Features

After an underwhelming 148,000 nonfarm payroll jobs were added in September, what should we realistically expect the October numbers to reveal? That's the question many real estate economists are grappling with as the Bureau of Labor Statistics (BLS) prepares to release the latest nonfarm payroll employment report this Friday. The partial government shutdown during the first half of October only adds to the complexity of the situation. “I would say to expect a decline in jobs added versus last month’s report — probably in the 100,000 to 125,000 range,” says Ryan Severino, senior economist and associate director of research at Reis Inc. “Uncertainty surrounding the government shutdown and the debt ceiling debacle likely had some impact on the numbers, but we have generally been seeing weakening in the data as the year has progressed.” According to the BLS, the unemployment rate in September remained flat at 7.2 percent, and the civilian labor force participation rate dipped 30 basis points to 63.2 percent. “[The September jobs report] was another indicator of a slow fourth quarter and sluggishness rolling into 2014,” says Bob Bach, director of research at Newmark Grubb Knight Frank. He added that average monthly job gains in the third …

Sterling Hale ATLANTA — If attendance at the International Council of Shopping Centers (ICSC) Southeast Conference is any indication of how the retail market is performing, things are looking up. This year’s conference, held Oct. 28 – Oct. 30 in Atlanta, attracted more than 2,500 attendees, up 9 percent from last year. In addition to the seminars offered, meetings with our clients and colleagues enabled us to observe retail trends in the marketplace firsthand. For example, one trend we have examined is that retailers are willing to think outside the box in terms of their space needs. While most national retailers have a preferred footprint or space arrangement, they are now willing to be more flexible than they previously had been in order to get into the right centers or markets. Another trend we have observed in the Southeast is that national retailers are willing to look at secondary or tertiary markets for new stores so as not to cannibalize current store sales. If retailers want multiple stores within the same vicinity, they have to make sure they aren’t taking away from their customer base by adding too many stores too close together. This has led retail tenants to look …

NEW YORK CITY — The renovation of existing properties across all commercial real estate sectors rather than new construction is driving growth and has helped balance supply and demand, according to Peter Linneman, chief economist with NAI Global. “As the U.S. economy continues to improve, we are seeing a return to stability, especially with core properties with investors looking for high-quality assets,” said Jay Olshonsky, president of NAI Global, during a recent webcast focusing on the economic outlook. Linneman noted that there is a strong industrial recovery underway led by increased demand for warehousing for products sold online, resulting in healthy vacancy levels that will continue to fall. Multifamily construction is rebounding, but is still below normal levels, and an upswing in renovations is driving capital expenditures. Underproduction from the past several years resulting in a prolonged shortage will keep rents above average, but below maximum, according to Linneman. In the office sector, construction and renovation projects are at an all-time low, but renovations that were deferred during the recession are back on track, even though jobs have yet to return to pre-recession levels. As a result, vacancy rates have seen a slower decline, but are expected to continue to …

CHICAGO — Nationwide demand for industrial distribution centers larger than 300,000 square feet — known as big-box space — is high and rising, according to the first “Big Box Outlook Report” published by Jones Lang LaSalle (JLL). Improving economic conditions, the continuing growth of e-commerce and a deep bench of tenants seeking space have created competition for warehousing space. Consequently, there is 96.7 million square feet of industrial construction underway, nearly half of it speculative, with an average building size of 360,000 square feet. The JLL Big Box Outlook Report featuring the Velocity Index cites five key trends that are shaping the industrial big box market in 2013 — and creating markets that are winners and losers. 1. WHO: At the top of the list of industries fueling demand is retail, especially e-commerce retail players, followed by the logistics, distribution and manufacturing sectors. Retail (traditional retailers through consumer non-durables) accounts for more than one-third of total demand, with most concentrated in the Northeast — particularly New Jersey and Philadelphia. “With e-commerce sales expected to more than double over the next four years, we anticipate increasing demand for highly specialized facilities,” says Craig Meyer, president of industrial brokerage at JLL. “We …

ATLANTA — Rising construction costs and a shortage of labor are slowing the progress and timeline of new commercial real estate development, despite demand for new space in some property sectors. “There is an increased cost profile of putting new projects in place,” said Kurt Hartman, senior managing director with Hines. “Development costs are way up. The rents required to support new projects are way up, which is more supported in some product types than others.” Hartman delivered his comments during a panel discussion Tuesday, Oct. 8, at the Westin Buckhead Hotel titled “The Outlook for Development in 2014.” The law firm of Morris, Manning & Martin LLP and France Media’s InterFace Conference Group jointly produced the daylong event that attracted hundreds of investors, developers, lenders and financial intermediaries from across the Southeast. Additional panelists included Mark Toro, managing partner with North American Properties; Jim Jacoby, chairman, CEO and founder of Jacoby Development; Hunter Richardson; managing director of development for Oliver McMillan; and Lawrence Callahan, CEO with Pattillo Industrial Real Estate. Because rents are simultaneously increasing with construction costs, the panelists agreed that the only two types of development that will substantiate those rent increases are e-commerce distribution facilities and …

Robert Niedzwiecki, an acquisition officer at JP Morgan Chase in New York City, offers a tip for investing in real estate in 2014. “Go where the puck is going, not where it’s been.” According to a panel of real estate experts that convened during a commercial real estate finance and investment conference on Tuesday, Oct. 8, the metaphorical puck is heading into value-add properties and/or in secondary markets. Robert Fransen, executive vice president and chief investment officer at Coro Realty Advisers, an Atlanta-based retail and apartment developer, noted that investors are seeing upside in value-add properties. “Value-add has become much more attractive to capital than just two years ago,” says Fransen. “It's shifting away from the distressed and core ends of the spectrum.” Fransen and Niedzwiecki’s commentary came during the conference held at the Westin Buckhead Hotel in Atlanta. The law firm of Morris, Manning & Martin LLP and France Media’s InterFace Conference Group jointly produced the daylong event, titled “How Can You Take Advantage of the Recovering Market?” The event attracted hundreds of investors, developers, lenders and financial intermediaries from across the Southeast. Fransen and Niedzwiecki participated in a panel discussion titled, “The Outlook for Investment in 2014.” Michael …

CHICAGO —The most expensive street for office space in the U.S. is in a San Francisco suburb, according to a Jones Lang LaSalle (JLL) research study. JLL researched 40 markets across the country and pared down the top 10 streets in terms of their average rental rates for office space. Sand Hill Road in Menlo Park, Calif., part of the San Francisco Peninsula market, is No. 1 on the list with average rents reaching almost $111 per square foot. New York City’s Fifth Avenue holds the No. 2 spot at $102 per square foot. Northern California’s University Avenue in Silicon Valley comes in at No. 3 spot with average rents of about $95 per square foot. Nationally, rental rates on the most expensive streets increased 10.9 percent on average since 2011 due to the recovery from the downturn and the lack of new construction leading to supply constraints. Reflecting the tech industry’s growth, the San Francisco Bay area holds three spots in the top 10 rankings — more than any other office market. California Street in the city of San Francisco moves up several notches to No. 6 with a 45.3 percent increase to $62 per square foot, placing it …

As one of the hardest hit asset classes during the recession, the U.S. resort sector has dramatically improved this year accounting for 18.4 percent of total investment transaction volume in the hospitality sector. The $2.46 billion of transactions through August marks the highest volume in the segment since 2007 and more than triple the prior-year period. The U.S. resort sector represents 13 percent of the total hotel room supply, including more than 3,900 hotels with 608,000 rooms. The resort market’s revenue per available room (RevPAR) and average daily rate (ADR) have surpassed the previous 2007 peak with average RevPAR of $102.99 and average ADR of $153.81 through August. Source: Jones Lang LaSalle The resort market has room to grow with occupancy nearing the prior peak, and a constricted new supply pipeline. Additionally, resorts in the U.S. often have net operating income per available room that is 1.5 to 2 times the income that a standard full-service hotel brings to the bottom line, and investors are taking note. “Given the intense capital requirement of building a new and competitive resort, as well as the lack of financing for such developments, there are few new four-and-five star resorts under construction,” says Art …

By Michael Shadeed On Oct. 1, the Federal Emergency Management Agency (FEMA) implemented steep rate increases to the National Flood Insurance Program (NFIP) as a result of lowering government subsidies within the program due to the catastrophic losses incurred with Hurricane Katrina and Super Storm Sandy. Now real estate owners and operators will have to pay for flood coverage without subsidies, making rates skyrocket for certain geographic locations. The Biggert-Waters Act The change is a result of the Biggert-Waters Flood Insurance Reform Act of 2012, which was signed last year to extend the NFIP for five years. The act requires changes to all major components of the program, including flood insurance, flood hazard mapping, grants and the management of floodplains. The changes are an attempt to raise NFIP premiums to more accurately reflect the “true cost” of flood insurance. The impact on flood maps and real estate owners The largest impact of the act will be the new flood maps and re-rating of current policies, which may cause substantial increases in premiums for both commercial and residential assets. Approximately 20 percent of NFIP policyholders pay subsidized rates and will be affected immediately, regardless of changes in the flood mapping. The …