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Investors in 2020 injected money into industrial facilities, spending more money for the first time on American warehouses than office buildings as social isolation pushes more and more consumers into e-commerce.
Warehouses are seen as a more resilient investment in the coronavirus economy, especially when a pandemic destroys hotels and retail stores and offices are under pressure from telecommuting.
All of the world’s largest private equity managers – Blackstone Group Inc., Cerberus Capital Management and KKR & Co. – are buying fulfillment centers. The jump in investment drives up prices: Industrial properties rose 8.5 percent in the 12 months through October, while the value of retail real estate fell 5.2 percent. Office prices have changed little, reports Real Capital Analytics Inc.
But as investors buy a narrower stretch of commercial real estate, the proceeds are fueling a potential bubble, says Jonathan Needell, chief investment officer at Cairo Investment Management in Rancho, Santa Margarita, California.
“People are starting to pursue industrial real estate deals at unsustainable prices,” says Needell, whose firm oversees $ 1 billion worth of commercial real estate.
The phenomenon is not unique to the United States. According to CBRE Group Inc., investments in warehouses and industrial facilities accounted for 20%. of total commercial real estate spending this year, compared to 12 percent. 2015
One of the factors driving price growth is the scale of real estate investing itself: this type of investment is seen as an alternative to volatile stocks and lower-yielding bonds. Private real estate investors on December 1. “Sitting” on $ 196 billion in cash, Preqin reports.
“In the institutional world, we are all sharpening pencils and looking for new opportunities,” Clarion Partners, which manages more than $ 55 billion worldwide, said in an interview. dollars in real estate, CEO David Gilbert. “That capital must be invested somewhere.”
Market freeze
The pandemic had a severe impact on commercial real estate, essentially freezing the entire market for months. In the first three quarters, compared to 2019, total transaction costs decreased by more than 40 percent. However, sales of industrial facilities contracted less, only 25%, compared to 71%. hotels and 44 percent. offices, Real Capital reports.
US investors rose 24 percent in the first three quarters of this year. It allocated 23% of its real estate spending to industrial and logistics premises. – for offices, reports Real Capital.
However, the prosperity of warehouses and industrial facilities can face obstacles. At some point, rents will peak and investor returns will slow, says Chris Ludeman, president of CBRE Capital Markets. However, prices will rise steadily over the next ten years and by 2030. They are expected to rise 68 percent, according to CBRE forecasts.
According to forecasts by Jones Lang LaSalle Inc., e-commerce for 2025 demanding 100 million. square meters of new industrial space, some lenders concerned about the start of the construction boom.
“A lot of industrial space is currently being built,” said Andrea Balkan, managing partner of Brookfield Asset Management’s real estate finance group. “We are always careful when we lend in markets or for assets that everyone else is rushing to at the same time.”
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