Archives for October 2020

Demand remains strong and vacancy is close to its all-time low.
Anticipating a surge in online shopping during the holidays, e-commerce tenants are already prepared to handle the swell in orders, having locked in additional industrial space during the second and third quarters, according to Steve Schnur, executive vice president/COO at Indiana-based industrial REIT Duke Realty.
Online retail sales increased a whopping 30.1 percent during the first six months of the year, compared to the same period in 2019, from $266.84 billion to $347.84 billion, according to Digital Commerce 360 analysis by the U.S. Department of Commerce data.
Online shopping is expected to jump even more during the holidays, with software company Salesforce predicting that as much as 30 percent of all global retail sales will conducted online during the 2020 holiday season. A Statista survey found that nearly half of U.S. consumers plan to shop online during the period, reports Finch. What happens in the November election and whether there will be a new government stimulus package before the end of the year will also have an impact on online holiday sales, according to Pete Quinn, national director for industrial with real estate services firm Colliers International.
At the beginning of the pandemic this spring, Duke Realty had paused speculative construction projects to focus on build-to-suits because e-commerce companies that were seeking space, like Amazon and Walmart, were having difficulty finding the type of space they wanted to lease, says Schnur. But today, demand for industrial space is so strong, the company has restarted spec development and 60-65 percent of product in the pipeline is already pre-leased.
This year has been unpredictable for retailers trying to get a handle on the right inventory levels, according to James Breeze, senior director and global head of industrial and logistics research at real estate services firm CBRE. So, retail occupiers of industrial space have increased their footprints to accommodate more “safety stock” and avoid disruptions due to lack of inventory.
“We expect this to be a major driver for retailers, wholesalers and 3PLs in the coming year, as occupiers keep more inventories on hand,” says Breeze, noting that industrial leasing transactions at the end of August averaged 277,000 sq. ft. for deals of 100,000 sq. ft. and above.
The average vacancy rate for the U.S. currently sits at 4.7 percent—only 30 basis points above its all-time low, according to CBRE. That’s in spite of the fact that more than 82 million sq. ft. of new product has been delivered to the market. In the second quarter, there was 117 million sq. ft. in new industrial leasing activity—surpassing the 100-million-sq.-ft. market for the 18th consecutive quarter. Average rents grew by 2.1 percent.
With more than 300 million sq. ft. of industrial space currently under construction there are no concerns about space shortages, except near population centers in large urban markets, which have little land to develop on, according to Breeze. He notes that core industrial markets—the Inland Empire, Dallas-Fort Worth, and Atlanta—have the most product under construction, but interior Southwestern markets with strong population growth, including Phoenix, Las Vegas, Salt Lake City and El Paso, Texas, are seeing significant increases in construction as well.
“The biggest challenge for users is clearly labor,” says Schnur, noting that warehouse tenants are aggressively recruiting workers by raising pay rates and adding amenities. Duke Realty is assisting them by providing outdoor recreational facilities, bike racks, charging stations, and space for a cafeteria or employee lounge.
Because e-commerce distribution is much more labor-intensive than traditional warehousing, availability of labor is also key in site selection, adds Breeze. “As the economy and job market improve and e-commerce sales increase, labor will be even harder to come by.”
Schnur notes that Duke Realty tenants are increasingly adding a conveyor system and automated sorting and robotic technology inside warehouses to overcome labor shortages, while utilizing human resources for jobs robots can’t do, like loading and unloading boxes on the outside. “This is the most effective model we’re seeing,” he says.
Tenants are installing their own technology, but it impacts industrial owner/developers in that they need to create infrastructure to support it, such as high-power electrical feeds and conduits required to handle the additional load.
Reverse logistics also represents a big opportunity for industrial property owners going forward, as retailers are just beginning to understand and address this problem. About 30 percent of merchandise purchased online is returned, compared to about 9 percent of in-store purchases, reports Invesp.
“Return logistics is putting a big strain on the system and is a tough nut to crack,” says Schnur, noting that some companies are beginning to specialize in handling returns. Duke Realty recently completed a lease deal in Nashville, Tenn. with Washington-based Optoro, which specializes in returns technology and has partnered with San Francisco-based Returnly, which focuses on the return experience, to provide retailers with a cost-effective, customer-friendly platform for handling return logistics.
Quinn notes that logistics providers and consultants are also beginning to offer such services to lower retailers’ costs as retailers remain focused on providing their customers with fast and reliable delivery while keeping supply-chain costs down.
Source: “E-Commerce Tenants Continue to Lease Industrial Space as the Holiday Season Approaches“

The dynamic reflects both a dearth of deals taking place and the fact that distress hasn’t started working through the marketplace yet.
Amid the considerable carnage being inflicted on the U.S. commercial real estate sector by the COVID-19 pandemic, the most recent Commercial Property Price Indices from the industry’s major data firms show some good news.
Green Street Advisors, Real Capital Analytics (RCA) and the CoStar Group all reported their all-property indices have either stayed flat or rose slightly in recent months. Part of this dynamic likely has to do with far fewer sales being completed in the marketplace and investors’ focus on strong, well-located, leased-up assets when they do acquire properties. It also shows that so far, there have been few fire sales in the commercial space.

Green Street’s gauge

The Newport Beach, Calif.-based firm reported that its Commercial Property Price Index stayed flat in September from the month prior, but down 9.2 percent year-over-year. Green Street’s CPPI tracks unleveraged values on sales of institutional quality properties being currently negotiated or contracted.
While in September the pricing stayed flat compared to August for all commercial property sectors Green Street tracks, the change in indices differed dramatically when it came to year-over-year comps.
Prices on regional malls were down 28 percent compared to 12 months ago and on lodging properties by 25 percent. Strip centers saw their prices drop by 14 percent, while prices on apartment buildings declined 3 percent. Industrial facilities and manufactured home parks were the only two commercial property sectors that registered gains in their price indices over the past 12 months, at 7 percent and 10 percent respectively.

Real Capital’s measure

RCA, a New York City-based data firm, reported that its Commercial Property Price Index was flat in August, the most recent month for which data is available, compared to the month prior, while registering a slight (0.1 percent) decline over a three-month stretch. Compared to August of 2019, the CPPI was up 0.9 percent. The RCA CPPI is based on repeat sale transactions that took place at any point during the month of August. The indices are benchmarked at 100 for the month of December 2006.
According to RCA’s CPPI, the retail sector saw the most significant drop in pricing, both month-over-month and over a three-month period. From July to August, prices on retail properties fell 0.2 percent. Over the course of the summer, the drop totaled 2.1 percent. Year-over-year, retail prices fell by 4.1 percent.
The fallout for the office sector, which has also been negatively impacted by the ongoing pandemic, has been more muted. Prices on office properties stayed flat from July to August and dropped 0.7 percent over a three-month period. Year-over-year, office prices declined by 0.5 percent. There was also a split between prices on office buildings in Central Business Districts (CBDs) and suburban properties. Prices on CBD office buildings rose 0.4 percent month-over-month in August, by 0.8 percent over a three-month period and by 3.2 percent compared to a year ago. Prices on suburban office properties declined 0.2 percent from July to August and 1.1 percent over a three-month period and by 1.4 percent compared by 2019.
Meanwhile, the indices for both industrial and multifamily properties have been nudging up. Prices on industrial assets increased by 0.6 percent month-over-month, 1.9 percent over a three-month period and 7.4 percent year-over-year. Prices on apartment buildings rose 0.5 percent month-over-month, 1.2 percent over a three-month period and by 7.4 percent year-over-year as well.

CoStar’s view

The equal-weighted U.S. Composite Price Index produced by data firm CoStar showed a slight uptick—by 0.2 percent—in August compared to July. It was flat for the quarter and up 0.4 percent compared to August 2019.
However, the index was down 2.3 percent from March of this year, when it reached its peak for the previous cycle. The CoStar equal-weighted composite index also looks at repeat sales. It weighs each investment sale equally and reflects a wider number of transactions happening in the marketplace.
Source: “Recent Commercial Price Indices Show Little Movement“

Thanks to all of the brokers, sponsors, and guests who attended the October 2020 CCIM NM Deal Making Session and to those who shared their properties.
Click here to view source PDF.
Click here to view the Thank Yous.

Please note: Pursuant to NAR, regulations of the CIE are contained in the MLS handbook. Although the CARNM CIE Rules and Regulations expressly provide in Article 2.1 that our CIE, as a Commercial Information Exchange, is not a multiple listing service, and that neither offers of cooperation nor offers of compensation shall be made or accepted through our CIE, CARNM is a member of NAR which sent the following update which, in turn, is being provided to CARNM members for general information and guidance.

We are very disappointed in the ruling. However, this is only the first round. As the case moves forward, we intend to demonstrate how the MLS system creates competitive, efficient markets that benefit home buyers and sellers as well as small business brokerages. The MLS fosters cooperation between brokers providing the best and greatest number of options for buyers and sellers. The broker commission structure also ensures greater access for first-time, low-income and many other home buyers who otherwise couldn’t afford a home purchase. We are confident that when the case is ultimately decided, we will prevail.
There have been no changes to the copycat Sitzer v. NAR lawsuit, which is also in discovery. We will continue to keep you informed as the litigation progresses.
It is important to understand the critical role you play in educating your clients on the pro-competitive effects of the MLS system. Additional consumer-friendly materials are available at www.multiplelistingservice.org and www.cmlsintheknow.org.
Talking points:

• The MLS system and the way commissions are paid create competitive, efficient markets that benefit home buyers, sellers and small business. The MLS system creates a highly efficient residential real estate market that fosters cooperation between brokers to the benefit of consumers. Commission structures (including how the listing broker pays the buyer broker) ensure greater access for a large community of home buyers who might otherwise be priced out of the market, which also would limit options for sellers.

• REALTORS® are champions of homeownership, property rights and the communities they serve. Every REALTOR® adheres to a strict code of ethics based on professionalism, consumer protection and the golden rule. REALTORS® draw on their unmatched knowledge to help buyers and sellers navigate one of the most complicated financial transactions of their lives. And REALTORS® are engaged neighbors committed to building and enhancing the communities they serve.

• Local, expert brokers play a crucial role in helping buyers and sellers achieve their goals. Given the volume of information buyers have to navigate and the complexity of this transaction, buyer brokers serve many essential, highly informed roles ranging from scheduling home tours and inspections to coordinating with lenders and appraisers to coordinating attorney reviews and closing documents. Consumers agree: 78 percent of homebuyers say their broker was an important information source, and almost 90 percent would recommend their broker to a family member or friend.

• These lawsuits are wrong on the facts, wrong on the economics, and wrong on the law. Commissions are negotiable and, in fact, can be negotiated at any point during the transaction. The MLS and associated brokerage system create highly competitive markets with increased transaction volume and superior customer service. Consumers have many choices of different service and fee models among many brokers. Over 100 years, the courts have repeatedly validated this pro-competitive, pro-consumer MLS system, recognizing it increases the efficiency of the market and thus serves the best interests of sellers and buyers alike.

Source: NAR