Who needs a commercial real estate broker

Over the course of my career I have heard the question asked 'Who needs a commercial broker when I can do this myself?'

Well, you can do it yourself, just as you can repair you own PCs, fix your own HVAC system, or rewire your office.  You can do it, but do you have the time and knowledge to do it correctly?

Back in 2008, 2009 when you could tour a space and take your time deciding how you want to approach the owner, or maybe just look at another 20 or 30 spaces that were vacant, you could certainly do that. You knew when you were good and ready you could go back and make an offer and see how it went.  If it didn't work out, you could move on to another one, there was a never ending supply of like spaces.  Learn as you go was possible.

Fast forward to today. The market has turned.  You no longer have time to experiment. The industrial vacancy rate is at a 14 year low, property moves quickly.  You don't have the time to experiment. In todays market you have to find space quickly (or someone else will) and respond with a meaningful competitive offer.

A commercial real estate broker knows  how the market is reacting.  They can find a space quickly using the search engines that are not readily available to the public. They can sort through properties and remove ones that don't fit saving you time and allowing you to focus only the ones that work for you. That brings us to the Letter of Intent (LOI). Once the property is identified as a possible fit an LOI can be submitted quickly and effectively.  A broker knows that while the market is tight there are still deals that can be made that will save you money.  You no longer have the time for endless negotiations, since there very well may be another purchaser, lessee ready to scoop up the space you want. One other point for lessees- a relationship is established between the lessor and the lessee that will be ongoing for a number of years.  Negotiations can be tense and contentious  so why not allow the broker to absorb those bad vibes allowing you to establish a much friendlier relationship.

Upbeat Office Outlook

I had the opportunity to listen to a webinar conducted by CoStar reviewing the outlook for the office segment in commercial real estate.  It was good to note that in general it was very upbeat. Vacancies dropping in all major markets over the 2014 year end numbers.  Chicago was a bit above the national vacancy rate of 10.8% coming in around the 13% range but still improving from 2014.  The panel brought up an interesting point in their analysis.  Businesses will lease quality space in a great location over merely a less expensive rent.  In other words, just because an asking rent is low doesn't automatically mean the building will lease up.  Newer buildings have lower vacancy rates and higher rents than their older counterparts.  It makes sense, since the average office footprint is shrinking companies can seek out better but smaller square footage and still keep their rental budget the same.  The CoStar panel went on to say that 2016 is positioned to be another good year for the office segment and rent growth will continue but here in Chicago at a moderate pace.

Industrial Developers in a Sweet Spot

CHICAGO—E-commerce and its likely impacts on the industry was on the minds of many at BMO Capital Markets’ 10th Annual North American Real Estate Conference, held Monday and yesterday in Chicago. But the overall mood was one of optimism. As reported in GlobeSt.com, even bricks-and-mortar retailers were upbeat, saying that the ability to buy products online was, besides convenient, another way for consumers and outlet stores to connect. And industrial developers were also buoyant about the possibilities provided by e-commerce.
Speaking at a Monday afternoon session on the future of warehousing and about some of his company’s latest projects, Marshall Loeb, president and chief operating officer of EastGroup Properties said “almost every tenant has some component of e-commerce in their space.” And the need for distribution facilities should continue to grow, as companies like Amazon are going to complement their massive distribution centers with smaller fulfillment facilities located closer and closer to urban cores to handle those last few miles of delivery (Brian J. Rogal)

Q2 Office Leases

CHICAGO—The American economy continues to expand and the national office market grew along with it in the second quarter, according to a new report from JLL. The Chicago-based firm found that leasing activity increased from 54 million square feet in the first quarter to 64 million square feet in the second, an uptick of 17%. In addition, 40% of second quarter office transactions of more than 20,000 square feet were occupier expansions. This was the fourth consecutive quarter that saw expansions in 40% to 50% of such leases.

New Life for Smaller Warehouses

Recently there has been a number of announcements that smaller warehouses have once again found use.  Of course the new variety of 50,000SF warehouse has all the amenities their big brother 500,000SF has- 35' ceilings etc. What is interesting is the way e-commerce businesses have brought this product back.  The Christmas debacle of a few years ago, (remember all those disappointed kids not getting their toys on time?) has led to some changes in distribution.  E-commerce businesses are taking note of the fact that when a consumer is ordering a product on line, they also want it as soon as possible-next day.  To accomplish that, it is obvious that the product needs to be located within a short distance to the end user.  Enter smaller strategically  located warehouses.  It makes sense.

According to CoStar: 2015 Could Be the Year Omni-Channel Retailing Gives a Boost to Landlords

Unconfirmed reports emerged earlier this week linking Amazon.com and RadioShack Corp. in talks over Amazon taking over a chunk of Radio Shack's mall-based stores as the debt-straddled electronics retailer prepares for an expected bankruptcy reorganization. 

However, whether or not such a deal materializes is immaterial. The fact is, sooner or later, Amazon, Google and several other online retailer will likely become much larger players in brick and mortar retail space.

The omni-channel phenomenon is becoming increasingly prevalent among retailers and is already starting to create new stores and bringing in new customers, as well as forcing retailers to freshen up their store offerings and space. This in turn, is bringing shoppers back in the door with their phones in hand. 

To be successful retailers, we must embrace omni-channel. Complete transparency and real-time information of inventory in the store and warehouse is essential and must be seamless to the customer,” Mathrani said. “Removing barriers to buying spurs customers to purchase more.” 

Regardless of a potential Amazon / RadioShack deal, Amazon is already well on its way to a brick and mortar presence. At the end of 2014, the online retailer had already opened up 15 'sortation centers' (think big box store) across the country, Amazon CFO and senior vice president Tom Szkutak reported. 

Zappos, which began as an online reseller of footwear, recently opened its first-ever store, a 20,000-square-foot shop in Las Vegas. The store offers shoppers the same technology as its website, while offering the added dimension of actual goods.

“To these retailers and many others, the physical store is about advertising a business in a way not possible online. The store allows them not only to sell products but also sell their brand,” the GGP CEO said. “They have all come to the conclusion that they need to have a brick-and-mortar presence to be profitable. Online is an incubator for brick-and-mortar. And they do this at the hub centers and urban retail.” 

Suburban Chicago Office Vacancy Rate Drops

22.6% office vacancy rate for suburban Chicago in the 4th quarter is down from 23.4% in the previous quarter.   More locally, the western section of the east west corridor (I88) remains among the highest in the Chicagoland submarket weighing in at 26.1%. While that rate still seems high keep in mind that this is the lowest level in more than 6 years, showing a long overdue recovery from the great recession.   How much office space was leased last year? How about 1,643,439SF which is the
highest amount since 2005.

They say "The trend is your friend" hopefully in 2015 that will prove to be a very cozy relationship.