Situs Newswatch 4/24/2017

U.S. Office Market Takes a Breather

Office Markets are weakening in many big cities as a seven-year expansion seems to be taking a breather.

The Wall Street Journal reports rents in Midtown Manhattan averaged $80.45 a square foot annually in the first quarter, compared with $81.16 at the end of the first quarter in 2016, while the vacancy rate crept up to 11.9 percent from 11.6 percent.

In San Francisco, vacancy rose for the fourth consecutive quarter amid a surge of new supply, according to real-estate services firm Cushman & Wakefield.

“Although each market has its own dynamics, the delicate balance between over- and under-supply has been managed rather well over the past few years,” says Situs Executive Managing Director Steven Bean. “I give a lot of the credit to banks and other lenders on this front. If provided the funds to build, developers have a tendency to overbuild, but the judiciousness of the lenders has kept overbuilding at bay.”
 
In prior cycles there was a high correlation between the office market and growth in the job market. But the Journal reports in the current economic expansion it has lagged behind, in part because tenants have learned to use space more efficiently.

Situs’ Bean says, “One of the keys to lender underwriting is to truly examine forward supply and the various stages of future projects. As this segment of market research has become more transparent via more reporting by municipalities, banks and other lenders have been better at forecasting market dynamics.”

Private investors who have paid top prices for office property in recent years might not get the income growth they are seeking. Green Street earlier this year revised its projections for annual rent increases through 2020 to about 3 percent from 4 percent.

Through the Roof: Home Sales at Decade High

Existing-home sales are on fire, hitting a 10-year high in March.

Used-home sales ran at a seasonally adjusted annual rate of 5.71 million, a 4.4 percent monthly increase, according to the National Association of Realtors. It’s the strongest selling pace since February 2007 and was 5.9 percent higher than a year ago.

The Collingwood Group Chairman Tim Rood, appearing on Fox Business Network’s “Cavuto: Coast to Coast,” said Friday, “Unfortunately, this sales pace is not sustainable because inventories are actually going down. Existing-home sales will likely hit a wall over the summer unless something changes to increase inventory. Moreover, there remains too much uncertainty for current owners to know whether this is the right time to sell and whether they’ll find anything that makes economic sense and is suitable.”

Tight inventory is still the biggest factor in the marketplace: supply was 6.6 percent lower compared to a year ago. There were 1.83 million homes for sale on the last day of the month, which represented 3.8 months of supply at March’s sales pace. Properties stayed on the market for only 34 days.

That raised the national median sales price to $236,400 — a 6.8 percent gain compared to a year ago.

Regionally, sales surged 10.1 percent in the Northeast and 9.2 percent in the Midwest, and ticked up 3.4 percent in the South. In the West, sales fell 1.6 percent.

Investors made up 15 percent of all purchases, little changed from a year ago. First-time homebuyers also made little progress, accounting for 32 percent of the market.

Tech Economy Drives U.S. Industrial Vacancies to Lowest Level In 17 Years

The Ten-X U.S. Industrial Market Outlook for spring finds technological shifts have been steadily delivering benefits to the industrial sector and have helped drive vacancy rates to their lowest levels in nearly two decades.

Ten-X finds Nashville, Phoenix, Oakland, San Diego and Seattle are the top markets in which investors should consider buying industrial assets. Notably, the Western region lays claim to four of the top five “Buy” markets, with Southern California benefiting in particular from trade flows with China, as Trans-Pacific commerce is driving absorption in the region. The report cautions, however, that the current political environment casts some uncertainty over the region’s recent trade benefits.

Ten-X also pinpointed Houston, San Antonio, Indianapolis, Dallas and Fort Worth as the five markets where conditions are most likely to motivate investors to sell industrial properties. Four of the country’s top five “Sell” markets are in Texas, where depressed oil prices are weighing down absorption, while a steady stream of supply additions puts upward pressure on vacancy rates.

Nationally, Ten-X Research found that robust absorption has helped drive industrial vacancies down to just above 8 percent — their lowest levels since 2000. With a narrowing supply pipeline, these vacancies appear poised to run as low as the mid-7-percent range by the end of next year, a level below their 1990s cyclical lows. The two principal tech-propelled drivers of industrial absorption are the acceleration in e-commerce — triggering the need for more distribution and warehouse space — and the rising demand for cloud server farms.

read more: Ten-X

At Kushners’ Manhattan Tower, Debt Payments and Losses Increase

Losses widened at the Manhattan office tower co-owned by the family of Jared Kushner, President Donald Trump’s son-in-law, as debt payments increased in 2016, according to documents filed by the managers of the loans.

At 666 Fifth Ave., losses totaled $14.5 million after accounting for loan payments, from about $10 million in 2015, figures filed by LNR Partners show. Net operating income for the period grew 2.7 percent from the prior year to $41.3 million, while debt payments rose 11 percent to $55.8 million. Occupancy at the tower jumped to 80 percent at the end of 2016, a gain from 70 percent in September, the documents show.

Repayment terms for more than $1.2 billion of debt on the Midtown property are growing more punitive as a 2019 due date draws near, Bloomberg reported last month. Kushner, now a senior adviser to the president, broke price records when he purchased 666 Fifth for his family firm, Kushner Cos., in 2007.

Kushner has divested his interest in the tower to family to prevent conflicts of interest with his government role. His father, Charles Kushner, has searched for partners to convert it into a luxury residential property. China’s Anbang Insurance Group Co. had been in advanced talks to team up on a redevelopment of the building. Those discussions ended in late March.

A spokesman for Kushner Cos. said the firm is in active, advanced discussions on the building but declined to comment on the financials. A representative for Vornado Realty Trust, which owns 49.5 percent of the building’s office space, didn’t immediately respond to a request for comment. Vornado became a partner in the building when it helped refinance the property’s debt in 2011.

read more: Bloomberg

New York’s $200M ‘Eiffel Tower’ Begins Its Ascent in Hudson Yards

A $200 million structure that’s been touted as New York’s version of the Eiffel Tower began its ascent in Hudson Yards last week.

Construction workers used a crane to lift the first piece of the sculpture with the working title “Vessel” into place near West 34th Street and 10th Avenue.
The structure, made up of 154 winding flights of stairs, will rise more than 15 stories or roughly 150 feet in the middle of a five-acre public plaza Hudson Yards developer Related Companies is constructing at the site.

“This is a very, very important day for us at Related, and for the city of New York,” the company’s chairman and founder, Stephen Ross, said Tuesday. “[Vessel] will be to New York what I believe the Eiffel Tower is to Paris.”

read more: DNA Info

Have We Got A Pop-Up-Store Location for You!

The market for companies matching empty retail spaces with pop-up-store candidates just got a little more crowded.

London-based Appear Here, founded in 2013, announced the opening of its New York office, adding one more broker to a retail market that has seen an explosion in vacancies in recent years. The company’s calling card includes an attention-getting knack for utilizing non-retail locations, like when it converted an abandoned men’s restroom in a London subway station into a fashion-forward menswear shop last year.

Appear Here will face off against established local and global players, but it has armed itself with partnerships with several major landlords, including Brookfield Property Partners and the Simon Property Group. It is also arriving at an opportune time: Retail is in a state of upheaval, with record vacancy rates along major shopping corridors like Fifth Avenue and a realization that Amazon and other online stores have permanently changed shoppers’ habits.

Ross Bailey, Appear Here’s CEO, calls his company the Airbnb of retail space, and says he is not just filling vacant storefronts, but also turning them into “destinations.” “Every city faces the same trends,” said Bailey. “Leases are getting shorter. Vacancy rates are getting higher. Shopping is moving online. And yet on the weekend people still want to go to beautiful streets and drink lovely coffee and be entertained. That’s where we [come in]: creating space for ideas.” He added that many of his clients are not traditional retailers. “If you’re Spotify, you’re not selling CDs, but you’re still opening stores with us and creating experiences,” he said.

Five years ago, at age 20, Bailey started his business pretty much by accident, opening an improvised shop to sell pirated memorabilia for the Queen’s Diamond Jubilee celebration. He got a call from Buckingham Palace to shut his store down, but he also got one from Under Armour, asking if he could create a temporary store for the apparel company for the London Olympics. Today more than 80,000 brands, including Nike, Coca-Cola and Kanye West, have worked with Appear Here, according to the company. It has listed more than 4,000 exclusive spaces in the United Kingdom and France. The company’s international expansion has been backed by $9.4 million in venture capital money. Appear Here has had no choice but to expand as this is increasingly a global business, said one of Bailey’s competitors, Mohamed Haouache, global CEO of Storefront. His company, which also calls itself an Airbnb for retailers, merged last year with French pop-up retail broker Oui Open and now has its headquarters in Paris and New York.

“At the end of the day we no longer look at the market country by country,” said Haouache. “There is a strong need for companies like ours to fulfill the needs of a global launch.” Not every landlord is looking to Appear Here to fill empty space. Brookfield’s main interest in working with the company is to create pop-up stores in public areas like the Winter Garden at its lower Manhattan complex Brookfield Place. “Our overall strategy is, how do we bring diversity to our retail spaces?” said Michael Goldban, senior vice president of retail leasing at Brookfield. “We want to have short-term deals in our public spaces, so it’s a new experience every time somebody comes to the center.”

read more: Crains NY

Week Ahead

Spring is in the air, and we will receive important data this week to assess the key spring home-buying season. Check in with our NewsWatch during the week for the numbers and what they mean to YOUR business. Here’s the schedule:

Tuesday

  • FHFA House Price Index 9 a.m. ET
  • Case-Shiller Home Price Index 9 a.m. ET
  • New Home Sales 10 a.m. ET

Wednesday

  • MBA Mortgage Applications 7 a.m. ET

Thursday

  • Jobless Claims 8:30 a.m. ET
  • Pending Home Sales Index 10 a.m. ET
  • Ten-X Nowcast: Look Ahead to Next Month’s Residential & CRE Data

Friday

  • GDP 8:30 a.m. ET

Have a prosperous week ahead.

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