In December, Congress passed H.R. 1, the Tax Cuts and Jobs Act, which President Trump signed into law. This legislation makes broad changes to the U.S. tax code, including doubling the standard deduction, and permanently lowering the corporate income tax from 35% to 21%. Among those changes are several that will impact commercial real estate specifically and real estate practitioners generally.
First, there is something notable that the law does not change: the treatment of Section 1031 Like-Kind Exchanges for real property. While the provision was repealed for personal property, it was kept intact for real estate. This follows several years of advocacy by the National Association of REALTORS® (NAR), pushing to educate Members of Congress on what a like-kind exchange is, why it is important to the real estate industry, and how it benefits the U.S. economy as a whole. Its retention in the Tax Cuts and Jobs Act is a huge win for commercial real estate.
Another victory for commercial real estate is the bill’s retention of capital gains treatment for carried interest, which lawmakers from both parties proposed changing to the much higher ordinary income tax rates. The final bill preserves capital gains treatment for carried interests, but makes a slight adjustment: properties must be held for at least three-years to qualify for it.
During the debate in Congress over the tax reform bill, there was concern over its impact on small businesses, resulting in the inclusion of a 20% deduction for “qualified business income,” including pass-through businesses and independent contractors. It came with a caveat though: the deduction is limited to non-personal service businesses. A “personal service business” includes “any business where the main asset of the business is the reputation or skill of one or more of its employees or owners” – thus it is likely that real estate agents and brokers will be considered a personal service business, and so would not normally qualify for the deduction.
However, NAR was able to help get a major exception included, which will make it possible for many real estate professionals to take advantage of the deduction. It allows pass-through businesses and independent contractors to claim the full deduction (regardless of whether they are a personal service business or not) if their taxable income is below $157,500 (filing singly) or $315,000 (filing jointly). Above those thresholds, the deduction is phased out over an income range of $50,000 for singles and $100,000 for couples. It should be noted that there are still many questions as to how the IRS and the Treasury are going to implement this 20% deduction provision, we are awaiting clarification and guidance from the IRS and the Treasury on it. Based on what that guidance says, the application of this provision may significantly change.
Finally, although H.R 1 did not address “tax extenders” – those temporary tax provisions that Congress typically extends each year – the budget compromise passed in February to fund the government through March 23 does. In it, the 179D Energy Efficient Commercial Building Deduction, which expired at the end of 2016, is retroactively extended through 2017. This means that commercial property owners can claim that deduction on the taxes they file in 2018 for 2017, but it will need another extension to cover any years after that.
As the Tax Cuts and Jobs Act implementation continues, NAR will keep advocating for clarifications and guidance that help real estate professionals and support the real estate industry. For more information on NAR’s advocacy and the tax reform bill overall, please visit www.nar.realtor/tax-reform.
By: Erin Stackley (SIOR Report)
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Archives for May 2018
CRE On High Alert
THE IMPACT OF TERROR ATTACKS ECHOES THROUGHOUT REAL ESTATE MARKET
Although it’s been more than 16 years since the terrorist attack on the World Trade Center, reminders of the lessons it has taught real estate professionals are indelibly imprinted on almost every project we see today.
And who can question the impact of that horrible event, and ones that have followed in London, Paris, and Barcelona, or the more recent domestic tragedy in Las Vegas?
Unfortunately, nothing quite compares with the devastation at the World Trade Center. The tragic deaths of over 3,000 will never be forgotten. In terms of the real estate, an unbelievable 30 million SF in downtown Manhattan were lost (14 million) and damaged (16 million), according to a study by Madeline M. O’Donnell at the University of Northern Iowa, published in May 2017, entitled, “The Impact of Terrorism on Commercial Office Real Estate in Manhattan.”
Those 23 buildings represented nearly one-third of the Class-A office space in New York, according to CBRE Economic Advisors.
While smaller in scale, ongoing attacks in Europe have nonetheless had a permanent impact on real estate investment, security and planning. “In the past three years, terrorists have killed more than 300 people in attacks in Western cities around the world like Paris, London, Orlando, and Berlin. These attacks represent a new type of terrorism, a new kind of threat to real estate,” writes Mike Phillips, Bisnow London, in “Defense By Design: How Developers are Countering Terrorism.”
That threat was made clear nearly immediately after 9/11, and not just in major cities. “We had six former textile facilities under contract to three different buyers on 9/11 and 9/12, and all six cancelled,” shares Art Barry III, SIOR, Coldwell Banker Commercial, Eberhardt & Barry, Inc., Macon, Ga. “We had developer/users set up, and I was with my very young family at Disney World enjoying spoils yet to be had. Within 10 minutes [of the attack] I got a call from a billionaire in the Carolinas who said he appreciated all the help we had given him but he had so much uncertainty he could not go forward until that uncertainty was removed.”
And who can question the impact of that horrible event, and ones that have followed in London, Paris, and Barcelona, or the more recent domestic tragedy in Las Vegas?
Unfortunately, nothing quite compares with the devastation at the World Trade Center. The tragic deaths of over 3,000 will never be forgotten. In terms of the real estate, an unbelievable 30 million SF in downtown Manhattan were lost (14 million) and damaged (16 million), according to a study by Madeline M. O’Donnell at the University of Northern Iowa, published in May 2017, entitled, “The Impact of Terrorism on Commercial Office Real Estate in Manhattan.”
Those 23 buildings represented nearly one-third of the Class-A office space in New York, according to CBRE Economic Advisors.
While smaller in scale, ongoing attacks in Europe have nonetheless had a permanent impact on real estate investment, security and planning. “In the past three years, terrorists have killed more than 300 people in attacks in Western cities around the world like Paris, London, Orlando, and Berlin. These attacks represent a new type of terrorism, a new kind of threat to real estate,” writes Mike Phillips, Bisnow London, in “Defense By Design: How Developers are Countering Terrorism.”
That threat was made clear nearly immediately after 9/11, and not just in major cities. “We had six former textile facilities under contract to three different buyers on 9/11 and 9/12, and all six cancelled,” shares Art Barry III, SIOR, Coldwell Banker Commercial, Eberhardt & Barry, Inc., Macon, Ga. “We had developer/users set up, and I was with my very young family at Disney World enjoying spoils yet to be had. Within 10 minutes [of the attack] I got a call from a billionaire in the Carolinas who said he appreciated all the help we had given him but he had so much uncertainty he could not go forward until that uncertainty was removed.”
Planning a Safer Future
That uncertainty, of course, remains to this day. But immediately after 9/11 most were certain of one thing: It would happen again. The key was to make future buildings as safe as possible. After years of squabbling and legal entanglements, the World Trade Center was rebuilt. Its new components currently include One World Trade Center, the reflecting pools, and 9/11 memorial/museum. Future plans include a total of five high-rise office buildings.
But perhaps even more impressive than this ambitious re-creation of the World Trade Center are the detailed security steps taken to minimize the exposure of this, and future buildings. According to Gizmodo.com they include:
• A 90-foot setback for the new tower, compared with the 25-foot setback of the previous buildings;
• An “ultra-strong” reinforced concrete and 70-ton steel beam base for the new tower;
• Multiple levels of redundancy – beams and columns welded and bolted together to resist lateral loads, and a concrete-core shear wall, to help prevent another collapse;
• A subterranean Vehicle Security Center that will screen every vehicle entering the complex for traditional and radioactive explosives;
• Visitors to both the building and the memorial will face metal detectors and X-ray machines and have every bag, briefcase and delivered parcel screened, plus receiving photo ID for the day. Workers will also have security cards;
• More than 400 closed-circuit surveillance cameras provide live feeds to a 24-hour monitoring command center;
• Every elevator is protected within the central core structure, “which is basically a vertical concrete bunker;”
• The stairs are designed in excess of New York building codes – they are 50% wider than required.
Phillips notes that skyscrapers all over the world are now being built in ways that minimize the risk of collapse. In addition, he writes, “Measures to minimize the impact of car bombs, like shatter-proof glazing and reinforced plates built into the ceilings of underground car parks, are now a fairly routine element of major buildings in large cities.” In addition, “Street Furniture,” as he calls it, helps ensure cars cannot get too close to buildings. At London Bridge, he notes “Barriers and bollards have been installed to prevent future attacks using vehicles.”
Even location is taken more carefully into consideration. Note the recent opening of the new U.S. embassy in London, which was moved, among other things, for security reasons.
Again, it is not only major high-rises that have undertaken a dramatic change in security planning. “The dust has settled, but you still see barricades and barristers in downtown areas,” says Barry. “You see cameras in every entry and exit; little things like that.”
These considerations, he notes, affect management as much as sales. Shopping malls, notoriously known as “soft targets,” have seen dramatic changes – and he’s seen their approach adopted by manufacturing and industrial owners. “If you can get near one of these buildings you can be sure the load has been vetted,” he says. “Some actually have bomb dogs 450-500 yards from the plant where trucks are stopped and sniffed, primarily by third-party logistics military services providers. It’s not just shopping malls that have taken it to heart.”
Distribution centers consider this a worthwhile investment, Barry continues. “Take a facility of 200,000-300,000 SF; you regularly carry $100 million worth of inventory per quarter million SF in procurement centers. Out of season it’s not unusual to carry half a billion inventory. Would you rather have an ex-military Special Forces guy at the gate, or some Pinkerton out there eating donuts?”
In light of the apparent ongoing risk to terror attacks, protecting your property in such manners has become less of a voluntary thing, Barry offers. “I don’t know of an insurance company that insures a building over five stories that does not require you to have non-penetration systems,” he says.
In addition, he notes, “You need to be able to keep an eye out and be vigilant; it’s not an insurance requirement but an act of safety and precaution – an important risk management element in enclosed malls and multi-story office buildings.”
Michael S. Weiner, JD, Managing Partner of Weiner & Aronson, P.A., in Delray Beach, Fl, adds that you must also be more careful about writing contracts in this new environment. “While not a new issue, force majeure often is the last issue to be considered in a contract’s boilerplate language,” he writes in an article entitled, “A Good Clause,” on ccim.com. “Today, however, with the threat of terrorism and the prevalence of natural disasters, all parties involved with a real estate transaction should take the time to examine the consequences of the clause contained in the contract.”
Have a Plan
Coordinating all of these actions can be overwhelming. That’s why it’s critical to have an overall security plan for your properties, said Orange County, Calif.-based Trestle Property & Association Management’s co-founder Luke Rutherford in an interview with GlobeSt.com.
“The impacts of the recent terrorist attacks change the realm of ‘what’s possible’ at a commercial property,” said Rutherford, in the interview entitled “Terrorism and the Realm of Possibility in Property Management.” “If we learn from the past to forecast and respond to what’s possible in the future, then property managers, owners and tenants need to know how to respond in the event of a first person shooter or bomb. What that involves is working with owners and tenants to address an emergency action plan (EAP). If tenants and property owners know how to respond in the event of an emergency, then they can better save their own lives and lead visitors in the escape process.”
After evaluating what’s possible at your property, Rutherford noted, the next step is the planning stage. This involves an evaluation of the specific property under consideration (i.e., industrial vs. retail vs. office). The number of factors to consider is virtually endless, he said. “For example, have a look at the genetic make-up of office use: multiple floors, common interior hallways, elevators, stairs, common access control systems (exit and entry for front and interior doors) and park/campus vs. single building/parcel,” Rutherford observed. “Also, study the factors inherent with industrial: loading-dock doors (often open), storage (chemical), and trailers (think bomb) in loading docks.”
Well-prepared property owners, Rutherford asserted, “add value and trust to the owner/tenant/property manager relationship. Safety and protection are paramount in an enduring tenant relationship.”
Barry agrees. “It’s wise for people who have properties to recognize that an ounce of prevention is worth ten pounds of cure,” he says. “Be vigilant, maintain some new level of visibility with guards and cameras, and try to dissuade people.” Tenants, he notes, “want to feel safe.”
However, says Barry, things may never be quite the same. “One of the major components of our industry – dependability – was eliminated when terrorism became reality,” he says. “We used to tell people ‘You can take this to the bank,’ but if we had, God forbid, another big event, you’d see capital markets go crazy and a real measurable damning effect on the desirability of large-scale retail, hotels, and convention centers for sure.”
But O’Donnell might disagree. While vacancy rates in downtown Class-A space increased following 9/11, “the negative impacts were not long-term.” Today, she wrote, “Lower Manhattan has transformed into a vibrant live-work-play district, with employment and property values that are higher than ever. Since 2001, over nine million square feet of new office space has been rebuilt at 1, 4, and 7 World Trade Center.”
But Barry is not as sanguine. “They do a threat analysis now to measure [risk] with all the institutions through the life insurance companies – [investing in real estate] versus ‘Can I just buy a stock and get in and out quick?’” he observes. “I don’t see the core people buying real estate now; they buy equities because of the fear of uncertainty. That uncertainty to this day all started from 9/11.”
By: Steve Lewis (SIOR Report)
Click here to view source article.
Is A Downturn Coming?
Real estate cycles seem to churn about every 10 years, which means the current upward momentum could be ready for a downward turn. Most brokers believe the market still has legs – at least through 2018. The new tax bill is a big concern as past tax reform acts caused havoc in real estate markets.
When it comes to tax reform be careful what you wish for. Tax bills generally are so laden with pork, the American public often doesn’t know what it is getting. And sometimes there are triggers in these bills that have unforeseen consequences to the economy and, in particular, to real estate markets.
So, if you’re a Republican, take a victory lap.
On the other hand, if you are a student of history, you might remember it was 32 years ago that a Republican president, Ronald Reagan, pushed through the Tax Reform Act of 1986, an attempt to simplify the income tax codes and eliminate tax shelters. Oh, and it so abruptly ended the real estate boom of the mid-1980s that property values sunk like a boulder. Anyone remember the Resolution Trust Corp., which was established to sell off the enormous quantity of bad commercial mortgages from failed financial institutions?
This memory-jolt is important because the country has been in a slow, but very long economic upswing with a commercial real estate market that looks unbeatable at the moment. However, real estate is about the cycles and at some point the arrows will start pointing downward instead of upward. The question is will the turn come sooner or later. Or, will something unusual like a new tax reform bill change everything?
John Steinbauer, SIOR, president of Steinbauer Associates Inc., Miami, has been in the commercial real estate business since 1974, which means he has been through a number of real estate cycles. He considers this current one very unusual because of its length, 10 years. The market peaked around 2007, dropped precipitously in 2008 and 2009 and has been moving upward since 2010. As Steinbauer points out, it looks like “we are about at the point where we were in 2007.”
Does that mean Steinbauer expects the market to turn downward this year? Not in his Miami area. “We have a few more years of adjusting upward,” he says. “The housing market seems to have peaked, especially with expensive homes. The office market lagged up until last year, now a few new projects are going up. As for industrial, we have a few more years of improved prices and usage requirements.”
Two things can make a difference in Miami. First, the expanded Panama Canal could mean bigger ships coming into the port of Miami, which will benefit the industrial market. The other issue is the tax bill, which Steinbauer says, “it is still difficult see what the benefits are to real estate.”
Another commercial real estate veteran, Arlon Brown, SIOR, a senior vice president with the SVN Parsons Commercial Group, Boston, says the current, commercial real estate market reminds him a lot of 2000 and the dot.com era. Being a high-tech center, the Boston real estate market was at peak in 1999, and then it wasn’t. Today, the Boston market is peaking again.
“Demand for industrial space in my area is still climbing and the basic reason is the supply is very limited and the demand is getting greater,” Brown reports. “Lease rates on industrial is going up – somewhat. For small scale industrial space, under 20,000 square feet, the market is going crazy. We are into double digits on a triple net basis. Once you get above 20,000 to 25,000 square feet, the rates slide precipitously to $6 or $7 a foot, triple net.”
With the Boston market so frothy, Brown believes the cycle is in the “eighth inning of a nine inning game.”
He adds, “I’ll be starting my 41st year in the industrial market. I’ve definitely seen the cycles, but the most interesting thing is, you can never accurately predict when cycles are going to end. I said we were in the eighth inning, but I just don’t know how long this eighth inning is going to last.”
The big question mark for Brown is if the new tax law “will affect real estate like what happened in 1986.”
The other thing, he says, to look out for is the stock market. “If company performances start to go lower and workers are laid off, look out, because every office worker takes up 150 to 200 square feet,” he explains. “When companies lay off thousands of employees, the extra space starts to add up.”
Tim O’Brien, SIOR, president of O’Brien Commercial Real Estate, is fortunate to be in the thriving, Midwest, industrial and distribution market of Indianapolis. Amazon boasts a number of fulfillment centers in the area and distribution is still being built, although vacancies ticked up very slightly toward the end of 2017.
O’Brien is an optimist with limitations. He thinks the industrial market will continue to expand, but there are risks.
He explains: “Often, as vacancy rates fall and the marketplace tightens as a result of job growth, the area sees more construction, whether speculative or build-to-suit. When that occurs, tenants migrate to the new space, vacating older space, and creating a void in second or third generation space. The effect of those tenants in existing properties moving into the new construction creates vacancies in the buildings they are leaving, and those buildings will compete fiercely with both new space and other old space. The landlords (or lenders) for this second generation space often cut rates and get more aggressive in pricing. When this occurs, there is downward pressure on rates and tenant incentives go up. It tugs downward on the all the new construction properties and there’s generally a slowdown in new construction because of the increased vacancy (and, thereby, competition).”
O’Brien doesn’t anticipate those dynamics to come into play until late 2018 or early 2019. “At that point, I could see us at the start of the downward part of the cycle,” he says.
The one thing that worries O’Brien is corporate performance. “We have strong corporate earnings and job growth, but it doesn’t take much for it all to reverse,” he says. “Many corporations are international and they are affected by events in other parts of the world. Our market in Indianapolis may be completely healthy, but if a handful of companies downsize and shut down an office or distribution center, then you have additional pockets of space, which can really have a big ripple effect.”
Probably, one of the most optimistic of SIOR members is John Culberston, a senior vice president with the Brennan Investment Group, Charlotte. If you ask Culberston about the commercial market, well, his response is, we should all by partying like its 1999, which, of course, meant that you partied for the next eight years or until 2007.
Culbertson’s current, predictive, time line isn’t that far out, but it’s close.
“A byproduct of the growth in the residential market is a push for additional warehouse space and this trend will continue for at least another three years and perhaps as long as five,” he says. “The improvements in robotics and the streamlining of manufacturing shows there will be continued investment in industrial manufacturing for the next five years. Robust demand in automotive and the changes in demand for infrastructure should continue for the next three to five years.”
He adds, “America will continue to be a place where overseas investors will want to be and that’s going to mean that cap rates will remain low even as interest rates creep up. Certain submarkets will do better than others. Midwest probably will not do as well as the Southeast and Southwest and Texas. All in all, industrial real estate should remain quite good.”
Asked if he had any cautions at all, Culbertson commented, “any of our leaders who have erratic tendencies could get us into trouble.
Promoting and sponsoring initiatives that educate, enhance, and expand the commercial real estate community. The SIOR Foundation is a 501 (c)(3) not-for-profit organization. All contributions are tax deductible to the extent of the law.
By: Steve Bergsman (SIOR Report)
Click here to view source article.
The Retail Shift
Marketing retail space is hardly the first thing one thinks about when considering SIOR services, but marketing re-used retail space? Well, that’s another thing entirely.
And in today’s real estate market, there’s plenty of that to go around. Driven in large part by the boom in cyber sales, brick and mortar stores and malls are closing in large numbers, with the facilities being re-vamped into all types of projects. Here are just a few examples:
• Mayfield Mall in Mountain View, Calif., has become Google offices;
• Hickory Hollow Mall in Antioch, Tenn., is now a hockey rink;
• 100 Oaks Mall in Nashville has become a medical center;
• Galleria at Erieview in Cleveland now boasts greenhouses;
• The Arcade in Providence, R.I., offers Microlofts;
• Northpark Mall in Joplin, Mo., is a high school;
• And Tri-County Mall in Oliver Springs, Tenn., has been transformed into a church.
Many, if not all such transformations offer a wide range of new opportunities for SIORs. Matthew Cravey, SIOR, Cravey Real Estate Services, Corpus Christi, Tex., convinced an investor to put under contract a former HEB Grocery store building. “While under contract, we found a charter school to lease the main building,” he shares. “We then sold off pad sites to fast food restaurants.”
“One regional mall in our market was acquired by an industrial development firm with plans to demolish the building and re-develop it as warehouse/distribution center space,” notes John Van Buskirk, SIOR, Principal with Lee & Associates of Eastern Pennsylvania. “It’s a great play – retail locations are typically population centric (a key when it comes to staffing distribution center operations), and the associated infrastructure provides a running start on the project development side.”
His firm is also currently working on an assignment in an established retail location. The starting point is an 80,000 SF building acquired by a retailer to protect a lease for half the building, originally constructed in 1970 as a single tenant building. “From a competitive standpoint the pool of competing spaces at that size increment is deeper than I’d like, and as a result we are pricing redevelopment concepts which would simultaneously modernize the building and provide up to four tenant spaces and a restaurant parcel,” he shares.
“One of my clients converted the 80-acre Randall Mall in the suburbs of Cleveland to a distribution center for Amazon,” says Norm Khoury, SIOR, Brokerage Senior Vice President/Cincinnati Industrial Services Group, Colliers International.
And Christopher Bell, SIOR, Managing Broker, Black Commercial, Inc., an NAI Black Company, Spokane, Wash., currently is negotiating a deal for a locally headquartered company to relocate its corporate office from its campus near the hospital district to a suburban former grocery store building. “They will nearly double their parking and reposition their headquarters closer to their workforce,” he notes.
DIFFERENT MARKETS, DIFFERENT OPPORTUNITIES
While the growth of cyber retail has clearly been a moving force in the transformation of retail space, it is not the only important factor. Some stores, particularly larger ones (like mall anchors), no longer serve the needs of more specialized audiences, for example, and experts note that such factors can be key to the opportunities that are presented.
“The gloomy narrative around U.S. shopping malls fails to take into account the opportunities in retail spaces abandoned by retailers like Macy’s, J.C. Penney, The Limited, Wet Seal, Payless, Rue21, Bebe and others that this year alone have shuttered hundreds of stores, many experts say,” notes Retaildive.com.
Credit Suisse had predicted total brick and mortar closures of 8,600 for 2017 and an increase in 2018. Beyond the examples cited above, what other opportunities might exist? Anything from hotels and other services, such as dry cleaners, salons and barbershops; fitness, with gyms, yoga, Pilates and other workout centers; recreational activities for families, such as rock climbing, children’s activities, even indoor water parks and amusement parks; and medical care uses, according to Peter Muoio, Chief Economist at Ten-X.
In fact, some of those opportunities actually include retail – albeit a different type than what had previously existed. Or perhaps even more surprising, formerly industrial facilities are actually being transformed into retail.
“In our area a lot of urban neighborhoods that used to be industrial are transforming into retail, and people are paying crazy prices,” says Danny Zelonker, SIOR Real Miami Commercial Real Estate, LLC. “I leased a 13,000 SF building to a company that does dental robotics implants.” This “unique type of retail,” he explains, does not compete, say, with Amazon. “It is very high end,” Zelonker observes.
In terms of former retail space, some Sprint and Verizon stores now occupy what used to be Radio Shacks, he continues. “A former Wal-Mart building is being divided into several spaces,” he shares. “These include Planet Fitness and Dollar Tree, along with smaller tenants.
POSITIONING FOR SUCCESS
Given that a number of these opportunities fall within areas that may be new to some SIORs, what are the best ways for them to position themselves to take advantage of those opportunities?
“Leverage your skill set,” Bell advises. “If you do a lot of tenant rep work with corporate clients who are willing to look at non-traditional office properties, look to leverage your relationship with a broker who has relationships in the market with the property owners that would consider putting office uses into their retail properties.”
“Identify older, obsolete retail stores like Best Buy, K mart, older malls, and so on,” Khoury suggests. “Work with the local communities to determine local and state incentives. Then, contact all the developers/investors/sponsors/exhibitors at SIOR conferences!!”
“The most difficult part is finding a property to work on,” says Cravey. “I have noticed that because the vacant property is usually more affordable, there always seems to be a user that will take the property.”
The keys to success, adds Van Buskirk, are “necessity, basis, and demand.” When change is required, he explains, the right (risk adjusted) cost basis and return are key. “And without demand for the revised format, the conversion will ultimately fail,” he cautions. “Thorough research on the tenant base, demographics, expected rents, tenant improvement implications and the availability of debt (if required) seem like a place to start.”
“Gather all the pertinent facts from your clients,” says Bell. “Get copies of all existing tenant leases and prohibited use clauses, loan documents, CC&R’s/REA’s and sit down with your client to work through whether converting all or a portion of the retail property to office use will achieve your client’s goals.”
THE FUTURE? MORE OF THE SAME
Most industry observers are convinced that if anything, the challenges for retail facilities and the demand for re-use will continue – and that the rise of cyber retail will only grow stronger.
New cyber sale records of all kinds were set during the past holiday season. ABC News reported that according to the National Retail Federation, more than 174 million U.S. consumers shopped in stores and online between Thanksgiving Day and Cyber Monday, with over 81 million people shopping on Cyber Monday alone.
ABC cited a report from Adobe Analytics that online sales hit a record-breaking $6.59 billion on Nov. 27, up 16.8% from the previous year. And mobile sales set a new record on Cyber Monday: 47.4% of shopping happened from either a smartphone or a tablet. That means Americans spent over $2 billion on mobile purchases.
Looking ahead, Credit Suisse predicts that about one-fourth of the nation’s 1,100 shopping malls – or roughly 220 to 275 shopping centers – will close by 2022.
“According to the U.S. Census Bureau,” adds Van Buskirk, “For Q3’17, e-commerce sales were estimated at $115.3 billion, or 9.1% of all retail sales on a seasonally adjusted basis.” That level, he adds, has increased steadily at a give or take 10% annual pace for the last 19 years, and has had a profound effect on both retail and industrial asset classes.
“For better or worse, it seems reasonable to conclude we’re in the early innings of this channel shift,” he asserts. “Millenials are coming into their own as the largest living generation, inventory tracking systems are growing more and more robust, secure payment systems continue to improve, and the requisite parcel infrastructure is expanding rapidly.”
“This trend should continue into the near future as retail chains adapt and right size their store footprint,” says Khoury. “In addition, retailers are starting to utilize their retail stores as a Distribution Center for last mile delivery.”
All of this, says Bell, makes the future bright. “In tertiary markets, construction costs continue to make new office construction difficult,” he says. “Coupled with retailer consolidation and reorganizations to be competitive with eCommerce, opportunistic SIORs will see great opportunities to place their tenants in well-located former retail properties.”
Promoting and sponsoring initiatives that educate, enhance, and expand the commercial real estate community. The SIOR Foundation is a 501 (c)(3) not-for-profit organization. All contributions are tax deductible to the extent of the law.
By: Steve Lewis (SIOR Report)
Click here to view source article.
