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SUMMER 2013
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Table of Contents
National Overview GDP Growth and the Rise of the Millennials High-quality, New Office Space, Creative Space Healthcare Bonanza Changing Spaces: Law Firms E-Commerce: Bigger Box Warehouses/Smaller Box Retail Multifamily Hot Stats What's Hot in... Atlanta, GA Baltimore, MD Greater Boston, MA Charlotte, NC Cincinnati, OH Columbus, OH Dallas, TX Dayton, OH Denver, CO Houston, TX Indianapolis, IN Kansas City, MO Los Angeles. CA Louisville, KY Milwaukee, WI Minneapolis, MN Nashville, TN New Jersey New York, NY Phoenix, AZ Raleigh, NC Sacramento, CA 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 San Diego, CA San Francisco, CA St. Louis, MO Tampa, FL Washington, DC Metro 31 32 34 35 36 3 4 5 5 6 7 8
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The U.S. economy is now midway through the fourth year of its recovery. While it has shown recent flashes of a more robust trajectory potentially forming galvanized by housing and equities it has yet to prove that these stronger trends are sustainable. Indeed, as of this writing, the Federal Reserve was still artificially stimulating the economy by making $85 billion in asset purchases each month (though now hinting they may begin tapering the program at the end of 2013). Until the bond-buying program comes to an end, and the economy demonstrates that it is capable of standing on its own two feet, we will remain cautious in making our commercial real estate predictions. What we can say with greater certainty is that the U.S. economy remains on a consistent path of slow improvement. Real GDP is on track to grow at a rate of 2% in 2013 roughly the same rate of growth observed in the prior three years of this recovery. But even in this slow 2% GDP recovery there are certain commercial real estate (CRE) sectors that are not only performing well, but thriving. Even in a slow 2% GDP recovery there are The most notable winners include multifamily, big box distribution center space, high-end office space, creative office space, medical certain CRE sectors that are not only office buildings and virtually any property type that is newly built or performing well, but thriving. newly renovated. There are a number of forces at work that explain why these CRE sectors are winning in this recovery. For instance, the rise of e-commerce and mobile technology is contributing to the massive surge in demand for distribution center space in multiple markets across the country. Some forces reflect a more risk-averse, practical consumer, which explains some of the shift in demand from owning to renting, from large space to smaller space. Other forces are driven by pure demographics: Millennials those aged 20-35 are entering their prime rental years, fueling the engine for the multifamily market; at the same time an increasing number of baby-boomers are reaching the age where they require increased medical attention; hence, the medical office bonanza. Demographics also explain shifts in the office sector. With the rise of the millennial generation, the new workplace is increasingly focused on mobility, wireless office space, communal work areas, new creative space and energy efficiency. Properties that can tick those boxes rather than older, traditional product are dominating in this recovery. The younger generation is also drawn to The Rise of the Millennials edgy, urban lifestyles; that explains why After 98 Gen 2020 most downtown areas are hot, while most suburbs are not. 77-97 Millennials
37%
Gen X Boomers
2010
51%
This paper focuses on the bright spots in CRE. In this national overview section, we will touch on a few common themes observed throughout the country, followed by a discussion of hot trends we are observing at the metro level.
2020
Traditionalists
0%
20%
40%
60%
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High-quality, New Office Space, Creative Space Crushing It
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The high-end of the office sector is clearly bouncing back, and most of it is newly built or newly upgraded. When we say new space we generally mean office space that was built or rehabbed after 2007. This segment of the market has accounted for all, 134 million square feet (msf), of the net absorption that has occurred since 2010. What makes that statistic even more astounding is that new space represents only 8% of the countrys total office inventory. Thus, there is a huge wave of tenant demand chasing a very small sliver of the market, and consequently rents are soaring. In New York City, for instance, there were 29 leases signed recently for over $100 psf in rent; a few deals were reported to reach north of that to $200 psf. In Washington, DC, higher quality buildings with views of the Capitol Building are fetching rents that are, on average, $30 psf above the rest of the market. Every metric for new, high quality space is exceedingly more robust vis--vis traditional space: vacancy for new space has been cut in half during the recovery, while vacancy for traditional space remains at recessionary highs; rents for new space is $12 higher than rents for traditional space. Creative space is another subplot in this evolving story of out with the old, in with the new. Some of the common characteristics include edgy architectures, wireless environments, walkable locations, benching and open floor plans, and unique exteriors. This creative space trend is most evident in tech-fueled markets on the West Coast (e.g., Seattle, San Jose, and Los Angeles) but it is gradually catching on in other major metros such as New York City, Austin, TX and Washington, DC. In Los Angeles, buildings with a creative space strategy are leading the charge in the recovery, registering some of the strongest lease-up rates and fetching some of the highest rents and values in the city.
10 0
-10
2010
2011
2012
Q1 13
Still, it's not yet time to ring down the curtain on the traditional office building model a game of musical chairs within the tenant world will keep many assets afloat for years to come. But to appeal to the high-end and command those eye-popping rents associated with new higher quality space, these buildings need a lot of TLC. There are currently 80,000 buildings in the U.S. that are 20 years in age or older, accounting for 61% of the total national inventory. This presents potentially 80,000 opportunities to retrofit these buildings to match todays tastes and preferences, and the possibility of generating higher returns. Out with the old, in with the new: Millennials taking over. This generation (those aged 20 - 35) favors new, edgy, creative, yet smaller space requirements. Millennials will replace baby-boomers as the primary decision makers by 2020, 51% to 21%. Right-sizing Many businesses shrunk staff during the recession. As their leases expire, they are looking for space that better fits a smaller headcount new space is generally more flexible and configurable. Change in tastes and preferences: The new workplace is about mobility; wireless office spaces where cubicle and private offices are being replaced by communal work areas with a smattering of private meeting rooms. These changes in office space usage began with tech firms but are spreading to other tenant types as mobility, benching, shared space and collaborative environments in energy efficient space rise in popularitythe net result being smaller office footprints for many tenant types.
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Healthcare Bonanza
There are 75 million baby-boomers in the U.S. the largest of the demographic cohorts. The simple fact is that as a group they are getting older, sicker and fatter, and that is creating a healthcare bonanza in the country. Since 1990, employment in healthcare services has grown nearly four times faster than U.S. employment overall. It is not only strong growth, its reliable growth. Healthcare employment has added jobs throughout each of the last three recessions (1991, 2001 and 2007), and that includes a greater number of doctors, nurses and medical assistants. A number of cities are cashing in. In the well-established medical hubs, such as Nashville and Raleigh, medical office construction increased over 50% since 2007 surging in the face of a weak recovery. In Boston (biotech hub), Minneapolis (medical device firms), suburban Maryland (NIH & medical research), New Jersey (pharmaceutical hub) - health services have already grown to account for about 15% of total employment in those cities. Pittsburgh a traditional rust-belt metro has largely reinvented itself based on healthcare growth and research. More than 246,000 people in Pittsburgh work for health companies. Louisville, Cleveland, Houston and St. Louis, all report surging demand for medical space. In nearly every major metro across the country, the heath-service employment chart reveals nearly the exact same trend, robust growth year after year. The growth in demand for medical office space is only going to accelerate. Every day since January 1, 2011, and for the next 19 years, more than 10,000 baby-boomers reached or will reach the age of 65, according to Pew Research. People over the age of 60 visit a doctors office twice as often as does the general population and are prescribed four times the number of prescription medications. Investors are clearly savvy to these trends. While sales volume for nearly all CRE product types are still hovering at 2004 levels, sales of medical office buildings posted a record high in 2012.
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Every day for the next 19 years, more than 10,000 baby-boomers will reach the age of 65 driving record levels of demand for medical office space.
Healthcare Bonanza
Healthcare Jobs Growing 4x Faster than other Industries 140000 135000 130000 125000 120000 115000 110000 105000 100000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
18000 17000 16000 15000 14000 13000 Total Nonfarm 000's Healthcare Services 000's 12000 11000 10000 9000
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While all that is compelling enough, lets layer in policy. The impact from the Affordable Care Act (nicknamed Obamacare) will be another boom to the healthcare sector. The program will expand insurance coverage to an additional 22 million people, spurring even more demand for care. Every one additional patient typically creates two square feet (sf) of new demand for medical office space. Assuming no change in policy, Obamacare alone will generate an additional 46 msf of new demand for medical space by 2017.
6% 7%
28% 30% 24% 26% 22% 20% 16% 18% 8% 10% 12% 14% 7% 7% 8%
Source: Deloitte
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Multifamily Yes, a lot of new supply, but also, a lot of new demand
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The multifamily sector is booming. Just take a stroll around almost any city in the U.S. and count the cranes. The demand numbers remain compelling. For the last three years The notion that a healthy housing through April of 2013, the apartment sector has absorbed 45,000 units per quarter the sector and a healthy rental sector strongest demand since the technology boom of the late 1990s. U.S. apartment vacancy ended the first quarter of 2013 at 4.3% the lowest national vacancy rate in over a cannot coexist goes against 50 decade. All of the 82 markets tracked by Reis posted year-over-year increases in asking years of business cycles. and effective rents in the first quarter of 2013. In some markets, supply is shockingly scarce. In New York City, for example, the vacancy rate is 1.9%. Similar tight markets are San Diego, San Jose and Minneapolis which have vacancy rates of 2.5% or lower. Developers are gearing up. Reis estimates that 634,000 new apartment units will deliver across major markets over the next five years. This will be the largest development wave in over a decade. Some fear that with housing coming back, the multifamily industry may again be overbuilding. Certain markets will clearly overdo it, but in general the demand metrics support the new construction. Household formation is the apartment sectors trump card. The prime renter cohorts are ages 20-35 (echo-boomers) and those over 65 years old (the leading edge of the baby-boomers). According to the Census Bureau, those two groups will grow by 2.2 million annually over the next three years the fastest rate of growth since the early 1980s. That means demand for rental units is potentially 50% above the norm and doesnt even include the pent-up demand now being unleashed in the recovery. Moreover, the notion that a healthy housing sector and a healthy rental market cannot co-exist goes against 50 years of business cycles. Every newly completed single-family home creates 3.05 jobs. Higher employment leads to faster household growth, which will only add to multifamily demand.
Forecast
9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
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Hot Stats
Economy...
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329
Office
The number of metro areas that have now exceeded pre-recession levels of employment
Industrial
Retail
Multifamily
Medical
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53,800 in 2014, and 61,700 in 2015. An average of 25% of these new jobs are expected to be premium or high-paying jobs.
professional services, information technology, education and healthcare sectors. Nearly 4 msf of mixed-use space is under construction in just three projects.
36%
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6.7%
Source: Cyber Security Jobs Report The Abell Foundation & CyberPoint International, LLC 1/2013
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Cambridges Kendall Square neighborhood have jumped nearly 13% in the past year. Asking rents for Class A space in Bostons Seaport District have climbed into the low-$40s to mid-$50s.
A victim of its own success, the spiking Seaport rents are forcing entrepreneurial companies to continue their hunt for economical, centrally located space, and Bostons Financial District appears to be the next it spot. At the end of the first quarter of 2013, low-rise space in the Financial District was still a value play. Asking rents were in the low-to-mid $30s PSF, a more than 70% discount off the Class A space in the Seaport District.
Spiking Seaport rents are forcing entrepreneurial companies to continue their hunt for economical, centrally located space Bostons Financial District appears to be the next it spot.
12.7%
While there was a time following the Great Recession when it seemed this low-rise space might never be filled, last year PayPal and Technip took the plunge and relocated into the Financial District. Cassidy Turley is currently tracking a handful of tech requirements we expect to land here in the second half of 2013 and were excited to see what happens as one of Bostons most traditional neighborhoods makes a move to become one of the citys hippest.
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submarkets throughout
However, Ballantyne got another jolt recently when the recession and into the insurance behemoth MetLife announced in March recovery with its mix of that it was leasing 340,000 sf at the newly completed (and speculative) Gragg and Woodward buildings. live-work-play options. With that, Ballantyne gained the largest tenant in its 17-year history and simultaneously saw vacancy decline by 8.5 percentage points to a healthy 13.9%. With Ballantynes recent building spree, the areas vacancy rate has frequently vacillated with each new delivery and new major lease, though the five-year average is 20.7%. Not only is MetLife now Ballantynes largest tenant, but the relocation announcement highlights many of the winning business strategies already implemented by Ballantyne and the thriving community that has grown up around this rapidly growing office park. It reaffirms Charlottes strengths: home to a young, educated workforce that is big-bank trained, a high quality of life, and relatively low costs of living and of doing business. Other major characteristics that have contributed to Ballantynes success are:
Very high-quality office product that was all built after 1996.
(new, renewal, and expansion) in 2009-2012. Ballantyne is zoned for almost 2 msf of additional office space.
8.5%
of new construction means there is a relative dearth of second generation space. Shell space allows companies to fully customize their spaces.
New buildings are being constructed with parking decks, which enable companies to
accommodate more dense office environments. Most other suburban Class A buildings in Charlotte do not have deck parking which de facto limits density.
Immediate interstate access via Charlottes beltline Interstate 485. The other premier office
market, SouthPark, is not directly accessible by any of the regions three interstates.
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#3
destinations by Lonely Planet and hosted the World Choir Games, which pumped $73.5 million into the local economy and attracted 20,000 visitors to the City.
opened or are being developed in downtown Cincinnati since 2011. Demand for urban living has led to 1,427 new planned multifamily units in Cincinnatis urban core.
20,000
Cincinnati, like many other cities, has also seen demand for urban living skyrocket. 88 apartment units opened in November 2012 at the Reserve at 4th and Race and another 1,427 units are in the works.
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#8
Tech Jobs. Columbus unemployment rate is 1.4% below the national average.
MULTIFAMILY OCCUPANCY
95%
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Employee-friendly office space is one of the primary reasons why Dallas various mixed-used projects have been consistently hot across the metroplex in recent years.
quoted rental rates have dramatically increased to $33.00 psf plus electric. In the Legacy area alone, there are four office buildings currently under construction. Craig Halls new tower in the Art District was the first multi-tenant office building permit filed downtown in almost seven years.
In fact, employee-friendly office space is one of the primary reasons why Dallas various mixed-used projects have been consistently hot across the metroplex in recent years. The Far North Dallas submarket has the amenities many companies are looking. Legacy Town Center I, II, and III (523,043 sf) has shops and restaurantstotaling more than 600,00 sf and more than 3,600 apartments in the Town Center alone. Since Legacy Town Center Portfolio was built in 2002-2006, average quoted rental rates have dramatically increased to $33.00 psf plus electric from the original listing price of $25.50 psf plus electric and is currently 95% leased. In the North Central Expressway submarket, the Offices at Park Lane (231,227 sf) has over 800,000 sf of retail property and over 300 apartments. Similarly, Park Lane is 98% leased with rates at an all-time high of $22.00 psf plus electric. In the past 12 months both of these developments have expanded and/or plan to expand their office space to meet growing demand. With such high demand for mix-used, high-amenity product, developers have shifted into a higher gear. There is currently 2.1 msf of mixed-use development in the pipeline. And the numbers confirm that these new projects are leasing up quickly. For example, of the 2.1 msf in the development pipeline, 26% is already pre-leased.
2.1 MSF
MIXED-USE DEVELOPMENT
In other words, combine a robust economy with a product that most businesses want, and the end result is a mixed-use segment of the market that has become white hot.
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29% of Daytons economy is linked to federal spending. The Dayton area unemployment rate is
7.6%, down from 8.1% just one year ago. With over 27,000 employees, Wright Patterson Air Force Base is the largest single site employer in the state of Ohio. In 2013, Abbott Labs will complete a 250,000 sf nutritional drink plant in Tipp City at a cost of $270 million. Two new major hospitals have been built in Greater Dayton since 2011.
In metro Dayton, much of the available industrial inventory is antiquated, and therefore, it fails to meet the needs of todays advanced manufacturers and logistics companies. Sensing opportunity, developers currently have over 1.17 million sf of industrial-specific construction projects underway in Greater Dayton. Major projects include a 250,000 sf nutritional drink plant for Abbott Labs in Tipp City, a 124,000 sf addition for Piqua-based automotive supplier Industrial Products Co., and an 83,000 sf food processing plant for White Castle in Vandalia. There are also rumors of a major company planning to build a 2 msf distribution center in Daytons north submarket. The healthcare industry, which employs 31,000 people in Dayton, has also been a fairly reliable economic engine driving growth. Since 2010, 1.5 msf of new healthcare space has been developed. Two new hospitals were built from scratch: the 474,000 sf Springfield Regional Medical Center in Clark County and the 278,000 sf Soin Medical Center in Beavercreek. In addition, Kettering Health Network added a 5-floor, 70,000 sf wing to Grandview Medical Center this year. Its rival, Premier Health Partners, added a 484,000 sf patient tower to Miami Valley Hospital in late 2010 and a 200,000 sf tower to Miami Valley Hospital South in Centerville last year. Premier also just opened a 32,000 sf satellite Emergency Center in the eastern Greene County city of Jamestown. The multifamily sector is also posting hot numbers in Dayton. According to the Downtown Dayton Partnership, the apartment INDUSTRIAL vacancy rate in downtown Dayton currently ranges between 2% and CONSTRUCTION 3%. As of mid-June 2013, there were fewer than 1,000 apartment/ condo units vacant in the entire downtown area. The combination of high office vacancy (currently 35.7% in downtown Dayton) and increasing demand for urban living space has resulted in a push to convert downtown office buildings into apartments and condominiums. Since 2011, 25 downtown condominiums have been built, with another 55 units projected to open within the next 12-18 months. In addition, plans were announced for construction of a 200-unit downtown student housing complex near Sinclair Community College, and the 110-unit Lux Lofts apartments in the former David Building on E. Third Street.
1.17 MSF
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over 34,000 jobs, bringing unemployment down to 6.9%. Colorado has the 3rd largest concentration of high-tech
workers in the country. According to Inc. 5000s list of companies with the highest three-year percentage growth in the Denver Metro, seven of the top ten were software companies. Starting in January of 2014, Colorado will begin allowing licensed retail establishments to sell marijuana and marijuana-related items to anyone over the age of 21. An estimated 1 msf of warehouse space is currently leased to meet the existing medical marijuana demand and nearly 1,000 license applications currently await approval.
2.2%
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Sugar Land-Baytown Metro Statistical Area had the fastest rate of job growth in the 12 months ending March 2013.
#1
52%
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translated into over 5 msf of net industrial absorption. Manufacturing comprises nearly 30% of industrial inventory.
GDP, a far larger share than any other economic sector, and high enough to rank the Hoosier state second nationally. Small businesses comprise 86% of Indianas exporters. Manufacturing vacancy rates have fallen for three
consecutive quarters and are now reflecting pre-recession levels of demand by tracking below 5%.
3.1%
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47.5%
SPACE
Auto production is a prominent part of the areas manufacturing industry. Both Ford and General Motors have assembly plants there. From 2011 through 2015 automotive and related companies will expand by 2.3 msf.
Biotechnology, healthcare services, distribution and automotive sectors will continue to keep Kansas Citys economy performing steadily, and support its commercial real estate markets.
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double-digit rent growth. Technology, media, and entertainment people employ 250,000 (more than LAs financial sector) and they are growing, adding over 8,000 jobs since 2011.
15.5%
Of course, LAs office sector is unlikely to fully recover without a strong rebound in financial services and from the legal sector which combined account for nearly one-third of LAs tenant base. As of June 2013, both of these job sectors had stabilized but tenants from both sectors were also generally signing leases for less office space than in the past and continue to adjust to smaller headcounts. But make no mistake, technology, media, and entertainment (TME), when combined, are big enough to move the needle in LA. LAs office vacancy rates and rents have stabilized, largely due to the growth in tech-related industries and its ancillary services.
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space has been absorbed since 2010 the strongest demand in 13 years.
sector registered at 8.7% when compared to a year ago, landing it 4th in the nation when ranking employment growth in the sector.
What is driving demand? In addition to Ford and GE, demand for industrial space is being driven by the UPS Worldport facility located at Louisville International Airport. The facility continues to be a draw for companies that ship products around the globe as it is the largest fully-automated package handling facility in the world. The Louisville Regional Airport Authority reports that in the first four months of 2013, 50% of the 20,262 flights that landed at the airport were UPS cargo flights. That statistic alone demonstrates the sheer volume of packages that move through distribution centers within Louisvilles boundaries.
17.5%
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12
quarters of positive space absorption. With a 1Q 2013 vacancy rate of 6.5%, Milwaukee
has one of the lowest industrial vacancy rates in the country. Industrial sales volume has increased by more than 100% since 2009. Milwaukee has averaged 860,000 sf of positive
3Q
INDUSTRIAL SALES
22%
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Q1 2007. From April 2012 to April 2013, office-using employment increased by 7,800 jobs.
pre-recession levels. Multifamily vacancy ended the first quarter of 2013 at 2.3%, giving Minneapolis one of the lowest multifamily vacancy in the U.S. among metros.
5.0%
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30,000
NEW JOBS IN 2012
year 2014
Over 1,000 hotel rooms added with 3,000 more rooms planned 1.0 msf of additional commercial space is expected
Now more than ever, downtown Nashville is truly the heart of the community. What once was considered the Central Business District has expanded into the area dubbed SoBro. While many cities are trying to revitalize their existing downtowns, Nashville has a successful existing CBD that is growing and improving. Nashville is alive and Music City has a whole new meaning today.
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was 8.7%, the lowest in four years. Recovery in the commercial real estate market will strengthen this year as New Jersey metro areas add more office-using jobs. Private-sector employment has increased by 59,600 jobs from April 2012 to April 2013.
One major factor influencing adaptive re-use initiatives is the contraction and merger activity in the pharmaceutical industry. That has left huge chunks of empty office space in desperate need of a new lease on life. Additionally, as patents expire and research trends shift from chemical to biochemical research, from massive office/R&D facilities to consolidated office layouts, less square footage is needed throughout the industry. Many existing campuses are being vacated or have been vacant for an extended period of time. On a positive note and in response to these changes some Northern New Jersey towns have become increasingly more flexible in allowing re-zoning of existing facilities to avoid further losses. Key examples of adaptive re-use initiatives include:
The 2 msf former Bell Labs building on 473 acres in Holmdel, which has been vacant for
Development Authority are promoting business retention and attracting businesses from higher-cost East Coast locations. Increasing activity from the Ports of New York/New Jersey will fuel market activity and further boost industrial and warehouse demand in markets surrounding the Port and along the New Jersey Turnpike Corridor.
five years, is currently part of a redevelopment plan to transform the campus into a mixeduse Town Center with office, conference centers, retail and hotel amenities.
Roche Pharmaceuticals recently announced it will vacate their 2 msf office/R&D campus in
Nutley with an impending closure at the end of 2013. A master architect has been selected to provide plans for a mixed-use redevelopment site.
The former Sanofi Aventis U.S. R&D campus in Bridgewater, comprised of over 1.2 msf of
office/lab space, will be branded as the New Jersey Center of Excellence. The new owners are exploring mixed-use redevelopment plans for portions of the property to maximize demand.
Merck announced it will be closing its 1 msf global headquarters
in Whitehouse Station and moving 1,000 employees to an existing, alternate location in Summit. The move is expected to start in 2014 and be completed by mid-2015.
UNEMPLOYMENT
8.7%
RATE
Unilevers former research headquarters into a residential, retail and Borough Hall. The main 200,000 sf former headquarters building has been transformed into luxury lofts.
Overall, repurposing non-functioning commercial buildings that are no longer in demand into mixed-use facilities that will generate new business will ultimately contribute to the growth of the surrounding communities and health of the commercial market.
Much of Northern New Jerseys (NNJ) office space is outdated and losing its competitive edge. In fact, approximately 80% of the entire office inventory in the state, 2,421 buildings, were built in the 1980s and havent received much updating since. However, weve learned in this recovery that newer space is outperforming older, traditional space. Hence, the hottest trend in NNJ: repurposing old buildings to make them appealing and usable again. Adaptive re-use, which entails converting a property from one zoning use to another to more aptly match "Adaptive re-use current demand, is occurring all around the New Jersey is gaining momentum market. The repurpose trend is particularly apparent in the rezoning of large office campuses into retail, multifamily, in New Jersey. residential or industrial/data centers.
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asking rents from 2008all are located in Midtown South. Hudson Square/TriBeCa Class A and Class B asking rents exceeded 2008s historical highs by 42%. There has been an increase in demand for high-end spaces commanding north of $100 psf and large leases of 100,000 sf and greater.
May) leasing activity. Prime Midtown office towers are commanding top dollar again, similar to the sales price psf garnered in 2007.
In addition to these hot leasing trends, investors are sensing the market heat-up as well. Prime Midtown office towers are commanding top dollar again, similar to the sales price psf garnered in 2007. 650 Madison Avenue traded for over $2,000 psf, and although the price is higher due to the building offering prime retail space in one of the worlds most expensive retail corridors, the $1.3 billion price tag is the highest paid for an office property since Google purchased 111 Eighth Avenue in 2010.
5%
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#8
in terms of net absorption. Overall job growth increased 2.8% from one year ago,
2.5
3.5%
The Metro Phoenix office market is expected to follow a similar path as the industrial market. Build-to-suits are expected to comprise the majority of new office construction activity for the next 12 to 24 months. These new build-to suit projects will establish a foundation in lease rates that will support new speculative development in the future.
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6.5
one resident. Downtown Raleigh Alliance tallied 160 restaurants and bars in the area. 38 new street-level businesses started in 2012.
2,000
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largest in the United States and the fourth largest in the State of California. The population of the fourcounty Sacramento region has increased by 33% over the last 25 years and over 22% over the past 15 years. The Sacramento Kings initially relocated to Sacramento from
NBA
Kansas City in 1985 and played their first three years in a building that was later converted to office space. The Madhouse on Market Street seated only 10,000 fans and now serves as the headquarters of the California Department of Consumer Affairs. The Kings current home, Sleep Train Arena, was built in 1988 and is the fourth oldest facility currently utilized by an NBA team.
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countywide.
50
Stone Brewing, Ballast Point, and Karl Strauss make the list
BREWERIES
HOME TO 60+
1&2
The Economic Impact of Craft Breweries in San Diego by the National University System Institute for Policy Research (NUSIPR)
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built in 1966 and is the oldest facility currently utilized by an NBA team. The Golden State Warriors relocated to San Francisco from Philadelphia in 1962. They changed their name to the Golden State Warriors in 1971, five years after moving to Oakland.
seismically safe piers, there is no actual land footprint to the arena portion of this project. The entire project is estimated by some to have a cost approaching $1 billion, but the effort is being privately funded. Since the delivery of AT&T Park, office and retail space
2x
in the Mission Bay/China Basin neighborhood has more than doubled to over 4.1 msf.
UP 30%
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Silicon Valley has been one of the hottest real estate markets in the country for the past three years. Perhaps the most notable real estate project currently being developed in Silicon Valley isnt an office park, high-rise residential building or shopping center; it is, instead, a football stadium. In June 2010, the city of Santa Clara agreed to lease 17 acres of land to the San Francisco 49ers for a new state-of-the-art sports complex. The new $1.2 billion, 68,500-seat Levis Our proposed project along Stadium will be situated just north of Great " America Amusement Park and adjacent to with the Related Company's the 49ers current practice facility. Bolstered potential development will be by the new stadium and backed by the great additions to the North 49ers, developer Stephen Ross of Related California and Joe Montanas business of the Bayshore area." group are looking to capitalize on action - Joe Montana around the new stadium. Related California is set to receive exclusive rights to negotiate a 230-acre land lease from the city of Santa Clara to create luxury shops, restaurants and housing similar to the successful Santana Row project in neighboring San Jose. The city has also approved a request from Joe Montanas group to lease seven acres adjacent to the stadium where the developer will build a luxury hotel, restaurant and sports bar. Both groups hope to have their projects completed before the muchanticipated 2016 Super Bowl that is scheduled to be held at the new stadium. Meanwhile, land prices in the area have surged as developers look at bringing new retail and hotel projects to the area in what will likely be a local development boom. Is there a loser here? There might not be one. Lennar Corporation has master plans to revive Bayview/Hunters Point after the 49ers move out of Candlestick Park. During the 2012-2013 football season, Candlestick Park hosted only 12 major sporting events. The 775-acre parking lot surrounding the stadium was virtually abandoned for 344 days out of the year. This is the largest remaining tract of developable land in San Francisco. Lennars plans include entitlements for 12,000 homes, 3.1 msf of office space, 885,000 sf of retail, 100,000 sf of community facilities and a 10,000-seat performance venue. If Lennar follows through with its development, Santa Clara and San Francisco will both be winners.
NFL
named a charter member of the NFL in 1946. They called Kezar Stadium in San Francisco their home until the 1970 season. The 49ers current home, Candlestick Park, was built in 1960 for the San Francisco Giants and the 49ers moved in for the 1971 season. Candlestick is the third oldest stadium in the NFL.
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JOB GROWTH
The next development phase has been launched, and it will transform an aging 200-acre industrial area in midtown St. Louis between the Central West End and Forest Park South-east into a vibrant, mixed-use, research and entrepreneurial community. The $186 million development phase will include 1,400 new jobs and an additional 384,000 sf of office space, bringing more jobs, innovation and infrastructure improvements to the area. The total facilities space in the district will total 1 msf when the phase is completed. Other phases of development will occur over the next 20 years and will aim to position St. Louis as the center of the BioBelt in the U.S.
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engine in West/Central Florida, supporting more than 80,000 jobs and producing more than $15 billion in annual economic impact. Cap rates on industrial properties have fallen by
6.8%
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The Washington, DC regions economy continues to muddle through two years of federal budget bewilderment. Lawmakers are still debating how to address the federal deficit (which may or may not include further cuts to discretionary spending programs, and inasmuch as 40% of Washingtons economy is linked to federal spending, the regions commercial real estate market is about as difficult to underwrite as any market in the country. However, despite the everlasting gobstopper of uncertainty, some segments of the areas Absent the government commercial real estate market are seemingly sector, the underlying unfazed. Even absent the government sector, the local economy is underlying local economy is percolating with new growth prospects. In Northern Virginia (NoVa), percolating with new beyond the DoD agencies and government growth prospects. contractor signage, the market has a core privatesector economy rooted in technology. For the past 15 years, tech employment in NoVa has grown seven times faster than employment at local federal agencies. In the past 18 months, growing technology companies like Transaction Network Services, VMWare and Amazon Web Services have filled vacant floors along the Dulles Toll Road. This could be an early indication that the tech boom is now rolling into NoVA. In suburban Maryland (SMD), there is little that is overtly hot. But the details in the employment data reveal clear strength beneath the surface, particularly in Bethesda. Also of note is the labor participation rate. Nationally, labor force participation is declining: people are so discouraged they have stopped looking for work. In SMD, the exact opposite is occurring; in fact, SMD has a labor force participation rate of 73.5% compared to 64.4% rate nationally. This is important because there is a strong correlation between high labor participation rates and robust recoveries. Simply put, people dont ramp up their job search unless they see more job openings, and more job openings typically translate into more hiring. Turning to the District of Columbia here is a little known fact: the Educational and Health Services sector has been the fastest growing sector in the local economy for over 20 years. Since 1995, Education and Health Services employment has expanded by 53%; employment growth in Professional and EDUCATION & Business Services was 39%. The size of the Federal Government HEALTH SERVICES has actually declined over that same period, perhaps dispelling the notion that the District of Columbia is just a government town. It is also worth noting that the Education and Healthcare sectors are key engines driving growth for office space in Washington, DC. As of mid-June 2013, Georgetown University, George Washington University, University of the District of Columbia, Childrens Hospital and MedStar were all looking to lease additional office space for their growing operations and administrative staff.
$
7x
40% of Washingtons economy is linked to federal spending. For the past 15 years, tech employment in NoVa has
grown seven times faster than employment at local federal agencies. Suburban MD has a labor force participation rate of 73.5% compared to 64.4% rate nationally. In the District, the Educational and Health Services sector has been the fastest growing sector in the local economy for over 20 years.
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Publication date: 06.2013 Copyright Cassidy Turley. All rights reserved.