The Azucena Take: Are Investment Properties Being Pushed to the Sideline

With inflation and rising interest rates, one has to wonder if the investment real estate market is being pushed to the sideline. This has been a topic brought up at several industry conferences, panels, and seminars hosted by leading brokers. While the answer is easy, it's the nuance and the facts that support it that should be of great interest to investors. 

First the question: Is the investment property market being pushed to the sideline? The simple answer is NO. However, there is some nuance to the answer based on who you ask, what they specialize in, and where they are located.

For example, a broker in Flordia who specializes in multifamily properties has noticed some trends. Investors who can't get into or aren't confident in multifamily properties are looking at other types like retail. A broker in California noted that an investor who missed the deadline for a 1031 exchange is still planning to grow their portfolio in 2022. Several brokers specializing in single-tenant retail are having one of the best years in their careers. 

Now one has to ask, why are investors growing their portfolio despite all that is going on? For starters, investors don't make decisions based on their feelings or what is going on in the news. They look at the market date and seek the advice of experts. 

When speaking to industry experts, these are the biggest take away from what they see:

Underlying CRE Drives: Stories of inflation and interest rates may seem scary but numbers present another story. Job creation in Q1 2022 was at 1.7 million (one of the highest for a Q1 in recorded history). Unemployment is down to 3.6%, one of the lowest since 2018. Core retail sales are at their highest having almost hit the $500 billion mark. 

There are $18 trillion in savings accounts and over $5 trillion in money market funds. As a result, the average household cash has surpassed household debt for the first time since 1992. 

Risk / Reward Options: Smart investors do not put all their eggs in one basket. For investors, commercial real estate offers so many options in different markets. An investor could have a multifamily property in one city and a triple-net retail property in another city or state. 

Focus on the Long-Term: Real estate investors are always focused on the long-term results. They aren't focused on what happens now or what happened a year ago, they look to what could or will happen. When the market doesn't look hot, they see it as an opportunity to grow. When nobody sees value in a market, they see what could happen in the next 5 years. 

Just look at the return on investments in the real estate market and the stock market. If one were to invest in the S&P 500 back in 2001, they will have a return of 416% by 2021. However; if one had invested in multifamily and retail properties, they would have a return of 458% and 461% by 2021. This pales compared to the return of 848% from investments in industrial properties. 

The big takeaway for investors is that the investment property market is not being sidelined while there is an opportunity in any market. Like all investments, one should absolutely speak to experts and do their research. You don't want to enter a bad market or overpay for an investment property. 

The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap