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!

 

Self-Storage Market Continues to Offer Investment Opportunities

Self-Storage Market Continues to Offer Investment Opportunities

Self-storage

An iStorage facility in California.

Sept. 2016

With the self-storage industry on a roll of late, one Colorado-based REIT is betting that storage will continue to be a good investment.

Commercial Property Executive has a story detailing National Storage Affiliates Trust’s forming of a joint venture with a major state pension fund to purchase a 66-property iStorage portfolio for approximately $630 million. The deal includes between 4 and 5 million square feet of rentable self-storage space in more than 36,000 storage units across 12 states.

NSA also acquired the iStorage property management company and brand in a separate deal.

The purchase strengthens NSA’s hold in many of its existing markets — most notably California and Florida, where iStorage had a major presence — and introduces it to new markets in New Jersey, Ohio, Pennsylvania, and Virginia.

Marcus & Millichap Report

NSA isn’t alone in seeking out self-storage property. Marcus & Millichap has released a research report that projects good things for the self-storage market in the second half of 2016. Demand for storage, combined with a lack of supply, is driving a rise in occupancy and rents. That’s true for both climate-controlled facilities and properties without climate controls.

Investors are likely drawn to self storage because of its status as a secure option for long-term profits. With that in mind, look for similar acquisitions of storage properties the rest of the year.

Cautious Optimism on Investment; Non-Gateway Markets Rule

Cautious Optimism on Investment; Non-Gateway Markets Rule

May 2016

Investment

Austin, Texas

How long will this strong CRE investment cycle last? That’s what’s on the minds of many CRE executives surveyed recently by DLA Piper. Among the key findings from the survey are:

  • Cautious optimism: We all know that CRE is cyclical. It’s been a good seven years of growth. About 62 percent of the executives surveyed are bullish about investment during the next year — down from 89 percent in the 2014 survey.
  • Non-gateway markets are king: As pricing in core markets continue to push out investors, cities such as Austin, Seattle, Denver and Raleigh are becoming the hot spots. This is particularly true among domestic investors, according to the report.
  • Record pricing, but reduced transaction volume: There was just $25.1 B in commercial property sales in February of 2016, down almost 50 percent from the previous year.
  • Foreign investment will continue: The U.S. is considered a safe haven and will continue to draw foreign investors into non-gateway markets and core markets (which are considered an even safer bet).
    Seattle

    Seattle, Washington

Among the top non-gateway cities to watch, according to the survey respondents, are:

  • Austin
  • Seattle
  • Miami
  • Denver
  • Nashville

See the law firm’s “State of the Market” survey for more.

Multifamily growth expected to be slow, steady in Q2

Multifamily growth expected to be slow, steady in Q2

Multifamily growth

Multifamily growth in Houston was downgraded in a recent report by Yardi.

April 2016

After adjusting their estimates for the second quarter of 2016, commercial real estate experts are anticipating a period of slow, but steady, multifamily growth over the next three months.

Rents on multifamily properties reached an all-time high of $1,181 last month, rising 0.5 percent over February, according to the Yardi Matrix Monthly report. But the report also predicts that rent appreciation will taper off soon. National rents are already showing the signs, decreasing by 20 basis points from February 2015.

Of the 30 major metropolitan markets for which Yardi creates forecasts, 13 were downgraded from the end of first quarter, 11 were increased and six remain the same. The top markets and their expected rent growth included:

  • Portland (14.1 percent)
  • San Francisco (11 percent)
  • Sacramento (10.6 percent)
  • Denver (10.3 percent)

Mid-Atlantic markets Richmond, Va.; Washington, D.C.; and Baltimore were the only markets to fall below their long-term average for growth. This is likely due to their weakness in the high-end lifestyle rent sector.

See this Commercial Property Executive story for more.

What’s Behind Manhattan Land Sales Slowdown?

What’s Behind Manhattan Land Sales Slowdown?

According to The Real Deal, Manhattan land sales slowed during the first part of 2016.  Data and analytics firm Real Capital Analytics (RCA) shows that there were only $90 million worth of development deals in January and zero on record in February. Land sales slow

What’s going on? Looks like three main factors are at play–stringent financing, lackluster luxury condo sales and the termination of the 421a tax abatement program. Another key factor is that buyers are not willing to pay the high prices sellers are touting. This is having a ripply effect on development sites. Click here for more.

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