Finding Durable Investments in Volatile Times

Adam Jackson

Maintaining a strategic mindset and focus that keeps investments in a proactive position of strength throughout downturns and disruptions during the investment horizon is critical. Developing a durable investment strategy is arguably the most challenging component of the real estate business.

The ever-changing landscape has forged our investment strategies into one core belief: Invest where we find the intersection of demand between tenants and investors alike. The intersection of these fundamental drivers is where tenant demand is outpacing supply, alongside assets that are highly desired by investors, resulting in an investment that maintains a marketplace throughout cyclical volatility.

There have been a few dynamic trends shaping our investment strategy. These growth fundamentals include sustainable demand for highly functional industrial distribution facilities outpacing supply across the country, considerable cloud growth driving hyperscale and colocation demand for data centers, and significant domestic migration shifts that are changing the shape of the country’s real estate markets.

Industrial strength

Industrial demand soared in 2020 and remains at an all-time high throughout the country. The exponential expansion of the e-commerce industry was expedited by the forced adoption by most consumers of the internet’s distribution network to fulfill their daily needs, as most brick-and-mortar businesses were forced to close their doors. The logistical implications for the distribution of goods throughout most supply chains is anticipated to have an enduring impact on the industrial market moving forward.

While the effects continue to unfold, the evolving manner that customers receive their purchases is transforming corporate distribution strategies, turning every major city into a logistical distribution artery. As retail businesses increasingly interact with households via websites and delivery trucks, the demand for distribution facilities should be sustained. Industrial supply shortages have been most evident in growing cities with smaller industrial markets.

Big data

The economic renaissance of the e-commerce industry has dramatically impacted the velocity of demand throughout the data center asset class. With the internet’s emergence as an official marketplace comes the corporate acceptance of the need for cloud computing capabilities, fundamentally changing the demand for data centers. From historically large users of data centers, such as technology companies, banks and hospital systems, to new adopters within the retail and marketing sectors, the depth of demand continues to build momentum into an asset that investors are beginning to recognize.

Population shifts

Strong population trends throughout the sunbelt are changing the shape of these economies, positioning select cities for sustained periods of growth. In some cases, the economic growth engines that have historically led the nation’s real estate markets are transitioning to new regions of prosperity, creating cities of the future, and potentially, regions of the future. The fundamental shift in population is challenging the psyche of investors that have historically been consumed with traditional gateway markets.

This economic expansion does not come without challenges; each city will have to properly manage its infrastructure to accommodate the needs of rapidly expanding population bases. Ultimately, demographic migration can lead to fundamental expansion in demand that outpaces the supply curve in growth markets, creating unique opportunities to capitalize on an everchanging marketplace.  While there was no way to forecast the events that transpired throughout 2020, the real estate market has experienced a variety of fundamental shifts creating long-term growth opportunities. These dynamic drivers of returns are causing a growing acceptance across the investor universe, which has real estate emerging as one of the favored asset classes of the future.

Adam Jackson is managing partner, Investments, at Stream Realty Partners.