Source: Mondaq —
The annual Allen Matkins View From the Top brings together the top real estate economists, owners, investors, developers, and brokers in Western Region commercial real estate. Now in its 15th year, View From the Top remains a key source for market trends and predictions. Here are the top takeaways from this year’s CRE brain trust:
1. TAILWINDS ARE STRONGER THAN HEADWINDS FOR CAPITAL MARKETS GOING INTO THE NEXT PRICING CYCLE.
According to Michael Van Konynenburg, President of Eastdil Secured, although capital markets have been choppy, the positives outweigh the negatives in today’s environment. With increasing replacement costs, growing rents, a very strong job market, strong balance sheets, limited overleverage and high liquidity ($4.1 trillion on deposit at the Fed), commercial real estate is well-positioned for strong momentum in the second half of the year. He reminds us that historically, CRE performs well in a rising rate environment. But until FOMO starts to kick in, transactions will tend to be more “bespoke” placements.
2. RETURN TO WORK IS NOT GOING AWAY.
There are a number of unanticipated challenges impacting commercial real estate firms right along with the rest of the country, including the war in Ukraine, inflation, rising rates and the prospect of a recession, but the work from home syndrome is still top of mind for most CEOs. As Owen D. Thomas, CEO and Director of Boston Properties, points out, “It has now become about balance of power – management versus labor.” He believes the issue is split by industry, job function, seniority, and geography. For TMG Partners Chairman and CEO Michael A. Covarrubias, the issue is still evolving as it has moved past fear of the COVID-19 virus to more of a cultural change. Thomas points out that there is a dramatic gap in performance between East Coast and West Coast. New York City is doing well, but the business district in San Francisco is suffering, with so many tech companies still working from home, the drop in Asian tourism, and the homeless problem. Thomas sees the primary business districts becoming more mixed use. “We need to work together to reactivate the cities through the arts, restaurants and the entertainment industry,” Covarrubias sees the industry becoming more project specific. “There are 4 kinds of recession: global, US, real estate and my building. Real estate is a local business.”
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