SEATTLE TORONTO NEW YORK LOS ANGELES NASHVILLE DALLAS MEXICO CITY AMERICAS. CBRE Research

Transcription

1 SEATTLE TORONTO LOS ANGELES NEW YORK NASHVILLE DALLAS MEXICO CITY AMERICAS INVESTOR INTENTIONS SURVEY 2018 CBRE Research

2 The Race for the Next Seattle Seattle is the only market I ve ever seen advance from secondary to primary market status. There are a few other secondary cities that are close to repeating Seattle s feat, led by Austin, Denver and Nashville in the U.S., and Sao Paolo, Brazil and Montreal, Canada in the Americas. Other cities that are making gains include Tampa, Phoenix, Las Vegas, Minneapolis and Bogota, Colombia. Last year had the lowest CRE investment returns since the Global Financial Crisis, with NCREIF reporting a 7 overall return and only industrial, at 13, exceeding its historic return average. Given the declining return environment, it is no surprise that our 2018 Investor Intentions Survey reveals that investors are racing to find the next Seattle by increasing their focus on the higher-yield potential of high-growth secondary markets. According to the survey, investors are also moving further out on the risk spectrum to look for more opportunistic equity deals. Markets like Tampa Bay, Nashville, Montreal and Portland all rose substantially in investor interest this year, not only for their superior current yields (higher cap rates) than the majors, but for the single most important factor of all: higher projected office-using job growth. Investing in markets with the fastest job growth may not only lead to greater NOI growth but to additional cap rate compression even in a rising interest rate environment. The investors we surveyed clearly agree with this assessment, as strong economic fundamentals driving rental value growth grew in preference by 47 of surveyed investors in 2018 from 18 in The challenge with many of these highgrowth secondary markets is size (the inability to get critical mass) and liquidity. The critical mass issue is something that can be solved in the short term by outsourcing many of the property/leasing management functions. The liquidity issue is solved by the time duration of equity capital. I have long believed that the liquidity premium investors pay for in major markets vs. secondary markets is a price not worth paying. Yes, you can always get out of an investment in a gateway market, but the cap rate expansion during a period of distress is likely to significantly impair your equity. So, is the liquidity premium worth it? Secondary market illiquidity can be solved by the time duration/patience of your capital source and the ability to ride out any short-term market disruption. Indeed, our 2018 survey showed exactly this, as the preference for liquidity dropped to 14 of surveyed investors in 2018 from 44 in So, my advice is to lead the money, don t follow it. Although we don t expect major changes in 2018, there are several risk factors that didn t exist in These include a bounce-back in foreign capital sources, though this will not include China, whose capital controls will continue to take a toll on U.S. investment volume. Volatility is back, as evidenced by the U.S. stock market s recent correction. This may lead to a modest pause in activity until the market finds a steady floor. The stock market downturn has been even harder on REITs, leading some to question whether the inflated cap rates in the implied net asset values of REITs will bleed into the private markets. Our investors our clearly watching the tape, and the number of them who are concerned about a potential global economic shock rose to 30 in 2018 from 22 in Another potential risk is inflation, as the January jobs report showed the fastest wage growth since While rising wages are good for the real economy, they are bad for the financial markets since they may embolden Federal Reserve hawks, who have been poised to strike since 2009, to tighten monetary policy. The 10-year Treasury has seen a 50-basis-point rise in the past three months and this is a major concern. Given these new uncertainties in 2018, the key word for investors is agility. Their capital structure needs to be agile in debt by considering longer-term paper, which is what our Debt & Structured Finance professionals are advising today. For equity capital structure, investors need to consider lowering their cost of capital if they are going to stay in the same markets/asset classes. The only alternative to maintaining short-term returns will be to move out on the risk spectrum by asset quality or market, which is clearly what many of our surveyed investors are considering. Lead rather than follow the money in 2018 and take advantage of any short-term volatility or market dislocation to your long-term advantage. SPENCER G. LEVY Head of Research & Senior Economic Advisor, Americas CBRE Research CBRE Research 3

3 Executive Summary The CBRE Americas Investor Intentions Survey 2018 reflects the investment sentiment of nearly 300 investors focused on the Americas in Investors are more positive going into 2018 than they were at the start of last year, planning marginally more purchasing activity. Risk tolerance is expected to remain unchanged, but investors search for yield and asset diversification is pushing them toward value-add assets, secondary markets and alternatives in Investment Activity Strategies and Risk Appetite Regional and Metro Preferences Preferred Sectors for Investment Key Risks and Influential Trends Investors focused on the The majority of investors (69) Most investors focused on the Industrial is increasingly the Investors see a global economic Americas are optimistic anticipate about the same Americas do not intend to preferred property type, cited by shock that undermines occupier about commercial real estate appetite for risk as in Nine purchase assets in other world 50 of respondents as the most demand as the greatest potential opportunities in The percent of investors anticipate regions; however, the share that attractive for investment in 2018, threat in 2018, followed by rising largest share of investors (45) a higher risk tolerance vs. intends to invest more capital up from 38 in interest rates. intend to increase purchases from the previous year, a departure from the prior two surveys. 22 who intend to be more conservative. Among the five different asset strategies core, outside the Americas region this year increased to 20 vs. 14 in Western Europe continues Multifamily and office were the second and third most attractive property types, respectively, though their shares of survey Respondents anticipate that the occupier trends with the largest impact on real estate investments are last-mile Many investors anticipate good secondary, value-add, to be the most popular target respondents decreased from logistics, flexible space and investment activity will match opportunistic and distressed for outbound capital from the last year, while retail received a diversification away from that of last year: 43 expect value-add remains the preferred Americas (53). slightly higher share. traditional office and retail. unchanged acquisitions volume and 48 expect unchanged dispositions volume. strategy (34), but is down from 2017 s level (41). Investor appetite for good Los Angeles/Southern California is the top-ranked metro for property purchases, followed by Investor interest in alternatives strengthened across most sectors. Real estate debt is the Investors have some concerns about the impact of high proportions of coworking space The largest share of respondents secondary assets increased for Dallas/Ft. Worth and New York. No. 1 alternative currently held on a property s long-term capital intends to deploy less than $500 the fourth consecutive year, Large upward shifts brought by most investors, as well as the value. million in capital this year, but the number of respondents intending to make large purchases increased from as the supply of core assets diminishes and investors broaden their search for yield. Institutional investors are more Nashville, Portland and Tampa/ St. Petersburg into the top of respondents anticipate that unlevered returns will range one they will most actively seek this year. Sustainability continues to factor into decision-making but is not a top priority for investors. interested in core assets than are from 6 to 9. Another 19 of other types of investors, with 33 respondents anticipate returns indicating core as their preferred will be higher than 9. strategy vs. 20 of overall investors 4 CBRE Research CBRE Research 5

4 Investment Activity Investors anticipate increased purchasing activity in 2018 A prolonged period of U.S. economic growth, as well as tax cuts and favorable regulatory changes, are contributing to positive investor sentiment on real estate. Despite the likelihood of higher interest rates, 96 of investors focused on the Americas still intend to invest in 2018, and the largest share of investors (45) plan to increase their level of acquisitions compared with last year. This pickup in Figure 1: Nearly half of investors plan to increase purchase levels Purchasing activity intention trend ( ) investor appetite marks a reversal from the downward or flat trend recorded in the prior two surveys. The next largest share of investors (43) anticipates that 2018 acquisition volume will match that of last year. Just 12 of respondents plan to reduce their purchases in 2018, lower than the 17 in In total, 88 of investors plan to either maintain or increase spending in 2018, up from 83 in Certain investor types are more optimistic than the average. More than 60 of property companies and listed REITs and more than 50 of developers and private investors/family offices anticipate higher acquisition volumes this year than in Dispositions to increase modestly as well Selling expectations have also edged up. Thirty-seven percent of investors intend to sell more real estate in 2018 than they did in 2017 (compared to 30 last year). The largest share of investors (48) expect the level of property dispositions will remain the same as in Fourteen percent of respondents plan to reduce selling activity in Figure 2: Sales Activity in 2018 vs Compared Figure 2: Sales to Activity 2017, in 2018 do you vs expect your selling activity to be: Compared with 2017, do you expect your selling activity to be: Note: Respondents with no intention to invest excluded from percentages. Big-ticket purchases on the rise, led by institutional investors More than 20 lower Between 10 and 20 lower Up to 10 lower About the same Less sales activity= 14 More sales activity= Up to Between More than 10 higher 10 and 20 higher 20 higher Note: Respondents with no intention to sell excluded from distribution of percentages. No intention to sell Purchase More About the Same Purchase Less Note: Respondents with no intention to invest excluded from percentages. Source: CBRE Research, Americas Investor Intentions Survey, 2014, 2015, 2016, 2017 and Almost half of respondents (45) intend to deploy less than $500 million for real estate purchases this year. The breakdown of anticipated capital deployment amounts is roughly comparable to 2017, although expectations for larger purchases in the $2 billion-to-$5 billion range are noticeably higher (14 in 2018 vs. 9 in 2017). Institutional investors comprising sovereign wealth funds (SWFs), insurance companies and pension funds have different expectations than the average investor. Fifty percent intend to deploy more than $1 billion of capital this year, and one-third intend to deploy more than $2 billion (compared to 28 and 18, respectively, for other investor types). Figure 3: Institutions are the big spenders Expected capital deployment in 2018 of respective investor type No 0 acquisitions planned $1 million to $500 million Overall $500 million to $1 billion $1 billion to $2 billion SWIPe 25 $2 billion to $5 billion 5 8 $5 billion or more Note: SWIPe stands for sovereign wealth funds, insurance companies and pension funds. 6 CBRE Research CBRE Research 7

5 Investment Strategy and Risk Preferences Yield is important, but diversification leads Investors motivations for investing in real estate are distributed more evenly than many other questions in this survey. There is no one factor that overwhelmingly entices most investors. 1 Asset-class diversification was the top motivation, but only for 24 of respondents. Large shares of investors are also searching for yield relative to government bonds (18) and for owner use (17). Asset-class diversification was the top motivation, but only for 24 of respondents. Large shares of investors are also searching for yield relative to government bonds (18) and for owner use (17). Figure 4: Range of factors motivate investors What is your organization s main motivation for investing in real estate in 2018? Real estate s potential for value appreciation relative to other asset classes is also important, though investors seem to be focusing slightly more on income growth than capital growth this year. Hedge against inflation Geographic diversification Yield relative to cost of debt (positive leverage advantage) Other 8 Capital appreciation relative to other asset classes Stability of income stream Owner-occupation Yield relative to other asset classes (e.g., spread over risk free) Asset class diversification This is not the case for institutional investors, who are predominantly searching for yield (45) and asset-class diversification (38). 8 CBRE Research CBRE Research 9

6 Risk tolerance evolving in 2018 SWFs, insurance companies and pension funds drawn to core assets The uptick in investors enthusiasm for commercial real estate purchases in 2018 was not accompanied by a strong corresponding shift in cautiousness. Sixty-nine percent of respondents indicated that their appetite for risk will be essentially the same as in Figure 5: Most investors expect unchanged risk tolerance What is your risk appetite compared to 2017? Twenty-two percent intend to be more conservative than last year, and about 10 anticipate a higher risk tolerance. Although value-add remains the most preferred strategy consistent with the prior three surveys the share of investors prioritizing these opportunities continues to dwindle. On the other hand, investors appetite for good secondary assets continues to strengthen as they balance their tolerance for risk against their search for yield, as well as an increasingly limited supply of core assets. The share of respondents citing secondary opportunities as their preferred strategy increased for the fourth consecutive year Much higher Higher About the same Lower Much Lower Reflecting their intentions to deploy larger amounts of capital, as well as a somewhat lower tolerance for risk, institutional investors are more interested in core assets than are other types of investors, with 32 indicating core as their preferred strategy vs. 20 of overall investors. This was also higher than the share of institutional investors who preferred core assets in 2017 (28). Stronger interest in core assets may partially be a response to investors expecting diminished competition from Chinese buyers for core assets. Largely due to Chinese capital controls on outbound investment, 63 of surveyed investors believe that less Chinese capital will be deployed in overseas markets this year. Figure 7: Institutions increasing weight on core targets Figure Most attractive 7: Institutions asset types among increasing SWIPe* weight on core targets Most attractive asset types among SWIPe* Core Value-Add Good Secondary Opportunistic Distressed Note: SWIPe stands for sovereign wealth funds, insurance companies and pension funds. Note: Source: SWIPe CBRE stands Research, for sovereign Americas wealth Investor funds, Intentions insurance Survey, companies 2017 and and pension funds. Source: CBRE Research, Americas Investor Intentions Survey, 2017 and Renovation top strategy to enhance asset values Figure 6: Investors increase emphasis on good secondary, pull back on value-add What type of property is most attractive for you to purchase in 2018? Value-add Good secondary Core Opportunistic Distressed Source: CBRE Research, Americas Investor Intentions Survey, 2015, 2016, 2017 and Respondents who believe that valueadd or opportunistic properties are most attractive for purchase in 2018 have several approaches to enhancing asset values. The largest share of respondents (57) consider renovations as a primary strategy. Nearly half of respondents cite redevelopment (48) and filling vacant space (47). Fewer respondents consider that property management, space usage and tenant mix are the most effective means of adding value. Figure 8: 8: Value-Add Value-Add and Opportunistic and Opportunistic Buyers Intend Buyers to Renovate Intend to Renovate What What are are the the top top three three strategies strategies you will consider you will to enhance consider asset to value? enhance asset value? Other 4 Tenant mix adjustment Convert usage Facilities improvement Enhance property management Fill the vacant space Redevelopment Exterior or interior renovation Source: Source: CBRE CBRE Research, Research, Americas Americas Investor Investor Intentions Intentions Survey, Survey, CBRE Research CBRE Research 11

7 Regional and Metro Preferences Americas investors plan to deploy more capital internationally The vast majority of investors who are focused on the Americas view North America as the most attractive region for investment. Most do not expect to invest outside the Americas region in 2018 (62). However, the share that expects to invest more internationally this year than they did last year increased to 20 from 14 in For those who intend to invest outside the Americas, Western Europe remains the preferred region, selected by 53 of this subset of respondents (on par with the share in 2017). Thirty-four percent of respondents consider the Asia Pacific region most attractive this year, with developed and emerging Asia receiving roughly the same amount of interest. Return expectations for the Americas are strong. The majority (58) think unlevered returns will range from 6 to 9. Another 19 of respondents think returns will be higher than 9. Figure 9: Investing Outside the Americas? In 2018, do you intend to invest outside of your region? 16 No Yes, less than the amount in 2017 Yes, more than the amount in 2017 Yes, the same amount as in If yes, which region? Western Europe Developed Asia Emerging Asia Central & Eastern Europe South and Central America Pacific Africa CBRE Research CBRE Research 13

8 Los Angeles still king, but smaller metros show strength Economic fundamentals attract investors to Americas metros U.S. gateway cities continue to command considerable interest. Los Angeles/ Southern California was the top-ranked metro for investment for the third consecutive year. Washington, D.C., Boston and Chicago all moved down slightly from last year s rankings but remain in the top 15. As investors maintain their pursuit of core-plus/good secondary assets, several Tier II and even a few Tier III metros were ranked significantly higher than last year. Three markets moved up several spots to enter the top 10: Nashville, Portland and Tampa/St. Petersburg. Toronto was the only non-u.s. metro ranked in the top 10, moving down from eighth to tie for 10th in Montreal also ranked high, while Vancouver slipped from the top 15 this year. São Paulo ranked 12th among Americas metros, the same position as the prior two years. Other ranked Latin American metros were Bogotá and Mexico City, both tied for 13th, representing substantial improvement from last year. Figure 10: Top Ranked Metros for Investment Which metro in the Americas do you believe to be the most attractive for property investment purchase? METRO 2018 RANK 2017 RANK Los Angeles/Southern California 1 1 Dallas/Ft. Worth 2 2 New York 3t 3 Seattle 3t 6 San Francisco/Northern California 4t 5t Houston 4t 7 Atlanta 5 5t Washington, D.C. 6 4 Denver 7 8t Miami/South Florida 8 10 Nashville 9t 13 Portland 9t 16 Boston 9t 8t Austin 10t 11 Toronto 10t 8t Tampa/St. Petersburg 10t 15 Phoenix 11t 14 San Diego 11t 17 Minneapolis/St. Paul 11t 18 Philadelphia 11t 16t São Paulo 12t 12 Montreal 12t 21t Las Vegas 12t 19t Bogotá 13t 21t Chicago 13t 9 Mexico City 13t 19t Orlando 13t 16t Tier I Tier II Tier III Latin America Canada Nearly half of respondents (47) indicated that strong economic fundamentals driving rental value growth was the primary factor that attracted them to their preferred metros. This represents a significant shift from last year when just 18 of respondents indicated that fundamentals were the primary factor attracting them to a given metro. Figure 11: Investors taking stock of strong fundamentals What is the biggest factor that attracts you to your preferred market? Strong economic fundamentals driving rental value growth Attractive risk-return profile Established market with high liquidity / transparency Opportunity to purchase undervalued assets Higher initial yields than other markets Other Last year, the largest share of respondents (44) indicated that they were attracted to established markets with high liquidity and transparency. In 2018, just 12 of respondents selected this as the primary factor for choosing metros. This corresponds with the finding that some portion of surveyed investors have more risk tolerance this year In both 2018 and 2017, the secondlargest share of respondents indicated that an attractive risk-return profile was the most important factor in market selection Source: CBRE Research, Americas Investor Intentions Survey, 2017 and Availability of product 2 1 Stable geo-political environment 2 5 Asset value growth through yield shift 0 1 Source: CBRE Research, Americas Investor Intentions Survey, 2017 and CBRE Research CBRE Research 15

9 Preferred Sectors for Investment Industrial increasingly an investor favorite Industrial properties continue to rise in attractiveness among investors focused on the Americas, particularly logistics properties. Fully 50 of respondents selected industrial as the most attractive property type for investment in 2018, up from 38 in Institutional investors are particularly focused on logistics properties, with 54 citing this as the most attractive sector compared with 34 of non-institutional respondents. Despite competition from e-commerce, the retail sector is holding steady and even improved modestly from last year, attracting 10 of respondents compared to 8 in Fully 50 of respondents selected industrial as the most attractive property type for investment in 2018, up from 38 in Figure 12: Preferred property sector In the Americas, which property sector do you believe is the most attractive for investment purchase in 2018? Industrial Multifamily Office Retail Other Hotel/Resorts Source: CBRE Research, Americas Investor Intentions Survey, 2017 and CBRE Research CBRE Research 17

10 Interest in alternatives stronger than last year More than half of the 2018 survey respondents are already invested in one or more alternative property sectors. The most common alternative is real estate debt (37). 2 Student housing, senior housing and health care are the next most common alternatives, each held by roughly 20 of Americas investors. 3 Relative to last year, the share of respondents actively pursuing alternatives increased across nearly every sector. The largest increases were for data centers, infrastructure and real estate debt. Data centers also had the largest positive differential between the share of respondents who are actively pursuing the sector and the share already invested in it, implying that interest in this asset type is growing. Another important finding in this year s survey was the increase in the share of investors actively pursuing real estate debt (32 in 2018 vs. 28 in 2017). This infusion of new capital into the debt market may be the result of investors trying to fill the gap left by traditional lenders, and is a sign of confidence in the market. Nevertheless, investors should keep an eye on leverage ratios creeping up. Indeed, the fact that the share of respondents actively pursuing real estate debt is lower than the share that is already invested in this sector suggests that investors are pulling back somewhat and approaching debt investments with more caution. Figure 14: Interest in alternatives strengthened Share of investors actively pursuing alternative sectors, 2018 vs Figure 13: Preferred Alternative Sectors Are you already invested in any of the following alternative sectors? Are you actively pursuing investment in any of the following alternative sectors? More Interest About the Same Less Interest 37 Real estate debt Retirement living Medical office* Student living Health-care Self-storage Data center Life Infrastructure Single-family sciences* residential Cold storage* Leisure/ Entertainment Automotive/ Car parks *Not presented as options in Source: CBRE Research, Americas Investor Intentions Survey, 2017 and Data center Cold storage Retirement Automotive / living / Car parks Senior housing Infrastructure Selfstorage Student Living Singlefamily residential Health care properties Leisure / Entertainment Real estate debt Medical offices* Life sciences* Already Invested Actively Pursuing *Not presented as options for already invested. Note: multiple options possible; some investors are not investing in any alternatives. 2 The vast majority of survey respondents are equity investors, so in this context debt is considered an alternative investment. 3 For more insight on niche residential and medical properties, see CBRE s U.S. Seniors Housing & Care Investor Survey and U.S. Medical Office and Health Care Report. 18 CBRE Research CBRE Research 19

11 Search for yield drives investors to alternatives Key Risks and Influential Trends The primary reason investors consider alternatives is for higher initial yields (27). The next most common motivations are protection against real estate downturns (20) and benefits from structural changes in demand (17). For many investors, these latter two motivations likely include, among other factors, considerations of demographic trends (e.g., viewing medical properties as recession-proof since people need health care regardless of economic conditions). This helps explain investors strong pursuit of senior housing, health care assets and medical office, despite only 6 of respondents indicating that they seek out alternative investments specifically because of the aging population. Global economic shock poses greatest threat to property markets Figure 15: Main reasons to seek out alternatives Why do you consider investing in alternative sectors? Diversification Technological advancement Urbanization Millennial trends Aging population Other Investors top two concerns were unchanged from 2017, though the relative importance of each has shifted somewhat. A global economic shock that dampens Figure 16: Threat analysis still focused on global shocks and rate hikes Top 3 perceived threats to Americas property markets over the past three years occupier demand was identified by 30 of respondents as the greatest threat in 2018, slightly more than last year. In contrast, investors are less worried about interest rates rising more quickly than expected this year than they were in Benefit from structural changes in demand 17 Global economic shock undermining occupier demand Faster than expected rises in interest rates Overbuilding leading to excess supply Protection against real estate downturns 20 Higher initial yields Global economic shock undermining occupier demand Faster than expected rises in interest rates Property is overpriced Domestic economic shock/ recession Global economic shock/ China hard landing Overbuilding or excess supply Source: CBRE Research, Americas Investor Intentions Survey, 2016, 2017 and This survey was conducted from mid-november 2017 to mid-january 2018, prior to the bond sell-off in early February Still, movement in U.S. short-term rates is expected to remain fairly predictable in 2018, as detailed in a recent forecast briefing from CBRE Econometric Advisors. 20 CBRE Research CBRE Research 21

12 Confidence in U.S. economy strengthens Considering potential risks in broader categories, investors are becoming more anxious about global issues and more confident about domestic ones. Thirty-seven percent of responses were related to global economic shocks and instability, up from 28 in Issues related to national economic or political concerns totaled 27, down from 33 last year. Concerns stemming from the real estate industry itself, such as pricing and overbuilding, represent 36 of responses, roughly the same as in Figure 17: Risks threatening real estate Which of the following do you believe poses the greatest threat to property markets in the Americas? Deflation E-commerce Other Increasing real estate debt Local political instability Higher-than-expected inflation Some other property market-related shock Government policy changes related to property Global political instability (conflict and/or terrorism) Local economic shock undermining demand 8 14 Property is overpriced, a bubble waiting to burst Overbuilding/excess supply Faster than expected rises in interest rates Global economic shock undermining demand Global National Real Estate 22 CBRE Research CBRE Research 23

13 Occupier trends inform property sector preferences Investors views on coworking space are mixed This year s survey asked respondents which occupier trends they believed would have the largest impact on the investment appeal of real estate. More than half cited last-mile logistics as one of the most influential trends. Figure 18: Need for last-mile logistics facilities will most affect investment Which occupier trends will have the most impact on the investment appeal of real estate? Last-mile logistics 52 One occupier trend that continues to gain traction in commercial real estate is shared-workspace environments. This year s survey revealed that, in general, investors feel that the higher the proportion of coworking space a building has, the worse the outcome will be for long-term capital values. Despite this general concern, 45 of respondents have yet to come to a strong conclusion about the impact of coworking space. For those that have formed an opinion, roughly two-thirds have positive views on the coworking trend. About one-third of respondents believe that the movement toward providing flexible space and diversification away from traditional office and retail will also have major impacts. Flexible space Diversification away from traditional office/retail centers Automation Figure 19: More coworking space diminishes property appeal What impact do the following proportions of coworking space in a building have on long-term capital value? Smart buildings Experiential retail Co-living Other Decreases value Increases value No impact on value Figure 20: Approach to Coworking Which of the following statements do you agree with regarding coworking? We are seeking to develop our own coworking brand Positive 6 28 Coworking space is an amenity for other tenants Coworking space enhances the income from a building in the long term It's the future of office work and should be embraced Coworking is a threat to landlords looking to optimize rental value 7 Coworking operators are a credit risk and should be avoided 18 Negative Coworking space is fundamentally unprofitable in the long term for any operator 9 24 CBRE Research CBRE Research 25

14 Sustainability bigger part of the equation, but still not top priority Survey respondents and methodology Sustainability issues remain a part of investors evaluations of commercial real estate opportunities. This year s survey revealed little change in the share of respondents who subscribe to the most stringent approaches to sustainability (e.g., it is sufficiently important to trigger rejection of an otherwise attractive property or is one of the primary considerations for purchase). However, shifts in some of the more moderate positions indicate that investors are putting marginally more emphasis on sustainability. The share of respondents Figure 21: Approach to sustainability Which of the following statements most closely describes your approach to sustainability in asset selection? High Importance of Sustainability Low We will not even consider buildings that do not meet strict criteria It is one of the most important criteria in determining the properties we buy Other considerations are more important, but sustainability definitely matters to us We sometimes reject buildings for reasons of sustainability Sustainability considerations tip the balance between possible options if other factors are equal Sustainability is not a significant consideration in selecting assets to buy 6 6 who said sustainability is not a significant consideration in asset selection fell to 23 in 2018 from 35 last year. The share that indicated sustainability would tip the scale increased to 15 from 10 in The Americas Investor Intentions Survey 2018 is part of a larger global survey, which was conducted among CBRE clients between mid-november 2017 and mid- January Approximately 300 survey respondents indicated the Americas is the global region that they are responsible for in their current position. This survey covers the responses of those investors. The Americas respondents represent a wide cross-section of real estate companies and investor types. Slightly more than one-third are fund or asset managers. Institutional investors SWFs, insurance companies and pension funds account for 14 of respondents. Among surveyed fund/asset managers, the largest source of capital is pension funds (66). SWFs were also identified as a significant source of capital (43). The majority of respondents (59) have less than $10 billion in assets under management (AUM). Twenty-five percent have more than $50 billion in AUM, and the remaining 16 fall somewhere in between. The largest share of Americas survey respondents are based in the U.S. Investors based in Canada, Asia Pacific (APAC) and Europe, the Middle East and Africa (EMEA) represented roughly equal segments. This year s survey represents a comparable geographic distribution to previous surveys, though the number of cross-regional investors was slightly higher this year. Figure 22: Survey Respondents Characteristics By Type of Investor Note: Other includes banks, sovereign wealth funds and unlisted REITs *Other includes banks, sovereign wealth funds and unlisted REITs Figure 23: Survey Respondents Characteristics By Company HQ Location Fund or asset manager Developer Private property company Private equity firm / Venture capital REIT Insurance company Pension fund Private individual investor / Family office Other* U.S. Canada EMEA APAC Latin America Other 26 CBRE Research CBRE Research 27

15 Key Contacts For more information about this regional report, please contact: SPENCER G. LEVY Americas Head of Research and Senior Economic Advisor t: TAYLOR JACOBY Senior Research Analyst t: e: Contacts CHRIS LUDEMAN Global President CBRE Capital Markets t: BRIAN STOFFERS Global President, Debt & Structured Finance CBRE Capital Markets t: BRIAN MCAULIFFE President, Institutional Properties, Americas CBRE Capital Markets t: e: KEVIN AUSSEF Chief Operating Officer Investment Properties, Americas CBRE Capital Markets t: e: PETER SENST President, Capital Markets Canada t: e: NICK AXFORD, PH.D. Head of Research, Global t: e: RICHARD BARKHAM, PH.D. Chief Economist, Global t: JOS TROMP Head of Research, EMEA t: e: HENRY CHIN, PH.D. Head of Research, Asia Pacific t: e: To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Additional U.S. Research from CBRE can be found here. Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. 28 CBRE Research

16 cbre.com/research