Gunnar Branson, CEO of AFIRE (Association for International Real Estate Investors), joins America’s Commercial Real Estate Show to discuss the results of their latest international investor survey, the AFIRE Fall 2023 International Investor Survey. The discussion discussed topics related to how international real estate investors assess US market challenges and opportunities.
The Discussion
Introduction:
In a recent conversation with Gunner Branson, CEO of AFIRE, the Association for International Real Estate Investors, key insights into the dynamics of the US commercial property market were unveiled. Aires conducts an annual survey of investors worldwide, providing a comprehensive view of their sentiments and strategies. The third-quarter 2023 survey results were discussed, shedding light on the current challenges and opportunities in the ever-evolving landscape of US real estate.
Changing Trends and Market Sentiments:
The conversation opened with a reflection on the evolving sentiment among international investors. Branson highlighted a shift in tone compared to a year ago, emphasizing a more cautious and subdued atmosphere. Investors are actively reassessing existing portfolios, particularly in the office property sector, as the capital markets experience a pause, and debt becomes scarcer and more expensive.
Global Perception of US Real Estate:
Despite challenges, the US continues to be perceived as a safe haven for real estate investment. Branson pointed out a 34% net increase in intended allocations for real estate in the US among international investors. The depth of the US market, with numerous institutional cities and the continued strength of the US dollar, contributes to the confidence placed in the country’s real estate.
Debt Market Challenges and Opportunities:
The discussion delved into the debt market, highlighting concerns about the rising cost and reduced availability of debt. Regional banks’ departure and the impact on refinancing were discussed, with Branson acknowledging the challenges but also pointing to opportunities for debt investors. As the debt landscape undergoes restructuring, investors are exploring alternative debt providers and debt funds to navigate the changing dynamics.
Foreign Investors’ Allocation Strategies:
Foreign investors are adjusting their allocation strategies, with a notable interest in alternative assets. Sectors such as data centers, movie studios, and niche plays like cold storage are gaining traction. The survey also revealed a focus on single-family rental properties, especially in markets like Atlanta, addressing the growing demand for rental housing amid a housing shortage.
Assessment of Office Market:
The conversation addressed the challenges facing the office market, particularly in the context of the COVID-19 pandemic. Branson acknowledged the overbuilding of office spaces in the last decade, leading to distress, especially in older buildings. The survey indicated a potential shift towards conversions, including multifamily, hospitality, storage, and surprisingly, urban farming. The adaptability of existing office spaces to meet evolving needs was highlighted.
Central Business District vs. Suburban Office Properties:
The discussion touched upon the evolving preferences regarding central business district (CBD) versus suburban offices. While there was a previous trend favoring suburban offices, the survey results indicated a shift, with confidence in CBD offices holding value more effectively. However, concerns about the decline in office values were noted, emphasizing the need for a mixed-use environment and the impact on perceived value.
Insurance Challenges and Climate Risk:
Branson addressed the rising concerns about insurance costs, particularly in coastal regions facing climate-related risks. The survey highlighted a significant increase in insurance premiums, impacting the economics of real estate deals. The recognition of climate risk and the need to account for it in pricing were discussed as ongoing challenges for investors, with potential implications for investment decisions in vulnerable areas.
Conclusion:
The conversation with Gunner Branson provided valuable insights into the complex landscape of international real estate investment in the US. As investors navigate challenges in the debt market, changing office dynamics, and rising insurance costs, opportunities emerge in alternative assets and strategically chosen sectors. The survey results reflect a nuanced outlook, emphasizing the importance of adaptability and a keen understanding of evolving market trends in making informed investment decisions.
~
AFIRE, the association for international real estate investors focused on commercial property in the United States, is a forum for real estate investment thought leadership. AFIRE members gather throughout the year to help each other become Better Investors, Better Leaders, and Better Global Citizens through conversations, research, and analysis of real estate capital markets, cross-border issues, policy, economics, technology, and management. Known as representing the “who’s who” in the global real estate investment industry, AFIRE membership is exclusive to principals and senior executives. Click here for previous AFIRE videos.