January has long been the time for market predictions, for economists to put their nickel down on which way the dollar will go. But how do you do that following the most fractious three quarters in living memory? Undaunted by the events of 2020, Dr. Mark Dotzour did exactly that, providing the keynote remarks for the 19th annual Commercial Real Estate Forecast Conference. While offering the caveat that economists are generally only right 50 percent of the time, he nonetheless expressed bullishness for the upcoming year. The biggest factor that will impact the U.S. economy during the next 12 months is pent-up demand. Currently, Americans aren’t spending money, they are saving it. This is an untenable situation since, as Dotzour put it, “Americans don’t tolerate deferred gratification.” COVID fatigue set in months ago for many people. Once the vaccines have been widely distributed, he foresees an explosion in spending. But instead of toilet paper and hand sanitizer, there might be a shortage of hotel rooms and airline seats. Dotzour said he is not underestimating the power of this pent-up demand for goods and services such as new clothes, vacations, conventions, gyms, live music, restaurants, weddings, theaters, business travel, going back to school and more. The supply chain proved to be more fragile than most people would have expected once the lockdown started in March of last year. As an example, half of all toilet paper typically goes to restaurants and half goes to homes, but most domiciles don’t have the hardware for three-foot-wide wheels of toilet paper, hence the shortage of that product. Will the supply chain fail us again once life returns to “normal”? Dotzour believes it’s hard to say. His biggest concern is that the supply chain remains robust enough to dispense the vaccines, pointing out that there are thousands of distribution job openings right now. Another worry is that there may be runaway inflation in our future, though Dotzour downplays those concerns. Factors such as higher gas prices, hotel rates, airline tickets and tuition could lead to inflation of the U.S. dollar. However, he feels that there are enough protections in place to prevent a runaway scenario. The Federal Reserve’s control of interest rates, for example, should mitigate escalating mortgage rates as housing is going to help lead us out of this recession. The real long-term concern is the likelihood that we will see another jobless recovery. That doesn’t mean we won’t have new jobs, but they will materialize too slowly. Historically, regardless of which political party is in office and notwithstanding tax cuts, the U.S. averages job growth at 2.5 percent. The main factor for this is globalization. Emerging economies around the world are creating more competition for the U.S. “We have purposely exported our jobs around the world. These are now tough competitors,” Dotzour said. “The world in which the U.S. is competing in 2021 is different than it was in 1980.” That said, Dotzour believes that money is going to flood in again. Private equity is sitting on $204 billion of dry powder. While we are all aware of distressed sellers, Dotzour labels these funds as “distressed buyers”—they’ve raised the capital and are hungry to deploy it. Global institutions continue to raise their allocations to real estate. The general rule of thumb used to be to spread funds 50/50 between bonds and real estate. Each year, higher CRE yields have led to more growth in institutional investment. “If you thought there was too much money chasing deals before, there’s a lot more coming down the road,” Dotzour said. The pandemic has impacted the U.S. just as it has other nations, though we may be taking a larger hit than most. Additionally, 2020 and even early in 2021 have proven that there is a lot of societal and political angst in our populace. Despite its problems, however, America is still going to be an attractive target for global investors. “Money is not flowing out of U.S.,” said Dotzour. “We have our problems, but we are still the prettiest pig at the trough.” Dotzour covered many more topics during his keynote, such as the urban to suburban migration, the future plans of the Biden administration, rising shipping costs and much more. It will be interesting to see how the next 12 months shake out; the ride hopefully won’t be as bumpy as the past 12 months.
Of any sector in commercial real estate, the future of office is arguably the most tenuous. Even as some employees return to the office, many may not—now or potentially ever. Companies and their workers have found value in flexibility of the stay-at-home experiment, choosing to extend it for the foreseeable future in some cases. In other instances, a kind of middle ground is being explored: the use of flex space. “Companies are scrambling to figure out this new world, figure out how they support their employees’ diverse needs, figure out how to create workplaces not only at a headquarters but also near their teams’ homes, and figure out what to do with their leases that now pose even greater liabilities,” said Anna Levine, chief commercial officer of Industrious, which offers coworking and private office space all over the country. “Ironing out all of this can be overwhelming, especially at a time when companies are knee-deep in responding to all of the other changes the pandemic has brought on.” That’s why so many companies—and even individual employees—are turning to outfits such as Industrious. In some cases, the company just isn’t ready to have everyone back in headquarters, while many employees may also favor the convenience of working from home. It isn’t always a perfect environment, however, as any parent can share. A home office is still at home, which comes with an untold number of distractions. “Demand for coworking space is very much driven by people who need a location to work that isn’t their home,” said Ben Munn, JLL’s global flexible space lead. “We’ve seen demand increasing in near-to-home, suburban locations or dense residential areas and it tends to be for smaller requirements.” That’s precisely what Regus, which provides coworking and virtual office space, has witnessed in the past few months. “Currently, we are seeing much greater growth in smaller suburban areas as employees look to cut down on their commute and work closer to home,” a company spokesperson said, touting Regus’ representation in large metropolitan areas, as well as smaller towns and cities. “Our model is very well suited to the changes that are now taking place.” Click to read more at www.rednews.com.
When ‘partnership’ is part of your organization’s name, being awarded for working on a partnership is about as good as it gets. Waller County Economic Development Partnership recently took home a bronze award for Public Private Partnership from the International Economic Development Council. “To be judged as one of the best in the world, by the best in the world, is truly both humbling and rewarding,” says Vince Yokom, the EDP’s Executive Director. The EDP worked with the Waller County Road Improvement District and Waller County to help Ross Stores, Inc. build a new distribution center in the community just west of Houston. “Ross has not even occupied the facility yet and it has already been a great corporate citizen in supporting our infrastructure improvements in the area and our economic development effort,” Yokom says. “This was a true partnership effort and one of the best experiences we have had in working with a prospect.” For many companies, Waller County is an obvious choice for a distribution hub. Served by a number of major highways and freeways, as well as rail and an airport, its strategic location on Houston’s west side is an incredible asset. It is now primed for development just as U.S. companies show renewed interest in reshoring operations. For decades, these factors such as cheap labor, inexpensive transportation and endless incentives convinced companies to move their production facilities out of the U.S. But the times, they are a-changin’, as the song goes. According to the Reshoring Institute, “a growing number of businesses have rethought their global manufacturing strategies,” which has led to an increasing number of companies bringing at least part of their production back to the U.S. Click to read more at www.rednews.com.
The very first COVID-19 vaccines have been administered in the United States, though experts estimate it will take months before vaccination becomes an option for the general public. Still, it is a sign that we are steadily moving toward post-pandemic life. When it comes to certain parts of commercial real estate, that may not look exactly like it did even a year ago. Offices emptied at the beginning of the pandemic as companies sent millions of employees home to help prevent the spread of the virus. As we’ve learned more about it and how to protect workers, more are returning to the office. But according to a Qualtrics study, two out of three Americans still feel uncomfortable about returning to their workplace. The CDC outlines its recommendations for bringing workers back, which involves developing a COVID-19 workplace health and safety plan by evaluating whether the building is ready for occupancy, pinpointing weaknesses in the workplace and developing hazard controls. That, in large part, charges property owners and managers with providing peace of mind for their tenants by focusing on outbreak prevention and worker safety in the months ahead. Technology will play an important role in that, enabling employees to feel safer when they return to the office. According to research from CB Insights, “To stay ahead of the curve, companies will need to consider key investments across wellness, remote collaboration tools, mobile cybersecurity tech, accessible HR tools and workforce training programs for professional development and upskilling.” Various new technology offerings have cropped up in the past few months to address the concerns of companies focused on bringing employees back into the office. One example of technology that could aid in the future of office management got its start back in 2017 but is perfectly poised for this moment. “Nimway was initially developed as an internal tool to help Sony’s own employees find their way around the huge campus in Lund, Sweden. With 13 different buildings, people were having a hard time locating meeting rooms, finding available workspaces and even colleagues,” said Lars-Gunnar Lundgren, the head of Nimway. “We soon realized we weren’t the only ones—lots of other companies had similar problems—so we decided to turn Nimway into a commercial solution.” Nimway technology was designed and is being continuously developed with end users in mind, said Lundgren, by supporting employees in their everyday lives and also by providing facility managers with useful occupancy data. An example: an employee can use Nimway to find and book meeting rooms, which will help companies manage capacity restrictions. Plus, the software’s wayfinding feature guides employees to the chosen meeting room. Nimway also developed new features to help minimize health risks for those who return to the building. Using the technology, employees can book a desk in the office up to 14 days in advance. And when they’ve finished working, Nimway’s desk sensors mark the space as “unavailable” until after it has been cleaned. “Obviously Nimway can’t guarantee people’s safety, but what it does is help companies implement the COVID safety policies they’ve decided to apply,” Lundgren said. For that reason, he added, Nimway isn’t encouraging companies to rush into reopening their offices. “Rather, we want to support them with useful tools when their process begins,” said Lundgren. “There are different restrictions in different countries, but one thing we’ve observed everywhere is that it takes time and careful planning to get this right. Our customers are aware of this and that’s why they’re working to get the technology they need in place ahead of time.” Even beyond the pandemic, Nimway allowed users to analyze space utilization and, as a result, improve office layouts. “This reduces the need for additional buildings which, in turn, reduces short-term raw material use as well as long-term energy consumption,” Lundgren said. “You could say that ‘green’ thinking is built into the Nimway solution.” Companies can also continue using the program as it was originally intended—as a vehicle to eliminate the stress of everyday tasks such as finding a meeting room or colleague. “Nimway allows employees to spend more time and energy on creative and productive tasks. This is fantastic for both staff and business owners since people can put their energy where it really counts,” said Lundgren. “It’s good for company culture … and for the bottom line.” No matter which tools a company chooses to boost employee safety, privacy and morale in the coming months, the office will continue to be a place where workers can connect and innovate—two aspects of work that have been sorely lacking during the pandemic.
Think back in time five quarters or so. At the end of 2019, brick-and-mortar retail was feeling the pinch of e-commerce. Virtually everywhere in the country, landlords struggled as storefronts went dark. Virtually everywhere, that is, but not in Austin. “We were not experiencing pre-pandemic challenges in market demand within the Austin MSA,” said Kevin Murphy, vice president on NAI Partners’ retail services team in Austin. “The increased cost of property taxes was causing downward pressure on rates. Nonetheless, development and demand remained healthy.” The key component of this unexpected performance is population growth. Between 2010 and 2019, U.S. Census figures show that Austin grew by over 177,000 residents, moving up the country’s list of most populous cities from 14th to 11th. Where the people go, so to do physical retailers, even in the age of online shopping. That was 2019; then 2020, of course, altered the trajectory of this and every other asset class. With COVID-19 leaving patrons unable or unwilling to go out to restaurants, stores, bars, bowling alleys and every other type of retail establishment, the sector took a hit. But again, Austin’s retail market proved to be slightly more resilient to the effects of the pandemic. According to NAI Partners data, the metro’s year-to-date retail occupancy rate at the end of October 2020 hovered around 95.2 percent. That’s nearly on par with the year-to-date figures from the previous October, which stood at 95.7 percent. “Austin continues to experience strong population growth numbers,” Murphy said, “with absorption of existing retail and back-filling of struggling tenants being healthy and strong.” Click to read more at www.rednews.com.