unchanged, the cap rate for office rose 10 bps
to 7.2%, a top-line figure underpinned by
greater volatility in cap rates. At the same
time, the sector’s average cap rate, which had
risen 40 bps in Q1, fell 20 bps to 7.2% in Q2.
The consistency in the 12-month rolling
office cap rate “has defied the tightening in
monetary policy,” writes Denham. However,
she adds, “the flat trend also mirrors the low
but steady office rent growth trend.”
Office cap rates have stayed higher than
those in multifamily and, in contrast to the
apartment market, have remained higher
than they were two years ago. “Still, since
2013, the 12-month rolling average has stayed
below the 10-year average,” says Denham.
By comparison to multifamily and office,
the trend line for cap rates for retail shows
“somewhat surprising results,” she finds.
While the mean retail cap rate rose 20 bps to 7.7% during Q2,
“the 12-month rolling average is still trending downwards. At
7.6%, the 12-month rolling average is still only 10 bps above the
average of 7.5%” seen in 2015.—Paul Bubny
Industrial’s Historic Run Continues
The US industrial market is on an historic run. And experts say the
factors responsible for the present era of expansion have combined in a powerful way that could sustain growth for several years.
The consumption of goods such as food and beverages has
steadily increased due to population growth, for example, and
economic expansion on top of that has created more demand for
goods like housing materials and auto parts. But one more accelerant added to the mix has been the need to reconstruct corporate supply chains due to changes brought about by e-commerce.
“Right now, all three of these sectors are expanding,” says Chris
Caton, head of research for Prologis, one of the nation’s largest
developers and owners. Users have absorbed about one billion
square feet of space in just four years, much of it devoted to the
warehousing and distribution of goods.
But the industrial economy has the potential to expand even
further. Caton points out that the housing sector, which requires
the production and distribution of a massive amount of goods, has
not fully recovered from the historic plunge that began a decade
ago. According to Census data, housing starts have been rising
since 2009, but at about 1. 2 million units per month are currently
below the historic norm. “We think 1. 5 million is sustainable.”
And even though the auto sector picked up earlier than hous-
ing and “may be slowing down a bit,” Caton relates that when it
comes to the reconstruction of the supply chain due to e-com-
merce, “we’re still in the early innings.”
Many developers and users are still in the innovation stage and
experimenting with new models, he explains. At some point, com-
panies will need to decide whether to use a 3PL, or perhaps rent
out space in a massive class A facility along with an ecosystem of
smaller distribution centers that handle same-day delivery in dense
urban areas. “If you’re a retailer, a successful online strategy could
mean 30% growth,” and companies will need to “think about their
supply chain from end-to-end.”—Brian J. Rogal
Who’s Using Flex Office?
Flexible office space is taking over. Some are
quickly adapting to a future where flexible
office space is a significant portion of the
office market, but others are still concerned
about how co-working spaces—a major part
of the flexible market—will affect company
culture and productivity. The reality is that,
there are enough flexible office options today
to supply the needs of every kind of company,
whether it wants flexibility or networking.
Everyone from corporations to start-ups
and freelancers are finding flexible offices
spaces to fit their needs—and seeing the ben-
efits. The options range from co-working
spaces from an operator or direct leasing of a
smaller, curated space for a corporation or
project team. “Many landlords are taking a progressive perspective
on office leasing,” says Mark Gilbreath, CEO and founder of
LiquidSpace. “From an asset management standpoint, there are
going to be three strategies applied to office buildings. The first is
long-term leasing, which will continue for some time. The second
strategy is the landlord renting space to a flexible operator to pro-
vide a managed community experience. The third is to do direct
leasing to a tenant on flexible terms, which will be ideal for growing
or larger firms that need flexible space but not shared space.”
Generally, freelancers and start-ups prefer co-working spaces.
They offer open concepts and extreme flexibility for growing com-
panies, and the shared space provides good networking opportuni-
ties. Generally, the company culture of these smaller companies is
adaptable to co-working and other shared spaces. “The community
or the experience aspect of a co-working space can be a combina-
tion of the design aesthetic and the hospitality and community
management that takes place,” says Gilbreath.
The flexible office needs for larger companies are different, and
often they’re looking for flexible lease terms for mobile or project-based employees. As landlords are curating flexible spaces, there
are flexible opportunities to fit the cultures of these companies.
“With our larger corporate client activity, there is a much stronger
correlation to the business benefits of flexibility,” says Gilbreath.
“They want increased flexibility and leasing terms, because maybe
they don’t want to be long-term space or they have a project team
that only needs space for six or eight or 12 months.”—Kelsi Borland
BRICKS AND STICKS
Amazon Hunts for a Second Home
Already domiciled at an 8.1-million-square-foot campus in its
hometown of Seattle, Amazon has set off a municipal-level bidding war with its search for a second headquarters city. The
world’s largest online retailer says it expects to spend $5 billion
building Amazon HQ2 somewhere in North America, and to ultimately employ up to 50,000 people there.
To that end, Amazon has issued a Request for Proposals to
local and state governments interested in learning more about
how they might vie for the headquarters location. The company
made it clear that HQ2 would be a full-fledged headquarters,
rather than a satellite office.
CRE finance industry veteran Eric Keifer has joined
Berkeley Point Capital as
senior managing director
and head of FHA, affordable and seniors housing.
Prior to joining Berkeley
Point, Keifer was general counsel and SVP at
Rockport Mortgage Corp.