Ryan Severino, chief economist and head of research at BGO, joined NAIOP’s Inside CRE podcast to share his data-driven perspective on how global trends translate into real-world impacts for developers and investors.
Listen to the full discussion and read the excerpt below as Severino discussed each major asset class and shared his impressions and the potential opportunities for savvy investors.
“I think there are opportunities in almost every real estate type, but I think the angle differs significantly,” Severino said.
“I have loved retail for a long time, but I think the perception of retail is lagging behind the reality: retail has done a very good job of sizing its inventory over the last 10 to 15 years,” he added. Now if you look at the asset class, it has the lowest vacancy rate by hundreds of basis points, regardless of whose data set you happen to be using.
Rents are still rising at a healthy pace, and large regional shopping centers are not really being built in the US anymore. Even smaller centers really need a lot of pre-leasing to get built and to get financing to come online, he pointed out. “I like the stability of retail; I like the cash flow it generates. I know it can be difficult to buy assets that don’t appreciate like other types of real estate, but I really like it.”
Severino also thinks the industry has a bright future. There is oversupply in some parts of the US, but he believes we have largely left that phase behind us; the supply line falls off. “If you do your homework and pick your spots carefully, I think there are still a lot of opportunities.”
Severino said the multifamily sector is in a similar cycle. Perhaps not as widespread in terms of geography – the oversupply is more concentrated in the southern parts of the US, but the development there was a temporary phenomenon. “If anything, I guess [multifamily] bodes well for where the industry is likely to go, as the vacancy peak has already passed and we are now starting to see a little bit of a change [cap rate] compression, especially in some parts of the country,” he added.
When it comes to the office market: “I want to be careful not to sound too optimistic, but on average I have probably been more positive about the office.”
Severino said overall the data has come in better than people thought even a few quarters ago. “I’m not saying it’s Shangri-La… but I just can’t imagine a world where in ten years, in fifteen years, we’re all sitting at our kitchen tables or center islands and working alone or with someone else in our homes, because the office market has imploded spectacularly.”
In any case, the office market has entered a new equilibrium, he said, and the opportunities are there for astute investors.
There are also several secondary real estate types that Severino believes should receive more attention: “Data centers come to mind with the transformative changes we are experiencing with machine learning and artificial intelligence in the economy. I see demand growing much faster than the supply side can keep up… We are running a 21st century economy with 20th century infrastructure in the United States.”
Severino also pointed to cold storage as an area that will become increasingly important as more of the world moves toward middle-income status and demands higher quality, fresher food.
“I don’t think there’s a shortage of opportunity. We just have to be smarter about choosing our place in some sectors than others.”
People in the commercial real estate industry tend to catastrophize and are prone to groupthink, Severino said. In reality, “I think most of the further steps from here on out are positive,” he said. “I have a cautious positivity about where we’re probably going, regardless of the uncertainty and the political arena and all the things you might not be crazy about right now. I think most paths forward, I’m almost certain most paths forward are better than where we are now, and not worse than where we are now.”
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