Note from the Editor: Issue #11

ACCORDING TO PLANS

With the worst parts of the pandemic behind us—and political and economic fallout continuing to challenge us—it’s clear that this is no longer the world that was.

But we’re not yet in the world to be, either.

Instead, we’re somewhere in-between.

This issue of Summit Journal (our eleventh issue to date and our last issue of 2022) is a reflection of this point in time. Our contributors, from all sides of the industry, are looking to the past for cues to the future, but definitive answers to our current challenges—inflation, supply and demand, geopolitics, climate change—are still obscured by the fog of uncertainty.

This uncertainty is putting a different sort of pressure on real estate values. At the time of this writing, some of the largest and most well-capitalized real estate funds in the US are limiting what investors can withdraw. Other funds are stemming outflows, as investors track weakening demand for office space, and as rent growth slows in apartments and other sectors.

But AFIRE members, representing a notable sample of global institutional investors, and the contributors to this journal, still see bright points and long-term opportunities in US real estate—even if it takes a mix of art and faith to reach those insights. For example, CBRE Investment Management, which is also graciously serving as the sponsor for this issue, suggests that the solution for some of our current industry challenges could be found by prioritizing investments with a promise of positive social change (p. 10). Similarly, AFIRE CEO Gunnar Branson provides a renewed challenge to the real estate industry, following years of advancements in sustainability (p. 6).

The other articles and research in this issue runs the gamut on market selection (Aegon Asset Management, p. 32); asset pricing (Barings Real Estate, p. 40); evolving trends in supply and demand (JLL, p. 96); challenges in operating expenditure (Berkshire Residential Investments, p. 60); and differences in office performance across US markets (RCLCO, p. 46). New York Life Real Estate Investors shares a white paper looking at post-pandemic economics effects in “sand state” markets (p. 68), and we’re also proud to include a recent article from PwC on the future path of long-term interest rates in the US (p. 22).

Together, the ideas presented by the contributors to this issue—alongside the guiding voice of the Summit Journal Editorial Board (whose comments append several of the articles found herein)—don’t quite promise sure-fire solutions. But they showcase how our industry is thinking at this point in time: a community finding its way through the fog.

– Benjamin van Loon, Editor-in-Chief, Summit Journal

IN THIS ISSUE:

MAKE SUSTAINABILITY REAL

With the case for sustainability already well-established, how can (and should) real estate continue to lead?
Gunnar Branson | AFIRE

RETURN GENERATION POTENTIAL

In addition to offering inflation protection and lower volatility, real estate also offers something that other asset classes can’t: the opportunity to invest in tangible, positive change.
Shane Taylor | CBRE Investment Management

CATCH A FALLING *R

The future path of long-term interest rates in the US and why it matters.
Alexis Crow, PhD | PwC

TIDAL PATTERNS

Amidst myriad global economic and geopolitical uncertainties, US commercial real estate has an even greater challenge ahead: demographics.
Martha S. Peyton and Caitlin Ritter | Aegon Asset Management

WORKPLACE VALUES

The sooner we can recognize that values have come down collectively—even beyond the office sector—the sooner we can move forward to capitalizing on new opportunities.
Dags Chen, CFA | Barings Real Estate

OFFICE GAMES

Even as the US office sector has lagged other property types, there could be an important (and valuable) difference of office performance based on property age and market.
William Maher and Scot Bommarito | RCLCO

EMISSION CRITICAL

Workers spending less time in the office post-pandemic may seem negative for the office sector, but a four-day workweek can be a boon for some office property owners.
Kevin Fagan, Xiaodi Li, and Natalie Ambrosio Preudhomme | Moody’s

MOVING TARGETS

A close-in look at twenty major US metros and thousands of properties shows how the overall impact of rising expense loads have narrowed NOI margins. Investors should take note.
Gleb Nechayev, CRE and Webster Hughes, PhD | Berkshire Residential Investments

SAND STATES

In the wake of the Great FinancialCrisis, certain metros in the Sand States suffered disproportionally. It may not be as bad this time.
Stewart Rubin and Dakota Firenze | New York Life Real Estate Investors

STORM WARNING

Not all storms are the same, and some are so tragic that they force a moment of universal recalibration. Hurricane Ian was one of those storms—but what does that mean for real estate?
Rajeev Ranade and Owen Woolcock | Climate Core Capital

PACIFIC THEATER

The Asia-Pacific region is already home to some of the world’s largest economies and now set to lead global economic growth. What’s moving the needle now for the APAC region?
Simon Treacy and Yu Jin Ow | CapitaLand Investment

STABLE SPACE

For e-commerce property investors, the past decade was outstanding, but even as market dynamics are slowing industrial’s momentum, market fundamentals remain sound.
Mehta Randhawa | JLL