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Monday, September 21, 2015

The Airport Corporate Centre and the View From Above

By John Markle, Research Associate (Toronto)

The Airport Corporate Centre (ACC) has recently been considered one of the most highly coveted nodes in Toronto West. With more than 82% of the 4.7 million square feet (msf) that comprise the ACC being class A office space, the ACC is also one of the most prestigious. Let’s take a look at some of the differentiators that set the ACC apart from other office nodes in the West right now.

It’s not that big

Sort of. The ACC—in geographic terms—is the smallest node in Toronto West, weighing in at a feisty 2.4 square kilometres, though representing—in office terms—the second-largest leasing node in Toronto West, bested only by mega-node Meadowvale. So why all the hubbub? Location is an obvious factor here. Sitting at the convergence of two major 400-series highways (401 & 427) and with proximity to three more (403, 410, & 409), the ACC stands alone in terms of connectivity (This Ignoring for a moment that it sits not even a whole thousand metres from the most heavily trafficked airport in Canada).

This is important. Traffic equals exposure; and though their stay was short, nobody could avoid stealing a glance at Target’s huge red lettering on the top floor of AeroCentre V while cruising along the 401, or Nissan’s sprawling office campus at 5290 Orbitor Drive down the street. Perhaps nowhere else in Toronto West can compete with the nearly 700,000 drivers that pass though this area on the 427 and 401 daily.  

Future Development

One of the key factors that sets the ACC apart from other nodes in Toronto West is the interest in building there right now. With 1.7 msf in preleasing stages, the ACC is primed for massive future development—mostly in the form of HOOPP’s ambitious 1.1msf Spectrum Square project. Once complete, Spectrum Square will comprise a seven-building campus that will bring much-needed amenities to the area.

Saddled by chronic parking woes and an historical lack of regional transit infrastructure, these developments will serve to heighten and enhance the desirability of the ACC over the next 10 years by attracting exactly the kind of amenities-driven development so desperately needed in that market right now. The process is already underway: Spectrum Square Phase I’s completion, in the second quarter of 2015, has brought with it a Starbucks and Teriyaki Express, not to mention the string of Bus Rapid Transit (BRT) stops reaching from Winston Churchill Boulevard in Mississauga to its terminus at Renforth Drive in Etobicoke.

To be fair, the BRT line was well underway even before Spectrum Square Phase I had even broken ground, though this is the building that will most immediately reap the benefits of the MiWay-serviced Spectrum Station, due to open in 2016 along with stations at Erin Mills, Winston Churchill, Tahoe, Etobicoke Creek, and Orbitor.

Cruising Business Class on the Flight to Quality

Tying in with the lead the ACC has in development is the recent trend in Toronto West for office tenants looking to upgrade their current workspace to modern, more efficient buildings that cater not only to tenants’ bottom line, but also enhance their employees’ satisfaction. As such, the ACC is currently the frontrunner in a three-horse race with Meadowvale and Oakville to reach 0% vacancy for new supply. With 54,000 sf leased to Investment Planning Council at Spectrum Square Phase I, current availability for the building (128,000 sf) now sits at 59%, compared with 81% in new Oakville deliveries (218,000 sf), and 100% availability for the two buildings delivered in Meadowvale (144,248 sf), which were also completed in the second quarter.

Of course, luck and timing are always important factors when evaluating events such as these, and it is important to consider the way certain pieces seemed to fall into place for the groups and buildings involved: Investment Planning Council wanted new, centrally located space; and PointClickCare (the other blockbuster deal of the second quarter) had been looking to expand for some time when 5050 Explorer Drive came on the market after Target’s departure, making both buildings natural contenders for these requirements.

These are but a few of the key factors that have allowed the ACC to maintain such a fierce competitive edge in Toronto West despite what seem like huge internal disruptions (i.e. Target/Citigroup departures), and why it is likely to remain a top contender in the race to zero in the months and years ahead.

Monday, August 10, 2015

Millennials and retail: The demise of bricks-and-mortar, or its rebirth?

By Jon Bradley, Associate, Raleigh, NC; Amit Parekh, Associate, Los Angeles and Marissa Rose, Associate, Chicago

We are retail real estate professionals of the millennial age group who recently had the opportunity to spend three days at the International Council of Shopping Centers (ICSC) National Next Generation conference in Miami. Being relatively new to both real estate and the retail industry, we were all eager to absorb valuable advice from our peers on the Four Under 40 panel, who advised us to: Find great mentors, ask lots of questions, and not be afraid to fail in a high-risk industry. But probably the most interesting insights were around the impact that we, as millennials, are having on the future of retail and the physical store itself.

Our generation is frequently cited as a potential killer of retail real estate – the industry we are just entering – as we supposedly shift en masse from bricks-and-mortar shopping to living online.  So it might be surprising to hear, as we did at the conference, that while millennials are changing the dynamics of retail, we are not putting it out of business.

Three primary trends stood out. The first was the urbanization of America. Millennials are buying into this new lifestyle in which mobility is paramount. We want to be in live-work-play environments. Retailers are adjusting strategies to adapt to this urban migration. Examples are Nike’s shift toward stores that emphasize their brand experience and Macy’s commitment to urban locations. Miami showcased this perfectly with several catalytic mixed-use projects including Miami Worldcenter, American Dream Miami and Brickell City Centre, which combine a curated mix of retail along with residential units, hotel rooms and public-transportation access. Stores aren’t going away – they’re just being put in better locations.

A second trend, underscoring the first, is the pending shift in retail rental rates. With rents on Miami’s Lincoln Road reaching $330 per rentable square foot net, conference pundits believe we’re closely approaching a time when retailers are going to push back by saying that rental rates are too high – and decrease their store footprints in order to survive.

The third key trend discussed at the NextGen conference is a paradigm shift, already in effect, from Internet back to in-store sales. Part of this shift is due to retailers’ omni-channel strategies and the ability of some to companies to think outside of the box. Examples range from Warby Parker to Bonobos and the new Scan-It-Yourself concept at Walmart. Starting with the high school class of 2010, the shift has begun from Internet back to in-store retail sales. At this point, only 13% of total retail purchases (excluding grocery purchases) are made online, with the typical U.S. family spending an average of $1,710 in store compared to $247 on line.

The truth is: We’re an experiential generation as well as the first truly online one, and that bodes well for both bricks-and-mortar retailing and our career aspirations.

Saturday, June 27, 2015

NCREIF Summer Conference - Perceptions and Prognostications

by Erik Foster (Chicago)

I was asked to speak last week at the National Council of Real Estate Investment Fiduciaries (NCREIF) Summer Conference and discuss the current state of the US Capital Markets.  NCREIF is an association of real estate professionals who are involved with institutional real estate investments; the audience members were pension funds, fund managers, various fiduciaries, consultants, insurance companies and appraisers.  

The tone of the conference was optimistic, yet there was an air of frustration as many have a difficult time investing funds in today’s market given the peak pricing and dearth of offerings which appears to be the norm across the country.  I focused my comments on office, industrial and medical office property segments, below are the main trends that I spoke to:

·       Office-oriented employment is accelerating and is expected to rise through 2015
·       Office vacancy has decreased year over year over the past three years in many of the major markets such as Chicago, Atlanta, Dallas and San Francisco.  Washington DC’s vacancy is moving the other way, since 2012 its vacancy has increased and now stands at 16.3%, and New York appears to be moving in a positive direction with vacancy at 8.7%, an improvement from last year, but still not down to the 2012 levels.
·       Office construction is moderate with many major markets such as Chicago, New York, Washington DC and Boston keeping their development in-check.  Yet some markets are building at a quick pace as compared to overall stock, Houston 4.5%, San Jose 3.4% and San Francisco 3.3%.
·       Medical office will continue to be a solid investment in the coming years.  The overall vacancy will continue to trend below 10% which was the peak in 2008 as the US population ages and hospital visits increase.

·       Demand for industrial assets remains steady and sales volume should reach close to the 2007 peak of $62 billion by the end of 2015.
·       Several markets still remain below the peak pricing seen in 2007, including several in California – San Jose, San Francisco, San Diego, Sacramento, and Orange County. Among the markets that are performing above peak pricing are Los Angeles, Austin, Houston, Northern New Jersey, and Indianapolis.
·       Buyers of core buildings are bidding these assets into record levels as institutional buyers push into record pricing in the major distribution markets.

NCREIF asked to make some predictions of what we’re expecting as we move into the second half of the year.  I noted that sale-leasebacks will continue to grow in popularity as many companies take advantage of the aggressive market pricing.  Also, as companies are constrained by their internal lines of credit given the new regulatory environment that we live in post-recession, many are choosing to liquidate assets in order to fund growth of their businesses.  I also believe that overall deal volume will be similar to 2014, yet major platform, and company, deals will be prevalent.

Friday, June 12, 2015

A Tour of the Port of Long Beach - It Is Massive!

by Erik Foster (Chicago)

The organizers of this week’s NAIOP’s I.Con ’15 Industrial Conference guided approximately 200 participants on a two hour boat tour of the enormous expanse of waterway known as the Port of Long Beach. This is one of the world’s busiest seaports, a leading gateway between the U.S. and Asia, and a vital part of our national distribution chain.

Despite setbacks from the recent labor issues, the port is holding its own and can expect positive momentum in the next few years.  Combined with the Port of Los Angeles, it is the busiest cargo port in the United States, and combined they rank 9th in the world in total container volume.

Key points of interest from our tour include:

  • The Port handles more than 6.8 million 20-foot container units (TEUs) each year, with cargo valued at $180 billion
  • The Port supports more than 30,000 jobs in Long Beach, 316,000 throughout Southern California and 1.4 million throughout the U.S.
  • 82.3 million metric tons of cargo passes through the Port each year, with 2,000 vessel calls
  • The Port comprises 3,000 acres of land and 4,600 acres of water, with 10 piers and 80 berths
  • The Port has 22 shipping terminals and 66 post-Panamax gantry cranes
  • It is massive!
The Port of Long Beach is implementing a multi-faceted energy efficiency and sustainability plan to help enhance the ecology, preserve natural resources, and reduce negative impact on the environment. This plan is being rolled out throughout the design and construction of the facility, as well as with operations and administrative practices. There is plenty of good news in this approach, as it carries through to clean trucks, green shipping initiatives, and shore power. The Port also is outfitting its container terminals with shore power to allow docked ships to plug into the land-based electricity instead of burning diesel fuel.

Given the dominance of the Asian import market, the California ports will continue to provide important access points for cargo. The boat tour provided a fascinating view of the overall scale and impact of the Port of Long Beach and of the Port of Los Angeles. We expect to see continued positive movement in this distribution sector over the next several years, which will positively impact the rest of the country’s logistics networks in the very near future.

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