Coronavirus outbreak threatens industrial real estate returns

Pensions & Investments | March 17, 2020

Coronavirus outbreak threatens industrial real estate returns
Industrial properties have been a top-performing real estate sector but, though still early, COVID-19 could cut into returns, according to a recent presentation to CalSTRS officials. Warehouses in the U.S. earned 13.4% in 2019, the only sector to produce double-digit returns in the NCREIF Property index, according to data from the NCREIF data. The second highest-performing sector of NCREIF Property index was office with 6.6%. While hotels have been the hard hit by the coronavirus, the industry recently is beginning to see "chinks in the armor" in industrial properties, especially those in the port market, Taylor Mammen, a Los Angeles-based senior managing director based in at consulting firm RCLCO, told the CalSTRS' investment committee on March 4. California State Teachers' Retirement System, West Sacramento, has a 13% target real estate allocation, with $34.2 billion invested in real estate as of Sept. 30, according to its latest semi-annual real estate report. A combination of factors, including new warehouse construction and "drastically increasing rents" added to problems warehouse tenants have had with reduced cargo from China — are causing warehouse users to question whether they need more warehouse space, Mr. Mammen said. The coronavirus is starting to impact the price buyers are willing to pay for warehouses, he said.

Spotlight

The last two years have seen a significant uptick in cross-regional capital flows into global commercial real estate. In 2014 alone a total of $125 billion of cross-regional commercial real estate transactions were recorded, up 39% year-on-year, and close to triple the value reported in 2011.

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The last two years have seen a significant uptick in cross-regional capital flows into global commercial real estate. In 2014 alone a total of $125 billion of cross-regional commercial real estate transactions were recorded, up 39% year-on-year, and close to triple the value reported in 2011.