Institutional Investors Focus On Gateway Markets As Pandemic Wanes

Institutional investors are continuing to pour capital into gateway cities and big urban metros across the country, despite an ongoing narrative around the so-called “urban exodus.” 

A new report from Reonomy shows that in some cases, investment in the top 20 US markets increased year-over-year, despite the pandemic and more liberal WFH policies pushing some workers to the suburbs. Last year, institutional investors allocated proportionally more of their investment dollars to office assets in big cities: while they bought 4% less than the previous year, they paid 12% more on average per square foot. This suggests institutional investors “do not view remote work as a long-term threat to office values,” according to Reonomy’s report.

Reonomy surveyed 35 major money managers with portfolio allocations valued at more than $425 billion to garner the data, and found that “in general, big money investment allocations did not deviate significantly from their pre-pandemic investment allocations.”

Institutional investors flocked to specialized asset classes during the pandemic – particularly sectors like data centers, cold storage, life science, and medical office space. According to Colliers, industrial was the frontrunner for investors throughout COVID, while cold storage posted record volume in 2020, with sales up 22.9%. Medical office facilities also were a fan favorite for institutional money in the early part of this year, with institutional buyers accounting for about 35% of all deals.