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Three Unheralded Real Estate Sectors to watch in 2024: Storage, Medical Office, and Hospitality

JULY 2024


In the current landscape of commercial real estate, varying levels of performance among traditional sectors have led some investors to explore investment opportunities within more niche asset classes. We are seeing savvy investors increasingly look to diversify their real estate portfolios and make a strategic foray into alternative commercial real estate segments that are poised for growth in the coming years. Investors seeking diversified growth opportunities can often benefit from exploring alternative areas of the market that tend to feature high-potential assets such as medical office, hospitality, and storage, including industrial outdoor and self-storage.


Industrial outdoor storage


Interest in industrial outdoor storage (IOS) appears to be growing as investors continue to chase opportunities featuring higher yields to insulate their portfolios from cap rate expansion and interest rate risk. In a post-pandemic era that is vastly reliant on ecommerce and expedited delivery services, IOS properties have grown increasingly popular and beneficial for some companies, like the distribution and delivery giants who need space to store fleets of trucks, shipping containers, and industrial supplies. In the highly fragmented logistics space, there is also a highly compelling case for “next-gen IOS” where property owners, using AI-supported scheduling and management tools, can lease individual truck parking and trailer spaces on a per-spot, as-needed basis and leverage the existing space over multiple tenants.


IOS properties typically range from two to 10 acres and are used to store vehicles, construction equipment, building materials, or shipping containers for manufacturing and logistics. Based on our discussions with investors, some attraction to the IOS segment is due in part by the limited supply of existing properties as well as the lack of space and support in many areas to increase it, creating a barrier to new capacity. Though it has an estimated value of more than $200 billion, we believe there is room for additional participation by large institutional investors and national brokers. As a result, illiquidity, pricing inefficiency, and off-market deals can present a range of opportunities for investors willing to do the research.


Self-storage


In our experience, challenging economic conditions frequently lead people to reduce the size of the spaces where they live and work, creating a subsequent growing need for affordable self-storage options where items can be kept on a month-to-month or long-term basis. However, during strong economies, self-storage facilities can also benefit from household upgrades and renovations as households require additional space to store their belongings during the transition. Given the demand for self-storage across cycles, we believe this sector poses a relatively low-volatility alternative investment opportunity worth looking into. According to Cushman & Wakefield, cap rates for self-storage reached an all-time low of 5 percent in fourth quarter 2022, only 7 bps above the average multifamily cap rate. As interest rates rose in 2023, average cap rates have remained low, averaging 5.1 percent in second quarter 2023, even while cap rates have fluctuated across various other sectors.


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ABOUT ACCORD CAPITAL PARTNERS LLC

Accord, through its affiliates, is a global capital advisor, principal investor and investment manager. With its headquarters in San Francisco and personnel in Chicago, London, Hong Kong and Seoul, Accord engages with a wide variety of participants in the real estate private equity industry. Accord Capital Partners, its broker/dealer affiliate, provides advisory and capital raising services in the United States. Accord Europe Limited, its broker/dealer affiliate, provides advisory and capital raising services in the United Kingdom and Europe. For further information on Accord, visit: www.accord-group.net.

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