Dear Fellow CCIMs,

We are in half-time in the 4th quarter as the year is coming to an end. The 2021 CCIM Global Conference and Governance Meeting in Pittsburgh was a huge success, as in-person conference produced over 500 attendees. I got to personally pin three aspiring candidates who earned their CCIM designation. Our Chapter along with Region 11 comprised of upstate NY, Connecticut, and the New England/Great Boston area chapters hosted a dinner celebration for all the newly-designated candidates and the leadership. It was a great time of networking and celebration.

In CRE news, the U.S. and world economies are coming out of the Covid pandemic with strength. I foresee strong economic growth coupled with low interest rates creates a great environment for real estate investment evaluation. As a result, most CRE sectors are trading competitively above pre-pandemic levels, with office being the one exception (except for highly leased first-class office projects in urban areas) for the sole reason that most employees have not yet returned to the office. This is highlighted by an interesting trend in the U.S. labor force is a shortage of good workers who have decided to quit their current jobs as the pandemic forced many to re-evaluate those jobs during the pause to seek better work or go back to school. As astute CCIM professionals we can look at the data to help us understand the market sectors and predict which markets to work on for next year. You can find good articles from several premier data resources in the Industry.

As always, stay strong and remain positive!

Best,

-J.R.

(646) 481-3801

CCIM Region 11 Leadership

After the Covid-19 pandemic hit, Sara Adamski knew she had to make a job change.

At the time, the 26-year-old was a cook in a northern Alaska tourist destination.

“The jobs I was doing were soul-crushing work,” said Adamski, who had spent the last several years working in the hospitality industry.

“The pandemic woke me up to that,” she said. “I started questioning why I started doing that to myself.”

She opted out of signing on for the next season, packed her bags and moved to Killeen, Texas, with her boyfriend. After doing some soul searching, she decided to sign up for a coding boot camp. In October, she started working as a software engineer intern at a Michigan-based company.

“I feel a lot more hopeful,” she said. “I like to work toward goals and I feel like I’m finally doing that with my life.”

Adamski was one of the millions of Americans who reevaluated their work life during the pandemic. A record 4.3 million quit their jobs in August alone, according to the U.S. Department of Labor.

“When we come into contact with life-threatening events, we tend to reflect on death and consider whether we are happy with our lives or whether we would like to make changes to them,” said Anthony Klotz, a management professor at Texas A&M University who coined the phrase “Great Resignation.”

“The pandemic forced [people] to take stock of their lives and gave them the opportunity to reimagine it.”

Many others are still thinking about it, several surveys have shown. One, fielded by Morning Consult for Prudential in mid-September, found that 46% of full-time employed U.S. adults are either actively looking for or considering a new job search. The cultural shift, dubbed the “Great Resignation,” will likely have a lasting effect on the workplace, experts say.

Some may have looked for a career break due to burnout brought on by the pandemic, others may be searching for more purpose and meaning in their jobs, and some may simply want a higher paycheck or to continue working remotely at least part of the time.

Then there are those who decided to strike out on their own. One-third of working Americans who quit their job started their own business, according to a July survey by Digital.com, a review site that focuses on small businesses.

“It is not just a trend or moment in time; it is a movement,” said Monster career expert Vicki Salemi.

The result has been employers scrambling to retain and attract workers. They are offering retention bonuses, allowing employees to work remotely forever and providing new benefits to support workers’ personal and professional development, Klotz said.

Some are also instituting policies to help workers recover from burnout, whether it is a sabbatical, closing the company for a week or shrinking the workweek from five days to four.

“Companies have to bend,” said recruiting consultant Abby Kohut, founder and president of Staffing Symphony, which focuses on the pharmaceutical industry.

“They have to find a way to let people work from home if they want to attract talent,” she added. “They have to pay the right salary.”

People no longer want to settle and are being very picky when it comes to their job search, she explained.

“Everyone has realized it is not about corporate America. It is about them,” Kohut said.

That said, experts urge caution when deciding whether to resign.

“Quitting a job is a weighty decision,” Texas A&M University’s Klotz said.

Go over your finances to ensure you have enough saved to get you through a period of unemployment and have a backup plan for what you’ll do after you quit, he advised.

You can also have a conversation with your boss to see if any changes can be made to your current job that will fulfill your needs, Klotz suggested.

However, before you make a decision, it doesn’t hurt to explore your options, Monster’s Salemi said.

“There are so many more opportunities now,” she said. “They don’t have to make that decision to move until after a job offer.

Set up job alerts, and be sure to tweak your resume for each job by including keywords from the job description, Salemi said.

If you decide to quit, don’t burn any bridges.

“Resigning in a positive manner is the way to go, by expressing gratitude toward the company and giving reasonable notice,” Klotz said.

While there will be some regression when the dust from the Great Resignation settles, remote and hybrid work will forever make up a substantial portion of overall jobs, Klotz predicted.

“For millions of people, the pandemic changed the place of work in their lives, and for those individuals, the change is likely permanent,” he said.

Source: CNBC

If there are three words real estate professionals should consider heading into the next year, they are flexibility, convenience and resiliency. Those are the defining themes that came out of the annual Emerging Trends in Real Estate 2022 report, released last week by PwC and the Urban Land Institute.

So, here’s the good news: The narrative of the past year is that real estate is resilient. Generally, property markets, and especially certain property types, have been able to weather the storm and even emerge stronger than before, pointing to the “industry’s collective capacity to adapt to changing market conditions and future unknown risks,” according to the report.

“The real estate industry was in good shape going into the pandemic, and it's in good shape coming out of the pandemic,” Byron Carlock, U.S. real estate practice leader at PwC, told LoopNet in an interview. “We've now got an opportunity to take advantage of very high demand, especially for products in housing and industrial, abundant capital for investment that’s growing, and inexpensive debt. The big takeaway is that the outlook is very positive.”

Though it’s not all rosy, Carlock continued, “[as] we do have rising costs, labor shortages, and an infrastructure bill that will cause competition for construction labor and materials. But generally, things are looking very positive, and the industry has a lot of demand that needs to be satisfied. This is going to be a cycle focused on development and redevelopment [of older properties].”

While the 100-page report offers robust information gleaned from interviews with 1,700 industry experts on individual property sectors and markets, LoopNet zeroed in on three key takeaways for real estate professionals to successfully navigate the industry through the next year.

Investors Show Interest in Alternative Sectors

In contrast to traditional assets such as office, retail and industrial, the report found that REITs and private investors have “been much quicker to embrace a broader variety of alternative sectors.” These niche sectors have higher returns at higher cap rates, but often with no higher risk. “Tenant demand in many of these alternative sectors are driven more by economic growth, making them less volatile over the business cycle — another appealing feature for investors.”

The report focused on four primary sectors toward which investors have pivoted:

Senior Housing: Thanks to the effectiveness of vaccines, senior housing is on the rebound from the dramatic declines seen in the early days of the pandemic. Demand is up — after a full year of negative net absorption, demand turned positive during the second quarter of 2021. However, occupancy levels remain near historic lows. But demographics are working in favor of the sector, and as a large segment of the population ages into potential users of these types of facilities, the value proposition for senior housing will be a boon for most investors looking for growth and stable returns.

Student Housing: Multifamily housing of any type is usually said to be recession-proof, and that includes student housing. While remote learning took its toll on the sector in 2020, demand for new leases surged in summer 2021, and occupancy rates and rents have increased as students headed back to school in the fall. “The end-of-leasing-season data for fall 2021 suggest that the industry has finally normalized with pre-pandemic norms and that the worst of the downturn is in the rearview mirror,” stated the report.

Self-Storage: Pandemic-induced factors, including the shift to remote work and subsequent household moves, and a new emphasis on outdoor activities created increased demand for self-storage facilities, pushing the vacancy rate to historic lows of 5.5% at the end of the second quarter of 2021. This in turn pushed up average asking rents. Renter demand is anticipated to exceed supply in the near future, even as some pandemic-driven factors dissipate, according to the report, which found through interviews that sales volume is high and climbing.

Life Sciences: A focus on vaccine development, greater demand for consumer healthcare services and new technology has attracted investors to this niche sector over the past 18 months. The report likened the burgeoning sector’s trajectory to the tech boom seen in Silicon Valley over the past two decades. The uncertainty surrounding the role of the traditional office has also shifted investor attention to life sciences labs and medical office buildings.

In addition to the report’s asset types to watch, the increased attention on the healthcare space is also causing a shift within that sector, Carlock told LoopNet.

“As healthcare and retail go through their transformations, we are seeing great demand for different types of healthcare properties. Healthcare providers are trying to be closer to consumers, whether its off-site from medical buildings or in retail spaces, but what’s happening is that they’re moving away from old-school hospital campuses,” he said. “That’s nothing new, it’s just a transformational trend that is continuing.”

Carlock also pointed to the single-family rental market as a good bet for smaller or non-institutional investors.

“Look at the growth that happened there, where mom and pop rental owners could get inexpensive financing and renovate homes to create a portfolio of their own. You’re also seeing that kind of vibrancy in the 1031 exchange market, where someone might sell family land, for example, and invest in an income-producing property. Small investors can be particularly successful in their local markets because they are closer to the ground and know what the particular needs are in their areas,” he explained.

Regardless of where individual investors are focusing their interest, demand is high across the board and experts expect investment activity to ramp up this coming year.

“There is a ‘tremendous amount of liquidity looking for allocations and investment in real estate,’ said one senior asset manager quoted in the report. Fundraising actually increased in 2020 — a most unusual trend during a recession, when investors typically pull money out — resulting in a record amount of ‘dry powder’ on the sidelines looking to be placed.”

ESG Drives Decision Making

One of the survey statistics that impressed Carlock most was the industry’s focus on its role in alleviating climate change, and the responsibility real estate leaders now feel in mitigating environmental risks.

While Environmental, Social and Corporate Governance (ESG) has always been something investors paid attention to and participated in — think green building certifications and other environmental accreditations and initiatives — they have been slow to actually incorporate it into decision-making.

This year’s report found that 82% of respondents consider ESG elements when making operational or investment decisions. That can mean they’re incorporating it into their underwriting, buying decisions or property selection and positioning of assets.

“Our industry leadership has really awakened to the reality that our role in society is about more than bricks and sticks,” said Carlock. “We [the real estate industry] have the opportunity to lead the way with respect to social issues that we can actually have a hand in solving. ESG is clearly something that is top-of-mind for investors.”

The report pointed out that the “growing risks of climate-related property damage may induce more investors to follow the example of leading institutional investors in factoring market-level climate risk into their decision-making.”

Carlock also noted the other social issues the real estate industry is focusing on, such as housing affordability, which severely worsened during the pandemic, and taking a more proactive approach to promoting diversity and inclusion within companies or industry groups.

Sun Belt Markets Offer the Most Opportunity

Historically considered secondary or tertiary markets, Sun Belt markets top the report’s list of promising places for real estate prospects, with eight out of 10 of the “markets to watch” located in this region. These markets showcased potential during the pandemic, as top-tier cities cleared out with closures and remote workers opted for less expensive, nearby alternatives.

Looking at the markets listed in the report, Carlock said they all have similar defining attributes that make them attractive.

“They all stand out for quality of life and they’re also tax-friendly states for businesses. That’s a continuation of last year’s trend as well — the pandemic did show us that the urban exodus out of cities like New York, San Francisco and Chicago were real, but we are already seeing a boomerang back to those cities. But when it comes to the importance of investor favoritism and good cities for development, it always points back to these Sun Belt markets.”

Powered by strong growth, homebuilding outlook, affordability and job prospects, the 10 markets that top the list for overall real estate prospects are:

1.      Nashville, Tennessee

2.      Raleigh/Durham, North Carolina

3.      Phoenix

4.      Austin, Texas

5.      Tampa/St. Petersburg, Florida

6.      Charlotte, North Carolina

7.      Dallas/Fort Worth, Texas

8.      Atlanta

9.      Seattle

10.  Boston

Source: Loopnet

This month's CoStar Commercial Repeat Sale Indices (CCRSI) provides the market's first look at commercial real estate pricing trends through September 2021. Based on 1,812 sale pairs in September 2021 and more than 253,572 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

CCRSI National Results Highlights

COMPOSITE PRICE INDICES CONTINUED TO CLIMB IN THE THIRD QUARTER. The value-weighted U.S. composite index, which is more heavily influenced by high-value trades, rose by 6.1% during the third quarter of 2021, reaching a new high of 278. This compares to the quarterly gain of 3.8% in Q2 of 2021. The index rose by 14.2% in the 12-month period that ended in September 2021 and is now 10.4% higher than its pre-pandemic level.

The equal-weighted U.S. composite index, which reflects the more numerous but lower-priced property sales typical of secondary and tertiary markets, increased by 3.8% in third quarter, compared to its 2021 Q2 quarterly gain of 4.6%, also reaching a new high in September 2021. The index increased by 13.7% in the 12-month period that ended in September 2021 and is now 14.9% above its pre-pandemic level.

The equal-weighted U.S. composite index gained 1.1% in September 2021, its seventh consecutive month of expansion, while the value-weighted U.S. composite index rose by 1.3% over the same period.

QUAL-WEIGHTED SUB-INDICES CONTINUED THEIR GROWTH THROUGH THE THIRD QUARTER.

The investment grade sub-index, more heavily influenced by higher-value assets, accelerated its gains in the third quarter of 2021 to 3.3%, compared to its 3.1% quarterly gain in Q2 of 2021, while the general commercial sub-index, more heavily influenced by smaller, lower-priced assets, decelerated from its 4.8% quarterly gain in Q2 of 2021 to 3.2% in Q3 of 2021. However, the general commercial sub-index rose by 0.5% in September 2021, its seventh consecutive month of positive gains.

Sub-indices have reached historical highs. The general commercial segment has been in favor of late as it saw price growth of 13.6% over the 12-month period that ended September 2021, compared to the investment grade segment, which registered 10.6% growth over the same period.

TRANSACTION VOLUME MOVED 6% LOWER IN SEPTEMBER. However, composite pair volume of $163.9 billion in the 12-month period ending in September 2021 marked a 43.8% increase from the prior 12-month period that ended September 2020. Of the 21,445 sale pairs recorded during the 12-month period that ended September 2021, 83% were in the general commercial segment.

THE SHARE OF REPEAT-SALE TRADES THAT WERE DISTRESSED FELL FOR THE SECOND CONSECUTIVE MONTH. General commercial distressed sales in September 2021 measured just 1.0% of all repeat-sale trades, the smallest share since April 2020 and far below the 5-year monthly average of 1.5%. Investment grade distressed sales accounted for 0.4% overall in September 2021 compared to the 5-year monthly average of 0.8%.

Quarterly CCRSI Property Type Results

THE HOSPITALITY PRICE INDEX WAS THE TOP PERFORMER AMONG THE SIX EQUALWEIGHTED PROPERTY-TYPE INDICES BUT IS THE ONLY SECTOR YET TO RETURN TO ITS PRE-COVID PRICING. After a very challenging pandemic period, the hospitality sector returned to healthy price growth for the second consecutive quarter, registering a 4.4% increase in the third quarter over Q2 of 2021, the fastest quarterly gain of any property type but somewhat slower than its second quarter growth of 4.9%. The index remains 1.5% below its year-ago level and 4.2% below its pre-pandemic level.

INDUSTRIAL, RETAIL AND MULTIFAMILY PRICING COOLED IN THE THIRD QUARTER. The equal-weighted industrial price index slowed to 2.4% growth over the quarter compared to 4.0% growth in Q2 of 2021. The index is 19.9% higher than its pre-pandemic level. The retail price index slowed to 2.0% growth in Q3 2021 from its 3.4% gain in Q2 of 2021 and sits 13.5% higher than pre-pandemic levels. Multifamily, with the strongest price growth over the prior ten years of all property types, saw a deceleration of growth of its price index from a quarterly gain of 3.9% in Q2 of 2021 to 1.8% in Q3 of 2021 This index is 19.4% over its pre-pandemic level.

OFFICE PRICE GROWTH ACCELERATED IN THE THIRD QUARTER. The U.S. office index increased 2.1% in Q3 of 2021, a strong acceleration over the second quarter’s 0.5% quarterly gain. Over the 12-month period ending in September 2021, office prices were up 5.2%, the smallest gain of all property types with the exception of hospitality. The office index is now 7.8% higher than its pre-pandemic level.

U.S. LAND PRICE GROWTH PLUNGED. After a robust quarterly gain of 8.1% in Q2 of 2021, the U.S. land price index slowed considerably to a gain of 0.8% in September 2021. However, the index rose by 13.3% over the 12-month period that ended September 2021 and is now 17.6% higher than its pre-pandemic level.

Quarterly CCRSI Regional Results

BROAD-BASED GROWTH ACROSS PROPERTY TYPES BOOSTED THE SOUTH REGIONAL INDEX. The South composite index advanced 2.5% in the third quarter of 2021, the fastest quarterly growth of all regions. Over the 12-month period ending in September 2021, the index rose by 13.0%, also the fastest 12-month growth across all four regions. The strong performance of the region was driven by its industrial price index, which rose by 16.2% over the year twelve months that ended September 30, 2021, the fastest growth across all regional property price indices, and its retail price index, which advanced 15.3% over the same time period, the second fastest rate.

STRONG INDUSTRIAL DEMAND LED THE WEST PRICE INDEX HIGHER IN THE THIRD QUARTER. The West composite index advanced 10.6% in the 12-month period ending in September 2021, with the industrial price index gaining 13.5% over that period and the retail index growing by 12.6%. Over the third quarter of 2021, the West composite index expanded by 2.2%, a slowdown from the second quarter’s gain of 3.0%.

THE OFFICE SECTOR IN THE NORTHEAST MAY FINALLY BE COMING BACK TO LIFE. The Northeast region composite price index rose by 1.8% in the third quarter of 2021, its third quarter of acceleration but the smallest quarterly gain across all regions. Over the 12-month period that ended September 2021, the index gained 4.2%, also the slowest among all regions. Of property sectors, the office price index in the Northeast region grew the fastest over the quarter, rising by 2.4% after struggling through the pandemic. However, that index remains 2.5% lower than a year ago, the only regional property price index that is below its year-ago level.

WEAKNESS IN THE OFFICE AND MULTIFAMILY SEGMENTS TIPPED THE MIDWEST REGIONAL INDEX INTO NEGATIVE TERRITORY. The Midwest composite index fell by 2.0% in the third quarter of 2021 over the prior quarter, the only property sector to have seen a quarterly decline in its equal-weighted price index. Over the 12-month period that ended September 2021, the price index gained 9.2%, cooling from the 13.9% gain over the prior 12- month period that ended September 2020. Both the Midwest office price index and its multifamily price index fell by 1.9% during the third quarter of 2021, more than offsetting the quarterly gain of 2.3% of the retail price index.

Source: CoStar

Few REITs are investing in green buildings despite stakeholder pressure, according to S&P Global Market Intelligence.

Only 7% of US REITs reported a strong green building investment program, while 20% reported having some kind of program. Another 27% indicated limited activities, while 46% have not disclosed any program at all, a recent article by S&P divulges.

As of October, 17% of US REITs have portfolios where 50% or more of their properties are green. Twenty-five percent have portfolios where at least 25% of properties are considered green, according to Sustainalytics BV, Morningstar’s ESG-focused data company.

Additional cost and resources of green buildings are responsible for the slow uptake, Sustainalytics Associate Director of Insurance, Real Estate and Asset Management Research Sercan Soylu asserts.

“Usually, green buildings are more expensive to acquire because of relatively higher construction costs mainly stemming from sustainable materials. Apart from that, such properties require diligent maintenance and in turn require further costs for material, labor and talent,” Soylu explained to S&P.

However, he said, there has been a greater penetration by green buildings in the portfolios of REITs as real estate companies are increasing their focus on this asset class every year and globally regulators are putting more emphasis on the environment and climate change.

S&P said the increase is also happening as REITs are seeing green property certification benefiting the balance sheet in the long term such as LEED for new and existing buildings.

Cushman & Wakefield and CoStar Group data is showing LEED-certified four- and five-star office properties on the whole command higher rents than non-LEED certified properties and have also reported lower vacancy rates, S&P says.

“Green buildings definitely provide a premium in terms of the price, but also in terms of the yields,” Soylu said.

Green buildings can also pay off in terms of PR. Also, sustainability and environmental improvements can help in leasing space. “Tenants want to be able to demonstrate they’re meeting their ESG goals,” Glenn Brill, a managing director in the real estate solutions practice at business advisory firm FTI Consulting Brill said. Taking space with a controlled carbon footprint counts as efforts the businesses make.

Source: GlobeSt.

Source: World Property Journal

Virtual DealShare

Copyright © 2021 NY Metro CCIM Chapter of the CCIM Institute, All rights reserved. 

You are receiving this email as a current or past Member of the CCIM Institute or through the local chapter in proximity to your primary place of business. 

ccimny.org | [email protected]