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LISTEN: A Closer Look at CRE Construction Trends

Originally published on July 17, 2023, by the NAIOP Podcast: Inside CRE.

Marc sits down with Richard Branch, chief economist at Dodge Construction Network, a leading source of data analytics and insights on the commercial construction industry. Branch has us time-travel to the peak of the office market in 1985 (when the tax code allowed for extended depreciation); shares the latest data from Dodge on office renovation projects; and explores the link between the office market and popular culture, from “Mad Men” to “Office Space” to the end of the corner office. He discusses the hotel industry’s “aggressive rebound” post-economic crises; makes the case for why the office sector is here to stay; and shares the opportunities he sees for adaptive reuse in big cities and build-to-suit office space made for the hybrid work environment. Recorded on June 14, 2023.

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Corporate Real Estate of the Future: Where Sustainability and Profitability Converge

Originally published on June 8, 2023, by Kathryn Hamilton, CAE for NAIOP.

This week at NAIOP’s I.CON East: The Industrial Conference, four experts in the space shared their thoughts on how the corporate real estate of the future will integrate the evolving trends of sustainability and automation so that owners can meet carbon reduction and Environmental, Social and Governance (ESG) goals, exceed tenant specs, future-proof their properties and increase NOI.

Speakers included Alicia Case, LEED AP BD+C, WELL AP, SITES AP, Fitwel Ambassador, LFA, southeast region lead, sustainability, JLL; Nicolette Jaze, head of sustainability, Galvanize Climate Solutions; Shelah Wallace, director, originations, Nuveen; and moderator James Geshwiler, co-founder and chief strategy and investment officer, Catalyze.

Here are six takeaways from their conversation:

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What to Expect for Commercial Construction Lending in 2023

Originally published on May 25, 2023, by Jim Fraser for NAIOP.

A recent report from the American Institute of Architects shows that nonresidential construction spending is expected to slow to a growth rate of 5.8% in 2023 (down from 10% in 2022) and then fall to a mere 1% growth rate in 2024. Recent years brought new stresses on the industry – COVID-19 shutdowns, supply chain woes, labor shortages and bank failures have slowed projects or put them entirely on hold.

Associated Builders and Contractors predicts that the construction industry will need to attract more than 500,000 extra workers in 2023 – on top of the normal pace of hiring – to meet labor demand. Real estate valuations are softening and have negatively adjusted in many markets as well. In Los Angeles, for instance, office building valuations declined by 40% in the first two months of the year, according to data from Yardi Matrix.

At the same time, the cost of capital has risen considerably. Starting in March 2022, the Federal Reserve began hiking interest rates to quell inflation, which hit the highest level seen in four decades in late 2022. While the Fed’s efforts appear to have slowed inflation, a number of macroeconomic factors suggest a rough patch still lies ahead for the economy. This includes volatility in the bond markets and turbulence in the banking sector. Silicon Valley Bank’s failure in March was the largest since the Great Recession. Signature Bank shuttered days later, and Credit Suisse was swallowed up by a rival in the wake of its struggles. In turn, economists are seeing a pullback in bank lending — a trend that will affect commercial construction in the months ahead.

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Boston’s Epicenter of Tech and Life Sciences

Originally published on May 23, 2023, by Shawn Moura Ph.D., for NAIOP.

NAIOP National Forums members attending last week’s annual Symposium had the opportunity to tour several projects in the office and life science markets in East Cambridge, Somerville and the greater Boston market. The tour, led by Rob Dickey, Executive Vice President at Leggat McCall Properties (LMP), included site visits to two mixed-use projects that are currently under development.

East Cambridge

East Cambridge is a central hub for life science and technology firms in the Boston area, with 8.0 million square feet of office space and 8.6 million square feet of lab space, and an additional 3.6 million square feet of office and lab space currently under development. The market enjoys low direct vacancy rates (2.9% for office, 1.8% for lab) and high rents ($102 gross per square foot asking rent for office space, $116 triple net lease asking rent for lab space, according to JLL). Prominent organizations in the area include MIT, Sanofi, Moderna, Novartis, Eli Lilly, Google, Apple, IBM, Microsoft and Biogen.

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Boston Seaport Reimagined: The Next Chapter in this Historical Neighborhood

Originally published on May 19, 2023, by Kathryn Hamilton for NAIOP.

The Boston seaport has been continually reshaped since the 1800s, devolving from what was once a thriving area of commerce to acres of muddy parking lots and a few restaurants. Today, it is being reimagined again in a rapid and remarkable transformation that includes soaring office and lab towers, high-end residential, and all the retail services you could imagine.

Members of NAIOP’s National Forums toured two components of the seaport during their annual Symposium this week in Boston, hearing from the developers, investors and advisors shaping the site today.

Boston Global Investors is a leading partner and developer of Seaport Square, a 6.3 million square foot urban revitalization and the city’s largest master-planned community to date. Kevin Benedix, chief operating officer and chief financial officer, walked Forums members through the history of the project, its inspiration, and how it’s continued to evolve.

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[Watch] How CRE Benefits the U.S. Economy

Originally published on February 6, 2023, by NAIOP.

The four phases of commercial real estate development yield significant contributions to the U.S. economy, creating jobs and building the places we work, shop, live and play. In 2022, combined economic contributions of new commercial building development and the operations of existing commercial buildings:

  • Contributed $2.3 trillion to U.S. GDP
  • Generated $831.8 billion in personal earnings
  • Supported a total of 15.1 million jobs

Each dollar of construction spending generates $2.89 in economic, reflecting the cumulative effects of the initial construction expenditures as they cycle throughout the economy. Construction spending of $1.8 trillion yields $5.2 trillion to U.S. GDP.

State economies benefit from a healthy commercial real estate industry, which yields state revenue and adds inventory to attract new businesses and jobs.

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What Will 2023 Bring for CRE?

Originally published on December 27, 2022 for NAIOP E-Newsletter by Ed Finkel.

As the calendar turns to 2023, what’s ahead for the commercial real estate field? We talked to several NAIOP Distinguished Fellows and Research Foundation Governors to get their forecasts for the next 12 months.

Investor Interest in Single-family Housing 

Single-family rental housing is top-of-mind for Distinguished Fellow Suzanne Lanyi Charles, who chairs the Paul Rubacha Department of Real Estate at Cornell University. A sector that grew quickly after the 2008 housing crisis, single-family rentals have become a well-established asset class with publicly traded and private companies that have as many as 80,000 units, she notes.

The rapidly rising interest rates of the past year have led smaller investors to pull back, Charles says, but that creates an opportunity for the large to become larger. “I’d expect to see the largest institutional investors, those that have access to cheap capital, to use this period of high-interest rates and declining home values, to grow even larger,” she says.

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Can Industrial be a Good Neighbor in Residential Areas?

 

 

Industrial

By Trey Barrineau

Industrial properties are often built near neighborhoods, but that isn’t always popular with the residents, who have legitimate concerns about noise, traffic and pollution from the increased volume of trucks and vans.

A recent NAIOP online panel discussion examined how developers can work with local communities to address these worries through outreach and engagement, as well as with design and technological innovations.

“Education is key to establishing that relationship early on,” said Sven Tustin, executive vice president with Conor Commercial, who moderated the panel. “The developer has to listen to concerns. Residents look at a site plan that shows 200 dock doors, and they assume that there will be 200 trucks coming in and out 24/7.”

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CRE Industry Steps Forward For Some Women, Stalls For Others

Originally published on September 6, 2022 by Patrick Sisson for Bisnow National.

Women in commercial real estate, particularly those in the upper echelons of management, have made gains when it comes to equity and pay parity in the workplace, but talent pipelines, mentorship and diversity in leadership ranks still leave something to be desired.

That’s according to a pair of new surveys on the careers and perceptions of women in commercial real estate as the industry goes through a generational upheaval in the aftermath of a pandemic and racial reckoning that have changed the way workplaces work.

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Top Five US Metros for Life Sciences In 2022

Life sciences

TOP FIVE US METROS FOR LIFE SCIENCES IN 2022

By 

Growth in the life sciences sector has driven demand in recent years for both commercial real estate space and labor to accommodate this specialized sector. A new study by commercial real estate platform CommercialCafe set out to identify the best metros for life science companies in 2022 and assessed more than 40 metropolitan statistical areas (MSAs) in terms of regional talent pool and workforce; accessibility of local office markets; the degree of availability of existing dedicated property; as well as the state of the local pipeline aiming to expand local life sciences capacity.

Boston took the number one spot on the list, with San Francisco in second place, then San Diego third, New York fourth, and Washington, D.C., rounding out the top five.

A longtime “flagship market” for life sciences, the Boston metropolitan area remains a leader in the sector. The MSA stood out for several key indices scored in the ranking: Boston boasts the largest labor pool among the metros analyzed, as well as the largest life sciences real estate market — nearly 25 million square feet of existing dedicated property, of which just under 14 million square feet was LEED-certified space. What’s more, with an additional 23.8 million square feet of new life sciences developments in the pipeline — under construction, as well as in the planned and prospective stages — Boston seems firmly placed at number one for the foreseeable future.

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The Unexpected Challenges (and Solutions) of Multilevel Warehouse Design

Costco
  • By Russ Hazzard, Jonathan Chang, Development Magazine (photo of Vancouver, B.C. Costco by Raef Grohne)

Experiences in Canada and Asia provide case studies for building these complex properties.

Over the past 15 years, multilevel warehouses — particularly those used for retail purposes — have been a growing trend across Asia and, more recently, in the United States. However, some challenges accompany their design and construction that are not encountered in the traditional approach to large-format retail. With operational criteria at the top of the list, these challenges vary heavily based on several factors, including location, footprint, environment, jurisdictional requirements, and cultural and community influences.

The increase in demand for and construction of multilevel warehouses has unearthed numerous unique considerations not present in traditional warehouse environments. These challenges — each intricate in their own right — have required creative solutions and careful programming to successfully bring each project to life.

Parking and Vehicle Flow

One of the most critical design challenges for vertical warehouses is the traffic flow of vehicles and the structure’s parking. While the goal is to keep the sales level on a single floor for ease of operations and the consumer’s shopping experience, parking for multilevel warehouses can reside either above or below grade. Both options have pros and cons: Below-grade parking requires excavation, which can increase costs and complications. However, it provides a solution for lot coverage or height restrictions in situations where those apply. Above-grade or rooftop parking is preferred as it saves both construction time and money.

Customized resolutions to optimize vehicle traffic flow and increase ease of parking have also been employed, varying from warehouse to country to country. For example, in Sinjhuang, Taiwan, indication lights for open parking spaces are used to determine capacity at a glance. In Suzhou, China, car ramps at the entrance steer customers directly up to each floor, allowing them to bypass complete levels. Larger-than-regulation parking spaces — typically very compact in Asia — are also used, granting customers peace of mind. There is no need to worry about maneuvering around tightly packed vehicles in the garage. As an added benefit, large spaces also increase vehicle flow; running in and out of an area is completed in one move vs. two or three.

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City Council Members Meet with NAIOP Charlotte for LWAL

Last week, NAIOP members met with City Council Candidates Dimple Ajmera and Marjorie Molina to discuss important issues impacting Charlotte’s CRE industry.

LWAL two

The Lunch with a Leader series provides NAIOP Charlotte members an exclusive opportunity to meet and interact with key leaders in our community. Look for upcoming NAIOP Charlotte fall events here.

LWAL one

UDO: Planning Committee to Review and Recommend

Compiled from REBIC, staff reports

REBIC’s Rob Nanfelt reported Tuesday that the City’s Planning Committee is taking up the matter of the proposed Unified Development Ordinance. Next month, committee members will take any additional recommendations before the third/final draft.

Last week, the Charlotte City Council received comments from the community during a public hearing on the proposed UDO. Click here to view the resolution. The entire hearing is available to view here – beginning approximately at the 2:51:30 mark.   

Next is a review and recommendation from the City’s Planning Committee scheduled to begin Tuesday, July 19, at 5 p.m. Those interested can view it on the City’s Planning Department YouTube Channel. The complete agenda and meeting packet is available here.

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Charlotte UDO Public Hearing Held Monday

UDO

On Monday, Charlotte's proposed Unified Development Ordinance (UDO) public hearing took place in the City Council Chambers. 

Many in the audience turned out for the Public Forum portion of the plan, but several neighborhood activists were also on hand. That group mainly wanted to challenge the ordinance provision allowing for higher-density dwellings in single-family neighborhoods. REBIC supports a wide range of housing types and believes the development of additional units is necessary to meet current and future demand.

The City Council also voted 9-2 to adopt a policy providing source of income protections to prospective renters of properties developed using a taxpayer-provided subsidy, conveyance of property, or infrastructure reimbursement incentive such as a Tax Increment Grant (TIG). The policy seeks to promote the use of Housing Opportunity Vouchers that some property managers and landowners have been reluctant to accept. Proponents have argued the policy is necessary to eliminate a discriminatory practice. Opponents are concerned it will result in less affordable housing units for future development.

More from the meeting

The Charlotte City Council received comments from the community on Monday at a scheduled public hearing on the proposed Unified Development Ordinance (UDO). Click here to view the resolution. The entire hearing is available here - beginning approximately at the 2:51:30 mark.   

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RECAP – Industry Forum: Charlotte’s UDO and Next Steps

UDO dom photo

June 23, 2022:  More than 100 commercial real estate professionals registered to hear a panel of local industry professionals share their feedback on the latest draft of Charlotte’s Unified Development Ordinance (UDO). Roger Manley (BB+M Architecture), Jon Morris (Beacon Partners), Tim Sittema (Crosland Southeast) and moderator Rob Nanfelt (REBIC) discussed their participation and impacts the new ordinance will have on the future of commercial real estate development.

Some of the highlights included:

Affordability after the UDO's implementation.  Yes, development and housing costs will go up. But the new draft should offer more flexibility.

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Vacant Storefronts Can be Repurposed into Retail Incubators

Retail incubator

Vacant Storefronts Can be Repurposed into Retail Incubators

They can provide an immediate boost in shopping districts and grow future businesses into long-term tenants.

  • Written by Ilana Preuss, Development Magazine

The COVID-19 pandemic has left America’s retail districts pockmarked with empty storefronts, but there is a creative solution. These vacant spaces, which often can be purchased or rented at reduced prices, are prime targets for conversion into retail incubators.

Retail incubators, like business incubators, nurture new or small-scale entrepreneurs during the startup phase. They mitigate some of the challenges of opening a business by providing financial and technical assistance, such as the basics of marketing and business plans. Tenants typically share space, ideas and operating expenses in locations that they could not otherwise afford. Many spaces have flexible or temporary lease terms. Some allow for small-scale manufacturing and hold community events, such as product demonstrations, fashion shows and art openings.

In addition to real estate, retail incubators provide fledgling businesses with valuable resources such as technical and financial assistance.  

According to the U.S. Chamber of Commerce, new business applications in the United States set an all-time record of 5.1 million in 2021. At the same time, the pandemic has led to consolidation of space and locations by major retail brands, which reduced the prospect of attracting businesses. The challenge for small businesses is they can’t immediately fill the footprints of major store closings. However, they can make temporary use of retail space to establish their businesses, and occupying formerly abandoned stores can help energize struggling downtowns.

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Permit Reform Legislation Advances Following NAIOP’s N.C. Advocacy Day

BY TOBY BURKE,   

Members from NAIOP’s three chapters in North Carolina traveled to Raleigh last week to advance the priorities of the commercial real estate development industry in meetings with state lawmakers. The top priority for NAIOP of North Carolina, the state alliance of NAIOP chapters, is the passage and enactment of House Bill 291, permit reform legislation sponsored by State Representative Jeff Zenger.

Local building permits are an essential and fundamental requirement for the development and improvement of commercial and residential properties. However, the processes for obtaining these permits can vary by city and county in North Carolina. These variations lead to uncertainties and delays in projects moving forward, which can impact the costs, financing and contractional relationships with contractors and providers of construction equipment and materials.

The enactment of House Bill 291 would bring reforms to the permitting process similar to those advocated by our local chapter in Georgia which were ultimately enacted into law in that state. These reforms to the local permitting process bring more predictability and accountability, reducing uncertainty and unnecessary delays. Core elements of the bill include:

  • A local permitting entity has 21 days in which review the plans.
  • During the 21 days, the local entity shall resolve issues associated with the application and may seek additional information from the applicant.
  • If additional information is needed or the application must be resubmitted, the permitting entity has 15 days from receipt of the additional information to issue a permit.
  • If the local permitting entity is unable to meet the time parameters, the applicant or inspections department may seek approval from a certified third-party (engineer) or the Department of Insurance.

The North Carolina House of Representatives passed House Bill 291 in May of 2021 on bipartisan vote of 79-33, sending the bill to the state Senate. The legislation was eventually sent to the commerce and insurance committee in March for their consideration. Our meetings last week focused on urging Senate leadership and the committee chairs to move this important legislation forward before adjourning for the year as early as the end of June. NAIOP of North Carolina’s advocacy played a key role in HB 291 being scheduled the following day for a hearing before the insurance committee the subsequent week.


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Construction Sites Build a Circular Economy

Genesis Marina

 Phase 3 Real Estate Partners’ Genesis Marina, a 550,000-square-foot life science development south of San Francisco, is the nation’s first precertified TRUE zero-waste project. Photo courtesy of Phase 3 Real Estate Partners

 

By NAIOP Development writer Alice Devine

 

Zero-waste efforts attract greater attention, including a new certification program. 

New buildings can create architecturally pleasing skylines and yet leave construction debris in their wakes. In fact, the U.S. Environmental Protection Agency estimates that construction and demolition debris accounts for more than twice the amount of generated municipal solid waste in the U.S. 

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Economic Impacts of Commercial Real Estate, 2022 U.S. Edition

 

originally published by Brian Lewandowski, Jacob Dubbert, Michael P. Kercheval, Ph.D., and Richard Wobbekind, Ph.D. with permission to repost.

NAIOP Economic Pic

Development and construction of new commercial real estate in the United States – office, industrial, warehouse, and retail – generates significant economic growth at the state and national levels. This annual study, “The Economic Impacts of Commercial Real Estate, 2022 U.S. Edition,” published by the NAIOP Research Foundation, measures the contribution to GDP, salaries and wages generated and jobs supported from the development and operations of commercial real estate.

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The Outlook for Capital Markets and Industrial Real Estate

 

originally published by SHAWN MOURA, PH.D. for NAIOP National

Capital Market

Low cap rates and rapidly rising rents reflect industrial real estate’s status as the leading sector in commercial real estate development. Record levels of capital are flowing to industrial real estate while tenants are willing to pay higher rents to secure additional inventory and shorten delivery timelines.

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