Archives for November 2022

JLL Technologies (JLLT), the technology division of JLL, today announced the launch of the Strategic Technology Program, which provides assessment, strategic planning, goal setting and performance measurement services for real estate technologies.

The launch of the program is in response to increasing demand for technology solutions to help commercial real estate (CRE) managers adhere to sustainable business objectives. These services are particularly relevant now as businesses implement long-term hybrid work models and ambitious sustainability targets stemming from the pandemic.

According to JLL research, 44% of large and mid-size organizations rely on external partners and service firms to accelerate their real estate technology implementation. Among JLL’s enterprise clients, demand for technology management services has increased by over 50% year-over-year. As demand has increased, JLL has invested in its technology services.

The Strategic Technology Program helps real estate leaders better manage and operate their real estate technology for optimal outcomes. Real estate leaders can use the program’s technology assessment, management and measurement offerings to align their technology portfolio to their building systems and data, sustainability, and facility management objectives.

The offering helps companies in the following areas:

• Building – Tools that tune buildings and workspaces to drive for optimal performance, inform sustainability objectives, and enable real estate services teams to interact with building and enterprise systems.
• Workplace – Enterprise technology solutions that help maximize employee efficiency and enhance their workday experience.
• Sustainability – Platforms that measure and improve energy use, water use and waste to help companies reach their net zero carbon goals.
• Data & Analytics – Governance, integration, reporting and modeling that leverage data and analytics platforms to achieve financial, operational and experiential breakthroughs that power insight-driven real estate decision.

“More and more, organizations are coming to us to help them demystify the ever-expanding and increasingly complex real estate technology landscape, and ultimately use that technology to help them navigate the changing world of the workplace,” said Sharad Rastogi, president, JLLT. “Hybrid work requires technology to be successful. This offering is a great example of how we combine expertise across technology and technology services to enable our customers to select, deploy and adopt technology and accelerate their return on investment.”

JLLT houses decades of talent from all corners of CRE – developers, technologists, brokers and more. Together with other business lines in JLL, it delivers a comprehensive portfolio of purpose-built software platforms, apps, hardware and technology services. It also offers innovations from venture-backed companies. JLLT’s objective is to meet and exceed the industry’s demands for transactional, operational, experiential and data-driven excellence.

“JLLT is our strategic real estate technology partner,” said Kathy Jones, Associate Vice President for Facilities Engineering and Planning, Rice University. “They are an extension of our internal team and a trusted delivery and thought partner. They help us drive innovation, transformation, and adoption through an actionable and measurable technology roadmap and tightly aligned business outcomes, both of which are supported by efficiently utilized people resources and technology resources.”

JLLT is recognized as a leading Workplace Systems Integrator by Verdantix Research and has helped thousands of clients deploy and manage technology in more than 130 countries globally, representing over 250,000 properties and more than 14 billion square feet of space.

Source: “JLL’s strategic technology services enable future of work and sustainability“

What’s worse than having to take a dose of nasty medicine midday? Having people coming in repeatedly during the morning reminding you that the unpleasant mixture is waiting patiently for you.

Lately, the nagging monitors have been high-level members of the Fed warning that markets shouldn’t hope for a quick end to tougher interest rates—which means ongoing pain for commercial real estate.

Esther George— president of the Federal Reserve Bank of Kansas City, 40 years at the Fed, and retiring in January—told the Wall Street Journal that getting inflation down without a recession might not be feasible.

“I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there,” George said.

That may be the gloomiest recent remark by someone at the organization. Others have been less direct, but not really cheerier when parsing what they actually say.

Fed governor Christopher Waller has been warning that the “market seems to have gotten way out in front on this,” that being better sounding news on the consumer price index when the October numbers came out.

Although on Wednesday in a speech at an economic forum in Arizona, he said, “Looking toward the FOMC’s December meeting, the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike. But I won’t be making a judgement about that until I see more data, including the next PCE inflation report and the next jobs report.” Then he added, “If the FOMC were to step down to a 50-basis-point increase, it is important to remember that this would still be a very significant tightening action—in other words, just pulling back on the rate of ascent a little bit. At this angle of ascent, with policy already in restrictive territory, the federal funds rate can still be increased quite rapidly with several 50-basis-point increases, a pretty aggressive path for policy.”

Federal Reserve Bank of Boston President Susan Collins talked to the Journal earlier in the month and, of the three, was the most upbeat. Kind of. “The main things that I wanted to emphasize are that—one is still bringing inflation back to target,” Collins said. “We’re going to have to tighten further and then hold for some time. I am optimistic that there is a pathway that would not require a significant slowdown. And I’m happy to talk a bit more about that, recognizing that there are some key risks and that both inflation and unemployment are very costly and that those costs are not equally distributed.”

Even the optimistic official said that Fed actions will continue to put pressure on the economy, rates will go up, and that’s going to keep going on for “some time.” Maybe that bridge loan with a thought that rates will be done in a year isn’t the best move.

Source: “More ‘Don’t Get Optimistic’ Warnings from Fed Officials“

Single-family rentals, a popular part of the residential segment of commercial real estate, continues to feel pressure on rent growth.

In its latest SFR index, CoreLogic says that rent growth has decelerated for the fifth month running. “Single-family rents increased 10.2% year over year in September, down from 13.9% in April 2022,” the firm wrote. “Lower-priced rent growth continued at record double-digit annual gains, up 12.1%, while higher-priced rent growth decelerated at the fastest pace since April’s peak.”

CoreLogic split out SFT into four subsets. Lower-priced (75% or less than regional median), was up 8.5% year over year. Lower-middle priced (75% to 100% of regional median), up 9.4% since September 2021. Higher-middle priced (100% to 125% regional median) was up 10.6%. Higher-priced (more than 125% of median), up 11.1%.

“Miami posted the highest year-over-year increase in single-family rents in September 2022 at 20.1%,” the firm noted. “Orlando, Florida recorded the second-highest gain at 18.3%, while Boston ranked third at 10.6%. St. Louis posted the lowest annual rent price gain at 5.2%. While rent growth in many fast-growing metros has decelerated compared to last September, return to offices, colleges and cities is driving rent growth higher in other metros where increases were lagging, such as Boston, New York, Chicago, and Philadelphia.”

There’s nothing basic in the dynamic that is unique to SFR. Multifamily rent growth went over the top and now is sliding down, with September proving the turning point, so feeling the pinch but not quite as soon as single-family.

That is still an enormous aggregate increase in rents, but a CoreLogic point about SFR applies across the whole rental housing spectrum: “The rent increase slowdown comes as inflation stretches tenants’ pocketbooks.”

There comes a time when accumulated pressures on personal and family finances means that people have to cut back on spending, and housing costs have been a leading contributor to higher inflation and, in turn, actions by the Federal Reserve to drive up interest rates in order to cool down the economy.

The combination could become difficult. On the regulatory side, renters seem to be flexing their muscles at the polling stations, with a number of successful local moves toward rent control. The financial front, though, is icier. Growing financing rates are making it difficult for new projects or refis to get the lending amounts and terms they need. Owners, investors, and developers are facing tougher times as a result.

Source: “SFR Rent Growth Continues to Decelerate“

All through the pandemic, industrial properties have been among the most desired by commercial real estate investors. But in the current market environment, are industrial assets holding up just as well?

In fact, demand for industrial properties is down considerably from the first quarter of this year, says Chris Riley, president of U.S. industrial & logistics capital markets with real estate services firm CBRE. “While the market for investment sales is uneven, there remains a small contingent of investors that possess a ‘motivation of the moment’ to acquire properties,” he adds, noting that CBRE National Partners closed 18 transactions in October—evidence that the market is still active.

Following another bump in interest rates and continuing economic uncertainty, overall industrial deal volume in the U.S. fell 18 percent year-over-year in the third quarter, reports data providers MSCI Real Assets. But at $35.5 billion, that volume was still 48 percent above the quarterly average recorded between the third quarter of 2015 and 2019, which totaled roughly $23.9 billion.

Acquisition activity in the industrial sector began tightening along with the upward pressure on interest rates this summer and has continued through the fall. Single-asset sales declined by 21 percent year-over-year in the third quarter, while portfolio and entity-level sales declined by 14 percent, according to MSCI.

But higher interest rates weren’t the only thing causing investors to pause before picking up new assets. Ultra-low cap rates in the industrial space—averaging 5.1 percent in the third quarter, according to MSCI—added to the challenges. A year ago, the spread on cap rates for industrial assets relative to 10-year Treasuries averaged 230 basis points. That figure has shrunk to 20 basis points in the third quarter of 2022. As a result, while investors can still complete transactions, they are facing more obstacles in underwriting assets and making their desired yields pencil out.

With higher borrowing costs, investor demand has cooled, notes Aaron Jodka, national director of capital markets research with real estate services firm Colliers. “Ultra-low cap-rate deals from 2021 and early 2022 are no longer economically feasible, as they would be in a negative leverage situation,” he says. “This has caused the market to stall.”

As a result of quantitative tightening and the ensuing credit crunch, a number of deals involving industrial assets experienced repricing and/or have been dropped altogether, according to CBRE’s Riley. “This has been centered around the timing of the Federal Reserve’s raising of the Federal Funds Rate and the ensuing increase in cost of debt capital (fixed or floating), causing a temporary spot cap rate bid-ask spread.”

Lease terms and asset location are driving pricing differences, notes Jodka. In general, prices have come down at least 10 percent, he says. Assets with strong market-to-market rent upside remain the most liquid. The Commercial Property Price Index (CPPI) tracked by MSCI shows that prices on industrial properties still went up by 1.9 percent in the third quarter compared to the quarter before. But there was definitely a slowdown from the increase of 18.1 percent year-over-year.

There is a greater gap between sellers’ expectations and buyers’ reality than usual right now, which is what is keeping cap rates so low, according to Adrian Ponsen, director of U.S. industrial analytics at real estate data firm the CoStar Group.

“Buyers are looking at industrial mortgage rates that are twice as high as what was available at the end of 2021,” Ponsen says, adding that investors want higher cap rates to help compensate for the higher cost of capital. “But most owners are holding properties that are performing very well from an occupancy and rent-growth perspective, giving them limited motivation to sell. Ultimately, it is the buyers who have capitulated most over the past few months, though that could change if trends in the economy worsen.”

CoStar estimates that industrial sales in the third quarter totaled roughly $46 billion, significantly down from a peak of nearly $96 billion in the fourth quarter of 2021, but almost in-line with the volume recorded in the fourth quarter of 2020.

While there are definitely more constraints in the debt market than there used to be, financing is still available for quality industrial assets, although the depth in the market is fairly shallow and rates have risen significantly, adds Val Achtemeier, CBRE vice chairman of capital markets. He notes that industrial and multifamily assets are faring better in terms of access to financing than most other property types, but says that “debt capital is more precious and lenders are more selective now.”

Investors also have fewer industrial properties to choose from, especially in the most desirable markets. “The number of properties offered for sale in the fourth quarter is lower than a year ago, when the market was experiencing optimum operating fundamentals, combined with a wall of equity and debt capital for investment,” says Riley.

Source: “Industrial Sales Not Immune from Impact of Higher Interest Rates“