Originally published by Hany Guirguis, Ph.D., Manhattan College and Michael J. Seiler, DBA, William & Mary in August 2021

Industrial Space Demand Remains Strong 

Demand for industrial real estate continues to be strong as the long-term trend toward e-commerce (and away from in-store sales) continues with no end in sight. With nearly 100 million new square feet delivered nationally since the beginning of the year, 450 million square feet currently under construction, and another 450 million planned, the demand for industrial real estate still outpaces supply.¹

Because of this, authors Dr. Hany Guirguis and Dr. Michael Seiler forecast that the total net absorption in the second half of 2021 will be 162.6 million square feet with a quarterly average of 81.3 million square feet. In 2022, the projected net absorption is 334.6 million square feet with a quarterly average of 83.6 million square feet. An improvement in the outlook for the economy in 2021 and 2022 is behind the upward revision of the 2022 forecast. For example, the real GDP growth rate is now forecast to be 7% in 2021, above the previous forecast of 5% growth. As economic growth is projected to revert toward long-term growth rates in 2023, net absorption in the first half of the year is forecast to be 160.5 million square feet, for a quarterly average of 80.2 million square feet. 

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Originally published by Philip Wilkinson and Teresa Bucco for NAIOP Development Magazine Summer 2021 issue.

A project in Pittsburgh demonstrates the potential of activating common areas in older retail destinations.

For nearly two decades, online shopping has seen steady growth in both traffic and sales, which has forced traditional retailers to think of new ways to draw people into brick-and-mortar stores. In more recent years, shifts toward experiential retail saw many retailers overhauling store designs to give shoppers more hyperlocal, boutique or high-end encounters while encouraging online buying and in-store pickup. 

However, concepts such as Wal-Mart’s Neighborhood Market and Target’s City Target — launched to reach transit-oriented communities and supplement declining sales at traditional big-box locations — were often slow to catch on or showed mixed results, according to a 2019 Mashed article.

Then the COVID-19 pandemic accelerated the decline of in-person buying. Digital Commerce 360 reports that total online spending in 2020 reached $861 billion, up 44% from 2019, accounting for 21.3% of total retail sales. Adobe’s Digital Economy Index shows that 2020 accelerated the typical year-over-year growth of e-commerce by four to six years. Conversely, sales from brick-and-mortar retailers fell an estimated 14%  to just $4.2 trillion in 2020, according to a June 2020 Insider Intelligence study. Due to the rise of e-commerce and the economic effects of the pandemic, it’s clear that commercial centers must evolve to become more than just shopping destinations.

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Originally published on July 29, 2021, by Sheheryar Hafeez for the NAIOP E-Newsletter.

Real estate investment trust (REIT) merger and acquisition activity has emerged from the pandemic in full force with some $75 billion in investment nationally from January through mid-July 2021. This robust activity is expected to continue throughout what could potentially be a record-breaking year. While all 11 Global Industry Classification Standard sectors are in positive territory for the year, real estate ranks second highest with a strong 27% performance, just slightly below energy.

With the U.S. economy posting robust growth rates and expectations of a return to pre-COVID normalcy in many areas, investors are readjusting their views on various REIT sectors. Property sectors that felt the deepest impacts in 2020 – office, retail, and hotel, or “out-of-favor” sectors – are increasingly eyed by commercial real estate investors, who are betting on a strong rebound. Conversely, tech-driven and industrial REITs – or “in-favor” sectors – that benefited from the country’s increased reliance on e-commerce in 2020, have underperformed so far this year but are still in positive territory.   

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Originally published on July 27, 2021, by Ester Fung for the Wall Street Journal.

U.S. commercial real-estate sales this year have rebounded to pre-pandemic levels, fueled by historically low-interest rates and the belief of many investors that the worst of Covid-19 is over.

But the commercial-property sales landscape looks a lot different than it did before the health crisis hit in early 2020. Cities including New York and San Francisco have fallen in favor as have property types such as downtown office buildings and convention hotels.

Meanwhile, Sunbelt cities posted record sales and investors flocked to property types that performed well during the pandemic, including amenity-packed apartment buildings, warehouses and office buildings that cater to pharmaceutical and biotechnology industries. “There is a move to both new property types and new markets,” said a report recently released by data and research firm Real Capital Analytics.

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Originally published  by Scott Murdoch for the Summer 2021 Issue of NAIOP Development Magazine.

The pandemic forced the industry to adapt quickly to meet soaring demand.

While grocery e-commerce was growing prior to the pandemic, the sector saw staggering market penetration over the course of 2020 and beyond. Concerned about safely accessing food, consumers across all demographics turned to online grocery shopping as a convenient, safe option.

A survey by LEK indicated that food e-commerce made up 3%-4% of total grocery retail sales before the pandemic and that overall penetration would reach 15%-20% by 2025. But in its February 2021 Online Grocery Report, Business Insider projected online grocery adoption will reach 55% in the U.S. by the end of 2024. Consumers have clearly grown accustomed to the convenience and safety of grocery e-commerce. 

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Originally published on July 21, 2021, for NAIOP E-Newsletter.

Owners and developers of commercial real estate recognize that obtaining local building permits is an essential and fundamental requirement for the development and improvement of their properties. The processes for obtaining these permits vary by municipality and state. These variations lead to uncertainties and delays in projects moving forward, which impacts the development project’s financing, cost and the retention of contractors, construction equipment and other materials.

Many state legislatures have taken action to address this by bringing more predictability, transparency, and accountability to the local permitting processes within their state. This was the case in Florida and Georgia following effective advocacy by our local NAIOP chapters. Our members were increasingly concerned with the negative effect on development with the inconsistent application of permit requirements and fees by local governing entities.

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Originally published on July 23, 2021, by Roger McCarron for NAIOP E-Newsletter.

The COVID-19 pandemic, and the waves of lockdowns and business interruptions it prompted, affected global supply chains in virtually every industry — and construction is no exception. Due to widespread shortages of building materials, and pent-up demand from projects that were delayed or postponed during the pandemic, costs for materials including lumber, copper, steel, aluminum and vinyl skyrocketed. According to the National Association of Homebuilders, lumber prices spiked to a more than 300% year-over-year increase in May. While prices have since come down, they remain higher than historical averages and data suggest that demand for construction materials is approaching pre-pandemic levels.

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Originally published by Wendy King for NAIOP's Summer 2021 Issue.

The real estate industry faces unique challenges in designing vaccination programs based on workplace types and the nature of jobs.

As COVID-19 vaccines continue to roll out, and with the possibility of booster shots for variants as fall approaches, many commercial and residential property management companies, as well as sales and leasing brokerages, are considering how to deal with vaccinations within their workplaces. 

If designing a company-wide vaccine program, consider prioritizing vaccine distribution based on job function. For example, some essential employees must work in-person to keep commercial buildings functioning. Meanwhile, a significant portion of the workforce will likely continue to work from home until this fall or beyond. 

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Originally published on July 9, 2021 by Shawn Moura Ph.D. for NAIOP E-Newsletter.

In June, NAIOP conducted its eighth survey of its U.S. members on the impacts of COVID-19. Since April 2020, the association has examined the pandemic’s effects on commercial real estate and how firms have responded. Most American adults are vaccinated, and daily coronavirus case counts have plummeted in the five months since the previous survey. This has allowed a widespread return of customers to restaurants and retailers, and most observers now expect that office occupancy rates will rebound in the fall when schools re-open for in-person instruction. 

Respondents to the survey report a strong recovery in retail property rent collections, as well as retail property acquisitions and development activity, alongside continued favorable trends for industrial, office and multifamily properties. Less than one-quarter of respondents now expect the pandemic to significantly affect their business operations for more than a year, and respondents are much more optimistic about employment within their own firms than in previous surveys. 

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Originally published by Daniel Castner, Brian Spence and Trevor Boz for NAIOP's Summer 2021 Issue.

This fast-growing sector can be complex to navigate for developers.

The scientific research market has grown substantially over the past 10 years. With a global pandemic top of mind, investors are looking at the life science industry now more than ever.

This expanding market is evolving into one of the fastest-growing real estate investment sectors, yet some developers, investors and real estate professionals may be intimidated or confused by the complexities in site selection, design and construction of lab facilities. Familiarity with industry-related terms and a basic understanding of what is needed to develop a successful lab research facility are key starting points. 

Scientific research requires an appropriate environment to conduct experiments, process data, foster collaboration and inspire creativity. Proximity to potential clients and talent, availability of public transportation, tax incentives, zoning restrictions and surrounding neighborhoods are intrinsic traits that must be considered when finding a suitable location to build a project. The configuration of the space can be adaptable to accommodate unknown needs of a program or a future tenant, or it can be targeted toward a specific type of science. 

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Originally published on June 29, 2021, by Zach Bowyer, Brian Chandler and Bryan Lockard for NAIOP E-Newsletter.

The COVID-19 pandemic interrupted a nearly 12-year growth cycle for the senior housing market, causing a drop in valuations to an eight-year low. Stabilized occupancy rates also fell to record lows due to infections, mandated holds on new resident admissions, safety concerns, and isolation fears. Rents, however, continued to rise, despite significant occupancy losses.

In addition, following four consecutive years of year-over-year decline, total price per bed for nursing homes increased by nearly 22 percent in the first quarter of 2021, marking the second-highest price point for nursing homes ever recorded, according to JLL Valuation Advisory’s recently released Seniors Housing & Care – Investor Survey and Trends Outlook. 

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Originally published on July 2, 2021, by Ioana Ginsac for NAIOP E-Newsletter.

Last week, commercial real estate property data and listings platform CommercialEdge published its most recent national office report, which paints a more current picture of office sector activity across the top 50 U.S. markets. Data analyzed for the June 2021 report found that:

• The average office lease rate was up 0.4% year over year, as asking office rents averaged $38.36 per square foot in May.
• Vacancy rates reached an average of 15.6%, following a 240 basis points increase compared to May 2020.
• Office sales closed during the first five months of the year totaled nearly $23 billion, contouring the possibility that 2021 investment activity is likely to at least match last year’s total volume of $61 billion.

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Originally published on June 21, 2021 by Marc Rapport for MillionAcres.com.

The pandemic recovery in the office sector is underway and is projected to reach positive net absorption in the fourth quarter of this year, according to research from NAIOP, the Commercial Real Estate Development Association.

That turning point will be followed by a return to more normal levels, predicts the report titled “Office Space Demand Forecast, Second Quarter 2021,” researched and written by professors Hany Guirguis of Manhattan College and Michael Seiler of William & Mary and the University of Cambridge.

Originally published on June 22, 2021 by Andy Halik for NAIOP E-Newsletter.

With U.S. coronavirus cases plunging and knowledge workers craving the social component of the workplace, many companies across the country are fully reopening their offices to employees. Some companies took the opportunity to renovate or update their workspace during the lockdown periods of the pandemic, and others are planning significant design changes to prepare for the next era of the office.

Meanwhile, the challenges of renovating or building out office interiors – or constructing ground-up office buildings – are only compounding as the desire to move forward on office projects butts up against unpredictable economic factors. Facing volatile materials prices, a tightening labor market, soaring demand and supply chain inefficiencies, real estate developers, owners, tenants and their builders must take action to mitigate the financial impacts and keep projects on track.

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Originally published by Ron Derven for NAIOP's Development Magazine Summer 2021 Issue.

The post-pandemic period could see a lot of innovation and experimentation in commercial real estate.

COVID-19 delivered a gut punch like no other to the commercial real estate industry last year, with transactions in the second quarter of 2020 plummeting approximately 40% over the same period in 2019.

By the fourth quarter of 2020, however, sales activity had nearly recovered, according to John Chang, director of research with Marcus & Millichap.

“Investors adapted to the new climate and devised new solutions to address the many obstacles to getting business done,” Chang said. “Barring a new, severe and deadly outbreak, COVID-related challenges ahead will likely be speed bumps for the commercial real estate industry rather than roadblocks.”

Originally published on June 15, 2021, by Esther Fung for the Wall Street Journal.

During the worst of the pandemic, many landlords offered deals where ailing retailers paid a percentage of their monthly sales in rent—rather than a fixed amount—to help them survive. Now, this once temporary way of charging tenants looks poised to outlast Covid-19.

More shopping-center owners are signing new leases where rent is tied directly to a portion of sales, at least for a period. These percentage-rent leases are especially attractive to newer retailers, offering some flexibility so that they aren’t saddled with large losses as they are starting out.

While most landlords tend to prefer the reliability of a fixed monthly rent payment, the wider use of percentage leases reflects how much retail has become a renters’ market.

The following statement was issued by REBIC on Tuesday, June 22, 2021.

Last night the “Plan Policy” section of the 2040 Comprehensive Plan passed the Charlotte City Council by a 6-5 vote. This outcome had been widely expected for several weeks. In the end, REBIC took the position that moving ahead to the more difficult challenges, such as the debate over the “Implementation Strategy” and “Manuals and Metrics” sections, as well as the Place Type mapping and ultimately the Unified Development Ordinance (UDO) was in the best interests of all parties. It was evident that members of City Council had withdrawn to their respective corners and that any further compromise was not possible.

Following an introduction, the real estate industry faced some big hurdles:

• Removal of Mandatory impact fees
• Removal of Mandatory inclusionary zoning
• Removal of Mandatory Community Benefit Agreements
• A broken process set up to accept comments but one that provided little feedback in return
• A City Council (with the exception of a few members) with little knowledge of the Plan
• A tight, artificial timeline with a proposed vote on the entire document by April 26th

After last night here’s where we are:

Originally published on June 15, 2021, by Katie Sloan for Rebusiness Online.

When it comes to mall redevelopment, one of the biggest hurdles is changing the business community’s perception that enclosed malls are only for retail use, says Sean Garrett, president of acquisitions and director of community relations for East Peoria, Illinois-based Cullinan Properties Ltd. 

“There is no reason an insurance office can’t be right next to a retailer and a neighbor of a dentist,” states Garrett. “Downtowns and Main Streets have been developed this way for generations.” 

Cullinan recently followed this approach when it rebranded its Quincy Mall in Quincy, Illinois, to Quincy Town Center. One of the anchor tenants is now Quincy Medical Group, which backfilled a former Bergner’s department store. For Garrett, merging retail and medical uses today is a “natural fit.”

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Originally published in NAIOP's Development Magazine Spring 2021 Issue by Ann Moore.

Waterfront development in California used multiple strategies to get off the ground.

Megaprojects can transform landscapes, improve quality of life and deliver significant economic benefits to their communities. When they are sited on a waterfront in a binational urban area, they take on even more complexity. In Southern California’s San Diego County, a megaproject will transform a formerly blighted stretch of waterfront into a thriving destination. The project team is pursuing innovative ways to reduce the risk that could be instructive to other development teams. 

A megaproject is defined by its scale and complexity. Typically costing $1 billion or more, such projects take many years to develop and build, involve multiple public and private stakeholders and impact millions of people, according to the Oxford Handbook of Megaproject Management. A considerable upside also brings great risk, which must be managed to improve the chances of success. 

On approximately 535 acres, the Chula Vista Bayfront is larger than Disneyland and one of the last significant large-scale waterfront development opportunities in Southern California. Once defined by a power plant and an aerospace factory, this brownfield waterfront is ripe for redevelopment in the U.S.-Mexico border region of 6.5 million people. The location is about a 15-minute drive from the busiest land border crossing in the western hemisphere. More than 100,000 people cross the San Diego-Tijuana, Mexico, border every day. Thus, the project site can target a market that includes U.S. citizens, Mexican nationals, and travelers using airports in San Diego and Tijuana. 

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Originally published on June 2, 2021, by Sasha Jones for Bloomberg News.

The future of the office sector remains largely uncertain at this point post-pandemic, but there’s one segment that continues to see huge gains.

Investors have spent more than $10 billion on buying life sciences buildings this year, Bloomberg News reported, citing data from Real Capital Analytics. That’s about 4 percent of all global commercial real estate transactions through May, twice what was recorded at the same time last year.

And those numbers don’t even include new life-science developments, such as Boston’s massive Fenway Center, which broke ground in 2017.

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