Retailers Still Working on Mastering E-Commerce Model

Retailers Still Working on Mastering E-Commerce Model

March 2016E-commerce

Nordstrom is struggling, and e-commerce (and perhaps shipping costs) might be partly to blame. That’s according to a recent Bloomberg.com story by Shelly Banjo.

The luxury retailer has seen the price of its shares plummet over the past year and missed its fourth-quarter earnings estimates last month. CFO Mike Koppel talked about Nordstrom’s rough stretch with Bloomberg.com, giving some insight into some of the issues retailers face as they split their focus between brick-and-mortar stores and selling products online.

E-commerce isn’t going away. Nordstrom expects that 30 percent of its sales will come online by 2020, compared to just 8 percent in 2010. But retailers don’t have as good a handle on the e-commerce model as they would like.

Brick-and-mortar stores might seem increasingly old fashioned, but retailers knew how to plan for that model. You build your store. You train your staff. Once you paid off those initial overhead costs, the profits flow in–ideally!

Selling online brings the benefit of low overhead (less of a need for labor and physical stores). But the more retailers like Nordstrom sell online, the more they have to spend to collect and ship the goods to customers. It all adds up!

Nordstrom is trying to catch up to e-commerce competitors like Amazon. But it’s finding that e-commerce isn’t always as profitable a business as physical stores. Nordstrom – and other retailers – will need to figure out the model soon.

Midwest Update: Atlanta Good for Industrial, Office

Midwest Update: Atlanta Good for Industrial, Office

March 2016Atlanta

It’s a good time to be in the Atlanta commercial real estate market. Research shows the southeastern hub enjoyed a prosperous 2015, with strong industrial and office absorption figures pushing vacancy rates in those sectors down to levels not seen since the turn of the century.

Clearly the Atlanta market is gaining momentum. Here are a few Atlanta-focused stories and trends worth tracking:

  • Another good year for industrial: Atlanta’s industrial market performed particularly well in 2015, absorbing the third-most square footage in the United States. That’s according to research from Colliers International, which also found that the industrial vacancy rate dropped to its lowest point since the first quarter of 2001. 
  • The office sector’s perfect storm: The mix of high absorption activity with minimal deliveries helped Atlanta achieve its best office market results since 2000 last year. Colliers found that Atlanta’s office absorption totaled 4.8 million square feet, the highest annual total in 15 years. 
  • Benefits of build-to-suit: Atlanta, with its strong industrial market, is one of the cities that has seen a rise in build-to-suit projects in recent years. With more tenants seeking new technologies and specialized buildings, this isn’t a trend that’s likely to go away anytime soon. (Story via GlobeSt)
  • The future of cars: What would Atlanta look like if there were cars, but no drivers? That was the subject of a recent program called “Evolving Transportation and the Future of Commercial Real Estate” hosted by the Urban Land Institute. Industry experts debated the potential impact of this technology, looking at how it might change variables like parking for current (and future) developments. (Story via Curbed)
Foreign Investment Continues to Fuel CRE Market

Foreign Investment Continues to Fuel CRE Market

February 2016

cross-border investors

Cross-border investors target industrial properties in 2015. (Photo via GlobeSt)

Cross-border investors seized a larger share of the U.S. market in 2015, continuing a buyer spree that has fueled the market for several years.

Research from Real Capital Analytics’ latest U.S. Capital Trends Report found that deal volume for cross-border investors rose 123 percent from 2014 to 2015. That gave that class of investors a 16 percent share of the deal activity in the market.

RCA found that cross-border investors targeted properties in both gateway cities and secondary markets. JLL reported similar findings in its latest U.S. Investment Outlook report. According to JLL, foreign investment in the U.S. broke a seven-year-old record high by more than $30 billion.

As Steve Collins, international director and president of JLL Capital Markets—Americas, told GlobeSt, “While we’re seeing volatility and uncertainty in parts of the financial markets, the relative strength of economic and leasing fundamentals continues to position the United States as an attractive, healthy and transparent market for cross-border investment.”

GlobeSt has a close look at the reports from Real Capital Analytics and JLL.

Other highlights from RCA’s report include:

  • Overseas buyers dominated U.S. industrial assets, purchasing more than any other group.
  • Institutional/fund capital sources represented 35 percent of apartment, office and hotel portfolios in 2015.
  • Digging deeper, those buyers accounted for 43 percent of apartment portfolio sales, a leap up from 24 percent in 2014.
  • Public investors fell back in the past year as volume dropped five percent.
90 North Finds Value in Suburban Office Markets

90 North Finds Value in Suburban Office Markets

February 2016

90 North Real Estate Partners made big news this week with its purchase of the Saint-Gobain North American headquarters in suburban Philadelphia. The $123 million purchase was made with investment partner Arzan Wealth.

Saint Gobain 2

The move continued a strategy 90 North has favored since it opened its Chicago-based North American headquarters in 2014: Target safe, long-term investments in strong office markets. More often than not, that strategy has led 90 North to focus its attention on the suburbs.

90 North is now in suburban Philadelphia, and its growing U.S. portfolio also includes the following properties:

  • A 351,425-SF, Class A office building in Deer Park, Illinois, leased long-term to Continental Automotive Systems, Inc.
  • A 175,155-SF, Class A office building in Denver that houses the FBI headquarters for Colorado and Wyoming
  • The 67-acre Lenovo Enterprise Campus in the Research Triangle Park, Raleigh, North Carolina. The two-building, 450,000 SF complex is fully leased long-term to Lenovo’s Global Server division
ReserveOpenHouse-002(1)

The Reserve at Deer Park, purchased by 90 North in 2014

All three properties have strong tenants that will allow 90 North to safely weather any economic downturn. The Saint-Gobain property had the added bonus of a strong international tenant that had recently signed a long term lease and spent millions renovating their complex– very good signs for any investor.

As Daniel Cooper, partner and head of North America for 90 North, told GlobeSt.com this week, “The point we’re trying to make is that the suburbs are not dead.”

Retail Sales Still on the Rise Early in 2016

Retail Sales Still on the Rise Early in 2016

February 2016Retail sales

When it comes to shopping, U.S. consumers aren’t being swayed by snow, nor rain, nor … well, you get the idea.

The month of January brought bad weather for much of the country. But that didn’t stop consumers from heading to brick-and-mortar stores or online retailers in droves. The fact that overall retail sales grew in January is remarkable considering the volatility in global markets and overseas economies. The rise in retail sales is in line with other indicators of growing economic strength.

Still, it’s a small sample size, right? Well, last month actually stands as part of a greater trend. Total retail sales jumped 3.4 percent over the 12 months that ended Jan. 31, according to research by Marcus & Millichap.

There are two factors most responsible for the growth:

  • The price of gas is low enough that consumers find themselves with more money to spend.
  • Consumers have proven themselves willing to spend that money.

Spending in categories like food and drink (as well as more frivolous pursuits) is up across the board over the last 12 months. Further evidence of consumer confidence comes in the form of a rise in sales on larger, long-lasting items. Building materials and furniture sales rose over the past 12 months. Marcus & Millichap projects U.S. retail vacancy to drop 30 basis points to 5.9 percent in 2016.

It appears consumers are taking advantage of stable employment outlook and loosening up a bit. That’s great news for retail sales.

90 North Buys $123M Saint-Gobain Campus in Philadelphia

90 North Buys $123M Saint-Gobain Campus in Philadelphia

February 2016

Saint-GobainThe Wall Street Journal has the latest on Open Slate client 90 North Real Estate Partners and its $123M acquisition near Philadelphia. Based in the UK, 90 North is known for its deep understanding of the global investment market and focus on stability and long-term value.

The 320K SF, two-building campus includes office and research and development space. 90 North and a unit of Arzan Financial Group of Kuwait bought the 65-acre campus in Malvern, PA, outside Philadelphia. Dan Cooper, head of North America for 90 North, had this to say about their strategy for buying the Saint-Gobain corporate HQ:

“We look for assets that can weather any industry or market cycle” — As global investors, 90 North looks at properties in the US and abroad and is drawn by assets that have the security of strong tenancy and the stability that the US market affords. “At the end of the day, we need to know that the asset will perform well and can weather any cycle or market downturn,” Cooper says. “When you have a tenant that has committed millions of dollars into renovating a building and then signs a long term lease, that’s what helps us sleep at night.”

Saint Gobain 2“It is a validation that suburban marketplaces remain extremely viable — The Saint-Gobain campus is 30 minutes outside of Philadelphia and is a sizable campus within a submarket known as the High Tech Corridor. With immediate access to the entire area—including downtown Philadelphia, the submarket is home to numerous innovative technology, medical, and pharmaceutical firms as well as excellent schools and residential neighborhoods.

“This type of scenario is playing out in many cities across the country,” Cooper says. “We saw it in Raleigh when we purchased the Lenovo Campus last year and we see it in cities such as Austin, Denver, Chicago, Atlanta and Dallas.”

Check out the Wall Street Journal story here.

Economy Experts Talk Rough January and Outlook for CRE

Economy Experts Talk Rough January and Outlook for CRE

February 2016

If you pay any attention to the global economy, you know January wasn’t a ton of fun.

But still, it was just one month. Can it really say anything about the future of the commercial real estate market in the United States? Bisnow.com got the opinions of six top economists, and as you might expect, those opinions vary.

Economy

Stockbrokers struggled through the worst January since 2009 this year.

Some cautioned against paying too much attention to the market (and the resulting bluster from politicians and cable news). Others predicted pain in the short-term but economic success in the long-term. The general feeling seemed to be: “Be patient, we’ve seen this before.”

Here are the highlights:

  • Robert Bach, director of research – Americas for Newmark Grubb Knight Frank: Bach confessed some angst, but told Bisnow, “If the economy muddles through, so will commercial real estate.”
  • Ray Torto, Harvard lecturer and former global chief economist at CBRE: Torto predicts a positive long-term outlook for CRE and pins the blame for short-term struggles on factors like low oil prices and China’s drooping stock market. “Hope is not a tactic to pursue right now,” he told Bisnow. “Implement careful planning and executions.”
  • George Ratiu, director of quantitative and commercial research for the National Association of Realtors: Have no fear; the CRE market has seen this before (and recently, too). “Looking at the post-recession recovery, we’ve had other periods of volatility … which had minimal impact on CRE performance,” Ratiu told Bisnow.
  • Jack G. Kern, director – research and publications for Yardi: Kern says CRE is naturally affected by global stock markets, but doesn’t see an issue as long as proper precautions are taken. “Properties bought based on solid underwriting and reasonable fundamentals will continue to do fine,” he told Bisnow. “Those acquired without recognizing the risks properly will be back on the market soon enough.”
  • Victor Calanog, chief economist at Reis: Calanog isn’t expecting 2016 to mimic last year. “Property fundamentals rocked 2015, but we expect 2016 to be a bit rockier,” he told Bisnow.

With January (thankfully) in the rearview mirror, this CRE topic will be worth monitoring as we wait to see if the global economy improves.

Ryan Companies Closes on Land in Prime Chicago Suburb

Ryan Companies Closes on Land in Prime Chicago Suburb

February 2016

Ryan Companies

The office market in Oak Brook is in high demand.

Ryan Companies is making a splash in a highly valued suburban Chicago office market.

GlobeSt.com has all the details of the Minneapolis-based CRE firm’s purchase of 11 acres at the I-88/I-294 interchange in Oak Brook. Plans call for a combined office and medical campus complete with structured parking.

As Tim Hennelly, president of Ryan’s Great Lakes region, told GlobeSt., “This acquisition continues our strategic approach for Ryan to be a leader in delivering complex, signature developments in proven markets and asset classes throughout the Chicago metropolitan area.”

Location is a key part of the transaction, which proves there are still strong suburban markets capable of attracting development. Vacancy rates for class A properties in Oak Brook are low (per NAI Hiffman’s year-end office market report), making the type of office space Ryan plans to develop extremely attractive.

Ship-to-Store Strategy Gains Popularity Among Retailers

Ship-to-Store Strategy Gains Popularity Among Retailers

ship-to-store

February 2016

Buy it online. Pick it up in the store. This new twist on e-commerce is taking hold with many retailers, but is it working? A new report from Retails Systems Research/SPS Commerce reveals that a growing number of retailers — including giants like Walmart, Lowes, Home Depot and Target — are offering customers a buy online, pickup in the store service.

According to the report — reviewed by Bisnow here — 61 percent of retailers offered a ship-to-store option as of September of 2015. That’s an even larger majority than the 53 percent of retailers who offer a 2-day delivery fulfillment option.

For retailers, the benefit of this strategy is twofold. The shipping fees for delivery of online purchases can be enormous, even for high-volume retailers. A ship-to-store option can bring those expenses down. It also gets customers in the door of a brick-and-mortar store, where they are more likely to make impulse buys.

Consumers appear to be warming up to the idea. A survey by UPS found that 38 percent of shoppers will now choose a ship-to-store option. That’s an uptick of 3 percent from 2014, with the potential to grow even more in the years ahead.

The Dangers of Ship-to-Store

Ship-to-storeThe Ship-to-store strategy is not foolproof, however.

Just last year, a JDA Software Group Inc. survey of more than 1,000 U.S.-based online shoppers revealed some troubling numbers. Of the 35 percent who opted for a ship-to-store option in the previous year, 50 percent reported having problems retrieving their purchases.

This approach only works if it is convenient enough that it doesn’t drive customers away. The ship-to-store strategy can be an excellent tool, but only if the stores are staffed to handle the additional volume.

Capital continues to enter U.S. real estate market

Capital continues to enter U.S. real estate market

new-capital

New capital is entering the real estate market. Where will it end up?

Dec. 2015

Money is flowing into the U.S. real estate market, and that trend is expected to continue in 2016. The big question: Where will all that new capital go?

Total acquisition volume for the 12 months ending June 30, 2015, was $497.4 billion (up 24 percent year-over-year), according to the 2016 ULI Emerging Trends Report. That type of growth isn’t likely to be sustainable, but the fact remains that investors will have capital to spend in 2016.

As we try to figure out where that new money could flow, here are a few options:

  • Secondary markets: We’ve written about the rise of 18-hour cities before, and this seems to be a likely place for investors to spend capital. Markets like Austin, Denver, San Diego, and San Antonio are “cool,” “hip” and starting to grow.
  • Outside the box: Investors may rethink their definition of real estate, or at least expand it. ULI highlighted the expansion of Real Estate Investment Trusts (REITS) to include cell towers and outdoor advertising. The market could grow by offering investors more opportunities to invest in infrastructure.
  • Comeback story: Old properties are becoming new again thanks to the popularity of renovation and redevelopment. Consider the number of companies that are re-thinking the design of their office spaces. In some cases, the current demands of millennial workers can make rehabbed industrial space even more desirable than new Class A options.
  • Going alternative: Properties that have traditionally been of interest to a small number of investors (medical offices, senior housing, data centers, labs) may find themselves in demand on a larger scale.

Clearly, CRE investors will be looking at their full range of investment options in 2016. The U.S. market offers plenty of choices, and now investors have the capital to match.