At the end of each year, KPMG, LLP surveys senior commercial real estate executives in the United States to better understand sentiments in the marketplace as well as to help identify emerging opportunities.

The survey was published in February 2016 and found that CRE investors were positive but prudent on the topic of real estate fundamentals in 2016.  A whopping 91 percent of respondents expect the favorable conditions to endure or even improve, with a notable 67 percent predicting that vacancy/occupancy levels, rental rates and transaction velocity will be either somewhat or significantly better.

There is continued but cautious optimism in the real estate market, as GDP and job growth lend themselves to the positive view.  The growing caution in investor optimism can be seen in efforts to “de-risk” their portfolios.  These investors are looking for opportunities in the real estate market that might not have as significant a downturn as some riskier opportunities.

A significant number of executives see the inability to find investments as the top threat to their business model in 2016.  Gateway cities are seeing extremely high prices and strong competition, which are driving yields down.  Many investors are turning to second- or third-tier cities, including the Sunbelt, for higher returns as well as development deals.

Phil Marra, the national real estate funds leader with KPMG stated, “The risk-versus-return equation looks favorable for real estate companies when compared to the volatility and expected returns in stocks and the possibility of a rise in bond prices leading to negative returns.  Investors want lower risk and will accept lower returns to get it.”