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Investor Sentiment Recovers

Investors express returning confidence in commercial real estate values and performances.

Despite the ongoing economic challenges related to the COVID-19 pandemic, commercial real estate optimism has been quick to recover. Exclusive research from the latest WMRE/Marcus & Millichap Investor Sentiment Survey shows that investor sentiment has returned to pre-pandemic levels with an index score that jumped 25 points to 165. The first-half 2021 survey results are nearly on par with the 166 recorded a year ago just prior to the onset of the pandemic [Figure 1].

That bounce is not surprising considering the health crisis will likely be a comparatively short-term shock to the system. Although it has been a year now, in real estate terms that is a relatively short time period because hold times tend to run five, seven and 10 years or longer,” says John Chang, senior vice president of Research Services at Marcus & Millichap. Another key difference between the COVID-19 recession and the Great Financial Crisis is the liquidity in the market. Financing is still available for most property types and areas, and more than half of respondents (56 percent) said they have an abundance of capital ready to invest.

Vaccinations are continuing to roll out, and that is boosting optimism as people begin to see the light at the end of the tunnel, adds Chang. More respondents now believe that the worst of the economic downturn is behind us at 40 percent versus 26 percent who thought that was the case in the second-half 2020 survey. However, views are still mixed with 37 percent who said that the worst could still be ahead, and 23 percent who were neutral in their opinion on whether the worst was in the past or still ahead.

The optimism is mixed as there is a healthy dose of caution due to the risks and uncertainties that remain in the market, notes Chang. Will work-from-home policies drive secular shifts in the office market? How long will it take consumers to return to pre-pandemic levels of in-person shopping, entertainment and travel? Are the population shifts and outmigration from urban centers temporary, or perhaps more permanent? “Those are very important questions that we do not have answers to yet. So, as investors look forward, they recognize there are a lot of opportunities in real estate, but there are certainly both short- and long-term risks that must be factored in,” says Chang.

Survey Methodology: Wealth Management Real Estate’s research unit, Informa Engage, and Marcus & Millichap emailed invitations to participate in this online survey to public and private investors and developers of commercial real estate. Recipients of the survey included Marcus & Millichap clients as well as commercial real estate investor, pension fund, and developer business subscribers of WMRE who provided their email addresses. The survey was conducted between Feb. 3-10 with 509 respondents. Participants represent a broad cross section of industry respondents that include private investors, developers, advisors, lenders, and REITs, among others. The largest percentage of respondents are private investors at 37 percent and financial advisors at 21 percent. Respondents are invested in a variety of property types with a majority of 59 percent invested in apartments, followed by retail at 34 percent, office at 32 percent and industrial at 27 percent. On average, respondents have $28.3 million invested in commercial and/or multifamily property.