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.

In-store pickups hurting e-commerce?

In-store pickups hurting e-commerce?

woocommerce-store-pickupMany retailers attempt to offset the cost of conducting e-commerce by offering customers the option to buy online and pick up their products in store. But is an inability to execute that strategy undercutting its effectiveness?

We recently detailed the slowing growth of e-commerce, and that trend could be tied to the fact that some retailers are having a tough time getting goods to their online customers. A recent JDA Software Group Inc. survey of more than 1,000 U.S.-based online shoppers revealed that, of the 35 percent who opted to buy online and pick up their products in a store in the past year, 50 percent had problems getting their purchases.

E-Commerce: Expenses Key

It’s easy for retailers to offer products online, but it can be expensive to get those products to consumers. That makes it difficult for companies to grow e-commerce sales while turning a profit. According to the Wall Street Journal, shipping fees to deliver clothing alone can cost as much as $4 to $10 per package, even for high-volume retailers.

Allowing customers to pick up their online purchases at a brick-and-mortar store is one option to help alleviate some of the costs associated with shipping, but only if the process works well enough that it doesn’t drive those customers away. In the perfect world is would also encourage them to shop in the stores as well!

E-commerce may not fix retail woes

E-commerce may not fix retail woes

Nov. 27, 2015

Everyone knows brick and mortar retailers are dying off and the only thing that can save them is e-commerce, right? Not so fast, according to a story from Bloomberg.com that reveals that e-commerce sales at companies such as WalMart, Nordstrom, Gap and JCPenney have slowed.

small-business-inventory-software1That news comes despite an increase in money spent to improve online sales, as many retailers are investing heavily in flashy new websites and spending billions on delivery infrastructure. That hasn’t necessarily translated into new customers, though, calling into question the value of those investments.

Total U.S. e-commerce sales did outpace brick-and-mortar sales in the latest quarter, growing 14.1 percent compared to 3.7-percent growth for total retail sales. But those numbers can be misleading because of one giant e-commerce player — Amazon.com.

Toss out sales from the online giant, and e-commerce growth drops to 4.5 percent over the year before. That’s significantly worse than the 10.5-percent growth seen in 2011.

Consumers are moving online, but retailers still face the difficult task of convincing shoppers that their store offers something they can’t find anywhere else. It will be interesting to see which retailers thrive as the holiday shopping season begins in earnest.

Foreign Investment Boosts Industrial Market

Foreign Investment Boosts Industrial Market

GLP buys chi_indcor-properties

Foreign investment in industrial surged in 2015, led by investors such as GLP, which bought the IndCor portfolio.

Nov. 12, 2015

Ready for a surprise (or three)? JLL and capital markets research lead Sean Coghlan provided a few with the recently published report Commercial Real Estate Investment: 2015 and Beyond.

A few of the main points:

  • The industrial market is back in a big way: YTD sales volume hit $43.2 billion by the end of Q3, a mark that is 53.9% higher than it was at the same time last year. This will be the sixth year of consecutive growth. “We did not anticipate that the industrial sector’s recovery would be as strong or as quick as it was,” Coghlan said.
  • Foreign capital is big on industrial, a sector that could outperform its office counterpart: The industrial market has received $11.5 billion in foreign capital so far, and Coghlan said there’s a good chance another $7.5 billion in deals will be closed by year end. In recent years, office has reigned, but that trend looks poised to reverse.
  • The multifamily sector remains strong: Factors such as millennials delaying home buying and moving to urban environments have caused the multifamily sector to outperform expectations. “There is a strong pipeline for new development, but we have also seen a pervasive rent growth that has outperformed the other sectors,” Coghlan said. YTD sales volume is nearly $96 billion.

Read the full article on GlobeSt.com.

U.S. law firms looking for room to expand

U.S. law firms looking for room to expand

Nov. 2015

A recent report from JLL shows that many law firms that were forced to cut back and consolidate after the recession are making money and looking to expand. But in some large markets — including the law hub of Chicago — firms are finding that when it comes to Class-A office space, it’s a landlord’s market.

Law libraryThe top 100 law firms claim that gross revenue is up to $81 billion, rising 4.6 percent from last year. In fact, revenue has increased by close to 5 percent for the past five years. But the demand for more space means fierce competition for available Class A and remodeled Class B space. According to JLL, rents are typically 25 percent higher than usual in primary markets and up to 40 percent higher in the best areas of those markets.

“Some of these firms haven’t even looked at their 10- to 15-year leases since before the recession, and they’re trying to figure out to do,” Elizabeth Cooper, co-lead and international director at JLL’s law firm group, said in this story on NREIOnline.com. “There’s tremendous pressure still, even after the recession, to contain costs.”

There are a few options for law firms looking to do just that:

  • Consolidate: This major trend has picked up steam as the need for storage room and libraries has faded. There is evidence that Millennial workers prefer to work in collaborative spaces, making small conference rooms a better fit than traditional boardrooms.
  • Explore new neighborhoods: Taking a cue from technology tenants, law firms can save on real estate by looking at which unexplored neighborhoods might become the next hot spot. Cooper used the examples of Boston’s Seaport District, New York’s Hudson Yards and Washington, D.C.’s Mount Vernon Triangle. In Chicago, firms have toured the Fulton Market area. “Firms are considering these places, which had not been traditional legal services areas, as new live, work and play environments,” Cooper said. “When the traditional downtown areas don’t have a lot of space, you have to get creative and pioneering.”

New buildings will come online in 2016 and 2017, but in the meantime, this trend should be tracked in law firms across the United States.

Office Update: Co-Working Goes Mainstream

Office Update: Co-Working Goes Mainstream

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Civic Hall Co-Working Space New York

Co-working is taking over many urban centers, helping to fuel the startup boom and keeping entrepreneurs happy and productive.

According to Bisnow, a new co-working space in New York already has 600 members for 150 seats. Civic Hall, which was started by Personal Democracy Media, works like a gym membership and is a great way to network while you work.

 

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Civic Hall /Personal Democracy Media

One key to successful co-working spaces is diversity of space– open space, quiet space….and even phone booth space. These throw back booths are a hot item at Civic Hall! Get the rest of the scoop from Bisnow!

Chicago Co-Working Options

Looking for co-working space in Chicago? Click here for a Bisnow hit list of cool Chicago spaces, including Blue 1647, 1871, and more. Or, try Desktime to sort through many Chicago options!

Multifamily Pushes Back On E-Commerce

Multifamily Pushes Back On E-Commerce

small-business-inventory-software1

Some multifamily managers are stopping package deliveries

Multifamily renters, beware! Don’t be so quick to ask Amazon to deliver your packages to the building’s management office. The strong e-commerce sales are hitting multifamily managers in the wallet. The time it takes for employees to check in and safeguard those packages is adding up!

Camden Property Trust, which has 59,000 multifamily units in 10 states, recently stopped accepting packages in its management offices after adding up $3.3 M in lost productivity on an estimated 1 million packages annually. 

Multifamily Tidbits

Consider this:

  • U.S. e-commerce sales are expected to reach $334 billion in 2015, up from $263 billion in 2013, according to Forrester Research.
  • U.S. e-commerce sales are expected to increase to $480 billion in 2019.
  • AvalonBay Communities, with 83K apartments, has tried installing electronic lockers in some properties to give residents access to packages. Other companies are testing this approach. 

Check out The Wall Street Journal for more. Will other multifamily management companies follow suit? Stay tuned! 

90 North Repositions 351K SF Building in Chicago suburbs

90 North Repositions 351K SF Building in Chicago suburbs

ReserveOpenHouse-002(1)WEB

ReserveOpenHouse-003(1)WEB

October 2015

Moving from Single to Multi-Tenant Office

Who: 90 North Real Estate Partners

What: 351K SF Class A office building; 60 percent leased to Continental Automotive Systems, Inc.

Where: The Reserve at Deer Park, 21440 W. Lake Cook Rd., Deer Park, Ill, Northwest Suburban Chicago

When: Construction is scheduled for completion in Q4 2015

90 North started a comprehensive redevelopment of The Reserve at Deer Park to transition the building from single to multi-tenant use. The top three floors, totalling 145,000 SF, are available for lease, through NAI Hiffman.

The renovations include:

  • A new gateway entrance, separate parking lot and stand-alone building entrance to give new tenants their own entrance and a more efficient path through the building.
  • A new management office and lobby.
  • Expanded parking capacity.
  • A two-story gateway marquis entrance, designed by GMA Associates and under construction by ARCO Murray.
  • A complete landscaping plan to improve aesthetics and reduce water consumption. Plants that are indigenous to the region are being added.

“These renovations will create a cohesive traffic flow into the development and through the building,” said Daniel Cooper, Head of 90 North’s operations in North America. “This will greatly enhance the tenant experience and help us take this building to full occupancy.”

UK-based 90 North purchased the building in late 2014 with partner, Arzan Wealth (DIFC) Limited, a Dubai-based advisory firm. 90 North has closed on more than $250 million in office properties in the US in the past year.

Retail: ICSC Chicago and Regional News

Retail: ICSC Chicago and Regional News

The Latest on the Retail Front

National News

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The Galleria, a retail complex in Houston

Regional mall REITs are looking at old school ways to grow earnings—rental increases versus the constant push to develop properties or merge, says 
National Real Estate Investor
.  Rich Moore, a REIT analyst with RBC Capital Markets, explains why ground-up development, mall acquisitions and M&As aren’t viable growth vehicles.

 

Logo-GlobeStThis Globe Street story cautions retailers against getting “Ubered” by consumers and their quest to find a better deal online. Instead, work to keep customers in the store and avoid customers “showrooming” or looking at items in a store and then finding them for a better price online.

Midwest News

Liberty Center

Near Cincinnati, developer Steiner Associates is going big with a $120M addition to its $350 million lifestyle center. Liberty Center in Liberty Township will include a 200,000 square foot Dillard’s, an 80,000 square foot Dick’s Sporting Goods and a 16-screen Cinebistro. Read more here about the new development, which Steiner calls a big roll of the dice. Read more

The Scoop on Interest Rates — Now or Later

The Scoop on Interest Rates — Now or Later

Rates to stay the same, but it’s just a matter of time. What does it mean for #CRE?

nyc skyline

GlobeSt tell us what it means to investment, capital flow and debt maturing.

Marcus & Millichap provides an in depth look and says it will likely spark a new round of questions about the strength of the US economy. 

Reuters says an increase won’t be enough to cool the hot NY CRE market.

Marketwatch.com looks broadly at whether interest rate changes can forestall asset bubbles. Did moving too slow cause previous financial turmoil?

Wealth Management looks at how it will affect investment, particularly REITS.

Logo-WallStreetJournal

And, in the UK, the Wall Street Journal says an increase by the Bank of England would mean an end to the property boom there.