billion in AUM, and the remaining 21% fall somewhere in between. Institutional investors have significantly more capital to deploy—43% of institutional respondents have more than $50 billion in AUM. Nearly all Americas respondents are based in the U.S. This year’s survey included slightly fewer cross-regional investors than in previous surveys, particularly investors based in Canada.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.