Charting Key Trends, With a Twist: MSCI Conference Highlights

MSCI Global Assets Conference

In commercial real estate, a chart is often worth a thousand words. Professionals rely on these graphics daily to stay a step ahead. At the MSCI Global Real Assets Conference, a panel offered a novel twist on this indispensable tool. Four experts offered specially crafted, thought-provoking charts to illustrate a variety of important—yet sometimes overlooked—issues. And in the spirit of competition, audience members were then invited to vote for the chart of the year.

Moderated by Jim Costello, chief economist at MSCI Real Assets, the panel brought together representatives of PGIM, Credit Suisse, the Abu Dhabi Investment Authority and AvalonBay Communities.

Starting off the competition, Olafur Margeirsson, head of global real estate research at Credit Suisse, took on an issue of keen interest to investors: how to interpret what is “normal” in CRE markets through pricing indicators and models and rental growth forecasts. Margeirsson presented charts monitoring four key metrics for London: total annual return, rental growth, pricing indicator and prime net yield percentage. For the city of London, the pricing indicator is down with rental growth and annual total return decreasing slightly after increasing in 2021.

“It does tell us that the total return will very likely soften considerably over the next 12 to 24 months, no surprises there,” said Margeirsson. In terms of investments, he observed that “at some point you simply just need to make the judgement call.”

READ ALSO: How Inflation Will Impact Property Valuations

The future of the post-pandemic city was the topic for the chart presented by Elizabeth Szep, a researcher at the Abu Dhabi Investment Authority’s real estate department. Urban centers such as the Bay Area and New York City saw massive outward migration early in the pandemic, resulting in a drop in office occupancy and residency. Now, however, that tide is turning—but there’s a twist.

“Residents are returning to cities. They just aren’t returning to the office,” Szep reported. She showed that office vacancy is rising, even as residents are returning to cities and reducing multifamily vacancy rates. “Don’t bet against cities,” she said. On the other hand, she believes that vacancies will get worse globally before they get better while more office workers continue to do their jobs offsite.

The intersection of job growth and the occupier market was the focus of a chart presented by Peter Hayes, the global head of investment research at PGIM. Hayes related that 2022 is seeing a pattern of stronger-than-expected job growth. “The forecasts for job growth have been revised upwards from where they were a year ago,” explained Hayes on the 2022 projections. The good news is that the occupier market could remain stronger than expected. The bad news is that the Central Bank may interpret positive job growth to mean that interest rates should remain higher for longer.

Craig Thomas, senior vice president of market research at AvalonBay Communities, zeroed in on a little-noticed metric related to the multifamily sector. The topic of his chart was a comparison of nominal effective rent of dollars per unit compared to real effective rent, equivalent to rent adjusted for inflation. His finding: Nominal effective rent is currently significantly higher than the real effective rent. This discrepancy in the nominal rent being much higher than the “real” effective rent had led people to believe there was something happening in demand to cause this trend. “The truth of the matter is, nothing was going on,” said Hayes. Part of what was occurring, he believes, was inflation.

Spoiler alert: The winner of the chart of the year was Craig Thomas.