$200B of Investment Capital Will Come Off of the Sidelines This Year

This year, a significant amount of capital is set to hit the commercial real estate investment market. During the uncertainty of 2020, more than $200 billion has sat on the sidelines, waiting out the market uncertainty. Those investors are poised to return this year, driving investment activity.

“By most estimates, there is more than $200 billion in capital sitting on sidelines coming into 2021. We believe that capital will be deployed in 2021, as we come out of the downturn. Some properties are distressed and will provide higher cap rates of at least a percent which will attract value-add investors,” Mark Seale, principal and director of brokerage services at Avison Young, tells GlobeSt.com.

This capital won’t necessarily land in the same place that it did before the pandemic. Seale has pinpointed multifamily and Phoenix as the top areas of interest for investors in 2021. “We also believe that capital will be looking to the multifamily sector in Phoenix as the population continues to grow and there are no rent control measures as there are in other top markets such as California and New York,” he says.

Investors are also looking in emerging markets for office opportunities as well, driven largely by new trends in office usage catalyzed by the pandemic. “Investor interest is now looking beyond Silicon Valley for start-up investment capital,” says Seale. “Many CEOs are seriously considering moving out of California or are at least looking to add a location in Phoenix. The tech sector has been on the rise as a young, educated workforce—many coming out of the number of colleges in the Phoenix area—is seeking tech jobs.”

Retail will also rebound this year. Seale expects an increase in retail sector investment in 2021. “Owners have hung on to an extent through the pandemic, but those who have had property values weakened are likely to find this as a good time to get out of shopping center assets that have tenancy issues forever altered by the pandemic,” says Seale.

Investment activity will be driven by more than just acquisition opportunities. Some experts are expecting the cost of capital to increase by the middle of the year. “Many experts are predicting that the 10-year treasury yield will double by middle of 2021—this will impact interest rates,” says Seale. “A majority of investors are seeking to acquire assets now as borrowing money is anticipated to be more expensive soon. Phoenix is a strategic choice to invest.”