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 talked through each major asset class, sharing his impressions and the potential opportunities out there for savvy investors.
“I think that there are opportunities in almost every property type, but I think the aperture of that differs considerably,” Severino said.
“I’ve liked retail for a long time, but I think that retail’s perception is lagging the reality: That retail has done a very good job of right-sizing its inventory over the last 10 to 15 years,” he added. If you look at the asset class now, it’s got the lowest vacancy rate by hundreds of basis points, irrespective of whose data set you happen to use.
Rents are still growing at a healthy pace, and big regional malls aren’t really built in the U.S. anymore. Even smaller centers really need a lot of pre-leasing to get built and get financing to come online, he pointed out. “I like the stability of retail; I like the cash flow it produces. I know it can be difficult to buy assets that don’t appreciate the way other property types do, but I do really like it.”
Severino also thinks industrial has a bright future. There is oversupply in some pockets of the U.S., but he believes we’re largely out of that phase; the supply pipeline is falling off. “If you do your homework and pick your spots carefully, I think there still is a lot of opportunity there.”
Severino said that the multifamily sector is in a similar cycle. Maybe not as widespread in terms of geography – the oversupply is more concentrated in the southern parts of the U.S., but the development there was a temporary phenomenon. “If anything, I think [multifamily] is a pretty good harbinger for where industrial is likely to go because it’s already past peak vacancy and we’re now starting to see a little bit of a [cap rate] compression, especially in some parts of the country,” he added.
When it comes to the office market, “I want to be careful about sounding too sanguine, but I’ve probably been, on average, more positive about office.”
Severino said the data have generally come in better than people thought even a few quarters ago. “I’m not saying it’s Shangri-La… but I just don’t envision a world where a decade from now, 15 years from now, we are all of us sitting at our kitchen tables or center islands working by ourselves or with somebody else in our dwelling, because the office market has imploded spectacularly.”
If anything, the office market has settled into a new equilibrium, he said, and the opportunities are there for astute investors.
There are also several secondary property types that Severino said should be given more consideration: “Data centers jump to mind with the transformative changes that we’re going through 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 works its way up into middle-income status and demands higher quality, fresher food.
“I think there’s no shortage of opportunities out there. We just have to be smarter in some sectors about picking our spots than others.”
People in the commercial real estate business tend to over-catastrophize and are prone to groupthink, Severino said. In reality, “I think most paths forward from here are positive,” he said. “I have this cautious positivity about where we’re likely headed, irrespective of uncertainty and the political arena and all of the things that you might not be crazy about right now, I think most paths forward, I’m almost sure most paths forward are better than where we are today, not worse than where we are today.”
