Bloomberg Intelligence and Nareit partnered to host a moderated discussion entitled “Reading the Tea Leaves – The 2022 REIT Market Outlook.” Nareit’s senior economist joined a panel of leading portfolio managers to discuss the impact of COVID-19 on every commercial real estate property sector, and whether changes reflect a permanent shift in the market or are likely to revert when the pandemic ends.
The webinar also provided insights into the opportunities and risks these changes represent for investors in 2022. The conversation, moderated by REIT analysts Jeffrey Langbaum and Lindsay Dutch from Bloomberg Intelligence, featured panelists:
- Calvin Schnure, Senior Vice President, Research & Economic Analysis, Nareit
- Keith Bokota, Portfolio Manager, Real Estate Securities, Principal Global Investors
- Bernhard Krieg, Managing Director, Public Securities, Brookfield
The first topic touched on by the panel was inflation. Schnure stated that he has slightly revised his outlook on the impact of inflation since Nareit released its 2022 outlook in December 2021. “The outlook we posted a month ago was looking at inflation as a moderate risk to the outlook that otherwise looked for solid growth and favorable conditions for REITs,” Schnure said. “Now inflation has become more of an issue over the past month, but the bottom line is we still see a favorable outlook for REITs and real estate in an environment with moderate inflation growth.”
Schnure went on to compare today’s economic conditions to those of “The Great Stagnation” in the 1970s. Productivity growth and profit margins have risen during the pandemic while both indicators experienced decline in the ‘70s. “The current environment looks like we will have a period of moderate inflation for the next several years,” he said.
Next, the panel touched on the office sector, which has been significantly impacted by pandemic mandated work-from-home and shifting attitudes toward remote work. Krieg is optimistic that employees will come back to the office, but with the enhanced flexibility that people have come to expect of the last two years. “The question is how impactful is that [flexibility] going to be,” he said.
Early in the pandemic, some thought that this would be the end of the office building while others believed things would go back to the pre-pandemic schedule of being in the office Monday through Friday. “Where we ended up is somewhere in the middle – hybrid work,” said Krieg, which he believes will not have a meaningful impact on the amount of real estate companies will ultimately need.
Turning to the retail sector, the panel discussed how heading into the pandemic the sector was experiencing serious headwinds but ended 2021 with sales 20% higher than pre-COVID levels. Bokata attributed this to the speedy rollout of vaccines and the surprising level of fiscal stimulus this provided at the beginning of 2021.
“We did see some improvement in fundamentals at malls, and retail sales have significantly rebounded,” Bokota said. “So, looking forward we do think the fundamental picture is better than it was. Heading into 2022, we are not expecting the same level of retail sales growth that we saw in 2021 – these is less stimulus overall in the system - but the accumulated savings should still be a positive driver for retail sales continuing at a healthy level.”
Listen to the entire Bloomberg Intelligence-Nareit webinar by registering here.