Despite concerns about oversupply, GPs continue to believe in the sector’s long-term drivers
June 6, 2024 (Preqin News) – US players have continued to drive industrial warehouse deal-making this year, as investors take advantage of concerns about supply chains as a driver of the need for greater capacity in the real economy, despite signs of a slowdown in demand and construction.
Preqin data shows that real estate firms invested $5.2bn in 214 deals in industrial warehouses from January to mid-May 2024, compared with $19.2bn in 610 transactions in full year 2023. US-based properties made up 176 investments, followed by Germany and Australia with eight and seven transactions, respectively.
E-commerce and supply chain logistics are key drivers. Investment bank Harris Williams forecasts that online sales will account for over 20% of US retail by 2027, growing at a compound annual growth rate of more than 10%. This will pressure the supply chain as retailers try to manage consumers’ expectations, ensure product availability, and accurately fulfill orders on time. The pandemic underscored the importance of having a network of diversified suppliers that can adapt to challenging circumstances and plan for ‘what if’ scenarios.
‘These activities require more space, more people, and more technology. At the same time, global geopolitical events have underlined the potential instability of long supply chains, leading to an increasing number of manufacturers holding more inventory closer to consumer markets to shore up supply chain resilience. These twin pressures are driving not only the proliferation of warehouses but growth in the physical dimensions of buildings,’ real estate agency Savills said in a report on the UK warehousing sector.
However, since the end of the pandemic, which saw a rapid expansion in warehouse leasing and construction, demand for storage facilities has dropped, though rents have increased as leasing decisions are based on long-term prospects.
In its US Construction Update, real estate services company Cushman & Wakefield reported the industrial pipeline in the US peaked in 2022 and declined by 37% in 2023, while new construction projects fell by 58% annually. The firm said the industrial construction pipeline has ‘reset to normal after a four-year boom.’
Alex Murray, VP and Head of Real Assets in Preqin’s Research Insights team, said: ‘The sector saw a rush of capital and deal-making amid the pandemic, but has since re-adjusted back to a slower pace of development as supply chain bottlenecks have eased. Asset managers should keep in mind the adaptability of many warehouse sites and consider potential development to alternative assets such as data centers if the infrastructure allows, or longer-term towards residential if the locality is right.’
In its 2024 real estate outlook, Emerging from the storm, law firm White & Case reported that 68% of more than 260 survey respondents are more optimistic for the short term (vs. 48% in 2023). Driven by reduced inflation and the potential for cuts in interest rates in the US and Europe, 89% are confident for the long term (vs. 75% in 2023).
Over a third (36%) of respondents considered opportunistic fund strategies the most attractive going into 2024. Blackstone raised $30.4bn for Blackstone Real Estate Partners X, which closed in April 2023. The fund has an opportunistic strategy and is looking to deploy into logistics, hospitality, data centers, offices, and R&D.
Blackstone’s fund dwarfs all others in the strategy, ahead of Rockpoint Group’s $2.7bn seventh fund (US), but Tristan Capital Partners (UK), TPG Angelo Gordon (US), DNE Group (China), and KSL Capital Partners (US) have all closed funds of more than $1bn in the past 18 months.
Preqin is tracking 569 opportunistic real estate funds in the market, with a combined target size of $191.7bn. The strategy accounts for 22% of the 2,554 real estate funds in market and 31% of the $615.3bn total target value.
The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.