Warehouses Lure More Cash Than Offices in Pandemic-Fueled Flip

U.S. industrial properties boom as retail, hotels lose value

Quote by Jonathan Needell  |  Bloomberg

December 10, 2020

Warehouses are the hottest corner of commercial real estate – maybe too hot.

Investors have poured money into industrial properties in 2020, spending more on U.S. warehouses than office buildings for the first time as social-distancing pushes even more consumers to e-commerce.

Warehouses are seen as more resilient in the coronavirus economy, particularly as hotels and retail properties are walloped by the pandemic and offices face pressure from remote work.

The world’s biggest private money managers — Blackstone Group Inc., Cerberus Capital Management and KKR & Co.— are all buying logistics centers. The surge of investment is driving up prices, with industrial properties jumping 8.5% in the 12 months through October while retail real estate values fell 5.2% and offices were little changed, Real Capital Analytics Inc. reported.

But as investors buy a smaller slice of commercial real estate, the inflows are fueling a potential bubble, according to Jonathan Needell, chief investment officer at Kairos Investment Management in Rancho Santa Margarita, California.

“You’re getting people chasing industrial, in particular, to prices that are unsustainable,” said Needell, whose firm oversees $1 billion in commercial real estate.

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