Conservative Investor Outlook Extends Real Estate Cycle as Economy Approaches 10th Year of Growth.
Investors kick off 2019 with a favorable, though more cautious, outlook; Sentiment on par with past peak.
By Beth Mattson-Teig
Investors coming off another robust year of investment sales activity appear to be adopting a more conservative outlook, but sentiment levels point to an active 2019.
The latest NREI/Marcus & Millichap Investor Sentiment Survey shows that the Investor Sentiment Index notched back slightly from the 150 recorded in the second half 2018 survey [Figure 1]. “Although the index remains elevated, the modest reduction of Investor Sentiment reiterates caution sparked in the fourth quarter,” says John Chang, senior vice president, director of research services at Marcus & Millichap. The caution weighing on sentiment likely reflects sensitivity to interest rates and the length of the growth cycle, he adds.
The outlook for improving property fundamentals is slightly more neutral than the prior survey. Forty percent of respondents anticipate that property values will rise faster in the next 12 months; 38% were neutral; and 22% do not believe values will rise faster in the coming year. That sentiment is consistent with a broadly held perception (70%) that values are near a cyclical peak. Nineteen percent were neutral on their view on whether values were at a peak, while 11% do not consider values to yet be at
a cyclical peak. This belief reiterates the conservative investor outlook, and it will influence how they will allocate their investments this year.
“I think people generally feel good about where things are going over the next year to 18 months, but looking beyond that timeline shows a little bit more concern about the economy, and investors are taking a slightly more cautious approach as they underwrite investments,” adds Chang.
Another issue that is weighing on sentiment is the political climate, which has emerged as a top concern in the survey. There are geopolitical issues people are watching, such as tariff negotiations, the softening of European economies and the divided congress. These factors cloud the longer-term outlook, he adds.
Political uncertainty, unforeseen shocks to the economy and rising interest rates were cited as the top concerns for about half of respondents. One notable shift from the prior survey is that concerns related to political uncertainty/ geopolitical issues increased from 44% to 51%, while there was actually a decline in the number of respondents concerned about rising interest rates, which dropped from 67% to 50%.
