Category: Focus November – 20

CCIM Office Sector Luncheon—Demand, Density and Flex Space: Systemic Change or Return to Yesterday?

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Keynote Speaker: Dr. James Gaines, Chief Economist, Texas A&M University, Real Estate Center

February 2020, was the peak of the 128-month-long prior recovery; then we fell sharply into recession
• Down 31% in Q2 and down 25-30% in Q3 (est.)
• Since March nationwide, 63 million have filed for unemployment—about 38% of the workforce; in Texas, 6 million; Texas lost 1.4 million jobs in March-April alone; lost jobs have now recovered by about one-half; Houston has retained 92% of pre-COVID jobs
• Texas has had a ‘double whammy’: oil and COVID…energy demand is down and will stay there for a while, although price at $40 bbl seems to have stabilized
• Our federal deficit will hit $4 trillion this year, and the Fed has had to borrow $3 trillion of it; in 2-5 years there will be a huge debt overhang
• 3.4 million mortgages—7% of total-are in forbearance arrangements, but those arrangements may expire in early 2021
• For recovery, we must: a) get virus under control b) increase consumer demand and spending c) re-employ people d) stabilize/improve global trade
• We have no inflation and stable (low) interest rates at or lower than 3%
• Texas is a little better off than rest of the U.S., and it should be early 2022 before we approach under 5% unemployment
• Home sales are up 3.5%, and prices up 5-6%; there is an inventory shortage of single-family homes; new home construction is up and could be one of major drivers pulling us out of current slump

South Central Texas Post-COVID-19 Forecast

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Office

Office in San Antonio “Ok” and not sliding too much; 15% vacancy citywide, with average rents $21.85 down from $22.50 this time last year; robust development market; tenants beginning to return to offices

Some landlords working with tenants on short-term renewals to build tenant goodwill, and to retain them.

The hybrid work from home and office model is here to stay, although the productivity metric for this formula is not fully known yet.

Company culture is “at the office” and it is especially important to for new hires to interact with peers and senior employees as they learn and absorb the company culture.

When pandemic recedes, we will be quick to return to old habits and dense environments, office and social; in 18-24 months we will be back to normal here

8% unemployment in S.A.

Data Center Performance Varies Across Texas

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As they are no longer merely the domain of enterprise users, demand for data centers has skyrocketed in recent years with more information moving to the cloud. The pandemic has created issues, nevertheless, the events of 2020 have largely accelerated this trend. By just about every metric, the asset class saw incredible gains during the first half of the year,
according to a report by JLL. Datacenter REITs outperformed other sectors, absorption rose in most markets and operators have thus far weathered the
pandemic with steady—if not booming—business activity. As strong as the overall industrial sector has been this year, data centers have been even stronger. For example, the stay-at-home orders brought on by COVID-19 led to an increase in online shopping, and thus renewed demand for warehouse and logistics space. This, in turn, has resulted in a year-over-year increase in returns of 2.3 percent among industrial REITs, according to information gleaned from Nareit. Contrast that with data center REITs, which saw an incredible 19.2 percent climb over that same period. Residential, office, healthcare, retail and hospitality REITs all regressed during the 12-month period ending on June 30, 2020. What’s behind this surge? First is the increase in online shopping; in addition to furthering demand of the storage of goods, extra server space is required to accommodate all the ones and zeroes supporting this activity. Click to read more at www.rednews.com.

Industrial Age: Texas Cities Are Drawing Investors Looking to Capitalize on the Industrial Boom

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Industrial is far and away the hottest sector in commercial real estate right now and the hottest industrial markets are scattered throughout Texas,
each one creating a unique draw for investors and developers. Houston
The largest city in the Lone Star State also boasts the most absorption of industrial space so far in 2020: just more than 6.4 million square feet. According to CBRE research, nearly 3.9 million of that got leased up just in Q2. In that same period, though, about 8 million square feet came on the market, which boosted vacancy rates to 6.9 percent. About 18 million square feet of new industrial is under construction in the Houston market with the southwest (8.5M SF) and northwest (4.8M SF) sectors bringing in the most space. “Houston is very competitive,” said Alfredo Gutierrez, president of industrial-focused investment firm SparrowHawk Real Estate
Strategists. “Because of the setback in oil prices, some investors are perceiving a pullback in real estate by some of the energy companies. That
provides a window of opportunity to invest in industrial real estate in Houston.” He predicts this window will close in late 2021 as the energy sector rebounds, e-commerce increases and the benefits of trade with Mexico expand in Houston. Dallas-Fort Worth When it comes to new construction, it’s hard to beat the numbers coming out of the Dallas-Fort Worth area. CBRE reports that in Q2, more than 23 million square feet was underway. Thing is, that space is getting eaten up as soon as it hits the market. For example, DFW had about 3.4 million square feet incompletions and 2 million square feet of net absorption this spring, marking 39 consecutive quarters of positive net absorption. “I think Dallas is the strongest market in the United States right now,” Gutierrez said. “Dallas is just screaming hot.”

New Class A+ Industrial Warehouse Sells Near Dallas

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JLL’s capital markets team has closed the sale of Park Row Logistics Center, a new, 155,425-square-foot, industrial warehouse in the Dallas-area community of Arlington, Texas. JLL represented a joint venture between developer Stream Realty Partners and LaSalle Investment Management in the sale to Clarion Partners, LLC for an undisclosed sum. The Class A+ Park Row Logistics Center is fully leased to Mochila Fulfillment, which provides order fulfillment and warehousing services to e-commerce brands. The single-load building was completed in late 2019 and features a 32-foot clear height, 180-foot truck court, 28 trailer parking spaces, 22 dock-high doors, 60 loading bays, one oversized door, one drive-in door, and low office finish. Situated on 9.23 acres at 3301 E. Park Row Drive, the property is in the Great Southwest/Arlington Industrial submarket, which is known for its central location within the Dallas-Fort Worth metroplex. This location has access to major interstates and highways, including Interstates 20 and 30 and highways 183, 161, and 360, which provide the tenant easy access to approximately 58.6 million customers within a one day’s drive. The COVID-19 pandemic and the shelter-in-place policies that ensued have accelerated e-commerce growth and the need for warehouse space across the nation. JLL expects e-commerce sales could hit $1.5 trillion by 2025, which would increase the demand for industrial real estate to an additional 1 billion square feet. JLL reports that strong fundamentals and ongoing demand for space in the DFW market will continue to push rents higher along with new speculative construction well into 2021. The JLL capital markets investment advisory team representing the seller was led managing director Dustin Volz, senior director Stephen Bailey, and analysts Zach Riebe and Austin Ross.

NorthMarq Finalizes $8 Million Refinance of Crownridge Centre in San Antonio

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Bryan Leonard, senior vice president/managing director of NorthMarq’s San Antonio office arranged the $8 million refinance of Crownridge Centre. The 41,590-square-foot office property, located at the intersection of IH-10 and Camp Bulls in San Antonio, is leased to a diverse tenant base including financial, medical and oil/gas tenants. The transaction was structured with a fully amortizing, 20-year term. NorthMarq arranged the permanent-fixed loan for the borrower, a long-time San Antonio sponsor, through its correspondent relationship with a life insurance company. The transaction was a refinancing of the existing construction debt. “The property is extremely well located and was developed by an experienced longtime local sponsor. Interstate 10 construction in front of the project has concluded and there are excellent neighborhood amenities at the nearby RIM and LaCantera developments to support office development,” said Leonard. “We were able to secure competitive long-term permanent in a difficult pandemic environment to support ownership’s business plan for the asset. NorthMarq was able to capitalize on the value created in this asset by the borrower to attract competitive capital and the lender achieved a solid investment.”