Before the pandemic, industrial properties were a more of a snack than a main course among real estate's primary food groups, but investors' voracious appetite for the sector may result in it occupying a larger place in their portfolios.
Many investors were already overweighting warehouses and other logistics properties in their portfolios to take advantage of consumers' growing acceptance of online shopping. But the COVID-19 crisis and stay-at-home orders supersized the trend and investor demand.
Traditionally, office and retail have been the largest property types in institutional portfolios. At 34%, office remains the largest investment category in institutional real estate portfolios, even as questions remain about the future of work post-pandemic, according to the Pension Real Estate Association. But in 2021, asset owners plan to invest the most capital in industrial, followed by multifamily, according to a 2021 investment intentions survey issued jointly by real estate investor trade groups PREA, INREV and ANREV.
According to Real Capital Analytics Inc., the office sector's share of total deal flow in 2020 shrunk to 23% in the Americas, below industrial for the first time. In Europe, the Middle East and Africa, office sales fell below apartment and industrial, Real Capital Analytics data show.
Jim Costello, New York-based senior vice president of Real Capital Analytics, called it a "sea change" for the industrial sector. In the past, industrial had not been a big part of institutional portfolios because it seemed boring, he said.
"It was slow, stable and steady. Nobody wanted to focus on it," Mr. Costello said. "Slow, stable and steady are fantastic right now."
Whether industrial supplants office and/or retail as a leading property sector among institutional investors depends on where their investment dollars end up, Mr. Costello said.
"It's a capital race," he said.