Red-hot demand for warehouse space drove dealmaking in the sector in H1

US real estate M&A continued on from a strong 2021, more than doubling in value from US$45.8 billion in H1 2021 to US$95.8 billion in H1 2022, while deal volume rose 59 percent to 46 over the same period.

Significantly, real estate was among the only sectors to post a year-on-year increase in activity within the US. The sizable increase in deal value was in large part due to the largest deal of the year so far in the sector, Duke Realty’s US$27.9 billion acquisition by US warehouse landlord Prologis, pending approval by shareholders and regulators. Although this transaction was an outsized one compared to the rest of the market, the increase in deal volume is also a promising sign for deal activity across the whole sector.

Competition heats up in industrial real estate

The value of 46 transactions in the US real estate sector in H1 2022

59% Percentage increase in deal volume compared to H1 2021

The Prologis/Duke Realty deal was driven by the soaring demand for warehouse space, thanks to the continued boom in e-commerce and rapid delivery services since the start of the COVID-19 pandemic.

E-commerce players have themselves been buying up land for development across the US, as they race to meet rapidly rising demand. Amazon, for example, doubled its owned real estate portfolio to 16.7 million square feet across North America in 2021, up from 8.5 million at the end of 2020, according to an annual financial report. Last August, the company spent US$85 million on a 133-acre site in Sunrise, Florida, where it plans to build a fulfillment center.

Multifamily assets attract attention

With interest rates on the rise, stock prices have been under some pressure. Yet the underlying core value of real estate assets remains strong, as the sector is seen as recession-resilient, offering a long-term stable investment option.

This has been a particular trend seen in multifamily residential rental properties. Expectations that rents will keep rising are curbing any investor worries about rising inflation, with demand for rental housing set to remain strong. With these factors in mind, M&A in residential REITs could increase in the rest of this year.

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