Although US real estate continues to be overpriced, a new report from Aberdeen Asset Management reveals that there are still investment opportunities to be found in the US, particularly in the warehouse, retail and suburban office sectors.
According to the global asset management firm’s Americas Property Market Outlook Summary, written by Aberdeen’s head of Americas property research Melissa Reagen, the best warehouse assets in which to invest are near “intermodal facilities and import-oriented ports.”
Reagen also told PERE: “For warehouses, we’re also seeing the best opportunities in the smaller warehouses as opposed to the prime big warehouse space, which is overpriced. Investors already have flocked towards the ‘big box’ prime assets that have been well leased.”
Aberdeen also likes the intermodal space because, with higher energy prices, it’s cheaper to transport via rail instead of trucks. As a result, the firm believes that demand for intermodal facilities will grow over the next year.
In terms of the US retail sector, Aberdeen asserts that investors should take advantage of the high and low ends of those markets, which are performing the best, as well as redevelopment opportunities. “On the retail side, both the very low-end and very high-end, such as the discount spaces and Fifth Avenue, are doing fine,” Reagen said. “We’re less excited about those assets in the mid-range.”
Although overpriced in the primary markets, fringe urban office assets with non-traditional office tenants like media and high-tech firms are likely to outperform the broader urban office assets in prime locations with finance-oriented tenants. With the coastal markets for office space currently being overpriced, Reagen said that investors may want to move into “certain secondary office markets where supply is constrained,” such as Miami or Raleigh, North Carolina.
All told, Aberdeen’s report suggests that investors should target “core, well-leased assets in the fringe locations of primary markets.” As it stands now, because of an overhang of distressed properties in secondary locations, it may be too soon to enter into some of these markets. However, after distressed properties in secondary markets have cycled through and pricing is near the trough, Aberdeen believes investors should consider buying in secondary markets like Portland, Kansas City and Miami.
“We’re not bullish on gateway offices,” added Reagen. “But should pricing drop, they may start to look good in the next one to three years.”
Meanwhile, Aberdeen believes the best investment opportunities in Canada are likely to be in the western provinces, where rents grow on a real basis and the economies are driven by the energy industry. Calgary in particular is gaining relevance in the financial services industry. On the other hand, retail properties located near overbuilt suburban housing markets in Toronto and Vancouver are likely to be the most negatively affected if a housing correction materialises.