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Avison Young: Investors still like commercial real estate, but they do have concerns

Avison Young: Investors still like U.S. commercial real estate,ph01

There remains no better place for investors to place their money than in commercial real estate, according to Avison Young’s Fall 2017 North America and Europe Commercial Real Estate Investment Review.

And when it comes to stable real estate, the United States remains a leader, with investors from around the globe viewing the country’s real estate assets as particularly safe havens for their dollars.

“The commercial real estate sector remains awash in capital,” said Mark Rose, chairman and chief executive officer of Avison Young, in a statement. “And despite varying global economic, political and property market conditions, there is no better place to put your money than in hard assets. In short, real estate has established itself as a real alternative asset class to stocks and bonds.”

What’s interesting this year, is that Avison Young has found that investors, while still preferring to invest in real estate in gateway markets, are increasingly investing in secondary markets, like many of the markets dotting the Midwest. The reason? There simply aren’t enough prime gateway commercial real estate properties to invest in today, and many of these properties are priced so highly that they are scaring away investors.

This leaves prime commercial properties in so-called secondary markets – places like Nashville and Minneapolis/St. Paul – as attractive options for investors today.

As Rose says, investors are increasingly looking to diversify not only across product types, but across geographies, too.

The Avison Young study, which covers commercial real estate investment activity in the first half of 2017, found that, on a year-over-year basis, 21 of the 40 U.S. markets covered did report reduced investment activity. Investors during the first half of the year poured much of their dollars into office and multifamily properties here. They also invested more of their money into the U.S. industrial market than they did one year earlier.

Overall, total investment volume in the United States fell 12 percent during the first half of 2017 when compared to the same six months in 2016.

This doesn’t mean that the first half of the year was a bad one for investment activity. Avison Young said that foreign investors continued to pursue U.S. properties aggressively, with Canadian investors investing the most money in the country during the first six months of 2017. Chinese investors invested the second-highest number of dollars in U.S. commercial real estate during the first half of the year.

In particularly positive news, 16 of the 40 U.S. markets studied by Avison Young registered sales volume in excess of $3 billion in the first half of the year.

John Kevill, Avison Young principal and managing director for U.S. markets, said that investors are a bit more cautious today.

“Uncertainty in financial markets, macro-economic conditions and increasing geopolitical risk have investors largely satisfied with their real estate portfolios, and those who don’t need to transact are increasingly taking a wait-and-see approach,” Kevill said.