The Rearview Mirror

Research evidence excerpt

The Rearview Mirror

cing power will come. Supply tailwinds remain a meaningful

input surrounding the existing (or emerging) recovery in commercial real estate

fundamentals. At the risk of being obvious, CRE is fundamentally driven by the

interplay of supply and demand, and for the first time in our 20+ years of looking

at the sector, most major property types have an improving supply picture without

an underlying financial crisis. Not surprisingly, the lack of supply was a constant

positive theme in our meetings. Primarily our conversations came in three different

buckets with sectors where supply is low and not moving (Retail, Healthcare,

Office), those sectors where supply is moderating from elevated levels (Residential,

Industrial), and sectors where there are development opportunities but only for

sophisticated development partners.

■ Efficiencies are table stakes. One of the themes we wanted to take from our

meetings was whether AI presented opportunities for REITs, or solely risks. We

understand the fears of unknown economic fallout, and the competition from such

a capital-hungry technology. We were positively surprised by how thoughtful the

teams were in their approach and how far along they were in rolling out programs.

To date, most teams have implemented steps to harvest efficiency gains through AI

and automation, especially for platforms with a higher count of unique leases like

Net Lease or even Strip Centers. At the same time, in specific cases we are seeing

REITs push their data platforms even further, looking for new uses to improve their

investment performance and differentiate their results.

■ The more things change, the more they stay the same. At the end of it all, real

estate is fundamentally about supply, demand, and cost of capital. Management