Archives for March 2023

A rise in onshore manufacturing operations by U.S. companies is creating more demand for factory space nationwide. The 3.8 billion-sq.-ft. manufacturing facility market recorded a record low 3.4% availability rate at year-end 2022 after annual absorption of 53.8 million sq. ft.—the highest amount since 2016 and the second consecutive year that net absorption has surpassed 50 million sq. ft.

Much of this demand is from more companies onshoring their manufacturing operations to ensure uninterrupted supply chains. This strategy is growing as companies look to diversify their product sources, protect intellectual capital and take advantage of government incentive programs. Top industries that expanded their onshore manufacturing in 2022 included automotive, semiconductors, packaging materials, pharmaceuticals and defense.

Figure 1: U.S. Manufacturing Space Net Absorption

The availability rate for manufacturing space hit a record low last year despite 28.5 million sq. ft. of construction completions, the most since 2001. Average annual net asking rent for manufacturing space increased by 23% to $8.39 per sq. ft.—nearly double the asking rent growth for distribution facilities.

Figure 2: U.S. Manufacturing Space Average Annual Net Asking Rent

Chicago—the country’s largest manufacturing market with a total inventory of 343.8 million sq. ft.—recorded the most net absorption last year with 7.0 million sq. ft., followed by Detroit with 5.9 million. Detroit is particularly benefiting from increased onshore manufacturing operations by the auto industry.

Figure 3: 2022 Manufacturing Space Net Absorption by State

The fastest growing manufacturing markets are in the Sun Belt near large ports of entry or distribution. Austin finished 2022 with the biggest amount of net absorption as a percentage of total inventory at 20.6%, largely from the electric vehicle industry. Other top Sun Belt markets for demand last year were Jacksonville, Atlanta, Charlotte, Phoenix and Charleston. Phoenix is expected to climb the ranks for net absorption as several semiconductor plants come online in the next few years.

Figure 4: 2022 Top 10 Growth Markets for Manufacturing Space

Despite economic uncertainty, onshore manufacturing operations will continue to grow and create more demand for factory space. According to a December 2022 Forbes/Zogby survey, nearly 150 manufacturing executives said they planned to increase their onshore manufacturing operations this year. Growing demand, record low vacancy rates and significant rent growth in the year ahead make manufacturing facilities an attractive real estate investment option.

Source: “U.S. Industrial Market Benefits from Rise in Onshore Manufacturing“

“It’s Raining Men,” so the 1980s song by the Weather Girls went. More than 40 years later, what’s raining is multifamily units.

In a research brief, CBRE forecasts that 716,000 multifamily housing units will hit the market over the next 24 months. The sector’s overall vacancy rate will swell above the current 4.6% equilibrium vacancy rate to 5.2% by this year’s end. Overall, there are 750,000 under construction, which is the most since the 1980s.

“This may come as a surprise to some, since the U.S. currently has an overall housing shortage—nearly all of which is in single-family homes and not multifamily units,” the brief notes. “CBRE expects that demand for rental housing will gain momentum this year as vacancy peaks only slightly above its long-run average of 5.0%.”

As you might expect, most of these new units are focused on areas that have seen the major share of demographic shift — patterns that were already in play a number of years before but that accelerated with the onset of the pandemic.

But CBRE thinks that ultimately the market will work out for property owners.

“This current wave of construction is expected to expand the nation’s total multifamily inventory by 4.2%,” they wrote. “Although the multifamily market has recorded negative net absorption over the past three quarters, we expect demand will turn positive in the first half of this year and limit the extent to which rising vacancies could significantly slow rent growth. We forecast rent growth of 3.5% for the year, down from 6.7% in 2022 and 13.4% in 2021 but still relatively healthy when compared with the long-run average of 2.5%.”

CBRE says that potential for construction delays due to lack of labor could become a moderating factor on unit availability growth. “Early in the current construction cycle (2013) when the pipeline was approximately 300,000 units (less than half the amount today), the time of construction from start to finish averaged 16.5 months. Today, that timeline averages 20.5 months, nearly 25% longer. The biggest jump in that expanded timeline occurred in 2021, when units under construction surged,” the report said.

Once the big rush is over in 2024, according to this analysis, there will still be an ongoing need for 200,000 more units a year to keep supply and demand in balance.

These are national numbers, so one big question is about distribution. According to some National Association of Realtors data analysis, the movement patterns seem to be slowing, which could change the dynamics of where building is needed and where it occurs. Also, Federal Reserve decisions on monetary policy could push rates up higher, which could interrupt building plans as well.

Source: “It’s Raining Multifamily“

Fabulous amenities are all well and good when developing built-to-rent single-family home communities, but really, it’s the space that’s selling especially storage.

Those were among the comments from a panel of developers and architects last week at the IMN’s BTR East Conference in Nashville.

Lisa Taylor, senior managing director, Greystar; led a panel that included Lance Keller, founder and managing member, Lifestyle Homes; Nathan Williams, director, single-family initiatives, Lennar; Alan Scales, principal, KTYG; Steve Payne, director of business development, Genesis Homes; and Alex Pollack, director of partnerships, Mosai

“The best amenities are the living spaces,” Scales said, “a private yard, more storage (such as purpose-built attics), carports, and larger garages. We’re seeing more storage makes for more sticky residents.”

Keller said he’s seeing some communities add car washes, and electric-vehicle chargers and use compactors for trash collection to minimize larger, enclosed receptacles.

How to Work the Trash Pick-Up

Trash pick-up is a key design decision, Scales said.

“More are moving to a valet trash service, which helps on community layout, having to account for sufficient driving space for trash trucks,” he said.

Including playgrounds and pet spaces are easy ways to add value to the amenity package without costing much money, Scales said.

“If you go with an air-conditioned clubhouse and/or swimming pool, for example, that’s much more costly,” he said. “You have to look at what the competition in your market has to stay competitive.”

“You can go for a spectacular entrance with a fabulous-looking common area at the front.”

Pollack said developers should try to maximize costs for parking, such as charging for premium spots and charging for visitors who attend the community’s social events.

As for the homes’ floorplan design, Scales said there’s been a merging of typology with garages and homes above them and cottages and townhouses.

“Because of the high cost of land, density drives solutions,” he said. “In California, the allowance of accessory dwelling units (ADUs) essentially enables you to get 300 homes on 150 lots, as it’s two homes per lot. Locals can’t turn you away for building this way.”

Added Keller, “Every developer thinks their style is better than the other guy’s.”

Source: “Storage is the Top Amenity for Built-to-Rent Homes“

On the same day that the lead developer of Amazon’s HQ2 project, JBG Smith, praised the tech giant for its “reaffirmed commitment” to the full project, Amazon announced on Friday it is pausing construction on the 3.3M SF second half of the Virginia complex, which is planned for 25,000 workers.

The move comes as Amazon ramps up what it announced in January would be the layoff of 18,000 workers, about 6% of its workforce—the largest cut announced to date in a wave of tech sector layoffs that began in H2 2022. Amazon’s cuts primarily are coming from its retail and human resources divisions.

A report Friday in the New York Times called the tech giant’s HQ2 pause “emblematic” of a tech sector that is slashing payrolls and downsizing office footprints—while increasingly embracing remote work and “struggling to figure out what to do with their offices as their workers continue to spend at least part of the time working from home,” the Times report said.

“For HQ2 to be on pause is emblematic of the pause that tech has hit all across the industry,” Jeffrey Shulman, a University of Washington marketing professor who has studied Amazon’s impact on Seattle, told the NY Times. “HQ2 is the perfect emblem of where we were and where we are, and just how different they are.”

Amazon, which reported a net loss of $2.7B in 2022, also has eliminated thousands of warehouse jobs it was planning to add to its payroll—by closing or cancelling 99 logistics facilities encompassing 32M SF in 30 states, a campaign to slash operating and capital expenses that will continue in 2023, according to a report last week from MWPVL.

In pausing the second half of HQ2, Amazon is delaying the heart of the project, a cluster of office towers in the National Landing site near the Potomac River in Arlington and Alexandria.

The first phase of HQ2—a 2.1M SF office cluster known as Met Park—is on schedule to be completed in June, JBG Smith announced on Friday. Met Park will provide office space for an 8K portion of Amazon’s workforce that is scheduled to move in when the tower opens.

The construction pause will delay Pen Place, the second and larger phase, planned to encompass 3.3M SF across three office buildings and The Helix—the signature centerpiece of HQ2, a spiraling glass “double helix” amenity center with “biophilic” landscaped terraces that will feature “plantings native to the Mid-Atlantic region.”

JBG Smith’s press release in which the REIT said Amazon had “recently reaffirmed” its commitment to the full HQ2 project came out several hours after the news about Amazon was reported.

“We are greatly encouraged by Amazon’s recently reaffirmed commitment to its second headquarters project and to hiring at least 25,000 workers at HQ2,” JBG Smith CEO Matt Kelly said, in a statement.

JBG’s release said the developer is “moving eagerly ahead” with several projects surrounding HQ2, including Virginia Tech’s $1B Innovation Campus, a 1,500-unit apartment complex in National Landing and a retail village in the neighborhood it says will have 55 new tenants in the next 18 months.

“All of these projects, along with billions of dollars in infrastructure improvements, have been made possible by Amazon’s commitment to National Landing,” Kelly added, in the statement. “We continue to work with Amazon to advance plans for Pen Place and look forward to helping Amazon realize its complete vision for HQ2.”

JBG Smith sold the National Landing site for HQ2 to Amazon for $354M in 2018, then was named the lead developer by Amazon for the project. While building HQ2, the DC-based REIT has initiated numerous projects in the area.

In Q4 results released last month, JBG Smith posted losses of nearly $19M. The federal government, which leases about 26% of JBG Smith’s DC portfolio, and Amazon, which leases about 14%, both are downsizing office footprints, with Amazon’s leases expiring this year as the tech giant moves into the completed Phase I of HQ2.

In a quarterly letter to investors, Kelly expressed confidence that JBG Smith’s results would improve in 2023 as it completes its strategy of transitioning to a majority multifamily platform.

Amazon’s layoffs are revealing the scope of the tech giant’s leased office footprint in NYC. Amazon has a history of spreading its footprint in a city throughout a bevy of buildings, including its Seattle HQ, which its employees are spread around 15 buildings.

Filings with NYC’s Department of Labor in late January indicated that 299 employees being laid off by Amazon effective April 18 work at more than five different locations in Manhattan.

The affected Amazon offices include 1440 Broadway; 7 West 34^th Street, where Amazon leased 417K SF from Vornado in 2014 for 17 years; 450 West 33^rd Street, a Brookfield building known as 5 Manhattan West, where Amazon inked a 15-year deal for 360K SF in 2017; 410 10^th Avenue, a building where Amazon is the anchor tenant.

Source: “Amazon, Laying Off 18K, Pauses Second Half of HQ2 Project“