CRE Investors Plan More Deal Making in Next 12 Months

CRE investment activity is likely to remain strong for the remainder of the year, according to a semi-annual survey by Marcus & Millichap.

While the poll, done in the first week of August, captured some hesitancy in respondents’ mood due to the Delta variant, inflation and labor shortages, Senior Vice President Director Research Services John Chang points out the overall sentiment of 165 is a big swing upwards from 140 at height of the pandemic and an even larger boom compared to 91 when the financial crisis of more than a decade ago was at its peak.

“Sentiment today is much stronger than it was in 2016, 2017, 2018 or even 2019,” he emphasizes.

Half of the respondents to the survey said they plan to put more money into CRE by the next 12 months with 42% indicating no change with the remaining 8% looking to scale back.

At 62%, hotel investors were the most inclined to increase their holdings.

All types of CRE values are expected to increase in the next year, the survey also found.

The investors expect senior housing values to be up7.5% in 12 months; industrial to rise 7.4%; apartments to increase 6.7%; and self-storage up 6.3%. with office and retail up by 1% each.

For office and retail, he notes in the last two semi-annual surveys, investors were predicting value declines.

Higher inflation for the rest of the year was predicted by 80% of the respondents with nearly the same (80%) expecting an increase in the capital gains tax rate in 2021 or next year. Some 39% expect the 1031 tax deferred exchanges will be gone by 2022.

Tertiary markets were seen as a good place for investment by 54% of those surveyed while only 24% thought it was a good time to invest in properties in major gateway markets.

Cash flow was a priority for 48%% of the investors. On another issue, 35% said their properties were performing better than before the pandemic.