High net worth investors (HNWI) still hold a preference for multifamily and industrial assets when investing in commercial real estate according to the latest edition of research surveying readers of WMRE and WealthManagement.com (brought to you by Ashcroft Capital).
The annual survey polls both financial advisors and commercial real estate professionals to get their perspectives on HNWI and accredited investor strategies related to commercial real estate.
Financial advisors and commercial real estate professionals are in agreement that the top two property types wealthy individuals prefer are multifamily and industrial. However, commercial real estate professionals have stronger conviction in their opinions. A bigger majority of commercial real estate professionals believe these investors prefer multifamily (70%) or industrial (64%). Nearly half of the financial advisors surveyed (48%) said that accredited investors prefer multifamily, followed by industrial (36%). Self-storage ranked as the third most attractive property type among 40% of financial advisors and 35% of commercial real estate professionals. But in general, financial advisor responses on property types were more evenly distributed than the perceptions of real estate pros.
Respondents are significantly more pessimistic on the attractiveness of office. In the current survey, only 18% of financial advisors and 9% of commercial real estate professionals said HNW investors had a preference for the sector. It is also notable that sentiment on office has been on a steady downward trend as a result of the challenges the sector has faced during and after the pandemic.
“The fact that multifamily has remained a top pick for investors is really not a surprise, because here in the U.S. we’re still over 1 million homes behind in meeting the current consumer demand for affordable places to live, and that has been the case for about 20 years,” said Travis Watts, director of investor education at Ashcroft Capital, a real estate investment firm specializing in value-add multifamily properties. Investors understand that basic supply and demand story for housing, as well as the fundamental reality that everyone needs a place to live. Right now, the U.S. has one of the biggest affordability gaps on record between renting and owning. National rents are hovering around $1,700 per month according to Yardi Matrix, compared to average mortgage costs with rates on a 30-year fixed loan at about 6.5% at about $2,500 per month.
Of the traditional four property types, multifamily and industrial remain favored for their long-term fundamentals, agreed Zack Otte, a principal and lead of the asset management practice for Plante Moran Real Estate Investment Advisors. “We’re also seeing some niche asset classes that are now more institutionalized becoming more interesting to investors, such as single-family rentals, manufactured housing, student housing and healthcare,” he says. Investors like the diversity that those alternatives provide, while at the same time they recognize the demand for those products, as well as the overall fundamentals and risk-adjusted returns. Student housing, for example, is a sector that tends to be countercyclical, Otte noted.
Consistent with last year’s results, HNWIs continue to favor the safety of primary and secondary markets and here the views of both the advisor and real estate professional audiences aligned. Majorities of both segments said HNWs have a moderate, strong or extreme preference for primary markets at 81% and secondary markets at 80%, respectively. They viewed HNW interest in tertiary markets lower at 47%. According to Otte, investors are focused mainly on primary and secondary markets, with the caveat that there is a keen focus on migration trends. Most HNWIs are not looking at tertiary markets, because there is less certainty on the ability to exit.
“Tertiary markets have the added risk of how deep is that market,” he said.
The full research report is available for download here.
Survey methodology: The WMRE High-Net-Worth Investor Survey (brought to you by Ashcroft Capital) was conducted via an online survey distributed to Wealthmanagement.com and WMRE readers in April 2023. The survey results are based on responses from 295 participants. Of the total survey respondents, 65% identified themselves as financial advisors and 35% as commercial real estate professionals. More than half of the respondent base work for an independent B/D or RIA. Among commercial real estate professional respondents, 61% said they were an owner, partner or C-suite executive. Respondents operate in all regions with 46% active in the South / Southeast / Southwest; 41% in West / Mountain / Pacific; 37% active in the East and 24% in the Midwest. In addition, respondents are active across property segments. Most are involved in the four main sectors, with multifamily at 56%, retail at 50%, office at 46% and industrial at 45%.