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CRE Investors More Wary of Risk in 2019, But Prefer Secondary Markets Because of Higher Yields, CBRE Survey Finds

Value-add and “good secondary market” plays are the preferred investment strategies this year.

As investors consider their allocations plans for this year, commercial real estate’s stability of income stream is their top reason for investing in the property type, according to the Americas Investor Intentions Survey 2019 put together by real estate services firm CBRE.

Stability of income stream came out on top among the reasons its survey participants listed for continuing to invest in real estate (with 32 percent of respondents picking it,) followed by expectation of better capital value growth compared to other assets and higher yield compared to other assets (both at 20 percent). Asset diversification also made the list, with 16 percent of respondents picking it. Asset diversification seemed to be of particular importance to institutional investors—52 percent of those respondents indicated it was their main motive for investing.

Using real estate as a hedge against inflation ranked last on the list, with 1 percent of respondents picking it.

There has been a spike in investors who indicated they feel less of a tolerance for risk at the current point in the cycle—this year, the figure rose to 43 percent from 22 percent in 2018.

Yet, when it comes to preferred investment strategies, investors’ appetite for value-add and “good secondary markets” showed an increase compared to last year (to 37 percent from 34 percent for value-add; and to 33 percent from 28 percent for secondary markets). The share of sovereign wealth funds, insurance companies and pension funds that now want to invest in secondary markets has risen to 52 percent from 25 percent.

At the same time, the share of investors who plan to invest in core assets fell significantly—to 9 percent from 20 percent in 2018. This is likely due to high prices and lack of available product on the market, according to CBRE researchers. The same share of investors plans to pursue opportunistic strategies in 2019 as in 2018, at 16 percent, and more investors (4 percent) plan to pursue distressed assets compared to 2 percent in 2018.

Many of the top preferred markets for commercial real estate investment have stayed the same, though Washington, D.C. jumped to third place this year from sixth in 2018, Denver jumped to fifth place from seventh and Orlando, Fla. Jumped to sixth from 13th.

Industrial and multifamily assets continue to be among the most popular property types with the surveyed investors, though industrial seems to have lost a bit of its appeal, while multifamily gained in preference. Thirty-nine percent of respondents picked industrial/logistics as the most attractive property type in 2019 vs. 50 percent in 2018, and 37 percent picked multifamily as the most attractive vs. 20 percent last year. Fewer investors (10 percent vs. 14 percent last year) find office properties attractive, while retail seemed to stay on roughly the same level (9 percent this year vs. 10 percent last.) In addition, four percent of investors find hotels the most attractive properties right now, compared to 2 percent in 2018.

Overall, they survey found that 98 percent of respondents intend to invest in commercial real estate this year. But the percentage of respondents who plan to increase their allocations to the sector fell to 31 percent from 45 percent in 2018 and the percentage of respondents who plan to decrease allocations went up to 25 percent from 12 percent.

The intention to spend more or less money on commercial real estate assets depended partly on the type of investor entity—respondents associated with private REITs and private equity funds said they were more likely to increase allocations, while institutional investors were less likely to do so.

CBRE administered the survey in November and December of last year. The survey garnered approximately 300 responses.

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