CRE Investors Show Increased Appetite for Risk

CBRE, Dallas, said commercial real estate investors are showing a clear shift in risk tolerance–and a new preference for secondary markets.

The firm’s latest Americas Investor Intentions Survey found investor sentiment and activity began to improve in second-half 2020 and said sentiment should continue to improve as widespread vaccination aids the economic recovery. In a clear sign that risk tolerance is growing, 30 percent of investors say they are targeting opportunistic and distressed assets in 2021–a new record level and up dramatically from 16 percent in 2020.

“Investors in the Americas appear more aggressive and will accept more risk to achieve higher returns,” said CBRE Global President of Capital Markets Chris Ludeman. “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.”

Ludeman noted equity markets have signaled rising inflation expectations recently, “[but] at the time of the survey, commercial real estate investors did not appear to be overly concerned in the near term,” he said.

For the first time in the survey’s seven-year history, large investors with assets under management exceeding $50 billion show more interest in secondary markets than primary markets. Sun Belt markets are the most appealing: Austin is the most preferred market, followed by Dallas.

Investors are also expanding the types of properties they seek. More than 70 percent of respondents said they are actively pursuing investment in one or more real estate alternatives in 2021, up from 54 percent last year. Life science labs, medical offices and single-family rentals are the most popular targets, followed closely by data centers and cold-storage facilities.

Other findings from the survey conducted between December 2020 and February 2021 include:

–While investor sentiment is improving, there is a disconnect between buyers and sellers: 70 percent of respondents said they plan to purchase at least 20 percent more than last year, while only 30 percent plan to sell at least 20 percent more.

–Pricing will be “aggressive” for logistics and multifamily assets, while discounts will be expected for other asset types, CBRE said.

–More than half of survey’s respondents said they have adopted environmental, social and governance criteria as part of their investment strategy.