Investor Appetites Are Growing Along With Asset Prices

Commercial property investors' appetite for risk is growing, with 30% of respondents to CBRE's latest Investor Intentions Survey saying they are targeting either opportunistic or distressed assets this year. That is a record level in the seven years of the survey and nearly double the number (16%) who expressed the same sentiment in the 2020 survey compiled before the coronavirus pandemic.

For the first time since the company started taking the survey, investors expressed a preference for assets outside of coastal gateway markets. Rather, investors with more than $50B in assets under management are showing a strong interest in secondary U.S. markets.

Austin took the top spot among preferred markets this year, knocking greater Los Angeles from that position in the 2020 survey. As recently as 2019, Austin placed at No. 11 among metros attracting CRE investor interest. Dallas-Fort Worth came in second this year, as it has since 2019, with LA down to third. Also in the top 10 were Phoenix, Miami and Atlanta, all of which moved up in the rankings this year.

Investor interest in the industrial sector is particularly strong, with 36% of respondents saying that is their primary target among property types. Still, investors are showing an increasing interest in some of the properties most damaged by the pandemic, according to the survey. 

The number of investors whose primary target is hotels rose to 11% in 2021, more than at any time in the seven years of the survey. The investors interested in hotels expect to make acquisitions at more than a 30% discount compared to last year, betting on future demand growth for hospitality.

Despite tough times for retail properties even before the pandemic, investor interest in the retail sector remains about the same this year as it has been for the last four years, CBRE reports, with 10% of respondents making it their primary focus, expecting to find assets at significant discounts.

Nearly 150 Americas-based major CRE investors responded to this year's CBRE survey, which was held between December and February. 

Real Capital Analytics also reported that investor interest in CRE assets seems to be warming up, as reflected by rising prices in most sectors. U.S. commercial property price growth was up 6.8% year-over-year in February, according to RCA.

Office prices increased 2% in February compared with last year, with suburban assets doing the best, gaining 2.2% year-over-year. Prices in the industrial sector gained the fastest in February, up 8.1% compared with February 2020. Logistics demand has been driving those gains, as has demand for cold storage, RCA said. Apartment prices were up annually 7.2%.

The retail sector was again the only major property type suffering price drops, according to RCA. Retail was down 1.4% compared with last year.