Episode summary
Non-Traditional Sectors Continue to Drive Commercial Real Estate
Bloomberg Surveillance
· · 6 min · Guests: David Bitner
Summary
Office remains the highest-risk, highest-opportunity part of commercial real estate, according to David Bitner, because pricing has been disrupted the most and the market is still highly fragmented by city, submarket, building quality, and tenant mix. He said office fundamentals are improving overall, but unevenly: San Francisco is seeing stronger energy leasing yet still has about 35% availability, while Manhattan is having one of its best leasing years since 2019 or 2016 depending on the measure.
Bitner was constructive on data centers and the construction they are driving, even as he acknowledged the pace may be fast. He argued the buildout is helping absorb construction labor and that institutional capital is flowing toward infrastructure and hybrid real estate strategies. At the same time, he said the data center boom and related stock-market gains may be masking weaker underlying growth dynamics, and he expects the theme to persist for some time.
On life sciences and health care, Bitner was more cautious near term. He said excess supply from the 2020-2021 rush into life science still needs several years to clear in core markets like Boston, San Diego, and the Bay Area, while NIH funding cuts have cooled demand for labs. He added that AI-enabled drug discovery could be significant over the next five, ten, or 15 years, but only if FDA reform eventually follows.
Key takeaways
- Bitner said office offers the best alpha opportunity because it has seen the most pricing disruption and remains highly differentiated by market and asset quality.
- He said Manhattan office has had a very strong leasing year, with good Midtown buildings showing about 5% availability and top towers commanding about $300 per square foot in rent.
- Bitner thinks the data center buildout is supporting construction employment and attracting institutional capital, but it may also be masking weaker underlying growth.
- He said life sciences still has excess supply in Boston, San Diego and the Bay Area after the 2020-2021 buildout.
- Bitner expects AI could matter for drug discovery over the next five, ten, or 15 years, but only if FDA reform eventually improves approvals.
Notable quotes
“the biggest opportunity to make money or also potentially lose money is in office”
“if you're looking for alpha opportunities, I think it's in office”
“Manhattan is had a the best year of leasing since 2019 or 2016, but depending on how you measure it”
“I do think the data center buildout, as well as the stock market run up and the related consumer spending that's downstream from that are masking some weaker underlying growth dynamics”
“there's still an issue of supply”
How the episode opens
You know, this is the thing I've always told folks the biggest opportunity to make money or also potentially lose money is in office. It's clearly the area which has the most pricing disruption over the last number of years. It's not a monolith in any shape, shape or form.
So, you know, you can have pretty significant differences in operating fundamentals depending across different different markets, different submarkets, different classes of building, different tenant profiles. So like if you're looking for alpha opportunities, I think it's in office. And that's happening at a time where, Ali, if you look at the macro statistics, vacancy availability, all that kind of stuff, it's starting to round the corner, although in plenty of markets it has a long way to go to come out of the bottom.
For example, I'm sitting here in San Francisco right now. Lots of strong energy leasing has picked up a lot. Still 35% availability in the market.
So a long ways to go. But if you want to look for diamonds in the rough office, I think is the place to find it. What about New York City?
What is the landscape right now as we think about office? Oh, I love talking about New York City. It's got it.
I mean, and you talk about London and Christmas. New York and Christmas. I'll put it right up.
Yeah. So I think by some measures this year, Manhattan is had a the best year of leasing since 2019 or 2016, but depending on how you measure it. You know, we're seeing availability rates for good office buildings in midtown Manhattan, the availability rates 5%.
You know, some of these big towers that are coming out, like if you want to if you are that posh hedge fund, you want to be in the top.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- commercial real estate
- non-traditional sectors
- healthcare real estate
- ai bubble risk
- market outlook
Companies and tickers mentioned
- Newmark
Watch the episode
Watch “Non-Traditional Sectors Continue to Drive Commercial Real Estate” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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