Pension funds invest in real estate in order to be able to offer higher returns to their investors. Most of these investors are retirees living on a fixed income, which makes consistently high returns even more important. Many real estate investments offer above-average returns and act as a hedge against inflation.
Although there are many real estate sectors, these companies have each invested over $12 billion in the areas below. Some of the reasons for this include higher demand, discounted properties and low tenant vacancy rates.
Across the country, house prices and rents have skyrocketed. For example, the median home price in the United States has risen from $362,315 in 2021 to $410,000 in 2022. Many popular markets, especially in the Sun Belt, are also seeing record growth rates.
Multifamily properties are considered recession proof because everyone needs a place to live. This also provides another benefit, which is low tenant turnover.
These properties are easier to maintain because the units are close together. Many multi-family investors hire a property manager to repair and maintain the property. This convenience not only reduces costs, but also facilitates emergency response and prevention.
Related: New multi-family real estate investment offering in the San Francisco Bay Area with a target IRR of 15.8%
You might not expect to see desks on this list. Despite the aftermath of the COVID-19 pandemic, office space is still in demand. Due to vaccines and other factors, many employers require employees to return to the office at least part-time.
However, office spaces no longer have cramped cubicles like they used to. Instead, many office spaces are open plan with unassigned desks, separate meeting rooms, and more advanced technology, including high-speed internet, self-sterilizing surfaces, and a single remote to control multiple screens in different parts.
Office space is changing, with many real estate investors seeing quality office buildings trading at a discount. For instance, Boston Properties BXP is a real estate investment trust (REIT) specializing in the development and ownership of Class A office space. As of June 2020, this REIT was trading at $80.30, but is currently trading at $106.7, which represents a growth rate of 32%.
The industrial space is seeing increased demand due to the rise of e-commerce. After all, Amazon.com Inc. AMZN warehouses can be found across the country, and the company hired 350,000 warehouse workers in three months during the pandemic.
It is also predicted that the United States will need at least an additional 1 billion square feet of warehousing space by 2025 to meet growing e-commerce demand. Amazon and other e-commerce centers are also responsible for 40% of industrial property leases. Many brick-and-mortar brick-and-mortar stores are also investing more in their online marketplaces, increasing the demand for these fulfillment centers.
Like multi-family real estate tenants, industrial tenants are generally there for the long term. Many companies do not move often and sign long-term leases for these industrial spaces, which provides them with a stable cash flow.
Being a retiree on a fixed income isn’t easy, especially with low yields and high inflation. Thus, many pension funds are turning to real estate to generate additional returns and hedge against ever-higher inflation.
These are some of the main reasons why pension funds have invested more than $12 billion each in the multifamily, office and industrial real estate sectors. Each of these areas has unique advantages, including growing demand and tenant stability.
Individuals can also invest directly in private equity real estate transactions. Browse current offers on Benzinga Alternative Investment Center.
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