Tag Archive for: remote office

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Impact Of Rising Interest Rates Mixed On Commercial Real Estate

Red Percentage Symbol Surrounded By Dollar Sign

The past two years were like nothing ever before seen in South Florida.

A period of record growth was fueled by inbound migration, strong consumer spending and record low interest rates — all of which drove billions of dollars invested in the development of millions of square feet of commercial real estate.

Much of this was brought on by the pandemic. Now, the pandemic has subsided and the South Florida CRE market has come to a moment of reckoning. Or has it?

The Federal Reserve has raised interest rates five times this year, including the increase of 75 basis points on Sept. 21, all in an effort to stem inflation. The Fed’s effort to keep the economy moving at the start of the pandemic led to the slashing of its target rate to 0%-to-0.25%. It remained there for the next two years, until March, when it set its first increase of 25 basis points.

The era of relatively cheap money for commercial and residential borrowers has come to an end. While the current rate of around 3% to 3.25% still is historically low, borrowing costs are at their highest level since 2019. In June, Federal Reserve Chairman Jerome Powell noted that the rate could reach 3.8% by late 2023. Simply put: These are the most aggressive rate hikes in generations.

This leaves developers and owners of office, industrial and retail projects to perform a delicate balancing and forecasting act incorporating borrowing costs versus long-term demand.

With borrowing costs rising, and fears of inflation and a possible recession looming, how will CRE across South Florida respond? It’s impossible to judge from how other markets are responding. Some have seen commercial projects tabled and vacancies rising, even if rents remain stable.

South Florida Is The Outlier In The CRE Marketplace

Development remains robust. Warehouse, logistics and industrial projects continue unabated from Homestead in the South and Palm Beach County’s Western expanse to the North, with numerous infill projects in between. Luxury rental apartments in hot markets, such as Brickell, Coral Gables, Fort Lauderdale’s Flagler Village and downtown West Palm Beach, are rising to meet the demand of the more than 800 new arrivals still coming to Florida daily.

Conflicts exist between remote workers and their employers calling for a “return to the office;” and with the hybrid workplace model continuing to evolve, future office needs remain unknown. Yet, the region has numerous dedicated and mixed-use Class A projects in development.

While the concept of “headwinds” comes up in any conversation about the unknown impacts of rising interest rates, inflation and the possibility of recession, South Florida and the state are outliers for other reasons. Whether through REITs (real estate investment trusts), private equity, hedge funds and other institutional capital seeking a solid vehicle for their funds; family offices and investors looking for a hedge against inflation; Latin American families seeking a less turbulent harbor for their money; those looking to real estate as a hedge against inflation; or developers bullish on local market prospects, Florida is rich with liquidity.

 

Source: SFBJ

Expect ‘Cranes Popping Up All Over The Region’: Eight Ways COVID-19 Is Reshaping The South Florida Real Estate Market

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The COVID-19 pandemic has forced the South Florida real estate industry to rethink the answers to a range of questions, including how buildings are designed, how goods are delivered, and where and how tenants want to live.

Here are the top 3 emerging trends local industry leaders are watching.

1. Outdoor Space Is Desirable

Retail stores and restaurants took a big hit as shutdowns, restrictions and health concerns changed consumer’s spending habits. Instead of going out to eat, people stocked up on food and avoided in-person shopping, causing a surge in online sales.

Jonathan Carter, executive managing director at Colliers International, says there are a number of deals being done to adapt current spaces to modern environments. And while outdoor environments and open-air concepts in retail stores and restaurants were trending before the pandemic, now there’s a bigger emphasis on it.

“If you had told me in August where we would be today, I wouldn’t have believed you,” Carter said. “The market has gone from having almost no tenants, to what he would now consider a landlord’s market. Landlords who previously had space with a lot of outdoor areas that weren’t perfect, suddenly those spaces are in demand.”

2. Drive-Thru Operators Are Thriving

Last year, the rise in demand for food deliveries, curbside pickup and drive-thrus at quick-service restaurants has been especially prevalent in South Florida, according to Zach Winkler, executive vice president of JLL’s South Florida retail brokerage.

“The demand for more drive-thrus is probably more intense here than any part of the country,” Winkler said. “I think it’s part of the way the restaurant world has shifted a little bit.”

Winkler said sales have remained strong for fast-food restaurants like Louisiana-based Raising Cane’s, and he expects to see an expansion of the chain in South Florida.

“Their sales remained very strong during COVID, and the fact that they’re one of the most efficient drive-thru operators out there,” Winkler said.

3. Offices Are Morphing

As large amounts of people continue to migrate to South Florida and many others prepare to return to the office after a year of working from home, companies are looking at different models for remote and in-office workers. With social distancing changing the way people interact with one another, employers want to give their employees more space and a healthy environment.

Jonathan Kingsley specializes in office and industrial representation of landlords at Colliers International, and he said returning workers are typically getting more square feet per person, while offices are being redesigned.

Remote work is here to stay, but Kingsley feels it won’t be on the scale everyone thought it would.

“Certain employees are absolutely required to work in the office 100% of the time,” said Kingsley, “There’s a second-tier in which there is a three-day at the office, two-day at-home model, three-day at home, and two at the office, and then there is another model where you work from home 100% of the time.”

Click here to for the remaining emerging trends.

 

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Death Reports Of Retail And Office May Have Been Greatly Exaggerated

Midsection of businessman with true and false wooden blocks on seesaw at desk

Panelists representing the industrial, office, retail and multifamily sectors of commercial real estate made the case for investment in their respective sectors at NAIOP’s CRE.CONVERGE, the virtual conference recently taking place.

In a real-time audience poll, the attendees cited industrial as the sector they would be most likely to invest in.  However, much of the discussion pointed to the upsides in what, so far in 2020, has been mostly seen as a negative story for the other sectors.

“Retail may be the sector everyone loves to hate, but all that means is that it’s at the bottom of a cycle that is going to rebound,” said Wade Achenbach, executive vice president, Portfolio Management at Kite Realty Group. “The strip sector and the mall business were struggling for a lot of reasons, and COVID has dramatically made them the hardest hit. If you just look at that trend alone, that’s going to be short lived. You have to be very careful of what you’re looking at. There is no online-only retailer that’s making money today, nor has there ever been. What’s really happening when somebody says e-commerce?  It’s more of an omnichannel. Even Amazon realizes the value of stores with its purchase of Whole Foods.”

The old adage, buy low and sell high, applies.

“I think there is more of an opportunity (in retail) than any of the other sectors,” Achenbach said.

Speaking on behalf of the office sector, which many are questioning in light of the shift to work from home, George Hasenecz, senior vice president, Investments at Brandywine Realty Trust, said its demise has been incorrectly predicted in the past — just as it is now.

“When you think about all the economic events and social trends that have occurred, the dot com bust, September 11, the densification of the office and COVID, people have always said that office is dead. Office has always reinvented itself,” said Hasenecz. “Work from home has been successful in response to the crisis, but it’s very difficult to work in a collaborative environment. How do you maintain your culture, bring new employees on and recruit? Work from home really does go against people’s needs and desires to come together. We think that Class A office is going to be in high demand. Companies want to make sure their employees and their talent feel safe. There still is the competition for talent and office space will be used as a recruiting tool.”

A similar story is playing out in the multifamily sector, said John Drachman, co-founder at Waterford Property Company. The pandemic has driven many people out of dense urban areas and into suburban multifamily units. The turnaround has been sharp in large markets such as New York, San Francisco, Los Angeles and Chicago, where vacancies are increasing and rents are falling. One year ago, the main story line in these markets was a lack of affordable housing.

“As with retail and office, a wider perspective will benefit investors,” Drachman said. “People will move back to urban areas. If you can stomach a little bit of pain, over the long term there could be great buying opportunities for urban apartments.”

Rene Circ, senior managing director and COO at GID Industrial and GID Investment Advisors LLC, spoke on behalf of the industrial sector, which to no one’s surprise seems to be strong. He said there are essentially very few people who are not buying things online.

“I would argue that too much capital is allocated to multifamily and way too much is allocated to retail,” Circ said. “Investors will need to invest in industrial.”

The panel was moderated by Will McIntosh, head of Research at USAA Real Estate.

 

Source: GlobeSt.