The 2014 Real Estate Outlook Survey from financial advisory firm KPMG revealed that, of the 100 senior commercial real estate executives surveyed, 68 percent expect to increase capital spending in 2014, up from 60 percent in 2013. However, where those executives plan to invest their capital has changed significantly from last year’s survey results.
When asked which types of properties they are looking to invest in, respondents showed a preference for lesser quality acquisitions, while interest in development remained similar to last year’s responses. Only 25 percent of respondents said they would be acquiring Class A assets in primary markets, down significantly from 48 percent in 2013, while distressed assets represented 17 percent of responses, up from 7 percent the previous year, and Class B/C assets represented 14 percent, up from only 3 percent in 2013.
“As pricing in primary markets continues to climb due to the large influx of investment dollars in recent years, real estate executives are developing assets and deploying capital in secondary and tertiary markets to generate higher yields,” said Greg Williams, national leader of KPMG’s real estate practice, in a statement. “This is a trend we will continue to see as real estate companies look to manage assets effectively and create alpha in this slow-growth economic environment.”
When asked to identify the regions with the best real estate investment opportunities in the US, the Southeast (48 percent, up from 28 percent in 2013); Southwest (33 percent, down from 45 percent in 2013); and Midwest (31 percent, up from 16 percent in 2013) were named the top spots. Outside the US, executives find South America, the Asia-Pacific region and Central America the most attractive.
“Real estate investors are showing renewed interest in the Southeast given the manufacturing boom underway in the region and the expansion of the Panama Canal, which will bring dramatic changes to ports, cities, distribution centers, manufacturers and transportation hubs along the coast,” said Chris Turner, Southeast leader of KPMG’s real estate practice, in the survey.
Respondents emphasized their interest in new markets with their answers regarding where senior management would be putting its time and energy over the next 12 months. Indeed, ‘entering into new markets’ proved the most popular response, representing 28 percent of the polled group, versus just 16 percent last year.
Meanwhile, respondents expect an uptick in development across all asset classes, with the multifamily sector remaining the clear favorite among real estate executives. When asked how much development will commence in the US in 2015, multifamily was identified as the top sector with 53 percent of respondents expecting a ‘significant amount’, up from 43 percent in last year’s survey. Thirty-four percent of respondents expect a significant amount of development in hospitality, up from 18 percent in 2013.