CONTRIBUTORS
Indraneel Karlekar, Ph.D
Global Head of Research and Strategy, Clarion Partners
Pedro Nino
Head of Industrial Research and Strategy
Clarion Partners
Preview
Investor interest in U.S. industrial real estate has reached a record high amidst historically strong property-level fundamentals. The sector has continued to be the best-performing property type tracked by the private real estate return benchmark over the past two decades (Exhibit 1). Although industrial property values have been impacted by the interest-rate driven correction that began in 2H 2022, as have all property types, Clarion Partners is optimistic that values will stabilize in the year ahead as debt rates improve.
Exhibit 1: NCREIF Property Index (NPI) Vs. Industrial Total Return History
Source: NCREIF, Clarion Partners Investment Research, Q2 2024. Based on Expanded NPI data, which includes all NPI properties and all qualified alternative assets. Note: Based on the Expanded NPI.
As explained in this paper, Clarion Partners anticipates industrial will continue to be a top-performing commercial real estate (CRE) sector due to powerful and durable long-term demand catalysts. It has had an extraordinary decade-long boom with most markets reporting double-digit annualized returns.
Furthermore, the PREA Consensus Survey forecasts that industrial may continue to outperform the major sector average from 2024 to 2028. The enduring strength of omni-channel consumption in an increasingly interconnected global economy will continue to drive steady demand at new and existing warehouse and distribution properties across the United States.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
Risks of investing in real estate investments include but are not limited to fluctuations in lease occupancy rates and operating expenses, variations in rental schedules, which in turn may be adversely affected by local, state, national or international economic conditions. Such conditions may be impacted by the supply and demand for real estate properties, zoning laws, rent control laws, real property taxes, the availability and costs of financing, and environmental laws. Furthermore, investments in real estate are also impacted by market disruptions caused by regional concerns, political upheaval, sovereign debt crises, and uninsured losses (generally from catastrophic events such as earthquakes, floods and wars). Investments in real estate related securities, such as asset-backed or mortgage-backed securities are subject to prepayment and extension risks.
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