Breaking it down | Interpreting the latest RCM sentiment report

Earlier this year we released the findings of our second National Investor Sentiment Report. Key findings of the report included:

  • Multifamily assets are still viewed as the most attractive investment property type for investing nationally (35 percent); industrial product is a very close second (33 percent).
  • The regions of the country that were the most popular were the South (38 percent) and West (32 percent)
  • Investors are still buying and are focused on value add opportunities, a trend that likely will only increase with tax law changes

One of the interesting things about data, and the results of our regular investor sentiment reports, is that we can further break down the numbers and look at the responses of various cross sections of survey participants. This allows us to see things from different angles and also to dig a little deeper into the more interesting topics.

For example, we looked closer at the responses of those participants that identified the South and West regions as being the most appealing for investing.

  • Multifamily and industrial assets were viewed as the most attractive in both regions. Yet, geographic preference made a difference, and created a much larger gap between choices. Those preferring the South were overwhelmingly more attracted to multifamily assets than industrial—44 to 26 percent. Conversely, those preferring the West clearly favored industrial assets—41 percent to 35 percent.

The likely explanations for these regional findings include the presence in the West of dynamic and important industrial/logistics markets. The Inland Empire, for example, drives significant activity in the West. Further, the Southern region is a natural for multifamily investors, with a significant number of cities among the fastest growing population centers in the country.

  • Regardless of regional preference, investors are most attracted to value add and opportunistic strategies. That being said, once again there are some significant differences. Nearly 65 percent of those with a preference for Southern properties have a value add focus, versus just 46 percent for those with a Western preference.

Generally, those preferring investments in the South are more attracted to multifamily assets. These assets are viewed by investors as logical candidates to be renovated and repositioned.

There were other interesting differences between the Southern and Western regions, like the impact of interest rate hikes on acquisition activity levels.

  • Nationally, more than 53 percent said hikes would make no difference in their investing activity. When looking specifically and responses for those preferring to invest in the South, the number was even higher at 57 percent. Further, only 28 percent with a preference for assets in the South said increasing interest rates would make them less of a buyer. Yet for investors with a Western preference, 43 percent of investors said increasing interest rates would make them less of a buyer; fewer, 41 percent, said rising interest rates would make no difference at all.

The results of the National Investor Sentiment Report provide some very interesting findings. With some of these findings, time will tell how they play out and which will contribute to what will be a very interesting year in commercial real estate capital markets.

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