07/22/2022 | by Sarah Borchersen-Keto

Real estate deal activity is concentrating on sectors that can perform well in a rising rate environment or in periods of high inflation, with experiential-oriented assets in particular demand, says Tim Bodner, partner and U.S. real estate deals leader at PwC.

Speaking on the REIT Report, Bodner said PwC has continued to see activity building in the lodging space, as well as for casinos, marinas, and ski resorts. “All things that are tied to people being out.”

Bodner said PwC is anticipating robust deal activity in the back half of 2022, although it may be more episodic in the listed segment of the market.

The current environment has meant that there’s a lot more focus on underwriting, Bodner said. “Certainly, growth in rents and in NOI is something that folks are spending a lot of time putting attention on to make sure they feel good about their forward projections.”

Financing costs are also getting a lot of attention, according to Bodner. Depending upon how underwriting and financing work in tandem, “there are some deals that may not get done due to that dynamic,” he said. Meanwhile, ESG issues are getting a “significant” amount of attention, particularly in the office sector.

Elsewhere in the interview, Bodner noted that:

  • First quarter deal activity was up above 50% year-over-year, with strong growth in logistics, multifamily, retail, and hospitality.
  • PwC expects to see a larger share of deals getting done in the Southeast and Southwest relative to some of the other central business districts around the country.
  • PwC is anticipating strong activity in the non-listed segment of the REIT market.
  • Office assets that have been recently constructed, refurbished, or have a strong ESG score are going to see deal activity. Those assets that don't have those characteristics, particularly in office or in retail, or even lodging, will have some headwinds against them and more likely are going to be associated with a change in use over time.