U.S. department stores have been struggling for several years now as online shopping popularity continues to grow – but now it’s the investors who are paying the price for the dramatic shift in shopping preference. According to Reuters, weak September core retail sales, which strip out auto and gasoline sales, provide a window into the pain the holders of mall debt face in coming months as retailers with a physical presence keep discounting to stave off lagging sales. Some $128 billion of commercial real estate loans - more than one-quarter of which went to finance malls a decade ago - are due to refinance between now and the end of 2017, according to Morningstar Credit Ratings. Wells Fargo estimates that about $38 billion of these loans were taken out by retailers, bundled into commercial mortgage-backed securities (CMBS) and sold to institutional investors.
Institutional owners of office buildings continued to pursue green building certifications in the 30 largest U.S. markets during 2015. Continuing an upward trend over the past decade, green certifications are now held by 11.8 percent of all surveyed buildings, representing 40.2 percent of all office space. Both figures are slightly above last year’s results, according to the third annual Green Building Adoption Index study by CBRE Group, Inc. and Maastricht University. “Green” office buildings in the U.S. are defined as those that hold either an EPA ENERGY STAR label, USGBC LEED certification or both.
After placing second on the Green Building Adoption Index the two prior years, the San Francisco market claimed the top spot with 73.7 percent of its space qualified as green certified. Chicago claimed the second spot, narrowly trailing the leader at 72.3 percent and Minneapolis fell from the top into third spot at 60.6 percent. Houston, Atlanta and Los Angeles all also achieved more than 50 percent green certification in their office markets.
The Baird/STR Hotel Stock Index fell 6.4% in September to close the month at 3,134. Year to date, the index remains up 1.3%. "As we enter the final months of 2016, the U.S. hotel industry is bracing for a slowdown in demand growth and an acceleration in the number of open hotels," said Amanda Hite, STR's president and CEO. "STR expects nationwide occupancy to flatten or decline, as can already be seen in a number of Top 25 Markets.”
A steady demand for space and limited new construction are supporting healthy fundamentals in the office sector, but a slow down or neutral growth is expected in most markets next year. Experts report that office occupancy and absorption rates both remained high in the third quarter, as job growth continued to improve and companies took more risks on new leases. “There was some concern and caution expressed by a lot of companies earlier in the year, but now we’re seeing tenants actively expanding, even going into new markets,” said Julia Georgules, vice president of research with JLL. “It’s a testament to the stability of the economy.”
As several large corporations executed major relocations to upgrade their space and take advantage of state incentives, Northern and Central New Jersey enjoyed one of their best quarters for office leasing in recent history. New Jersey absorbed 1.8 million square feet of office space in Q3 of 2016, the highest amount of square footage absorbed in any one quarter in the state in the past fifteen years, according to Cushman and Wakefield. Nearly all of the occupancy gains were concentrated within the Class A product. The last two quarters combined have produced slightly more than 2.8 million square feet of net occupancy gains, as vacancy has fallen by 140 basis points since the first quarter.
A recent report by CBRE highlights Houston’s best- and worst-performing hospitality submarkets in terms of occupancy and RevPAR, and touched on the positive and negative outside economic factors that have impacted the city most profoundly, including the ongoing oil slump, the widening of the Panama Canal and more. The downtown market is feeling some growing pains and a number of high-profile deliveries are still expected in the next year, including the 1,000-room Marriott Marquis, a new Aloft hotel and a Euro-themed, 195-room AC Hotel by Marriott.
There has been much talk in recent years about “splitting” California’s property tax system, thereby imposing a greater tax burden on the owners of commercial and industrial real estate. However, Proposition 13, the state’s landmark 1978 property tax initiative, has prevented the split roll parcel tax from being adopted. Split-roll activists have continued to attempt to repeal Proposition 13, but a recent fact-checking report from the nonpartisan Legislative Analyst’s Office might slow them down. The report titled, “Common Claims About Proposition 13,” debunked two myths that have long served as the top talking points of split roll proponents.
As Charleston continues to see impressive growth, demand for space in all commercial real estate sectors is outpacing supply. Rental prices will continue to escalate as commercial real estate in the Charleston region tightens amid dropping vacancy rates was the key takeaway from the 13th Annual Commercial Real Estate Market Forecast for the Lowcountry. While apartment demand will continue to accelerate but likely peaked in 2015, the industrial sector is expected to grow and expand at a faster pace than other sectors such as retail, office and multifamily.
Philadelphia City Councilman Al Taubenberger introduced legislation to close the loopholes that he says has allowed buyers and sellers of some of the city’s biggest commercial real estate transactions to avoid or lessen the transfer tax on those deals. The measure seeks to end a practice that has allowed the real estate transfer tax — now 4 percent, but set to increase — to be paid against a sum that is less than a property’s actual purchase price. It also would make it more difficult to avoid the transfer tax by having former owners keep a partnership stake in a property, rather than selling it outright.
In an effort to get friendlier with multifamily building owners, home-sharing platform Airbnb launched its Friendly Building Program this month, which allows multifamily owners and community associations to share profits from resident hosting. During Bisnow’s recent Silicon Valley State of the Market event, Airbnb head of multifamily housing partnerships Jaja Jackson spoke about the opportunities available to building owners. The program offers incentives for owners including $1M of primary property and liability insurance and profit-sharing.