Although institutional real estate has generated strong historical returns, sector return variations have always been present, have increased in recent years, and will continue to diverge in the future. Therefore, sector selection in today’s environment will be critical to future returns. Rather than simply analyzing historical vacancy rates, for example, thinking thematically involves examining demographics, the forces shaping new settlement patterns, living and workplace preferences, technological innovations and lifestyle trends.

The most favorable real estate sectors for the next several years are likely to be industrial and residential. Within these broad sectors, we are most optimistic about the prospects for small-bay industrial and single-family rentals.

INDUSTRIAL RE-REVOLUTION

Industrial space, driven by the growth of ecommerce, faster delivery times and widespread low market rents, is poised for a bright future. Ecommerce, in partic