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For years, multifamily has been the preferred bet for agnostic commercial real estate investors. But bulwarked by the continued rise of e-commerce and changes among manufacturers and retailers to optimize supply chain management, the industrial sector is giving multifamily a run for its money.
The sentiment is based on exclusive research gathered as part of NREI’s fourth annual survey of the industrial real estate sector. Whether it comes to occupancy rates, rents or even cap rates, sentiment has improved from a year ago. In addition, fewer respondents are worried about the potential for overdevelopment, with a substantial minority worried that, in fact, too little new construction is taking place. And the percent of respondents saying they were looking to buy industrial real estate (vs. holding or selling) also increased.
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The single-tenant net lease sector is a bedrock of commercial real estate investment. With a foundation of long-term leases to stable tenants, the sector is always a popular bet for a variety of commercial real estate investors. And all signs point to the sector remaining in solid shape for the foreseeable future, even in what many are viewing as the late stages of the current real estate cycle, at least according to the results of NREI’s most recent exclusive research into the sector.
Sentiment on the sector remained consistent with 2017. This year, 15 percent of respondents said there is too much supply on the market for investment—up slightly from 13 percent in 2017 and 7 percent in 2016. Overall, 35 percent said there is the “right amount” of supply, which is consistent with both 2017 and 2016 results. Meanwhile, 27 percent said there is “too little” supply, down from 29 percent in 2017 and 35 percent in 2016.
Despite the overall consensus that commercial real estate is in the late stages of its current cycle, investors in the office sector continue to see strength in the sector. Expectations for rents and occupancies remain bullish. And while there is a general sense that cap rates will rise, respondents overall remain optimistic about the prospects for the space.
Those were among the findings in NREI’s fourth annual research survey aimed at gauging sentiment about the office sector for the coming year.
Retail real estate’s troubles in recent years have been well-documented. Online sales continue to eat away at brick-and-mortar activity. Many chains are struggling, forced to scale back on stores or go out of business entirely.
The results from NREI’s fourth retail real estate survey reveal that the outlook from retail operators, investors and developers continues to be bleak. Sentiments on cap rates, occupancies and retail rents all declined from past years. And respondents see retail as having the dimmest outlook of any of the major property sectors.
On a scale of one to 10, with 10 being the most attractive, retail scored 5.5 in this year’s survey. The number has dropped for three consecutive years and leaves retail at the bottom of the list compared to office, industrial, multifamily and hotels. And whereas in past years the spread between the top and bottom property types was not that great, retail’s score in this year’s survey is well below the highest-scoring sector (industrial), which rose to 7.6.
Despite intensifying concerns about the maturity of the current commercial real estate cycle, publicly-traded REITs remain on solid footing and have good options for deploying their capital.
That is the conclusion of NREI’s third research survey exploring the state of publicly-traded REITs.
Among the findings:
- Industrial REITs strengthened their hold as the most favored asset class, while retail REITs stayed firmly on respondents’ “sell” lists.
- More respondents view the climate as being amenable to mergers and acquisitions than during the previous two years, but respondents are less sure about REITs being net buyers on a property-level basis.
- Respondents continue to endorse property-level debt as the best avenue for tapping capital markets in the current environment.
- Most respondents think REITs should focus on paying down debt.
Seniors housing has carved out a larger place in investors’ commercial real estate portfolios due to the compelling demographics and a track record as a steady performer in both up and down market cycles. Yet even as capital continues to flow into the sector, the fifth annual NREI / NIC seniors housing survey indicates a note of caution creeping in because of how much new supply is coming into the market.
Broadly speaking, respondents in this year’s survey remain confident in seniors housing’s stable fundamentals. A majority are optimistic that both occupancies and rents will continue to increase over the next 12 months. In all, 65 percent expect an increase in occupancy rates, while 76 percent anticipate an increase in rents. Both levels are consistent with sentiment from the 2017 survey, when 78 percent predicted that rents would rise and 65 percent said occupancies would rise.
Borrowers have been enjoying a robust lending climate in recent years with an abundance of capital chasing too few deals. And despite caution creeping into the market along with rising interest rates, that liquidity appears firmly entrenched.
Exclusive research from NREI’s latest finance survey shows that a majority of survey respondents expect capital sources across the board to have the same, if not more, debt capital available in 2019. Local and regional banks (30.5 percent) and institutional lenders (28.0 percent) were identified as the two sources most likely to increase allocations in 2019, followed by 26.2 percent of respondents who thought life insurance companies would have more capital to lend next year.
Multifamily has enjoyed a long run as a favored commercial property type over the past decade. And despite a recent surge in new supply that has taken some of the edge off of enthusiasm, market participants are holding onto a positive outlook.
Exclusive research conducted by NREI shows that a majority of survey respondents are predicting stable or improving fundamentals in the coming year, with a continued appetite to maintain or expand portfolios. The market remains optimistic even as concerns about high levels of construction move higher. Views on whether there is too much new construction occurring increased from 36.5 percent a year ago to 43 percent who now believe there is too much construction. Nearly one-third (35 percent) believe it is the right amount and 12 percent think it is too little, while 10 percent said they were unsure of the answer.
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High-net-worth investors (HNWI) have been a highly sought-after buyer group in recent years. Brokers moving properties have attempted to reach them. Non-traded REIT executives have marketed their shares to them. And crowdfunding groups have looked to woo them.
And with good reason. The most recent figures from Capgemini, released in June, showed that HNWI wealth grew 10.6 percent in 2017—the second-fastest year of wealth growth for the group since 2011. In all, Capgemini estimates this group of investors now has amassed $70 trillion in wealth.
In addition, the report found that real estate had risen to be the third-largest asset class for HNWIs, accounting for 16.8 percent of total HNWI assets. That was a rise of 2.8 percentage points from 2017.
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