Tag Archive for: avison young report

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Among the harsh lessons the pandemic taught industries is that relying on thinly sourced supply chains, particularly for manufactured goods, can be a mistake.

Something coming from that experience is a degree of reshoring manufacturing‚ÄĒbringing it back to the U.S., as Avison Young notes.

The push has been growing for ‚Äúseveral years ‚Ķ with 1.3 million manufacturing jobs brought back to the U.S. since 2010.‚ÄĚ Manufacturing grew by 21.6%, according to the Census Bureau, and new manufacturing facilities construction was up 116%. The reason is to diversify supply chains.

‚ÄúMany companies are investing in domestic facilities based on lessons learned during the pandemic, as product shortages disrupted their business flow,‚ÄĚ the firm wrote. ‚ÄúRecent intense pandemic lockdowns in China took many businesses by surprise and threw another jolt into the already disruptive supply chain. By locating facilities in the U.S., they can mitigate risk and gain more control over the production, quality and distribution of their products.‚ÄĚ

Technology companies have been leaders in the push to reshore manufacturing. Examples are multi-billion-dollar chip plants, thanks to the $52 billion CHIPS and Science Act that was part of the Inflation Reduction Act.

The shift isn’t only the province of giant companies like Intel, Samsung, and TSMC.

‚ÄúMany small- to mid-sized companies are also reshoring or expanding domestic manufacturing,‚ÄĚ said the report. ‚ÄúAside from the supply chain benefits, companies are also trying to work around skyrocketing shipping costs and other transportation costs. And, geopolitical issues related to China are prompting some companies to reduce their reliance on those foreign labor ties.‚ÄĚ

With the increase of manufacturing facilities comes a boost to warehousing, because factories need storage and distribution space, as do tiers of suppliers to these manufacturers and potentially distributors.

‚ÄúDespite the higher labor costs of operating in the U.S., it can be more cost-effective to manufacture products closer to the customer base, when reduced shipping and distribution costs are factored in,‚ÄĚ the analysis noted.

An additional benefit that experts in supply chain and manufacturing logistics have noted for at least 20 years is shortening that by shortening the distance to a customer base, a company can react more quickly to changes in the market. Having factories in Asia and then shipping goods by sea leaves 30 to 60 days of inventory in transit, setting an effective time barrier on how quickly updates, design modifications, or error corrections can be incorporated.

 

Source: GlobeSt.

 

Festival Flea Market 770x320

A developer and warehouse operator won approval from the Pompano Beach City Commission to replace the Festival Flea Market Mall with about 470,000 square feet of warehouse space.

North Miami-based IMC Equity, led by owner and CEO Yorham Izhak, is working with Atlanta-based IDI Logistics to demolish the Festival Flea Market Mall on the southeast corner of the Florida Turnpike and Sample Road, and redevelop the site as a warehouse complex with a 412,347-square-foot building and a 58,962-square-foot building.

The Pompano Beach City Commission just voted to rezone from ‚Äúgeneral business‚ÄĚ (B-3) to ‚Äúgeneral industrial‚ÄĚ (I-1) a 23.8-acre portion of the 37-acre Festival Flea Market site. The rest of the site, which is at the corner of Sample Road and Northwest 27 Avenue, remains a commercial outparcel for a proposed Racetrac Gas Station and Market.

The city commission also approved a text amendment and a map amendment to the local land use plan for the Festival Flea Market property. IDI Logistics filed the application for the land-use amendments, and a company controlled by IMC Equity applied for the rezoning.

In 2018, IMC Equity paid $25 million to acquire the Festival Flea Market Mall at 2900 West Sample Road and another $31 million for the mall business itself. The flea market rents space to tenants that sell apparel, shoes, bags, luggage, jewelry, and electronics, among other types of goods.

‚ÄúIt will be at least a year before the tenants would have to leave,‚ÄĚ Dennis Mele, an attorney for IMC Equity, said at a June 14 meeting of city commissioners, who voted then to table their consideration of the warehouse project.

Mele said the Festival Flea Market project will be the fourth warehouse development that IDI Logistics has pursued in Pompano Beach. The Atlanta-based company owns and operates the Pompano M Business Center, the Pompano II Business Center, and the Rock Lake Business Center, which is just south of the Festival Flea Market Mall.

Commissioner Beverly Perkins said after the Festival Flea Market Mall is demolished, the city should assist tenants of the mall, including some who have leased space there for more than 20 years.

The trend toward online shopping, which the pandemic strengthened, is driving the industrial redevelopment of the Festival Flea Market Mall, according to the rezoning application filed by IMC Equity. The location of the mall also allows fast access to the Turnpike, I-95 and the Sawgrass Expressway.

‚ÄúThe impacts of COVID-19 will likely impact the way people shop well into the future, which will continue to reduce the need for brick-and-mortar stores as people continue to do much of their shopping online,‚ÄĚ according to the rezoning application.

Industrial vacancy in Broward County plunged to 4.7 percent in the first quarter from 8.7 percent during the same period of last year, as tenants absorbed new warehouses and other types of industrial property, according to a report by Avison Young. The vacancy rate in the first quarter was 4.1 percent in Pompano Beach, which has 29.6 million square feet of industrial space, the largest inventory among seven sub-markets in Broward County, Avison Young reported. Industrial space under construction in the first quarter totaled 285,176 square feet in Pompano Beach, nearly 600,000 square feet in southeast Broward, and 1.6 million square feet county-wide, according to Avison Young.

Broward County had a 4.2 percent industrial vacancy rate in the first quarter, compared with 2.6 percent in Miami-Dade County and 4.5 percent in Palm Beach County, according to industrial market research by JLL.

 

Source: The Real Deal

The number of industrial buildings coming online nationally slowed slightly in the first nine months of 2018, after several years of strong growth.

A total of 237 million square feet of new industrial space was delivered across the country from January through September, down slightly from 243 million square feet year over year, according to a new report by Avison Young.

The slowdown follows a major growth period for industrial development across the country, with 1.5 billion square feet of new space coming online since 2012, the report said.

“The surge in deliveries in previous years left many markets struggling to absorb the new space, and developers unwilling to start new projects,” Avison Young principal Erik Foster said. “As the existing space is filled, new projects will start getting launched.”

Markets like Los Angeles and Chicago have been leading the way in industrial market growth, and developers have benefited from record low vacancy rates and strong rent growths. But after years of growth, even those markets slowed this year.

Chicago saw 10 million square feet of new industrial space in the first three quarters of 2018 ‚ÄĒ a steep drop from the 22.6 million year over year, according to Avison Young. Los Angeles saw 5.4 million square feet of new industrial space through three quarters, which is about 77 percent of the way to its 2017 total of 7 million square feet.

In Chicago, the drop in deliveries caused vacancy rates to continue falling, with the 5.7 percent vacancy in the third quarter a 20 basis point drop year-over-year. That’s not the case in Los Angeles, where vacancy in the Inland Empire area increased to 4.9 percent but is still near record lows.

While deliveries are down so far in 2018, they won’t be for long: More than 337 million square feet of new industrial space is under construction across the country, the report said.

New Jersey has already eclipsed its 2017 industrial delivery total, with 10.3 million square feet of new space coming online through three quarters of this year, compared with 9.7 million square feet delivered all last year.

In Miami, demand for warehouse space has pushed vacancy rates to a record low 2.7 percent in the third quarter, falling 33 basis points year-over-year. But more than 4 million square feet of industrial space under construction will increase the supply.

“Secondary markets across the country are now benefiting from the same economic factors that caused a surge of industrial development in larger markets,” Foster said.

Growth in e-commerce is leading companies to increase the amount of industrial space needed for productive storage and delivery. Columbus, Ohio, for example, has seen 4.3 million square feet of industrial deliveries so far this year, eclipsing 2017’s year-end total of 3 million new square feet. In Greenville, South Carolina, 2.8 million square feet has been delivered through the end of the third quarter, eclipsing 2017’s total of 2.3 million square feet of new development.

 

Source: The Real Deal

Industrial continues to be the hottest asset type for investment in the major Florida markets, according to the latest ‚ÄúCommercial Real Estate Investment Review for North America and Europe‚ÄĚ from Avison Young.

‚ÄúMultifamily maintains its popularity among investors. While office investment has slowed, we‚Äôre starting to see a lot more of the suburban assets trading very well. The retail investment market has seen some shifts due to perceptions of the sector influencing buyers to be more cautious, however, it is still a very active market,‚ÄĚ Michael T. Fay, Principal and Managing Director of Avison Young‚Äôs Miami Operations, tells GlobeSt.com.

There continues a heathy investor appetite overall for Florida assets, while foreign capital from Latin America and Canadian investors who already have assets in South Florida are starting to expand to the north into other Florida markets, particularly Orlando, Tampa and Jacksonville, he says.

The Florida section of the report had these one-sentence current investment overviews:

  • Miami: Industrial vacancy rates fall to record lows.
  • Fort Lauderdale: Investors seizing opportunity in suburban submarkets.
  • West Palm Beach: Multi-family investment triples due to positive in-migration.
  • Orlando: Multi-family transaction volume continues to exceed expectations.
  • Tampa: Strong economic fundamentals and steady demand fuel activity.

The overall national report cited a key trend of capital continuing to flow into global commercial real estate markets, inhibited only by the scarcity of available product for sale.

Another trend is that yields on commercial real estate are still attractive when compared with alternative investments. However, limited supply and cap-rate compression are leading some investors to seek opportunities outside their traditional parameters.

The report covers commercial real estate investment conditions in 59 markets in six countries on two continents.

 

Source: GlobeSt.

New approaches from technology companies and co-working providers across North America¬†and Europe are challenging occupiers’ and landlords’ office-space accommodation strategies, forcing players in more established sectors to adjust how they think about the size, physical form and operational function of their premises.

This transformation continues to encourage new development, which is racing to keep up with demand in some markets and being bolstered by a young, educated workforce gravitating to urban centres.

These are some of the key trends noted in¬†Avison Young’s¬†Mid-Year 2018 North America and Europe Office Market Report, that was just released.

The report covers the office markets in 67 metropolitan regions in Canada , the U.S., Mexico, the United Kingdom, Germany and Romania: Calgary, Edmonton, Halifax, Lethbridge, Montreal, Ottawa, Regina, Toronto, Vancouver, Waterloo Region, Winnipeg, Atlanta, Austin, Boston, Charleston, Charlotte, Chicago, Cleveland, Columbus, OH; Dallas, Denver, Detroit, Fairfield County, Fort Lauderdale, Greenville, Hartford, Houston, Indianapolis, Jacksonville, Las Vegas, Long Island, Los Angeles, Memphis, Miami, Minneapolis, Nashville, New Jersey, New York, Oakland, Orange County, Orlando, Philadelphia, Phoenix, Pittsburgh, Raleigh-Durham, Reno, Sacramento, San Antonio, San Diego County, San Francisco, San Jose, Silicon Valley, San Mateo, St. Louis, Tampa, Washington, DC; West Palm Beach, Westchester County, Mexico City, Coventry, London, U.K.; Manchester, Berlin, Duesseldorf, Frankfurt, Hamburg, Munich, and Bucharest.

“Against a backdrop of economic, geopolitical and financial volatility, the commercial property markets – for the most part – are functioning under relatively sound fundamentals,” comments¬†Mark E. Rose, Chair and CEO of Avison Young. “Nowhere are we seeing more profound changes than in the office sector – especially in urban areas of major metropolitan markets across the six countries covered in our annual review. The impact can be seen on city skylines, which are changing rapidly as new construction picks up pace, driven by insatiable tenant demand from organizations adjusting their workplace strategies to a growing millennial workforce and their adaptability to innovative technologies.”

Rose continues: “At the same time, sectors that have historically accounted for a significant amount of demand for office space are now being both augmented and squeezed by ever-expanding technology and co-working industries. This phenomenon is being seen across national boundaries, particularly in markets with dense and growing urban populations.”

According to the report, of the 67 office markets tracked by Avison Young in North America and Europe, which comprise more than 6 billion square feet (bsf), market-wide vacancy rates declined in 38 markets, remained unchanged in seven, and increased in 22 markets as almost 74 million square feet (msf) was absorbed on an annualized basis.

The report goes on to say that construction cranes remained prominent fixtures across many skylines as nearly 74 msf of office space was completed during the 12-month period, while another 138 msf was under construction at mid-year 2018 – with 50% of the space preleased.

“It’s great to see so much confidence on the part of developers as they respond to the supply-demand imbalance in many markets,” says Rose. “As always in this industry, the inherent risk is that circumstances could change, resulting in an oversupply of product at the time of delivery. In many cases, this scenario is the result of external economic and geopolitical factors. This time around, however, the new influences of disruptive technologies and increasing co-working space availability are also affecting how and where people work, potentially impacting the office sector from within – and challenging conventional wisdom.”

Rose adds: “Generally sound office market fundamentals are being threatened on the North American front by ongoing NAFTA talks. In Europe, the looming Brexit deadline continues to dominate the headlines in the U.K., while in Germany, strong leasing activity continues to drive vacancy rates downward in all Avison Young markets. In Bucharest, Romania, development continues in response to demand.”

THE UNITED STATES

The U.S. office market has benefited from another strong 12-month period of positive economic indicators: Further business expansion and job growth, decades-low unemployment, and rising consumer and business spending. Business spending kept its momentum in the first half of 2018, boosted by corporate tax breaks even while the federal government moved toward greater isolationism and global trade uncertainty. As of June, U.S. unemployment averaged 4% and employment over the last 12 months grew by 2.4 million, supported by the office-occupying professional and business sector gaining 521,000 jobs.

The 5.2-bsf U.S. office market reported net absorption of 43 msf on the strength of gains in five markets each achieving more than 3 msf.

“In spite of this strong take-up, I’m not surprised that the overall vacancy rate remains elevated given the volume of construction underway and the continuing trend of more efficient space design,” says¬†Earl Webb, Avison Young‘s President, U.S. Operations.

U.S. office market trends mirror those in¬†Canada, registering an increasing impact from co-working firms. Occasionally, co-working companies have occupied large blocks of space in oversupplied markets, helping to keep vacancy in check, and the concept’s popularity with tenants has forced landlords to compete by adding conference rooms, tenant centers and social spaces.

Webb continues: “Flexible occupancy is key. We also see some national corporate tenants utilizing co-working space in order to control costs and create that flexibility. One co-working operator’s recent announcement that it is moving into brokerage operations could further disrupt the office market, and we’ll be watching that situation and other co-working developments as we head into 2019.”

The report goes on to discuss other recent and continuing trends, including the redevelopment of aging inventory and developers’ emphasis on offering transit-oriented mixed-use projects. Tenants continue to display a preference for amenity-laden buildings and geographies – an important recruiting strategy designed to appeal to the millennial workforce in the tight U.S. labor environment.

Notable Mid-Year 2018 U.S. Office Market Highlights:

  • Five U.S. markets each achieved more than 3 msf of net absorption.¬†San Jose/Silicon Valley and¬†San Francisco¬†together represented 29% of the U.S. total with net absorption of 7.5 msf and 5 msf, respectively. As well, a handful of U.S. markets recorded negative net absorption. Of those,¬†Houston¬†lost the most ground with negative 2 msf during the last 12-month period.
  • Total vacancy in the U.S. was 12.1% as of¬†June 30, 2018, a drop of 10 bps year-over-year. In spite of strong absorption, vacancy rates remained stubbornly high overall with the highest levels in¬†Memphis(20.9%), Westchester County (19.5%) and¬†Houston¬†(18.3%). All but 13 of the 46 U.S. markets reported vacancy averaging more than 10%.
  • Improvement was centered in the downtown inventory (1.7 bsf) with average vacancy falling to 11.2% at mid-year 2018 compared with 11.4% one year earlier, while the bigger suburban market (3.5 bsf) recorded no change in vacancy year-over-year (12.6%).
  • Construction volume fell year-over-year although 96 msf remained under development across the U.S. In new projects overall, 53% of the space was preleased at mid-year 2018 compared with 49% one year earlier. The 379-msf¬†Washington, DC¬†region led the country with 11 msf underway. Demand for new product is high in¬†Washington¬†and preleasing in buildings under construction reached 69% by mid-year. This level was almost matched by¬†New York, where 10.6 msf was under construction (47% preleased) at mid-year 2018.
  • Completions in the 12-month period ending at mid-year 2018 totaled 57.8 msf, increasing slightly from the prior year’s total (55.2 msf).¬†Dallas¬†and¬†Northern California’sSan Jose/Silicon Valley led the country by delivering 7.5 msf each, followed by¬†Washington’s¬†5.1 msf of completions.
  • Eleven U.S. markets reported asking rents that exceeded the downtown class A average of¬†$48.04¬†psf full-service gross. Not surprisingly, tight leasing market conditions in¬†Northern Californiaresulted in¬†San Mateo¬†($84.96¬†psf),¬†San Jose/Silicon Valley ($74.74psf),¬†San Francisco¬†($76.54¬†psf) and¬†Oakland¬†($57.56¬†psf) having some of the highest rents in the country. In the Northeast,¬†Boston($66.91¬†psf),¬†New York¬†($64.08¬†psf) and¬†Fairfield County¬†($54.72psf) were the leaders.
  • Suburban class A rents tell a similar story with¬†Northern Californiamarkets leading the country by far, while most U.S. markets hovered near the national average of¬†$31.32¬†psf.

“As we forecasted at mid-year 2017, the flight to quality and tenant demand for efficient, amenity-rich options carried into 2018 – and showed no signs of abatement, while class A rents, downtown and suburban, edged higher,” concludes Webb. “High-quality development will continue to boost tenant occupancy and garner higher rents and institutional interest while outperforming the market at large through year-end.”

CANADA

Canada’s¬†office property markets remained sound through the first half of 2018, supported by stable macroeconomic indicators, including healthy employment numbers, GDP growth and a rebounding¬†Alberta¬†economy. However, U.S. protectionist policies and escalating tariffs pose a risk to the Canadian economy and global trade flows, and may lead to moderating growth ahead.

“Intense competition for office space continues to bolster office market fundamentals across¬†Canada¬†– especially in downtown markets,” states¬†Bill Argeropoulos, Principal and Practice Leader, Research (Canada) for Avison Young. “Demand from traditional sectors is being augmented by the proliferation of domestic and global technology and co-working firms, ongoing urbanization and a burgeoning millennial workforce – all part of¬†Canada’s¬†emerging innovation economy.”

The report shows declining vacancy rates in more than half of the Canadian office markets with suburban markets outpacing downtown markets in terms of absorption (led by Montreal and Vancouver) and new deliveries (led by Toronto, Vancouver and Montreal) during the past 12 months. However, the amount of downtown space under construction at mid-year (led by Toronto) outstripped the suburbs by a significant margin.

Argeropoulos concludes: “Urbanization – partly attributable to growth in the technology sector – has created a noticeable gulf between downtown and suburban vacancy rates in emerging tech hubs such as Vancouver, Toronto, Waterloo Region,¬†Ottawa and Montreal. Given tight conditions and upward pressure on rents in some of the nation’s downtown markets, and with little or no near-term supply relief, suburban markets – particularly those offering transit connectivity and other urban amenities – may be the beneficiaries of overflowing tenant demand during the next couple of years.”

Notable Mid-Year 2018 Canadian Office Market Highlights:

  • Canada’s¬†530-msf office market recorded positive absorption of almost 6 msf in the 12 months ending at¬†June 30, 2018, led by strong gains in¬†Toronto,¬†Vancouver¬†and¬†Montreal¬†– offsetting losses in the struggling, but stabilizing,¬†Calgary¬†market.
  • Canada’s¬†overall office vacancy retreated 60 basis points (bps) year-over-year to finish the first half of 2018 at 11.5%. Vacancy declined in six of 11 markets. Unchanged from one year ago,¬†Calgary¬†(23.5%) maintained the highest vacancy rate,¬†Toronto¬†(6.2%) now has the lowest, while Waterloo Region (up 360 bps to 17.1%),¬†Edmonton(down 320 bps to 14.1%) and¬†Ottawa¬†(down 320 bps to 9.5%) recorded the biggest swings.
  • Most downtown markets posted positive results, combining for more than 2.2 msf of absorption in the 12 months ending at mid-year 2018 – led by¬†Toronto,¬†Vancouver¬†and¬†Edmonton. Consequently,¬†Canada’sdowntown vacancy rate declined 80 bps year-over-year to reach 10.5% at mid-year 2018. Vacancy was lower in seven of 11 downtown markets; four remained in single digits and below the national downtown average, while¬†Toronto¬†(2.2%) registered the lowest downtown vacancy – not just in¬†Canada, but North America.
  • Aside from¬†Edmonton¬†and¬†Calgary, the nation’s suburban markets expanded by varying degrees with strong results in¬†Montreal¬†and¬†Vancouver. Outpacing downtowns, suburban markets combined for positive 12-month absorption of nearly 3.4 msf – slightly behind the previous 12 months’ pace. Suburban vacancy fell 50 bps during the year to close first-half 2018 at 13.1%. Though double-digit vacancy prevailed in all but two suburban markets, six of 11 suburban markets recorded lower vacancy levels year-over-year – with¬†Winnipeg¬†being the tightest (5.5%).
  • New office completions slowed to 3.6 msf delivered in the 12 months ending at mid-year 2018, down from nearly 10 msf in the previous 12-month period – aggravating the shortage of available space, especially in¬†Vancouver’s¬†and¬†Toronto’s¬†downtown markets. In a change from the prior period, suburban completions (led by¬†Toronto,¬†Vancouverand¬†Montreal) overtook downtown completions, while¬†Torontorecorded the most deliveries overall.
  • Trying to keep pace with demand, developers had more than 15 msf under construction (52% preleased, 3% of existing inventory) at mid-year 2018 as downtown construction outstripped the suburbs by a four-to-one margin.¬†Toronto¬†had the most overall (8.5 msf) and downtown (7.2 msf) office space under construction in¬†Canada¬†and was in good company globally with cities such as¬†London,¬†Mexico City,¬†Washington, DC¬†and¬†New York.
  • Weighed down primarily by¬†Calgary¬†and, to a lesser degree,¬†Ottawa, average class A gross rents softened collectively year-over-year. The downtown average was down¬†$1.97¬†per square foot (psf) to¬†$38.83psf, and the suburban dipped¬†$0.43¬†psf to¬†$31.86¬†psf. Similar to one year prior,¬†Vancouver¬†boasted the highest downtown class A gross rent at¬†$59¬†psf and Regina edged out¬†Vancouver¬†for the highest suburban class A gross rent at¬†$40¬†psf.

 

Source: MarketsInsider