Investors should look for undervalued American real estate.
In particular, people should focus on the industrial sector since it will benefit from rising rents and occupancies as the U.S. economy improves, says Jason Yablon, global portfolio manager at Cohen & Steers in New York. His firm manages the Renaissance Global Real Estate Fund.
During the recession, the industrial sector lost 7% occupancy as homebuilders and contractors went out of business, he adds. In the aftermath, e-commerce giants such as Amazon snapped up available spaces to use them for storing and shipping product.
Now, however, there are signs of renewed demand from the building space. So there’s still “opportunity in the industrial space for rent and occupancy [levels] to grow, meaning there’s good value in the sector today,” says Yablon.
He finds strip malls are also growing in value. As the U.S. economy improves, owners in the small shop space can increase rents that fell from peak levels following the last cycle. Also, “the stocks are relatively attractively valued and cheap” in the space, says Yablon.
The net lease sector, on the other hand, isn’t attractive. Under a net lease, renters are required to cover expenses such as insurance, taxes and maintenance along with rent costs.
That sector is more bond-like in nature, says Yablon. As such, he’s “not positive on the net lease sector [since] it will be more interest-rate sensitive.”
The outlook for international real estate depends on how global markets perform, he adds. He’s currently bullish on Europe and the U.K., given their GDPs are improving and real-estate valuations are attractive in the regions.