Industrial properties have been a top-performing real estate sector for institutional investors, and while the COVID-19 crisis is expected to pressure returns, the property type still is expected to outperform.
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 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 industrial sector recently is beginning to see "chinks in the armor" in industrial properties, especially those in the shipping port market, Taylor Mammen, a Los Angeles-based senior managing director and director of institutional adviser services at RCLCO Real Estate Advisors, told CalSTRS' investment committee on March 4.
The $252.4 billion California State Teachers' Retirement System, West Sacramento, has a 13% target real estate allocation, with $34.2 billion invested 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" have added to problems warehouse tenants are facing with reduced cargo from China. That's prompting warehouse users to question whether they need more space, Mr. Mammen said.
Buyers, too, are seeing the effect of the coronavirus, with prices they are willing to pay starting to fall, he said.
Overall, investors should expect "less than ideal investment outcomes" near term, with distress for every property type in all locations as a result of the coronavirus, said Christy Gahr, principal and real estate consultant at Meketa Investment Group.