Nareit's REIT Report Podcast

Commercial real estate is in a position to take a leading role to advance the sustainability agenda, while regulation is also helping to move the whole industry forward, says Matt Ellis, founder and CEO of Measurabl, a provider of ESG data management solutions.Speaking on the REIT Report, Ellis said there is a “tremendous leadership opportunity in our sector to really take advantage of the transition to green for the better of everyone—our occupiers and customers, our investors, and certainly ourselves as well. I think that we're in a good position to do it. We just can't slow down. We’ve got to speed up.”Ellis described Measurabl, launched in 2013, as a “decade-long project to build the tools for measuring, managing, reporting, and ultimately acting on sustainability for the real estate sector.” He noted that there has been “a profound migration of organizations of every size around the world towards more sustainable business models. This is being done in just the span of a few years.”

The affordable housing crisis facing the United States today is not just a lower-income phenomena, but impacts individuals making six-figure salaries, says Kenneth Bacon, co-founder and managing partner of financial advisory and asset management firm RailField Partners, and former Fannie Mae executive.Speaking on the REIT Report, Bacon, who also serves as board chair at Welltower Inc. (NYSE: WELL), said “if you pull back the covers and look at the data, you'll see that young professionals, people earning six figure salaries in cities like San Francisco and New York, are hard pressed to find places that they can afford.”Bacon said the biggest problem behind the lack of affordable housing today is that the building process has become too long and difficult.As for the state of the commercial real estate sector today, Bacon said that as interest rates rise he sees a return to a “more normalized investment ecology.” That in turn will mean that investors are “going to have to work a lot harder to get some of these returns. I think some deals just aren’t going to get done.”

Conditions in the lodging and hospitality real estate sector are healthy overall, but the combination of ongoing labor shortages, interest rate creep, and high construction costs are acting to soften margins, says Daniel Weede, partner in Morris, Manning & Martin’s hospitality, real estate, and real estate development & finance practices.Speaking on the REIT Report, Weede noted that “there's a lot of optimism in this industry, and I think, at least for the next several years, that's likely to stay.” However, “margins are thinner,” he added.Weede also discussed the potential for consolidation, noting that there will be likely be more merger and acquisition activity in the next 12 to 24 months than seen in the previous 12 to 24 months. “It's a healthy industry, but you've got some players that are doing really, really well, and others that are struggling a little bit.”

Phillips Edison & Co., Inc. is seeing a “really strong” operating environment across its portfolio, but the REIT also has a realistic view that there are going to be pressures weighing on the consumer from a range of macroeconomic factors, Chairman and CEO Jeffrey Edison said.Speaking on Nareit’s REIT Report, Edison noted that questions from investors at Nareit’s REITweek: 2022 Investor Conference last week revolved around the theme of potential disruption to the current environment from factors including higher interest rates and inflation pressure.“I think we have a realistic view that there are going to be pressures on the consumer from those macro events,” Edison said.

Commercial real estate continues to provide a solid hedge against inflation, a trend that has been borne out over multiple decades during periods when inflation has exceeded 4%, says Carly Tripp, global chief investment officer and head of investments for Nuveen Real Estate.Speaking on the REIT Report, Tripp noted that Nuveen research shows that compared to other asset classes, commercial real estate was the only one that emerged with an overall net positive return during those inflationary periods.“We always say real estate is an inflation hedge, and we're seeing that play through right now. So it's a good time to be in commercial real estate in my opinion,” Tripp said.

Consumers remain largely confident about their personal situations, despite a host of broader economic and geopolitical concerns, says Tom O’Hern, CEO of Macerich (NYSE: MAC). That sentiment is fueling sales and leasing volumes across the REIT’s portfolio of retail and mixed-use real estate.“The resiliency of the American consumer is amazing, and it is once again on display. Shoppers have come roaring back to our centers to shop with a purpose,” O’Hern told the REIT Report.During the first quarter, sales were 111% of what they were pre-COVID.“Despite the economic uncertainty regarding inflation that we haven't frankly seen in decades, higher mortgage rates, a very volatile stock market, and the war in Ukraine, American consumers remain largely confident about their own situations,” O’Hern said.

Private equity funds, endowments, and large institutional investors will continue to have a large appetite for commercial real estate given the current inflationary environment and geopolitical uncertainty, says John Sullivan, chair of DLA Piper’s U.S. real estate practice and co-chair of its global real estate practice.Speaking on the Nareit REIT Report, Sullivan said that asset classes with the ability to reprice themselves due to short lease cycles, such as multifamily and industrial real estate, “are viewed as a good bet because you can raise your rents to… at least keep up with inflation.”Sullivan highlighted some of the findings of DLA Piper’s 2022 State of the Market survey, including that respondents see logistics, multi-family, life science, and data centers as offering the most attractive risk- adjusted returns for the next 12 months.

Global investment in U.S. real estate is at its strongest-ever level, with non-core markets and multifamily and industrial asset classes continuing to lead the charge in terms of investor interest, according to Gunnar Branson, CEO of AFIRE, the association for international real estate investors focused on commercial property in the U.S.Speaking on the Nareit REIT Report, Branson noted that while there are certainly lots of concerns surrounding global events, “real estate investing is on a terrific pace in the first quarter.”The top property asset class for institutional investors from around the world continues to be multifamily, Branson said, followed by industrial real estate. And while the office asset class will definitely continue to exist, questions remain about which offices are going to succeed, and which will have to rethink the level of capital investment that will be required to compete, he added.

A skills gap within the real estate industry means that to attract talent, firms must adopt human capital strategies that align with changes in employee expectations, says Gemma Burgess, president of Ferguson Partners.Burgess will become CEO of Ferguson, a global professional services firm, on June 1. Speaking on the REIT Report, Burgess attributed a skills gap within the real estate industry to the fact that many mid-level professionals left the field in the wake of the global financial crisis. “We’re definitely facing a missing generation in our industry. That’s suddenly making the succession work more challenging,” she added.Meanwhile, Burgess pointed to changes that have occurred in the workplace. “People want to work in different ways today. They want to work more flexibly. They certainly want to work within an environment where they feel like they belong and that there’s a culture that they believe in, and they can see a future for themselves.”

Although a return to the office has started in earnest, it will take the rest of 2022 to take hold, and even longer before clear patterns of usage emerge, says Julie Whelan, global head of occupier research at CBRE.Speaking on the REIT Report, Whelan said it will likely be 2023 “before we can really start to hang our hat on trends that we can say are stable [in order] to build assumptions about what new work patterns are going to look like.”Whelan described current office usage as “muted…but the good news is that it’s picking up.” Some of the Southern states have seen a higher return to office rate, although in the past week New York and Washington, D.C. actually saw some of the biggest gains, she noted.