Look for continued growth in valuations and operating income in the commercial real estate industry during the second half of 2012, according to Paul Whyte, managing director with Credit Suisse.
Whyte heads Credit Suisse's real estate investment banking division. In a video interview with REIT.com in New York at REITWorld 2012: NAREIT's Investor Forum, Whyte offered his near-term outlook for REIT investment in the United States. He also discussed some of the potential pitfalls in both the real estate market and financial system that could give REIT investors problems.
Whyte said he expects the gains will be "spotty." He also said he expects investors to keep up the ongoing "flight to quality" in terms targeting trophy assets.
"In uncertain times, capital tends to go where they see long-term opportunity," Whyte said.
Within the retail sector, Whyte said he currently sees more value in higher-quality, class-A mall properties, rather than assets in suburban markets.
Whyte also singled out data center REITs as an intriguing subsector for investors.
"Clearly, with Apple and all of the iCloud and Facebook and social media opportunities for data to be stored away from corporate headquarters, there's just enormous demand there," he said.
Looking ahead, Whyte noted that he sees "a whole host" of potential setbacks for the commercial real estate market. He called Europe and the ongoing concerns about the eurozone the "800-pound gorilla" facing the industry.
"I think that what Europe lacks is a comprehensive, long-range plan for fiscal unity," Whyte said. "Without it, we're just really putting Band-Aids on the patient."
Whyte noted that the effect of the news in Europe is having an outsized impact on the global economy. "From a headline perspective, Europe is influencing the markets more so than I think anybody had ever imagined," he said.
Back at home, Whyte said the U.S. economy appears to be in recovery mode. He pointed out that business investment is increasing to go along with improvement prospects in the energy, health care and technology sectors.
"In a microcosm, the U.S. is recovering nicely," Whyte said. "But we are not immune to shocks outside the system."