Many markets across the U.S. have benefited from high demand pushing office rents to record levels. However, experts say uncertainty surrounding Brexit and the upcoming election turmoil may cause tenants to delay expansion decisions until 2017. Real estate services firm Savills Studley recently released a global prime office market ranking by occupancy costs, and six U.S. cities are listed in the top 20. For the most part, office property fundamentals remain as solid as they were in mid-2015, according to Pat McGrath, senior managing director at Savills. Vacancy continues to drop nationwide, and most cities are still benefitting from pent-up demand for space. Lending on new projects remains controlled. However, going toward 2017, the national outlook is starting to look choppy, McGrath notes. “If I was going to bet as a tenant, if I was being pitched a lease restructuring in the threat of future increases, I’d probably wait,” he says. “Unless a firm is looking to repurpose their offices to gain new talent, I’d wait. I think you’re going to start seeing an increase in concessions.”
Sales of new condos in coastal Miami and Fort Lauderdale slowed even further in the second quarter, a report by brokerage firm ISG World found. According to the South Florida Business Journal, condo developers were hopeful that foreign buyers would recover from the rapid strengthening of the U.S. dollar last year and jump back into the market, but that hasn’t happened in big enough numbers. There’s also been a decline in sales on the existing South Florida condo market for seven consecutive months, although active inventory on the market has continued increasing. ISG World found a new gain of 508 new condos sold in the second quarter, down from a net gain of 560 in the first quarter. Of the 18,623 condos in active pre-sales or recently completed, 77 percent were sold, a slight improvement from 76 percent in the first quarter.
The U.S. apartment market still has considerable strength, according to the latest National Multifamily Housing Council‘s quarterly survey on apartment market conditions, but the surge of supply is finally catching up with persistent demand—for part of the market, that is. For the third quarter in a row, the organization’s Market Tightness Index was unchanged at 43, showing that supply is a bit stronger than demand. Almost one-third of respondents (31 percent) reported looser conditions than three months ago. At the other end, 18 percent noted tighter conditions, while more than half (51 percent) reported no change.
As brick-and-mortar retailers continue to be squeezed out by Amazon and its online competitors, shopping center owners are continuously looking for creative solutions to their anchor tenant problems. While major grocery chains, movie theatres, restaurants, tech companies, and condos are being regularly implemented into the multi-use shopping center trend, health-care is the latest big tenant option to emerge. The health-care industry is moving away from centralized campuses to bring services closer to patients at a time when two key demographics – boomers and millennials – are entering prime years for consumption. For the health-care companies, softness in the retail market has helped them negotiate favorable leases, including improvement allowances. Medical facilities also look good financially as tenants, with credit profiles that stack up well compared with nail salons and fast-food restaurants.
Data center are required to run uninterrupted 24 hours per day, 365 days per year, unlike any other property type, so it is no surprise that owners are actively investing energy-efficient features and green building techniques to reduce energy consumption. Anything that reduces costs goes straight to the bottom line for data centers, says David Rinard, senior director of global sustainability at Equinix. So Equinix uses a variety of strategies such as building tighter buildings, changing the operating temperature and using smarter control systems for lights and air conditioning to retain their competitive edge from a pricing perspective. “LEED-certified buildings are top-of-mind for customers and help attract and retain tenants as well as drive down costs,” according to Aaron Binkley, director of sustainability at Digital Realty Trust.
As luxury apartment developers look to cater to the next generation of renters, many new trends are beginning to evolve. While high-rises with resort-style amenities are here to stay, millennials are extremely social and place even more value on walkable neighborhoods and proximity to eateries, nightlife, and shopping. The next generation of apartments will see amenities catered around a sense of community and fostering interaction, as millennials are willing to sacrifice unit size for mico-apartments in order to afford communal amenities such as sports lounges, music jam rooms, experimental kitchens, swim-up bars and soaking ledges. Furthermore, design trends will also continue to include dog parks, more bike racks, and electric car-charging stations.
The U.S. industrial market has absorbed a record-setting 70.1 million square feet of space in the second quarter, up 6 percent from the same period a year ago, according to Cushman & Wakefield. Year-to-date, the industrial sector has absorbed 132.2 million square feet. According to Real Estate Business, the second-quarter figure marks 25 consecutive quarters of net occupancy gains for the industrial sector, with the current quarter’s absorption reaching a new cyclical high. Nationally, the industrial vacancy rate is currently tracking at 5.8 percent, the lowest level of the past 30 years and 270 basis points below the 10-year historical average. Additionally, 38 U.S. markets reported more than 1 million square feet of absorption during the second quarter, with 11 markets recording more than 2 million square feet of absorption.
The city of Denver on Tuesday unveiled details of a sweeping plan to generate $155 million over 10 years to help pay for affordable-housing solutions across the city. According to the Denver Business Journal, the city said it intends to ask developers to pay between 40 cents and $1.70 per square foot and will raise property taxes by half a mill for the first year in order to create the fund, which is meant to support the development or preservation of 6,000 income-restricted homes. The changes will be included in an ordinance that will be voted on by the Denver City Council in August.
A strong surge in real estate transactions, new commercial and residential construction and rising housing prices should add more than $3 billion to California’s property tax rolls, bringing the total to nearly $60 billion. Taxable values are estimated to hit $5.5 trillion, a gain of roughly $300 billion. San Francisco, the state’s hottest real estate market, reported valuation increases as high as 9 percent. Kern County, on the other hand, reported a loss of taxable property values due to its dependence on oil and gas reserves.
As we head into the State Board of Equalization (“SBOE”) appeal season in Arizona, taxpayers and practitioners should be mindful of two recent rulings by the Arizona Tax Court addressing an issue of first impression in Arizona. The rulings stand for the proposition that an amended decision issued by the SBOE does not restart the 60-day appeal deadline for a party to appeal the SBOE’s decision to the Tax Court where the amended decision is neither a material change nor a new exercise of discretion by the SBOE. Both cases resulted in the dismissal of the plaintiff's property tax appeal.
To learn more about these recent property tax appeal rulings and what you can do to avoid a similiar outcome, click below to read an article written by Managing Consultant Domingos Santos, located in Paradigm's Phoenix office.
The prolonged slump in oil prices has taken a serious toll on Houston’s office market, as the energy industry hub now has 10.2 million square feet of space available to sublease and vacancy rates are at their highest in 20 years, real estate firm CBRE reported. That was roughly 19.8 percent of total available office space in Houston, CBRE found, a level not touched since low oil prices during the mid-1990s. Thousands of energy industry employees have lost jobs and companies have slashed their capital budgets during the steep slide in crude prices, causing companies to shrink their footprint and get others to cover the terms of their leases.
The average occupancy rate for independent living and assisted living properties in the second quarter of 2016 dropped to 89.7 percent, as new inventory outpaced absorption of units, according to a quarterly report from the National Investment Center for Seniors Housing & Care (NIC). The occupancy rate represents a decrease of 30 basis points from the prior quarter, and brings average occupancy back down to where it was a year ago. Despite the lower occupancy rate the second quarter, annual asking rents for independent living and assisted living continued to grow, increasing 3.2 percent. It’s the highest rate since the second quarter of 2008, NIC reports.
Developers are increasingly looking for adaptive reuse projects as a way to differentiate their hotels from the industry’s ‘sea of sameness.’ Although converting an existing building to a hotel can be more costly and complicated than building from the ground up, these projects appeal to guests’ desire for unique experiences and are often a good entry into high-barrier urban markets. Many adaptive-reuse projects involve historic buildings, allowing developers to take advantage of the structure’s charm and character not found in big box hotels. In addition, historic tax credits can help alleviate the added cost of renovation projects.
In June, Miami-Dade’s property appraiser reported real estate values grew 8.6 percent higher than in 2015; however, the latest accounting from the assessor show there was actually a 9.1 percent surge at the start of 2016 in the county’s property rolls. North Miami Beach took the top spot, with a nearly 17 percent increase in real estate values. While the higher values indicate the county’s ongoing recovery from the real estate crash, the value revisions also mean higher revenues for local governments who don’t lower property tax rates later this year.