Think U.S. Cities: Real estate investment opportunities in 2018
According to its latest research, TH Real Estate predicts that the U.S. real estate cycle is on track to continue into 2018 and highlights four sectors which could provide opportunities for investors in 2018.
“Solid real estate fundamentals and economic growth suggest the US real estate cycle will last several more years,” said Melissa Reagen, managing director, head of research, Americas. “The U.S. real estate market is in its mature phase as characterized by slowing rent and appreciation growth. However, real estate fundamentals remain solid with supply and demand largely in balance. We think that CRE Debt, Logistics, Retail and Alternatives specifically, will continue to outperform other sectors in 2018.”
The research finds that 2018 could be an opportunistic time to add commercial real estate debt to a real estate equity or multi-asset portfolio given the abundance of lending opportunities available. Analysis by the firm shows commercial real estate debt enhances multi asset portfolio performance, depending on the allocation of equities and fixed income instruments. Commercial real estate debt enhances portfolio performance due to its modest correlation and higher risk-adjusted returns, relative to most other asset classes. We believe it is the superfood every portfolio should consider adding.
“Investors are increasingly diversifying into sectors with sustainable demand drivers that provide both stability and growth in the short and longer term” said John Philipchuck, director of research and strategy, Americas. “Alternative real estate sectors, which are underpinned by demographic growth and human need, offer superior consistency throughout the economic cycle.”
TH Real Estate believes the Logistics sector will outperform its peers in 2018 as healthy market conditions and continued e-commerce sales growth support higher rents and capital values. E-commerce sales have generated an additional 30 percent -40 percent of warehouse demand according to Green Street Advisors.
Perhaps surprisingly the research highlights retail as a sector for investment in 2018. TH Real Estate states that the bricks-and-mortar store is far from dead; it simply plays a different role in the sales process than it did before. Landlords are responding to this transformation by repurposing and re-tenanting their assets. Other owners are recognizing the opportunity to recycle some retail centers by turning them into multifamily residential, office, health care, self-storage and even industrial. Additionally, some retail assets present a compelling buying opportunity such as power centers, lifestyle centers, neighborhood/community centers, grocery anchored centers, urban retail and malls.
TH Real Estate states that investor appetite for alternative real estate sectors has been growing for years, bringing sectors like self-storage, student and senior housing and medical office into many institutional portfolios. Historical resiliency in periods of economic instability combined with favorable demographic trends support further growth in 2018 and beyond.
