Browse Tag: Jones Lang LaSalle

Chicago’s Central Business District: Office Market In A War For Talent

Bisnow 3rd Annual Chicago State of Office

At the Bisnow 3rd Annual Chicago State Of Office conference this week, a strong gathering of commercial RE pros listened to a blue-ribbon panel drawn from around Chicago’s office marketplace to hear perspectives on the local and national economy.  Gathered were:

Demographics And CBD vs. Suburban Office

From the get-go, these professionals of property management and market matchmaking described a Chicago central business district marked by a drive to capture young talent to serve the industries that rent the most CBD  space: legal, technical and professional.  Where’s the demand coming from?

“What we’re seeing quite a bit of at least in the CBD is more or less a war for talent,” said Jim Karras.  “We’re seeing a drive to the young talent, the millennials, as well as trying to secure the baby boomers as well, the empty nesters who are now living in the city.”

Andy Davidson: “Most of the demand is the younger generation, it’s IT, it’s tech,  overall.  A lot of the demand is education, the City of Chicago has a big educational base.”

Some early contention appeared over CBD vs. suburbs.  Andy Davidson was more down on the outlying areas while Jim Karras saw greater stability.  “The only reason the suburbs, I think are doing okay, is that the people who have to go out to the suburbs, the education groups, the hospital groups that have to go out to be near the client.  That’s what I think is holding up the suburbs.  There are big companies that are doing build-to-suits that aren’t lowering the vacancy when they do it, and there’s a lot of old buildings out there that quite honestly at 25% vacancy don’t make any sense to retrofit.  So I’m not as positive.”

Davidson continued on demographics: “You’ve got ahuge trend of people coming downtown, I don’t see that stopping  You’ve got a  generational shift – 10,000 people who are turning 65 every single day. It’s the biggest generational shift we’ve ever had. So companies have got to get downtown, near the young.”

Watch The Source for more coverage of Bisnow’s 3rd Annual Chicago State of Office conference.

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Healthcare Real Estate: Looking Beyond The Indicators

English: The main office of North Carolina Eye...

With only a few exceptions, the mood was decidedly up at Thursday’s Healthcare Real Estate Conference in Chicago.  The investors, brokers, tenants, developers and managers who met at the University Club came to hear about strategies and trends in development, management and capital for medical properties ranging from medical office buildings (MOBs) to large healthcare campuses to retail outpatient facilities.

Superficially, the first indicator from 2012 was a drop in medical facility construction starts.  Usually, when a sector sees a drop in national groundbreaking, it’s kind of tough to read the tea leaves as anything other than a negative.

That wasn’t the diagnosis at the conference.

On a panel including Shawn Janus of Jones Lang LaSalle’s Healthcare practice, the drop in starts was likened to a deception associated with long-term factors finally clearing up.

“We saw a decrease due to the capital markets still rebounding, and a SCOTUS ruling on ACA, then an election,” said Janus.  “With all that behind us, we’re going to ses greater activity.  On the acute care side, that has dropped off. Community hospital starts has slowed down.  But we’re going to see higher-acuity activity driven into the outpatient environment.”

Testing Positive For Jargon

The healthcare sector of commercial real estate has a set of keywords that don’t appear elsewhere.   Let’s take a look at Shawn’s response and unpack it a bit.

  • acute care: more or less means large hospitals
  • high acuity: medical interventions for seriously ill people (acuity is another term for acuteness or severity of illness).  High acuity medecine is typically conducted on inpatients, that is, hospital patients.  But the general trend in medicine and the incentives are to take some higher acuity patients and treat them not in hospitals but in specialized outpatient settings.  One classic example of this trend is the dialysis clinic.  There was a time that dialysis for kidney patients was conducted primarily inside a hospital: that has changed in a great many places today.
  • outpatient : a patient not hospitalized overnight

What he’s describing is a trend — several trends, in medical payments, technology and facilities management — that will cause an explosion in non-hospital medical facility utilization for outpatients.  Strip mall spaces, office renovations, all manner of off-campus medical facilities are going to form the demand nationally going forward.

Consider it a retailizaton of medicine.

IT First, Space Solutions Next

And the trends in healthcare facilities are moving in a particular order, creating further deception in the recent numbers.  The Affordable Care Act contains mountains of incentives for the adoption of healthcare information technology (HIT) including electronic medical records (EHR).  Tina Waldrup, VP of HealthDirections, an Illinois consulting firm, put it this way:

“From the provider perspective: ACA is causing providers to spend much more on IT and thereby less on real estate [and creating] lots of repurposing of office space. ”

In other words, the changes are marching to the beat of the federal drum, placing priorities on reworking existing space — for now.  But approximately 35 million more Americans will be insured  – and that population, plus the “silver tsunami” of baby boomers aging into high medical care use – means a major explosion in demand for medical space is coming.

Watch The Source this week for more coverage of the Healthcare Real Estate Conference.

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Multichannel Retail Is Remaking Distribution Networks

Some big-box retail stores are over-illuminated.

Last month’s holiday season brought the seasonal retail push.  Coast to coast, goods moved at peak volumes, as they do more or less every year. But the radical change brought to retail by online shopping technology has, more than ever, redrawn the landscape in all areas of retail, from customer-facing to logistics and everywhere in between.

A recent Jones Lang LaSalle report put the number of retailers selling online at 92 percent, with 68 percent operating brick-and-mortar retail stores.   The past five years have seen increases in online sales for 80 percent of retailers, and some of those are pegged at 25 percent increases.

The pre-internet retail distribution network is undergoing a significant reorganization as e-commerce and its younger sibling m-commerce (mobile) are commanding ever greater shares of the pie.  The bedrock retail conception of store location itself is breaking down.   Shopping is increasingly located in every customer’s pocket, hours of business now 24/7.  The retail business depends less and less upon square footage as time goes on.

Combating “Showrooming”

The translation in square footage almost certainly means two things: first, for some, it will mean smaller physical stores. Retailers will want to pay less for space to avoid supporting the consumer behavior of “showrooming” where the shopper visits the expensively kept, heated, lit and staffed store merely to try out products, then order the product from the lowest-priced online retailer.

The major operations tactic used by retailers to combat showrooming is to have customers order online to then come to the store for pickup. According to Forbes, 7 out of the top ten retailers provide in-store pickup for e-commerce orders.  Completing purchases in the store means ending the customer’s impulse to research prices; retailers successful at this get that way by maintaining consistent pricing in e-commerce and mobile channels.

More Logistics Centers, And A Drive To Separate Real Estate Costs 

The retail ecosystem, while likely to lose customer-facing square footage in the coming years, still must handle product inventory for fulfillment.  This has set the stage for the sharply rising market in third party logistics (3PL) facilities.

The 3PL proposition as a pure real estate deal is not easy to find.  Commercial practitioners are often called upon to have logistics experience, because real estate costs are often bundled with logistics agreements in comprehensive service agreements for major clients using 200,000 sq. ft. and higher 3PL facilities.

But while lease negotiations for 3PL providers are often combined or “bundled” with logistics and management agreements, the prevailing retail e-commerce trend is raising demand for service from such facilities.  Development of new facilities takes time, but operators and clients don’t want to wait. Operators are looking for ways to unbundle such deals in order to gain the flexibility to service a range of clients under one 3PL roof.

Commercial practitioners working the retail sector would do well to notice that any general decline in customer-facing square footage strongly suggests a matching rise in 3PL demand.

United States Real Estate Market Ranked Most Transparent, Says Jones Lang LaSalle

Jones Lang LaSalle

As the global commercial property market evolves, it is marked by two kinds of growth. First, the sources of investment capital grow in number around the world. Then comes growth in the number of destinations for such capital. Buyers and investors in commercial real estate are increasingly international, so investments and returns have to make long trips to get where they’re going. When that’s true, the demand for clarity, predictability, reliable measurement and sustainability — known collectively in commercial real estate as transparency — becomes increasingly important.

The United States Provides Great Transparency In Commercial RE Deals

The 2012 Global Real Estate Transparency index released by real estate services firm Jones Lang LaSalle this week places the United States on the top of the list when it comes to transparency in real estate. The study looked at nearly 100 real estate markets worldwide and at nearly as many different factors:

Among key findings from the report:

  • The United States ranks as the world’s most transparent real estate market in 2012, followed by the United Kingdom and Australia. Also ranking as ‘Highly Transparent’ : Canada, Netherlands, New Zealand, France, Finland, Switzerland and Sweden.
  • The MIST growth markets (Mexico, Indonesia, South Korea and Turkey) are significantly improving in transparency, with Turkey leading the way.
  • Looking at regions, Latin America shows the strongest progress in transparency.
  • Environmental sustainability and energy efficiency  has emerged as an important transparency factor with the United Kingdom, Australia and France the most transparent markets in terms of real estate sustainability. The UK has a long history of building energy efficiency system and introduced the world’s first Green Building rating system.  Australia has been the test bed for new environmental laws, regulations and incentives.

What Is Transparency?

Transparency in commercial real estate is a complex set of public and private factors that interrelate to produce a positive environment for investment and economic growth.  One defining aspect of transparency is the publishing of data — by government, by lenders, by practitioners, by owners — so that key performance indicators are easily available in order to allow comparisons and benchmarking.  Transparency is both a count of the number of these indicators as well as their reliability.   Law and regulation in the US tends to produce more real estate market transparency in the net.

How Does Sustainability Relate To Transparency?

One example of a private indicator that adds to transparency is the set of various metrics illuminating the performance of a commercial property, right down to its energy efficiency.  How much energy per square foot a property uses in a month can make or break a decision to invest in that property today; energy markets are volatile and capital is making a very long trip these days.  Today, the energy profile of a property is no less important than its debt load, permitting/zoning, improvements history or other obviously critical indicators when evaluating potential investment.
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A Look At The Future Of Warehousing: Sam Fisher At NAR Annual 2011

Of  the many Views From The Frontier Of Commercial Real Estate at today’s session of the same name at NAR Annual 2011, it was Sam Foster‘s that presented a definitive roadmap.  That’s because Sam,  head of industrial practice at Jones Lang LaSalle, took a long look at the transportation and warehousing industries and the likely impacts on CRE.

In a fascinating session, Sam brought to light the role of ports, transportation, and inventory in the forecasting of tomorrow’s hottest CRE markets.  Playing on NAR 2011’s theme of carpe diem (sieze the day), Sam quipped “The theme should really be carpe crastinum diem – sieze tomorrow.  We should be looking for future opportunities.

In industrial property, CRE pros don’t make a lot of money on manufacturing space – typically corporations build and own their own – so most industrial CRE deals are in distribution space – warehousing.  Where are the warehouses going to be in the future?  That’s kind of a long story with more questions than definitive answers.  Sam set about showing what the right questions are.

In the 1980s, Sam says, the largest cost component in warehousing was inventory – e.g. the cost to carry goods.  And in the 1980s, management techniques such as JIT (Just In Time) appeared on the scene to allow reductions in inventory – big ones.  JIT succeeded in knocking over $400 billion yearly out of inventories, but the real estate implication is this: today, the largest cost component is fuel costs.

The general flow of goods from Asia to North America shows no signs of stopping.  To the contrary, it has turned places like Shenzen, China from a fishing village in 1990 to the world’s third largest port today.  Shipping’s flow to the west coast is only the first stop, since the overwhelming majority of consumers of goods live in points east.  But the rise in fuel costs are forcing changes in routing patterns.  Altered rhythms of goods flowing through Los Angeles and Vancouver mean that new shipping and warehousing centers in the interior will have and will come online.

Sam specified Columbus, OH as a “new intermodal inland port”.  He also pointed out Prince Rupert, BC and central Ohio generally before closing with a slide of Richard Ziman’s famous quote”  “The first three rules in the real estate business: timing, timing, timing.”

I liked carpe crastinum diem better, but the message is the same.

Get a copy of Sam’s full presentation at PlaybackNAR.

 

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