4 reasons why this commercial real estate sector could escape the pandemic unscathed
TIn today’s commercial real estate market, an old hacker about “no hostel room” can be replaced with “no warehouse room”.
While the travel-dependent hospitality sector typically pulls its tail in the pandemic recovery, the industrial sector is on a serious roll and is poised to emerge from this viral mess unscathed. According to a recent report by JLL, The industrial market hit a new record vacancy rate of 4.3% in the third quarter of 2021 as net absorption – newly occupied space minus newly vacant space – hit a record 135.1 million. As a result, rents also increased 7.1% year on year.
While these rent increases are pale compared to, say, some of our hottest housing markets, there is plenty of reason to believe that industrial CRE will thrive in the future. Here are four.
Image source: Getty Images.
1. Demand of e-commerce and global supply chain for logistics
E-commerce was creating intense demand for global and last mile logistics before the pandemic, and this has only grown as shoppers order online in unprecedented ways. There appears to be little reason to believe that demand will decline significantly or soon, and industrial space is a critical part of this global supply chain.
2. The boom in last minute and last mile warehouses
Manufacturers and distributors have long used a “just-in-time” approach to product and parts inventory. Supply chain disruptions are now shifting many people to “just in case”, increasing the demand for space to keep critical materials available and close by.
Speaking of proximity, the need for space on the last mile also drives the demand for smaller facilities at critical supply chain nodes close to a product’s final destination, be it ‘a store or factory.
3. Heavy investment in purchase and construction
A lot of money is spent to buy and build to meet this growing and intense demand for industrial space, and it is a forward-looking investment. CRE advisor and director Transwestern said industrial buildings activity was double what it was five years ago, with 636.6 million square feet under construction in 3Q21.
Meanwhile, the aforementioned JLL report said that of the 85 million square feet of new industrial space delivered in the third quarter, 69.6% was pre-published. This kind of demand also attracts the attention of buyers. A single example is Industrial logistics property trust win the battle for Real estate investment in Monmouth with a $ 4 billion cash offer that surpassed Sam Zell’s Commonwealth equity and Starwood Capital by Barry Sternlicht.
4. A hedge against inflation
Real estate in general is considered an inflation hedge, especially commercial real estate, as many leases include built-in rent increases. The Federal Reserve has already announced anticipated interest rate hikes to counter inflationary pressures, and the intense demand for warehouse and logistics space will improve the ability of owners of this type of real estate to pass spending while minimizing the impact on their results.
REITs may be the right way to participate
ILPT, Equity Commonwealth and Monmouth are three of over 200 publicly traded Real Estate Investment Trusts (REITs) that can provide easy and liquid entry and exit from this market. And you might find you want to stay.
The National Association of Real Estate Investment Trusts (Nareit) said as of November 30, the 13 companies it considers industrial REITs posted a total return of 45.41% year-to-date, up from 12 , 17% for the whole of 2020.
The group’s dividend yield was only 1.90%, reflecting the high stock prices that many of these REITs now boast about, but investors have reason to have some confidence in the chances of this sector. to come out unscathed at the end of the pandemic, whenever that can happen.
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Marc Rapport has no position in any of the stocks mentioned. The Motley Fool recommends Equity Commonwealth. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.