The latest edition of the Nareit REIT Report podcast looked at industrial real estate trends with George Cutro and Chad Buch from JLL’s Chicago industrial research team. Cutro and Buch also co-host JLL’s Chicago Industrial-Real Time Podcast.
Buch said JLL is “cautiously optimistic” for industrial real estate in 2019. Despite global uncertainty, “the fundamentals are really healthy,” driven by consumer consumption, e-commerce, and supply chain innovations.
Cutro noted that e-commerce has changed the supply chain cycle, with the advent of smaller sized distribution centers replacing a traditional hub-and-spoke system. “We’re seeing a lot more demand in that smaller size, call it under 500,000 square feet, that’s really driving today’s numbers,” Cutro said.
“The big deals all happened a couple of years ago in the coastal and core markets…now this is the second round of smaller and mid-sized deals happening in some of the secondary markets,” Buch said.
The latest edition of the Nareit REIT report podcast featured Melinda McLaughlin, vice president of research at Prologis, Inc. (NYSE: PLD), who discussed some of the highlights of Prologis’ latest Industrial Business Indicator (IBI) index report, a quarterly survey of customer sentiment.
McLaughlin described industrial demand at mid-2019 as “healthy,” with the IBI index currently at a level of around 60. Customers are continuing to grow at a “sustainable pace” following 2018, which was the second highest level for net absorption of industrial space seen in this cycle.
“The tailwinds to demand, which we've seen throughout this cycle, continue to play a large part in what we're seeing in terms of customer leasing activity,” McLaughlin said.
The latest edition of the Nareit REIT Report podcast looked at the advent of 5G—and what it means for infrastructure REITs—with Ji Zhang, senior research analyst at Cohen & Steers.
Zhang discussed the evolution of infrastructure REITs as a component of the broader REIT industry.
In 2000, traditional REIT sectors accounted for about three quarters of REIT market capitalization, she observed. Today, they count for just under half. The first data center REIT was listed in 2004 at just under $300 million in market cap. In 2012, the first tower company converted to a REIT at about a $30 billion market cap. Today, tower and data center REITs comprise just under 25% of the REIT investment universe.
“We believe these technology-oriented sectors will continue to gain in importance given their secular demand drivers and important roles in the digital economy,” Zhang noted.
In the latest edition of the Nareit REIT Report podcast, Kimco Realty Corp. CEO Conor Flynn discussed the shopping center REIT’s unique approach to ESG matters.
Flynn reflected on the evolution of Kimco’s ESG program since its inauguration 8 years ago. “Today we’re in a very different place,” he said. As the program has matured, Kimco has found ways to embed various ESG activities and responsibilities into existing teams across the entire organization. Now, instead of having one individual directing all its ESG efforts, Kimco has shifted to managing through a cross-functional steering committee comprised of various department leaders.
From an environmental perspective, moving the needle requires a sustained multiyear commitment, Flynn observed. He noted that the scale with which Kimco has adopted energy efficiency measures has been “transformative.” For example, the REIT recently concluded a first-of-its-kind installation of over 4,500 submeters across every tenant space in its portfolio. Because tenants are now billed on their actual consumption, they have a direct financial incentive to conserve, he said.
Steven Brown, global head and senior portfolio manager, real estate, at American Century Investment Management, discussed broad trends impacting the REIT market during a podcast interview at REITweek: 2019 Investor Conference.
REITs have had a “nice bounce” in 2019, partly because of how inexpensive they were at the end of 2018 but also because of the change in Federal Reserve language toward interest rates, according to Brown. “We think that real estate fundamentals are sound, but if we do get a period of easing, that will support real estate even more," he said.
In the latest edition of the Nareit REIT report podcast, Matt Walaszek, associate director of industrial and logistics research at CBRE, provided an overview of trends in the cold storage sector.
While cold storage represents only a small portion of the overall industrial warehouse inventory, major demand drivers such as population growth and changing consumer behaviors are driving increased attention to the segment, according to Walaszek.
The strongest demand for cold storage facilities is currently coming from densely-populated metro areas, including Los Angeles, Seattle, Chicago, and the Northeast region. However, areas that are experiencing significant population growth, such as South Florida, Atlanta, and Dallas, are also fueling demand, he said.
Marty Cicco, senior managing director at Evercore Partners, spoke with Nareit’s REIT Report podcast in New York at REITweek: 2019 Investor Conference.
Cicco assessed the state of the commercial real estate market at mid-year. “It ranges from healthy, to beyond healthy, to unbelievable in some cases, but there are still a few sectors that have some challenges,” he said.
At the same time, the business cycle—while clearly in the later stages—is breaking all records, according to Cicco.
“You’re in an extraordinary time with low interest rates, the economy in the U.S. appears healthy, but we’re obviously in the midst of a growing trade war with China…[and] you’ve got issue like North Korea and Iran out there that could jolt the markets,” Cicco said.
Joel Beam, senior portfolio manager of real estate strategies at Salient, spoke with Nareit’s REIT Report podcast in New York at REITweek: 2019 Investor Conference.
Trade tensions are reinforcing the value of property investment in general, according to Beam. REITs have outperformed this year and have outperformed “meaningfully” versus the broader market since April 30, he said. “I think that’s a testament that real estate represents a flight-to-safety approach for a lot of folks.”
While certain subsectors may have more exposure to trade policy changes, “we’re really waiting for clarity on these matters before making portfolio changes. To some extent it’s too soon to tell,” Beam said.
Beam also commented on the ongoing impact of e-commerce. “To me, the drama in this space is all about what happens to retail…we’re in a situation where tenants have more leverage and more choices, and landlords on the margin are having to rethink how they tenant their properties,” he said.
REITs and listed real estate are likely to see minimal impact from ongoing trade tensions, while the sector offers the potential for “outsized returns” due to solid fundamentals, according to Laurel Durkay, senior vice president and portfolio manager of global and U.S. real estate at Cohen & Steers.
Durkay was a guest on the latest edition of the Nareit REIT Report podcast.
The domestically-focused nature of real estate securities provides “relative insulation” from trade tensions versus the broader equity market, Durkay said.
“We do believe that real estate and REITs do offer a lot of very positive attributes in a time of heightened economic insecurity,” she noted.
The latest edition of the Nareit REIT Report podcast looked at the impact of New York’s recently-passed Climate Mobilization Act with Cliff Majersik, executive director of the Institute for Market Transformation.
Majersik described the bill, which calls for buildings larger than 25,000 square feet to institute a 40% reduction in carbon emissions by 2030 and 80% by 2050, as “very ambitious.” He noted that New York and Washington, D.C. are the only two cities in the nation to target existing buildings.
While many building owners probably won’t have to make any adjustments during the first compliance period, they would be “well advised to look at the whole scope of the law, all the way out to 2050, and to try to make sure they are taking action now that will position themselves to meet the requirements going forward,” Majersik said.