US commercial real estate still offering solid investment opportunities

While many fund managers are promoting the advantages of investing in developing real estate markets in regions such as Asia, chief executives at Macquarie feel the US is still an attractive market for investors due to factors like cultural similarities to Australia as well as recent market trends.

“The US market is the biggest, most obvious and easiest in a lot of ways because they have a law we understand, they speak a language we understand, and they respect property rights,” Macquarie DDR Trust chief executive David Dix said.

In particular, trends affecting both the US discount commercial convenience real estate and the US distribution warehouse sectors have made them particularly attractive for investors looking to earn a steady income stream from rents.

In regard to discount commercial convenience real estate the trend has been a move by consumers away from traditional retail department stores.

“Fifteen years ago about 40 per cent of all general merchandise sales in the US were sold through traditional departments store retailers and about the same proportion were sold through discount retailers,” Dix said.

“Today 20 per cent goes through traditional department stores and nearly 75 to 80 per cent goes through the discount retailers,” Dix explained.

In terms of the distribution warehouse space, the overriding trend has been for the storing of inventory in fewer more centralised hubs to make distribution more efficient.

“The US being a big country has certain hubs and we’ve seen national distributors reduce the locations in which they hold stock down from say 20 locations to maybe five,” Macquarie ProLogis Trust chief executive Geoff Lovell said.

“It’s all about getting the stock to the hub and getting it out more quickly. What that’s meant is bigger warehouses with the systems within the warehouses being more sophisticated,” he added.

US fund managers and Macquarie business partners, DDR and ProLogis, specialise in investing in discount commercial convenience real estate and distribution warehouses respectively.

Australian investors can only gain access to these managers’ core investment activities through two listed property trusts, the Macquarie DDR Trust and the Macquarie ProLogis Trust.