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Report: U.S. Investors Taking More Risk as Economy Recovers

Prologis, Duke Realty, Goldman Sachs Group, Inc., Citigroup, Wachtell, Lipton, Rosen & Katz
Courtesy of Zhifei Zhou

By Catherine Sweeney

As the economy continues to reopen, investment activity across the nation is beginning to bounce back, CBRE found in a recent investor survey. According to the brokerage firm, the reopening of the economy has made U.S. investors more likely to take risks, targeting opportunistic or distressed assets in secondary markets. 

Results from the survey showed that investors’ tolerance for risk has grown, with approximately 30 percent of those surveyed saying they are targeting distressed or opportunistic assets this year. According to CBRE, this is the highest rate reported in the survey’s seven-year history. Compared to last year, 16 percent of respondents reported they were pursuing distressed or opportunistic assets. The survey found this is likely due to higher returns expected from greater risks, and the hope for more abundant capital as federal stimulus is injected into the U.S. economy. 

“Return expectations are mainly influenced by intense competition for premier assets and uncertainty related to the pandemic’s ultimate duration. These two factors explained why risk-averse investors, especially those who focus on high-quality assets, lowered their expected returns,” CBRE researchers stated in the report.

Of these sought after assets, the survey results showed industrial and logistics as well as multifamily were the most targeted sectors. According to CBRE, 36 percent of investors responded that they were seeking acquisitions in the industrial and logistics sector, while 29 percent are reportedly targeting the multifamily sector. 

At the same time, investors in the U.S. were reportedly less interested in other traditionally sought after sectors. For example, 14 percent of investors nationwide were seeking acquisitions in the office sector, 11 percent in the hotel sector and 10 percent in the retail sector. 

According to the survey, these sectors have been more desirable in markets with favorable job and population increases, with Austin, Dallas and Greater Los Angeles being ranked as the top three most preferred for surveyed investors in 2021. Other high ranking locations included Seattle and San Francisco. Though both saw a slight decrease in interest from investors than in 2020. 

Secondary markets are likely to continue leading the way this year as well, with other highly sought after markets including Denver, Charlotte, Nashville and Atlanta, among others. Survey results showed that among those who responded, large investors, or those with assets under management of greater than $50 billion, were more likely to seek out assets in one of these markets. 

In particular, investment in the greater Los Angeles market has rebounded significantly in the first quarter of 2021, the survey showed. As the COVID-19 vaccine continues to be distributed and confidence in investors rises, the report found that regional volumes in Southern California totaled $10 billion, which is a 19 percent increase from the same time last year. Leading the way in the region is the multifamily sector, which totaled $4.2 billion, or approximately 43 percent of Southern California’s regional investment volume, the report found. 

While industrial and multifamily sectors continue to lead the way, the report showed that there could be opportunities for other sectors in the future as well. According to CBRE, 72 percent of survey respondents said they are actively pursuing investments in an alternative sector this year. At the same time in 2020, CBRE found just 54 percent of investors nationwide to be seeking investments in alternative sectors. 

Of these alternative sectors, life sciences, labs, medical offices and single family rentals are the most popular single-asset acquisitions by investors in 2021, which is followed by data centers and cold storage facilities. According to the survey, about 30 percent of investors said they were seeking investments in one of these sectors. 

In general, the survey showed that investment activity will bounce back in all sectors, following the COVID-19 pandemic. However, a disconnect between buyers and sellers remains. While buyer optimism will come as the U.S. economy makes a full recovery, sellers likely will continue to hold onto assets for the time being. 

“This large gap between purchasers and sellers is unique to the Americas, buoyed by a healthy U.S. economic recovery, the Fed’s “lower-for-longer” interest rate stance and record-high capital targeting North American real estate,” CBRE stated in the report. “On the other hand, sellers prefer to hold assets through uncertain times and wait for valuations to stabilize.”