Multifamily, digital infrastructure have upside potential: ASK 2023

Investors will spur capital injection in global residential real estate and emerging infrastructure segments such as data centers and energy transition, keynote speakers said on Thursday at ASK 2023, a biannual forum on alternative investments hosted by The Korea Economic Daily at Conrad Seoul.

The global office sector is suffering from reduced demand and experiencing a flight-to-quality trend, meaning asset owners dump risky properties and flock to the highest quality ones, said speakers from Korea Federation of Small and Medium Business (KBIZ) and Harbor Group International LLC on May 18.

NICHE SECTORS LIKE LIFE SCIENCE, SELF STORAGE: KBIZ

KBIZ, managing the Yellow Umbrella Mutual Aid Fund for small-and-medium enterprises, is accelerating its investment in real estate debts. It forecasts that the current level of interest rates for real estate loans will continue only for a year and strives to catch investment opportunities quickly, said Gwak Bum-gook, senior executive managing director for mutual aid funding at KBIZ.

The federation expects upside potential from some niche sectors in real estate, such as life science and self storage, and takes a selective approach to those segments with strong analysis of each region. It is also planning to intensify global value-add strategy in real estate equity, Gwak said.

The federation for smaller enterprises will expand direct lending in infrastructure assets, while looking for opportunities in renewables and data centers. Its mutual aid fund Yellow Umbrella is managing 22 trillion won ($16.4 billion) in assets and will increase exposure to alternative investments from the current 22% of assets to more than 30% by 2025.

AFFORDABLE HOUSING: HARBOR GROUP INTERNATIONAL

Despite volatility, the US commercial real estate market will increase opportunities as economic fundamentals improve in the country and inflation slows, Harbor Group International President T. Richard Litton said.

Inflation in the US cooled to 5% in March from more than 9% last July, and it will further drop to around 2.5% in two to three years, said Litton, citing the Federal Reserve’s economic data and Chatham Financial’s sources.

Despite some 333,000 layoffs in the US tech industry since early 2022, the nation’s unemployment rate hit as low as 3.4% last month and manufacturing sector job creation reached a decade-high level in January of this year, he added.

Harbor Group International and its affiliates control an investment portfolio of $20 billion, including real estate on 4.9 million square feet.

This year, the US real estate investor will accelerate providing liquidity for multifamily housing that is affordable to low-income tenants in the country as the housing shortage has worsened. The US housing sector suffers a shortfall of 6.5 million homes between 2012 and 2022, and up to 73% of US households can’t afford medium-priced new homes this year, the president said.

The investment firm is closely watching the flight-to-quality in offices, particularly in Manhattan, New York City. During the first quarter of this year, around 75% of demand in the area took place in class A offices, he said.

It also forecasts that US industrial and retail sectors will mark strong performances. In the industrial segment, the vacancy rate has hit 3.5% already this year, the lowest point since 2007 although supply has steadily increased. The retail segment has proven its resiliency over the past decade, showing steady rises in year-over-year rental growth since 2013, he added.

Write to Jihyun Kim at snowy@hankyung.com

Jennifer Nicholson-Breen edited this article.