Guest: Brandon Svec
Topics: Data, AI, Cap rates, Retail insights, Retail trends, Retail real estate

Chris Ressa and CoStar’s National Director of Retail Analytics Brandon Svec sat down at ICSC Las Vegas for a quick and dirty conversation about data.

What You’ll Learn:

1. The importance of comprehensive data in understanding retail real estate trends
2. Current market conditions, such as limited available retail space
3. Challenges in the industry, like the impact of interest rates on cap rates
4. Future expectations for the retail real estate market
5. How retailers are adapting to space constraints

About Retail Retold:

The Retail Retold Podcast highlights community retailer stories from across the country and gives a behind-the-scenes perspective from business leaders in both retail and real estate industries. The show’s episodes contain valuable insights that help solve the needs of entrepreneurs and real estate pros. Join host Chris Ressa and new guests weekly for amazing insights and thought-provoking stories.

Transcript:

Brandon Svec  00:00

Hi, I’m Brandon Svec. I’m the National Director of retail analytics for costar group on my team and I aggregate up all of the data and information that’s coming into CoStar and we help the world make sense of it. So we guide the firm’s forecasting the firm’s thought leadership and strategy around retail real estate. I think data is critical to just the knowledge and understanding of the industry as to what’s going on out there. Right, the retail sector is highly fragmented, right costar striking over 1.5 million properties across the country alone, right. And for somebody to be able to aggregate up all of that information and make some sense of it in the macro trends, I think is is a really critical role that we can play hat.

Chris Ressa  00:38

I’m curious: how do you guys think you’re potentially different than all the other research that’s out there on retail real estate, whether that comes from the large brokerage firms or other data analytics platforms? How do you see yourselves as a little bit different,

Brandon Svec  00:52

I think the main difference is that we take a census-level approach to our database. So that means we’re tracking every property on every block of every street in America. Typically, most research firms will either try and cover a part of the market, right? So they’re only going to look at single tenant net lease, or they’re only going to look at grocery-anchored retail, we’re looking at all property across the country. And I think our ability to track each of those properties and actually have the resources behind it to do it does make us a little different. As far as the brokerages go. Typically, we’re working with our brokerage partners. So there’s a lot of flow of information back and forth. So there’s going to be some consistencies there. But a lot of times, they are utilizing us as a data provider because it is so cumbersome to try and track the retail sector.

Chris Ressa  01:40

I’ll ask the buzzword of the year, do you think artificial intelligence is going to help? You know, make this less of a fragmented space? from a data perspective? Yes, I

Brandon Svec  01:53

think artificial intelligence will definitely help us bring different datasets together, and I think make sense of them all under one umbrella. We’re not there yet. And frankly, I think we’re probably a little further away than what most people would like to think we all different industries are ahead of us. Right, exactly. We’re in commercial real estate, we’re always, you know, slow to shirt. Right.

Chris Ressa  02:16

But a lot of the information. And you guys like call on property owners? Yes. A lot of the information is, is not published anywhere for some artificial intelligence to go get it they’d have to get it’s it’s undocumented. So I’ve always wondered, like, how do we get all this undocumented information in any system? Because and you guys have done that by picking up the phone, but there’s still a ton of undocumented? Or if it’s documented, it’s private documents, right? Like, every what leases are private contracts between people, they’re not always recorded? And if they’re recorded only like that there is a lease, not the information in the lease. And so wouldn’t artificial intelligence really be optimized if it had access to that, and the reality is, it’s gonna be hard to get access to that undocumented in the private contract private to private contracts,

Brandon Svec  03:09

There will always be I think, limitations in what we can expect from artificial intelligence in commercial real estate because of the fragmented nature of the data. And I don’t think you’re ever going to see a situation where a lot of that private lease information ever makes its way into the light of day. Yeah. So because of that, I think it is always going to be working with one hand behind its back, if you will. But I think it’s still can be a very powerful tool to help us understand what’s going on in the world to unlock data, correlations and consistencies and things that we otherwise wouldn’t be able to pick up on.

Chris Ressa  03:40

So if you’re, well, we’ll move on from artificial intelligence. If you’re if you’re leaving. ICSC what is like the one thing that you think is important positively and negatively for everyone and take away from it? What’s the one positive you want everyone to take away like walk away from everyone should know this?

Brandon Svec  04:00

There is less retail space on market available today than at any point in time since before the great financial crisis. So if you’re a tenant, and you’re looking for space, you have less options out there today than ever. Love

Chris Ressa  04:14

that one. Okay.

Brandon Svec  04:15

I thought you’d like that one. I

Chris Ressa  04:17

do. What is the one that you think’s important to people that maybe he’s not so lollipops and rainbows.

Brandon Svec  04:24

We are still in the midst of the repricing coming from the interest rate rise that we’ve seen. And while some markets are highly competitive, and as such we’ve seen really bid ask spreads be very thin primarily in those Sunbelt markets, and

Chris Ressa  04:40

we’re trying we’re talking about investment sales and

Brandon Svec  04:43

leasing. Yes. So we’re still expecting to see a little bit more on the expansion of cap rates before it’s all said and done. A lot of it’s already priced into the deals that are being bid on, but we’re not yet seeing it in the data. Right. So I think when you’re if you’re looking at that transaction data at expectation should be that cap rates will continue to trend up in that data for the next couple of months. But as we start to look forward, and we start to think about 1824 36 months down the road, definitely I think the long term trajectory is back down. And the nice thing for Sorry to cut you off there, but the nice thing is we didn’t really see the rise in retail and grocery anchored retail, specifically, that we’ve seen in other property types.

Chris Ressa  05:24

Sure. There was a rise, it just wasn’t three caps like a multifamily. Yes. So I am curious, you said something in there that the deals people are making, there’s a lag to the actual transaction data that happens. I don’t know that everyone thinks about that. How long is that lag? Usually?

Brandon Svec  05:44

Typically about six months or so. Okay.

Chris Ressa  05:48

So the even though you might be hearing things today, about terms and you’re saying it’s priced in, people are going to see that on paper till probably the end of this year. Exactly.

Brandon Svec  05:59

It won’t come into my data, and I won’t be able to take that to the world probably until q3 q4. But we know that it’s what’s already being quoted out there in the market today. The rents going up the rent, the rent is going up. And that is absolutely the case, right? I mean, we were coming off the back of three years of our strongest rent growth since before the great financial crisis. Right, so the rent is going up. But we are also seeing retailers get a lot more creative with their footprints. We’re seeing retailers move outside of their typical box format, one that comes to minus five below. They’ve been very creative and seeking out space and finding it whether that be larger boxes, smaller boxes. Now I’ve even heard in mall boxes. So definitely, retailers recognize that there’s a shortage of space, and they’re getting creative and trying to fulfill that demand for it.