The Azucena Take: Investors Continue to Expect a Solid Recovery in 2021

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Early this year; Marcus & Millichap partnered with Wealth Management Real Estate to conduct the Investment Sentiment Survey. This was to get an understanding of how confident investors were about the market and what their concerns were. Many expected a solid recovery along with the value of their investment to jump in the coming months. So far, all of that has come to fruition.

A second one, the 2H 2021 Investment Sentiment Survey, was conducted in early August to get an idea of how investors felt. The results show that investors continue to have full confidence in the economy while also less concerned about the pandemic and more focused on other issues.

Overall: the optimism remains strong with an outlook of 165 points. This is the same level of confidence in early 2021 and a major jump compared to the same time in 2020 or after the 2008 Crash.

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When it comes to their plans for the next 12 months, 50% plan to increase their commercial real estate holdings while 42% will not make any changes. Only 8% plan to decrease their holdings. This varies by property type, with hotel investors more likely to increase their holdings.

Confidence in the future value of commercial real estate is also high. Here is a quick breakdown:

  • The value of senior housing is expected to rise by 7.5%. 

  •  Industrial space is expected to rise by 7.4%. 

  •  Investors expect apartments to rise by 6.7% while self-storage will rise by 6.5%.

  •  Hotels are expected to rise by 4.8%

  •  While still low, investors expect the value of retail and office to rise by 1% (the first positive outlook since before the pandemic).

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Even though the Delta variant is concerning, most investors are more worried about interest rates and changes to the tax laws. 81% of investors believe that interest rates will go up in the next 12 months. 80% of investors also fear that the capital gains tax will also rise with the proposed tax changes. 65% of investors also fear that the 1031 exchange could be eliminated sometime in the next two to five years.

It should be noted that talks about the tax code were only proposed, and no steps or action have been taken yet. Investors could expect to see a draft of the new tax code sometime in the next 12 months.  

The overall takeaway is that the economic recovery we predicted back in February is happening. Given how much investor confidence has skyrocketed since the start of 2021, there are many reasons to be optimistic about the future. As the number of Americans being vaccinated rises, investors are looking to prosper.

Carlos Azucena