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.

WeWork Expands Shared Office Concept

WeWork Expands Shared Office Concept

Office lease sharing

WeWork is expanding quickly in New York and other key cities. Image courtesy of WeWork.

But Growth Questions Linger

August 10, 2018

Is this the next phase of the shared office landscape? Can WeWork sustain all the buzz and move to profitability?

The popular New York co-working space provider is now opening its doors to midsize companies that want to be WeWork members– but aren’t totally into that sharing concept! According to Ethan Rothstein of Bisnow, the concept would allow companies between 11 and 250 employees to have private and flexible space but fewer services than typical WeWork offices.

Companies committing to the HQ service line will sign a two-year lease agreement as opposed to month-to-month. They will not receive WeWork’s traditional concierge services, full stocked pantries and kegs amenities — but would choose from a list of space features for additional costs.

HQ by WeWork also allows companies who surpass the mark of 250 employees to use the company’s traditional office sharing locations for additional spots. With close to half of 1 million companies expected to expand beyond their midsize level within the next year, WeWork expects to soon exceed past their six office sharing locations in Manhattan. The focus is on Toronto, San Francisco and London for further expansion.

Office Lease Sharing Not Always a Quick Hit

While WeWork’s aggressive growth and impressive revenue stream have caught a lot of media attention, some are wondering if it’s too much too fast. The firm posted a net loss of $934 million in 2017 and $732 million in the first half of 2018, notes this Crunchbase story. Time will tell whether the growing revenue stream can sustain long enough to turn those numbers to black.

 

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.

Retailers Turn to Niche Opportunities

Retailers Turn to Niche Opportunities

Retailers turn to niche to thrive

May 20, 2018

By Lauren Farhat

Niche retailing should be considered risky business, right? Well, think again. According to Dees Stribling in this Bisnow national story, up-and-coming retailers can still look ahead to a bright future, but, “the niche has to be right.” With some retailers across the nation closing up shop, some such as Dutch men’s clothier Suitsupply, Magnolia Bakery and Club Pilates aren’t ready to be put to rest.

Suitsupply initially grew its brand in countries overseas. Unlike many other men’s clothing suppliers, the company now has big plans to expand beyond its 33 already existing stores in the U.S.. In selling, off-the-rack suits that are more expensive than mass-market but not as pricey as custom suits, the company’s niche is a perfect fit for cities like Brooklyn, Manhattan and Boston.

Retailers Focus on Niches

According to the Wall Street Journal, New York City brand Magnolia Bakery is also planning an expansion of franchises over the next few years. Except this time around, the company’s strategy isn’t to leverage from the sole success of its cupcakes, but the other parts of Magnolia that just as equally establish sales.

Other deep-seated commercial real estate retailers are those following the rage in the newly hot and trendy fitness world. Fitness chains such as Club Pilates, have been replenishing unoccupied spaces once filled by their failed retailer counterparts. Next year, Club Pilates foresees 5% to 10% of their locations occupying these types of retail spaces.

Will this niche approach work for retailers? It just might. As the industry transforms, look for more creative approaches that target niche markets. Consider how retailers are using a mix of online and bricks and mortar, for example.

 

Retail Stores Outlook: What’s Ahead After Toys “R” Us Store Closings?

Retail Stores Outlook: What’s Ahead After Toys “R” Us Store Closings?

Retail stores are scrambling to fine tune their approach as Toys “R” Us announces plans to close 800 stores

March 25, 2018

By Lauren Farhat

Toys “R” Us stores close: downfall sends wakeup call to other retail stores

With the recent closure of 800 Toys “R” Us store throughout the U.S., many retailers are reevaluating their own retail presence. Lucky for them, there are various solutions being proposed. Jamie Ward, group head of the retail finance group in the Boston office at Citizens Business Capital, tells Midwest Real Estate News the answer is online marketplaces.

By tying into booming online markets such as Amazon and Walmart, physical retailers can use these platforms for the implementation of their own shops. This provides customers greater convenience, lower prices and expanded product selection. Ward notes that about half the customers who start an online search today start it on Amazon.com. Retailers such as Nike, Land’s End and Lord and Taylor have brought in seemingly more customers through this “omnimethod” approach, as opposed to relying on just bricks and mortar stores and their own websites.

Retail stores and larger malls throughout the Midwest are also experiencing the same types of issues when trying to attract customers. The efficiency, cost savings and wide selection found with online retailers is brutal to compete against. Mall owners and leasing brokers are better off focusing on customer experience with the incorporation of restaurants, bars, and gyms – to name a few. Malls that give customers more reason to traffic their facility rather than browse the web will have the ability to stay afloat.

What’s the outlook for traditional retail?

There is plenty of hope — as long as retailers stay mindful of changing their habits as customers change theirs. Those physical retailers who decided to stay close-minded about an “omnimethod” approach may soon find themselves descending into their own demise, leaving the commercial real estate industry with a surplus of vacancies, and online retailers a heaping of new customers.

Office REIT Movement and Other Commercial Real Estate Updates

January 15, 2018

Here’s a quick look at what’s going on in commercial real estate news, along with the retail and industrial sectors.

Office REITs Moving Away From Acquisitions

According to National Real Estate Investor, some office REITs are shying away from acquisitions for 2018. Citing rising interest rates as a factor, the story notes that REITs will now be focusing more on development opportunities. Another factor at play is the shortage of high quality commercial real estate assets in some markets — given the strong investment cycle over the past several years and the desire by institutional investors to hold on for a longer term.

New York Investor Likes Chicago’s Uptown

Chicago’s Uptown neighborhood, with its growing transit-oriented-development corridor, has caught the eye of

Image from Great Global Holdings, which acquired the retail holdings in this Uptown development.

a New York investor, reports Bisnow. Great Global Holdings paid $8.9 M of the retail portion of the Wilson Yards mixed-use development. This is the firm’s fifth Chicago retail acquisition. What’s driving this activity?

Click here for more.

Amazon HQs Update: Residents Look Beyond Economic Stats

The race to lure the Amazon HQ2 continues, with more than 200 locations across North America vying for this prize. According to this Business Insider story, some residents are worrying about the problems associated with adding up to 50K employee into one area. Traffic, souring housing prices…you name it. Check out the story for more on who’s in the running and what this all could mean in terms of economic growth.

Grocery Anchored Centers Losing Luster?

Image courtesy of REJournals.com

Once the darling of the commercial real estate investment world, grocery anchored shopping centers are losing some of their luster, reports rejournals.com. Citing research from Morningstar Credit Ratings, the story details how the food buying landscape is changing. While grocery stores that offered a full line of goods and has at least $2 M in annual sales were once considered “e-commerce resistant,” that appears to be changing.

How will this play out for investors in 2018? Stay tuned!

 

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.

Whole Foods, Amazon: What’s Ahead for Grocery Delivery

Whole Foods, Amazon: What’s Ahead for Grocery Delivery

Sept. 2017

Food Oases: Amazon’s move into grocery delivery and the impact on consumers, industrial real estate

Fresh produce and other high quality items may be available for grocery delivery for many of the 23.5 million Americans living in food desserts—but they’re not necessarily coming as grocery stores.  A recent Bisnow article highlighted how online grocery delivery services are helping bring fresh and healthy foods to those living without access to major supermarkets.

Pexels Food image

Grocery delivery is a hot items for Amazon, given its purchase of Whole Foods. Image courtesy of Pexel.

Barriers to entry

While online food orders only account for about 2-4 percent of grocery shopping, there’s high potential for grocer  growth without building or renting a lot of additional real estate.  But there are also challenges:

  • Cost of renting or owning cooler or freezer space is high- $150-$170/sf
  • Food deserts are often in low-income areas where people don’t spend money on high-quality foods
  • Distribution centers must be within an hour of customers, a potential challenge on the industrial real estate side

New stores and distribution centers offering online ordering

Some companies are skirting these issues by using their existing stores as extensions of cold storage facilities. Amazon’s recent acquisition of Whole Foods, as well as its purchase or rental of several new cold storage facilities in major cities like Chicago, Dallas and New York, have allowed the company to expand its Amazon Fresh network to a greater base.

More choices doesn’t mean people will choose healthily

Because many food deserts are in low-income areas, online grocery retailers may be entitled to funding similar to tax incentives for affordable housing when they educate the public on a healthy diet. That may be an incentive for the retailers, but it won’t necessarily entice customers to make the right choices when they buy foods. In one case in the Bronx, the city of New York paid 40% of the construction costs for a supermarket to be built in a food desert, but customers still chose less expensive processed food options.

Stay tuned for more on how this grocery delivery trend impacts consumers — as well as industrial real estate professionals.

 

Greatest Threat to Retail? E-commerce and Shifting Consumers Habits

Greatest Threat to Retail? E-commerce and Shifting Consumers Habits

June 2017

rossevelt-field-mall

While e-commerce is often blamed for struggles in the retail sector, there are several other factors at play, according to Real Capital Markets’ recently released 2017 Retail Sentiment Report, which gauged opinions from investors across the U.S. The study examines changing consumer habits and how some survey respondents are trying to reinvent their approach to retail.

Among the study findings are:

  • Shifting consumer buying habits are the greatest threat to the industry. From e-commerce to in-store pickup and attitudes toward power shopping centers, shifting consumer habits have the eye of retailers as they try to navigate this current retail climate. Disruption has hit the retail industry and investors are aware of its impact and looking for ways to mitigate risks.
  • Most investors feel reinvention is the key to solving the industry’s greatest issues. In light of large tenant shake-ups and e-commerce pressures, investors are looking long-term at where retail is heading and what investments make sense.
  • Anchored shopping centers are the preferred property type for investors by a margin of 3:1. In this category, centers anchored by grocery tenants are preferred, as this sector is considered secure against e-commerce.
  • More than 57 percent of investors surveyed are net buyers of retail properties, an indication investors looking for opportunities and the ability to “balance” portfolios previously buoyed by other asset types.
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.