Market Volatility Has Younger CRE Investors Pivoting: Survey

A new survey of more than 200 high-level commercial real estate executives with investment or investor relations authority finds a marked apprehension in the investment landscape, as market volatility is causing deep shifts in their investment strategies.

This propensity to shift is particularly acute among younger CRE investors. 

The survey, conducted by Talker Research on behalf of the real estate investment management platform Agora, found that 44 percent of firms reported changing their investment plans due to market volatility, and 44 percent also reported pausing or reducing acquisitions for the same reason.

The survey also indicated that 49 percent of respondents were moving investments into new asset classes, while 48 percent were targeting new geographic regions.

Asaf Raz, Agora’s vice president of marketing, told Commercial Observer that, according to the survey, more investments were being channeled into more specific and finely targeted funds.

“Five or 10 years ago, it was easier to go into whichever asset class you wanted, as long as the numbers made sense,” said Raz. “What we’re seeing now is more asset class-specific funds being created. They’re more focused on very specific types of assets.”

Raz used the example of a company that formerly invested across industrial, with some multifamily, tightening its focus to invest solely in small warehouses in urban areas servicing last-mile deliveries. This specificity, he said, creates a greater sense of security for investors.

The apprehension shown throughout the survey’s results is due to the perceived volatility of the economy, given factors like tariffs, high interest rates and the possibility of a recession. Due to the timing, the survey did not address Tuesday’s inflation news, which showed that inflation is holding somewhat steady, leading to new hopes that interest rates could finally fall soon.

When asked about the possibility of a recession, only 38 percent of respondents thought the United States was heading in that direction, although that number rose to 49 percent for millennial investors.

Raz noted that survey respondents indicated that they are receiving a growing number of requests for deeper information, and that the hesitation and need for further assurances has even seeped into decisions on relatively small investments.

“They’re getting a lot more reporting and data requests because they fear a recession, or that maybe the asset class they’re investing in is not stable enough,” said Raz. “They’re trying to feel secure enough to make these investments.”

The survey also addressed the increasingly challenging capital-raising environment, with 58 percent of respondents claiming it’s getting worse, and 76 percent saying that their investors are at least somewhat concerned about market volatility.

“Investors being cautious, which means more patient and selective, is kind of the new normal right now,” said Raz. “Investors’ expectations are different. The challenge isn’t just about finding them; it’s about meeting higher demands and having transparency and insight into the portfolio.”

Raz said that even trusted advisers are facing deeper interrogations regarding investment possibilities.

“It used to be that if you had a really good fund or investment manager that you trusted for many years, who gave you amazing distributions over time, you had security around that,” he said. “Now, even those types of investors are asking questions. They want more information.”

One fascinating aspect of the survey came from the varying generational attitudes. While 69 percent of Gen Z respondents reported making changes in their investment plans due to volatility, only 48 percent of millennials and just 24 percent of baby boomers reported those same changes. (Gen Z was the largest group surveyed, comprising 41 percent of survey respondents, while millennials accounted for 33 percent, Gen X for 17 percent and baby boomers for 8 percent.)

“Younger generations are becoming dominant investors in this space, and they’re more agile — they’re much more communicative,” said Raz. “Gen Z is used to going on their phones and getting all the information they need in a click. There’s a big expectation for them to have that experience, and that is something we’ve seen in the survey that has a big impact on their decisions to invest or not to invest. They adapt faster. They understand things very quickly, and they make decisions very, very quickly.”

The survey conclusions provided valuable insights, but the big picture perspective the survey presents doesn’t shift far from expectations. While various government actions, such as recent tax relief for CRE, can free up investment dollars and mindsets, it is ultimately lower interest rates that will bring investors out of the current cautionary era.

“The only thing that would make a huge difference is interest rates,” said Raz. “We could see more things coming into the market that change the game as well, but that’s the biggest thing.”

Larry Getlen can be reached at lgetlen@commercialobserver.com.