Investors find confidence thanks to U.S. tax reform

Capitol building with Tax Reform text
Photo credit: Getty Images/pabradyphoto

When it comes to commercial real estate, investors are looking to the year ahead with confidence thanks to U.S. tax reform, according to a new research report from Marcus & Millichap.

According to the firm’s NREI/Marcus & Millichap Investor Sentiment Survey from the first half of the year, the Investor Sentiment Index grew to 163. That compares to the index’s 150 figure reported in the third quarter of 2017, and it marks a change for the index that has been on a downward trend since early 2016.

“Sentiment started slipping as uncertainty surrounding the presidential election began to take hold, and the trend continued through 2017 as the direction of federal fiscal, tax and monetary policies came into question,” according to the report titled “First Half 2018 Commercial Real Estate Investment Outlook.”


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However, due to tax-law changes, 68 percent of survey respondents said that they expect the economy to grow faster. Meanwhile, 71 percent said that tax reform will have a favorable impact on commercial real estate.

Additionally, the research shows that 67 percent of investors plan to increase their commercial real estate investment over the next year. Investors who expect to grow their real estate holdings said they forecast an average increase of 23 percent, according to the report.

Tax-law changes could affect capital flow into the commercial real estate sector, the Marcus & Millichap research found. Fifty-eight percent of respondents said they expected the flow of investment capital to increase due to the new tax law. Additionally, 53 percent said real estate property values are expected to increase due to tax reform.

Of those surveyed, 31 percent of investors said they planned to buy more properties as a result of the new tax law. Meanwhile, 19 percent said they plan to increase on refinancing and 13 percent said they would sell more.

New Tax Law a Win for Hotels

Because tax reform could act as a stimulus to the economy, investors, although cautious, have strengthened confidence in hotels, the research discovered. Nearly half of respondents (46 percent) said that hotel values will rise over the next year at an average of 4.1 percent.

Almost half of hotel owners said it is a good time to hold (49 percent) compared with 22 percent who believe now is the time to buy and 29 percent who want to sell, the survey found.

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Last year, survey respondents were more cautious about the outlook for hotels, according to Peter Nichols, VP and national director of Marcus & Millichap’s National Hospitality Group. He said in the report that investors were more concerned about overdevelopment risk and whether the sector had reached a peak. Now, perceptions that there is likely to be an extension of the growth cycle and declining construction are giving investors assurance.

Further, Marcus & Millichap predicts hotel performance should see steady growth. The firm forecasts occupancy will increase 30 basis points to an average of 66.3 percent this year. Average daily rate should grow 2.5 percent, while revenue per available room is expected to increase 2.8 percent.