Interviews were held with a former managing director at Cushman & Wakefield Debenham Tie Leung, a former VP at Vornado Realty Trust and a former principal at Green Light Retail Real Estate Services. Third Bridge Forum is part of Third Bridge’s integrated research offering that also includes Community, Maps, and Primers and Tearsheets.
US Office Real Estate – Southwest Market Trends & 2023 Performance Outlook – Former managing director at Cushman & Wakefield Debenham Tie Leung
- A former managing director at Cushman & Wakefield Debenham Tie Leung said office real estate in the US Southwest, particularly Texas, will outperform other national averages – despite ranking third in investor commercial real estate interest relative to multi-family and industrial segments.
- The Southwest’s industrial segment is “robust and stable,” the expert added, bolstered by strong population growth, a resilient consumer and the region’s well-connected rail and air transport system.
- However, the specialist expects a slowdown in rent growth and an uptick in vacancy rates within class B and C multi-family assets – though class A buildings may prove resilient. Increases in property tax and insurance costs will be Southwest multi-family assets’ “Achilles’ heel” – a result of rapid and unsustainable increases in property valuation, we were told.
US Office Sector – CAPEX Pressures Stemming From ESG Regulatory Mandates – Former VP at Vornado Realty Trust
- ESG property regulations tend to start on government-owned buildings as a trial before being rolled out into the market, our expert said.
- New York has the most stringent regulations and although California has “always been forward-thinking” it is “less sophisticated in terms of municipal requirements”, according to the Interview.
- The specialist highlighted NYC LL97 as the most “critical” ESG mandate impacting landlords’ repositioning of their portfolios today, with fines priced at USD 268 per metric tonne for over-limit emissions. “[S]ome of these larger buildings in Manhattan could see millions of dollars a year in fines,” they said.
- On average, landlords have been trying to pass the financial burden of ESG-mandated CAPEX requirements to tenants through “shared responsibility” terminology in new leases or renewals – although this is enforced inconsistently.
- We were also told that landlords of older building portfolios may tend to absorb the fines vs roll out energy efficiency-based upgrades.
US Mall REITs – Q4 2022 Earning Reflections & Industry Consolidation Expectations – Former principal at Green Light Retail Real Estate Services
- On the topic of US mall REITs, a former principal at Green Light Retail Real Estate Services said although A-class malls in A-class markets continue to exhibit “90%, 95%-plus occupancy” with strong rent growth, rent growth in B-class and below assets is flat “at best”, with tenant demand and customer foot traffic following the same trends.
- The specialist noted triple net lease charges have risen irrespective of mall asset grades as local jurisdictions increase mill rates on real estate taxes to generate local government income. Popular retailers such as Foot Locker and Gap are increasingly moving to open-air strip centres, where rent and pass-through charges are significantly lower.
- Dividends may trend downwards across mall REITs, our expert said, as players look to hold cash for capital improvements in anticipation of a recessionary period.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
For any enquiries, please contact sales@thirdbridge.com