Colliers: Investor Sentiment Positive, Risk Appetite Moderates

Investor sentiment toward real estate should remain positive globally going forward and primary target markets will continue to draw the most interest, predicted Colliers International, Seattle.

But Colliers observed other trends as well, including more investment in smaller markets and less appetite for risk.   

“The days of ‘pass the parcel’ are over, and long-term secure investment in core markets will be the norm,” said Colliers International CFO John Friedrichsen. “At the other end of the risk spectrum, large volumes of capital already raised will increasingly seek out opportunities in tier-two cities and recovering markets.”

Colliers surveyed more than 600 investors; more than half  said they will increase their fund allocations to real estate in 2016 while only 11 percent plan to decrease it. “Real estate investment is therefore on track for continued growth in 2016, with the global investment community bullish, especially in the U.S., but also in other core markets in Europe and across the globe,” the report said.

More than half of those with multi-asset portfolios said they would increase their real estate allocations in the next 12 months.

While the search for yield pushed some investors up the risk curve toward secondary assets and more peripheral markets, the most liquid countries such as the U.S., U.K., Germany, Australia and Japan and global gateway cities such as London, Paris, New York, San Francisco, Tokyo and Sydney remain the primary target for global cross-border investors. “In entering peripheral, higher-yielding markets, liquidity is being seen as an obstacle,” Colliers said.

Investors will look for secure income and asset management to drive performance, the report said. “For some investors, it’s getting harder to achieve return expectations, particularly in ‘overcrowded’ core markets, which are seen as expensive and fully priced by many,” the report said. Some fund managers cited a growing “misalignment” between their clients’ return expectations and what the market offers.

Though international investors remain confident, recent economic volatility and geopolitical events lowered their risk appetite noticeably, Colliers said. It found particular investor apprehension that the economic environment could change at any time. “[Recent economic challenges in] China and U.S. interest rates are just two issues resonating with investors,” the report said.

Colliers predicted that more investors will use debt to finance acquisitions, suggesting that the equity phase of the cycle is giving way to a debt phase. Investors said this certainly holds true in continental Europe, where interest rates will likely stay low for longer and where they expect further easing from the European Central Bank.