Trevena, Inc., a biopharmaceutical company, leased 40,412 square feet in the Chesterbrook Corp. Center building at 955 Chesterbrook Blvd. in Chesterbrook, PA.
The three-story building totals 122,118 square feet in the King of Prussia / Wayne submarket of Philadelphia. Pitcairn Properties developed the building in 1986. Chesterbrook is a class-A office building on 10.1 acres.
www.omegare.com
Monday, January 9, 2017
Hogan Lovells Leases 35,000 SF in Philadelphia
Hogan Lovells, a multinational law firm co-headquartered in London and Washington DC, has leased 34,752 square feet at 1735 Market St. in Philadelphia, PA. The tenant will take occupancy of the entire 23rd and a portion of the 22nd floors in the tower.
The 54-story, 1.33 million-square-foot, 5-Star office building was constructed in 1990 on 1 acre in the Market Street West submarket. It is home to a prestigious tenant roster that includes Ballard Spahr, Public Financial Management, UBS, Aberdeen Asset Management and Montgomery McCracken.
www.omegare.com
The 54-story, 1.33 million-square-foot, 5-Star office building was constructed in 1990 on 1 acre in the Market Street West submarket. It is home to a prestigious tenant roster that includes Ballard Spahr, Public Financial Management, UBS, Aberdeen Asset Management and Montgomery McCracken.
www.omegare.com
LA Fitness Leases 28,000 SF in Bear
LA Fitness signed a 27,786-square-foot lease in the Eden Square Shopping Center at 800 Eden Circle in Bear, DE.
The 230,676-square-foot shopping center sits on 36 acres in the South New Castle County submarket, directly off Routes 1 and 40.
www.omegare.com
The 230,676-square-foot shopping center sits on 36 acres in the South New Castle County submarket, directly off Routes 1 and 40.
www.omegare.com
Thursday, January 5, 2017
RETAIL OUTLOOK: Shopping Center Owners Brace for More Downsizing as Space Rationalization Still in Early Stages
Even as holiday shoppers were hunting for bargains and exchanging gifts, news began leaking on the latest expected big store closures.
Sears Holding was quietly closing another 50 or so stores, and The Limited was closing several stores or letting inventory dwindle so much that store employees worried they were next in line to close. More store closings and downsizings no doubt are still to come in 2017.
Having recently analyzed the oversupply of retail stores and the growing market share of e-commerce sales, Costar’s Portfolio Strategy group is making a bold call going into the new year: Retailers need to rationalize nearly 1 billion square feet of U.S. store space in order to reverse the trend in declining sales per square foot. This could take the form of store closures, converting unused retail space to other uses, or rent roll downs.
"Simply put," said Suzanne Mulvee, director of US research, retail for CoStar Portfolio Strategy, "it all comes down to productivity. Retailers on average are generating fewer sales per square foot than they did during the decade leading up to the recession."
Mulvee said there are a variety of reasons for the lower sales productivity among retailers. But at the bottom line it means that fewer stores are economically viable -- the sales generated by the stores don't justify the costs of operation. Therefore, more retaiilers are closing locations or seeking rent relief, Mulvee notes.
Historically, retail sales were far higher on a per square foot basis at the beginning of the last decade. A basket of publicly traded retailers produced retail sales of more than $350/square foot, CoStar Portfolio Strategy analysts reported. Today, the same retailers are generating sales of less than $330/square foot.
The decline in average sales per square foot from 2000 to 2008 among retailers coincided with an aggressive expansion in store space. During that same timeframe, annual totals of new retail space averaged 160 million square feet per year.
The recession finally put an end to the retail construction boom, and annual retail space completions bottomed out at 35 million square feet in 2011. New retail construction has only gradually crept up during the current recovery.
Last year, developers completed approximately 60 million square feet of new retail space, still 100 million square feet below the peak of the cycle.
However, the reduced construction levels may not be enough to address weaker store productivity, Mulvee said. The share of spending by consumers on online shopping continues to grow by about 15% annually. Therefore, pressure on retailers' sales productivity in their stores may continue.
"To counter these pressures and return store productivity to a band more in line with historical averages, more than 10% of retail space, or nearly a billion square feet, needs to be rationalized,” Mulvee said. "We expect store closures to increase in 2017 and rent roll downs to remain commonplace for the bottom 50% of centers.”
While store rationalization will no doubt be painful for shopping center owners and will likely result in higher loan defaults, especially in the CMBS arena, Mulvee said it's a necessary process to bring retail sales in balance with retailers' operating costs.
Searching for a Silver Lining
While painful, the store rationalization process, will likely have different impacts on different shopping centers, with “higher-quality” centers continuing to attract top retailers, achieving rent growth and accelerating productivity. At the same time, the process should expedite the sale of underperforming centers to new investors capable of converting the properties to more profitable uses.
Retail REITs are expected to continue shedding more of their secondary and tertiary assets in 2017 while holding onto core grocery-anchored and urban retail properties, according to Cushman & Wakefield. Perhaps sensing an investment opportunity, C&W also reports there is still no shortage of investors with plenty of capital chasing retail real estate heading into 2017.
"We are still seeing a lot of interest in the retail sector, but investors are having trouble finding quality product in the market,” noted Brian Whitmer, retail practice lead of Cushman & Wakefield’s Metropolitan Area Capital Markets Group. “They have been increasingly more selective, targeting core markets, urban street retail and grocery-anchored shopping centers with strong credit.”
In a bit of a disconnect, most of the product coming online is located in secondary or tertiary assets, or non-core locations. Still there are investors going after that product at slightly higher cap rates.
Meanwhile, retailers are likely to target store growth rates in the mid-single-digit range, providing support in 2017 for sustained high occupancies and solid same store-NOI growth, along with selective upside from value-added redevelopments for REITs, said Paul Morgan, a REIT analyst with Canaccord Genuity Inc.
Among the successful retailers that are driving net shopping center demand area the TJX concepts (TJ Maxx, Marshall’s, HomeGoods), ULTA Cosmetics, Ross, Costco, and certain food/coffee chains such as Shake Shack, Potbelly, BJ’s Roadhouse, Jamba Juice, Panera Bread and Starbucks, Morgan noted.
Meanwhile, Morgan said, some retailers that had previously been struggling now appear to have stabilized.
“We find increasing stability among retail concept leaders such as Best Buy, Bed, Bath & Beyond, Barnes & Noble and Dick’s Sporting Goods, who have benefitted from their competitors’ demise in recent years,” he added.
Dollar stores are again expected to be among the top-performers in 2017, as cash-strapped consumers look to save money on multiple fronts, according to Mickey Chadha, a Moody's vice president -- senior credit officer. Home improvement stores such as Home Depot and Lowe's will also benefit from the continuing recovery of the housing market.
Apparel and footwear sellers, on the other hand, will be squeezed as consumers continue to spend more on health care, rent, home-related products, electronics and cars, Chadha added.
And then there are the beleagured department stores, which again are expected to face weak traffic trends and competitive pressure on their operating performance.
www.omegare.com
Sears Holding was quietly closing another 50 or so stores, and The Limited was closing several stores or letting inventory dwindle so much that store employees worried they were next in line to close. More store closings and downsizings no doubt are still to come in 2017.
Having recently analyzed the oversupply of retail stores and the growing market share of e-commerce sales, Costar’s Portfolio Strategy group is making a bold call going into the new year: Retailers need to rationalize nearly 1 billion square feet of U.S. store space in order to reverse the trend in declining sales per square foot. This could take the form of store closures, converting unused retail space to other uses, or rent roll downs.
"Simply put," said Suzanne Mulvee, director of US research, retail for CoStar Portfolio Strategy, "it all comes down to productivity. Retailers on average are generating fewer sales per square foot than they did during the decade leading up to the recession."
Mulvee said there are a variety of reasons for the lower sales productivity among retailers. But at the bottom line it means that fewer stores are economically viable -- the sales generated by the stores don't justify the costs of operation. Therefore, more retaiilers are closing locations or seeking rent relief, Mulvee notes.
Historically, retail sales were far higher on a per square foot basis at the beginning of the last decade. A basket of publicly traded retailers produced retail sales of more than $350/square foot, CoStar Portfolio Strategy analysts reported. Today, the same retailers are generating sales of less than $330/square foot.
The decline in average sales per square foot from 2000 to 2008 among retailers coincided with an aggressive expansion in store space. During that same timeframe, annual totals of new retail space averaged 160 million square feet per year.
The recession finally put an end to the retail construction boom, and annual retail space completions bottomed out at 35 million square feet in 2011. New retail construction has only gradually crept up during the current recovery.
Last year, developers completed approximately 60 million square feet of new retail space, still 100 million square feet below the peak of the cycle.
However, the reduced construction levels may not be enough to address weaker store productivity, Mulvee said. The share of spending by consumers on online shopping continues to grow by about 15% annually. Therefore, pressure on retailers' sales productivity in their stores may continue.
"To counter these pressures and return store productivity to a band more in line with historical averages, more than 10% of retail space, or nearly a billion square feet, needs to be rationalized,” Mulvee said. "We expect store closures to increase in 2017 and rent roll downs to remain commonplace for the bottom 50% of centers.”
While store rationalization will no doubt be painful for shopping center owners and will likely result in higher loan defaults, especially in the CMBS arena, Mulvee said it's a necessary process to bring retail sales in balance with retailers' operating costs.
Searching for a Silver Lining
While painful, the store rationalization process, will likely have different impacts on different shopping centers, with “higher-quality” centers continuing to attract top retailers, achieving rent growth and accelerating productivity. At the same time, the process should expedite the sale of underperforming centers to new investors capable of converting the properties to more profitable uses.
Retail REITs are expected to continue shedding more of their secondary and tertiary assets in 2017 while holding onto core grocery-anchored and urban retail properties, according to Cushman & Wakefield. Perhaps sensing an investment opportunity, C&W also reports there is still no shortage of investors with plenty of capital chasing retail real estate heading into 2017.
"We are still seeing a lot of interest in the retail sector, but investors are having trouble finding quality product in the market,” noted Brian Whitmer, retail practice lead of Cushman & Wakefield’s Metropolitan Area Capital Markets Group. “They have been increasingly more selective, targeting core markets, urban street retail and grocery-anchored shopping centers with strong credit.”
In a bit of a disconnect, most of the product coming online is located in secondary or tertiary assets, or non-core locations. Still there are investors going after that product at slightly higher cap rates.
Meanwhile, retailers are likely to target store growth rates in the mid-single-digit range, providing support in 2017 for sustained high occupancies and solid same store-NOI growth, along with selective upside from value-added redevelopments for REITs, said Paul Morgan, a REIT analyst with Canaccord Genuity Inc.
Among the successful retailers that are driving net shopping center demand area the TJX concepts (TJ Maxx, Marshall’s, HomeGoods), ULTA Cosmetics, Ross, Costco, and certain food/coffee chains such as Shake Shack, Potbelly, BJ’s Roadhouse, Jamba Juice, Panera Bread and Starbucks, Morgan noted.
Meanwhile, Morgan said, some retailers that had previously been struggling now appear to have stabilized.
“We find increasing stability among retail concept leaders such as Best Buy, Bed, Bath & Beyond, Barnes & Noble and Dick’s Sporting Goods, who have benefitted from their competitors’ demise in recent years,” he added.
Dollar stores are again expected to be among the top-performers in 2017, as cash-strapped consumers look to save money on multiple fronts, according to Mickey Chadha, a Moody's vice president -- senior credit officer. Home improvement stores such as Home Depot and Lowe's will also benefit from the continuing recovery of the housing market.
Apparel and footwear sellers, on the other hand, will be squeezed as consumers continue to spend more on health care, rent, home-related products, electronics and cars, Chadha added.
And then there are the beleagured department stores, which again are expected to face weak traffic trends and competitive pressure on their operating performance.
INDUSTRIAL OUTLOOK: Despite Trade Uncertainty, E-Commerce Growth Expected to Further Boost Distribution Property Growth in 2017
Industrial real estate's unprecedented bull run is expected to continue well into 2017 as both importers and exporters continue to seek warehouse and distribution centers close to major seaports and inland hubs, while increasingly venturing out to secondary markets.
Fitch Rating expects booming e-commerce sales to support the current industrial property upcycle, with growing demand from e-tailers willing to pay a premium for efficient, well located fulfillment space versus the less efficient racking requirements of traditional warehouses and distribution centers.
With demand for industrial space continuing to exceed supply, retailers and other cargo interests should anticipate tight space, rising rents and fewer options in primary locations near seaports and inland hubs. Space is especially tight for the highest-quality Class A properties in those markets, forcing some shippers to consider class B locations. Alternatively, they will have to go farther out into adjacent markets to find the quality sites and structures they need.
While president-elect Trump’s trade and financial policies are anything but clear at this point, what is known has mixed implications for the industrial real estate sector. Trump’s potential plans to rebuild infrastructure, increase defense spending, deregulate the energy sector and encourage domestic manufacturing could benefit industrial tenants.
While fears over global trade wars may be overblown, reduced trade flows and any ensuing economic slowdown could hurt the broader industrial sector, especially port-oriented warehouse and distribution markets. However, the continued shift to e-commerce and the overhaul of the U.S. logistics network promises to outweigh all the other factors.
Meanwhile, still-low interest rates, healthy consumer spending and strong e-commerce are forming perfect conditions for industrial and logistics real estate growth in 2017. Potential investment in infrastructure and continued company expansion are also expected to fuel demand for warehouses and distribution centers despite global economic uncertainty.
"We are leaving 2016 on a record high, with industrial real estate demand reaching new heights, with leasing in excess of 250 million square feet. Many companies continue to expand while others adapt and perfect their supply chains to be closer to urban cores and their customers, driving record low vacancy rates even further and increasing leasing rates in response.
"With new construction still trailing demand, not only will we see ground up development across major markets, but we will see creative and adaptive re-use of assets, a rise of infill development and the introduction of multistory construction in or near urban locations," he added.
Five Factors Driving Demand in 2017
"The only safe prediction for 2017 is that many things are going to change. There are numerous factors that could impact the freight movement industry next year and beyond, ranging from changes in trade policies and regulations to specific issues that affect how goods are transported. However, the need for infrastructure investment and the continued proliferation of e-commerce will keep industrial real estate booming."
They identified five factors that will impact the sector in 2017, led by the potential for long-delayed investment to revive America’s infrastructure. The urbanization of U.S. cities cannot continue with functionally obsolete roads, bridges and other infrastructure; and as upgrades are planned, raw materials will be needed and warehouses to store them.".
"Investing in the Rust Belt's infrastructure would mean reviving dozens of Mississippi waterway terminals that served a dated American manufacturing-based economy. Already zoned for industrial use, these ports are being repurposed to transport materials needed to build infrastructure for new industries driving the U.S. economy.".
Secondly, online shopping and consumer demand for rapid delivery this year is expected to continue to compress the national industrial market vacancy rate, which reached a 16-year low of below 6% in the second half of 2016, as industrial tenants expand their presence in new markets.
Institutional capital still views industrial real estate as a lucrative investment opportunity, with year-end 2016 industrial investment sale volumes potentially reaching upwards of $45 billion, the second-largest annual tally since 2008.
Finally, unprecedented industrial real estate demand and the push to improve last-mile delivery services may influence development throughout the country. Smaller urban core warehouses and fulfillment centers, reconverted assets and multistory warehouses could become last-mile solutions for many companies in 2017
www.omegare.com
Fitch Rating expects booming e-commerce sales to support the current industrial property upcycle, with growing demand from e-tailers willing to pay a premium for efficient, well located fulfillment space versus the less efficient racking requirements of traditional warehouses and distribution centers.
With demand for industrial space continuing to exceed supply, retailers and other cargo interests should anticipate tight space, rising rents and fewer options in primary locations near seaports and inland hubs. Space is especially tight for the highest-quality Class A properties in those markets, forcing some shippers to consider class B locations. Alternatively, they will have to go farther out into adjacent markets to find the quality sites and structures they need.
While president-elect Trump’s trade and financial policies are anything but clear at this point, what is known has mixed implications for the industrial real estate sector. Trump’s potential plans to rebuild infrastructure, increase defense spending, deregulate the energy sector and encourage domestic manufacturing could benefit industrial tenants.
While fears over global trade wars may be overblown, reduced trade flows and any ensuing economic slowdown could hurt the broader industrial sector, especially port-oriented warehouse and distribution markets. However, the continued shift to e-commerce and the overhaul of the U.S. logistics network promises to outweigh all the other factors.
Meanwhile, still-low interest rates, healthy consumer spending and strong e-commerce are forming perfect conditions for industrial and logistics real estate growth in 2017. Potential investment in infrastructure and continued company expansion are also expected to fuel demand for warehouses and distribution centers despite global economic uncertainty.
"We are leaving 2016 on a record high, with industrial real estate demand reaching new heights, with leasing in excess of 250 million square feet. Many companies continue to expand while others adapt and perfect their supply chains to be closer to urban cores and their customers, driving record low vacancy rates even further and increasing leasing rates in response.
"With new construction still trailing demand, not only will we see ground up development across major markets, but we will see creative and adaptive re-use of assets, a rise of infill development and the introduction of multistory construction in or near urban locations," he added.
Five Factors Driving Demand in 2017
"The only safe prediction for 2017 is that many things are going to change. There are numerous factors that could impact the freight movement industry next year and beyond, ranging from changes in trade policies and regulations to specific issues that affect how goods are transported. However, the need for infrastructure investment and the continued proliferation of e-commerce will keep industrial real estate booming."
They identified five factors that will impact the sector in 2017, led by the potential for long-delayed investment to revive America’s infrastructure. The urbanization of U.S. cities cannot continue with functionally obsolete roads, bridges and other infrastructure; and as upgrades are planned, raw materials will be needed and warehouses to store them.".
"Investing in the Rust Belt's infrastructure would mean reviving dozens of Mississippi waterway terminals that served a dated American manufacturing-based economy. Already zoned for industrial use, these ports are being repurposed to transport materials needed to build infrastructure for new industries driving the U.S. economy.".
Secondly, online shopping and consumer demand for rapid delivery this year is expected to continue to compress the national industrial market vacancy rate, which reached a 16-year low of below 6% in the second half of 2016, as industrial tenants expand their presence in new markets.
Institutional capital still views industrial real estate as a lucrative investment opportunity, with year-end 2016 industrial investment sale volumes potentially reaching upwards of $45 billion, the second-largest annual tally since 2008.
Finally, unprecedented industrial real estate demand and the push to improve last-mile delivery services may influence development throughout the country. Smaller urban core warehouses and fulfillment centers, reconverted assets and multistory warehouses could become last-mile solutions for many companies in 2017
www.omegare.com
OFFICE OUTLOOK: Slowing Absorption, New Supply Raise Caution as Momentum Seen Shifting from CBDs to Suburban, Second-Tier Metros
Analysts are seeing the first hint of caution in the U.S. office market after ending the year with slowing absorption ahead of increasing new supply.
Meanwhile, the nascent recovery of suburban and second-tier office markets that began to take hold in 2016 is expected to accelerate in 2017, outperforming CBDs and richly priced U.S. gateway office markets in terms of leasing and absorption in 2017.
Major brokerage firms have different takes on the U.S. office market outlook. CBRE Group's forecast sees a moderate slowdown in 2017 with a slight decline in total net absorption and an uptick in the national vacancy rate. Jones Lang LaSalle notes a combination of decelerating leasing velocity at year-end marked by a low level of "mega leases" resulted in just 6.5 million square feet of net absorption during the fourth quarter. Near-full employment and a shortage of skilled talent suppressed leasing activity in several major tech hubs, according to JLL.
Cushman & Wakefield on the other hand sees a modest increase in net absorption in 2017, with the vacancy rate holding steady through the year.
CBRE expects approximately 50 million square feet of new office space will be completed in 2017. While still low compared with previous cycles, that would comprise the largest amount of new office supply since 2009.
Office rents are expected to slow their growth from 4% to 4.5% seen in 2014-2015, down to an average 1.5% in 2017, CBRE said in the report overseen by Americas Head of Research Spencer Levy, Chief Economist Jeffrey Havsy and Senior Managing Economist Timothy Savage.
In its annual list of predictions for CRE markets during the coming year, CoStar Portfolio Strategy forecasts that projected returns of 6% on suburban properties will exceed returns of 4.9% from fully valued CBD and other urban assets.
CoStar analysts also see second-tier markets generating the lion's share of rent growth in 2017. Average U.S. rents, which have grown 16.8% in an uneven expansion since bottoming in 2010, will continue to see growth branch out as markets cool in tech hubs such as the San Francisco Bay Area, Boston, Denver and Austin. Office rents in such secondary markets as Philadelphia, Minneapolis, San Diego and Tampa are projected to grow by a collective 3.3% in 2017, surpassing the national average of 2.8% for the first time during the recovery, according to CoStar managing consultant Paul Leonard.
"We’re now in the seventh year of the expansion, and the early-recovery markets are finally starting to show signs of cooling," Leonard said. "As developers have responded with new supply, job growth has slowed and office absorption rates have decelerated. The best rent growth over the next year should be in second-tier markets which have limited new supply under way."
Technology sector growth, which has accounted for nearly one-fifth of major office leasing since 2014, will be critical for continued gains in office-using employment and office demand, CBRE noted in its outlook.
Tech employment growth slowed to 4% in 2016, well below the five-year average of 7.3%. Finding skilled labor in an increasingly competitive environment "will be critically important" for continued expansion and office demand in established hubs like the San Francisco Bay Area as well as emerging tech sectors in lower cost markets such as Phoenix, Atlanta and Portland, CBRE said.
With solid office job growth expected throughout 2017 and 2018, Cushman & Wakefield forecasters said there is still runway for the office market. Even before the election, U.S. economic fundamentals were showing signs of heating up, noted Kevin Thorpe, Cushman & Wakefield’s global chief economist.
"We observed a big GDP number in the third quarter, accelerating wage growth, surging consumer confidence: a string of really robust trends were already forming," Thorpe said. "Now, when you layer in the expected tax cuts and spending multipliers from the new [Trump] administration, it creates an even stronger economic backdrop for the property markets heading into 2017."
John Chang, first vice president, research services for Marcus & Millichap, agreed that office markets in the west and south will in general see the strongest office-using job growth this year, including many slower recovery markets with little office construction under way such as the Florida metros. Tenants interested in the most desirable submarkets and the highest quality buildings currently have limited options in these metros, giving landlords greater leverage until rents increase to the point that justifies new development.
Fitch Ratings said it also expects healthy and above-average U.S. office sector fundamentals in 2017, with office space demand growth of 1.1% outpacing 0.9% growth in new supply. However, the ongoing densification trend of companies allocating fewer office square feet per employee will temper demand growth, particularly from legal, financial and business service tenants that are downsizing their footprints when leases expire.
www.omegare.com
Meanwhile, the nascent recovery of suburban and second-tier office markets that began to take hold in 2016 is expected to accelerate in 2017, outperforming CBDs and richly priced U.S. gateway office markets in terms of leasing and absorption in 2017.
Major brokerage firms have different takes on the U.S. office market outlook. CBRE Group's forecast sees a moderate slowdown in 2017 with a slight decline in total net absorption and an uptick in the national vacancy rate. Jones Lang LaSalle notes a combination of decelerating leasing velocity at year-end marked by a low level of "mega leases" resulted in just 6.5 million square feet of net absorption during the fourth quarter. Near-full employment and a shortage of skilled talent suppressed leasing activity in several major tech hubs, according to JLL.
Cushman & Wakefield on the other hand sees a modest increase in net absorption in 2017, with the vacancy rate holding steady through the year.
CBRE expects approximately 50 million square feet of new office space will be completed in 2017. While still low compared with previous cycles, that would comprise the largest amount of new office supply since 2009.
Office rents are expected to slow their growth from 4% to 4.5% seen in 2014-2015, down to an average 1.5% in 2017, CBRE said in the report overseen by Americas Head of Research Spencer Levy, Chief Economist Jeffrey Havsy and Senior Managing Economist Timothy Savage.
Road to Recovery Continues for Suburbs?
In its annual list of predictions for CRE markets during the coming year, CoStar Portfolio Strategy forecasts that projected returns of 6% on suburban properties will exceed returns of 4.9% from fully valued CBD and other urban assets.
CoStar analysts also see second-tier markets generating the lion's share of rent growth in 2017. Average U.S. rents, which have grown 16.8% in an uneven expansion since bottoming in 2010, will continue to see growth branch out as markets cool in tech hubs such as the San Francisco Bay Area, Boston, Denver and Austin. Office rents in such secondary markets as Philadelphia, Minneapolis, San Diego and Tampa are projected to grow by a collective 3.3% in 2017, surpassing the national average of 2.8% for the first time during the recovery, according to CoStar managing consultant Paul Leonard.
"We’re now in the seventh year of the expansion, and the early-recovery markets are finally starting to show signs of cooling," Leonard said. "As developers have responded with new supply, job growth has slowed and office absorption rates have decelerated. The best rent growth over the next year should be in second-tier markets which have limited new supply under way."
Technology sector growth, which has accounted for nearly one-fifth of major office leasing since 2014, will be critical for continued gains in office-using employment and office demand, CBRE noted in its outlook.
Tech employment growth slowed to 4% in 2016, well below the five-year average of 7.3%. Finding skilled labor in an increasingly competitive environment "will be critically important" for continued expansion and office demand in established hubs like the San Francisco Bay Area as well as emerging tech sectors in lower cost markets such as Phoenix, Atlanta and Portland, CBRE said.
With solid office job growth expected throughout 2017 and 2018, Cushman & Wakefield forecasters said there is still runway for the office market. Even before the election, U.S. economic fundamentals were showing signs of heating up, noted Kevin Thorpe, Cushman & Wakefield’s global chief economist.
"We observed a big GDP number in the third quarter, accelerating wage growth, surging consumer confidence: a string of really robust trends were already forming," Thorpe said. "Now, when you layer in the expected tax cuts and spending multipliers from the new [Trump] administration, it creates an even stronger economic backdrop for the property markets heading into 2017."
John Chang, first vice president, research services for Marcus & Millichap, agreed that office markets in the west and south will in general see the strongest office-using job growth this year, including many slower recovery markets with little office construction under way such as the Florida metros. Tenants interested in the most desirable submarkets and the highest quality buildings currently have limited options in these metros, giving landlords greater leverage until rents increase to the point that justifies new development.
Fitch Ratings said it also expects healthy and above-average U.S. office sector fundamentals in 2017, with office space demand growth of 1.1% outpacing 0.9% growth in new supply. However, the ongoing densification trend of companies allocating fewer office square feet per employee will temper demand growth, particularly from legal, financial and business service tenants that are downsizing their footprints when leases expire.
Wednesday, January 4, 2017
Ferguson Plumbing and Lighting Preleases 15,000 SF in Doylestown
Ferguson Plumbing and Lighting has signed a new prelease for 15,000 square feet in the proposed Pavilion at Furlong shopping center on York Rd. and Swamp Rd. in Doylestown, PA.
The proposed retail center will total approximately 36,998 square feet. It is set to begin construction in September 2017 with completion slated for September 2018. Ferguson Plumbing and Lighting will take occupancy once the property is complete. There are still spaces available for lease at the proposed center.
www.omegare.com
The proposed retail center will total approximately 36,998 square feet. It is set to begin construction in September 2017 with completion slated for September 2018. Ferguson Plumbing and Lighting will take occupancy once the property is complete. There are still spaces available for lease at the proposed center.
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