Industrial by far was the top-performing domestic property sector in 2021, returning 43.3%, the NCREIF Property index shows. By comparison, the total NCREIF Property index returned 17.7%.
Looking ahead, investors do expect industrial returns to fall to 8.2% in 2024 from 14.8% in 2022, according to the Pension Real Estate Association’s first quarter consensus forecast survey. But that’s still better than many expect to get in other asset classes and real estate property types, sources said. Even with falling returns, industrial is still expected to the top-performing property type in 2024, PREA’s consensus survey shows.
Industrial “looks pretty good” after analyzing factors such as capitalization rates — a calculation estimating investors’ expected return on a real estate investment — and capital needed by the sector, and if the property type will continue to produce the returns LaSalle investors require, Mr. Kleinman said.
This is especially the case since rents are expected to continue rising, judging by low vacancy rates of industrial properties in many real estate markets, among other indicators. To take advantage of rising rents, owners of industrial assets are holding off from preleasing the property, expecting rents to increase while the real estate is being developed, Mr. Kleinman said.
The use of these so-called forward purchases is not altogether new, but the number of “players that are utilizing that structure and the aggressiveness they are being employed is a new phenomenon,” representing a new competitive dynamic, said Jonathan Van Gorp, a San Francisco-based managing director at real estate management and outsourced CIO firm Makena Capital Management LLC, which has about $20 billion in assets under management.
Some asset owners are entering into their own deals called “build-to-hold” investing before the warehouses are built, agreeing to own the warehouses for about a decade, said Michael Levy, Dallas-based CEO of Crow Holdings, a real estate investment and development firm. While not new, interest in these deals has grown rapidly over the past year, Mr. Levy said.
Crow has $24 billion in assets under management.
For example, in August, Crow entered into a joint venture with Mubadala Investment Co., the $243.4 billion Abu Dhabi-based sovereign wealth fund, to develop $1 billion of Class A industrial properties in the U.S. Mubadala is taking development and leasing risk as both the co-developer and capital source for the joint venture, Mr. Levy said. Mubadala is also expected to buy some of the completed developments to hold for the long term, he said.
Crow is currently working on about 25 development projects slated for various build-to-hold strategies, Mr. Levy said.
One of the challenges for institutional investors is finding big enough deals to put their money to work because individual industrial property purchases alone don’t require that much capital, said Pamela Boneham, Chicago-based senior adviser for real …….