Why Real Estate Is Still an Attractive Sector
With the economic recovery entering its eighth year, many investors are growing nervous about the possibility that returns might begin to flag in the near future. Increased political uncertainty in various countries around the world is also prompting investors to rethink their strategies. But while the debt and equity markets may be in for some difficult quarters, the real estate sector promises to remain a bright spot for returns.
Part of this stems from the fact that real estate is facing fewer headwinds than other asset classes. While P/E ratios are already getting frothy in many equity markets, and bonds continue to languish at historically low rates regardless of the amount risk lenders are being asked to shoulder, real estate cannot help but look attractive in comparison.
But it isn’t just the weaknesses of other asset classes that makes real estate strong. Those same low rates that plague lenders continue to favor borrowers and real estate developers. While investors in the sector may not be sinking quite as much capital into new projects as they were earlier in the cycle, most investors in the U.S. continue to actively seek new opportunities in real estate.
Real estate is also benefiting from secular changes in the market’s needs. The continued rise of e-commerce companies, for example, is creating outsized demand for warehouse space and new logistics centers. Tech companies, meanwhile, find themselves in need of new server farms that may require entirely new facilities as the demand for IT resources continues to grow. Other new trends, such as the rise of co-working and co-living properties, are also generating demand for new construction.
While the asset class likely will not experience quite the same level of returns as it did earlier in the recovery, real estate nevertheless remains well positioned for investors looking to maximize their returns. Indeed, it may be the most attractive asset class currently available.