Market Trends July/August 2016.

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“Middle age is when your age starts to show around your middle.”
– Bob Hope



Coworking:  Not for Entrepreneurs Only?

Coworking is a trend that has received a lot of press in the past year, but does it have the legs to remake the office market? Several indications point to a growing consideration of the office-sharing option both by the entrepreneurial class and the corporate office. According the CBRE 2015/2016 Americas Occupier Survey, more than 40 percent of the 226 corporate real estate organizations surveyed are using or considering shared workplaces.

Why? Cost containment is one reason, as office lease rates rise in reaction to a tightening market with increasing demand and limited new supply. In a 10-desk example based in the Washington, D.C., market, CBRE calculated that coworking offers a 15 percent savings over a traditional three-year lease.

Uncertainty is another factor in the decision. Rapid technological changes have led to a business culture that prizes a quick, flexible response – a difficult maneuver when a company is locked into a long lease contract. Other advantages include transparent pricing, with no contracts or negotiations. In addition, the license agreement “is usually considered an annual expense rather than a multiyear lease liability on the balance sheet,” according to CBRE.

In the U.S., coworking is estimated to have grown by 21 percent a year for the past five years. For example, WeWork is a company that leases office space at wholesale rents, brands it through design and amenities, and offers it for rent to its member base through an app. It is now the largest occupier of corporate space in the New York metro market, leasing about 2.2 msf in 2015, having started with about 42,000 sf in 2010. Its coworking blocs usually average 40,000 sf, while smaller coworking brands average closer to 5,000 sf, according to CBRE.


Briefly Noted

Hospitality — “The brands are all chasing the millennials now,” said Tye Turman, a senior vice president for development for Marriott International, at a recent conference discussion on hotel development trends. To attract young customers, brands are looking past the cookie cutter model and flexing design and development rules to add unique elements. Trends include historic and office building reuse and cobranding between select service and full service brands, particularly in urban areas.

Industrial — New supply will slow industrial rent growth next year, as new supply comes online, according to CBRE. “We also expect that demand might ease a little, because it’s been so strong for so long,” says Jeff Havsy, CBRE’s Americas chief economist. “You’ll probably see a slight pickup in vacancy this year, but nothing dramatic.” Availability of U.S. industrial space declined 20 bps to 9.2 percent in 1Q16, the lowest level since 2001.

Multifamily — Apartment developers are hitting the breaks as the average annual rate of multifamily construction starts for March fell to 312,000, essentially the same rate as last year, according to JLL. This makes six months of starts below the 12-month average of 384,000. In addition, multifamily construction permits also declined for the third month in a row, down 12.4 percent.

Office — Nervous financial markets led to lower job growth in the office-using sectors of business and professional services during 1Q16, which posted its lowest hiring figures since 4Q13, according to CBRE. A 10 bps hike in office vacancy also occurred in 1Q16, but the overall trend is downward with 47 of 58 markets tracked showing a YOY vacancy decrease. Another positive sign: a 6 percent YOY increase in the average gross asking rent.

Retail — Slowing sales growth will limit brick and mortar retail expansion, according to CoStar. Same-store sales growth dropped to 1 percent in early 2016, from a high in 2012 of 3.5 percent. “These numbers in aggregate indicate that public retailers will be pulling back on their expansion plans,” says Ryan McCullough, CoStar’s senior real estate economist. “The retail recovery has matured. We’re beyond talking about pent-up demand for retail and are now looking at underlying fundamentals driving retail sales growth.”




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Why Phoenix?  This is a very interesting article, you should read it, amazing, there were only 350 K people living in Phoenix in 1950



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