In the search for assets that will hold up against inflation, industrial and residential real estate may be the answer, according to Todd Henderson, head of real estate, Americas, at global asset management firm DWS.
Both sectors have held up well amidst the current downturn and volatility and provide a good hedge for advisors and their clients against inflation, which shows few signs of slowing, Henderson said in an interview.
With inflation, rising interest rates and recession risk, real estate has proven to be a stable asset in times of uncertainty, acting as a strong diversifier, he said.
Industrial real estate, which includes warehousing for e-commerce, has shown consistently good returns, he said. “The asset class, which had very high returns recently, is returning to pre-pandemic levels, but that is still a very strong level of growth,” Henderson said.
Residential is also doing well because of a persistent housing shortage. One million more apartments are needed nationwide than what are currently available, Henderson said.
Mike Kingsella, the CEO of Up for Growth, a research and education organization that focuses on housing issues, said America has fallen 3.8 million homes short of what is needed for rental and ownership units.
“At the current rate of construction we could not reach equilibrium for another five years,” Henderson said, “and that does not address the under-supply of affordable housing and the rising cost of construction.” The work-from-home trend is actually good for the residential market because people need more space in their homes, he added.
Retail and office space are not doing as well from an investment standpoint. The only retail space still showing some returns are those anchored by a grocery store or pharmacy, he said.
In the entire southern part of the country, real estate is growing at a faster rate than in the northern half, he said.
“It will get to a point where the sectors will align themselves with each other, but that will not happen for another five years or more,” he said.