Industrial, multifamily seen to shine on rent growth: Ares

“In our view, the long-term fundamentals for multifamily and industrial are compelling. For the multifamily sector, increases in wages, employment, and household formation can translate into stronger demand,” he said in a recent email interview.

“Supply activity has slowed for office and multifamily properties providing further support for occupancies and rents. Industrial construction is active, but with occupancy near record lows, rent growth will remain robust over the near-term.”

Increases in e-commerce sales, trade flows, and manufacturing activity will lend another support to the industrial real estate sector which includes warehouses and distribution centers.

Additionally, Glaubach picked US commercial real estate as an attractive asset class for investment at this moment, citing strong economic fundamentals, substantial market liquidity and transparency, as well as stable price trends and risk premiums.

In a late-cycle market as the current economic expansion is the longest on record, value creation strategies, or enhancement at the asset level is a key driver of return.

“Changing the real estate through physical or financial improvement in a risk mitigated manner provides the opportunity to generate attractive risk-adjusted returns,” he said.

“We believe the opportunity set is supported by unprecedented and long-running changes in demand related to e-commerce, home ownership, retailing, co-working, and other significant behavioral shifts, providing momentum and support for value creation."

He played down the late-cycle tendencies of overvaluation, overleverage and oversupply, noting that the current economic expansion has been the slowest in terms of the pace of growth; real estate price gains have been relatively modest; the cost of debt and loan-to-value ratios are lower than the period in the run up to the global financial crisis.

Since 2008, US national commercial real estate prices have risen by only 14% in inflation-adjusted terms, compared to 87% for the SP500 and 21% for GDP.

Supply growth has slowed, averaging just 0.9% increase in stock annually from 2009 to 2019, versus 1.6% from 2001 to 2008.

Regarding geopolitical uncertainty, its negative impact has been muted substantially by solid consumer spending, a historically tight labor market, and accommodative monetary policy, Glaubach added.

Ares manages approximately $142 billion of assets as of June30, 2019.

By Sang-yeol Lee

mustafa@hankyung.com