Situs RERC: Industrial Real Estate Gaining Momentum
The overall CRE investment market environment has slowed as prices are high relative to values. Recommendations to buy are relatively low, yet investment conditions remain above average for most property types. Fewer deals are taking place as the market peaks in prices and rates edge up.
Yet, according to research by Situs RERC, optimism remains high for the industrial sector, as respondents suggested that there was more value relative to price for their investment in the industrial sector compared to the other property sectors surveyed. Much of the industrial sector demand has been driven by e-commerce, third-party logistics providers (3PL), food and beverages, and consumer goods.
The types of industrial real estate include: warehouse/distribution, flex office/warehouse, light/heavy manufacturing, R&D buildings and showroom- retail/warehouse.
“The hottest part of the market is warehouse/distribution,” says Situs Director Eugene Venanzi. “One of the key drivers in this segment is e-commerce as online retailers are leasing space in metropolitan areas in order to get closer to their ultimate clients. In many markets the existing inventory does not have the proper ceiling heights, storage spaces and sort/pick automation. As a result, there is a strong demand for new construction.”
Development of industrial space in the U.S. is at a 10-year high — and there are no signs of a slowdown any time soon.
Roughly 247 million square feet of new industrial space is expected to be delivered this year, the most since 2007. Rents are at record highs, while vacancies are at a 17-year low.
Construction activity is heating up nationwide and five metropolitan areas — Dallas, parts of Los Angeles, Philadelphia, Denver and Atlanta — accounted for more than half of new development starts in the first quarter.
Situs RERC surveys institutional investors each quarter to gauge their future sentiment on the CRE investment environment. In first quarter 2017, respondents recommended buying industrial warehouse properties over either holding onto or selling industrial warehouse properties.
In addition, the industrial warehouse sector was considered to have the best investment conditions among the major property types during first quarter 2017, according to survey respondents. Investment conditions surged compared to last quarter and despite high prices in the industrial warehouse sector, institutional investors indicated that the sector offered the most value relative to price among the major property types. Investment conditions ratings for the industrial warehouse sector have been among the highest of all major property types over the past year.
Rent growth for industrial warehouse properties is expected to remain stable near 3%, according to survey respondents; the highest rental growth rate among the major property sectors. Yet industrial market fundamentals indicate that overbuilding is not a concern. The market is red hot and still has room to grow.
Of course, you should consult a trusted advisor such as Situs before investing.
Amazon to Buy Whole Foods in $13.4 Billion Deal
Amazon said on Friday that it had agreed to buy the upscale grocery chain Whole Foods for $13.4 billion, as the online retailer looks to conquer new territory in the supermarket aisle.
For Amazon, the deal marks an ambitious push into the mammoth grocery business, an industry that in the United States accounts for around $700 billion to $800 billion of consumer spending. Amazon is also amplifying the competition with Walmart, which has been struggling to play catch-up to the online juggernaut.
For Whole Foods, the deal represents a chance to fend off pressure from activists investors frustrated by a sluggish stock price. Whole Foods last month unveiled a sweeping overhaul of its board, replacing five directors, naming a new chairwoman and bringing in a new chief financial officer. It also laid out plans to improve operations and cut costs.
With Amazon, Whole Foods gets a deep-pocketed owner with significant technological expertise and a willingness to invest aggressively in a quest for dominance.
Amazon has designs on expanding beyond online retail into physical stores. The company is slowly building a fleet of outlets, and much attention has been focused on its supermarket dreams. It has already made an initial push through AmazonFresh, its grocery delivery service.
Under the terms of the proposed deal, Amazon would pay $42 a share for Whole Foods, a 27 percent premium to Thursday’s closing price. After the deal was announced, shares of Amazon rose as much as 3.3 percent while other major retailers, including Target, Walmart and Costco Wholesale fell sharply.
read more: NY Times
Converting Big-Box Retail Into Storage
As the retail market continues to flounder, investors are eyeing vacant brick and mortar stores as possible future storage centers.
There are more than 50,000 storage facilities in the United States, and construction spending on mini-warehouses hit an all-time high in April.
The largest storage operator, Public Storage, took in $538 million in revenue during the first three months of this year, logging only $149 million in operating costs.
“These guys are making money hand over fist,” says Chuck Gordon, chief executive at SpareFoot, a Texas-based storage startup.
Ari Rastegar, of Dallas-based Rastegar Equity Partners, said he’s looking for storage space on the outskirts of big metro areas and looking at buying space retail landlords haven’t been able to fill. “Converting big-box retail into storage — now that’s sexy,” he adds.
read more: The Real Deal
EU’s ‘Door Remains Open’ to UK, Macron Tells May
French President Emmanuel Macron said the door remains open for the U.K. to stay in the European Union, reflecting uncertainties over coming exit negotiations as politically weakened U.K. Prime Minister Theresa May tries to plot a course out of the bloc.
Mr. Macron made his comments standing alongside Mrs. May after the two dined together in Paris on Tuesday. The dinner brought Mrs. May face to face with a politically emboldened defender of the EU just days after losing her parliamentary majority in elections.
Mrs. May’s bruising setback has blurred the U.K.’s strategy for Brexit negotiations that are due to start in less than a week. With weakened support, she could struggle to deliver her campaign promise of hard-nosed negotiations to get a clean break with the EU.
Mr. Macron said he respects the British vote to exit and said once the negotiations start it would be harder to make a U-turn.
Mrs. May said she would stick to the timetable for beginning the Brexit talks. The U.K. government will strive to keep a “deep and special partnership” with the EU, especially on matters of trade, she said.
read more: Wall St Journal
Bank of England Turns Hawkish on Rates
A trio of Bank of England officials broke ranks with their colleagues in June to push for an immediate increase in interest rates, one of several signals that the U.K. central bank has moved a step closer to withdrawing the emergency stimulus it put into place after last year’s Brexit referendum.
The BOE said Thursday that a majority of officials voted to hold the central bank’s benchmark interest rate steady this month at 0.25% but minutes of the Monetary Policy Committee’s discussions showed officials are growing increasingly anxious about quickening inflation.
The unexpectedly hawkish stance initially pushed the pound higher, though by midafternoon it was down 0.06% against the dollar at $1.2745. The news comes after the U.S. Federal Reserve Wednesday said it would increase its benchmark federal-funds rate by a quarter percentage point to a range between 1% and 1.25% and penciled in one more increase later this year if the economy performs in line with its forecast.
The remaining five members of the panel, including Gov. Mark Carney, voted to stay put for now, citing uncertainty over the outlook for growth, the minutes record. One seat on the nine-member panel is currently vacant following the departure in February of Deputy Governor Minouche Shafik.
All eight officials agreed, though, that their tolerance for rising inflation is wearing thin. Officials had previously said they were prepared to tolerate a burst of rapid price-growth to keep the economy on an even keel as the U.K. began exit talks with the European Union.
But the minutes record their unease after annual inflation accelerated to 2.9% in May, well in excess of the BOE’s 2% goal and the bank’s own forecasts. They also noted the economy appeared poised to recover somewhat in the second quarter after a soft start to the year and that the labor market remained healthy.
read more: Wall St Journal
Nordstrom Going Private Unlikely to Affect Gary Barnett’s Tower
The Nordstrom heirs may spend $10 billion to buy back 100 percent of shares in the company that bears their name, and take the 116-year old company private, the company announced last week. But such a move would be unlikely to influence the retailer’s plan to open its first Manhattan location, a seven-story flagship store at the base of Extell Development’s Central Park Tower.
Gary Barnett’s 95-story tower on West 57th Street is under construction, and the exterior of the first seven floors has been completed. As of April 2017, Nordstrom has contributed $249 million out of the total $426 million investment in the property, and will cover the costs of the interior buildout. The anticipated opening date for the Nordstrom store has been pushed from 2018 to 2019, and Extell is still searching for a $900 million construction loan.
read more: The Real Deal
Luxury Manhattan Tower’s Big-Spending Buyers Are Locals
How do you offload luxury condos in Manhattan, where there’s a glut of offerings and the foreign investors have disappeared? You attract the locals.
Billy Macklowe’s Greenwich Village tower, rising at the site of the former Bowlmor Lanes, booked more than $60 million in contracts last month — including the sale of two duplexes to a single buyer listed for a combined $23.5 million, the developer said. About 65 percent of the project’s 52 units have found takers, most of whom are native New Yorkers. Many already live in the neighborhood.
“It is a New York building, for New Yorkers, and the people buying are going to live here,” Macklowe, who’s building the tower with Goldman Sachs Group Inc., said in an interview.
Manhattan is brimming with new high-end condos, the result of a construction boom tailored to the appetites of big-spending, out-of-town investors. Those buyers, who saw Manhattan real estate as a haven after the recession, have scaled back their purchases amid a surging U.S. dollar and a plunge in oil prices, while listings keep piling up on the market.
The fuel for deals such as the record-setting $100.5 million penthouse sale atop Midtown’s One57 tower in 2014, has been “fundamentally investors” making discretionary purchases, said Nancy Packes, a marketing and design consultant to New York residential builders. “They have many homes and they don’t need another home. When they see signs on the horizon that there could be turbulence ahead, they don’t buy.”
About 4,282 newly built units are expected to be offered for sale in Manhattan this year, almost double the number that were listed in 2016, according to brokerage Corcoran Sunshine Marketing Group. More than 60 percent are considered luxury, costing at least $2,400 a square foot.
Downtown neighborhoods, like Greenwich Village, have some insulation in a slowdown since they’re more desirable to locals seeking a place to live, rather than an investment to flip or rent out, said Packes, who isn’t affiliated with Macklowe’s project. This year through mid-May, more luxury-home contracts were signed for purchases south of 34th Street than in any other area of Manhattan, according to data from brokerage Olshan Realty Inc., which measures deals for $4 million or more.
read more: Bloomberg
For Rent: Parts of The Great White Way
Manhattan Borough President Gale Brewer has released a survey that finds 188 vacant storefronts on Broadway, as of May 21.
“Empty storefronts can sap the vitality from a neighborhood if they are not reoccupied quickly,” she said in a statement. ”
The normal “invisible hand” of capitalism — old businesses closing and new ones quickly replacing them — too often doesn’t seem to work in Manhattan. Almost every neighborhood seems to have a storefront that’s been vacant for years.
>Wednesday: Existing-Home Sales 10 a.m. ET
>Thursday: FHFA House Price Index 9 a.m. ET
>Friday: New-Home Sales 10 a.m. ET
Have a prosperous week ahead.
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