Logistics market is hot, but is a bubble forming?

Sector accounted for 20% of global commercial real estate spending this year

National /
Dec.December 11, 2020 02:00 PM
Clockwise from left: Blackstone Group's Jonathan Gray, KKR's Henry Kravis and Cerberus Capital Management's Stephen Feinberg (Photos via Getty; iStock; Cerberus)

Clockwise from left: Blackstone Group’s Jonathan Gray, KKR’s Henry Kravis and Cerberus Capital Management’s Stephen Feinberg (Photos via Getty; iStock; Cerberus)

Investors can’t get enough of warehouses and logistics spaces these days, but there are some signs that a bubble could be forming.

Asset management firms including Blackstone Group, Cerberus Capital Management and KKR have doubled down on logistics centers, and prices for warehouses have surged, Bloomberg News reported. According to real estate research firm Real Capital Analytics, values for industrial properties rose 8.5 percent in the past year, while retail real estate values fell 5.2 percent and offices stayed steady.

The intense interest in the niche sector has led some, including Jonathan Needell, CIO of Kairos Investment Management, to wonder whether logistics space is headed for a bubble.

“You’re getting people chasing industrial, in particular, to prices that are unsustainable,” said Needell. His firm controls $1 billion in commercial real estate.

Investment in warehouses has ticked up outside of the United States, too. According to research firm CBRE, investments in the sector made up 20 percent of global commercial real estate spending this year, compared with just 15 percent of the total in 2015.

CBRE also projects that logistics’ upward trajectory will continue for at least a decade. According to its analysis, logistics prices will rise 68 percent by 2030.

Still, some lenders are wary — especially as demand for new construction of logistics space surges to 1 billion square feet by 2025, according to JLL.

“There’s a huge amount of industrial space being built now,” Andrea Balkan, managing partner in Brookfield Asset Management’s real estate finance group, told Bloomberg. “We are always cautious on lending in markets or on property types which everyone else is rushing into.”

[Bloomberg News] — Georgia Kromrei


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