It is late in the cycle and investors are getting antsy about
where to place their money. The appetite for risk is lessening
and even in some cases changing the perception of certain
investments. In short, there has been a shift toward greater
caution, according to CBRE’s 2019 Americas Investor
Intentions Survey, with the share of investors planning to
either maintain or increase spending in 2019 falling to 75%
(from 88% in 2018).
What is a still-active investor to do?
The answer, CBRE says, is to look for properties in secondary
markets and alternative asset types.
“Pricing is at or near the previous peak for most asset types in
prime locations, so investors are seeking yield in secondary markets and alternative asset types,” said Chris Ludeman, global
president of capital markets for CBRE.
Investors’ view of secondary markets is changing as strong
employment growth, in-migration and investment have trans-
formed many of these cities since the last economic cycle.
This is not to say that investors are less interested in the large
US markets. Los Angeles/Southern California has been the top-ranked metro in the Americas since 2016, says CBRE, followed by
However, as more investors shift their attention to smaller locations, Tier I markets are becoming less appealing to investors. At
the same time, interest in most Tier II and Tier III metros is growing. Denver, Phoenix, Orlando, Nashville, Minneapolis/St. Paul
and Las Vegas all climbed higher in CBRE’s ranking of the cities
that are most attractive for investment for the third year in a row.
Tampa, San Diego and Portland were not as popular as they
were in 2018, but still ranked higher than they did in 2017. Among
the rising Tier II and Tier III markets, only Denver and Phoenix
appeared as recently as 2016.
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Migration Trends Fuel Growth for CRE Services
In mid-December the US Census Bureau released figures on population growth over a 12-month period that ended July 1, 2018, as
well as state-to-state migratory patterns. While the study showed
one of the population gains since 1937 (0.6%), it clearly defined
four western states with the greatest population growth, year-over-year: Nevada ( 2.1%), Idaho (2%), Utah ( 1.85%) and Arizona
( 1.7%). Not surprisingly, Texas and Florida continue to be among
the fastest-growing states in the country by population.
The survey made me curious to find
out if some of our offices had expanded
to capitalize on growth in their states.
Principals from NAI offices in Las Vegas
(which also serves St. George and Lehi,
Utah), Reno, Phoenix, Salt Lake City
and Boise responded to my query with a
The following brief account of busi-
ness growth in these four states is an example others may follow,
or already have. It may also serve to provide insight for investors
and developers seeking the best returns on their capital.
American mobility is often driven by cost-of-living issues and life
cycles. According to Bankrate’s cost of living calculator, a professional earning a $75,000 annual income in the San Francisco Bay
Area could maintain the same standard of living earning $40,816 in
Austin, where overall costs are 45.6% less—including 74% and 67%
respective reductions in median home price and apartment rent.
As Phoenix and Tucson have seen significant in-migration from
California and other states in recent years, our offices there have
added more agents, production and services. Local principal Terry
Martin-Denning of NAI Horizon reports 30% revenue growth over
the past three years, as well as the addition of a self-storage practice
group, five new agents in Phoenix and two in Tucson. The area’s
educated workforce has made it a good candidate for technology
and financial services firms, she reports, adding that the state’s
favorable cost of living and tax rates make it attractive to companies
that are expanding or relocating.
Taxes are indeed a major driver in the popularity of these states.
Personal income tax Florida, Texas, Nevada, Utah, Idaho and
Arizona ranges from zero to 6.925%. By comparison, income tax
ranges from 4% to 13.3% in California, New York and Connecticut.
In Reno, NAI Alliance added a multifamily investment sales specialist, as well as agents focusing on retail, office and industrial and a
generalist because population growth has driven demand across all
sectors. Reno’s proximity to California is the main reason for its
growth, says SVP and principal Kelly Bland.
In the past 12 months, NAI Vegas added eight agents across all
property sectors, according to COO Jon Walter. His group also
opened a new office in Northern Utah’s Lehi City in 2018, which is
an area dubbed “Silicon Slopes” for the tech companies that have
clustered there and the skiing nearby. In the past 18 months, these
offices have increased revenue and sales agents by over 50%.
In Salt Lake City, NAI Premier has added eight new agents and
one property manager in the past year, and plans to open another
office in the next year with three to seven new agents. Its brokerage
revenue nearly tripled over the past three years, while staff grew
from three to 22. Launched two years ago in Boise, NAI Select has
already grown its management portfolio by 30% and added five new
brokers last year. The broader market has seen a substantial influx of
people from coastal cities who are drawn to the quality of life.
Jay Olshonsky is president and CEO of NAI Global in New York City. He may
be contacted at firstname.lastname@example.org. The views expressed here are the
author’s own and not those of ALM Real Estate Media or its publications.
By Jay Olshonsky
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