Real estate has come out the pandemic blazing, but wide variations exist among sectors and different geographic areas, according to the DWS Group, a global asset manager with a full service real estate practice.
Real estate in general is on a sound footing and, if funds are invested selectively, presents substantial opportunities for investors, DWS said in its recently released Mid-Year U.S. Real Estate Strategic Outlook.
“We believe that the real estate outlook is bright, supported by a sharp economic recovery, disciplined supply, low real interest rates, and elevated inflation,” DWS said in the report. “In our view, the macro backdrop could hardly be more favorable for real estate.”
However, the firm said investors need to be judicious when selecting real estate sectors and geographic regions in which to invest their assets.
“The picture is more complicated at the sector and market levels where structural forces, including e-commerce, remote working, migration and suburbanization, will drive divergent outflows. We believe that warehouses, garden apartments, grocery-anchored retail centers, tech hubs and population magnets stand to benefit. Conversely, malls, urban apartments, and office buildings may struggle, particularly in more demographically stagnant locations,” the report said.
Because of the divergences within the sectors and between regions, input from financial advisors is particularly important to investors who want to put money into real estate, Kevin White, Global co-head of alternatives research and strategy at DWS, said in an interview today.
People were moving out of urban areas to the suburbs and ecommerce was on the rise before the pandemic, but the trends—which heavily impact real estate—have all picked up in the past 18 months, White said.
“The point is these trends are not over—we see them continuing,” he said.
Millennials are reaching the age where they want families and more space, and ecommerce has a lot of room left for growth, which drives the demand for warehouse space. DWS has begun developing warehouse space, as well as investing in it, White said.
DWS said it feels industrial real estate, including warehouses, will be a big winner this year and into the future, and the firm advises investors to put a strong overweight in the sector. Total returns for industrials of 14.1% in the first quarter of 2021 “outpaced the broader index of 2.6% by a wide margin. Retailers are scrambling to come up with enough industrial space to house merchandise to fulfill e-commerce orders,” the report said.