Investors Upbeat, Yet Cautious About 2016

Daily Real Estate News | Monday, March 07, 2016

Investors are bullish for real estate, but they still have some hesitations, a new study says.

Ninety-one percent of recently surveyed senior commercial real estate executives say they expect real estate fundamentals to be about the same or better this year, according to KPMG’s 2016 Real Estate Industry Outlook Survey. That said, investors say they are growing more cautious about the ability to expand their portfolios and are taking steps to “de-risk” their portfolios, the survey found.

Only 8 percent of investors surveyed by KPMG say they will enter new markets. That is down from 28 percent last year.

“Investors are becoming more cautious in their decision-making as we near the end of the economic cycle, leading to changes in operations, portfolio management decisions, and the timing of their investments,” says Greg Williams, national sector leader, building, construction and real estate. “They need to be prepared for the coming change in momentum.”

Seventy-four percent of survey respondents say they expect foreign investment in U.S. real estate to increase over the next 12 months. They attribute the main reasons behind that expected surge as low interest rates, tax incentives in the U.S., and favorable risk versus return in U.S. real estate markets.

“Strong economic fundamentals, a reliable legal system, and other structural advantages in the U.S. have continued to fuel foreign interest in the U.S. real estate market,” says Williams. “The continued inflow of foreign capital has led to a significant increase in competition for the best investments, leaving many investors with a major challenge in their hunt for yield across a variety of assets and markets.”

Investors continue to be the most bullish about multifamily properties. Also, the senior executives surveyed say they are growing more upbeat about healthcare investment prospects in development, likely due to a rise in healthcare demand from aging baby boomers.

Senior execs surveyed say they are looking for opportunities to add to their portfolios without adding greater risks, however.

“This ‘de-risking’ seeks to balance the sustained interest in U.S. real estate with a growing conviction that the market’s growth trajectory may be turning soon,” says Williams.

Source: KPMG 2016 Real Estate Industry Outlook Survey (February 2016)