LaSalle Investment Strategy Annual 2022: will favored sectors continue to reign?

Strong returns and value growth in the second half of 2021, buoyed by outperformance by the industrial and multifamily sectors, are giving real estate strong momentum heading into 2022. The value of U.S. and Canadian real estate relative to other asset classes is leading to strong capital flows and in turn is driving up prices. LaSalle’s 2022 Investment Strategy Annual (ISA) also speaks to the surprises of 2021 like lingering inflation and sector laggards that are still on investors’ minds.

LaSalle clients can view the full report at: www.lasalle.com/isa

As the 2021 ISA forecasted, low borrowing costs, a strengthening economy, increasing vaccinations and rolling re-openings have boosted investor demand for U.S. and Canadian real estate. The outlook for 2022 remains positive, though the report notes that investors should continue to be nuanced in their approach to avoid potential potholes.

Jacques Gordon, Global Head of Research and Strategy at LaSalle, said: “Real estate has shifted from capital-starved to capital-rich several times already in this century. The most recent supply of capital has more than kept pace with the rebound in deal flow. This creates challenges for the deployment of fresh money, even as it boosts the performance of assets already in a portfolio.

“Additionally, more is being asked of real estate in several different directions all at once. Sustainability (ESG) criteria and rising tenant expectations are among the “asks” that investors must respond to. This raises the bar for putting societal and environmental goals alongside traditional financial targets when investing in real estate”.”

Select 2022 ISA findings for North America include:

• The biggest economic surprise in 2021 was the return of inflation which has been more persistent than expected and has had a direct effect on several aspects of real estate, including development. However, the 2022 ISA presents a base case of moderate inflation moving forward, which may have more muted effects on the industry.
• The role Net Asset Valued (NAV) REITs are playing in bringing new capital to the real estate market. Fueled by high-net-worth investors both in the U.S. and abroad who are looking for core real estate with long-term cash yields, these vehicles fared particularly well in 2021 with upwards of $25 billion in equity raised, bringing more than $50 billion with leverage of new buying power to the real estate market. The 2022 ISA looks at whether this trend will continue next year.
• ESG, particularly sustainability, is continuing to emerge as an investment imperative. For North American real estate investors, sustainability considerations present a set of new investment strategy questions stemming from market and regulatory diversity. For the U.S. and Canada, there is the question of how climate change will affect different regions and markets and how much that will impact relative market investment performance.
• The 2022 ISA presents a prediction that the apartment and industrial sectors continue to outperform. The report notes that, despite insatiable demand (particularly within industrial), new supply has not been able to keep up and rental growth looks positive over the next several years. On the other hand, office remains a question mark with a large bid-ask gap that will ultimately need to be corrected but may take some time depending on workers’ return dates, how tenants will use space and whether they will need as much space moving forward. Likewise, retail continued to struggle despite pent up consumer demand and savings, though grocery-anchored retail is again attracting investor interest.
• The 2022 ISA shows that while gateway cities may have been negatively impacted during the worst of the lockdowns, apartment demand is on the upswing. However, investors may find better relative value in secondary markets where population in-flows have been the strongest and the cost of living is significantly less than major gateway cities.
• The investment universe for real estate continues to expand, with Canadian and U.S, investors alike considering a variety of specialty sectors like medical office, single-family rental, data centers and self-storage. Single-family has drawn particular attention as Millennials look to start families and age out of urban centers, a trend which may have been accelerated by the pandemic.

Rich Kleinman, Americas Co-CIO and Head of U.S. Research & Strategy at LaSalle, said, “The outset of 2021 presented numerous challenges and with unclear outcomes, but what has become clear is the resiliency of real estate. Looking ahead to 2022, investors who understand the nuance of sector selection, in-sector differentiation and the interplay between a continued economic recovery and real estate values should find success in real estate as 2021’s momentum continues. Robust transaction activity in the second half of 2021 has cleared up pricing for some sectors, and that should continue into 2022.”

Chris Langstaff, Head of Research and Strategy for Canada at LaSalle, said, “A renewed government focus on increasing immigration, continued rollout of vaccines and boosters, and an expansion of the investment universe all bode well for Canadian real estate investment in 2022. Fundamentals in the Canadian market are rebounding, making the country a strong investment option for 2022.”

Forward looking statement

The information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.

About LaSalle Investment Management

LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.

NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.