TH Real Estate predicts the U.S. real estate cycle is on track to continue into 2018 and highlights four sectors that could provide opportunities for investors, according to its latest research, Think U.S. Cities.
“Solid real estate fundamentals and economic growth suggest the U.S. real estate cycle will last several more years,” said Melissa Reagen, managing director, head of research – Americas, at TH Real Estate, in a statement. “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 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.
“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, at TH Real Estate in a statement. “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 to 40 percent of warehouse demand, according to Green Street Advisors.
Perhaps surprisingly, the research also highlights retail as a sector for investment this year. TH Real Estate asserts the brick-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 retenanting their assets. Other owners are recognizing the opportunity to recycle some retail centers by turning them into multifamily, office, healthcare, self-storage and even industrial properties.
Investor appetite for alternative real estate sectors has been growing for years, according to the firm, bringing sectors such as self-storage, student housing, senior housing and medical office into many institutional portfolios. Historical resiliency in periods of economic instability as well as favorable demographic trends support further growth in 2018 and beyond.
Andrea Zander (a.zander@irei. com) is editor of Institutional Real Estate Newsline.