National Sector Leader Building, Construction & Real Estate

The slow economic growth holding down interest rates and restraining new development offers a sweet spot to real estate investors willing to venture outside their comfort zones. Many are seizing the opportunity.

Four years into the growth phase of the cycle, demand is still catching up to supply. While growth has been robust in the multifamily segment, much less new supply has come online in other segments. What this means for investors is that there is more money chasing fewer deals. 

Real estate funds, in particular, are holding an unprecedented amount of “dry powder.” At the same time, with unemployment still high, the Fed is still motivated to keep interest rates low. This is spurring demand in alternative investments, including real estate, because these offer the potential for a higher rate of return than investors can achieve from safer investment vehicles. Rates will eventually rise, and investors have a strong incentive to lock in rates now. As a result, real estate assets for sale in primary markets have attracted significant demand, pricing many investors out of these markets. 

As a result, some investors are choosing to go off the beaten path to find opportunities. According to our survey respondents, there is significantly more interest in Class B and C and distressed properties. There is also significantly more interest in the Southeast and Midwest regions. These asset types and markets bring new challenges and will require new levels of due diligence and planning. Any analysis should take into account a number of positive fundamentals, including demographic shifts that have boosted the popularity of renting and city living, the reawakening of American manufacturing, the growth in warehouse demand spurred by the expansion of the Panama Canal, and an increasingly bright future for omnichannel retail.

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