International investor appetite for high risk commercial property ventures such as Opportunistic and Speculative Development has plummeted by 41% in the 12 months in favour of moderate and low risk strategies, according to BrickVest’s latest commercial property investment barometer (‘the Barometer’).
Data capturing sentiment from over 5,000 investors shows their overall risk appetite for commercial property exposure has dropped to its lowest ever level since the Barometer was introduced at the start of 2017. Moderate risk strategies such as Value-Add and Light Refurbishment have continued to grow in popularity and are now favoured by the majority (53%) of investors surveyed with 29% opting for low risk strategies such as Core and Core-plus.
On a country basis, investor support for German commercial real estate has fallen by over a third (36%) in the past year and is now equal to the US, which has seen a 23% rise over the same period. Despite Brexit, the UK remains the most popular destination with a third of international investors surveyed (33%) choosing it as their top location for real estate investment.
The Q3 Barometer indicates a significant year-on-year fall in capital growth as investors’ key investment objective (47% now versus 55% in Q3 2017) in favour of income (39%, up from 32%) and liquidity (7% up from 5%). The findings suggest that investors are increasingly focused on yield and divestment potential should the market cycle start to turn.
Emmanuel Lumineau, CEO at BrickVest, commented: “Many investors are sounding a note of caution and are becoming increasingly selective about the type of deals they pursue. Higher risk strategies are the biggest casualty from this shift in sentiment, which is likely to continue given where we are in the cycle. With further rate rises expected we can expect more investors to back away from opportunistic and speculative opportunities in favour of moderate strategies where the risk-reward trade-off is less demanding.”
“The past year has seen investor interest in the US market continue while Germany has lost some of its appeal. Meanwhile, the UK has so far remained impervious to Brexit fear and retained its number one position. Whether the UK remains ahead of the rest following March 2019 will be a key trend to watch in next year’s Barometer findings.”