Posted on | March 6, 2019

Written by Dennis Kaiser

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The search for yield in a late-cycle environment is drawing more commercial real estate investors into secondary markets and alternative assets, according to Los Angeles-based CBRE’s 2019 Americas Investor Intentions Survey. The survey, which covers all asset types, found that investor appetite for risk is lessening in 2019.


The most common motivation for purchasing real estate this year is to secure a stable income stream (32%), a much higher share than in past years, followed by expectations for capital growth (20%). Value-add remains the preferred asset strategy (37%), with interest in good secondary assets (33%) increasing for the fifth consecutive year.


CBRE’s Chris Ludeman says, “Continued strong real estate fundamentals, combined with historically deep debt and equity capital markets, provide good momentum for 2019. Investors are reducing risk and protecting income streams through diversification. Pricing is at or near the previous peak for most asset types in prime locations, so investors are seeking yield in secondary markets and alternative asset types”.


While Los Angeles/Southern California and Dallas/Ft. Worth maintained the two top-ranked positions for property purchases, more investors are shifting their attention to smaller markets. Several secondary markets have risen in the rankings, with Denver, Phoenix, Orlando, Nashville, Minneapolis/St. Paul and Las Vegas all ranking higher than they did in the prior survey for the third year in a row.


The survey revealed that 40% of respondents are actively pursuing one or more real estate “alternatives.” Real estate debt remains the most common of the niche sectors (52%), with self-storage, seniors housing, and student housing the next most popular, each favored by nearly 30% of investors.


Overall, the CBRE survey shows that investors will remain active in commercial real estate markets this year, with 98% of respondents intending to make acquisitions. A shift toward greater caution has emerged, with the share of investors planning to either maintain or increase spending in 2019 falling to 75% (from 88% in 2018).


Industrial and Logistics remains the preferred property type for investors (39%). Multifamily, which was displaced from the top sector in 2017, regained considerable ground this year to closely follow in second place (37%). Office is the third most attractive property type for investors (10%). Despite competition from e-commerce, the share of investors focused on the retail sector has held steady over the past three years (9%).