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NREI Research Series
Part 4: Drilling Down

In terms of looking at property types, respondents identified the multifamily sector as being by far the most attractive to high-net-worth investors (HNWI). Overall, two-thirds of respondents said multifamily is the  property sector HNWI prefer. That was trailed by industrial and medical office (each at 36 percent) and office and retail (each at 34 percent).

“More HNWI are putting capital into assets and markets where spreads are wider. In Southern California, for instance, private investors are looking to flex R&D properties for higher yield. In secondary and tertiary markets they are looking to suburban offices,” according to Richard Putnam, managing director of the Western region capital markets group at real estate services firm Colliers International.

According to a Savills report “Where Is Smart Money Going,” ultra-HNWI will be concentrating in the Pacific Northwest, California, Texas and certain Southwest and Northeast markets between now and 2020. “Cities in these regions are driven by the knowledge economy, fast-growing local populations and, in many cases, a burgeoning tech industry,” the report reads. Markets identified as net buys for HNWI include Seattle, Portland, Ore., San Francisco, Chicago, Houston and Boston. Net hold properties include Los Angeles, San Diego, New York, Washington D.C., Tampa Bay and Miami.

Looking forward to 2017, most respondents expect HNWI to either increase their allocations (59 percent) or keep them at the same level (32 percent). Only 9 percent of respondents said they expect to see HNWI decrease their allocations in 2017.

One respondent wrote high-net worth investors “are trying to balance their real estate investments with other investments at a time when real estate is going through changes caused by changes in the environment and technology.”

As for what might shake high-net-worth investors’ interest in real estate, respondents pointed to a real estate downturn (45 percent) as the most likely culprit. Other possibilities would be a broader recession (39 percent), an increase in interest rates (36 percent) or a change in the tax code (35 percent).

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