Foreign property investors are buying up suburban warehouses to capitalize on the growth in e-commerce. Exchange traded fund investors can also capitalize on digital retail trend through a targeted approach.
Reflecting the changing attitudes of the U.S. real estate market in the post-coronavirus pandemic world, overseas investors are purchasing more suburban warehouses instead of targeting skyscrapers or coastal resorts, the Wall Street Journal reports.
Foreign buyers “see that type of investment as effectively a corporate bond given by one of the largest companies in the world,” Matthew Alshouse, a partner at law firm DLA Piper, told the WSJ.
For example, Korean companies, which are benefiting from lower currency-hedging costs, are particularly active in U.S. warehouses. The National Pension Service of Korea acquired 23 warehouses last year in a $2 billion deal in partnership with Stockbridge Capital Group. According to foreign-investor data from Real Capital Analytics, those purchases helped raise the dollar volume of South Korean acquisitions of U.S. commercial real estate, which grew by 88% in 2020, to $5.2 billion.
In comparison, overall foreign investment in U.S. real estate fell by 31% to $35.5 billion, alongside the broader decline in property sales due to the Covid-19 pandemic.
Jim Costello, a senior vice president at Real Capital Analytics, pointed out that foreign interest in U.S. industrial real estate isn’t anything new, but the interest has accelerated last year during the pandemic as e-commerce drives drives more traffic through distribution hubs.
ETF investors can also capitalize on this growing demand for industrial real estate through a targeted real estate investment trust approach. For instance, the Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEArca: INDS) rose 6.8% and Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (NYSEArca: SRVR) gained 3.3% over the past year, whereas the Vanguard Real Estate Index Fund ETF (VNQ), a broader play on the REIT space, declined 6.3%.
INDS tries to reflect the performance of the Benchmark Industrial Real Estate SCTR Index, which is comprised of cell tower REITs, data center REITs, and similar facilities – these cell towers and data processing centers store the information and handle the orders that start the e-commerce process.
SRVR tries to reflect the performance of the Benchmark Data & Infrastructure Real Estate SCTR Index, which is comprised of real estate investment trusts that specialize in the logistics required to do e-commerce work. The portfolio includes warehouses, distribution centers, and similar facilities that allow for e-commerce companies to ship goods to their final destinations, sometimes within hours.
For more information on real estate investment trusts, visit our REITs category.