Chicago has become more popular with investors, moving up from the eleventh most popular U.S. market in 2016 to number nine in 2017, according to the CBRE Americas Investor Intentions Survey 2017.
“Chicago continues to be a dynamic performer on the national stage,” said Brian McAuliffe, President, Institutional Properties, Capital Markets, CBRE. “There has been a lot of exciting office activity in the CBD and surrounding neighborhoods with several corporate relocations, and, Chicago continues to be one of the top industrial markets in the country. Investors are very comfortable with the local momentum right now.”
The 2017 survey results reveal that investors will remain actively engaged in real estate investment this year, with the majority (67%) intending to be net buyers (more acquisitions than dispositions). The percentage of net buyers has increased since 2015 (60%) and 2016 (65%). The vast majority of these investors (83%) intend to maintain or increase their purchasing activity in 2017.
Reversing 2016 trends, the industrial sector (38%) is viewed as the most attractive asset class for investment in 2017, replacing multifamily (28%), with office (18%) in third position. Reflecting the headwinds in the retail sector from e-commerce competition, only 8% of investors cited retail as an attractive option in 2017, significantly lower than the 17% in 2016. Among “alternatives”, retirement housing was the only sector with an increase in interest, albeit small at 2%. Conversely, there were sharp drops in interest in real estate debt product and the leisure/entertainment sector.
Slow global economic growth that could undermine occupier demand (22%) was identified as the greatest risk factor for real estate investors, just ahead of rising interest rates (21%). Concern that property is overpriced and “a bubble waiting to burst” (16%) is a distant third among the list of potential threats. Investors are relatively unconcerned about the potential effects of government policy measures.
“While investors expect to largely maintain last year’s investment activity levels, they also intend to retreat on the risk curve, becoming more conservative in strategy and risk appetite. This is counterbalanced by the search for yield,” said McAuliffe.
“Echoing concerns raised at the beginning of 2015, investors perceive the global economy and rising interest rates as the greatest threats to property markets; they also continue to have concerns about asset pricing. If the anticipated level of inflow into commercial real estate materializes, this should to some extent counteract any pricing pressure resulting from a rise in interest rates,” Mr. McAuliffe added.