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.
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
RESOLUT RE recently completed 26 leases in Texas. The deals included retail and industrial transactions in the Austin, Houston Dallas-Fort Worth and San Antonio markets. Aloha has renewed at AMLI South Shore (1620 E. Riverside Drive, Austin). Phil Morris of RESOLUT RE represented the landlord. Brent Campbell of Don Quick & Associates represented the tenant. Austin Title has leased 4,298 square feet at Heritage Court (200 E 8th St, Georgetown, Texas). Andrew Perkel and Michael Noteboom of RESOLUT RE represented the landlord. Brad Buckman of Aquila Commercial and Ryan Tiernan of Orion Real Estate Group represented the tenant. J Heart CBD has leased 1,200 square feet at 6719 North Lamar Shopping Center (6719 N Lamar Blvd, Austin). Phil Morris of RESOLUT RE represented the tenant. Hutch Hutchings and Cole Brodhead of Edge Realty Partners represented the landlord. Marco’s Pizza has leased 1,410 square feet at Cannon West (6800 Westgate Blvd, Austin). Phil Morris of RESOLUT RE represented the landlord. Brett Gissler of Edge Realty Partners represented the tenant. One of the Kids has leased 3,360 square feet at Park Street Commons (2111 E Park St, Austin). Joey Mendez and Michael Noteboom of RESOLUT RE represented the landlord. Tim Edwards of Flintrock Commercial represented the tenant. Relaxing House has leased 1,750 square feet at Williamson Square (10700 Anderson Mill Rd, Austin). Joey Mendez of RESOLUT RE represented the landlord. The Treasure Nouk has leased 1,212 square feet at The Marketplace (500 Lake Air Dr, Waco, Texas). Jacob Nagy and Michael Noteboom of RESOLUT RE represented the landlord. The UPS Store has leased 1,552 square feet at 8708 South Congress Avenue in Austin. Joey Mendez and Michael Noteboom of RESOLUT RE represented the landlord. Tim Grondin of ISO Commercial represented the tenant. NobiliTea has leased 1,875 square feet at Grand Central at Milam (206 N Milam St, Fredericksburg, Texas). Gavin Fite of RESOLUT RE represented the tenant. Alec Spencer and Jeremy Peterson of St. Croix Capital Companies represented the landlord. An undisclosed buyer has purchased the 38,372 square feet shopping center at 7113 Burnet Road in Austin. David Simmonds of RESOLUT RE represented the buyer. Carl Daywood of Carl Daywood Realtors represented the seller. An undisclosed buyer has purchased the 3,250 square feet building at 923 Texas 332 Loop in Liberty Hill, Texas. Phil Morris and Emilie Niekdam of RESOLUT RE represented the seller. Kim Sanders of Keller Williams Realty, Inc represented the buyer. Crave has leased 2,827 square feet at Waters Edge at Viridian (3990 N Collins St, Arlington, Texas). Sherry Naquin Sanchez of RESOLUT RE represented the tenant. Cameron Haddad and Zach Boatwright of Vision Commercial Real Estate represented the landlord. An undisclosed buyer has purchased the 30,000 square feet Central Mall in Texarkana located at 3501 Mall Drive in Texarkana, Texas. Brian Sladek of RESOLUT RE represented the buyer. Steve Schrenk of JLL represented the seller. An undisclosed buyer has purchased 0.647 acres at 6520 West Adams Avenue in Temple, Texas. Brian Sladek and Tucker Francis of RESOLUT RE represented the seller. Dave Burggraaf of Evergreen Commercial Realty represented the buyer. Aaron’s has leased 4,500 square feet at Little York Plaza (1409 Little York Rd, Houston). Joaquin Orozco and Taki Dallis of RESOLUT RE represented the landlord. Clay Albers of Clay Alberts Properties represented the tenant. Find A Pet has leased 4,650 square feet at 3433 Gulf Freeway in Houston. Myra Vorrice of RESOLUT RE represented the tenant. Fred Ghabriel of Bejjain & Associates represented the landlord. Hartz Chicken has renewed at Wharton Retail Shopping Center (10314 Highway 59 South, Wharton, Texas). Taki Dallis of RESOLUT RE represented the landlord. Houston’s Fuzzy Tails has leased 1,125 square feet at Kingsland Plaza (23222 Kingsland Blvd, Katy, Texas). Jim Thompson and Benny Nguyen of RESOLUT RE represented the landlord. Howdy Hot Chicken has leased 2,320 square feet at Mason Square (1443 S Mason Rd, Houston). Jim Thompson and Lyle Cowand of RESOLUT RE represented the landlord. Emily Durham of Waterman Steele represented the tenant. Octapharma Plasma has leased 8,320 square feet at Little York Plaza (1409 Little York Rd, Houston). Joaquin Orozco and Taki Dallis of RESOLUT RE represented the landlord. David Stefancic of Cushman & Wakefield represented the tenant. Polar Clean has renewed at 12450 Hwy 3 in Webster, Texas. Dani Allison of RESOLUT RE represented the tenant. Rococo Salon Suites has leased 1,918 square feet at Eagle Springs Shopping Center (5444 Atascocita Rd, Humble, Texas). Jim Thompson and Benny Nguyen of RESOLUT RE represented the landlord. An undisclosed buyer has purchased the 7,000 square feet office building at 2305 Hwy 6 South near Westheimer in Houston. Mohamed Gamal of RESOLUT RE represented the seller Kareem Gamal, President of Gamal Enterprises Inc. An undisclosed buyer has purchased the 23,500 square feet Corrigan Plaza located at 5402 Broadway Street in Pearland, Texas. Jim Thompson and Benny Nguyen of RESOLUT RE represented the seller. Nolan Rencher of Rencher Properties represented the buyer. An undisclosed buyer has purchased 0.74 acres at Colony Park Shopping Center located at SH 6 and Boonville Road in Bryan, Texas. Dave Burggraaf of RESOLUT RE and Jeremy Richmond of Oldham Goodwin represented the buyer. Kyle Knight and Brett Vinzant of Weitzman Group represented the seller. NobiliTea has leased 1,875 square feet at Grand Central at Milam (206 N Milam St, Fredericksburg). Gavin Fite of RESOLUT RE represented the tenant. Alec Spencer and Jeremy Peterson of St. Croix Capital Companies represented the landlord.
As we approach the new year, it’s a good time to reflect on the importance of gratitude and giving. These last 10 months have changed how we live, work and play, but one key lesson we have learned from COVID-19 is that we can still stick together while staying apart. No doubt, the pandemic profoundly and directly impacts commercial real estate through quarantines, shutdowns, social distancing, supply chain disruptions, and loss of consumer confidence. CRE and the overall economy will rebound. The speed with which the country and the industry emerge from the crisis depends on the availability and adoption of vaccines, patience with masks and social distancing, monetary stimulus, and stabilizing the property types, markets, and projects. “To whom much is given, much will be required.” If you have heard that sage quote, you know it means we are held responsible for what we have. If we have been blessed with knowledge, talent, time, and resources, it is expected that we use these gifts to benefit others. Although social distancing keeps us physically apart, it does not mean we are alone. There are countless opportunities to support others. Yes, celebrations, dinners with friends, and sporting events have mostly been canceled. However, compassion, kindness, and faith in humankind have not been postponed. Here are some strategies we can take that reinforce this: SHOW APPRECIATION.
Sometimes the most effective things are the easiest. When did you last say thank you to someone in your organization for a job well done? Perhaps you do this regularly, in which case you should encourage others to do it as well. Taking the time to show gratitude makes others feel valued. It is also contagious behavior, and the more everyone does it, the more it becomes part of your culture. A study by Glassdoor found that 80 percent of employees are willing to work harder for an appreciative leader, and 70 percent said they would feel better about themselves and their efforts if their managers recognized them more often.
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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.