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Is the Retail Apocalypse Fact or Fiction?

Is the Retail Apocalypse Fact or FIction

Is the Retail Apocalypse – Fact or Fiction?

If you read the headlines, you would believe the Retail Apocalypse is imminent with announcements seemingly each week of new store closures. In fact, earlier this year, we posted a story called Retail Store Closures Pick Up Speed, Says Report based on a report by Fung Global Retail and Technology Tracker.  But a new report by IHL Group entitled Debunking the Retail Apocalypse provides an alternative perspective.  Their research shows that retailers and restaurants are planning to open 14,248 locations in 2017 compared to 10,168 announced closures.  A net increase of more than 4,000 new stores is a very different story than what is captured in the headlines.  And the projections for 2018 are even stronger with more than 5,500 openings projected.

The report then breaks down the activity by segment that reveals there are only two segments with negative Net Store Growth: Department Stores and Softgoods, that includes clothing, shoes and jewelry stores.   From a real estate perspective, Department Stores have the largest footprints and can be the most challenging to release. And when enough of the department stores anchors leave a center, it frequently becomes a challenge to retain other tenants or attract new ones.  In some cases, a regional mall that is no longer viable will be converted to another use, like the recent announcement of Amazon to build a fulfillment center at the site of the Randall Park Mall site in the village of Randall, Ohio.

If you take the number of closures for the 16 brands with the largest decline multiplied by the typical store footprint, these stores will be vacating more than 72 million square feet of space.  Sears, Kmart and JC Penny account for 55 million square feet, or 75% of the total.

While the Net Store numbers are important, they don’t necessarily reflect the actual real estate impact.  The report included the 16 brands with the largest increases and declines.  Another way to review the impact is to take the number of stores and multiplying it by the typical square footage for each brand.  The 4,162 new store openings will absorb approximately 34 million square feet of space, with an average store size of 8,339 square feet.


New Stores From These 16 Banners

The amount of space that will be vacated totals more than 72 million square feet, or an average store size of 14,805 square feet.  However, three department stores, Sears, Kmart and JC Penny, have a disproportionate impact since their typical store size is 100,000 square feet or more.  While department stores account for only 500 of the nearly 5,000 store closings (10%), they account for more than 55 million square feet, or 75% of the square footage.


Planned 2017 Store Closings

What will happen to the 38 million square feet of space that will be vacated this year?  Retailers and restaurants all have specific requirements for potential new locations.  Will existing centers or buildings be converted to accommodate these growing brands?  Or, will there be more redevelopment of prime locations into new uses?

If you have retail space to fill or are looking for your next location, try CommercialSearch.com.

CRE Brokers’ Ingredients to Success

Today’s guest post is by Dave Morris, CCIM, Sales Executive with Xceligent and former president of St. Louis CCIM, SIOR, Missouri Commercial Realtors, and St. Louis Commercial Realtors chapters. Connect with David on LinkedIn: DavidMorrisCCIM

 

CRE Brokers’ Ingredients to Success

What do top producers do differently than average brokers? They adhere to a discipline of hard work, market knowledge, and relationships.

Aptitude

A broker must be educated enough to know investment real estate theory and why CRE works for investors. They must also keep pace with many industries and know whether a sector is growing or dying and why.

Attitude

Think and act like a winner. (Fake it until you make it if required). Enthusiastically think “team” and “collaboration” to bring about win-win deals. In general, winners want to work with winners…attract winners to your circle. Execute your services with the highest ethical standards.

Work Ethic

Put in the hours. Stretch your comfort zone. Do the things other brokers don’t or aren’t willing to do.

Infrastructure and Support

Take inventory of every resource available to you (software, CRM systems, lease analysis, Xceligent, staff, senior management, etc…). You need an infrastructure of capable support staff with access to the necessary tools to conduct your business effectively and productively.

Brand Recognition

Build your personal brand within your company brand. A positive reputation is everything! You and your company must be seen as a trusted source.

Market Depth

Work in a market niche (by product type or geography) that has a deep enough commission base and that you are able to control a reasonable and sustainable market share. Every year, re-evaluate it and try to expand on it.

Market and Economic Conditions

While somewhat out of your control, whatever the conditions, you must understand how different cycles affect your marketplace, then plan and react accordingly. Top producers know and understand trends which allow them to stay ahead of the curve.

Relationships

CRE brokers are the fabric of the business marketplace. Combine your personal relationships with your business relationships. Educate everyone you know as to what kinds of opportunities you’re specifically seeking. Do the same for people/customers you know. (You will win a client/friend for life if you refer them a prospect!)

Commercial Real Estate News Roundup For Sept. 8, 2015

Big mergers, global buyers desire one-stop-shopping, industrial pricing may be at its peak, Wal-Mart shrinking, Apple’s fresh look, booming multi-family market — and more. It’s all here at the Commercial Real Estate National News Roundup for September 8, 2015.

General

 

Office

 

Industrial

 

Retail

 

Multifamily

 

  • High Walk Score Makes MF Stand Out, GlobeSt.com, September 4, 2015 – Value-added properties that offer high walkability and family fun are very desirable in suburban areas.
  •  The Latest on Rent Growth, Commercial Property Executive, September 1, 2015 – Multi-family rent growth holding strong, but volatile international stock market may trigger a cooling soon.
  • Steady Hiring Favors Multifamily, GlobeSt.com, August 31, 2015 – Consumer confidence and  a record number of 20 somethings in the market drive multifamily income opportunities.

 

 

Commercial Real Estate News Roundup For August 10, 2015

More women needed in CRE, Orlando retail and office buildings are in great demand, industrial market strong in Kansas City and more.  It’s all here at the Commercial Real Estate Real Estate Roundup for August 10, 2015.

 

General

 

Office

  • Orlando Retail and Office Spiking, GlobeSt.com, August 7, 2015 – According to commercial real estate brokerage firm, Marcus & Millichap job growth will be up in Orlando by 3.9 % this for a total of 44,000 more jobs.
  • 5 Secondary Office Markets to Watch, National Real Estate Investor, August 7, 2015 – Real estate services firm, JLL reports office property sales were up 19.6 % this last year with Q2 2015 being the best quarter since the downturn of 2008.
  • 5 Takeaways from Half-Year Office Sales Performance, National Real Estate Investor, August 3, 2015 – First half of 2015 shows 400% gain in sales in two secondary markets,  Raleigh/Durham, N.C. and St. Louis, MO. according to New York’s RCA a data and analytics company.

 

Industrial

Retail

  • Who’s Opening and Closing Stores?, National Real Estate Investor, August 6, 2015 – Bed, Bath And Beyond looking fluffier as time goes on, while old-line grocery names are drooping.

Multifamily

  • New Trends in MF Rental Patterns, GlobeSt.com, August 4, 2015 – Handling the disruption to decades-old patters of suburban migration is an apartment market near you.

Commercial Real Estate Roundup For August 3, 2015

Like-kind exchanges get a census, Q2 sales slump, office construction booms in ten markets, an intergovernmental turf war, and what does $12 million get you in Milwaukee? It’s all here at the Commercial Real Estate National News Roundup for August 3, 2015.

 

GENERAL

  • Sales Growth Slow in Second Quarter – GlobeSt.com – July 27, 2015 – Is lower volume due to higher CAP rates, concern over potentially rising interest rates or something else?

OFFICE

 

INDUSTRIAL

 

MULTIFAMILY

 

RETAIL

 

Commercial Real Estate National News Roundup For July 27, 2015

 

Seniors, minorities and millenials push multifamily growth, industrial markets looking very healthy, more companies are moving their headquarters to urban centers, Class B housing on the rise for working class families and more. It’s all here at the Commercial Real Estate National News Roundup for July 27, 2015.

General

  • Economy Watch: 3 Economic Trends Affecting CRE, Commercial Property Executive, July 20, 2015 – Residential and multi-family starts up considerably since last year which should mean the need for more retail and office properties.

Office

  • Suburb-to-City Migration Here to Stay, GlobeSt.com, July 23, 2015 – Companies who want to stay competitive with a younger urban workforce are abandoning their corporate campuses in the sticks for new downtown digs.

Industrial

  • Speed Lands Rare Big Box Industrial, GlobeSt.com, July 21, 2015 – To snag prime space in this tight submarket, lessees must act quickly, negotiate and be able to take occupancy quickly.

Retail

  • How Retail Leasing is Changing, GlobeSt.com, July 21, 2015 – An extremely competitive market means retailers need to be more aggressive, creative and open to more non-prototypical locations and layouts.

Multifamily

 

Commercial Real Estate News Roundup For June 22, 2015

 

CRE markets look strong for the near future, Google considers move to an abandoned shipyard, Fannie Mae helps low income families secure units in multifamily properties, retail struggling during tough Q1 and more.  It’s all here at the Commercial Real Estate national news roundup for June 22, 2015.

 

General

Office

Industrial

Retail

 

Multifamily

 

 

 

Understanding The Top Ten Issues Affecting Real Estate

Photo of David Lynn addressing NAR Expo 2014

Bringing an objective, research-oriented approach to issues in commercial and residential real estate is Counselors Of Real Estate (CRE), a group whose advisors deliver unbiased and trusted advice to clients and employers. Sporting a CRE designation before the NAR Expo 2014 this morning was David Lynn, CEO of Everest High Income Property who sought to sum up the entire coming year in a list of ten issues affecting the real estate marketplace for commercial as well as residential.

Issue #10: Agriculture

Lynn noted that even though agriculture historically goes through cyclical changes and volatile demand, the past two decades in farming have by contrast produced little in the way of complaint from the sector.  Efficiencies in farming equipment and processes have steadily goosed output while rising world populations have and will continue to drive demand from the world’s #1 food producer, the United States.  One major impact Lynn sees coming in tertiary and smaller real estate markets is rising demand for location in these places.  This idea made me think of yesterday’s session with Craig Lindvahl and his efforts to educate small-town youth in the opportunity present in their own back yard.  There’s a lot of synergy between these two outlooks.

Issue #9: Manufacturing

The US decline in manufacturing is over, and domestic output is on the rise, foretelling a robust market for industrial property. That said, Lynn pointed out that manufacturing in the early 21st century, similar to farming, is greatly automated and geared toward customization, which will tend to not drive job growth.

Issue #8: Housing

The housing market bottom came in 2012 and Lynn sees growth in housing commensurate with that event.

Issue #7: Capital Markets

A much-feared wave of maturity of commercial mortgage-backed securities has come and gone, said Lynn, resulting in a non-event.  The majority of CMBS maturities simply extended their terms “kicking the can down the road” and cleared the way through the market fear to allow a resurgence in CMBS financing.  Lynn sees $360 billion in CMBS financing maturing by 2017 and touted improved underwriting of the instruments.

Issue #6: Water

There is a shortage of fresh water in the world and millions die each year due to lack of access to clean water. This reality along with that of climate change adds up, according to Lynn, to a decline in suburban development.

Issue #5: Globalization

With more and more of US GDP tied up with imports and global transactions, a development Lynn sees as by and large positive, real estate values in cities best connected to global flows of goods are in the main expected to rise.  Additionally, the US has become the world’s leading exporter of oil and natural gas, which speaks to rising land values in producing areas.

Issue #4: Health Care

The Affordable Care Act served to add 40 million people to the health care system, which in turn has produced a wider range of health care delivery formats and locations convenient to general populations.  Lynn sees this trend, along with the prolonged life spans of the US population as a driver for retail and office property.

Issue #3: Millennials

The youngest generation of adults prefers urban living and mass transit, and Lynn pointed out this age cohort numbers the same size as baby boomers. While it’s not clear if the behavioral trends of millennials will hold out, Lynn sees improved values for urban space and declining demand for housing in suburban enclaves.

Issue #2:  Jobs

The great recession cost millions and millions of jobs, recovering to 2008 levels only this year. But persistent trends in underemployment make the unofficial unemployment rate closer to 9% according to Lynn. He spelled out that a decline in office space per employee has halved on average to 150 sq. ft. per worker.  Retail and office property values aligning with millennial lifestyle preferences for more collaborative and nontraditional working arrangements will tend to produce downward pressure on demand.

Issue #1: Energy

Lynn referenced a sea change in energy markets over the past five years.  Driven by fracking technology, the “whole equation has been changed” were the US produces the cheapest energy of any country in the world.  California, Dakotas, Montana, Pennsylvania and other energy-producing areas have added up to rising values for commercial and residential real estate close by, making former “flyover” areas far more generally desirable.

 

 

Chinese Investment In US Commercial Real Estate On The Rise

asian-investment_0409Mainland China’s investors have hiked their rates of investment into US primary commercial real estate markets.  Eclipsing rates of investment by  Malaysia and Hong Kong for the first time, the Chinese mainland has for the first time sourced more capital for US CRE deals than its Asian neighbors and shows no signs of backing off.

Driving the trend in part is China’s insurance industry, which has experienced explosive growth in the 21st century. The risk business in China is one of the clearest examples of capitalism’s power to reshape expectations.  In 1999, China’s then $10 billion in life insurance premiums took a mere seven years to grow to $46 billion, and the industry is still considered in its infancy.  Fed by IPOs and joint ventures with foreign insurers (such JVs having been prevented by government regulation before China’s adoption of the World Trade Organization (WTO) frameworks), the actuarial arts are now an eye-popping feature of the Chinese economy.

In much the same way western insurance giants act as traditional institutional sources of investment capital for commercial real estate projects, China’s insurance companies are on the hunt for high-quality commercial property assets wherever they can find them.  Domestically, there are indicators that China’s best properties in the primary markets of Chongquing, Shanghai, Beijing and Tinajin are unavailable for this mountain of cash, and that fears of overbuilding in China’s secondary and tertiary real estate markets are leading China’s institutional investors to look for commercial property returns overseas.

Interactive Map

 To get a sense of the importance of Chinese capital to US real estate, numbers sourced from Realtor.Org and codified into an interactive map are worth a look: China figures in the top 5 of most US major state CRE markets:

Where Are Foreigners Buying Real Estate in the United States

 

Recent Examples Of Chinese Capital Funding US CRE Deals

From the Bronx to Chicago’s CBD to California, China’s US commercial real estate investment has picked up steam in 2013.  From Forbes:

Deep pocketed Chinese investment firms are out shopping for commercial real estate.

“Those in our network tend to look at commercial property in the $10 million to $25 million range,” said Lu.

Right now, Chinese investors see the U.S. as a bargain following the worst foreclosure crisis since the Great Depression.  In fact, some cities and towns across the country are cheaper than properties in Shanghai and Hong Kong.  Home prices in the U.S., coupled with economic uncertainties and tight regulations designed to curb a housing bubble in China, are driving record Chinese investments in the U.S. residential and commercial real estate markets, according to the Asia Society, a multinational think tank with offices throughout the U.S. and Asia Pacific.

For instance, Chinese commercial real estate purchases in the U.S. totaled over $3 billion in 2012, much of it in California.  The state is expected to see record investments by the Chinese in 2013, the Asia Society said.  Two sizable deals took place this year already.

China Vanke and Tishman Speyer signed a deal for a $620 million luxury condo project in San Francisco this winter. In April, another deal for a cool $1.5 billion was inked in Oakland between Zarsion and Signature Development Group.

In June, several big deals in New York City went down. Zhang Xin, CEO ofSoho China , joined forces with the wealthy Safra family (of Banco Safra fame) of Brazil to buy a stake in the General Motors GM +1.92% Building in Midtown, The New York Times reported on June 25. Dalian Wanda Group, another Chinese developer, is planning to build a greenfield luxury hotel in Manhattan.

The Big Five Chinese Insurance Companies

On the hunt for capital?  These firms are on the hunt for US commercial property pro formas and the returns they promise:

(Chart: South China Morning Post)

Commercial Connections Podcast: How To Grow Your Web Presence

creGROW's Dave Lewand
creGROW’s Dave Lewand

Quick note: In the latest NAR Commercial Connections Podcast, host Alex Ruggieri brings on Dave Lewand founder of creGROW. Dave is a designer and builder of websites focused on commercial real estate. With creGROW, brokerages, property managers, developers, landlord and tenant reps alike facing the twin challenges of achieving quality and profitable web presence now have a set of tools for site building that are just for them.

Listen to the latest Commercial Connections Podcast with Dave Lewand here.

Top takeaways:

  • Future-proofing your company’s website with WordPress and creGROW. Get off the web technology treadmill without getting off the web.
  • Examining the online and general marketing practices of residential real estate for cues and clues to improving commercial practice.
  • What’s responsive web design, anyway?

Commercial Connections Podcast engages top real estate professionals, economists, and instructors to give you the tools needed to get ahead in today’s competitive commercial real estate industry. The podcast will be published twice a month.