CBRE: Investors look to secondary markets in 2019

Investors in the Americas—98 percent of them, to be exact—still plan to remain active in real estate markets, but they will be more conservative in their acquisitions this year. That’s according to a survey of about 300 investors focused on the region who were surveyed as part of the “CBRE Americas Investor Intentions Survey 2019.”

However, the number of investors planning to increase purchasing activity this year fell to 31 percent versus 45 percent in 2018, according to the data. The share planning to decrease purchasing this year increased to 25 percent over last year’s 12 percent. Researchers noted that both of these changes are U-turns of the trend that was seen over the previous two years. The difference between investors planning to spend more over those who are planning to spend less declined to 6 percent. That’s a significant drop from last year’s 33 percent, and it’s one-fifth of the average of 30 percent since 2014.

Even so, investors surveyed are more interested in a higher acquisition volume than last year, and 44 percent said they plan to spend the same amount as they did in 2018. The type of investor spans, however, with 45 percent of investment managers and 52 percent of private real estate investment trusts/private funds planning to spend more in 2019. By comparison, 19 percent of institutional investors said they will spend more this year.

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Where They're Investing

While large markets in the United States—such as Los Angeles/Southern California, Washington, D.C., San Francisco/Northern California and Seattle—still are darlings, the research showed that investors are turning their interest to secondary markets. Interest in half of the Tier I markets moved down in rank compared to last year, while Tier II and III metros have moved up the list. For the third consecutive year, Tier II markets Denver, Phoenix and Minneapolis/St. Paul and Tier III markets Orlando, Nashville and Las Vegas all scaled up the ranks.

So, what’s driving investors to popular markets? CBRE researchers said that at this stage in the cycle, investors are focused on markets with strong economic fundamentals that support rent growth. Of the survey’s respondents, 76 percent mentioned it as the biggest factor that attracted them to a metro for investment. Meanwhile, expectations for higher yields and capital appreciation were much less important than rents. In fact, those sentiments have been falling since past surveys.

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Risks Ahead

Survey respondents identified several risks for investing. Broadly speaking, these can be categorized into three groups: global, domestic and internal.

CBRE noted that this year’s survey showed that 39 percent of investors are most concerned about global issues, up from 28 percent in 2017, when it held the smallest share. When it comes to real estate issues, investors are becoming less worried, with 32 percent concerned in 2019 versus 36 percent in 2018 and 38 percent in 2017.

“Investors focused on the Americas are becoming increasingly concerned about the global economy impacting U.S. property markets,” according to the report. “More respondents have cited a global economic shock as the biggest threat to real estate for three consecutive years.”

Concerns related to national economic or political issues were a bit higher this year at 29 percent but still lower than 2017’s 33 percent, according to the research.

Rising interest rates have become the second-largest threat for the past few years; however, CBRE noted that the number of investors reporting this issue as their top concern this year is almost unchanged from the previous year and less than the share in 2017.

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