Trophy assets in primary markets are getting more and more expensive as the commercial real estate recovery continues. It’s getting to the point where only extremely well-capitalized entities and CRE investors are able to scoop up these properties.
That has left your average investor looking at secondary markets and assets in efforts to continue commercial real estate purchases. KPMG’s 2014 Real Estate Industry Outlook Survey puts it well when it says “there is more money chasing fewer deals.”
Those who took the survey said that as a result there is more interest in Class B and C properties, and investors are taking a stronger look at markets in the Midwest and Southeast. The survey found that 48 percent of those polled see the Southeast as the best place to invest, up from 28 percent last year. The Midwest went from 16 percent to 31 percent. Meanwhile, the number one initiative pointed to by respondents was to enter new markets.
In response to a question about finding quality assets at reasonable returns, most, 44 percent, said that they are able to find good properties, but there would be a low likelihood of being able to capitalize on them. Another 23 percent replied that lesser-quality products are available, but they wouldn’t meet required returns.
Besides the topic of looking at secondary markets and assets, those surveyed also weighed in on foreign capital entering the U.S. commercial real estate market. Most said that those investments would increase from six to 10 percent this year from 2013. Only 21 percent said those investments would remain the same or decrease.
Toronto-based Oxford Properties is certainly one of those firms that likes domestic assets. Earlier this year the firm bought five Boston office buildings for $2.1 billion.
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