Monday, July 8, 2013
You thought you had the office market all figured out
There have been a lot of articles written about the smaller office of the future, perhaps getting as small as 100SF/person. Gen Y and technology all playing a role and the recent trends in office leasing weighing in as well, all giving credence to the small office. Then I read an article that said, wait a minute, this may be the result of where we are in the economic recovery. Small businesses tend to downsize faster than mid and large size companies. They also are the first to start adding jobs. So small businesses are leasing space again, under 25,000SF, to suit their needs. The big guys should weigh in later in the recovery and perhaps move that office size to the larger size. Interesting to see what will happen here. You have to believe that with technology eliminating the square footage for housing servers and paper files that the office footprint will still be somewhat smaller.
Monday, June 24, 2013
Worry over Healthcare Capacity
A new study by Accenture shows that retail clinics in pharmacies, stores and other retail locations can significantly help service the influx of the newly insured under the Affordable Healthcare Reform Act. It is estimated that these facilities can service 10.8 million patients annually within the next 3 years. Once regarded as competition to clinics these facilities now add additional capacity and refer patients needing further care to clinics. In the past, it seems, that many of these patients would seek the services of a hospital emergency room for treatment of minor ailments. With the growth of retail clinics, more patients can be seen there, and the emergency rooms can focus on real emergencies and more complex cases. The connection to commercial real estate? Perhaps a larger footprint for pharmacies and other retail outlets and maybe even some absorption for some vacant big box stores.
A new study by Accenture shows that retail clinics in pharmacies, stores and other retail locations can significantly help service the influx of the newly insured under the Affordable Healthcare Reform Act. It is estimated that these facilities can service 10.8 million patients annually within the next 3 years. Once regarded as competition to clinics these facilities now add additional capacity and refer patients needing further care to clinics. In the past, it seems, that many of these patients would seek the services of a hospital emergency room for treatment of minor ailments. With the growth of retail clinics, more patients can be seen there, and the emergency rooms can focus on real emergencies and more complex cases. The connection to commercial real estate? Perhaps a larger footprint for pharmacies and other retail outlets and maybe even some absorption for some vacant big box stores.
Thursday, June 20, 2013
Data vs. Retail
According to a CoStar article, Sears is diving into the data storage arena by converting some to the closed Sears and K Mart stores into data storage facilities. Sounds like a pretty creative use for these facilities as more and more big box stores utilize the power of the internet to move product. Not all of the closed stores can be converted to other big box stores, so why not think "out of the box" and figure out different uses for these buildings. Good for Sears to look to the future and take advantage of the current digital trends.
Thursday, March 14, 2013
Office Trends
I participated in the
Webinar referred to in this article. It
provided good insight into the current trends the office market is taking. Economics plays a role in decreasing the
office footprint but the new office culture of open and flexible space to allow
more collaborative efforts and the new technology also play a major role in
decreasing the office footprint. The
entire article is reprinted below.
Changing Office Trends Hold Major
Implications for Future Office Demand
Pioneered
by Tech Firms in California, Communal Workspace Model Becoming More Mainstream
Among Big Office Firms
Perhaps just as the inevitable
disappearance of music, video and books stores should have been foreseen at the
onset of a digitized connected world, so too should the commercial real
estate industry
start taking a hard look at changes occurring in the office market.
Tenants are downsizing their offices, particularly larger public firms, as they increasingly adopt policies for sharing non-dedicated offices and implement technology to support their employees' ability to work anywhere and anytime, according to Norm G. Miller, PhD, a professor at the University of San Diego, Burnham-Moores, Center for Real Estate, in a webinar he presented to CoStar subscribers last week.
Miller said he put together the webinar to examine what would happen if office tenants used 20% less of the nation’s current office space, which has a total valuation of $1.25 trillion. That decrease in demand would represent $250 billion in excess office capacity. Although the current situation is not that dire, Miller said the trend is real, and he presented how it is currently playing out and the long-term implications for office building owners and investors.
Tenants are downsizing their offices, particularly larger public firms, as they increasingly adopt policies for sharing non-dedicated offices and implement technology to support their employees' ability to work anywhere and anytime, according to Norm G. Miller, PhD, a professor at the University of San Diego, Burnham-Moores, Center for Real Estate, in a webinar he presented to CoStar subscribers last week.
Miller said he put together the webinar to examine what would happen if office tenants used 20% less of the nation’s current office space, which has a total valuation of $1.25 trillion. That decrease in demand would represent $250 billion in excess office capacity. Although the current situation is not that dire, Miller said the trend is real, and he presented how it is currently playing out and the long-term implications for office building owners and investors.
Following the webinar, CoStar
News interviewed Dr. Miller for a more in-depth discussion of the topic and surveyed
a wide sample of webinar participants to share their firsthand account of the
ongoing trend and its implications.
According to Miller, four major trends are impacting the office market:
* Move to more standardized work space.
* Non-dedicated office space (sharing), along with more on-site amenities.
* Growing acceptance, even encouragement of telecommuting and working in third places, and
* More collaborative work spaces and functional project teams.
“Historically, under the old corporate hierarchy, everyone had their own assigned office or work desk and we saw utilization rates of 50% or so,” Miller said. “Firms that have moved to sharing space are seeing much more efficient utilization rates of 80% to 95%, sometimes using conference space seats to handle unexpected overflow. Some also have arrangements with temporary office space vendors like Liquid Space, Regus, HQ, Instant Space, as well as supporting employees working from home or third places.”
“The average amount of leased space (per employee) has been shrinking,” he said. “As of mid-2012 the average was 185 square feet per worker, well below the average space assumption in most office-demand models, and well below figures 10 years ago.”
There have definitely been changes in office demand, agreed Tim Wang, director and head of investment research for investor Clarion Partners in New York.
“Ten years ago, 250 square feet per office employee was the gold standard in office real estate. Today, that average has dropped to approximately 195 square feet. While some office tenants are hesitating to commit to large leases primarily due to economic uncertainties, the long-term trend is clearly shifting towards efficient space usage.”
Brian J. Parthum, who tracks employment and economic trends for Southeast Michigan Council of Governments (SEMCOG) in Detroit, said his group is a case in point.
According to Miller, four major trends are impacting the office market:
* Move to more standardized work space.
* Non-dedicated office space (sharing), along with more on-site amenities.
* Growing acceptance, even encouragement of telecommuting and working in third places, and
* More collaborative work spaces and functional project teams.
“Historically, under the old corporate hierarchy, everyone had their own assigned office or work desk and we saw utilization rates of 50% or so,” Miller said. “Firms that have moved to sharing space are seeing much more efficient utilization rates of 80% to 95%, sometimes using conference space seats to handle unexpected overflow. Some also have arrangements with temporary office space vendors like Liquid Space, Regus, HQ, Instant Space, as well as supporting employees working from home or third places.”
“The average amount of leased space (per employee) has been shrinking,” he said. “As of mid-2012 the average was 185 square feet per worker, well below the average space assumption in most office-demand models, and well below figures 10 years ago.”
There have definitely been changes in office demand, agreed Tim Wang, director and head of investment research for investor Clarion Partners in New York.
“Ten years ago, 250 square feet per office employee was the gold standard in office real estate. Today, that average has dropped to approximately 195 square feet. While some office tenants are hesitating to commit to large leases primarily due to economic uncertainties, the long-term trend is clearly shifting towards efficient space usage.”
Brian J. Parthum, who tracks employment and economic trends for Southeast Michigan Council of Governments (SEMCOG) in Detroit, said his group is a case in point.
Our own organization recently
moved into a smaller space,” Parthum said. “Efficient office design has allowed
us to rent 7,000 square feet less space -- down from 34,000 square feet -- and
at a lower rate. Additionally, we now have an office that is more attractive to
the next generation of staff. The new space takes advantage of natural light,
promotes face-to-face contact, and utilizes laptops, wireless technology, and
mobile devices to allow for a more flexible work environment.”
“Technology is allowing companies to be more paperless and work from a single laptop or device," agreed Jason Lewis, president and managing broker of EcoSpace Inc. a brokerage firm in Denver that specializes in working with tenants to find sustainable workplaces. "Culturally the new generation of employees is requiring a more flexible and open environment. And in regards to the economics, there is the need for both startups and corporations to lower their burn rate and conserve cash, something that can easily be done by restructuring the way they view their office space,” Lewis said.
For now, at least, the trend is more prevalent among large corporate office users with locations in multiple cities. John G. Osborne, executive director, leasing and marketing at Bergman Real Estate Group in Iselin, NJ, said also that the trend to shared office space is more prevalent among larger publically traded companies than smaller firms.
“The majority of our smaller tenants, those that lease less than 5,000 square feet, still prefer private offices than an open plan,” noted John G. Osborne, executive director, leasing and marketing at Bergman Real Estate Group in Iselin, N.J.
For many office-using firms, the Great Recession made downsizing a greater imperative. Occupancy rates dropped across the country as employers downsized staff and sought efficiencies through lower square foot per employee footprints.
“Everything we’ve seen since 2006 and 2008 could be called the ‘Great Deleveraging,’” said Wilson Greenlaw, vice president of Thalhimer in Fredericksburg, VA. “Companies were removing fluff and eventually someone got around to looking at space utilization. Now that it is on the table, it will be maximized and implemented, resulting in a cultural shift for the office worker.”
“Some of it is economic," agreed Miller. "That is, companies realized they could save money by minimizing excess space. But I believe the single biggest factor driving this trend is technology. Now that we have moved to cloud-based file storage and can access our work from anywhere and it can be easily shared, workers no longer have to be tethered to an office to be productive. Technology is very much at the heart of this transformation.”
“Technology is allowing companies to be more paperless and work from a single laptop or device," agreed Jason Lewis, president and managing broker of EcoSpace Inc. a brokerage firm in Denver that specializes in working with tenants to find sustainable workplaces. "Culturally the new generation of employees is requiring a more flexible and open environment. And in regards to the economics, there is the need for both startups and corporations to lower their burn rate and conserve cash, something that can easily be done by restructuring the way they view their office space,” Lewis said.
For now, at least, the trend is more prevalent among large corporate office users with locations in multiple cities. John G. Osborne, executive director, leasing and marketing at Bergman Real Estate Group in Iselin, NJ, said also that the trend to shared office space is more prevalent among larger publically traded companies than smaller firms.
“The majority of our smaller tenants, those that lease less than 5,000 square feet, still prefer private offices than an open plan,” noted John G. Osborne, executive director, leasing and marketing at Bergman Real Estate Group in Iselin, N.J.
For many office-using firms, the Great Recession made downsizing a greater imperative. Occupancy rates dropped across the country as employers downsized staff and sought efficiencies through lower square foot per employee footprints.
“Everything we’ve seen since 2006 and 2008 could be called the ‘Great Deleveraging,’” said Wilson Greenlaw, vice president of Thalhimer in Fredericksburg, VA. “Companies were removing fluff and eventually someone got around to looking at space utilization. Now that it is on the table, it will be maximized and implemented, resulting in a cultural shift for the office worker.”
“Some of it is economic," agreed Miller. "That is, companies realized they could save money by minimizing excess space. But I believe the single biggest factor driving this trend is technology. Now that we have moved to cloud-based file storage and can access our work from anywhere and it can be easily shared, workers no longer have to be tethered to an office to be productive. Technology is very much at the heart of this transformation.”
Thursday, December 20, 2012
Happy Holidays
We wish you all a very Merry Christmas and a Happy and Prosperous New Year. We are looking forward to a truly great 2013. We believe the year will provide an opportunity for great business and personal growth for both us and all our business partners.
Thursday, October 25, 2012
Interesting 2nd Half
This fall has proven to be very interesting so far. At CCRB we are experience quite an uptick in activity, especially leasing. Office, industrial and even retail has been more active than in the last several years, this despite the cry that "no one is doing anything until after the election". Perhaps the big boys are waiting, but for our segment of the business, our clients can't wait, they need space now. The expansion mode has cut across a number of industries, but more concentrated in the service area, from insurance companies, to ad agencies to the food service sector. I attended a seminar given by CoStar that summarized office activity throughout the U.S. They indicated that in general office activity is holding its own, growing steadily certainly by no means at a break neck speed but consistently. Certain sub markets are growing faster than others, such as those associated with energy and technology. It was interesting to note that New York, Manhattan is very healthy and yet across the river in New Jersey just the opposite is occurring. Here in the Chicago area we are pretty much in the middle of the pack. Next week I will be attending the seminar summarizing Q3 Industrial results. Should be interesting.
Thursday, June 14, 2012
May was a very hectic month for us at CCRB especially with the wedding of Jim Dunbar at the end of the month. There were lots of things happening and little time write about it or look for some interesting articles about commercial real estate.
Here we are in June and I found an article in Co-Star which bears out what we have been seeing in the market place over the past few months. We have been working with a number of smaller businesses looking for properties and in the past these searches could last a long time since the market provided no sense of urgency, properties for sale or lease could remain on the market for months or longer. Now, we are seeing changes, a number of the properties selected by our clients as worth pursuing are suddenly no longer available- under contract! This is providing some urgency and even though we are tenant and buyer reps it helps us because it is one more factor that can help speed up the decision process. Here is the article:
Pace of Recovery Accelerates For Lower-End CRE Properties
Findings Point To Improving Market Conditions Across The Entire Commercial Property Market, Not Just Trophy Assets In Top Metros
By Randyl Drummer
June 13, 2012
CRE investors are stepping up their efforts to find value outside the best buildings in the top U.S. metros, casting their nets in a growing number of secondary markets and asset types as price growth slows for the highest-end properties, according to this month's CoStar Commercial Repeat Sale Indices (CCRSI) report.
For the past two years, pricing gains in the value-weighted composite index have been consistently stronger than its equal-weighted counterpart, suggesting that prices have recovered more rapidly among the larger and more expensive assets. Market fundamentals have also recovered more quickly at the top end of the market, where demand for Four-Star and Five-Star office buildings, luxury apartments, and modern big-box warehouses has outpaced the overall market.
However, the most recent data shows that the pricing momentum appears to be shifting from the larger, more-expensive buildings to the broader market, dominated by smaller, less-expensive properties.
The value-weighted composite index's 6.5% year-over-year gain in April slowed from its double-digit growth rate throughout 2011.
The April pricing data, based on 774 repeat sales during the month and more than 100,000 repeat sales since 1996, included the public release for the first time of analysis of CoStar's value-weighted U.S. Composite Index, which provides additional insight into CRE price movements, especially for larger institutional transactions.
The value-weighted composite index, along with the equal-weighted U.S. Composite Index -- the two broadest measures of aggregate CRE pricing within the CCRSI -- posted a decline of 2.2% and a 1% gain from the previous month, respectively, in April. Although the two indices reflected a mixed picture for prices in April, both improved from the same period a year ago.
CoStar has been tracking price changes on both an equal-weighted and a value-weighted basis since developing the CCRSI in 2010. While both indices include the same repeat sale transactions, the different weighting methods offer deeper insight by analyzing price movements in different ways.
The equal-weighted index weighs each repeat sale equally and is heavily influenced by the more numerous smaller deals. The value-weighted index weighs each sale by transaction size or value and is heavily influenced by larger transactions.
While an equal-weighted index is considered more relevant for measuring the performance of average commercial properties, a value-weighted index correlates better to marketplace capital flows necessary for larger transactions.
For the first time in the current recovery cycle, the equal-weighted index has accelerated its year-over-year growth over the past six months, showing that investors have begun to look beyond large, core properties to the lower end of the market.
As CRE prices rise, transaction volume and many other measures of liquidity are also improving. Over the past 12 months ended April 2012, sale-pair counts increased by 19% over the previous 12-month period ended in April 2011. The growth was slightly tilted toward the investment grade segment of the market, which posted a 25% increase in pair counts over that period.
In other CCRSI findings in April:
Transaction data shows that European investors have played a key role in improving liquidity. The share of commercial property purchases by European buyers in 2012 has more than tripled from 2011 levels, a signal that investors may be seeking safe havens in the midst of the Eurozone economic turmoil.
Commercial property sellers are finding a more accommodating market in 2012. Average time that properties are on the market prior to sale has decreased this year for the first time since the start of the Great Recession. Also, the gap between the initial asking price and final sales price narrowed over the first four months of 2012 at its fastest rate since 2006.
The level of distress property sales has been generally declining as a percentage of property sales volume over the past 12 months. Only 24.3% of observed trades in April 2012 were distressed, 12.2% lower than the peak level observed in March 2011.
In related news, the Federal Reserve announced that the June 7 release of the U.S. Flow of Funds (FOF) Z.1 Statistical Release, which measures aggregate assets and liabilities for the nation’s financial and non-financial sectors, now incorporates the CCRSI as a measure of value of the nation’s CRE and apartment buildings.
The Fed decided to drop the index from NCREIF (National Council of Real Estate Investment Fiduciaries) in favor of the CCRSI, saying in its release that the CoStar indexes "offer much broader coverage of these markets" than either the NREI (National Real Estate Investor) or the NCREIF indexes."
Here we are in June and I found an article in Co-Star which bears out what we have been seeing in the market place over the past few months. We have been working with a number of smaller businesses looking for properties and in the past these searches could last a long time since the market provided no sense of urgency, properties for sale or lease could remain on the market for months or longer. Now, we are seeing changes, a number of the properties selected by our clients as worth pursuing are suddenly no longer available- under contract! This is providing some urgency and even though we are tenant and buyer reps it helps us because it is one more factor that can help speed up the decision process. Here is the article:
Pace of Recovery Accelerates For Lower-End CRE Properties
Findings Point To Improving Market Conditions Across The Entire Commercial Property Market, Not Just Trophy Assets In Top Metros
By Randyl Drummer
June 13, 2012
CRE investors are stepping up their efforts to find value outside the best buildings in the top U.S. metros, casting their nets in a growing number of secondary markets and asset types as price growth slows for the highest-end properties, according to this month's CoStar Commercial Repeat Sale Indices (CCRSI) report.
For the past two years, pricing gains in the value-weighted composite index have been consistently stronger than its equal-weighted counterpart, suggesting that prices have recovered more rapidly among the larger and more expensive assets. Market fundamentals have also recovered more quickly at the top end of the market, where demand for Four-Star and Five-Star office buildings, luxury apartments, and modern big-box warehouses has outpaced the overall market.
However, the most recent data shows that the pricing momentum appears to be shifting from the larger, more-expensive buildings to the broader market, dominated by smaller, less-expensive properties.
The value-weighted composite index's 6.5% year-over-year gain in April slowed from its double-digit growth rate throughout 2011.
The April pricing data, based on 774 repeat sales during the month and more than 100,000 repeat sales since 1996, included the public release for the first time of analysis of CoStar's value-weighted U.S. Composite Index, which provides additional insight into CRE price movements, especially for larger institutional transactions.
The value-weighted composite index, along with the equal-weighted U.S. Composite Index -- the two broadest measures of aggregate CRE pricing within the CCRSI -- posted a decline of 2.2% and a 1% gain from the previous month, respectively, in April. Although the two indices reflected a mixed picture for prices in April, both improved from the same period a year ago.
CoStar has been tracking price changes on both an equal-weighted and a value-weighted basis since developing the CCRSI in 2010. While both indices include the same repeat sale transactions, the different weighting methods offer deeper insight by analyzing price movements in different ways.
The equal-weighted index weighs each repeat sale equally and is heavily influenced by the more numerous smaller deals. The value-weighted index weighs each sale by transaction size or value and is heavily influenced by larger transactions.
While an equal-weighted index is considered more relevant for measuring the performance of average commercial properties, a value-weighted index correlates better to marketplace capital flows necessary for larger transactions.
For the first time in the current recovery cycle, the equal-weighted index has accelerated its year-over-year growth over the past six months, showing that investors have begun to look beyond large, core properties to the lower end of the market.
As CRE prices rise, transaction volume and many other measures of liquidity are also improving. Over the past 12 months ended April 2012, sale-pair counts increased by 19% over the previous 12-month period ended in April 2011. The growth was slightly tilted toward the investment grade segment of the market, which posted a 25% increase in pair counts over that period.
In other CCRSI findings in April:
Transaction data shows that European investors have played a key role in improving liquidity. The share of commercial property purchases by European buyers in 2012 has more than tripled from 2011 levels, a signal that investors may be seeking safe havens in the midst of the Eurozone economic turmoil.
Commercial property sellers are finding a more accommodating market in 2012. Average time that properties are on the market prior to sale has decreased this year for the first time since the start of the Great Recession. Also, the gap between the initial asking price and final sales price narrowed over the first four months of 2012 at its fastest rate since 2006.
The level of distress property sales has been generally declining as a percentage of property sales volume over the past 12 months. Only 24.3% of observed trades in April 2012 were distressed, 12.2% lower than the peak level observed in March 2011.
In related news, the Federal Reserve announced that the June 7 release of the U.S. Flow of Funds (FOF) Z.1 Statistical Release, which measures aggregate assets and liabilities for the nation’s financial and non-financial sectors, now incorporates the CCRSI as a measure of value of the nation’s CRE and apartment buildings.
The Fed decided to drop the index from NCREIF (National Council of Real Estate Investment Fiduciaries) in favor of the CCRSI, saying in its release that the CoStar indexes "offer much broader coverage of these markets" than either the NREI (National Real Estate Investor) or the NCREIF indexes."
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