Secondary Markets and Alternative Assets Favored by Real Estate Investors in 2019, CBRE Survey Finds

Investors Look for Stable Income Stream and Capital Growth in Acquisitions

The search for yield in a late-cycle environment is drawing more commercial real estate investors into secondary markets and alternative assets, according to CBRE’s 2019 Americas Investor Intentions Survey.

The survey, which covers all asset types, found that investor appetite for risk is lessening in 2019. The most common motivation for purchasing real estate this year is to secure a stable income stream (32%)—a much higher share than in past years—followed by expectations for capital growth (20%). Value-add remains the preferred asset strategy (37%), with interest in good secondary assets (33%) increasing for the fifth consecutive year. 

While Los Angeles/Southern California and Dallas/Ft. Worth maintained the two top-ranked positions for property purchases, more investors are shifting their attention to smaller markets. Several secondary markets have risen in the rankings, with Denver, Phoenix, Orlando, Nashville, Minneapolis/St. Paul and Las Vegas all ranking higher than they did in the prior survey for the third year in a row.

The survey revealed that 40% of respondents are actively pursuing one or more real estate “alternatives”. Real estate debt remains the most common of the niche sectors (52%), with self-storage, seniors housing, and student housing the next most popular—each favored by nearly 30% of investors.

“Continued strong real estate fundamentals, combined with historically deep debt and equity capital markets, provide good momentum for 2019. Investors are reducing risk and protecting income streams through diversification. Pricing is at or near the previous peak for most asset types in prime locations, so investors are seeking yield in secondary markets and alternative asset types,” said Chris Ludeman, Global President, Capital Markets, CBRE.

Overall, the survey shows that investors will remain active in commercial real estate markets this year, with 98% of respondents intending to make acquisitions. There has been a shift toward greater caution, with the share of investors planning to either maintain or increase spending in 2019 falling to 75% (from 88 percent in 2018).

Industrial & Logistics remains the preferred property type for investors (39%). Multifamily, which was displaced from the top sector in 2017, regained considerable ground this year to closely follow in second place (37%). Office is the third most attractive property type for investors (10%). Despite competition from e-commerce, the share of investors focused on the retail sector has held steady over the past three years (9%).

Investors see a global economic downturn as the greatest threat in 2019 (36%), with the share rising for the third consecutive year. Rising interest rates have been the second-biggest concern for the past three years (17%), although this share is essentially unchanged from last year and is less than in 2017.

Survey respondents and methodology