Demand for U.S. commercial real estate assets from high-net-worth individuals — those with more than $1 million in liquid assets — rose in 2016 to $10.3 billion, according to the latest research from global property firm CBRE Group.
This marks the highest level since 2013.
Multifamily was the property sector with the highest investment volumes from HNW investors in 2016, with a total of $3.5 billion, overtaking retail at $3.2 billion, which was the most favored sector in 2015. In 2017, 37 percent of HNW investors show a continued preference for multifamily, according to CBRE Research. This was followed closely by industrial at 33 percent, with both retail and office at 12 percent.
“While the HNWI real estate activity only comprises approximately 2 percent of the total U.S. commercial real estate volume, their overall appetite for real estate product remains strong as they search for overall returns,” said Revathi Greenwood, Americas head of investment research, CBRE.
More than two-thirds (69 percent) of HNW investors intend to increase purchasing activity in 2017, according to CBRE’s research. Nearly half (46 percent) expect to keep allocations at the same level, while another 36 percent are expected to increase allocations. In terms of amounts, 86 percent plan to invest up to $500 million into U.S. CRE assets in 2017.
Some 70 percent of HNW investors cite overall returns — both capital appreciation and income returns — and yield relative to other asset classes as the main motivators for investing in commercial real estate. The risk tolerance of this group is also the same or lower than it was in 2016, with only 9 percent having higher risk tolerance. Gateway markets such as Los Angeles and New York City remain attractive metros for investment among HNW individuals; however, Atlanta was the top-ranked market, reflecting the strong multifamily market in the city.
In terms of threats, 30 percent of HNW investors are concerned property is overpriced and a bubble is waiting to burst. Nearly a quarter (24 percent) worry about occupier demand being affected by global and local economic shocks, while another 17 percent cite overbuilding leading to excess supply as a threat. Rising interest rates also are an area of concern for 16 percent. These themes continue at the asset level, with 60 percent of HNW individuals citing asset pricing as one of the biggest obstacles to investment. Competition from other investors (18 percent) and availability of assets (17 percent) were also obstacles.