As the adage goes, “rumors of real estate market collapse have been greatly exaggerated.” Although it’s still too early to tell for certain, a few green shoots are emerging. Gross fundraising in private real estate is up 40% YoY, and investor confidence has finally turned positive after two years of decline. Investor sentiment has an enormous impact on CRE performance, as demonstrated by a wide range of research (e.g., Damaso and Tsolacos, 2021; Savills, 2017). While fears of a real estate meltdown have certainly been exaggerated, there’s no doubt that the recent market volatility has had a significant negative effect on investor confidence.
In fact, the most common concern among investors remains the high cost of financing, with 74% citing this as a top challenge, replacing the lack of inventory as the most cited problem. Meanwhile, the issue of steep home insurance premiums continues to be a major pain point for investors; 68% reported that insurance issues have limited their investment activity. Also read https://www.jdhousebuyers.com/
For the second year in a row, despite being one of the most risky sectors, multifamily jumped to the top of investor preference. The sector has been supported by strong population growth, as well as the ongoing structural shift towards renting. Similarly, student housing and retail warehouses have both seen a marked improvement in investor sentiment, with the latter benefitting from a reversal of the yield compression that had previously limited investment in the sector. In contrast, investors remain cautious about prime office space and high street retail.
Despite the current challenges, investors still believe that property prices will be higher than they are today. For example, 88% of flippers and 86% of rental property investors anticipate that home prices will continue to rise this year. Moreover, almost all investors – 92% of flippers and 87% of rental property investors – plan to invest in properties close to home – with 35% purchasing within their hometown and 87% investing within their state.
In addition to the above, the survey asked investors about their outlook for employment and space markets, construction costs and capital markets, all of which have an impact on CRE investment fundamentals. For each of these questions, respondents were given a range of choices from optimistic to pessimistic. Those that select the most optimistic option for each question are shown in the graph below. The index scores reflect the respondents’ expectations for each of these factors over the next 12 months.
