Updated with correction
Logistics is standing out as a resilient investment during a global pandemic, an important attribute for many institutional investors as they re-evaluate their real asset and real estate portfolios.
Logistics straddles both infrastructure and real estate, and in real estate it is known as the industrial sector.
Along with digital infrastructure and renewable infrastructure, many investors were interested in logistics before the start of the pandemic, said Lisa Bacon, San Diego-based principal, private markets consultant and infrastructure program lead for Meketa Investment Group. During the COVID-19 crisis, logistics has been among the top-performing asset segments.
Industrial was the highest returning sector of any of the main real estate sectors with 11.78% in 2020, far more than the second best performing segment, apartments that produced 1.83% in the 12 months ended Dec. 31, the latest NCREIF Property Index shows. Office returned 1.57%, retail was down -7.48% and hotels were -25.56% .
"Most of the investors I deal with already had this type of investment … and so they are glad they have it and want more of it," Ms. Bacon said.
Any investor that didn't have any exposure to logistics is very interested in adding it to their portfolios, she said.
A year or two ago, some infrastructure managers began investing in logistics, including containers, shipping, trucking facilities and cold-chain facilities needed to transport items that need to be kept chilled.
Managers considered those types of assets a better value than traditional infrastructure such as roads and airports, Ms. Bacon said. Managers that made substantial investments in the space did well pre-COVID and during COVID they proved resilient despite a dip in demand when the supply chain was disrupted, she said.
What's more, the race to develop and distribute vaccines caused prices for logistics assets to increase during the pandemic, Ms. Bacon said.
"I would expect things in that sector are fairly valued, if not at a premium," Ms. Bacon said.
Real estate investors are also looking re-evaluate other parts of their real asset portfolios and exposure to such traditional property types as office, retail and hospitality in light of uncertainty surrounding tenant occupancy, rent collection and cash flow in those real estate sector, said Christy Loop, Atlanta-based director, investments and portfolio manager at Willis Towers Watson PLC.
Due to this uncertainty, there is less transparency around future return expectations, she said.
Given the uncertainty, some of Willis Towers Watson clients are looking to reduce exposure to certain core property types. Industrial is one of the four core property types, but the increased attention to the logistics/industrial space has piqued a lot of investor interest, Ms. Loop said.
While valuations could increase due to a somewhat limited supply of industrial assets, currently the sector has strong tailwinds — including robust rent growth, she said.
Willis Towers Watson executives view light industrial warehouses near urban centers as attractive investments because there is a greater supply/demand imbalance, Ms. Loop said. There is not a lot of spare land to build new warehouses close to urban centers, she explained.
Cold storage is also of interest, given that home delivery of groceries has greatly accelerated during the pandemic, she said. While disruption of supply chains continue to be a concern, companies have responded by stocking excess inventory to accommodate just-in-time delivery, which is making and delivering goods when they are ordered. That adds to warehouse demand, Ms. Loop said.