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New Office Space Demand Forecast: Signs of a Structural Shift

Posted on May 31, 2018

The NAIOP Research Foundation has published the NAIOP Office Space Demand Forecast for Q2 2018.

Key Takeaways

  • The U.S. office markets absorbed just 1.3 million square feet on a net basis in the first quarter of 2018, according to CBRE. 
  • This performance represents a significant conundrum, as every economic indicator used to forecast absorption performed at or above the forecast level. 
  • While the first quarter reading may be a one-time anomaly, it cannot be discounted that a structural shift in the office space market has or is occurring
  • The forecast for net absorption of office space has been reduced to 8.4 million square feet per quarter for the remaining three quarters of 2018.

On a positive note, many developers, lenders, and even tenants are not over-expanding or being overactive, meaning that there is a low likelihood that there will be excess space that they will need to vacate in a downturn.

View the Q2 2018 Forecast

Amazon Tells Cities Why They Failed to Qualify for HQ2

Posted on May 25, 2018

The Wall Street Journal recently reported that Amazon.com Inc. has made about 200 phone calls to cities which failed to make the cut for consideration as a location for the company’s second headquarters. Some of the cities say they are "learning from the disappointing phone conversations and making changes." For example, Detroit is now considering strengthening its regional transportation network after Amazon officials told them it was the main reason the city did not make the HQ2 short list. The city did not have enough tech workers to fill 50,000 jobs and had no way, other than cars, of bringing people from outside the city limits to work at the proposed site. Additionally, Cincinnati, Ohio, and Sacramento, California, are restructuring workforce development programs to focus on tech talent. Orlando, Florida, is considering starting a community fund to invest in local tech companies and draw more entrepreneurs.

Traditionally when bargaining with big companies, according to the article, the site selection process is negotiated without fanfare, among a company, their consultants and local government. The "highly visible" Amazon process is forcing cities to explain why they did not reach the second round and address those weaknesses. "It is a kind of look-in-the-mirror moment," said Joseph Parilla of the Brookings Institution. Other experts warn cities should not operate at the behest of large companies and should instead establish their own priorities.

Retail Outlook for 2018: Changes and Opportunities

Posted on May 24, 2018

According to Cushman and Wakefield’s first quarter report on shopping centers, the retail sector will continue to struggle despite a strong economy. However, it’s not all bad news – while stores found in malls and power centers (e.g., electronics, department, sporting goods) will continue to decline, other sectors will expand, such as dollar stores, discount grocery, off-price apparel, beauty/cosmetics, fitness/health clubs, fast food, coffee and fast fashion, most of which operate in neighborhood and community centers. According to the report, these trends could benefit the owners of Class A malls. "Anchor closures at trophy or Class A malls present opportunities for landlords to attract new, more relevant tenants such as food halls, experiential concepts or other trendy new retailers at current rents," the report states. "Landlords will also see non-traditional mall tenants such as discounters, off-price or grocery chains move into some of these vacancies."

From Blighted Brownfield to Thriving Infill Industrial Park

Posted on May 23, 2018

By: Bill Mosher and Ann Sperling

All photos courtesy of Trammell Crow CompanyLong-term planning and collaboration among various partners across multiple jurisdictions have been key to creating a new industrial park in Denver’s Globeville neighborhood.

More than a century ago, the Asarco Globe Plant was operating as a metal smelting facility, employing nearly 3,000 Coloradans in Denver’s culturally rich Globeville neighborhood. Over the years, an array of industrial processes and uncontrolled disposal on-site contaminated the groundwater and soil with heavy metals. This contamination resulted in the property being identified as a brownfield site, and decades of investigation and remediation began.

When Asarco finally closed the plant entirely in 2006, the community was left with a blighted, abandoned and fenced 77.5-acre site. Land developer EnviroFinance Group LLC (EFG), working closely with the Colorado Department of Public Health and Environment (CDPHE), the U.S. Environmental Protection Agency (EPA), and Adams and Denver counties, managed the site’s environmental cleanup, achieving regulatory closure in June 2015. (Ongoing monitoring will continue for several more quarterly testing periods.)

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Cities as a Service

Posted on May 22, 2018

Listen to the audio recording of Greg Lindsay, NewCities Foundation Senior Fellow and keynote at the National Forums Symposium, on how cities as a service are changing how we live, work, move and more, watch the video (see below), or read the recap on NAIOP’s Market Share blog.

Less than a decade ago, Uber, AirBnB and WeWork didn’t exist. Today, one is worth more on paper than Ford Motor, another more than Hyatt, and the third more than Boston Properties. Why? The short answer is that there’s an app for all that, but the truth is more complicated — how and where we live, how we move, and how we work are all being disrupted.

Click here to read more.

How Electric Bike Share Will Change the Commuting Game

Posted on May 21, 2018

By: Rachel Karitis

If you live in an urban area like Washington, D.C., or San Francisco, then you’ve probably seen the Skittles rainbow-colored bikes taking over the sidewalks. What you might not know is the specifics of how they work, and how this service could revolutionize the office commute.

Bike sharing as we have come to know it has tended to be city-funded (sometimes in conjunction with private companies) and presented in the form of expensive-to-install docks of bikes. Recently, there has been a veritable boom of private startups looking to make bike sharing profitable. These bikes do not need to be returned to stations, and instead can be picked up and left anywhere within city limits.

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How to Set Up a Private Equity Real Estate Fund

Posted on May 3, 2018

By Jan A. deRoos, PhD and Shaun Bond, PhD

How does one go about creating a partnership to raise equity for ongoing real estate investment?

THIS ARTICLE INTRODUCES the contemporary structure of private equity real estate funds and outlines the steps necessary to create and properly manage a fund. It discusses the motivations for creating a fund and the factors that should be considered when setting one up. A future article will examine how securities laws impact the offering and management of a fund, as well as typical offering terms.

In its simplest form, a real estate private equity fund is a partnership established to raise equity for ongoing real estate investment. A general partner (GP), henceforth referred to as the sponsor, creates the fund. The sponsor asks investors, known as limited partners (LPs) to invest equity in the partnership. Those funds, along with money borrowed from banks and other lenders, will be invested in real estate development or acquisition opportunities.

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Female Coworking Spaces: On the Rise and Under Scrutiny

Posted on May 2, 2018

By Jennifer Lefurgy, PhD

According to a recent Global Coworking Survey, 1.7 million people will be using 19,000 coworking spaces around the world by the end of 2018, and 40 percent of those users will be women. Since the industry launched in the mid-2000s, coworking companies have marketed to predominantly young, single men and provided associated amenities such as pool tables, craft beer, and other lures that typically encourage male bonding. This strategy has begun to change as the number of women using coworking services is predicted to rise and as women continue to voice their need for safer workplaces. Several female-focused coworking companies such as ShecosystemPaper DollsBloomRise Collaborative Workspace and Hera Hub have opened multiple locations in North America and Europe. Women-centric workspaces offer what traditional coworking spaces do not: calm, spa-like interiors; child care; lending libraries featuring female authors and mentorship programs.

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Local Labor Pool Can Determine Property Strength

Posted on April 23, 2018

Growing e-commerce companies and a shrinking window for last-mile delivery have pushed desirable industrial properties closer to the customer. Beyond improved delivery times, businesses and industrial developers have to contend with another key factor in site selection: the labor pool.

As distribution and fulfillment centers grow in physical footprint and reach to meet online retail demand, so has the number of employees needed to operate facilities. Industrial owners, developers and brokers need to take the labor pool into account when assessing properties.

In CBRE Executive Vice President Mindy Lissner’s experience, the size and quality of the local workforce have become top priorities.

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Net Lease Sector Stable in 2018

Posted on April 20, 2018

The Net Lease Research Report by National Real Estate Investor (NREI) finds the single-tenant net lease sector will remain "in solid shape for the foreseeable future, even in what many are viewing as the late stages of the current real estate cycle." The results were compiled from 490 responses from a February survey of NREI readers; about half of the respondents held the titles of owner, partner, president, chairman, CEO or CFO. Sixty-three percent of survey participants expect cap rates for net lease properties to increase over the next 12 months. Debt and capital equity are also expected to remain as available as they have in the previous two years. The industrial and medical office sectors are predicted to drive the strongest demand over the next year. Respondents commented that there are "diamonds in the rough in secondary/tertiary markets," and the influx of German stores Lidl and Aldi will create investment opportunities. Dollar stores, largely protected from the rise of e-commerce, have "become a popular bet for some net lease investors."

CRE Companies Prepare for Europe's Data Privacy Rules

Posted on April 18, 2018

According to Axios, U.S. companies are “largely unprepared” for the new European Union (EU) data privacy laws that will take effect this May. The General Data Protection Regulation (GDPR) is intended to “give users more control of how their personal data are used and streamline data processes across the EU.” Companies that fail to achieve GDPR standards will face penalties and fines. Europe has taken a stricter stance than the U.S. on protecting consumer privacy and the new regulation will serve as a “litmus test for regulating the data economy.” The effects will be far-reaching for tech companies and e-commerce merchants, but will also affect any company that collects data on customers, including real estate brokers, managers and owners. Any real estate companies dealing with individuals in Europe will have to remain compliant. GDPR will grant the following rights to individuals:

  • The right to be informed that data is being collected.
  • The right to access the data.
  • The right to change, correct or update the data.
  • The right to erase data.
  • The right to restrict processing.
  • The right to data portability.
  • The right to object.
  • Rights in relation to automated decision making and profiling.

According to Inman news, these regulations cover CRE companies that store personally identifying information on potential customers and existing tenants. Property managers, many of whom collect and process data regarding energy efficiency, must gain consent from tenants.

What's Next for Infrastructure?

Posted on April 17, 2018

Lawmakers are back in Washington after a two-week break. But as they’re coming back into town, a key figure in the Trump administration is set to depart.

DJ Gribbin, the man who drafted President Donald Trump’s infrastructure plan, is leaving the administration. A White House official told reporters Gribbin wants to pursue “new opportunities.”

The infrastructure plan Gribbin helped pull together aims to spend $200 billion in federal money and generate roughly $1.5 trillion in overall infrastructure spending. Improving the nation’s infrastructure and transportation networks is a NAIOP legislative priority.

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Best Practices in Developing Skilled Nursing Facilities

Posted on April 16, 2018

By: Greg Lazaroff

Photos courtesy of Michael Adkins, PHCM Construction Inc.An Ohio-based developer of these specialized properties describes how it is capitalizing on growing opportunities as well as evolving market trends.

AN AGING POPULATION and medical advances that are extending the average person’s life expectancy are increasing the need for skilled nursing facilities. Developers are responding by gearing up to build more of these projects to meet the expected need. One such company, Premier Health Care Management, a Cincinnati-based nursing home developer and operator, plans to double in size in the next three years by expanding its total number of beds from 700 to 1,200 through building renovation, expansion and ground-up construction.

Premier’s in-house architectural team, PHCM Construction Inc., is currently working on five nursing home development projects with a combined construction value near $100 million. All are geared toward capitalizing on market trends that include residents’ desire for private rooms and more amenities. These trends, along with variables such as site conditions, occupancy codes and availability of financing, are among the primary challenges faced by most senior living development projects.

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E-sports Arenas Gaining Popularity as Urban Entertainment Anchors

Posted on April 19, 2018

A recent RCLCO Advisory Report describes the small but growing category of e-sport arenas as holding promise to anchor new and existing large, mixed-use entertainment districts in North America. Electronic sports, or "e-sports" is a broad category covering "competitive multiplayer video games played by professional video game players, for spectators’ enjoyment during regular season and tournament league games." E-sports teams are generally organized based on game title and geographic region, supported by sponsors and advertising, and are moderated by professional e-sports commentators. Spectators can view in person at various arenas or watch livestreaming events over platforms such as Twitch and YouTube. E-sports reached 335 million viewers in 2017, split between occasional viewers (57 percent) and enthusiasts (43 percent), and viewership has increased by "double-digit percentages in recent years, and is forecast to exceed half a billion viewers by 2021."

E-sports arenas could, according to the report, drive adaptive reuse of existing real estate, especially former retail buildings. The majority of existing arenas have been converted from a range of product types including casinos, sound stages and office buildings. Arenas require tall ceilings for video monitors, fast and reliable Wi-Fi, and room for spectators. In-person attendance is relatively low compared to online viewers; events attract hundreds to low thousands. Thus, "smaller venues with a capacity from 500 to 5,000 and ranging in size from 15,000 to 30,000 square feet are ideal in the near term to host regular season games."

Does Your Modern Build-out Have a Hearing Problem?

Posted on April 13, 2018

By: Clay Edwards

Open ceilings, exposed concrete floors and glass-walled spaces are the hallmarks of contemporary interiors. These design choices convey a hip and modern mindset for the companies and retailers that inhabit them, but they can come with a drawback that impacts business: noise.

Without the sound-dampening effects of the acoustical tiles used in drop ceilings and wall-to-wall carpeting and other soft surfaces, ambient noises such as conversations, whirring heating and cooling systems, and shifting furniture are amplified. And plans to mitigate this heightened noise can add extra materials, labor costs and time to your build-out.

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US CRE Outlook is Positive, Bolstered by Confidence in Employment, Debt/Equity Availability

Posted on April 12, 2018

About The NAIOP CRE Sentiment Index

The NAIOP Sentiment Index is designed to predict general conditions in the commercial real estate industry over the next 12 months. The forecast is not based on an analysis of historical data, but rather it represents a look into the future by real estate developers, investors and operators. These NAIOP members are asked to respond to questions based on their ongoing work, including projects in their pipelines. For more information, see Understanding the Index.

Download the report.

Has the US Reached Peak Storage?

Posted on April 10, 2018

According to Curbed, the 2.3 billion square feet of self-storage space in the United States could "fill the Hoover Dam with old clothing, skis, and keepsakes more than 26 times." Trends including baby boomer retirees downsizing, small businesses storing excess inventory, and millennials living in small spaces have contributed to a record-setting boom in the self-storage industry. The article cites industry experts who believe self-storage may be at its peak, and forecast a slowdown due to overbuilding in Phoenix, Arizona; New York City; and Orange County, California. Some critics have pointed out that self-storage spaces are crowding out other more productive land uses; land that could be better used for "commercial, industrial and even residential purposes." Meanwhile, China and much of Southeast Asia are catching up to the U.S. in demand for spare space and emerging as "massive growth markets."

Disruptive Forces in the Retail Last Mile

Posted on April 6, 2018

By: Marie Ruff

In 1936, The New York Times claimed, “A rocket will never be able to leave the Earth’s atmosphere.” In 1943, the chairman of IBM said, “I think there is a world market for maybe five computers.” Advances and tools that once seemed impossible are now commonplace – from flying in a commercial airplane to holding a device as powerful as a computer in the palm of your hand.

At CRE.Insights: The Last Mile, speaker David Schwebel, senior director of business development with Swisslog Technology, began his session on the automated age of industrial with these premises:

  1. Change is constant.
  2. Things don’t always go as you expect them.
  3. You will be wrong more than you are right.
  4. When you become right, it changes the world.
Click here to read the full article.

Industrial Real Estate 2018: Disruptions and Structural Shifts

Posted on April 5, 2018

By: Aaron Ahlburn, JLL

Photo courtesy of Meridian Design BuildSupply chain advances and new technologies are affecting how, where and what types of industrial facilities are being built.

Much of the media coverage of industrial real estate today is overwhelmed by e-commerce oriented topics. Retailers continue to build out their delivery, fulfillment and return capabilities, in ways that are having significant impacts on the industrial supply chain and, consequently, on the location and design of buildings. E-commerce is undoubtedly driving significant change within the industrial property sector, but real estate developers and investors should also consider a variety of other disruptions and structural shifts.

These include key changes being made along the supply chain and how those changes are affecting where and how new industrial facilities are being developed today, as well as where and how they will be developed in the future.

Click here to read the full article.

CRE Contributions to Your State's GDP

Posted on March 26, 2018

By Dr. Stephen S. Fuller

Development and construction of new commercial real estate in the United States – office, industrial, warehouse and retail – generates significant economic growth at the state and national levels. This annual study, “The Economic Impacts of Commercial Real Estate,” published by the NAIOP Research Foundation, measures the contribution to GDP, salaries and wages generated and jobs supported from the development and operations of commercial real estate.

Commercial real estate development and operation of existing buildings generated the following economic benefits:

  • Supported 7.6 million American jobs in 2017 (a measure of both new and existing jobs).
  • Contributed $935.1 billion to U.S. GDP.
  • Generated $286.4 billion in salaries and wages.

Download (right-click and choose "Save Link As")

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