Colliers International survey reveals buyers are ‘most likely’ to expand their portfolios in next six months, but lack of supply, financing, and economic and political uncertainty make them reluctant.
SEATTLE, October 3, 2011 – More than eight of ten U.S. real estate investors are planning to expand their real estate portfolio in the next six months, according to the 2011 Colliers International Global Investor Sentiment Survey released today. The survey takes the pulse of property investors worldwide, measuring their appetite for risk, optimism, key concerns and sense of market cycles. The expansionist mentality in the U.S. was echoed around the globe.
“Far more investors are looking at expanding their portfolios compared to last year,” said James W. Horne, executive sponsor of Colliers’ Global Investor Sentiment Survey. “However, talk of a double-dip recession continues to occur. Toward the end of 2010, most economic commentary was becoming more confident; however, this is not the case now.”
The majority of U.S. investors responding to the survey opined that the market cycle was on the upswing, between the 6 o’clock and 8 o’clock position. The bottom of the market is represented by the 6 o’clock position, the peak at 12 o’clock, upswing at 9 o’clock and downswing at 3 o’clock. Most investors said that over the next year, the market would be between 8 o’clock and 10 o’clock.
The overwhelming determinant of whether U.S. investors would be able to grow their portfolios was the supply of properties for sale, with 62 percent citing it as their primary concern. Raising new equity and access to debt were the second and third most cited determinant at 20 and 11 percent, respectively. Despite these concerns, 60 percent of U.S. investors said they are willing to take on more risk.
“Most U.S. investors say they are moving further out on the risk curve relative to six months ago,” said Warren Dahlstrom, president of Colliers International’s U.S. Investment Services Group. “This most likely reflects the dearth of low-risk, fully leased prime real estate currently on the market, and investors being forced into secondary markets and accepting a degree of vacancy.”
According to the survey, U.S. investors’ expectations for return on investment were spilt evenly across the board. About one-third of respondents sought returns in the five to 10 percent range, one-third was looking for returns above 15 percent and just less than a third (32 percent) were in the middle, seeking returns of 10 to 15 percent.
While U.S. investors did not specify a single city, state or region as the target of their investment dollars, many remained focused on primary markets in California, Texas, New York/New Jersey, Washington and Boston. Industrial and multifamily were the market segments respondents said were most desirable, followed by office and retail. Most U.S. investors also expressed a desire to purchase domestic property, but there was an increase in the percentage of respondents who said they were willing to invest overseas. Of those, Canada, Australia and Brazil were top choices.
On a global basis, the majority of investors surveyed believe tenant demand is rising, availability and vacancy are falling, and headline rents are on the rise. This outlook suggests they have the confidence to make buying and selling decisions—a confidence absent in 2008 and 2009, when investment sales dwindled to a fraction of their usual volume.
In the first half of 2011, about 9,250 investment properties worth US$350 billion changed hands, an increase of 30% in volume over the same period in 2010. The US was the most significant driver of this global figure, with a 124% increase in its investment transaction volume.
Investors globally suggest they’re willing to move off the sidelines and back into the buying pool, with 70.7% of investors “most likely” and 15.9% of investors “somewhat likely” to expand their portfolios in the next six months. In the 2010 survey, only 60% of investors said they planned to expand their portfolio in the coming year.
Despite a willingness to buy, a common complaint among investors was the lack of property for sale—nearly half of investors said this was an impediment to their expansion plans. Additionally, 70% of investors said the prices of commercial real estate assets have risen too swiftly.
On a regional basis, key concerns included:
• Asia, Latin America and Australia/New Zealand: Global economic health
• US:Local economic health
• Europe:Government policy
Colliers International’s proprietary Global Investor Sentiment Survey integrates the opinions of 360 major institutional and private investors representing seven world regions (Asia, Australia/New Zealand, Canada, Europe, Latin America, Middle East/Africa, and the United States).
Global highlights from the report:
• What are the barriers to expansion? In the Middle East and Africa, political risk is a key factor. In Asia, economic uncertainty is seen as the greatest risk. In Australia, the key concern is equity.
• Which investors have the greatest appetite for risk? 64% of Canadian investors and 60% of US investors said they are more aggressive than six months ago, a stronger shift in risk tolerance than any other region.
• Most investors are interested in buying within their own region. The investors most interested in purchasing outside their own region were from Canada and Asia.
• Investors in Asia, Australia/New Zealand and Latin America see increased demand for suburban office space, while investors in other regions see a trend toward recentralization, resulting in lower demand for suburban office space.
• Latin American investors were most pessimistic, believing they are at the peak of the market. However, they also noted that there is insufficient supply of properties for sale, suggesting that investors are still interested in buying.
The Global Investor Sentiment Survey was conducted by Colliers International Research in collaboration with senior professionals from Colliers International’s Global Investment Services division. The survey was conducted Aug. 1-15, 2011. A comprehensive 40-page report is available at www.colliers.com/globalinvestment.
About Colliers International
Colliers International is the third-largest commercial real estate services company in the world with 12,500 professionals operating out of more than 500 offices in 61 countries. A subsidiary of FirstService Corporation (NASDAQ: FSRV; TSX: FSV and FSV.PR.U), it focuses on accelerating success for its clients by seamlessly providing a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and research. The latest annual survey by the Lipsey Company ranked Colliers International as the second most recognized commercial real estate firm in the world.
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