Companies may be willing to spend more on their workspace these days, but developers and real estate pros need to know what will entice the tenants of the future.
Commercial real estate practitioners know that in order to make the sale, they’ve got to create an ironclad value proposition for every property. It’s just not about falling in love with the space.
“Commercial is all about numbers,” National Association of REALTORS® Chief Economist Lawrence Yun told the audience at the Commercial Economic Issues & Trends Forum at this month’s REALTOR® Party Convention & Trade Expo in Washington, D.C. He added that commercial clients “are not emotional; they are dispassionate.”
But there are ways to create value without relying solely on numbers.In the world of office space, that means offering workspaces that will attract top talent and maximize the utility of the floor plan.
A Need for Flexible Space
Although labor tends to be the most expensive piece of a company’s budgetary puzzle, the next item on the list is usually real estate, according to Jeffrey Kottmeier, a research analyst for commercial real estate services giant CBRE. He’s surveyed companies to get an idea of the emerging trends in office space, and found that some of the dire predictions for this sector that came out of the financial crisis have softened in the recovery. While many companies have specific goals to reduce their spending on office space, cost savings isn’t always the motivating factor behind a company’s decision to move.
Kottmeier noted that when they did the survey in 2011, the top business driver cited by respondents was indeed budgetary, but that concern slipped to fourth place in 2013, with work-life balance being the top priority. “It’s not all about cost… People are using a lot of different places besides their office desk to do their work.”
Of course, when commercial practitioners hear “work-life balance,” they might equate it with more employees working remotely. But that’s not necessarily the case. Kottmeier said he’s seeing a desire for more flexibility in the space, not less space overall. He’s seen firms where no one is assigned an office space but the CEO, and workers are allowed to sign up for the space they need depending upon their preferences and tasks on any given day. He’s also seen the rise of OFADs, or “office for a day” rentals.
John Sikaitis, senior vice president and director of office and local markets research for investment firm JLL, agreed:“Flexibility is going to reign. Working remotely is not.” Another trend that Sikaitis expressed skepticism in was the bench-style seating popular in the start-up, design, and high-tech worlds. He said that the intention of a workplace design such as that was to foster collaboration, but if you look at it in practice, most of those employees spend the day with noise cancelling headphones in their ears.
“They’re being forced, in a way, to work in this collaborative, bench-style workplace,” he said. “That did not work, and now I think we’re moving a little more toward the traditional.”
Changing Demands
Now that LEED certification and energy-efficient buildings are becoming the norm, Kottmeier says companies are moving on to “Sustainability 2.0,” which he said represents an effort to foster healthier internal environments for their employees. Developers are looking to integrate circadian rhythm lighting systems, antimicrobial surfaces, and environments that promote walking.
Such changes attract top talent, but healthier workplaces can also see benefits to their bottom line.
“Poor air quality alone costs $90 billion in lost productivity each year,” Kottmeier said. He added that companies are feeling an added sense of urgency over new findings of the problems that come with a sedentary lifestyle, as “inactivity is becoming the new smoking.”
In the aggregate, these trends add up to high demand for new, or newly remodeled, Class A office space.
“High quality space is dominating in this recovery,” said chief economist for real estate services firm Cassidy Turley, Kevin Thorpe. “Class B and Class C spaces are getting emptier… We’ve actually flooded the market with a product that the market doesn’t want.”
Investment Opportunities
Kottmeier said that one demand-side indicator that those looking to invest in high-tech office space should watch is whether or not immigration reform (specifically a loosening of the H1-B worker visa process) can pick up any steam in Washington.
“The only thing that enables future growth [in the sector] is immigration reform,” he said. “This would not even be on the table in Congress right now if it weren’t for the technology companies.”
Thorpe said the interest in U.S. commercial real estate from abroad is growing quickly, but it’s generally concentrated on the coasts. He said that a real estate professional working with international investors would be wise to demonstrate the value of other regions.
“There needs to be some education about other parts of the country,” he said. “That’s an opportunity for brokers.”
By: Meg White (REALTORMag)
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Realtors® Declare Confidence in Commercial Market
WASHINGTON — Realtors® who specialize in commercial real estate expressed confidence and optimism in the commercial market during a forum at the REALTOR® Party Convention & Trade Expo. Despite a sluggish economy, commercial practitioners are not only reporting improvements in the market, but they expect improvements to continue in the years to come.
National Association of Realtors® Chief Economist Lawrence Yun joined economists and research experts from leading real estate firms during a panel discussion about the major forces shaping commercial real estate markets. The panelists all voiced confidence that commercial markets are well on the road to recovery.
“Commercial real estate closely follows the economy, usually with an 18 to 24 month lag time,” said Yun. “Realtors® from across the country are reporting increases in sales transaction volumes and income, which tells us that things are turning around. We have not reached pre-recession levels, but the recovery is happening; we are almost getting back to normal.”
While the first quarter of 2014 saw no growth in Gross Domestic Product, Yun predicts it’s a temporary setback. “This was delayed economic activity. What didn’t show up in the first quarter will show up in the second quarter,” said Yun. However, with the economy improving, consumers should expect to see interest rates rise. “The economic monetary stimulus we are benefiting from now cannot continue forever, so expect to see a long-term, steady rise in interest rates in the coming years.”
Kevin J. Thorpe, chief economist for Cassidy Turley, expressed a similar positive view of the market. “We are becoming increasingly optimistic,” he said. “April was one of the strongest months for job growth that we’ve seen since the recession, and sales volume is up 11 percent from last year. The data is telling us that this year should be better than last year.”
The future of commercial real estate in the suburbs was a discussion topic for the panelists. John Sikaitis, managing director for Local Markets and Office Research for JLL, discussed the changing dynamics for office space in the U.S.
“Companies are moving away from the traditional office park,” he said. “In the next five to seven years, the large office buildings off the highway will be obsolete. If a property does not have the urban amenities preferred by young Millennials, including access to transit, shopping, restaurants, etc., then it is not going to survive without substantially reducing its rent.”
In line with a growing demand for urban amenities, companies are beginning to focus on the quality of space over size. “Since the great recession, large and small offices alike have changed the way they use real estate,” said Sikaitis. “Businesses are averaging less space per worker and beginning to focus on how their office space can contribute to the health and well-being of their employees.”
Features such as air sanitation, circadian rhythm lighting and layouts that promote movement and fitness are becoming commonplace in many office spaces, he said. “Cost is no longer the deciding factor for these tenants; employee retention and creating a healthy work life balance are at the core of these decisions,” said Sikaitis.
By: Jane Dollinger (National Association of REALTORS®)
Click here to view source article.
Don't Rule Out Multifamily Investment
Investors looking for single-family rentals are running into supply issues, but that doesn’t mean they’re out of luck; they just need to look outside the box.
Over the past few years, institutional investors have gobbled up the available stock of desirable single-family rentals in many markets. Rather than compete with these large investment companies, why not try multifamily investment?
Too many investors immediately rule multifamily homes as unaffordable and high maintenance, which is a costly mistake. In many cases, multifamily property can be a better investment than single-family homes. If you know your audience and are willing to be creative, a multifamily investment property could be the best purchase you ever make. Here are three reasons:
1. More reliable income. A vacant single-family home means zero income. However, barring a major disaster, your multifamily investment home will rarely sit completely unoccupied, even during high turnover seasons. This fact gives you the leeway you need to repair or renovate vacant units, and the time you’ll need to find quality tenants rather than accepting the first person who submits a rental application.
2. Tried and true. There is still a large base of tenants looking for multifamily homes, believe it or not. A recent study by the National Multifamily Housing Council shows only one-third of rental properties are single-family homes while 63 percent are multifamily. If you don’t believe it, take a look at the skyline. Hopefully all of those high-rise apartment buildings don’t block the view.
3. Cheaper by the pound. Let’s face it: That big initial price tag of a building can be terrifying. The key is to think of this purchase as the investment that it is. After all, your price per unit will be much lower than it would be if you dealt exclusively in single-family properties.
Despite all this encouragement, multifamily investing is still daunting. It is fairly different than investing in a single-family home, and there are some extra items to consider.
Amenities Are King
One of the biggest factors to look at when purchasing a multifamily investment home is location (some things never change). Are there amenities within walking distance? Is public transportation available?
Tenants interested in a unit in a multifamily home are likely more dependent on local amenities and public transportation than tenants interested in a single-family home. That beautifully renovated duplex on the city limits may not be a great investment if there is no bus route nearby.
Knowing the area will also give you a good idea of the kind of income you can expect. Just because the listing says you can expect a certain income per unit doesn’t necessarily make it true. Do your research to find comparable properties nearby.
Financing Differences
Just as you need to do your due diligence in researching the neighborhood, it’s important to be aware of all the local laws governing the financing of multifamily purchases.
In some states, the financing for a multifamily home is based on the property’s ability to generate income, instead of being based upon the buyer’s credit, as is the case in the purchase of a single-family home. In other states, multifamily property investments are actively encouraged through favorable financing regulations.
Stiff Competition
When it comes time to find tenants, your multifamily building will have more obvious competition. Just as it was easier for you to find comparables when you were researching the multifamily market, it’ll be just as simple for renters to do the same and shop around for the best deal. You’ll need to be more aggressive with advertising, pricing, and differentiation in the multifamily marketing world.
As the market starts to cool off in some regions, and heat up in others, it’s important to do your research when purchasing a home. Make sure you have realistically assessed the need for multifamily space in your area and the market potential of your investment.
In the overcrowded single-family rental market, multifamily properties are a blessing in disguise. Before you discount that downtown high-rise or the contemporary duplex, consider the facts. You can’t judge an investment by its dual occupancy status. Jumping to conclusions about multifamily properties might just mean missing the investment of a lifetime.
By: Brenton Hayden (REALTORMag)
Click here to view source article.
Over the past few years, institutional investors have gobbled up the available stock of desirable single-family rentals in many markets. Rather than compete with these large investment companies, why not try multifamily investment?
Too many investors immediately rule multifamily homes as unaffordable and high maintenance, which is a costly mistake. In many cases, multifamily property can be a better investment than single-family homes. If you know your audience and are willing to be creative, a multifamily investment property could be the best purchase you ever make. Here are three reasons:
1. More reliable income. A vacant single-family home means zero income. However, barring a major disaster, your multifamily investment home will rarely sit completely unoccupied, even during high turnover seasons. This fact gives you the leeway you need to repair or renovate vacant units, and the time you’ll need to find quality tenants rather than accepting the first person who submits a rental application.
2. Tried and true. There is still a large base of tenants looking for multifamily homes, believe it or not. A recent study by the National Multifamily Housing Council shows only one-third of rental properties are single-family homes while 63 percent are multifamily. If you don’t believe it, take a look at the skyline. Hopefully all of those high-rise apartment buildings don’t block the view.
3. Cheaper by the pound. Let’s face it: That big initial price tag of a building can be terrifying. The key is to think of this purchase as the investment that it is. After all, your price per unit will be much lower than it would be if you dealt exclusively in single-family properties.
Despite all this encouragement, multifamily investing is still daunting. It is fairly different than investing in a single-family home, and there are some extra items to consider.
Amenities Are King
One of the biggest factors to look at when purchasing a multifamily investment home is location (some things never change). Are there amenities within walking distance? Is public transportation available?
Tenants interested in a unit in a multifamily home are likely more dependent on local amenities and public transportation than tenants interested in a single-family home. That beautifully renovated duplex on the city limits may not be a great investment if there is no bus route nearby.
Knowing the area will also give you a good idea of the kind of income you can expect. Just because the listing says you can expect a certain income per unit doesn’t necessarily make it true. Do your research to find comparable properties nearby.
Financing Differences
Just as you need to do your due diligence in researching the neighborhood, it’s important to be aware of all the local laws governing the financing of multifamily purchases.
In some states, the financing for a multifamily home is based on the property’s ability to generate income, instead of being based upon the buyer’s credit, as is the case in the purchase of a single-family home. In other states, multifamily property investments are actively encouraged through favorable financing regulations.
Stiff Competition
When it comes time to find tenants, your multifamily building will have more obvious competition. Just as it was easier for you to find comparables when you were researching the multifamily market, it’ll be just as simple for renters to do the same and shop around for the best deal. You’ll need to be more aggressive with advertising, pricing, and differentiation in the multifamily marketing world.
As the market starts to cool off in some regions, and heat up in others, it’s important to do your research when purchasing a home. Make sure you have realistically assessed the need for multifamily space in your area and the market potential of your investment.
In the overcrowded single-family rental market, multifamily properties are a blessing in disguise. Before you discount that downtown high-rise or the contemporary duplex, consider the facts. You can’t judge an investment by its dual occupancy status. Jumping to conclusions about multifamily properties might just mean missing the investment of a lifetime.
By: Brenton Hayden (REALTORMag)
Click here to view source article.
June Vote to Kickstart Las Cruces Civic Plaza Project
Las Cruces city councilors seemed OK Monday with a basic plan for the city entering into a deal with developers to buy land and build a Las Cruces civic plaza in the downtown area.
City staff told councilors the proposal would have some built-in protections for the city in that the developers, Las Cruces Community Partners, would only get paid after reaching certain milestones toward the city obtaining the land and developing a Las Cruces civic plaza.
Staff said all the specifics haven’t been worked out yet, but the proposed document with the company, which is represented by developer Bob Pofahl, will be given to city councilors for a vote on June 2.
“In general terms, what we’re talking about is a performance-based development agreement,” said City Manager Robert Garza.
As part of the arrangement, a second contract is in the works between the owner of the proposed site, Bank of the West, and Pofahl, who’d initially buy the land for the plaza and a larger, surrounding parcel.
Land for the proposed Las Cruces civic plaza sits on Bank of the West’s drive-through.
Mayor Ken Miyagishima expressed concerns about a month ago that Pofahl hadn’t made enough progress on the agreement with Bank of the West.
Since then, Miyagishima said, city staff have gotten a copy of that contract.
“They do have the agreement in place, and our staff has been able to look at it,” he said following Monday’s meeting. “They’re comfortable with it. At that time, we didn’t have that.”
The Pofahl-Bank of the West contract has been worked out, but it’s not signed.
City officials said the June 2 vote will kickstart the plaza project, estimated to cost about $5 million, which includes purchasing the land.
The price could change, however, depending on how city councilors want the Las Cruces civic plaza built, according to Assistant City Manager Brian Denmark.
Once the City Council-Pofahl contract is approved, the next step is to transfer the plaza property to the city, Denmark said. The city will pay market value for the parcel, as determined by a formal real estate appraisal. Also, a subdivision process would have to occur to separate the plaza land from the larger parcel surrounding it.
Even if the deal fell through after that, the city would have the land, Denmark told councilors.
Under the expected time line, the Las Cruces civic plaza construction could launch in early 2015 and finish by the end of that year, city officials said.
Denmark said the public will have a chance to give input in the planning of the Las Cruces civic plaza.
City Councilor Miguel Silva said he hopes the council will be able to review all the options for the Las Cruces civic plaza design.
“I support going forward with this,” Silva says.
The agreement between Pofahl’s company and the city would cover building the Las Cruces civic plaza, as well, Miyagishima said. He said that’s because a private company likely could carry it out faster and cheaper than if the city built it.
City officials have said they must spend money they’ve collected as part of a special taxing district — called the Tax Increment Development District — by a certain deadline or else risk losing them. The TIDD is the major source of funding for downtown revitalization projects.
Doña Ana County Commissioner Billy Garrett, who attended the meeting, told councilors they were on the right track in developing the plaza. He said he sees it as a focal point for the county, as well.
“I think it sounds like a very reasonable approach,” he said.
Denmark said more specifics about the time line for the project will be given June 2.
One Las Crucen asked councilors to consider adding a functional sun dial to the civic plaza, partly so it could serve as an educational item for local students. Some councilors said they liked the idea.
More signs
Councilors also heard options for boosting signage in the downtown area. Three options presented by city planner Andy Hume included building a large pillar in the center of the roundabout on the north end of the downtown area; building a gateway arch over Main Street, also on the northern end of the plaza; or buying banners for 26 street posts in the downtown area.
Hume said only $20,000 was available for the project, and two options could cost more than that. A set of 26 banners, however, would cost about $4,000. He said the city could buy a few sets and change them out throughout the year. A downside to that, though, is that wind and sun will cause them to deteriorate.
By: Diana Alba Soular (Las Cruces Sun News)
Click here to view source article.
