Investors are increasingly eyeing commercial real estate in Midwest cities such as Dayton, Cincinnati, Indianapolis, Nashville and Minneapolis, according to the latest Sentiment Report from RCM LightBox.
The report gauges the opinions from commercial real estate investors, brokers and lenders. And in good news, these commercial real estate pros said that they expect steady commercial activity for the rest of 2020. Some even predicted a surge of activity ahead of the U.S. presidential election.
According to RCM LightBox, nearly 70 percent of report participants said that investment activity levels in 2020 will be the same or higher than they were in 2019. Almost 80 percent said they believe sale prices in 2020 will be the same or higher than last year.
In little surprise, survey participants were especially bullish on the multifamily and industrial sectors. And why not? Demand remains high for both property types.
A look at the fourth quarter multifamily report from CBRE shows that apartment rents are growing steadily in several Midwest cities. In Dayton, Ohio, apartment rents grew 4.5 percent in the fourth quarter of 2019 compared to a year earlier. In Cincinnati, they grew by 3.8 percent.
Those Ohio cities aren’t alone. In Indianapolis, rents grew 3.4 percent in the fourth quarter of 2019 when compared to the same quarter in 2018. And in Minneapolis, rents grew by 3.2 percent, the same rate of growth that Kansas City, Missouri, saw. In St. Louis, rents grew 3.1 percent, while they jumped by 2.9 percent in Detroit and 2.8 percent in Omaha.
The industrial sector is an attractive one, too, for investors.
Corporate supply chain realignment, the dramatic rise in e-commerce activity and an abundance of capital continue to support a steady flow of investment activity in this according to the RCM LightBox report.
“E-commerce is doubling and redoubling, and the marketplace is working to catch up to Amazon,” said Geoffrey Kasselman, senior vice president and partner with CRG, a Chicago-based national real estate development and investment firm.
According to Kasselman, the large portfolio buys by Blackstone and others are reshaping the investment market and are pushing smaller investors to seek yield in secondary markets.
“In the Midwest in particular, that means looking at markets such as Detroit, Indianapolis and Milwaukee,” Kasselman said.
Overall, the industrial market has been dominated by large portfolio sales. This is true in core markets as well as in growing secondary markets, including the busy Midwest city of Nashville.
“We’ve seen a lot more industrial portfolio sales in Nashville,” said Sue Earnest, principal in Avison Young’s Nashville office.“You have to make the numbers work 10 years from now or two years from now and when you buy a portfolio you can allocate your dollars in different markets to hit your returns.”
The RCM LightBox report credits lender discipline as one of the factors keeping the commercial real estate market so strong. Following the Great Recession, strong lending requirements have provided needed checks and balances, according to the report.
“The difference in this cycle versus similar points of other cycles is that we all have a lot more equity in the deals than what was done historically,” said Tracy Ayers, senior managing director of Renasant Bank’s Nashville office.