Late last month, March 2021, The World Property Journal reported on the assumption of risk in the real estate market in their article “Commercial Real Estate Investors Increasing Risk Appetite in 2021.”
This article references insight from the data gathered in CBRE’s latest Americas Investor Intentions Survey. Over the past seven years, data has been collected on the annual state of the real estate industry.
The purpose of this article is to highlight the notable findings and predictions for the upcoming year.
Overall takeaways from the article include the following:
- Real estate remains strong
- Investors are diversifying
- Pandemic lows have rebounded
- Inventory is expected to remain tight
- It’s a seller’s market
It is stated that large investors have become more interested in secondary markets than primary markets. Additionally, it’s cited that 72% of CBRE survey respondents are actively pursuing investments in one or more real estate alternatives in 2021. This is an increase from 54% in 2020.
The article points out a disconnect between buyers and sellers, alluding to the continued strong seller’s market. While 70% of survey respondents stated they plan to purchase at least 20% more than last year, only 30% declared that they plan to sell at least 20% more. This disconnect between buyers and sellers is sure to continue the ongoing trend driving a seller’s market and lack of available inventory.
Overall, real estate investors appear more willing to take on additional risks than what is typical. Global President of Capital Markets for CBRE, Chris Ludeman, says “this is likely due to a stable economic environment, supported by government stimulus, and the belief that available capital will remain abundant for the foreseeable future, as well as intense competition among investors.”
Real estate investors’ willingness to take more significant risks is largely what continues to drive the industry full steam ahead. While many initially predicted the real estate market to plummet in response to the ongoing pandemic, we have seen the exact opposite be the case.
For more details, read the full article below.
Commercial Real Estate Investors Increasing Risk Appetite in 2021
Life science labs, medical offices, and single-family rentals are the most popular targets
According to new data by CBRE’s latest Americas Investor Intentions Survey, commercial real estate investors in the Americas are showing a clear shift in risk tolerance and a preference for secondary markets in 2021.
The survey, which covers all asset types, found that investor sentiment and activity began to improve in the second half of 2020, and should continue to improve this year as widespread vaccination aids the economic recovery. In a clear sign that risk tolerance is growing, 30% of investors say they are targeting opportunistic and distressed assets in 2021–this is a record level and compares with 16% in 2020.
For the first time in the seven-year history of the CBRE survey, large investors (those with assets under management of more than $50 billion) are more interested in secondary markets than primary markets. Sun Belt markets are the most appealing: Austin is the top preferred market, followed by Dallas.
Investors are also expanding the types of properties on their shopping list, with 72% of respondents actively pursuing investment in one or more real estate alternatives in 2021, up from 54% in 2020. Life science labs, medical offices, and single-family rentals are the most popular targets, followed closely by data centers and cold-storage facilities.
“Investors in the Americas appear more aggressive and will accept more risk to achieve higher returns. This is likely due to a stable economic environment, supported by government stimulus, and the belief that available capital will remain abundant for the foreseeable future, as well as intense competition among investors,” said Chris Ludeman, Global President of Capital Markets for CBRE. “While the equity markets have signaled rising inflation expectations, at the time of the survey commercial real estate investors did not appear to be overly concerned in the near term.”
Other Key Findings from the 2021 Survey Include:
- While America’s investor sentiment is improving, there is a disconnect between buyers and sellers: 70% of respondents plan to purchase at least 20% more than last year, while only 30% plan to sell at least 20% more.
- Pricing will be aggressive for logistics and multifamily assets, while discounts will be expected for other asset types.
- More than half of survey respondents have adopted environmental, social, and governance criteria (ESG) as part of their investment strategy.