CEO panelists at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT said they expect growth to continue in the mall, office and hospitality sectors against a backdrop of changing consumer and tenant preferences.
NAREIT 2015 Chair David Neithercut, the president and CEO of Equity Residential (NYSE: EQR), introduced the panel of REIT executives by observing that “our industry has a very strong story to tell.”
In the retail sector, Sandeep Mathrani, CEO of General Growth Properties, Inc. (NYSE: GGP), said demand for retail space is exceeding supply, especially among top-tier properties.
“We’re actively recapturing space leased to weaker retailers,” he said.
Mathrani noted that interest in U.S. malls from international retailers has been robust. At the same time, domestic retailers are doing a “fantastic job” of increasing productivity, he added.
The rise of e-commerce hasn’t thwarted growth in the sector, Mathrani said. In fact, 95 percent of all retail is conducted with retailers that have a brick-and-mortar presence, he noted.
Meanwhile, vacancy and net absorption levels are improving around the country in the office sector, Boston Properties, Inc. (NYSE: BXP) CEO Owen Thomas told the panel. While construction is starting to pick up, it is still below long-term averages, he said.
In the lodging sector, Ed Walter, president and CEO of Host Hotels & Resorts, Inc. (NYSE: HST), said he is encouraged by low levels of new supply. Simultaneously, demand has been boosted by a resurgence of international travelers.
Walter noted that cap rates continue to be low in the lodging sector as investors take advantage of very strong debt markets. As a result, prices are “higher than what we’re prepared to pay” for acquisitions, Walter said.
Looking ahead, the REIT executives did express some concerns with respect to the macroeconomic outlook. For example, Mathrani asked if difficulties in Europe might affect the U.S. market. Similarly, Walter noted that a slowdown in the Chinese market could impact other emerging markets and, as a result, put a crimp into the number of international travelers visiting the U.S.
As for opportunities, Mathrani noted that with a “huge” development pipeline, GGP will focus on managing costs in 2015.