Commercial Real Estate: What’s Trending Now?

Commercial Real Estate: What’s Trending Now?

Jan. 8, 2019

Opportunity Zone Activity, Medical Office and Multifamily are hot for 2019

As 2019 kicks into full swing, commercial real estate experts are out in force with activity and predictions. From a surge in Opportunity Zone activity to the sale of a major medical office portfolio and a new apartment building for Chicago’s West Loop neighborhood, here’s the latest CRE news:

Curbed.com reports that Opportunity Zones, created by the new federal tax overhaul, are starting to get a lot of attention from developers and investors looking to get tax benefits to invest in blighted neighborhoods. Check out this story for a look at how investors are getting in on Opportunity Zone opportunities.

Medical office portfolios remain a big draw for investors, as shown by Welltower’s $1.25 billion purchase of CNL Healthcare Properties’ 55 MOB portfolio. According to Bisnow, the deal is one of the largest for medical office buildings in recent years. The buildings total 3.3 msf in 16 states, including this Atlanta property, pictured. This strong outlook for medical office was also shown in this Avison Young Medical Office Report.

 

Changes for Net Lease Market

The net lease market is changing, according to a new report from The Boulder Group, featured in GlobeSt. Find out more on why the spread between asking and closed cap rates on fully leased buildings is growing. And, what does it mean for net leased properties moving forward?

The GlobeSt. story notes that there remain bargains, for those buyers willing to assume a certain amount of risk. This means taking on shorter lease terms or assets without investment grade tenants. According to The Boulder Group, sellers are adding more non-core assets to the market — one reason why cap rates should continue to rise. Interest rates are another factor.

 

More Chicago Multifamily Development

Another Chicago multi-family project has been approved in the West Loop, according to The Real Deal Chicago. How will this 166-unit, 10-story LG Development building at 1220 W. Jackson Blvd fit into the mix of multifamily developments? And, will affordable housing portion meet the needs of area residents?

REJournals 2019 Forecast Event is Jan. 8, 2019 in downtown Chicago. Look for discussion on Opportunity Zone activity, as well as office, retail, and industrial activity.

Forecast 2019 is Here

Chicago’s commercial real estate forecast remains positive for 2019, according to panelists from Illinois Real Estate Journal’s Commercial Real Estate Forecast Conference— the longest running event of its kind. The event attracts more than 900 commercial real estate and related professionals.

Check out the preview story– and check back for post-conference coverage.

 

 

Government Shutdown Looms Big for Commercial Real Estate

Government Shutdown Looms Big for Commercial Real Estate

January 4, 2019

Commercial Real Estate Braces for Government Shutdown

The government shutdown is now in full swing, looking to become the longest shutdown in U.S. history. The partial shutdown is impacting some 800,000 employees who oversee multifamily housing loans and office sector financing, among other areas, according to the New York Times. While essential jobs, such as law enforcement and mail delivery, are still open, the shutdown has affected these departments: Homeland Security, Justice, State Dept., Treasury Dept., the EPA, and NASA.

Plus, workers will have fewer dollars to spend in restaurants and other retail outlets, impacting those commercial real estate sectors. According to this Bisnow story, here’s a quick look at how the commercial real estate industry is seeing the impact:

Multifamily Housing: Enforcement and Oversight Slows

The Department of Housing and Urban Development is working with a limited staff, resulting in slower loan processing. This impacts new multifamily and related housing projects and enforcement of federal housing regulations. According to Bisnow, just 343 of HUD’s nearly 7,500 employees were expected to work full time during the shutdown.  The National Association of Realtors’ Chief Economist Lawrence Yun says, “Right now there’s a housing shortage for owner occupancy and rental, so if there’s a delay in approving some of the multifamily projects.”

The government shutdown is impacting:

  • Fair Housing and Equal Opportunity Office employees — just a fraction of whom were projected to work full time during a shutdown.
  • Internal Revenue Service forms processing, including some for housing loans. These have been suspended during the shutdown, according to NAR.

Office Sector: Loans are an Issue

Small businesses looking for loans will have a more difficult time because of the shutdown. This could affect the tech sector, startups and small retail businesses. The Small Business Administration said it will remain inactive due to a lack of funding, impacting loan processing and other functions.

Retail Spending to Slow but Restaurant Discounts Offered

Restaurant and retail store traffic is expected to slow, particularly in Washington, DC and other areas with large concentrations of federal workers. This trickle down to the local economy could be a significant strain for small businesses. According to the Washingtonian, many restaurants are adding special deals to help federal workers — and keep their foot traffic flowing during the government shutdown.

Steady Outlook for Commercial Real Estate, Says ULI

Steady Outlook for Commercial Real Estate, Says ULI

Oct. 2018

What’s ahead for the U.S. commercial real estate market? Steady as it goes, according to this ULI Real Estate Economic Forecast.

Economist expect the market to remain strong for the rest of 2018 and continue to grow until at least 2020.  With continued job and GDP growth, vacancy rates in most sectors will stay steady or continue to decrease and rents will continue to rise, but at a decreased rate. In the following sectors, vacancy rates will all remain well below their respective 20-year averages:

  • Multifamily
  • Industrial
  • Office

Multifamily Sector Remains Strong, Says ULI

Apartments, which have led the charge in real estate growth, will retain their low vacancy rates, edging up to 5.2% by 2020. Experts anticipate apartment rental rates will grow by 2.9% in 2018, heading to 2% by 2020.

Job growth will continue to fuel the expansion of real estate. Experts anticipate the creation of 2.4 million new jobs in 2018, 1.9 million new jobs in 2019, and 1 million in 2020.

Industrial Update

As the industrial sector continues its strong run, the ULI forecast shows a slight slowdown in rental rate growth over time. In the past five years, industrial warehouse rental rates have grown significantly above the long-term average. The outlook calls for increases of 3.9% in 2018, 3.3% in ‘19, and 2.4% in ‘20.

RCM Report: Multifamily Investment Still Strong

RCM Report: Multifamily Investment Still Strong

Sept. 2018

Strong Multifamily Investment Outlook for 2018-19

Real Capital Markets Report: Job growth and strong market fundaments propel multifamily

Strong market fundamentals, an abundance of capital, and an influx of investors continue to push the U.S. multifamily investment market, according to Real Capital Markets’ 2018 Multifamily Investor Sentiment Report.

As detailed in this Globe Street article, the majority of investors surveyed are looking to buy, with many finding a shortage of quality assets, particularly in the value add category. Experts interviewed by RCM noted that underlying fundamentals shaping rental demand continue to draw a wide range of investors into the multifamily sector, despite upward movement in interest rates.

“Based on the number of multifamily properties being brought to market, 2018 is a very solid year in California,” Steve Shanahan, executive managing director at Real Capital Markets, tells GlobeSt.com. “So far, the number of multifamily investment assets brought to market is up year over year, and we believe the activity will continue through the second half of 2018.”

Across the country, both job growth and home prices are high. Because of prohibitively priced homes and millennials’ continued focus on renting over buying, rents are rising to record levels, making apartment buildings a solid investment.

There is $250 billion or more  in capital currently allocated to multifamily investment across the country. For example:

  • National–there is significant capital ready to be deployed in this sector. “Closed end real estate funds have billions of dollars in callable capital—capital that has to be invested over the next three years,” said David Schwartz, CEO, Chairman, and Co-Founder of Waterton, a real estate investment and property management firm based in Chicago. “On top of that is a plethora of non-traded REITS, public REITS, private high net worth capital, foreign capital and other sources, each of which has some interest in multifamily investment. That’s what’s keeping these cap rates low.”
  • Phoenix— more than 1,000 older properties with 100 units or more are well-positioned for value-add redevelopment.
  • Dallas–pricing has risen dramatically from $35,000 to $45,000 per unit in a Class B building five years ago to $90,000 today, creating competition for higher end and value-add units across the MSA.
What Millennials Really Want in Commercial Real Estate

What Millennials Really Want in Commercial Real Estate

July 2018

What Millennials Really Want: Not the Fancy Office Space

Skip the fancy commercial real estate offices? That’s what some Millennials and members of Generation Z are saying — as they look beyond office space and a paycheck when they go to work, according to the 2018 Deloitte Millennial Survey. The survey captured the thoughts of more than 10,000 Millennials and nearly 2,000 Gen Z respondents globally.

Younger employees want to work for companies that drive societal progress, believe in social progress, practice environmental sustainability, and keep the safety of their employees and customers at the forefront at all times.

The report shows that their perceptions of businesses have changed, however, especially over the past year. The majority of Millennials now think that business leaders do not behave ethically or think outside of their own agendas.

The report indicated that the keys to keeping Millennial and Generation Z workers’ loyalty will be the showing that the company values the same things they value:

  • Training
  • Diversity
  • Flexibility
  • Sustainable environments

Since many commercial real estate decisions are made based on maintaining employees, business leaders should consider these factors when selecting a location for their office space and building out the space.

Office Space: Consider the Urban Core

By moving commercial real estate offices to the urban core, employers can find a diverse workforce of people and address sustainability issues. Many Millennials prefer to walk, bike or use public transportation to get to work because these modes of transportation are more environmentally friendly and don’t require car ownership.

Employers should also think about building out their commercial real estate spaces with collaborative areas for training. Younger workers are looking to hone their skills in softer Industrial Revolution 4.0 areas, and they often learn best in a more casual, small-group oriented environment, for example. Everything from flexible conference space to casual breakout areas with soft seating can help with these training needs.

General flexibility is also important to Millennial workers. Many of them have or would consider joining the gig economy as a supplement to or instead of having a full-time job, so they want to be able to work from anywhere—an office, their home, a coffee shop, or a beach. Employers should consider making sure their commercial spaces are technologically well-equipped to meet these needs. Collaborative spaces will also help bring employees into these offices when they do need to talk face-to-face with their colleagues.

RCM Report: Retail Investors Still Buying

RCM Report: Retail Investors Still Buying

May 2018

Real Capital Markets Report: Retail Investors Still in Buying Mode

Retail investors are still in a buying mode, as they continue to focus on finding assets that can meet the changing needs of today’s consumers and produce desirable returns, according to Real Capital Markets’ May 2018 Retail Investor Sentiment Report.

While big box vacancies and high-profile retail store closures continue to adversely affect parts of the industry, investors surveyed noted optimism in other retail segments. Retail owners who embrace new models—whether they are experiential or contain some variation of mixed use—are considered to be in the best position to succeed in today’s retail environment.

“Retail may be the most diverse and bifurcated of all commercial real estate asset classes,” said Steve Shanahan, Executive Managing Director, Real Capital Markets. “Certain subsets of retail perform well, are in great demand and push the market in terms of price and value. Others have issues and are part of what is leading investors to consider other options, such as exploring other asset types.”

In May 2018, RCM surveyed its U.S. database of retail investors to gauge their sentiment on various investment related topics. Highlights of the 2018 RCM Retail Investor Sentiment Report include:

  • The State of Retail is Most Impactful—The overarching state of the retail market is having the greatest impact on retail property investing.
  • Investors are Expanding Into Alternative Asset Classes—Almost 70 percent of investors surveyed categorize themselves as net buyers with only 11 percent taking a wait and see attitude.
  • Anchored Shopping Centers Remain the Preferred Retail Investment—Especially grocery-anchored centers—by a greater margin in 2018 than in 2017. Nearly half of investors, 48 percent, said anchored centers are the most attractive retail investment today compared to strip centers, which were characterized as the most attractive by 23 percent.
  • Greatest Threat is Big Box Vacancy—With new big box bankruptcies and previously announced store closures taking place, investors’ views on the greatest threat to retail investing has changed. Big box vacancy is now viewed as the greatest threat, cited by 39 percent of investors.
  • The Call for Core and Value—Many buyers—private capital, entrepreneurs, foreign investors and private equity investors—primarily are acting when a value component is present. The survey results echo that finding that value-add remains a popular strategy, with 52 percent seeking properties where they can create value.

Commercial Real Estate Report: Industrial Hot; Retail Lags

December 2017

Where is the commercial real estate market headed in 2018? The industrial sector has continued it’s strong run through 2017, but the picture is varied for the office, retail and multifamily sectors. Retail, for example, continues to struggle, with a 32% drop. For a detailed look at what’s ahead, check out these insights from the National Association of Realtors’ latest Commercial Real Estate Outlook.

Highlights:

  • Investment volume in LCRE (Large Cap Commercial Real Estate) markets continued into the third quarter of 2017.
  • Office sales were down 18%on a yearly basis—mostly due to a drop in CBD office transactions—but suburban office sales rose.
  • The industrial sector posted strong sales volume, exceeding the prior peak set in the third quarter of 2007.
  • Retail sales dropped 32 percent during the third quarter.
  • Commercial real estate in SCRE (Small Cap Commercial Real Estate) markets continued to experience advances in investment sales, however the momentum moderated during the third quarter of 2017.
  • Following on the first quarter’s 4.4 percent decline and the second quarter’s 4.4 percent increase in sales volume, REALTORS® reported sales volume rose 3.6 percent in the third quarter.

Click here for more.

Industrial Real Estate Investment Still Strong

RCM Media image1 SOCIAL

A Real Capital Markets and SIOR Report found investors bullish on industrial real estate heading into 2018.

Industrial real estate investment is expected to continue its healthy run into 2018, as strong leasing, construction, and investment sales fuel the market, according to the recent Real Capital Markets (RCM)/SIOR Investment Sentiment Report. What’s driving this record investment? It’s easy to point to e-commerce as a major force, but that is just one part of the story, according to survey respondents.

Here are 5 key findings from the report:

  • Volume for 2018? — 90.3% of investors and brokers across the country say investment levels will at least stay the same going into 2018, with many predicting a slight increase in activity.
  • E-commerce Effect — E-commerce is having the greatest impact on market activity, but is not the only factor driving industrial activity. There is growth in light manufacturing, specialty food manufacturing and general corporate distribution space, for example. Also, many corporations are expanding their distribution space needs, moving to larger or newer facilities. Other companies are using warehouse and distribution space for newer manufacturing needs — such as recycled materials or green energy related uses.
  • Investment sales pricing — is expected to stay the same (92.7% of respondents) or rise by 5% or more going into 2018 (33.8% of respondents).
  • Watch out for overbuilding — 40.6% of investors say that overbuilding is the greatest threat to the industrial market.
  • Mid-size and modern new buildings win out — 35.8% of respondents prefer new, mid-size, modern, multi-tenant building

This current industrial market is unique in its longevity — and the array of market fundaments that are propelling activity. With growth in the supply chain, corporate distribution space realignment, and the continued expansion of e-commerce, it’s difficult to see an end in sight for investment in industrial real estate.

Commercial Real Estate Trends for 2017

Commercial Real Estate Trends for 2017

The commercial real estate industry has been on a strong cycle for several years. The big question is: How long will it continue? The latest Emerging Trends Report by PWC (PricewaterhouseCoopers) and the Urban Land Institute, has the long view on the market. Here’s the latest.

The Strong Investment Sectors for 2017?

pjp_interior-industrial-center

Supply chain and e-commerce growth continues to drive Industrial real estate leasing and investment.

Industrial — continues to top the charts, due to the growth in e-commerce and the general supply chain.  Well located, institutional quality distribution space has been in short supply for several years across the country. While new construction has been strong, it will take time to lease and sell the buildings and, thus, fill all the demand. Bottom line: investors like the stability and long-term growth of this sector and will continue to seek strong assets in primary, secondary and even outlying markets.

Senior Housing/Retirement Homes — these will continue to be in favor, due to the aging population and need for community residences and related services.

 

oakland-urban-retail-centerUrban Mixed-Use Developments — these vibrant, urban developments that combines residential, retail, offices and more continue to draw Millennials and Baby Boomers alike — and should guide development going into 2017 and beyond.

The Emerging Trends report also predicts:

nyc skyline

Global commercial real estate should be stable in 2017

More stability in market cycles — Look for less volatility, as lessons learned from the global financial meltdown will guide decisions moving forward. While construction still lags during this post-recession era, it should continue at a tempered pace.

Multi-Use– or “Optionality” is in — the trend toward developers and investors seeking flexible, multi-use projects. In this commercial real estate market, buildings that can be adjusted to satisfy multiple tenants and changing neighborhoods are ideal. It lets owners maximize rents and seek the highest and best use.Bisnow multifamily yardi

Construction costs to rise due to labor issues — Workers who left during the recession have been slow to return, slowing production and increasing costs. With vacancy rates at record lows in many markets, construction has been a big factor in filling long-term demand. Without an adequate number of workers, costs will rise.

Cap rates could go lower in 2017 — As investors continue to chase deals and limited supply and tempered construction present continued challenges.

 

 

Retail Market Review: What’s Ahead for Holidays?

Retail Market Review: What’s Ahead for Holidays?

December 2016

We’ve made it past Cyber Monday, which became Cyber Week this year. As we head into the main holiday shopping season, all eyes turn to retail sales. Who will show strength this holiday season? Target? Nordstrom? Macy’s? Will shoppers turn out in force or wander around the malls without showing much purchasing power?

Here’s a recap:

rossevelt-field-mallShopping malls in trouble? — According to Fortune, the decline of department stores and other factors are a black cloud hanging over mall owners and a big factor in retail sales. Click here for more details.

Sales steady — Sales of electronics, apparel and other holiday favorites are expected to rise 4.1 percent this year, compared with 2.5 percent last year and 4.8 percent in 2014. Check out Kiplinger’s retail update for more.

Stretching the season — National Real Estate Investor talks about retail promotions and efforts to stretch the holiday shopping season from early November into January. To note — U.S. total store sales fell by about 4 percent during the Black Friday weekend compared with 2015. But — ICSC research found that more than 75 percent of shoppers spent as much –if not more — in 2016 versus 2015.

nyc-fifth-ave-hmkmcg

Consumer spending risesCommercial Property Executive details how consumer spending rose during Q3 to 3.2 percent– the highest level in two years. This is mainly due to business spend and an increase in imports, but overall…good news!

 

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