Lower borrowing costs and the absorption of excess capacity in the warehouse and light industrial property sectors bode well for an asset class where the long-term drivers remain strong. The continued growth of e-commerce, functional obsolescence and nimbyism making it harder to build new facilities all tell us that the supply and demand fundamentals are there.

As the third-largest U.S. warehouse owner, EQT funds own a 375 million-square-foot property portfolio across the U.S., Europe, and Asia. We have spent the past few years adding to our asset base by identifying owners who became overstretched as interest rate hikes drove up debt servicing costs while valuations fell.

We were fortunate to sell assets worth nearly $7bn in 2021. Since then we have built up our capital base and stepped up our pace of acquisitions putting EQT in a strong position as we enter 2025.

Warehouses are in demand

One big driver for the sector is the onshoring of warehousing and related logistics. Distributors and retailers no longer want a just-in-time supply chain where products can be sourced from an overseas factory at a moment’s notice. The risk of supply chain disruption, given the lessons of the pandemic and geopolitical tensions, is too great.

Companies that had previously been removing inefficiency from their supply chains to try to utilize just-in-time inventory to cut every cost realize that there’s a much higher cost to super-efficient supply chains, where if you run out of product, that costs you dollars, whereas just-in-time inventory saves you pennies.

We see opportunities in high-quality industrial buildings with two to four years of lease terms and rents significantly below market. That allows us to ride out this period of soft demand. However, in the long run, the fundamentals of the space suggest that there will be opportunities for rental rate growth. We’re able to do that and still hope to get yields similar to what we got historically by taking construction development and leasing risk. In short, we are aiming for outsized returns relative to the risk we are taking.

Lifestyle choices are impacting the residential market

We see similar opportunities to buy high-quality multi-family real estate. A tremendous amount of maturing debt is due in the multi-family space, which will pressure existing asset owners in the near term. As with the industrial property sector, there are promising long-term drivers given housing shortages; the trend for individuals living alone and slower family formation means the underlying demand remains strong.

This suggests an opportunity for judicious investors.

One uncertainty for this year is the outlook for rates. While the Federal Reserve did cut interest rates in 2024 as inflation levels declined, the long-term borrowing rate remains elevated. Depending on the incoming U.S. administration’s policies, inflationary measures could prompt the U.S. Federal Reserve to pause or even reverse its move to lower interest rates, potentially impacting the timeframe for the trends I described.

Overall, we like the fundamentals underpinning the industrial and multi-family residential spaces and see plenty of emerging opportunities for new investment.