Expert Opinion

An Interview with Sabina Reeves

Sabina Reeves is Chief Economist & Head of Insights & Intelligence for CBRE Investment Management. She is responsible for the firm’s 30-member real assets research team and has a specific role in selecting the economic scenarios and macro risk assessments that power the firm’s proprietary real assets forecasts. In addition, Sabina has executive responsibility for the firm’s 20-member Analytics and Risk Measurement team.

Previously, Sabina served as Head of Research for the firm’s EMEA region and the global quantitative team. Sabina started in the industry in 2001 and joined the firm in 2008. She was previously Chief Economist at IPD. Prior to IPD, she worked for Capital Economics, where she developed its UK residential and commercial property market analysis and forecasting service. Sabina studied economics at Lincoln College, Oxford University, and is a Fellow of the Royal Institute of Chartered Surveyors.

In this interview, Sabina gave her views on big data, risk management, and the importance of diversity within an organisation, as well as some of the global issues affecting the real estate industry, including COVID, ESG, and geopolitics.

What does your role encompass?

“The core thing that we do is to try and give our investors, our investment managers, our asset managers and our corporate strategist a view on where the best relative value is going to be over the next five to ten years in the whole world – listed, unlisted, debt, equity – we have a lot to play with, and to try and narrow their focus of attention because it’s a big world that we can invest in.  And within that will be everything from looking at fundamental real estate data, to macro trends and the big structural disruptions that are happening and geopolitics. It’s a fun job because it can be everything from a big election that’s coming up to the micro location of an asset and how that’s going to change over time.”

When you were little did you grow up wanting to be a chief economist – you don’t hear that too much, that’s quite specific. How did you get into this – has it been planned or serendipitous?

“Totally serendipitous. I think when I was little, I wanted to be an astronaut. And then I realised I was rubbish at maths and had bad eyesight. So that wasn’t going to happen for me.  And then when I was a bit older, I think I maybe wanted to be a barrister because I was argumentative – so I really didn’t know. So, I ended up doing a university undergraduate degree in politics, philosophy and economics. I hadn’t done any of those three at school and I thought it would be incredibly broad and it was only at the very end of that that I discovered my passion for economics. When I was doing my master’s, my thesis advisor said ‘hey the euro’s about to be invented why don’t you look at the transmission of debt through the real estate lending world’ – and I said okay that’s the housing market – and I had no idea that commercial property existed, I had no idea that offices and shopping centres and logistics were a thing you could invest in and I had no family background in the sector, so it was entirely by fantastic accident that I’ve ended up where I am today.”

Can you give us your thoughts on where we are in the real estate sector right now – at the beginning of the post-Covid era. How would you characterise investor sentiment, mood and positioning?

“One of the things I’ve really missed during Covid – there are so many things we’ve learned to do well like the smaller interactions over Zoom but not going to conferences has really taken away the ability to gauge the mood of the market and really feel the pulse of sentiment rather than just looking at numbers. I feel we’re in a moment of real polarisation, where the stuff that everyone needs and wants – huge record investment volumes and low cap rates – and the stuff that people are nervous about – lower liquidity, the best will sell – people are starting tentatively to put something into the market trying to gauge where processes are in terms of legacy retail and office markets – so it will be an interesting year.

“I’ve been kind of surprised that there’s not been more angst over rising interest rates but maybe people feel there’s enough of a buffer between cap rates and yields to not worry about that too much.”

Do you have an outlook over 2022?

“It’s a tough one because it’s not a normal year. In normal years your outlook is based on supply and demand, what is the Central Bank going to do. And that’s all hopefully amenable to rational thought and prediction. What makes me nervous about this year is that it depends on two people who are hard to read: Putin and Xi. It is incredibly hard to see how the war in Ukraine resolves, given Putin’s territorial ambitions and unwillingness to lose face. Europe is already facing a heartbreaking and staggering humanitarian crisis.  And European markets are particularly vulnerable to ongoing disruption in energy and food supply and prices and that’s going to hit the least well-off the hardest.  

It’s also fascinating to try and figure out what this means for President Xi’s risk calculation vis a vis domestic and foreign policy.  Is he going to lift the ‘Zero Covid’ policy after the Beijing Olympics & Paralympics or is he going to keep that very strict lockdown in place until after the very important September/October party conference – he could because he might not want a Covid resurgence during that. If he keeps things closed until the end of the year, it is yet another factor exacerbating supply chain shortages and supply blockages and ports not working, so both of those are so meaningful for financial market sentiment, energy prices and inflation whether currencies stay the same and it makes me nervous when I’m trying to predict two very opaque presidents’ views of the world.”

What do you think will have an impact on the real estate side?

“There is an enormous amount of capital available chasing what is seen as a smaller universe of investable assets. Retail and office used to be the bedrock of any corporate portfolio and there were already doubts about retail and now there are doubts about large swathes of offices – so that would imply hotter prices for what’s left and a very heathy investment market. I suppose what makes me nervous is the geopolitical risk I’ve just mentioned could really impact inflation and therefore higher interest rates and then suddenly risk assets get priced differently and that margin between the government bond yield and the property yield gets diminished and that growth going forward gets more uncertain. At a regional level, I would expect to see risk-averse capital rotate out of European safe haven markets to the US and Japan as the Ukraine-Russia war continues.  At a sectoral level – it looks like there are lots of tailwinds for the stuff that everybody wants but I think there are still big challenges for retail and office, and we really need to see what happens.” 

What kind of data do you use – how do you use your team to really stay on top of this?

“We have a phenomenal team, and a team with a very diverse skill set.  So, we’ve got people like me, good old-fashioned econometricians and economists, we’ve got great fundamental researchers, we’ve got data scientists now as everyone does.  And I think we look at three buckets: we’ve got people like me who are looking at financial market information daily and hourly, trying to pick up what’s going on and how the markets are being buffeted by the news. We’ve got another third who are really looking at that real estate data and are not just waiting for the quarterly numbers to be published but trying to be in the market to get the latest information and looking at unconventional data sources – we’ve got the big data computing power now and we’re trying to predict where these indices are going to come in. And then the other third sit in our analytics team, and they report into me and that’s separate to research. And what they’re doing is really fascinating – they’re looking at our own portfolios.  We’re invested across the world for a handful of really scale investors, so we feel that we should be able to figure out what’s happening in real time, and we can interrogate our data well before those quarterly numbers come in.  It’s kind of like a mix of everything from the big macro down to the small micro details.”

There are a lot of price shocks on the horizon with energy prices rising and Governments having to pay for quantitative easing during the pandemic – do you have a view if we’re going to get through that or not? 

“Oh, we’ll get through it. If we can get through the pandemic, we can get through anything else. It’s how we get through it. I do fear for the average household. Interest rates rising, mortgage rates rising, the cost of food and energy. There is a real inequality point that really hits the poorest in society the most.  And that’s a concern – and this idea that there is this unknown of whether things become 1970’s style with price shocks emanating from politics. So that is challenging. The good news is that for most countries they don’t have to go forward with the quantitative tightening if they fear it’s going to cause a recession in 2023-2024 because they’re overdoing the credit tightening. 

“It’s an option. Central Banks have an option; there are countries that can have a lot of debt pile up and not do anything about it for a while. You can’t do it indefinitely, although what am I saying? Japan’s had huge quantitative easing for 30 years! So, I think there is the potential to put the brakes on it if they need to. They’ll be desperate to try and normalise because the problem with quantitative easing and low interest rates is if you don’t get them back up after the crisis what do you do when the next crisis comes.”

Do you feel we’re living through a fundamental realignment of the core buckets, like retail and office that investors used to invest in?

“I think that’s spot on and with regards to office – even before the pandemic when working from home became a thing, we were starting to call on what we would term ‘the commodity office’. Nothing wrong with it, built in the 90’s or 2000’s and not too exciting. We were starting to call on it partly because we did see that influence of teleworking and working from home, but mostly because we felt that ESG would become a huge thing, which it has, and that a lot of these buildings were going to be so expensive to bring up to code that it was going to be uneconomic. So, we’re starting to divest from some of that stuff.  

“Conversely, we think there’s a genuine shortage in every major city of the kind of future-proof, exciting, collaborative space that you want to have people working in. It’s kind of a weird one because from a house view, we are tactically underweight for office and yet we would take risk on and do heavy refurbishment to create what we call the responsive office of the future. 

“And I think if you look at our portfolios in general, we made a move into logistics and residential in a big way 10 years ago and accelerated it five years ago. What people might not know about us is that we are hugely overweight in next generation sectors, so things like life sciences, medical office, student living etc., and I think if the global benchmark is around 10% of portfolios, we’re something like 25%-30%. So, if you think of our global portfolios, we’re about a third logistics, a third residential and a third next gen.  So, we feel we’ve made that pivot and we’ve high conviction on it. We still do office, but it’s got to be exactly the right type.” 

And what do you make of real assets, logistics and infrastructure – that’s a growth area?

“Absolutely. We went into the infrastructure space about five years ago now. And that’s been incredibly fascinating. It started because people were seeing digital infrastructure merge…. with infrastructure. And what I love about the infrastructure space is it’s a powerful driver of our Sustainability strategy. We’re heavy on renewables and trying to ‘place-make.’ If you put real estate and infrastructure together and really try and be sensitive to the communities in which we operate and really try and change that built environment – it’s facing a huge disruption and how do you get through to the other side.  I think it’s quite exciting when you put the two together.”

You’re quoted as saying that “the enormous pace of technological change happening in real assets research, and this is providing unprecedented access to real data and insights” – can you give an example of what that means and how it’s impacting the industry? 

“When I started research in the 2000’s, the most junior person literally got a chit and went to the Bank of England on budget day, and you picked up a thing called the big red book that had numbers in it, and you typed the numbers in and tried to do some analysis – that’s long in the past and now we have such computing power to analyse big data sets.  It allows us to run interrogations on data sets that we could never have dreamt of three or four years ago. It changes the skill set of the team. So, we now need more data scientists and computer programmers. I spend a lot of my time at corporate strategy level working with the Chief Technology Officer and running our technological transformation and whether we’re going to have a big data warehouse and how to structure data – so it has changed the tenor of the job. But it just means that before, where we might have looked at three or four economic variables to predict real estate outcomes, we can now throw massive amounts of data sets at it and see what sticks. And I think if you look at the proof points of this – if you look at the strategies lately and the out-performance we’ve had recently that is heavily driven by the quantitative team.”

Do you have a view on whether the way the industry manages risk has improved?

“100% the way we manage risk has improved. You can see it right now. I said earlier that people seem to be quite sanguine about interest rates rising – why – because we have all this evidence from 2006 – we weren’t going out and having value-add / opportunistic funds having 90% LTV – we’ve learned a lot. We’re much more sophisticated in how we manage risk. However, the world has become more risky or more fragile.  Whether you look at financial risk, epidemiological risk or sociological risk – it just transmits around the world in a second, right?  So, you can have a guy shot by the police in one part of America and protests in London and Australia within days. We live in a very fragile world. And what I keep thinking for ourselves and I would urge the industry to think about is – think about your real assets cash flow and what risk properties they contain going forward, which may not be what they were in the past. Retail in the past was your bedrock, resilient income, that’s not the case now, so are we imprisoned by historic relationships or are we truly forward looking?”

How has the increased focus on ESG affected your role?

“This is the first time where as well as having macro driven upside and downside economic scenarios – we have climate-driven scenarios. So, for your long-term forecasting what happens if temperatures rise by x vs y? Which cities around the world will be more impacted? It’s being incorporated more now which it wasn’t before.  And then I would say half of my week is spent sitting on investment committees, and a lot of time is spent interrogating the underwriting around ESG – is it near water, is it insured, what would happen if x or y happened?  What does it take to bring it to code? Have we ensured we can future-proof this? The amount of attention this is taking across the whole business is huge.”

How important is it to have a diverse organisation and senior management team?

“To me diversity is hugely multi-faceted and it’s stuff you can see – so gender and race and the intersection between the two.  There’s lots of senior women in this industry but not many women of colour. And it’s stuff you can’t see like religious belief and sexuality. For me as a researcher and for us as a firm – it’s also diversity of thought.  People coming to the table with different experiences and different insights and different skills sets. We hire a much wider range of skill sets than we ever did before, and I think that’s a huge strength in terms of building resilience and an interesting set of views.”

Has the diversity of your team expanded as well?

“I think we’ve always been good in research at hiring a diverse group of people, we’re lucky. Real estate research is incredibly niche and we’re lucky we have the opportunity to go where the talent is – and we’re location agnostic and we can really try and get the best and brightest.”

Is it possible to quantify the difference diversity makes?

“Do we look for the impact that diversity has – maybe not. But I would hope it would show up in metrics like retention and engagement, particularly when you look at the younger millennials and now, we’re starting to see Gen Z come in – they hugely value working in a diverse, culturally interesting inclusive environment. The fact that we’re trying to push the envelope on Sustainability is very important to them, and I think our ability to retain those people is really the key measure of whether we are succeeding. And what we need to do if we want the best people retained and energised throughout.”

What about the socio-economic background of potential hires – is that a discussion at CBRE as well?

“CBRE has done phenomenal work in this area of creating apprenticeships to get bright kids from school who wouldn’t consider going to universities because financial barriers are too high or who, like me, don’t have family members who have ever been to university. Given the socio-economic barriers as they are we’re never going to change them, but we can try and work around them.”

What impact does all the information in your job have on you – does it keep you awake at night?

“No, I sleep like a baby! For people like me, you have to have an off switch otherwise you wouldn’t do the job. It would become overwhelming. And I am very disciplined at making sure that I read, making sure I have my cultural interests etc. You’ve got to have something that’s almost the polar opposite.   So, because I’m very data driven, I want to be into fiction and the arts and something completely different. When I’ve visited our New York office I’ve gone to jazz concerts, booked Carnegie Hall etc. whatever it is you’ve got to let your brain have a bit of a car wash at the end of the night. And, because your best ideas come that way. My best ideas come when I’m doing country walks. And that’s the good thing about working from home and going for a walk at lunch time – an idea will pop into my head that wouldn’t have happened if I was just sitting looking at my spreadsheets.”

What advice would you give to mid-level female executives trying to break into the senior management of a firm? Is there any advice that you’ve accrued over your career?  

“I think it’s tricky, especially if that’s the period they’re having their kids.  I think we’re like most companies – I think we’re great at hiring great women. We hire back lots of great women at the ExCo level. That mid-level period of keeping people engaged when they’re potentially having their kids is a tough one. 

“I would say for me personally, having an amazing support system and family to help out and give that support at home. I think it is quite hard if your partner and the surrounding support system isn’t as committed to your career or as proud of your career as you are. I think being in a firm that understands the importance of maternity and paternity leave and is not going to hold up your promotions because of that and will allow you to go flexible and part time and come back I think is important. I would ask all those questions: ask senior management what’s going to happen when it happens and how do I stop my career from decelerating because there’s no reason why it should. And then model that behaviour. Take time off. Come back and show by example that it’s okay to do that.”

What can the industry be doing better to attract and retain top female talent?

“I think it’s all about support and flexibility. Some people want to come back full time, some people prefer part time. Are you putting people into a box because they’re part time? Are you subconsciously thinking they are not as committed to their careers?  If we made all our men take full paternity leave it would hugely de-stigmatise the women who take maternity leave.  And that would be good for society to have fathers spending more time with their kids when they are little.”

Is there a key moment that you look back on fondly as a tipping point in your career? 

“I would say it was shortly after joining CBRE in 2008 when Lehman Brothers happened. Funds were in trouble, and I spent the first year of my career here working on restructuring failed closed-end funds and I feel that if you can get through those crisis years, you learn about eight years’ worth of knowledge in a year. And it was just at the right time for me.  I did say to my team at the beginning of the pandemic – this is going to be a tough year in terms of wellness and well-being but if you can get through it, you’re going to learn about 10 years’ worth of real estate knowledge in about a year and a half.”

What is a career moment you’re most proud of?

“I’m proud of the team we’ve created. I would say how we dealt with the Brexit vote was a moment of real pride for me.  Before the day of the vote, we were very well prepared, we took it seriously and did not brush it of as something that was never going to happen because we were in a London bubble. Because we in the research team travelled far and wide visiting assets that were not in London and the South-East, we thought it could potentially happen. We had a fully worked out scenario for our real estate forecast and we prepared all our client communications. And the next morning when it felt like the world was falling off a cliff for many people, we had a plan. And we got a lot of plaudits from our clients and consultants saying we were the only ones who were calm and seemed to have a view. Moments like that when you made your internal clients and external clients appreciate that you made them feel a little bit less in chaos and that they have some clarity, that’s a really lovely feeling.”

Is there any best prediction that many people didn’t get and the other way round – a miss when you thought you should have seen that coming?

“I think the miss for us over the past five to eight years would probably be not seeing the growth in Berlin and Germany in general. We didn’t get the froth in the German market. The win that we had very early on was to go into those new economy sectors seven years ago. We said let’s pivot from the cyclical to the structural – on average we hold an asset for eight years. And doing that work on the big structural trends really transformed our book of business.”