To keep things moving in CRE, marketing has to be targeted and relevant. That means knowing the customer and understanding their priorities. Studying market trends and the characteristics of in-demand properties is a useful practice for tuning in to the investor in your marketing strategies.
If we had to name one thing that investors are looking for, it would be returns. The prospect of relatively solid returns with low risk is the thing that is drawing increasing numbers of investors to CRE .Major players and pension funds are showing great interest in CRE, and allocating more capital to real estate. While institutions were 8.89 percent invested in real estate in 2013, their target allocations were 9.38 percent for 2014, with an additional increase of 24 basis points to 9.62 percent for 2015. That represents an influx of $511 billion in capital globally.
This trend has been underway for several years, as large investment funds look to allocate larger percentages of capital to real estate, according to NREI. “Pension funds have a stronger demand for real estate, because yields are compelling compared to alternatives such as equities and bonds. In addition, the fundamentals are relatively stable, with no concerns of oversupply, and cap rates have moderated.”
To capitalize on this trend, we need to know what specific deals are most attractive to CRE investors today. Read on for a discussion of some of the properties and markets that are getting their attention.
Lower-priced secondary markets
CRE investment and development activity has been strongest in recent years in the 24-hour city markets like New York, Los Angeles, San Francisco, Miami, Boston, Chicago, Dallas, Houston, and Seattle. Some investors are finding that their class A properties in these markets are trading at sub 5% cap rates. They may look to sell these and invest the proceeds in secondary and tertiary markets where risk adjusted cap rates are in the 6%-8% range.
As vacancy rates and rents remain solid across all CRE sectors, investors who were previously hesitant to enter secondary and even suburban markets are beginning to consider them. One exception to this trend: international investors are less likely to venture into these secondary markets.
American CRE continues to enjoy the attention of international investors attracted by our relatively stable economy and transparent business practices, as well as some favorable changes in tax law. In 2015, foreign purchases of U.S. real estate assets rose to $62 billion over the 12 months ending in October, according to Real Capital Analytics, with Canada, Norway, Singapore, and China all leading the wave.
Foreign investors are most active in major markets. For example, The Real Deal reports that since January 2013, of all the Manhattan commercial sales that foreign buyers were involved in, about 39 percent were office properties and 15 percent were hotels.
International investors are also big on multi-family. NREI reports that “foreign buyers have already bought apartment properties totaling $5.1 billion in the first six months of 2016. That’s a 7.1 percent share of the total $72.3 billion in apartment assets that investors of all types bought in the first half of the year.”