Boring is best


More great research in from CBRE, with a report on investors’ investment intentions for 2019 in the Americas. Its findings resonate with what we are finding among our Islamic investors and I thought it would be worth sharing the highlights.

The most striking thing that caught my attention, even though it was perhaps obvious but serves as a helpful reminder, is that the number one motivation for investing in real estate, with a third of the vote, was simply having a stable income stream. Boring, but true.

In a world of uncertainty, boring is best, with the predictability and indeed level of the income stream key considerations in our conversations with investors.

Meanwhile, while real estate’s yield premium and expectations of better capital value growth over other asset classes shared second place with 20% of the vote each, the textbook favourite that investors purchase properties as a hedge against inflation won just 1% of the votes cast.

Picking up on the level of the yield, the survey highlighted that core assets were the most attractive for just 9% of respondents, with the ascent of ‘good secondary’ over the last five years being
very clear and now the priority for a third of investors apparently.

Personally, I have never got on with the word ‘secondary’ as it suggests inferiority, with Tier 2 locations sitting better with me, but there is no doubt that their attractiveness is growing.

CBRE commented that investors “may view investment in secondary [that word again!] markets as less risky than it was in previous cycles given demographics, employment and technological changes impacting utilisation of real estate”.

Put another way, Tier 2 locations work for tenants as they tend to have growing populations seeking a cheaper cost of living and so access to employees and modern technology allows more flexible
working. Oh, and the rent is a lot less than the gateway cities.

Islamic investors have already hit the top 5 Tier 2 cities identified as being the most attractive: (1) Dallas/Fort Worth: Investcorp has owned assets in the form of offices in Dallas for a number of years; (2) Denver: Our own 90 North owned the FBI headquarters; (3) Atlanta: Arcapita has a senior living portfolio; (4) Houston: KAMCO recently bought an office property let to HP [Hewlett -Packard]; and (5) Phoenix: Arch Street Capital bought a GoDaddy office last year. So, it seems we are doing something right.

Want even more yield? Orlando was their highest scoring Tier 3 city. But the last time I checked; Orlando need not be boring!

This article was first published in Islamic Finance news dated 12th June 2019.