U.S. Commercial Real Estate Executives Crown Industrial as King in 2018
Altus Group survey reveals executives are betting big on industrial and healthcare sectors; natural disasters seen as biggest potential threat to U.S. economy in 2018
NEW YORK (January 29, 2018) – Altus Group Limited (“Altus Group”) (TSX: AIF), a leading provider of independent advisory services, software and data solutions to the global commercial real estate industry, today released the results of the 2018 Altus Group Real Confidence Executive Survey, revealing that commercial real estate (“CRE”) executives are particularly confident in the strength of the industrial sector and are concerned about the impact of natural disasters on the U.S. economy in 2018.
The executive survey polled industry leading CRE decision-makers on economic trends, demographics, consumer preferences, and the supply and demand of commercial real estate assets. Executives were also asked to allocate a theoretical $1 billion worth of capital in CRE investments to get the best returns for 2018. The Altus Group Real Confidence Executive Survey index is based on these allocations and represents a total theoretical investment of $52 billion of capital.
This year’s survey index allocation saw 42.1% of the total capital allocated to direct real estate investments or private equity, followed by 25.3% to REIT opportunities. On the debt side, private debt received a 22.4% distribution while public debt received 10.3%. Private debt financing increased 10.9% over last year, and interest in public debt increased 43% over 2017.
“Commercial real estate executives are questioning the Trump administration’s ability to deliver on broader promises, such as funding infrastructure programs, and we’re seeing this impact in the survey results,” said Richard Kalvoda, Senior Executive Vice President at Altus Group. “While executives are confident in the health of the economy, the large increase in public debt allocation this year underscores their caution and the very real uncertainty in the market.”
The industrial sector placed first as the preferred asset type for investment in 2018, driven by the consistent growth in e-commerce and the need for more industrial warehousing and distribution space. It received the highest allocation with 33.2% invested in industrial within the private equity selections and 30.5% in equity REITs suggesting, “strong confidence that the industrial market is the asset class to watch in 2018. There is an increasing appetite for ‘right now’ shipping options meaning e-commerce retailers will need to invest in more industrial spaces to meet the demand,” added Mr. Kalvoda. Thirty-two percent (32%) of CRE executives surveyed expect that by 2020, e-commerce sales will represent over 14% of total retail sales.
The survey results also suggest the strength of the healthcare sector in 2018. Executives allocated 16.9% to equity healthcare REITs and 14.6% in seniors living private equity investment. As the large baby boomer demographic ages, the need and demand for healthcare increases.
The survey also reveals that CRE executives believe natural disasters – such as floods, earthquakes, and hurricanes – could potentially have the greatest impact on the U.S. economy in 2018. Forty-six percent (46%) of respondents believe that natural disasters are a larger economic concern than geopolitical conflicts and terrorism.
Other key highlights from the 2018 Altus Group Real Confidence Executive Survey include:
- Overall, CRE executives are moderately confident in the strength of the U.S. and global economies. However, their responses clearly indicate trust that there’s more room for the global economy to grow, with an increase of 28.2% over 2017 compared to a 0.5% increase for the U.S.
- Tax Reform:
- With recent passage of the reformed tax code, the CRE industry expects to see an influx in spending and investment. However, executives indicated relatively low confidence in President Trump’s ability to exceed last year’s productivity in 2018. Even with a low mean score, participants’ responses were scattered with about half believing in Trump’s ability to deliver on his stated objectives.
- Allocations to the infrastructure sector decreased from 15.5% in 2017 to 7.3% in 2018, “likely driven by the administration’s lack of action on promises for major infrastructure investments,” said Mr. Kalvoda.
- CRE executives are not anticipating an increase in development spending in 2018, however, the sectors they forecast will have the most development in 2018 are industrial and multifamily, tied at 42.9% in this year’s survey.
- A majority of CRE executives are confident that redesigns of office space will incorporate more open concept layouts, however, 59% believe that this layout does not lead to greater productivity and efficiency in the workplace.
The Altus Group Real Confidence Executive Survey is produced by Altus Group. The survey respondents represented executives from leading U.S. CRE firms. Altus Group conducted the survey between November-December 2017. A full listing of the portfolio and survey results are available at www.realconfidence.com/executive-hub/.
About Altus Group Limited
Altus Group Limited is a leading provider of independent advisory services, software and data solutions to the global commercial real estate industry. Our businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technology-enabled capabilities. Our solutions empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, we have approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. Our clients include some of the world’s largest real estate industry participants. Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the TSX under the symbol AIF.
For more information on Altus Group, please visit: www.altusgroup.com.
Jeff HaywardHaywardVice President, Global Marketing & Communications