Investors continue poured money into industrial properties in 2020 as social-distancing pushes even more consumers to e-commerce - and keeps them out of the office as well.
As reported by Bloomberg, warehouses are considered resilient assets in the pandemic economy, while hotels and retail properties are hit hard and offices face pressure from remote work.
The world’s biggest private money managers -- Blackstone Group Inc., Cerberus Capital Management and KKR & Co.-- are all buying logistics centers. The surge of investment is driving up prices, with industrial properties jumping 8.5% in the 12 months through October while retail real estate values fell 5.2% and offices were little changed, Real Capital Analytics Inc. reported.
The article further notes:
It’s not just a U.S. phenomenon. Investments in warehouse and industrial properties comprised 20% of global commercial real estate spending this year, up from 12% in 2015, according to CBRE Group Inc.
One factor driving up prices is the sheer volume of investment in real estate, which is seen as an alternative to volatile stocks and lower-yielding bonds. Private real estate investors are sitting on $196 billion in dry powder as of Dec. 1, Preqin reports.
“In the institutional world, we’re all sharpening our pencils and looking again for opportunities,” David Gilbert, chief executive officer of Clarion Partners, which manages more than $55 billion in real estate globally, said in an interview. “That capital needs to go somewhere.”
The pandemic has been hard on commercial real estate, virtually freezing the market for months. Total transaction spending plunged more than 40% in the first three quarters compared with 2019. Still, industrial sales are down the least, slipping 25% compared to 71% for hotels and 44% for offices, Real Capital reported.
U.S. investors put 24% of their real estate spending into industrial and logistics space, compared with 23% for office through the first three quarters of this year, according to Real Capital.
Warehouse and industrial property could face headwinds. At some point, rents will hit a ceiling and investor returns will slow, according to Chris Ludeman, president of capital markets for CBRE. Still, prices are set to climb steadily for 10 years, rising 68% by 2030, according to CBRE projections.
With e-commerce driving demand for 1 billion square feet of new industrial space by 2025, according to a Jones Lang LaSalle Inc. forecast, there’s a construction boom that concerns some lenders
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