05/16/2022
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Last week, Edelman’s Financial Communications team hosted its inaugural Commercial Real Estate Webinar. Panelists included John Worth, Executive Vice President, Research and Investor Outreach at Nareit; Cory Scott, Executive Vice President, Asset Management at Macerich; Susan Mello, Executive Vice President and Group Head, Capital Markets at Walker & Dunlop; and Ryan Riel, Executive Vice President and Chief Real Estate Lending Officer at EagleBank.
Moderated by Bisnow’s East Coast Editor, Jon Banister, the conversation focused on the greatest growth sectors for commercial real estate, the impact of interest rates on the industry, and forecasts for 2022 and beyond.
Some of the top discussion points and takeaways from panelists included:
- REITs and Other Forms of Real Estate Perform Well Through Periods of Inflation: A lot of inflation at its core is supply chain-driven, which has been exacerbated by Ukraine and lockdowns in China. The key concern on the inflation front is whether it’ll morph into a wage price spiral, as there is currently an incredibly tight labor market where there are 1.9 jobs per unemployed person in America, which is an all-time high. This gives a rise to a meaningful conversation on where inflation is going in the next 12-24 months and what it means for the broader economy. REITs, like other forms of commercial real estate tend to perform relatively well vs. other asset classes through periods of rising inflation. Based on historic data, REITs outperform the broader stock market during periods of moderate and high inflation and are a good inflation protector in a diversified portfolio during these periods.
- The Office Market Will Have a Higher Demand for Class A Trophy Properties: The evolution of the office market has been taking place for 10-12 years. Over the past few years, there’s been a shift in how employers are using their space, moving to less space per employee, which has already impacted space needs by tenants. Like many other trends, the pandemic accelerated this trend which had already been taking place due to technology developments. Quality Class A properties, especially newly built, will be in higher demand as people start coming back to the office, investing in their employees and shifting into more quality office space. Companies are realizing that they need to provide an environment where they can offer employees strong amenities, good food and beverage options, entertainment, and quality access so that employees will be excited to come back into the office environment.
- The Mall is Not Dead: While there was certainly a surge in digital sales growth throughout the pandemic as people were trapped in their homes, there’s been a pent-up demand for people to be out in stores and return to experience retail, restaurants, and entertainment in person. For the first time in quite some time, the percentage of online sales has decreased. For Macerich, it has seen foot traffic return to nearly pre-pandemic levels and retail sales have exceeded pre-pandemic sales levels going back to 2019 across their properties. In fact, this past quarter, sales were up almost 15% compared to this time last year. At the end of the day, businesses and retailers that have an omnichannel approach are going to be most successful. By merging both digital and brick and mortar, businesses can best manage their supply chain, and be the most productive which is going to make them better retailers.