Investors: Most Asset Classes Will See Values Rise This Year

Investors are most bullish on the industrial sector as 2021 marches on, followed by the self-storage and multifamily sectors, according to a recent survey of 500 commercial real estate investors by Marcus & Milichap.

Investors were asked to consider only the property in their current real estate portfolio in answering whether they expect property values to increase, decrease, or remain the same in 12 months, according to Marcus & Millichap senior vice president and director of research services John Chang in a recent video. The survey examined the apartment, hotel, industrial, office, retail, self-storage and senior housing sectors and grouped results into three primary clusters: momentum investments, recovery investments, and uncertainty investments.

Multifamily, industrial, and self-storage property types comprised the first cluster of momentum investments, which investors expect will maintain low vacancy rates and high rent collections. Sixty-four percent of apartment investors, 72% of industrial investors, and 71% of self-storage investors expect values to rise this year. Of those sectors, industrial had the highest investor outlook, with a 8.2% average increase in expected value and pricing, followed by self-storage at 6.5% and multifamily, which has stabilized significantly since the fourth quarter of 2020, at 5.2%.

Industrial has been on a hot streak throughout the duration of the COVID-19 pandemic as firms scramble to bolster e-commerce and last mile delivery strategies. The sector posted 8.3% annual growth—the top among all property types—in 2020, according to Real Capital Analytics. The pipeline for industrial also remains strong, particularly in cities like Indianapolis and Memphis, with new research from CommercialEdge showing that nearly 28 million square feet has already been delivered in 2021 with another 337.8 million square feet under construction.

The second cluster—recovery investors—includes hotels and senior housing, both property types that took a “significant hit” from the COVID-19 pandemic and lost both income and value. Around 59% of senior housing investors surveyed believe prices will rise 6.7% this year, according to Chang, while 47% of hotel investors think hotel prices will increase, generating an average lift of 4.3%.

Office and retail round out the third category of uncertainty investments. Chang noted that “different subtypes of retail in different parts of the country face very different realities,” and said that 30% of retail investors surveyed expect values to rise.

“But I need to point out, you cannot paint the entire retail sector with a single brush,” Chang said. “There is simply too much variance within the sector.”

In the office sector, only 27% of surveyed investors expect a price gain over the next 12 months, resulting in an average value decline of 2.7%.

“The big question is what percentage of workers will return to the office after the pandemic ends and whether office space needs have materially changed,” Chang said. He noted, however, that the results are part of an investor survey and not a forecast, and are focused on the immediate short-term of one year. For that reason, “I encourage investors to look at the longer term drivers and keep their eyes on the horizon,” he said.