Archives for June 2019

Tertiary markets lead the growth frontier for flexible workspace offerings.

The buzz in the commercial real estate industry for the past 18 months has centered around the coworking space occupancy model. Coworking companies are leasing space at a fast pace, and coworking services are providing tenants with alternatives to offer space to employees. While coworking occupancy only represents a small portion of the combined office inventory across leading markets (1 to 2 percent), according to a recent report by Colliers International, flexible workspace accounted for 52.9 percent of inventory growth in Manhattan and 28.3 percent in other major U.S. markets from 2016 through 2Q2018.
Still, nearly all coworking activity revolves around urban centers. Outside large urban markets – which notably have a high concentration of technology companies – will coworking be a factor? While coworking spaces in secondary and tertiary markets haven’t exploded, several factors point to these markets offering an additional growth frontier.

Flexibility in Remote Workers

Over the past 10 years, the largest companies in the U.S. have shifted from former industrial giants – Exxon, Proctor & Gamble, and General Electric – to tech giants – Apple, Amazon, Microsoft, Google, and Facebook. Today’s workers are not tied to a physical manufacturing plant; rather, they could be in Sacramento, Calif.; Norfolk, Va.; or Milwaukee. With the high cost of housing and labor in coastal markets like Silicon Valley, companies may look to coders, customer support, and contract workers in lower-cost areas. These workers are likely to work from home, but they may be interested in coworking spaces. Companies like Adobe have added jobs in Utah, Amazon announced its expansion into Nashville, and Salesforce continues to grow its marketing cloud business in Indianapolis.

Tech Job Growth in Secondary Markets

Markets with the fastest high-tech job growth in 2016 and 2017 include usual suspects Seattle, San Francisco, and Austin, Texas, but also Indianapolis and St. Louis, according to Visual Capitalist. CBRE projects the 10 new markets to lead tech job growth through 2020 will include Sacramento, Calif.; Kansas City, Kan.; Colorado Springs, Colo.; and Norfolk, Va. The best investment markets, according to CBRE’s Tech-30 report, offer low rents and growing high-tech labor pools, such as Nashville, Tenn.; Portland, Ore.; and Raleigh, N.C. If tech jobs boosted the expansion of the flexible workplace in urban, technology-centric core markets, why wouldn’t the same be true in secondary markets?

Replicating the Coworking Model

Large operators or new franchisors can easily replicate the coworking workplace model in smaller markets. With low barriers to entry and office inventories not likely to grow as fast, flexible workspace can meet the demand in tertiary markets. If large coworking firms don’t want to expend capital to invest in smaller markets, local operators or franchisors likely will pick up the slack. Ohio-based coworking company COhatch, for example, has plans to expand beyond the firm’s base of operations through the Midwest, focusing on smaller towns, according to the Dayton Business Journal. Traditional owners and landlords are also launching their own flexible workspace concepts.  Additional flexible workplace firms, such as Novel Coworking and Serendipity Labs, are expanding access to coworking inventory in smaller markets.
While the expansion of the coworking model in small markets offers new workplace options, these smaller markets are not growing at the pace of larger metropolitan areas in the U.S. Distance learning may alter the availability of technology industry-ready workers in the future, but the current pool of qualified remote workers remains limited.

Innovation and Higher Education

While venture capital funds are typically focused on investing in the coastal markets with high concentrations of innovative startups, some new ventures emerge as spinoff ideas generated by large research universities – many of which are in tertiary markets. For instance, the University of Illinois, Purdue University, Virginia Tech, and other land-grant universities generate a healthy supply of STEM graduates in smaller communities. Startups in these markets will benefit from an inventory of urban-like flexible workspaces. Though it’s not likely that the innovative spinoffs from research universities will create a concentration of technology companies like in New York or San Francisco, the availability of urban-style flexible workplaces may encourage these startup firms to remain in the university towns longer. Furthermore, one of the benefits of the coworking model is the opportunity to create an ecosystem of similarly positioned firms to generate new opportunities for one another.

Retaining Top Talent

Companies recognize the need to not only attract new talent to knowledge-based technology industry sectors but ensure talent retainment. With technology and knowledge-based jobs, workers may jump at the opportunity to relocate to meet personal and family needs while retaining their positions. Eighty percent of respondents in a recent employer survey by IWG/Regus, the largest flexible workplace provider, stated that enabling employees to work from anywhere helped them recruit and retain top talent. With some of these retained workers relocating from high-cost urban coastal markets to secondary and tertiary markets, a strong supply of flexible workplaces in these markets will meet the needs for these employees.
While the supply of flexible office space is growing quickly in urban core markets, the next frontier is in secondary and tertiary markets. A confluence of factors – mostly centered around the needs of a flexible and mobile workforce – may drive demand to markets that previously were not perceived to be growth opportunities for flexible space providers.
By: Dan Spiegel (CCIM Institute)
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Companies across New Mexico and especially those on the border are bracing for a potentially “catastrophic” economic blow after President Donald Trump vowed to impose tariffs on all products from Mexico.
The startling announcement came in a tweet from the president Thursday: “On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP.”
And the tariffs will go up each month until they reach 25% in October, according to the White House.
“It’s like threatening Mexico, ‘You better do this,’ and you take a pistol and you point it at your own foot,” said Jerry Pacheco, CEO of the Santa Teresa-based Border Industrial Association and a Journal columnist.
Border companies that depend on trade with Mexico will bear the brunt of any tariffs.
“We’ve become the cannon fodder on the front line from this action,” Pacheco said.
Santa Teresa is New Mexico’s busiest border crossing and accounts for about $2 billion in trade alone annually.
Santa Teresa importance
“Almost half of state’s total exports to the world are generated in Santa Teresa because we’re so tied to the Mexican economy,” Pacheco said.
Gov. Michelle Lujan Grisham in a statement said the “tariffs have the potential to be economically catastrophic.”
“Our state sends almost $1.5 billion in exports to Mexico each year; a trade war would devastate businesses all across New Mexico, in rural and urban communities alike,” she said.
The planned tariffs sparked opposition even from usual Trump allies such as Sen. Chuck Grassley, R-Iowa, who called the action “a misuse of presidential tariff authority,” and the news sent stock markets tumbling, with the Dow Jones Industrial Average closing down roughly 355 points, or 1.4%.
Businesses on both side of the border share production lines and integrated supply chains for automobiles, electronics and produce that come through the ports of entry. The border economies are intertwined and affect all types of businesses.
“We’re not a manufacturer, but we depend on the manufacturers,” said Lane Gaddy, CEO of W Silver Recycling.
The company processes recyclable metal and electronic waste at 11 locations, including Albuquerque and Santa Teresa.
“Of our 500 employees, the vast majority are U.S.-employed, so if manufacturing slows down in Mexico, we have reduced head count,” Gaddy said.
Adding to turmoil
Companies in New Mexico already have been coping with long lines at ports of entry after more than 750 U.S. Customs and Border Protection officers were reassigned to help the Border Patrol earlier this year.
“We feel like we’re walking through glass. It’s already a precarious time to be on the border manufacturing, and this is just yet another slap in the face to business in region,” said Gaddy.
The uncertainty created by the planned tariffs will have an economic impact across the county well beyond border states, according to Jon Barela, CEO of the Borderplex alliance. The organization promotes economic development and recruits companies for Doña Ana County, El Paso and Ciudad Juarez.
“We know that jobs in the borderplex region and in New Mexico will be threatened by this action, but there are between 5 (million) and 6 million jobs that directly rely on trade with Mexico, and those jobs and the sophisticated supply chains that have been established between the two countries will be either threatened or terminated,” Barela said.
Business owners outraged
Barela said he’s getting calls from numerous business owners in the region who are outraged and perplexed by the president’s effort to use tariffs to deal with immigration problems.
The president’s action amounts to a tax on U.S. consumers that “will not solve the migrant crisis, and in fact, Mexico, before this action, this misguided action, was already taking firm steps to secure its own southern border in a meaningful and productive manner,” Barela said.
Mexico has provided humanitarian visas to encourage migrants headed for the U.S. to stay in the country and is now taking back hundreds of migrants from other countries who have pending asylum cases in U.S. immigration court under the “remain in Mexico” policy. The country has also detained and deported thousands of Central Americans.
But Trump has grown increasingly frustrated by the steady influx of asylum-seekers. Most are Central American families and children on their own traveling up to the border.
Border Patrol agents took 1,036 people, the largest group of migrants, into custody in El Paso on Wednesday. Large groups of Central Americans have also arrived in southern New Mexico seeking asylum.
Gov. Lujan Grisham said the president has the tools and funding to effectively address border security.
“He should work with Congress and our Mexican neighbors on comprehensive immigration reform. Instead, he punishes New Mexicans and residents of other states for a situation he has created and exacerbated, one only the federal government can fix,” she said.
Top trading partner
Mexico is America’s largest trading partner, and $346 billion in imports would be subject to tariffs if the president makes good on his threat. That would translate to higher prices for American consumers on products ranging from food to computers. The tariffs are expected to hit the auto industry especially hard.
“It put a knot in my stomach. Anything that slows down new car sales it’s going to ripple through,” said Alexander Sierra, ACME Mills corporate director of customer experience.
The Santa Teresa company sources and supplies textiles and materials that go into car seats and other products. “If you sit on it, we’re a part of it,” Sierra said. “Most car and truck seats are made in Mexico.”
In addition to billions of dollars in auto parts crossing in both directions across the border, Mexico is the eighth-largest supplier of clothing and seventh-largest supplier of footwear to the U.S. market. It’s the largest supplier of men’s and boy’s jeans, accounting for 35% of imports, according to the American Apparel & Footwear Association.
By: Angela Kocherga (ABQ Journal)
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