Akerman LLP is a top 100 law firm and it recently released a report showing that both investors and lenders take a just about unanimous view of the commercial real estate market in the US. The report shows 92% of real estate executives had very little change in their optimism compared to last year or that their optimism levels remained the same.
The market has been recovering for the past six years and investors have an expectation of a slowdown as being a sign of a healthy market correction. Even though the global marketplace remains uncertain, the report shows that commercial real estate in the US is still in a favorable position and is attracting a wider and deeper pool of investors than ever before. It’s expected that offshore investment dollars will continue to come into the country which is viewed as being a safe haven for assets.
Investor focus is anticipated to shift to capital preservation from yield motivation with a growing number considering longer term investments in anticipation of the next real estate cycle. Provided the US economy continues to show growth, the report expects positive activity through to the end of this year which includes greater investor appetite in smaller markets compared to previous years.
The report found that continued low interest rates and continued improvement in the economy were to main factors for investor confidence. More than half of real estate executives viewed a volatile investment market and global disruption as being the most important issues affecting the real estate sector. Just over a quarter thought uncertain government policy and federal gridlock was a principal concern.
The report also asked executives to select the top three sources that will lead to real estate financing over the next year. Some 42% chose private equity, while 37% chose banks and 33% chose REITs. However it could be that external forces and increased regulations could bring further changes to real estate financing. Some 27% of executives thought foreign capital would remain a large source of real estate financing. Additionally, non-traditional investment vehicles including pension funds are also increasing their real estate capital allocation.
More than half of those executives who took part in the report thought multifamily real estate will continue to be the most active sector, followed by single family homes, industrial buildings, office buildings, retail and hospitality. Some 40% feel that multifamily real estate will attract the largest portion of foreign investment, with most of the capital coming from Latin America, but more than half expect China to be the main source of foreign capital for all other sectors of real estate.