Friday, Dec. 18, 2020
NATIONAL
Gensler - Real Estate Must Offer Human Experiences Mixed-use developments, town centers, and a growing focus on placemaking and community have increased over the past two decades. However, in the post-pandemic recovery, choice — the potential to provide different experiences — will be the driver, not prior patterns. Stay in or go out? Real estate’s new source of value is that it is the platform outside of the home for experiences beyond the virtual. Creating a built environment that motivates us to leave our homes requires a more holistic design approach focused on people’s experiences. Design must understand what drives behavior, promotes human interaction, and optimizes effectiveness.
National Real Estate Investor - Every Type of Investor Is Looking into U.S. Industrial Other trends driving industrial acquisition activity include barriers to new development in certain markets, population growth and rising construction costs. While the average cap rate on industrial transactions nationwide is at about 5 percent or lower, Fraker notes that in markets with high barriers to entry, including Los Angeles, San Francisco and New York, cap rates can be significantly lower than that number. Major investors are willing to buy into these low-yield markets because the barriers, which include geographic limitations and government regulations (including entitlements, zoning and environment requirements), keep rents rising, as population grows and demand for distribution space increases, he says. Core industrial deals in Southern California are trading in the mid-3 to low-4 percent cap range, according to Kendall.
Bain - Covid-19 Has Upended Business. Which Trends Will Stick? CRE prices and vacancy rates will be another important signpost to follow, as they could signal a pivotal shift toward home working. Before Covid-19, only 5% of working days were spent at home. A recent Stanford University study estimated that 42% of the US labor force is working full time from home. After the pandemic, that number is likely to fall to 20%—still four times as high as the pre-Covid number. Corporate forecasts already show a sharp decline in expected demand for office space. A survey by Moody’s shows 35% of businesses plan to reduce office space in the future and none plan an increase. Similarly, the vacancy rates of commercial real estate buildings could rise as high as 19.8% by 2023, exceeding the highest vacancy rates during recessions over the past 30 years, according to Moody’s Analytics.
GlobeSt - The Pitfalls of Boilerplate Lease Agreements Quinn Arntsen, partner with Farella Braun + Martel LLP: The commercial and office leasing markets have softened, with corresponding reductions in rent and landlords offering other tenant-favorable terms. There has been less softening in warehouse/industrial because demand has remained steadier and retail because the market was already soft. In general, landlords have a lot of incentive to keep tenants in buildings in order to cover debt service on the property and because insurance rates for an empty building can be expensive. Interestingly, many landlords are seeking shorter terms on the rationale that rental rates are currently depressed and they do not want to lock in a below-market rates for several years. Instead, they will lease the property for a short term and bring it back to the market in two or three years.
Commonwealth - Outlook 2021: A Return to Normal? Layoffs are still high, but they have remained well below initial levels, as companies adapt to the new conditions. With the job market continuing to grow, consumer confidence and spending have also remained steady. Finally, business confidence remains above the 2019 levels, and investment has recovered. From an economic perspective, substantial damage was certainly done and may get worse in the next month or so. Still, the healing process continues and is likely to accelerate with vaccine deployment. As such, we could expect a return to normal by the end of 2021.
Area Development - Trends in Office and Industrial Parks Across the nation, the demand for suburban office parks is rising as more skilled workers move back to suburbs, due to concerns about housing costs and quality of education — they also feel safer from COVID-19 and the civil unrest that is happening in some larger cities. “The most notable shift is toward lower-intensity spaces, where getting into and out of buildings can be done without close contact to others,” says Mark Stapp, professor of Real Estate at Arizona State University in Phoenix. This trend is compelling more developers to consider older office parks in suburban areas as attractive opportunities for redevelopment — especially as targets for millennials and businesses that hope to attract millennials.
AVISON YOUNG
Avison Young Website - 2021 Southern California Forecast Volatility and uncertainty were primary influencers for dealmakers for the majority of 2020 and will continue to weigh on decisions in 2021 and beyond. Some level of disruption in every aspect of the economy will likely be the defining feature of 2021. If anything is certain for the commercial real estate industry, it’s that more time will be spent evaluating potential scenarios as experts struggle to anticipate reactions to new developments in the story of the pandemic. The human toll of the pandemic, both in life and livelihood, will long serve as a reminder of what to prepare against as we build out new infrastructure. Affordable housing, warehouse distribution centers, medical facilities, and adaptable business spaces will be at the forefront of commercial real estate needs for years to come.