Investor Sentiment Comes Roaring Back

GlobeSt. – Investor sentiment is as strong as pre-COVID levels, according to a new report from Marcus & Millichap – and more than a third of investors the firm surveyed say their properties are operating better than they were before the pandemic.

The firm’s semi-annual investor survey clocks investor sentiment at 165, exactly in alignment with their February reading.

“It’s signaling a cautiously optimistic outlook and suggests investment activity will likely remain relatively strong in the second half of this year,” said John Chang, Senior Vice President and Director of Research Services at Marcus & Millichap.

In contrast, sentiment last August was down to 140.

“While that was a significant tumble from where we were before the pandemic, it’s nothing like what we saw during the financial crisis, when sentiment fell to 91,” Chang says.

Half of the respondents in the survey plan to increase their CRE holdings in the next year, with hotel investors being the most inclined to expand their portfolios, while 42% plan no change. Just 8% plan to decrease their holdings.

Investors in all types expect property values to rise in the next 12 months, with seniors housing investors leading the pack and predicting a 7.5% increase. Industrial came in second at 7.4%, reflecting the growing demand for industrial space, followed by  apartments at 6.7% anticipated value increases, an estimate that’s being driven by demand as rents deliver strong gains. Self-storage came in fourth at 6.3%, again driven by rent growth, followed by hotels at 4.8%.

Hard-hit office and retail each posted expected value growth of just 1% respectively. But “the good news there is that in both of our last two surveys investor expected negative value growth,” Chang says.

Cash flow remains a top priority for 48% of investors, followed by asset appreciation by 25% of participants, according to the survey. And that goes hand in hand with another trend Chang has identified: the flow of capital to smaller cities. More than half of investors think now is the time to buy in tertiary markets, while 34% say it’s time to buy in secondary markets.

About 81% of investors surveyed expect interest rates to rise over the next year, while 80% expected higher capital gains taxes into 2022. Investors are fairly evenly divided on the future of the 1031 exchange, however, under the Biden Administration.