Publications such as National Real Estate Investor and Retail Traffic working in tandem with major brokerage platforms such as Marcus & Millichap can be excellent sources for commercial real estate data and statistics. In fact, these publications team up to produce the mid-year NREI/Marcus & Millichap Annual Investor Sentiment Survey*. The survey is based on email responses from 526 subscribers and/or clients. The respondents are a cross-section of commercial real estate investors, developers, capital providers, and advisors, all of whom each own an average of about $43mm of commercial real estate, which by any definition indicates a fairly sophisticated crowd.
Despite all the obvious headwinds, the recent survey results would lead even pessimists to admit, “It’s getting better.” The Top Ten “Takeaways” from the survey include:
- Investors bought over $58 billion of commercial and multi-family properties during the 1st Quarter of 2012, a 46% increase from the same period in 2011.
- 58% of the respondents believe that there is more capital in the market than six months ago, fueled by historically low interest rates.
- 49% of the respondents said that they have an “abundance” of capital ready to invest.
- 60% of the respondents believe that now is the time to buy more apartments.
- 68% of the respondents expect apartment values to increase in the coming year, driven by low vacancy rates and projected 4.8% average nationwide rental growth.
- 55% of hotel owners believe now is the time to buy more hotel properties where there are a number of opportunities to snap up distressed situations and/or restructure debt. Hotel occupancy, ADR, and RevPar are all increasing, leading 60% of respondents to conclude hotel values are on the upswing.
- 53% of industrial property owners think that now is the time to buy since positive GDP growth has driven demand for space, vacancy rates nationally have dropped, and there has been minimal new construction.
- 42% more retail properties have already sold in 2012 versus the same period in 2011. Continued concern over the downsizing of retailers along with consumers’ increasing preference to shop online resulted in 55% of the respondents naming core, stable community and neighborhood shopping centers as the best potential investment opportunity over a five year hold.
- 74% of the respondents believe that commercial real estate continues to offer favorable returns relative to other investment classes…keep in mind; however, that 100% of the respondents are active commercial real estate players.
- 85% of respondents listed the fragile state of the U.S. economy as the top concern for commercial real estate investors, followed by 53% of respondents being concerned about the potential for increased taxes.
Just about the only negative sentiment came from the office sector, which has clearly lagged behind the rest of the CRE recovery. Only 37% of respondents felt that now is the time to buy office properties. Slow and uncertain job growth contributed to the sentiment. In fact, almost 50% of the respondents expected no change in office values over the next year. If you are an opportunistic and/or contrarian investor, now may very well be the time to execute an office acquisition strategy as 63% of the respondents stated that now is NOT the time to buy on office building. In Texas, however, where job creation has led the nation, not only are existing office buildings selling but new office buildings are being built. There are fifteen new buildings either announced or under construction in the Energy Corridor of Houston along with four new buildings going up in the Frisco/North Tollway area in Dallas.
At Metropolitan Capital Advisors (“MCA”), our firm can echo the sentiment that there are more ready, willing, and able capital providers back in the market. We have seen a steady flow of bank and bridge lenders enter the market since the first of the year as well as some new entrants to the CMBS pack. Equity providers do have an “abundance” of capital ready to deploy albeit they are focused on existing cash flow opportunities and/or cash flowing assets versus proposed projects with two exceptions: multifamily and medical. Despite the abundance, capital providers are being highly disciplined. Lenders are not moving way up the leverage curve, and equity investors are cautious to the point that the deal almost needs to be rated “outstanding” to get a meaningful audience.
Perhaps the best validation of our firm’s positive sentiments regarding the improving commercial real estate capital markets is evidenced by our recently hired two new team members: Brandon Wilhite has been added as a Senior Analyst to our production team, and Jessica Rodriguez has been added to our Closing Department. Meanwhile, closed debt and equity transactions for this year through the end of July 2012 have already exceeded $225,000,000. Based on our current pipeline, MCA expects a 25% to 35% increase over our 2011 closed production of $300,000,000. Indeed, we have to admit, it’s getting better!!!
*Source: National Real Estate Investor – Mid-Year 2012
Commercial Real Estate Investment Outlook