REAL ESTATE NEWS

As with anything, safety provides comfort — with the same mindset often applying to investing in commercial real estate. However, that might not always be the best strategy and industry players may want to consider other opportunities, whether undervalued or with potential, argues Spencer Levy, global chief client officer and senior economic advisor, at CBRE.

He uttered these thoughts during the opening presentation at GlobeSt.'s Net Lease spring event, while noting that CRE is constantly evolving and what works now may not work in the future.

For example, grocery-anchored retail is widely considered a safe haven today. After all, food shopping is a daily essential — yet Levy pushes against it.

No to Grocery Retail, Yes to Industrial

"I never recommend grocery-anchored retail," he emphasized, "Everybody loves grocery-anchored retail. That's the problem. Everybody likes it and it's priced to perfection."

Instead, he prefers both traditional industrial and industrial outdoor storage (IOS) because neither is "priced to perfection."

"People are looking for these niches that haven't yet been saturated to find opportunity," Levy said.

For traditional industrial, on the other hand, the space looks like a flight to quality, based on what he's seen recently.

"If you have a new building, people had demand. If you have an old building, people did not," he said of the traditional asset class.

Furthermore, he forecasted that in a decade, the industrial returns will come from net operating income, rather than cap rate compression.

Levy also specifically cites manufacturing as an opportunity, thanks to the growth in onshoring in the U.S. While construction is up, he predicts that trend will only continue.

"You either follow to either buy manufacturing or you buy right around it," he said.

"You either follow this or you don't. But the point is, I think you should, because the math suggests you should, not only because there's more money going into it, but also because it's more profitable than traditional forms of net lease."

Build When No One Else Does

Outside of asset classes, there is another way developers in net-lease can stand out — particularly by watching construction trends. His message was simple: don't just follow what others do and when nobody else is building — you build. It doesn't matter where interest rates are.

"The best time to build is when nobody else is building [based on] every single cycle that we have studied for the last 30 years," Levy explained.

"But people don't build because interest rates are high, because labor costs are high, because supply and demand doesn't look like it's in your favor."

Don't Give up on New York

Additionally, Levy warns investors to avoid another potential trend: shying away from New York due to policy uncertainty surrounding the new Zohran Mamdani administration.

The city still ranks as one of the best tech hubs in the world, with a community centered around reliable transit and a vibrant live, work and play environment.

"This place has the best five factors of awesome, the greatest, durable demand drivers, Levy highlighted, while pleading, "if you want out, sell your stuff to me, because in five years, it's going to be great."

Source: GlobeSt/ALM