Archives for November 2022

When it comes to diverting waste from commercial real estate, cardboard is “king” and organics represent the greatest opportunity as firms focus on ESG goals, that include waste management.

A study be Great Forest Inc., a leader in sustainable waste management consulting, assessed data collected through waste audits at over 100 buildings across the US and internationally, analyzing over 170,000 pounds of waste.

It found that overall, with waste costs rising and waste reduction identified as central to a circular economy, businesses must understand the waste they are generating, Anna Dengler, senior sustainability advisor, Great Forest, and lead author of the report, said in prepared remarks.

“The numbers do not lie,” Dengler said. “The study shows that 62% of what most commercial buildings discard in the trash stream is divertible.

“This means that most businesses are paying to send more materials to the landfill than they need to. Another data point of note is that organics consistently make up 1/3 of the material that most buildings discard in the trash stream, even though those organic materials can be diverted through composting and other means.”

Cardboard was most consistently diverted across all sites, according to the report, with rates high across every program and every region. Only 2-9% of all cardboard found in the audits was lost to the trash stream.

About 98% of Furniture Waste is Divertible

Trevor Langdon, co-founder and CEO, Green Standards, a sustainable office decommissioning organization that operates in 25 countries, tells GlobeSt.com that one solution a company might deploy is moving unused office furniture, equipment, or fixtures to large warehouses to divert landfill.

“But this can also be harmful,” Langdon said. “As these items sit untouched for years, they slowly become less useful. A better, more sustainable, and more cost-effective solution is upcycling items immediately to give surplus furnishings a new home through donation or resale.”

Waste audits are important and must be comprehensive, Langdon said.

“The EPA estimates that 8.5M tons of furniture, fixtures, and equipment are sent to landfill each year, costing Americans $750M in tipping fees alone,” he said.

“While this study found that 62% of trash was divertible, our experience shows that, when it comes to furniture waste, 98% can be successfully resold, donated, or recycled. Companies need to think about all the waste they produce, from coffee grounds to the no-longer-needed boardroom table.”

Source: “CRE ‘Overpaying’ to Send Waste to Landfills“

Although commercial real estate prices may see a slight decrease nationwide, strong job growth will continue to drive demand in many markets, according to NAR Chief Economist Lawrence Yun.

Yun joined other commercial real estate experts today at 2022 NAR NXT, The Realtor® Experience(link is external), in Orlando, Florida, to discuss economic trends and issues affecting the commercial real estate industry.

“Nationwide, we are beginning to see some decline in commercial appraisal values,” Yun said. “Cap rates simply cannot match up with higher borrowing costs, especially among people who need to refinance their properties. However, strong job growth is supporting prices in many markets.”

Yun explained that the recent spike in interest rates, combined with high borrowing rates, have forced up cap rates and caused property values to adjust downward.

“Offices are the most vulnerable to these price decreases,” he said. “We are seeing a rise in office vacancies in many cities, driven by a preference for remote work. San Francisco, for example, saw a 6% office vacancy rate before the pandemic. Now, it’s more than 15%.”

Matt Vance, senior director and Americas head of multifamily research and senior economist for CBRE, estimates that employees will spend 25-35% less time in the office than they did pre-pandemic.

“That’s about a day to a day and a half less in the office,” Vance said. “We believe this will translate to a 15% reduction in office space demand per employee.”

Vance noted that multifamily properties have provided an annual average total return of 8.8% over the last five years. He added that multifamily also offers critical benefits beyond returns.

“It’s easier to place large amounts of capital [in multifamily],” he said. “It’s also the best inflation hedge among these sectors and it’s been the most stable sector over the past 40 to 50 years.”

Danny Nix, Jr., CCIM, a commercial broker with The Nix team with Coldwell Banker SunStar Commercial, spoke to the crowd about natural disasters and their economic effect on commercial real estate. He said natural disasters bring in many groups to provide aid and services – such as restoration companies, electricians, and disaster relief teams – and these groups will need help finding commercial properties.

“If you know in advance that a big storm or natural disaster is coming to your area, it’s important to get ahead of the ballgame,” he said. “After a disaster strikes, Realtors® become an important resource for these groups.”

The National Association of Realtors® is America’s largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.

Source: “Commercial Real Estate Market May See Slight Decline in Prices in 2023“

“Future-proofing” is a term that comes from high tech. In that context, it meant designing software and hardware so that it could develop or expand to meet needs that were yet to come. Put more simply, it was a fancy way of referring to the avoidance of obsolescence.

In their recent report, Colliers and real estate advisory and service company Blue Skyre IBE extend the concept to their definition of CRE—corporate, not commercial, real estate. In other words, the division of a corporation that handles real estate. It’s an interesting point not articulated in quite this way since the beginning of the pandemic:

“New ways of working also demand a new way for real estate to measure the value it creates. In addition to traditional metrics focused on cost, quality, and efficiency of use, we contend that real estate and facilities teams must develop future-focused metrics that will seek to measure the level of employee engagement and the impacts of a more meaningful work experience. Given the scale of the emerging challenges, now is the time to define the value corporate real estate (CRE) can play within the overall organization.”

The most obvious way this plays out is in the shift towards hybrid work, but there are other areas of change that will affect how companies use space. For example, four generations of workers, each of which might have different expectations and needs. Or significant automation of knowledge management work, meaning fewer workers and less need for space, but also increased use of technology like machine learning and predictive analytics to support real estate analysis and decision making.

Change in corporate real estate departments might happen in something as basic as recognizing that organizational charts aren’t adequate because they don’t convey how people work. “The real shift is moving from a hierarchical reporting structure, to how they work and get things done,” the report says. “When coupled with the disruptive forces emerging with the evolution of more distributed work patterns, this era presents an exciting and compelling time to propose an emerging CRE structure for any company.” What services and facilities will people need?

The paper continues through working processes, technology, reconsideration of what key performance indicators might be, and a more complex consideration of a real estate department’s role in a company. The importance of the document is not a set of answers, but raising the questions in the first place.

Source: “‘Future-Proofing’ Corporate Real Estate“

That commercial real estate transactions slowed in the third quarter of this year shouldn’t surprise. Costs went up as the Fed turned the screws to baseline interest rates and commercial financing did so as well.

But buyers with cash still did deals, according to Crexi, in its quarterly national trends report. The company says that its report “dives into transaction and leasing activity on Crexi throughout Q3 2022.” As a result, the information may not be representative. But with so much seemingly up in the air, all information, even if not perfect, is at least worth considering.

“Transaction speed slowed, and more deals went on pause on Crexi in Q3 compared to activity in the previous quarter,” the firm said. “Many PRO brokers have anecdotally reported that negotiations during the contract phase have become more crucial, even among motivated sellers and buyers.”

According to Crexi’s data, the number of sales dropped by 13.4%—from 306,718 to 265,769—between the second and third quarters. The number of sales in 2021’s Q3 was 349,000, which would mean a year-over-year drop of 23.8%. However, the median sales price is up, from $323,000 in 2021 Q3 to $357,000 in 2022 Q2 and $373,000 in Q2 of 2022.

“Investors are waiting to find the best long-term ROI, not settling for yesterday’s prices,” Crexi noted. “But with plenty of liquid capital still available, deals are getting done when buyers and sellers can agree on valuations. As we head into the end of 2022, many buyers will become increasingly motivated to complete 1031 exchanges, while REITs and other institutional spenders seek value-add acquisitions to finish deploying 2022’s capital.”

Office lease activity was supposedly up 11.36% quarter over quarter. But total lease activity, which would include other types of commercial real estate, was down 5.4%, so not as heartening. There was also this: “While tenant activity moderately slowed, tenants are still far more  confident and actively seeking space than a year ago. An increasing number of would-be renters are using Crexi to find their next lease across asset classes. While rates didn’t grow substantially, slow and steady gains should bolster landlord confidence in ROI from long-term, reliable tenants, just as pandemic-era protections conclude.”

The company did see a “slight correction” as “prices contracting alongside small declines in occupancy as the cost of warehouse operations became increasingly expensive.”

“Commercial real estate stands against a plummeting stock exchange, and far more volatility in other investment vehicles, with the ability to lock in rates against future interest hikes as an attractive hedge against inflation,” Crexi said overall. “In this grid-locked state of forward (albeit slow) momentum, CRE continues moving with solid fundamentals underlying changes in valuations and rents, and quality winning out in the long run.”

Source: “Many Deals Pause But Cash Is a Great Motivator“