Economy Watch: How Are CRE Investors Feeling?

A recent report by Preqin elaborates on CRE investors' perception of the asset class and how they view their own private real estate.

Strong consumer sentiment is all well and good, but it’s also important for the health of the commercial real estate market for major institutional investors to be happy too. Otherwise they might be inclined to take their capital and go elsewhere. Fortunately, according to a recent report by Preqin, there’s a general sense of satisfaction among real estate investors, with the majority of them holding a positive perception of the asset class and 91 percent believing that their own private real estate investments have met or exceeded their expectations in the previous year. These were some of the main takeaways of the company’s “Investor Outlook: Real Estate H2 2015.”

Most of the investors (57 percent) surveyed for the report have a positive perception of the real estate right now, which is a sizable change in sentiment from the 37 percent that felt this way as recently as December 2014. Still, 6 percent have a negative perception of the industry at present, which none stated at the end of 2014. Thus, while most investors are optimistic about real estate, some small fraction of investors clearly see a lot of potential black swans for the asset class. Key concerns cited even by optimistic investors included inflated asset prices, a highly competitive deal environment, and worries over the eventual performance of real estate. Other concerns included macroeconomic volatility, which can always be good for knocking otherwise sound real estate markets for a loop.

Positive sentiment is driving further investment in the asset class; 78 percent of surveyed real estate investors expect to invest the same amount of capital, or more, in real estate in the next year compared to the previous 12 months, the reported noted, and further growth in real estate is expected over the long term as more investors are planning to increase their allocations than reduce them. Also, investors are betting big on CRE: they plan to commit significant amounts of capital to real estate,with 23 percent of respondents planning to invest more than $300 million and 8 percent are targeting $600 million or more.

Worldwide, big players tend to be more interested in real estate, according to Prequin. Larger institutions are more likely to be active in the next year, with 54 percent of respondents who have $10 billion or more in assets under management expecting to make, or are considering making, new fund commitments in the next year, compared to 46 percent that have less than $10 billion in assets. Still, the gap between large and small institutions buying real estate has dropped since the end of 2014, indicating a wider scope of institutions willing to give real estate a go.