Investors in the Midwest and across the country are still eager to sink their dollars into commercial real estate this year, with multifamily and industrial assets serving as their prime targets.
That’s the most important takeaway from the National Investor Sentiment Report by Real Capital Markets.
In the Midwest, investors are most interested in industrial assets, with 36 percent of investors surveyed saying that they planned on investing in this commercial type in 2018. Multifamily also ranked high on investors’ wishlist in the Midwest, with 20 percent of investors saying this asset type interested them.
This differs a bit from the survey’s national results, which showed multifamily (chosen by 35 percent of surveyed investors) just slightly ahead of industrial (33 percent) in terms of popularity among investors.
According to Real Capital Markets, the Midwest continues to attract investors because of its central location and strong ties to the nation’s distribution network. Markets such as Chicago and Indianapolis have seen significant industrial development and investment activity in recent years. Other Midwest cities, including Columbus and Cincinnati, are seeing increased investment activity and are also showing signs of future investment growth.
Chicago-based Brian McAuliffe, President of Institutional Properties for CBRE, told Real Capital Markets that he believes investors’ preference for industrial/logistics facilities and multifamily product will hold steady until there is a recovery in the retail sector. As e-commerce grows further, he predicts the market will continue to see industrial product returns outperform most other sectors and the performance of various indices.
The report also shows that nearly 60 percent of investors nationally defined themselves as value-add investors, looking for growth through renovating or repositioning properties to enhance their value. Value-add properties, though, are in short supply across the country, meaning that investors are finding it necessary to broaden their investment searches.
David Scherer, a cofounder of Chicago-based Origin Investments, said that commercial real estate professionals shouldn’t expect a flurry of value-add deals.
“There are only a finite number of assets that can be reinvented, and there is a fine line between improving and over-improving an older asset,” he told Real Capital Markets.
The survey also found that investors overall have a positive outlook. Nationally, 76.7 percent of surveyed investors said that they should be considered buyers in 2018.
A concern, though, is a lack of quality product in which investors can sink their dollars. Investors told Real Capital Markets that a lack of quality product could limit their activity in 2018.
Then there’s the weather, which plays a significant role. The survey found that better climates attract more investors. According to the survey, 37.7 percent of investors prefer the southern regions of the country while 31.8 percent find the western part of the United States most attractive.
“Investors across the country continue to see great opportunity and benefit in commercial real estate investing,” said Steve Shanahan, executive managing director of Real Capital Markets, in a statement. “Regardless of the product type or whether the strategy is core or value-add, the focus is on finding assets that can deliver strong yields that outpace other investment options.”