August 2019 News Update
What’s Happening in the Commercial Real Estate Sector?
Shipping Costs Rule the Day:
The cost of shipping goods via truck is coming down, making it more comparable to shipping by train, according to a recent savings index by the Journal of Commerce (JOC). As C-Suite executives focus on paring down transportation costs, this could have an impact on decisions to use intermodals versus trucking to increase efficiency. See this Connect Media story for more.
Dallas Development Boom Continues
A new development boom continues in Dallas as AllianceTexas developer Hillwood plans to build two new speculative industrial buildings in Fort Worth and Northlake. The 810,000 sf building and 460,000 sf building are part of a 2600-acre master-planned industrial park. There are no signs of slowing in this hot Southwest industrial market. See this Bisnow story for more.
Blackstone Group Buys Big in New York City
The Blackstone Group is negotiating the purchase of a portfolio of 11 buildings near JFK Airport from TA Realty, according to Crain’s New York. This follows news that Amazon is looking for millions of square feet of infill space to tap into last mile customers.
Here’s a list of recent news around the country:
Amazon recently confirmed that it will open a new 700,000 square foot fulfillment center just outside of Atlanta in Gwinnett County. This shows the increasing popularity of the Atlanta industrial market, which is among the top 5 markets in the U.S. for new construction. Click for more on Amazon.
Blackstone affiliate Link Industrial Properties closed on its acquisition of an 8.8 acre site in Medley, FL. The property, on the far western edge of Miami-Dade County, should be idea for a new development to support demand in the tight Miami industrial market. Link Industrial Properties was part of Gramercy Property Trust, which was purchased by Blackstone in 2018. Find out more from The Real Deal.
Port Activity Continues to Dominate Industrial
Connection to major US ports continues to drive many investment deals, such as this one by CenterPoint Properties. The firm acquired a 3.5-acre rectilinear concert yard in Compton, CA. that offers proximity to major freeways as well as ports of Los Angeles and Long Beach. The yard’s shape and size allows high efficiency for storing equipment and using it to boost product throughput in the southern California industrial market.
A look at the multifamily sector shows that apartment rents are still on the rise throughout the country, but two-bedroom apartments are gaining ground faster than one-bedroom apartments. A REJournals.com article on multifamily research by ABODO shows that the median rent for a one-bedroom apartment in the U.S. stands at $1,082, while the average two-bedroom in the U.S. will cost a renter $1,357 per month. The cost of a two-bedroom has risen 6.6% since January, while the rent for a one-bedroom has increased 4.45% from a year earlier.
The relatively modest rent changes can be attributed to a stable economy where inflation is tame and the Fed decided not to raise interest rates. This could translate to more home sales, keeping multifamily demand in check.
Across the Midwest, Cleveland was a big winner with one-bedroom rents climbing from $760 to $802 over the last month and two-bedrooms rising from $761 to $790.
Columbus saw a decrease in rent in one-bedroom apartments from $1,065 to $970, while Nashville saw drops in two-bedroom rents from $2,009 to $1,915.
Experts expect that rental prices will stay steady or increase slightly barring any major geo-political events in the near future.
Real Capital Markets Report: Office Investment Still Steady
Investors Move Outside Urban Core; Coworking a Risk to Investment Values
At the halfway point of 2019, many investors remain cautiously optimistic about office investment activity, predicting that it will remain consistent into 2020. Real Capital Markets’ Mid-Year Office Investor Sentiment Report also noted cautions about the growth of coworking space. Will it impact investment values, particularly in the event of a market downturn?
As noted in this story by Commercial Property Executive, a vast majority (87%) of RCM survey respondents said coworking was a moderate to high risk to investment values. Of that total, 37% said the market could be saturated. Investors are watching this segment, given its rapid expansion and exposure to any market downturn.
The report also noted:
- Value add is a big draw for investors — Survey participants were feeling positive about value-add assets in suburban markets, especially those with easy access to cities and highways and near communities with good schools. Some investors said that location was more important than building quality. Suburban assets and those in secondary markets were seen as a good relative value when compared with trophy assets, where pricing was higher.
- Coworking is helping the market by pushing vacancies down, creating an incubator mindset where larger owners can help grow relationships. It is also opening the way for further disruption in office leasing, where quicker, less expensive leasing becomes more of the norm.
- Operational challenges, including the cost of tenant improvements, are a concern. Tenant improvement costs in some markets, for example, have jumped to $110 per square foot from $60 to $80 per square foot.
The Blackstone Group Buys GLP $19 Billion Portfolio
In the largest private real estate transaction in history, Blackstone Real estate has acquired a 179 million square foot logistics portfolio from GLP for $19 billion. The portfolio includes urban infill assets in 36 major metropolitan areas.
According to Reuters, the deals comes as investors are spending billions of dollars to buy industrial assets that support e-commerce activity. This deal nearly doubles the size of The Blackstone Group’s U.S. industrial footprint. The key is logistics, which focuses on helping industrial businesses move products from A to B. This buy allows The Blackstone Group to tap into GLP’s logistics platform, which includes clients such as Amazon, Walmart, and others. Check out these stories for more:
Connect Commercial Real Estate Media
According to PERE News, the portfolio has assets that have below market rents, which will give The Blackstone Group an advantage in the long term.
May 1, 2019
The senior housing sector is redefining itself, following several years of robust sales and construction activity. According to a new Real Capital Markets Report, activity slowed in early 2019, but investors are confident in the long term outlook.
RCM’s report incorporates the sentiments of investors across the U.S., as well as statistics from Real Capital Analytics (RCA) and the National Investment Council for Seniors Housing & Care (NIC). The report notes that U.S. investment sales in this sector totaled $2.8 billion in the first two months of 2019, down from $3.0 billion in the same period in 2018. There were $15.2 billion in sales in 2018. Sixty-six percent of investors and other real estate professionals interviewed for the report believe that activity in 2019 will be comparable to the total sales for 2018.
As noted in Senior Living News, investors are looking at operational issues, including focusing on strong operational partners. Given the challenges with shrinking profits and shortages of skilled labor, a strong operating partner is a must. Investors also are looking at the long-term view of this sector.
“Perspective is an important attribute for all commercial real estate investors, including those focused on the senior housing sector,” said Tina Lichens, Chief Operating Officer, RCM. “The sector as we know it today is vastly different from five years ago and rapidly changing. There remains considerable demand and capital in the market, yet investors need to look at the long-term as the market redefines its new normal.”
RCM Senior Housing Outlook
Highlights of the RCM Senior Housing Snapshot are:
- The investor profile has shifted—with private investors leading the way, followed by institutional investors.
- Construction activity has slowed—Newly constructed senior housing units declined by 14.8 percent from 2017 to 2018, according to NIC; experts consider this a needed slowdown to reach supply/demand equilibrium.
- Strong operating partners a must—Over 61 percent of investors agree that a strong operating partner is important due to the challenges finding skilled labor, and managing costs and shrinking profits.
- Long-term view is key—experts remain bullish on senior housing, but say that investors should look at the long-term, as they work through an oversupply of new construction in many markets.
April 17, 2019
From U.S. port activity to foreign investment and multifamily investment, here’s a roundup of recent commercial real estate news:
New Jersey Industrial Market Update
Port activity continues to drive the New Jersey industrial market, which is seeing consistent demand, rising rental rates and record low vacancy rates. This success is tied to the market’s prime East Coast location, which is ideal for e-commerce, light manufacturing and other distribution businesses. Here’s a New Jersey industrial market recap looking at current activity and the importance of the market’s port, air cargo, and major transportation network — from Avison Young’s Matt Turse.
Midwest Market Update: Industrial Activity Moves into Wisconsin
Industrial development continues to push into Wisconsin, with Amazon leading the way. After completing a 1.5 million-square-foot fulfillment center in Kenosha, the ecommerce powerhouse broke ground on a 2.5 million-square-foot fulfillment center in suburban Milwaukee. This movement isn’t a surprise, given the economic benefits to locating in Wisconsin versus Illinois. For more on the Wisconsin growth, including the capital markets perspective from Avison Young’s Erik Foster, click here.
Foreign Investors Choose Industrial Versus Multifamily
Foreign investors continue to focus on the industrial sector, which edged out multifamily as the asset class of choice. This commercial real estate survey by the Association of Foreign Real Estate Professionals (AFIRE) shows 79% of those surveyed wanting to increase exposure in the industrial sector, compared with 71% who picked multifamily. The top global cities for investment stability included New York, coming in first, followed by Tokyo, Paris, Boston, Singapore and Los Angeles.
March 8, 2019
Industrial Real Estate Still Strong Following HQ2 Decision
Charlotte, Houston, and Salt Lake City may have been cut from the short list of HQ2 locations by Amazon, but they are still performing strong from the industrial real estate side — and are on Amazon’s watchful eye. Amazon has invested in 800,000-square-foot distribution centers in Houston and Salt Lake City, and all three markets continue to attract attention from investors, according to a recent Forbes article.
Ecommerce, Cold Storage and Institutions Dominate Industrial
REITs could outperform expectations this year in several asset classes, including industrial, according to Globe Street. Continued demand for e-commerce space, attractive pricing in cold storage, and continued attention from institutional investors could lower cap rates and keep conditions favorable for landlords.
The market has also been tough on senior housing, due to above-average supply added to the market in recent years. The construction pipeline is moderating, however. This sector does farce ongoing pressures from higher labor costs.
Kroger Plans Industrial Distribution Centers in Florida, Mid-Atlantic
Grocery store chain Kroger plans to build two new distribution centers in Florida and the Mid Atlantic because of the demand from ecommerce customers who are looking for grocery delivery, says a recent article in the Dayton Daily News. These will be in addition to the 20 fulfillment centers, or “sheds” that the chain will invest in to speed up deliveries through the use of technology and robotics.
Feb. 20, 2019
Avison Young Report: Online Grocery, Cold Storage, among Top 5 Trends Shaping Food Related Industrial Space
The expanding market for food that is fresh, organic, or packaged for convenience continues to drive demand for industrial space. This is particularly true in the Midwest, where the central location bodes well for the processing and distribution of grains, dairy and meats that tie into the food sector.
While the food industry is thriving, there remains a shortage of cold storage space in many markets. According to a Q1 2019 report from Avison Young’s National Food Services Group, the demand for cold storage far outweighs availability in many markets, including New Jersey, New York, and Los Angeles.
“We continue to see a shortage of efficient and modern cold storage facilities in most markets across the U.S., as the industry tries to catch up to the rapid growth in demand for fresh and organic foods and online grocery delivery,” says Todd Heine, an Avison Young Principal and leader of the Chicago-based National Food Services Group. “Cold storage facilities are more costly to build, due to the specialization of the required infrastructure and limited ‘in-fill’ last mile land scarcity.”
As the industry grapples with this shortage, developers are taking advantage of new technologies to be able to build high capacity and highly efficient cold storage facilities on smaller sites, says Heine.
According to the report, an estimated 4 to 8 percent of the 888.6 msf of industrial space added in the U.S. since 2016 supports the food industry with warehouse, distribution, fulfillment and related uses.
Top 5 Food Industry Trends
According to the report, the Top 5 trends to watch are:
- Online grocery— Avison Young’s Food Services Group expects to see continued growth in processing and distribution, which will impact industrial space utilization.
- Cold storage— Increased demand but limited supply, particularly in primary distribution markets. Development challenges (cost, availability of land) are impacting the market’s ability to add new space.
- Last mile— will continue to expand to meet demands from growing online grocery and fresh food sectors. Expect to see increased competition for space near large population bases.
- Expanding use of automation— as companies look to improve efficiencies, particularly in light of the shortage of labor
- Food safety will be a bigger focus— as companies look closely at where food is sources and how the facility can support food safety and specialized
Feb. 18, 2019
Google’s commercial real estate expansion continues, with plans to invest an additional $13 billion in data centers and offices throughout the U.S. in 2019, according to Globe Street.
While the tech giant has been a force in many real estate markets across the country, this announcement carries significant impact across many markets. Here’s a breakdown of the economic benefits to the various markets. Google will be:
- Adding tens of thousands of new employees
- Generating 10,000+ construction jobs
- Moving Wisconsin operations to a larger office
- Doubling the Virginia workforce
- Adding offices in Georgia, Texas, the Boston area, Los Angeles, and Washington state, among others
This comes on top of Google’s previously announced 1.7 MSF Hudson Square office expansion in lower Manhattan.
A Look at Google’s Real Estate Needs
While much of this activity involves moving into newly built or existing space, there also are redevelopment plans in the works, according to Bisnow. The company’s footprint in New York City, for example, is mainly repurposed manufacturing space on Manhattan’s West Side, which included its $2.4 billion purchase of Chelsea Market last year.
And, a big shift involves Google’s expansion in the data center sector, with centers planned in Nevada, Texas, Nebraska and Ohio. Here’s a quick rundown by region: