10/26/2022 | by Sarah Borchersen-Keto

The real estate sector is in a better place today than it has been in other tough economic environments of the past, Kathleen McCarthy, global co-head of Blackstone Real Estate, told the ULI 2022 Fall Meeting in Dallas on Oct.25.

McCarthy said real estate is “entering this tougher economic moment with capital and with cranes more in check than they have been in prior cycles and that I think positions our real estate assets to do quite well.”

McCarthy added that “[in] an environment where costs are rising and where you need to generate cash flow growth, real estate is a great place to be overall.”

Blackstone is focusing on asset classes “where the wind is at our back,” McCarthy said, and where events in the broader world are driving demand for assets. Blackstone is also concentrating on assets where supply fundamentals allow the firm to continue to propel cash flow growth. “I feel that we have been working toward a portfolio that will perform in this environment for a really long time,” she said.

Currently, Blackstone’s real estate portfolio is 80% concentrated in warehouses, rental homes, hotels, and lab office space. Data centers are also a “high conviction theme for us as well,” McCarthy said. The portfolio feels “really well-designed” to perform today, she noted.

Turning to property sectors, McCarthy said logistics “has been our highest conviction theme for over 12 years now” because of the persistent trend of lives moving online. “What we see globally is that e-commerce penetration rates continue to escalate. We also see the impact of a realignment of supply chains,” as businesses recognize they need their goods as close as possible.

As retailer inventories build in a softer economy, that also benefits warehouses, McCarthy said. At the same time, there is relatively modest supply, with new development costs up over 100% over the last couple of years, she added. Blackstone sees rent growth in U.S. markets at 30%, at 20% in Europe, and Asia is somewhere within that range. “We feel continued conviction for logistics investing.”

McCarthy also said Blackstone continues to be “really enthusiastic” toward the hospitality sector, with the firm concentrating on “super special assets in super supply-constrained locations.”

As for the life science real estate sector, McCarthy said “we want to get into it in a big way.”