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It's been a rocky road for retail real estate. The sector's seeing a drop in demand amid the rapid growth in e-commerce, net operating income slowing to 0% or lower in recent years with prices also seeing a downward shift according to Hines Global. However, the sector may finally be finding its footing. Here to discuss is Hines Global CIO David Steinbach. David, you know, when I think of retail real estate, I think of abandoned shopping malls, ghost town brick and mortars. Explain what you're seeing in the space and why now is a good time for investors to get in on it.

Yeah, sure. First, you know, it is interesting to thinking about the Fed Fund rate and what that means for consumers. I do think that that ends a 29-month period of raising rates, and that will ease some of the burden that a lot of consumers have in terms of their own personal cost of capital. And while housing, for example, I think will help to stabilize that, which should end up driving demand on the consumer side and look at a lot of the retailers and how they've been doing. On the private side, what's really interesting about retail is you have to look at it in a broader context of where it's been. So coming out of 2008, it was a sector that really never recovered. And the reason was because of the e-commerce boom that we all know about, and the trajectory of that growth was parabolic and was a lot of, scared a lot of investors. Then in 2017, as you said, income, the income profile of retail properties flatlined. And the minute it flatlined, that really pulled off whatever capital demand there was at that time. That's all several, that's many years ago now. And the sector has had a lot of time to remake itself and rework itself. And certainly in our view, there's certain things that work and others that don't. And a lot of these winners and losers have been sorted at this point.

And who are some of the winners, David, that you would call out?

Yeah, so when you look on the private side of where to invest right now. Again, we think the market is well-poised for recovery. A lot of capital is focused on a lot of other sectors right now, so there's a dearth of capital for deals. It is going to be mostly grocery anchored, open air, spaces that activate, they're experience-based. Also spaces that have taken advantage of the omnichannel presence that a lot of online retailers have really used. And so look at Whole Foods, Amazon. That dynamic has driven footfall. And so it's not only about the retail center itself, it's about other retail around it and how that can be activated and drive demand.

You also noted opportunities not just in the US, but also abroad. Where are those pockets that you think that there are opportunities for growth?

One of the key measures that we look at is looking at this parabolic e-commerce demand, right? So that also is beginning to level. So about 17% here in the United States, and it's beginning to flatline in terms of the exponential growth that it had before. And so when we look at that at different countries around the world, Asia and Europe, it's an important number to look at to see, as that flatlines, we do think the market is beginning to be poised for acquisition. And so places in the UK, London, on the continent of Europe, as well as all over Asia, there are pockets where we see that.

You mentioned, David, winners. But as you look across the space, what verticals or subsectors wouldn't be winning here? What would you avoid?

Well, certainly, you know, the closed malls, obviously things that are, we're not personally touching any distress, per se. I mean, we are more focused on projects that have stable income profile, and we think the mispricing here is really a capital markets phenomenon. But projects that require massive renovation, massive rethinking are things we're staying away from for now.

So how does retail then stack up against other type of real estate investment opportunities that are out there right now?

Yeah, certainly on the private side, real estate does seem to be bottoming. And I think, as I said in the beginning, you know, when we look at the interest rate monetary policy, that is signaling a new era in terms of what investors have been waiting for, for the things to feel like they're settling out on what a cost of capital will be as they make investments. And so we're seeing the bottom right now, and we're actively acquiring. It's mostly in living and retail are our two best sectors. Industrial is still something that is of great interest. However, the supply dynamics are a little more plentiful than places like retail. US office for us is also starting to get interesting, more in the credit side, but we'll be looking more in the equity side later in the year.

If you're a viewer watching this right now, David, you're a public market investor, how would you, and listen, maybe there are listeners, you know, David makes a lot of sense. Any how would you invest alongside that, David? Any recommendations?

Yeah. Yeah, I mean, I mean, look, the way to play the real estate game, I think there's a public way and there's a private way. I think both are important, and they both have different dynamics that are really important for investors to be zeroed in on. They're driven by different things. I think the public market does price things a little bit ahead of when things occur, and the private market is a little behind. Like I said, this, on the private side though, we've had months and months and months of where, you know, of a dearth of capital. And so I think on the private side right now, there is more opportunity where it's where the markets have not yet recovered yet.

All right. David, always great to have you on the show. Thank you for joining us.

Thank you.