Some sectors of the real estate market are set to rebound and stabilize as the market learns to deal with the effects of the pandemic, according to DWS Group, an asset manager based in New York City.
But the pandemic has had widely varying impacts on different real estate sectors, giving investors opportunities in some sectors but large challenges in others, DWS said in its recently released 2020 U.S. Real Estate Strategic Outlook.
“Real estate provides diversification and income for a portfolio,” Todd Henderson, head of real estate, Americas, for the DWS Group, said in an interview. “Real estate has proven over time—especially in a dislocation—to provide principal protection. If you look at it today, some sectors are very attractive.”
Institutional investors usually have 9% to 15% of a portfolio in real estate, he added.
“It is important to understand the differences [in potential returns] for different types of real estate,” Henderson said.
The firm feels there will be investment opportunities for the second half of 2020 in sectors that are cyclically defensive and supported by structural drivers such as the industrial and apartment sectors, as well as technology and population driven markets.
“In our view the outlook for U.S. real estate has tentatively improved as business reopening and fiscal and monetary stimulus have buoyed the economy and financial markets,” the report said. “We continue to expect that the Covid-19 recession will weigh on real estate fundamentals. Transactions, largely frozen since March, will likely begin to thaw in the second half of this year, starting with higher quality assets.”
DWS portfolios are strongly overweighted in indusrial real estate.
“E-commerce has been a boon to the industrial sector, as retailers have stored more inventory and consumed more space to facilitate rapid fulfillment,” DWS said. “E-commerce sales increased nearly 30% year-over-year in April, even as total retail sales plunged 20% year-over-year. Stores are reopening, but we believe that consumers have acclimatized to purchasing more products online. Furthermore, businesses might store more inventory as a precaution against supply-chain disruptions.”
The firm also holds an overweight position in rental properties because rentals do not change much in a recession. “Jobless renters resort to using savings and government or family support to remain in their homes. People also typically avoid taking on substantial financial obligations, including mortgages, in periods of economic uncertainty. Even as the recession runs its course, we believe that housing shortages and affordability challenges will continue to support the sector,” DWS said.