Which Asset Class Will Be the Best Investment in the Next Few Years?
How Real Estate Investment Stacks Up Against Equities, Fixed Income, and More
There is a wide range of asset classes available for investors to consider. Commercial real estate may prove the strongest of all in the foreseeable future.
Investors typically have a portfolio containing the major asset types, examples of which are stocks (equities), bonds (fixed income securities) and real estate. All are traditionally strong investments. How will real estate appreciate compared with other classes in the future?
Varying long-term returns on stocks and bonds are forecast among some of the market’s leading experts, according to data compiled by Morningstar. The disparity isn’t surprising, since market predictions are notoriously unsteady ground. Future equity gains are expected by some to be 1.8 percent, and by others to land in the 3 to 5 percent range.
Some are even more optimistic, predicting a return from 5.25 to 7 percent on equities over the next 10 to 15 years, but business forecasters at Kiplinger are telling investors not to expect too much in returns over the next decade.
Fixed income appreciation is generally predicted to reach from 2.5 to 4.5 percent, according to these commentators. By contrast, the real estate asset class is showing almost universal potential for robust and ongoing growth.
Projected strength across CRE sectors
The future looks bright for major commercial real estate (CRE) asset types such as retail, office, industrial and family, thanks to economic growth and other drivers. The CBRE 2019 Southeast U.S. Real Estate Market Outlook surveyed 18 cities, including six here in Florida (Orlando, Tampa, Miami, Palm Beach, Broward and Jacksonville). Technology, perennial tourism and a strong labor market are just a few of the factors that point to solid all-around performance in the years ahead.
Retail real estate staying strong
Southeastern retail is managing to avoid the doom and gloom this class is suffering elsewhere in the country, with asking rates high and vacancies at historic lows. Office investors are attracted to the strong demographic growth in the region – 37 million square feet of net absorption is expected this year alone, marking the 10th straight year of positive absorption for this asset class.
Demand exceeding supply in industrial classes
The forecast for the Southeast industrial sector is equally optimistic, with demand exceeding supply for the ninth consecutive year. Our expectation is that industrial classes will see elevated growth in the next two years.
Multifamily real estate investment continues upward trend
Investors continue to show strong favor toward multifamily in the Southeast. Our report highlights how institutional investors and REITs (Real Estate Investment Trusts) are especially fond of the sector, having increased their annual investment in the region by more than 30 percent from pre-recession levels. A projected 280,000 new multifamily units are forecast for 2019, and such high numbers show no signs of significant drops in the years to come.
As economic factors trend in a positive direction, the future of real estate looks particularly strong compared with other asset classes. You can discover more by reviewing CRE classes by region or by downloading our complete report. Our experts are always ready to advise you on your CRE strategy now and in the future.
Paul Ahmed is a commercial real estate mortgage banker and senior vice president of CBRE. Their nine offices throughout Florida offer commercial real estate investors decades of experience plus the best class debt and structured finance platform in the state.