Demographics, deglobalization, digitization and decarbonization—four trends described by panelists at a CBRE Investment Management press conference as underlining any worthwhile investment during what many perceive to be the dawn of a new investment cycle.
These views lie in the backdrop of what Wei Luo, the company’s global research director highlighted as “sticky interest rates and higher for longer inflation.” Like many of its peers, the firm predicts two rate cuts this year, in the realm of 50 basis points.
Beyond the monetary realm, policy is a little less clear cut. Trump Administration tariffs against key trading partners could potentially increase demand for domestic manufacturing, though Luo sees these more as “starting points for negotiations” with Mexico, China, Canada and the European Union, and not persisting long-term.
Immigration, on the other hand, has led the firm to favor investing in real estate and infrastructure within metros experiencing more domestic than international in-migration. These are predominantly located in the Sun Belt. “We’re focused on the next Phoenix, Dallas or Nashville, Tenn.,” Luo said.
Sometimes, boring is better
As for how the economy and politics affect commercial real estate investing at the asset class level, panelists highlighted a shift from buying into historically appealing yet currently struggling sectors such as office to more trend-resistant, in-demand property types including modern industrial, health care, data centers and workforce housing.
The goal here is to be more resilient to the economy’s here-to-stay struggles and geopolitical uncertainty, all the while serving as a provider of liquidity. Bernie McNamara, the firm’s head of client solutions, labeled modern logistics as an example of this resilience, having experienced a “robust recovery” in 2024, following the lowest capital raising year since 2012. It’s also a provider of liquidity in a “liquidity-constrained market,” McNamara said.
READ ALSO: Industrial Report: Sector Transitions as Supply Shrinks
With these projects comes a need for infrastructure used to support them. What Robert Shaw, managing director of private infrastructure strategies refers to as a “boring” investor class is really just the electricity needed to power data centers, electric vehicle charging stations and industrial facilities. According to Grid Strategies, a power sector consulting firm, demand for electricity in general is projected to grow by 16 percent over the next five years. Houston’s CenterPoint energy, for example, experienced a 700 percent increase in its data center connection request queue in October.
Growth sectors of the future
Equally important to a resilient portfolio is a diversified one. Adopting a similar mindset to the infrastructure-dependent sectors, CBRE Investment Management has also taken a look at areas that rely on the physical presence of people; these include essential retail, health-care properties, self storage student housing, as well as market-rate and workforce housing. “These are the next-generation growth sectors,” said Lucy Fletcher, a fund manager with the firm’s indirect private real estate practice. “It’s about the opportunity to diversify across sectors and geographies.”
And investors may have less difficulty in actually picking some properties up, given a steep narrowing of bid-ask spreads, which reduced by an average of 17 percent in the first two weeks of this year, according to data from Market Axess. Many of the above properties, especially if they are acquired as part of a core investment strategy, “have durable cash flows at an attractive price,” despite capital declines of 20 to 30 percent in North America, said Liz Troni, a portfolio manager.
