Where is capital flowing these days? The explosion of the industrial market—which has sub 1% vacancy rate and record-breaking rents in many markets—has some saying that it is the new darling of commercial real estate. The title was formerly reserved for multifamily, which is known for being the most recession-proof asset. The recent Allen Matkins/UCLA Anderson Forecast development survey showed that the fundamentals in both markets are strong and developers are bullish on both. With capital flooding to both sectors, it seems like we have two darlings of the market.
“It is a difficult questions to answer,” John Tipton, the operating partner at Allen Matkins, tells GlobeSt.com when asked which asset class he believes is the darling of commercial real estate. “There are different pockets of capital that are focused on different asset classes. There are certainly some investors that invest across asset classes for the very reasons that they want to remain diversified. Some investors have specialty niches, and by definition, others have diversified portfolios for offset risk.”
Tipton says that the infill development activity is further evidence that developers are bullish of both asset classes. The “easy” deals have already been done at this point in the cycle, but now developers are going back and finding more difficult sites for new projects. “Clearly, we live in a relatively well-developed megalopolis, and most of the easy deals have been done,” says Tipton. “Now, the easy deals are the periphery of the general market. The infill deals that are still available are difficult because there is a reason why they weren't developed. As the price of land goes up and as the price of rents go up, those land sites will suddenly pencil, even if they didn't make sense previously.”
With a little pressure, Tipton was willing to give his opinion on the dueling assets. “If I had to choose, I would still think of multifamily as the bond in the real estate portfolio because people have to have a place to put their head down at night,” he says. “Can rents stagnate? Sure. However, even when the economy goes bad, you still have to sleep some place. A warehouse in a down economy could not be utilized at all.”
Where is capital flowing these days? The explosion of the industrial market—which has sub 1% vacancy rate and record-breaking rents in many markets—has some saying that it is the new darling of commercial real estate. The title was formerly reserved for multifamily, which is known for being the most recession-proof asset. The recent
“It is a difficult questions to answer,” John Tipton, the operating partner at
Tipton says that the infill development activity is further evidence that developers are bullish of both asset classes. The “easy” deals have already been done at this point in the cycle, but now developers are going back and finding more difficult sites for new projects. “Clearly, we live in a relatively well-developed megalopolis, and most of the easy deals have been done,” says Tipton. “Now, the easy deals are the periphery of the general market. The infill deals that are still available are difficult because there is a reason why they weren't developed. As the price of land goes up and as the price of rents go up, those land sites will suddenly pencil, even if they didn't make sense previously.”
With a little pressure, Tipton was willing to give his opinion on the dueling assets. “If I had to choose, I would still think of multifamily as the bond in the real estate portfolio because people have to have a place to put their head down at night,” he says. “Can rents stagnate? Sure. However, even when the economy goes bad, you still have to sleep some place. A warehouse in a down economy could not be utilized at all.”
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Kelsi Maree Borland
