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Spencer Levy
Welcome to The Weekly Take and a special extra edition with an update on the state of the economy and market outlook. I'm joined by CBRE's new Global Head of Research and my longtime friend, Dr. Henry Chin, who recently relocated from Hong Kong to our Dallas headquarters. And he steps into the shoes of one of our longtime friends, guests, and our most frequent guest, I might add, Dr. Richard Barkham, who's retiring at CBRE. Henry will bring his worldly perspective to the show periodically throughout the year as the economy changes and we have new issues to discuss.
Spencer Levy
Henry, my good friend, welcome back to the show and your first visit as the Global Head of Research. We hope to have many more. Henry, welcome.
Henry Chin
Thank you, Spencer. Thank you for having me here to join your fantastic podcast.
Spencer Levy
So, Henry, we're talking in a economy which has been a little volatile, to say the least. We have tariffs. We have interest rates. We have inflation. In a nutshell, Henry, how do you see the economy today?
Henry Chin
Well, everyone is nervous about what the traffic is going to do based on the policy on the tariff. But nevertheless, when we come back to real estate, we do see there are clear shift in sentiment over the recent weeks. And, Spence, you can see on the newspapers, on the news outlets that people are very excited to talk about all the different things. But, actually, I was pretty calm over the past few weeks. The reason I really want to highlight here, Spence, is that real estate doesn't change on a daily basis.
Spencer Levy
Well, I completely agree with that. On one end of the spectrum is fear and emotion, and on the other end of the spectrum, is math. And over the long term, math wins. So, I'm completely in sync with you on the macro. How does that apply to the micro? How does that apply to our investors who may have some of that fear given the volatility?
Henry Chin
Spencer, lots of thinking about it. Real estate always had the two fronts. One front is talking about the occupier market, the space market. The other part is the capital market and investment market. Both sides are interlinked, right? So, let's talk about the space-market, occupier-market sentiment. I have to say, over the past quarter, the leasing activities was superb across all the different asset classes. It was to our surprises office, retail, logistics and leasing momentum has been strong but over the last few weeks we do see some occupiers are continuing to move forward to close the deals because they think well the real estate doesn't change on a daily basis. But some occupiers particularly are putting their decisions on hold until they have the clear visions and therefore, going forward, we expected to see some more renewals than their relocations on that part. But when you are talking about the occupiers, the tenants – what are they looking for? It's pretty much on the one thing, common trends across the three asset classes is the flight to quality. So, office occupier want to be the best quality in the offices, retail doing the same, logistics are doing the same thing as well. And, so, therefore, if you look at the space market for now, probably if you're a small occupiers I will start taking the advantage for now because of the volatilities – the list, competitions. So, therefore, you probably can get better deals to secure your leases. And for the capital markets, investors is very interesting, particularly the 10-year treasury years play the key roles, Spence. It was 3.9%, now up to 4. plus percent – meet 4%. For the investors, it's super hard to underwrite the deals for now. If I am the asset owner, I probably will not try to sell the asset in a rush because it might not be the good time to dispose the asset if it can hold on to it. But, if you are smart investors, there are so many interesting strategies. It's a vantage time for you to be thinking about it. Number one, talk about credit. Given the credit, volatilities, the rate of volatility – if you have the credit funds, particularly for bridge loans that prefer equity strategies, that's a perfect time for you to tap into that spaces. Number two, public-to-private. You can see the REITs are trading at a severe discount, but private market remain relatively stable. And we do believe real estate is in a attractive pricing point of view. So, therefore, public-to-private will be a fantastic strategy to deploy it. The third one, if you're the core investor, Spence, I want to look at loan well assets, because you can avoid those volatilities. Loan well assets can help you to navigate through the storm.
Spencer Levy
Great, well, you know, your ideas and mine are almost always in sync than they are, once again, Henry. But, I would also say that given the volatility, as you said at the beginning, use that to your advantage. And I think you said use that to your advantage from an occupier perspective. I'd spin that to the investor perspective. You gave a couple here about the credit in the public markets, but I think there's certain areas such as border industrial, port industrial, that are screaming buys, given some of the fear factor. And over the next decade — and if you're industrial, you really need to have that kind of longer time horizon – trade, while it may be choppy today, is likely to be much better tomorrow.
Henry Chin
And, Spencer, the other things I always love to hear your view as well, but sometimes we are very contrarians, right? So, do you remember during the Covid days we're thinking about offices here to stay, people should actually start looking for the offices. I still very contrarian now, I still thinking about the office market in those gateway cities, good qualities. We have reached the bottom, the leasing is coming back, the pricing become relatively attractive, so investors actually shouldn't be afraid to come into the office sector as well.
Spencer Levy
Well, listen, amen. I mean, once again, Henry, we're in sync. Because what I've been suggesting, Henry is that we have. Two basic categories of investors. We've got ten, but I'll break it into two. High-net-worth individuals and institutions. You know who's been backing up the truck – to use a very technical American term – on office? High-net-worth individuals. And they've been doing it in two categories. Number one, they've buying the highest quality stuff for a very high yield, which you can't tell me that yield won't come in. And the second is they've at the forefront for some of the older office to convert. I think the institutions have waited because they're concerned about having too much office on their existing portfolios and bringing the O word into the investment community is probably a little bit too scary for many of them.
Henry Chin
You know, Spencer, it is quite interesting, the trend you are seeing. You're describing in the U.S. is 100% aligned with what we are seeing. I wasn't seeing before I moved to the U.S. in APAC. The high-net-worth individual investors, they are so sharp. They're so thorough. They're looking for the opportunities again to that. They also don't need to go to investment committee processes. So, therefore, you know, let's see. I think – I do think about the cap rate for the offices, we are compressed at some point of time.
Spencer Levy
So, let's look at your outlook here. I just got our latest house forecast. Henry, our house view as the economy slowing this year and next, or maybe picking up this a little bit next year, but we do have interest rates coming down in the United States over the next 18 months, to under 3% at the short end of the curve, long end of curve terminating around four. What's your point of view, Henry?
Henry Chin
I think our house view is quite balanced. I won't say optimistic or too bearish for that. It is quite less because we have never seen this kind of tariff implemented in the recent economical history. And, so, therefore, given all of those uncertainties we’re coming through, we are expecting to see the weaker growth for GDP and for 2025, interest rate, it's going to be around three cuts for that policy rate. But, I have to say, Spence, over the last–every day I was watching the news. Every day I was watching the policy changes, it's quite fascinating to see the tone coming from the government has changed quite substantially. So, therefore, people were overly bearish over the last two weeks. But, now, people realize, actually, we might come up with a better, stronger outlook as well. So, therefore, as of now, the consensus seems to be overly toward to the negative side. A model cannot forecast the policy changes the models cannot forecast human's behaviors. And all those, you know, negotiation is very very hard. So, given all the different uncertainties we're having, so that's why I think our view is quite balanced
Spencer Levy
So, let me ask you one more research data question. What are you looking at today to give you the best forecast for the future?
Henry Chin
It's very interesting. I do look at VIX a lot as well. I also look at spreads as well. So, those kind of data indicators is actually give you some feelings, the temperatures above the financial markets. But, also, I pay extra attention on the monthly basis of job numbers as well, Spence. The job number is crucially important, and sometimes we should also looking at those softer indicators, like travelings, consumer sentiments, also open table bookings and statistics. Actually give you the feel of the real economies. It's always a two side of a story. People can be so overly negative. But, as of now, I think that consumers, they are holding out relatively okay and the job market are still relatively resilient as well. So, therefore, there's no reason for us to be overly bearish, Spence.
Spencer Levy
I'll give you one other data point, and it was interesting because in the depth of the uncertainty crisis, the volatility, the inflation reports came out, both the CPI and the PPI. And you know what? They came up good. And, it was like, nobody noticed because there was all this other exterior noise.
Henry Chin
Yeah, I agree and about 10 year treasury is something we need to watch out very closely as well, as in because when you look at the U.S. 10-year treasuries, the biggest holders are Japan and mainland China. So, therefore, those are something we have to look into that. Sometimes from the rationale point of view, we don't see that as an issue. But from the political policy point of view, those two governments, what are they going to do? It's something to watch out for.
Spencer Levy
So, Henry, I remember the first time I met you. It was in Tokyo. It was in 2014. I saw you do a presentation and I came up to you right after that. I said, wow, this is it. This is how it's done. And, here you are today. You just became the Global Head of Research. So, I knew it was well-deserved 12 years ago, but congratulations, Henry, on your new position.
Henry Chin
Thank you, Spence. Actually, you know, funny enough, it has never been my career plan, but actually I review my career over the past 20 years. I spent 10 years in the UK, and I spent 16 years in Hong Kong. And I was so lucky to have this opportunity to come to the U.S. to learn from all of you and to lead this great research team, as well. I think we are one of the best. If not the best, we are the one the best for the commercial real estate research house, globally.
Spencer Levy
Let's go with the best. How about that?
Henry Chin
Oh, that's good.
Spencer Levy
Well, on behalf of The Weekly Take, what a pleasure to be with my long-time friend and colleague, Dr. Henry Chin, our new Global Head of Research. Great job, Henry. Looking forward to many more.
Henry Chin
Thank you for having me here, Spence.
Spencer Levy
So on behalf of The Weekly Take, thanks again to you and to everyone in the audience. Henry will return to the show throughout the year to share his outlook at, let's face it, interesting times for the economy and our business. We'll have our regularly scheduled episode coming next week, and we look forward to you joining us then. And as always, you can find more on our website, CBRE.com/TheWeeklyTake. I'm Spencer Levy. Be smart. Be safe. Be well.
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