An Opinion Gap Emerges Over Buying Opportunities

Investors are optimistic about buying opportunities across the core commercial property classes—but there’s an opinion gap between investors in general and those who own each property type.

Marcus & Millichap’s latest investor sentiment survey reached its highest level since 2015, according to John Chang, senior vice president and director of research services. Apartment sentiment remains strong, with 36% of those surveyed saying they think it’s a good time to buy, while  43% of active apartment owners consider now to be a good buying opportunity.

“Most people see the high apartment prices and assume these properties may be priced at a peak with unsustainably low cap rates—but active apartment investors see a broad-based housing shortage that won’t go away soon, and record low vacancy rates” Chang says. “Apartment investors think values will rise by 8.6% in the next year.”

Around 32% of surveyed real estate investors think it’s a good time to buy hotels, compared to 45% of active hotel owners. The reason?

“In general, people think hotels are still getting crushed in the aftermath of COVID,” Chang explains. “The insiders know that occupancy rates for limited service hotels are basically back to pre-COVID levels and the average daily rate for limited service properties is now higher than it was before the pandemic.” He says hotel operators anticipate values will rise by 7.3%.

On the industrial front, 40% of real estate investors think the sector is doing well but that prices are a tad high. But 58% of industrial property owners think there’s still a buying opportunity—and “that’s a big perception gap,” Chang says.

“The insiders know that supply chain shortages have been a major factor, driving the need for increased local warehouse storage to cover shipping shortages,” he said, adding that industrial investors think values will rise by 7.4% in the next year.

The so-called perception gap is narrower with the office sector, Chang says, owing in part to ongoing uncertainty around return-to-office plans. Marcus & Millichap data shows that 19% of investors in general say now is a good time to buy as opposed to 28% of office asset owners.

But “the insiders know that office absorption has been positive and rising for three quarters in a row,” Chang says. “There are pockets of strength, especially in the suburbs.” Office investors predict prices will rise by 2.4% this year.

The retail sector is also betting on a big recovery, with 35% of current asset owners saying now is a good time to buy as opposed to 20% of general real estate investors. Chang says the sector wasn’t hit as hard as some may think, and that as COVID restrictions loosen, retail has a strong trajectory. Retail investors expect 3.7% price growth this year.

Seniors housing has the largest perception gap, according to Chang, with 70% of insiders seeing opportunity as opposed to 48% of general investors.  Chang says the sector is going through a consolidation cycle, and notes that investors say they predict a 9% uptick in value this year.

Finally, self-storage continues to outperform, with 54% of current owners saying now is the time to buy as opposed to 42% of investors more generally. Vacancy is at an all-time low, and the prospect for new deliveries in the short term remains muted as material shortages plague the building industry.