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mcarristo

NREI’s Common Area: Highlights From CBRE’s Market Outlook 2021

November 23, 2020 by mcarristo

Richard Barkham, CBRE chief global economist and head of America’s research, comes on the pod to discuss how next year might unfold for the CRE industry.

In this episode of the Common Area podcast, David Bodamer discusses the recent CBRE Market Outlook 2021 report with the Richard Barkham, the firm’s chief global economist and head of America’s research.

In this episode, you will learn:

  • How commercial real estate’s recovery looks for 2021 across property types
  • What the return-to-office scenario will look like given the recent promising news on vaccines
  • How much of a flight to suburbs is occurring and what that means for different industry sectors
  • What this means for investors looking to make deals in the coming year

Tune in now to get all the highlights from the CBRE Market Outlook 2021 report.

Source: “NREI’s Common Area: Highlights From CBRE’s Market Outlook 2021”

 

Filed Under: All News

The CRE Community Awaits a Biden Administration

November 9, 2020 by mcarristo

Combatting Covid-19 will be first on the Biden agenda, which would offer some relief to the commercial real estate community.

This weekend, four days after the presidential election was held, several media outlets called the state of Pennsylvania for former Vice President Joe Biden. He had won its electoral votes and along with them, the presidency. President Donald Trump has not conceded and has promised to use legal action to contest the votes in several battleground states. It is debatable, however, how successful these efforts will be. Meanwhile, the nation still waits to see which party will take the Senate, with two runoff races in Georgia scheduled for January 2021.

And so the political contours of the next four years starts to take shape for the commercial real estate industry. Much will depend on the fate of the Senate, of course, but there are some areas that the industry can already guess will see change.

Assuming the Senate stays in Republican hands, Biden will not be able to pass any sweeping tax measures that would affect the industry, such as the elimination of the 1031 exchange. But he has made clear that he plans to issue a flurry of executive orders to roll back measures put in place by his predecessor and re-establish rules that had been in place in the Obama Administration. This will begin on day one, he has vowed. Biden is likely to focus on bigger issues first such as reversing the US withdrawal from the World Health Organization and repealing the travel ban from Muslim countries. But  with the executive agencies back in Democratic control, there are a myriad of regulations expected to eventually come that will affect housing and finance.

Biden can also be counted on to push for another stimulus bill. Senate leader Mitch McConnell has acknowledged the need for another rescue package, which he has said he hopes will be done before the end of the year. Presumably Trump would sign such a measure but if not it will have to be kicked to after the inauguration. Again, assuming the Senate stays in Republican hands, this stimulus will be less than what the House of Representatives has wanted but McConnell has indicated some willingness to give on certain sticking points, such as funding for states and cities.

But the overwhelming focus for the Biden Administration will be to corral the coronavirus. Biden will assume the presidency with Covid-19 at surging levels. This past Friday some 126,480 new coronavirus cases were added, according to the Johns Hopkins Coronavirus Resource Center—the third day in a row for a US daily record. Ahead lies more cold weather, driving people indoors where the novel virus can flourish, and college students returning home for the holidays where gatherings will lead to more spread.

Biden will almost certainly call for a national mask mandate—which should not affect CRE other than for building owners to oversee compliance. Beyond that, he is already putting together a task force of experts and it is unclear what they might recommend. Biden has said on the campaign trail that he does not want to shut the economy down, but it is within the realm of possibility that he might try to persuade local governments in hot spots to temporarily close areas to prevent further spread. The latter move, of course, will have an affect on local real estate just as it did in the Spring when much of the nation closed down.

It is also unclear whether the Centers for Disease Control and Prevention will extend its moratorium on evictions once it ends in December 2020. One hint is that Biden has promised to let the CDC and top scientists take the lead on combating the virus. With the coronavirus continuing to surge, the CDC may well extend the measure.

In the bigger picture, a national-led effort to push back against the virus will hopefully drive down infections enough until a vaccine becomes available. This can only help CRE as it is clear that the economy will not fully recover until the coronavirus is vanquished.

It is a general rule that CRE performance depends more on macroeconomic and asset class fundamentals than which political party is in charge of the White House and Congress. A report from Newmark Group, for example, has found that over the past 40 years, annualized total returns averaged 9% under Democratic presidents and 8.2% under Republican presidents.

“The outside events that are not directly controlled by American public policy, tend to have a much greater impact on the commercial real estate market than the specifics that come out of Washington,” Sandy Paul, senior managing director of national market research at Newmark Knight Frank’s Washington DC office, told GlobeSt.com in an earlier interview.

What’s different this election cycle is that an outside event—namely Covid-19—is the dominant trend now shaping how CRE performs and the policies put in place by the Biden Administration could go far in determining the final outcome.

Source: “The CRE Community Awaits a Biden Administration“

Filed Under: COVID-19

Holiday shopping as we know it is over — just ask seasonal workers

November 5, 2020 by mcarristo

Seasonal mall jobs are scarce this year, but there are tons of warehouse gigs.

Holiday hiring events for malls used to be a big deal, with lines rivaling those for jaw-dropping Black Friday electronic deals. Anchor retailers and specialty stores held huge in-person hiring events as early as September, heralding the start of the busiest, most exciting part of the retail year. This season, don’t expect big spikes in hiring for mall Santas (who may be socially distanced in plexiglass snow domes), gift wrappers, or additional staff to work the aisles on Black Friday.

As the pandemic continues and shoppers mostly stay home, the holiday season will be a gift for e-commerce as retailers scramble to adjust inventory and schedules to find some bright spots amid spending uncertainty. As the ongoing shift online accelerates this year, its impact will be magnified in the job market. According to Andrew Chamberlain, chief economist of the jobs site Glassdoor, the site has seen a sharp rise in interest for jobs in the warehouse sector, 210 percent more than last year, one of many indications that, in 2020, often-temporary seasonal hiring signifies something more permanent.

“Economies usually leave a recession looking different,” he says. “This is an example where a pandemic will lead to a massive shift in how we spend.”

Getting a part-time gig folding sweaters at the Gap or being an elf for a fake North Pole display has long been a tradition during the busy holiday season, an important way to make a few extra dollars during an expensive time of the year, especially for students and seniors. In 2018, retailers added roughly 625,600 temp jobs. Last year, the seasonal hiring spree slowed down a bit, with companies looking to fill only 590,000 positions. This year, recruiting firm Challenger, Gray & Christmas says companies have announced just 378,200 positions as of mid-October. Glassdoor’s Chamberlain says that an analysis of the site’s roughly 6 million holiday and seasonal job postings shows listings are down 8 percent over last year, which is actually better than the overall 16 percent drop in postings across all industries. There’s a bump this winter, just not as big as in years past.

“BLACK FRIDAY IS KIND OF OVER AS AN IDEA. … IT’S BASICALLY BLACK FALL.”

Analysts believe 2020 will radically upend that model, perhaps for good. In-person retail, already restricted due to health precautions and wary customers eyeing a coming third wave of the coronavirus, is a shadow of its usual self. A National Retail Federation survey of 54 retailers found that 96 percent expect more online sales this year, 61 percent plan to stock less in-store merchandise, and half likely won’t hire extra in-store staff. Sucharita Kodali, retail analyst at Forrester, says one of the only bright spots this year, when a record-breaking 1 in 5 retail dollars was spent online, has been essential retail, such as grocery and pharmacy. Even big holiday shopping draws like toys have migrated online. Retailers such as Walmart and Target will be spreading out Black Friday events to avoid drawing large crowds (some promotions have already started).

“Black Friday is kind of over as an idea,” says Zachary Rogers, an assistant professor of supply chain management at Colorado State University who previously worked at an Amazon subsidiary. “Prime Day was October, Black Friday and Cyber Monday in November, holidays in December. It’s basically Black Fall.”

Holiday shopping as a whole won’t have the same meaning this year or for many years in the future, says Ashwani Monga, a marketing professor at Rutgers University who specializes in consumer psychology; with the retail industry in tatters, it’s unlikely to represent the break-even point for businesses (when ledgers go from red to black). And optimistic forecasts that families will want to maintain the holiday tradition of a visit to the mall may underestimate the desire to cut or consolidate trips, not to mention the specter of more restrictions or shutdowns.

“Even if stores do open, people will be reluctant to go out and have fun or splurge as if the last few months didn’t happen,” he says. “Shopping is a way to connect and do something for yourself, and that habit has changed during this year’s disruption. Shopping is a part of our culture, and this year has changed culture itself.”

The significant shift in the seasonal employment picture doesn’t show a temporary break with tradition; it’s more likely evidence of the continuing, radical restructuring of the economy away from in-person retail. The pandemic has pushed many shoppers who were e-commerce holdouts to adopt online shopping, Monga says, and consumer inertia is hard to reverse.

“If consumers aren’t spending, retailers don’t have cash on hand to hire people, which creates a vicious cycle where there’s less employment, fewer profits, and the economic engine of stores just doesn’t grow,” Monga says. “The whole ecosystem of retail is disrupted.”

“SHOPPING IS A PART OF OUR CULTURE, AND THIS YEAR HAS CHANGED CULTURE ITSELF”

It’s also strained the warehouse and logistics industry currently struggling to meet surging holiday demand that will likely become a permanent expansion of e-commerce capacity. The industry hit a record 1.25 million employees this September, according to the Bureau of Labor. The Logistics Managers’ Index, an industry report compiled by Rogers looking at demand and capacity, predicts record-high levels of e-commerce activity this season; Q4 activity will be up 50 percent compared to last year, a huge leap from pre-pandemic predictions of a 13 percent jump. Karl Siebrecht, CEO of Flexe, a company that provides temporary warehouse space to retailers, says there’s a huge hiring problem in e-commerce in anticipation of fourth-quarter delivery spikes (Amazon announced plans to hire 100,000 more seasonal workers in September and is offering some $1,000 bonuses).

“We’re already running hot, How do we layer on the fourth-quarter peak?” Siebrecht says. “Competition for labor is the biggest issue.”

Filling jobs at sites typically located away from population centers is already a challenge. A recent report by Daniel Schneider and Kristen Harknett, sociologists who have been studying retail and service-sector workers, found that “Walmart, Amazon, and UPS lag in terms of cleaning, gloves, and masks” for employees, exacerbating worries that as warehouses get more crowded over the coming months, infection risks will rise.

Valeria (who prefers not to use her real name), 59, works at a warehouse in Elizabeth, New Jersey, that packages and ships cosmetics and hand sanitizer. She says that as the holidays approach, management has added more and more workers; it’s the busiest she’s seen since she began working at the company four years ago. Workers are provided with hand sanitizer, masks, and gloves, but there’s no social distancing, they just cram the lines tighter and tighter.

“Right now, a few people are sick,” she said via a translator. “The company told them to get tests and not come back until they are negative. They’re operating like every product is essential, but only the hand sanitizer is. We all want to be beautiful and we’re in difficult times. I only work because I have to, if not I’d stay at home, I’m scared all the time of being sick.”

Beth Gutelius, an academic and researcher at Center for Urban Economic Development who studies the changing nature of work, says a simple calculus — more temporary workers being added to the same fixed warehouse space — raises the risk of safety issues, Covid-19 spread, and burnout (and Amazon has been less than transparent about these issues throughout the last six months).

“In the end, you have to throw more workers at the problem of e-commerce fulfillment, and they’ve raised very serious issues about health and safety,” she says. “There’s lots of physical and mental strain on workers’ bodies when they’re handling work that quickly.”

According to a survey of industry operators conducted by Flexe, 65 percent said labor shortages were impacting their business and 47 percent have increased wages to be more competitive. Amazon’s and Walmart’s big announcements earlier this year that they would add hundreds of thousands of jobs and pay a few extra dollars an hour have rippled through an industry seeking more and more capacity. And it’s not just for the winter surge — typically the season when workers face weeks with additional overtime and higher-than-normal rates of on-the-job injuries and stress — but for next year.

E-commerce is racing to adjust to unforeseen circumstances, with a predicted “shipageddon” this year leading analysts to suggest hot items will disappear early and companies will plead with consumers to order as early as possible. The sector is clearly dealing with the downsides of unexpected demand, not painful contraction, often turning to temporary employees and hiring agencies.

“Honestly, I don’t know how Amazon is going to do it this year,” says Rogers. “That’s why they shifted Prime Day to October. The transportation part of this will be really tough. They’ll do whatever they can and everyone else will try to keep up.”

Shipping is not the only concern. There’s also the problem of returns, which Rogers says are “two to three times more for e-commerce purchases versus brick and mortar, depending on the product.” That adds up: “There will be like an additional billion dollars of returns this year, and they’re going to need to process this stuff. There’s a wave coming, and I’m very interested to see what happens between late November and early January.”

It may seem counterintuitive that in the midst of severe economic shock, huge corporations such as Amazon and Walmart would struggle to find workers. But the labor supply situation is incredibly unorthodox, says Chamberlain. There’s a significant compositional shift away from traditional work — say, a job at the counter at Sephora — and toward warehouses and delivery gigs. And many workers are simply sitting this season out; whether they’re worried about getting sick, the added pressure of handling child care, or waiting out a furlough, many people are simply in limbo, Chamberlain has found.

Monga points to two indexes of consumer activity and attitudes as red lights for retail: the Michigan Consumer Sentiment Index (down nearly 20 percent since last December) and the savings rate (currently double the typical 6-8 percent range). Americans are, overall, wary and worried, and even those who are employed are holding onto a portion of their potential disposable income. The few bright spots, such as outdoor retailer REI, can’t overcome sharp drops in clothing purchases. This dismal holiday hiring season will just lock in structural shifts decimating retail, especially as warehouse operators adopt robotics and other means of increasing efficiency.

“Automation and rising productivity are ways to do more with less,” says Chamberlain. “By far the largest cost in production is people. Wages are high. If sales double in traditional retail, you may need to double your number of workers. But for Amazon and Walmart, they may need just 10 percent more people to handle that rush.”

Rogers points to a newly reopened Macy’s facility in Littleton, Colorado, as the future of retail employment. This new omni service center features packing, delivery, and pick-up services, but the so-called dark store isn’t open for the public to enter and shop. In effect, Macy’s is hiring and staffing for the holidays, but the jobs it’s offering are becoming indistinguishable from the gigs found in the general logistics and warehouse industry. Even many of the seasonal retail gigs that remain are starting to look more and more like those found in warehouses.

“They’re doing the same job as an Amazon picker, but in a store,” says Gutelius. “The lines are getting very blurry.”

Source: “Holiday shopping as we know it is over — just ask seasonal workers“

Filed Under: All News

Survey Conveys CRE Prices are at Fair Value

November 3, 2020 by mcarristo

While there has been little change in mood among occupiers over the third quarter, investor sentiment is less negative than before.

Real estate investors are starting to feel a little bit better about things.

While there has been little change in mood among occupiers over the third quarter, investor sentiment is slightly less negative than the previous quarter, according to the RICS’ Global Commercial Property Monitor, a quarterly guide to the trends in the commercial property investment and occupier markets.

Sentiment among both occupiers and investors has improved since record lows in the second quarter.

The picture varies among different segments of CRE. Occupier demand for office and retail space are at record lows. At the same time, the appetite for logistics sites continues to grow, as do the rent expectations for better-located properties, according to the Monitor.

Over the next 12 months, US respondents expect to see rental growth of around 4% for prime logistics and industrial space and a 2% rent increase for secondary sites. The other asset classes covered in the Monitor are likely to face rent declines. Those include secondary retail (-14%) and hotels (-13%) at the bottom of the pile.

Mark Fogel, CEO of ACRES Capital and the president and CEO at Exantas Capital Corp., believes investments in these hard-hit sectors could make sense at the right price.

“Every time you think something is dead and every time you think that a sector doesn’t work anymore, somebody comes up with a great idea and creates value,” Fogel told GlobeSt.com in an earlier interview. “I know that there are really good real estate people out there that know what they’re doing, and those are the people I’m going to back on the lending side.”

Roughly half the respondents to the Monitor are starting to see “fair value” in pricing, according to RICS. Still, between one-third and two-fifths perceive real estate to be expensive. Alongside this, roughly two-thirds of contributors in the US and Canada believe the market is in the early to mid-phase of a downturn.

Others believe values are yet to hit bottom. Moody’s Analytics REIS predicts that a rise in cap rates will prompt a decline in value ranging anywhere from 7% to 9% in multifamily and industrial to 20% or more for office, retail and hotel.

The Moody’s Analytics Commercial Property Price Index projects similar declines. From peak to trough, values are expected to fall 10.6% for multifamily, 23.2% for office, 31.6% for retail and 9.7% for industrial.

Outside of logistics, new inquiries into real investments remain very subdued, according to RICS. There is generally little interest in office and retail, except for some opportunistic buyers.

Source: “Survey Conveys CRE Prices are at Fair Value“

Filed Under: All News

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