Where is commercial real estate investment headed toward mid-year? The 2020 RCM LightBox Investor Sentiment Report points to a potential surge of activity, followed by a pause ahead of the U.S. election. Report participants noted the intersection of strong market fundamentals, ample investor capital, the potential for increasing headwinds generated by a slowing economy, and other factors driving activity.
“I think in the first half of the year, capital will rush to put money to work ahead of the election and before the Fed changes its mind on interest rates,” says K.C. Conway, MAI, CRE, CCIM Chief Economist and Director of Research & Corporate Engagement, Alabama Center of Real Estate (ACRE).“The wind is at your back for the first six months.”
The report, which incorporated views from investors, brokers, lenders and economists, noted that nearly 70 percent of participants believe investment activity levels in 2020 will be the same or higher than in 2019. Almost 80 percent believe sale prices in 2020 will be the same or higher than in 2019.
“We’ve reached a point in this current cycle, where optimism and discipline continue to prevail and drive investment activity, but not necessarily for everyone,” says Tina Lichens, COO, RCM LightBox. “Investors expressing a more cautionary tone aren’t completely pulling back but instead are adapting their investment profile and looking at different markets and risk profiles.”
Phoenix Leads for Multifamily
The hottest sectors continue to be multifamily and industrial, which have each had significant investment levels in recent years. Among the strongest U.S. multifamily markets are Phoenix and Orlando, (with Austin close behind), where there continue to be strong opportunities for rent growth.
“Phoenix may be the hottest multifamily market in the country,” adds Brian McAuliffe, President, CBRE | Capital Markets. “It is the market that on various levels is outperforming almost any other across the country. Investment and development activity is strong there; rent growth is occurring at a rate of approximately 8 percent annually.”
In markets like Phoenix there has been strong cap rate compression. Two years ago, multifamily assets in Phoenix were trading at an approximate 5% cap rate, moving to a 4% cap rate today. Comparatively, in Austin, cap rates over the last two years have remained at about 4.5%, according to the report.
See the 2020 RCM LightBox Investor Sentiment Report for details on:
- How investors, developers and lenders are shifting strategies
- What landlords are looking for to better evaluate tenant stability
- The top threats to CRE investment