Creative Investors Can Thrive with Offices of the Future
Changing demographics, the professional services provided today and the style in which the world needs and wants to operate — coupled with amazing technology and social media interaction — are forcing landlords and management companies to be more creative than ever with office space.
“Landlords need to offer spaces that are open in design, use technology that is on steroids or state-of-the-art technologies that produce an environment that fits today’s worker expectation that we are in a 360 world,” says Ken Riggs, President of Situs RERC.
According to a 2014 Coldwell Banker Commercial Affiliates poll of over 2,000 adults, more than half of millennials prefer to work in an office with an open floor plan than one with cubicles and private offices. If companies want to attract millennials, they need to create an office environment that appeals to them. It can start with furniture that allows people to work while standing, sitting or even lying down.
But the key is setting up workspaces that encourage communication, collaboration and integration. Many offices have no assigned workspaces. Employees come in, plug in and get to work.
There has been plenty of pushback to these trends, especially from some older workers and from people in industries where collaboration and open spaces aren’t as important or even a good idea. That same Caldwell Banker poll showed 72 percent of all workers surveyed said their first work preference is in a private office.
So it’s not surprising that institutional survey respondents for the Situs RERC Real Estate Report for first quarter 2017 said top-tier new properties and/or newer quality construction in central business districts and high-quality suburban offices will continue to offer the best investment opportunities.
Situs RERC’s Riggs adds, “The only thing constant is change, and the commercial real estate industry has typically been slow to adapt to emerging technologies. For the office sector, technology-enhanced buildings are a bare necessity. Investors need to look for the next generation of innovative, functional architecture and amenities to bring in the tenants.”
Changes are coming wherever workers will do their jobs. In 2013, Kiplinger made some predictions about offices, including:
Why Remote Office Workers Can’t Be Stopped
Despite these moves by big companies, data indicates that the remote-work trend in the U.S. labor force is inexorable, aided by ever-better tools for getting work done anywhere. Surveys done by Gallup indicate that in 2016, the proportion of Americans who did some or all of their work from home was 43%, up from 39% in 2012. Over the same period, the proportion who only work remotely went to 20% from 15%. Amazon.com, American Express, UnitedHealth Group, and Salesforce.com allow employees to work remotely at least some of the time.
IBM has said it hasn’t found remote work saves money. It also said the shift away from remote work isn’t aimed at cutting costs — though inevitably some employees leave as a result. Other companies, though, cite saving on rent among a variety of reasons for letting employees work remotely. They say it also improves employee satisfaction, helping retention and recruiting.
read more: Wall St Journal
Infrastructure Plan Could Benefit Housing, Mortgage Real Estate Industries
The President’s plans include a push for shorter review time in the way the federal government approves road and railways and other regulatory changes. Taken together, Mr. Trump’s proposal would look to rejuvenate American infrastructure, something both Democrats and Republicans have advocated for.
“Infrastructure improvements have the potential to provide broad economic benefits that will positively impact all U.S. industries, including the U.S. housing industry,” says the Collingwood Group President Brian O’Reilly. “The details of the President’s infrastructure plan remain largely unknown, however. What is clear at this point is that the President’s plan is unlikely to involve the federal government functioning as the principal financial underwriter of the costs of an infrastructure initiative. The financial obligations, it seems, will fall on states, local jurisdictions and private industry. This is a pretty significant departure from what was proposed on the campaign trail, and it remains unclear how states and local jurisdictions would fund such infrastructure programs. Once the details of the President’s plan emerge, the benefits to U.S. industry, including housing, should become clearer.”
The infrastructure push is “encouraging,” Scott Rechler, a real-estate developer and former official at the Port Authority of New York and New Jersey who consulted with Mr. Trump’s transition team, tells the Wall Street Journal. But Rechler, a Democrat whose own real-estate company has financed infrastructure like sewers and utilities in public-private partnerships with local government, said the administration’s plans should recognize that private financing won’t be able to replace federal funding in fixing some critical areas — from railroads to crumbling dams — where investors can’t turn a profit.
“It’s not free,” Rechler said. “At some point or another someone’s going to have to pay for this.”
Retail Wreck: Over 1,000 Stores Close in Single Week
The retail industry, which represents $5 trillion in economic impact, has changed significantly over the past several years. More than 100,000 retail workers have lost their jobs since October 2016.
Industry analysts have been sounding the “retail apocalypse” alarm for the past few months — but there are some who disagree.
“I don’t think [retail] is dead. It needs a facelift,” said Joseph Hancock, a professor of retail at Drexel University’s Westphal College of Media Arts & Design. “Retailers really need to think outside the box on how they want to appeal to consumers to get them back into the malls.”
Hancock also told NBC News that many of the shopping dollars that went to traditional mall retailers have been moving online, partly thanks to generous incentives. Amazon, for example, recently introduced Amazon Fashion, which offers free two-day shipping to its Prime customers.
With new digital players moving into traditional retail territory, department stores have been hard hit. Sears, Macy’s, and JCPenney have all shut down locations over the past year. And the ripple effect of a single anchor store closing can be devastating: When a Macy’s shut down in New Jersey, 107 people were laid off.
Department store closures also impact smaller boutiques. Zeynep Yurderi, owner and designer at Zeyzani, an independent retail store at the Moorestown Mall in New Jersey, credits her unique, handmade items for continuing to bring shoppers into her store — but when one of the mall’s anchor stores shuttered, foot traffic declined, she told NBC News.
On the positive side, the changing retail industry is creating opportunities for some. Outlet malls and travel-related businesses have seen an increase in sales.
“In good times, people want a bargain. In bad times, people need a bargain,” Steven Tanger, CEO of Tanger Outlets, told NBC News.
read more: NBC News
Macy’s Shares Plunge to 6-year Low
Karen Hoguet, the department-store chain’s chief financial officer, said at the annual investor day that second-quarter gross margins were running about one percentage point below last year’s level, Bloomberg reported. The company reaffirmed its earnings forecast amid cost cuts.
Macy’s is shutting down about 15 percent of its store base, or about 100 stores, as it copes with declining traffic to physical stores and aims to better compete online. Macy’s CEO Jeff Gennette in May did not rule out more store closures to stabilize the brick-and-mortar business.
read more: Business Insider
Mall Madness: Bargain Hunters Pounce on Weak Retail Properties
GBT Realty Corp., a Brentwood, Tenn., property developer, is planning to raise a $500 million real-estate fund to purchase 80 to 100 retail buildings in the next decade.
Hendon Properties LLC, a real-estate development, management and brokerage firm based in Atlanta, is also looking to raise a fund to buy weak malls and open-air shopping centers.
“The opportunistic money is circling,” says Jeff Edison, chief executive of Phillips Edison & Co., an owner and operator of more than 340 grocery-anchored shopping centers across the U.S. “They smell blood in the water.”
So far this year, retailers have announced more than 3,000 store closures in the U.S. as a result of bankruptcy filings or shifts to e-commerce operations. The few chains that are still expanding, such as discount chain Burlington Stores Inc., are opening smaller stores in wealthier ZIP Codes.
The bifurcation between healthy properties in upscale regions and slumping ones in less-wealthy areas is creating bargains for some hardy investors.
While prices haven’t fallen to distressed levels, in some cases the land value itself is worth the purchase price, the investors say. Yet most of the buyers say they have plans to improve operations and expect higher returns.
The firm plans to raise $10 million to $20 million for the fund and will join with other institutional investors that will fork out the majority of the equity in potential projects. Hendon previously has partnered with investors such as Alabama investment firm Harbert Management Corp. and Acadia Realty Trust .
GBT Realty, which builds neighborhood shopping centers, single-tenant buildings and strip centers, already has several target acquisitions in mind, mostly open-air and grocery-anchored centers. It also could buy anchor department store locations in malls directly from retailers and reposition them by bringing in new tenants, says Scott Porter, managing director of GBT’s value-add division.
In general, the acquisitions will average around $10 million to $30 million, GBT says.
GBT already has an in-house leasing team with relationships in the retail community, says Chief Financial Officer Geren Moor. “We’re looking for assets where we can add value, such as backfilling vacant spaces,” says Mr. Moor. He added that the firm will continue with ground-up development operations, though such projects have tighter margins these days.
“There are mall investors with patient capital that can wait for the existing leases to ride out and bring in other uses to reposition the property,” says Margaret Caldwell, managing director at JLL Capital Markets. “We are also seeing new investors that are interested in buying malls due to potentially high yields.”
Time Equities Inc., a New York real-estate firm, recently purchased two Tennessee malls for $53.5 million, one in Morristown and the other in Maryville, making a bet it can revitalize the assets.
read more: Wall St Journal
Half of U.S. Retail Jobs Could Vanish
And have you watched in-store “shoppers” who do Amazon price checks while they’re standing in the aisles? Have you noticed how many of them leave the store without making a purchase when they found savings by buying online?
But more important to the overall economy than the disappearance of mostly low-income, entry-level jobs in the check-out lane is that the retail jobs likely to remain are requiring different skill sets.
And — another big consequence — the funnel is narrowing through which retail workers are able to get promotions to better-paying, career-type jobs.
One recent analysis, based on U.S. Bureau of Labor Statistics data, estimated that 7.5 million retail jobs are at risk due to computerization. That matters.
“At approximately 16 million workers, retail employment ranks third behind education and health services (22.7 million) and professional and business services (20.3 million),” according to the “Retail Automation: Stranded Workers?” report released in May.
The analysis by Cornerstone Capital Group for the Investor Responsibility Research Center Institute, gives a sobering look into the future of retail employment, especially for women who tend to dominate clerk or cashier jobs.
The retailers most likely to succeed are making documented transitions to serve online buyers. Point-of-sale automated kiosks, customer contact centers and automated warehouses are eliminating positions that people once held.
And then there’s workforce management software that better allows merchants to staff up or down as business demands rather than keeping staff on the clock without a good return on that investment.
And here’s another trend to watch: In the notably low-paying retail industry, the movement to mandate minimum wage increases could be a job eliminator at some companies, the report noted.
Conversely, if the retail jobs pay better, they could attract higher caliber workers and help the retailer become a “high-touch, experience-based” organization that shoppers love to patronize.
read more: Kansas City Star
Try, Try Again to Replace Dodd-Frank Act
The Financial Services Committee passed it in May in a completely partisan vote (34-26).
House Financial Services Committee Chairman Jeb Hensarling, R-TX, first introduced the act last year in attempts to replace Dodd-Frank.
“The Financial CHOICE Act offers economic opportunity for all and bank bailouts for none. The era of ‘too big to fail’ will end and we will replace Dodd-Frank’s growth-strangling regulations on community banks and credit unions with reforms that expand access to capital so small businesses can create jobs and consumers have more choices and options when it comes to credit,” said Hensarling on the upcoming vote.
Even if the bill passes in the House, the CHOICE Act is expected to be defeated in the Senate.
read more: HousingWire
Where Have All The Americans Gone?
Although investment by foreigners has dropped 33% since 2015, data from Cushman & Wakefield shows that at the top of the market, foreign investors willing to pay exorbitant prices have left thriftier and warier Americans on the sidelines. “More foreigners are completing the big deals because more large transactions are now offered as sales of up to 49% stakes,” Cushman & Wakefield investment sales Chairman Douglas Harmon said. “There are still a lot of domestics and opportunity funds, but the foreign interest in that space has broadened and deepened and become a higher percentage of the final investors.”
The recent $2.2B sale of 245 Park Ave. to Chinese conglomerate HNA Group, brokered by CBRE, allowed previous owners Brookfield and the New York State Teachers Retirement Fund to take their dollar chips off the table. According to a Sandler O’Neill research report issued on June 2, Boston Properties made an offer $400M lower than what HNA paid for the 1.8M SF tower. Total investment sales are off despite optimism that the Trump administration cut both taxes and regulations, which could benefit businesses and real estate investors.
read more: Bis Now
Modular Building Bet
McCourt Global, the asset-management firm and business arm of the family-owned enterprise led by former Los Angeles Dodgers owner Frank H. McCourt Jr., headed up a group of investors in a $6 million Series A round of funding for Brooklyn company FullStack Modular LLC.
McCourt Global’s areas of investment include real estate, finance, sports and media, including French soccer team Olympique de Marseille. The company has real estate investments that span millions of square feet in several cities, including New York City, said President Drew McCourt.
McCourt Global sees potential in the modular construction field. “It’s cheaper, faster, has greater efficiency and largely the same quality,” Drew McCourt said.
The financing will help FullStack ramp up its production capabilities at its 100,000-square-foot design and construction facility in the Brooklyn Navy Yard. The investment also will enable the company to explore the possibility of expanding internationally and on the West Coast, said FullStack Chief Executive and founder Roger Krulak.
Last year, FullStack bought the core assets of the modular manufacturing company owned by Forest City New York, a division of Forest City Realty Trust Inc.
Forest City’s manufacturing company produced the units stacked to build the 32-story rental apartment building called 461 Dean in Brooklyn. FullStack is focused on modular construction for apartment building, hotels and dormitories developed in dense, urban environments.
Factory-made finished units mean less time and fewer workers on the construction site, as well as better quality control, proponents of the technology have said.
read more: MarketWatch
GM Makes Its Self-Driving Move
Innovation accelerates. Six months later, a fleet of self-driving Chevrolet Bolts were being built at a GM assembly plant in Michigan. The company has also shed overseas operations while investing $600 million in self-driving cars and other advanced technologies. It has also spent $1 billion on Cruise Automation, a Silicon Valley startup driverless car startup. All this of course will have profound effects on CRE.
Industrial Park’s Owner Bringing in Restaurants, Retail for Workers
Now one of the world’s largest industrial property owners is bringing in a developer to add these amenities to its giant Florida industrial park and freshen up the utilitarian concept of the big-box warehouse complex.
Prologis Inc. PLD -0.16% has plans to add about 495,000 square feet of retail bringing in restaurants, recreational venues and home goods retailers as well as clothing and sporting goods stores. The sports entertainment brand Topgolf is pursuing approvals to build a Beacon Lakes location with high-tech, climate-controlled hitting bays, food venues, live events and music.
Industrial real estate consultants view Beacon Lakes’ addition of retail amenities as the next evolution in industrial properties as technology advances and as companies need to recruit and retain skilled workers in a tight labor market.
“There is no doubt that the market for labor in our business and additional businesses in this economy has become more competitive,” said Nick Kittredge, east region president at Prologis. “To work in a beautiful environment and have amenities at the ready is definitely a differentiating factor.”
Stiles Corp. is developing the retail portion, which will be designed as an open-air shopping destination with landscaped paths.
Among the key factors allowing Beacon Lakes to add the retail segment are the park’s critical mass of over 2,000 workers as well as a location adjacent to Florida’s Turnpike and across from the Dolphin Mall in a densely populated area, real-estate executives said.
Beacon Lakes is home to logistics and e-commerce tenants such as United Parcel Service Inc., Amazon.com Inc. and Ryder System Inc. Prologis owns and manages 2.5 million square feet of industrial property at Beacon Lakes, with plans to develop an additional 1.6 million square feet over the next two to three years. NBCUniversal Telemundo Enterprises is building its new headquarters at the site, bringing as many as 1,100 more workers.
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