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Tuesday, December 18, 2018

Influential Trends Shape Commercial Real Estate in Houston during 2018


By Rand Stephens (Houston)

Houston has made the year of 2018 as the year of resilience, opportunity, and growth. After more than 12 months following Harvey, major economic drivers such as energy, the Texas Medical Center and NASA remain steady and strong. Houston’s population is surging as people from all over the country (Houston ranks No. 2 in the nation for largest number of new residents – 94,417 as stated by most recent Census estimates.), and the world, are flocking to H-town, where housing prices are affordable, and jobs are aplenty. According to data from Greater Houston Partnership, 117,800 new jobs were added to the Houston metro area this year. Several contributing factors deserve to be recognized for making 2018 a great year for Houston’s commercial real estate market.

Oil & Gas continues to make a comeback

Houston, indeed, has a diverse economy, but let’s be honest, the success (or failure) of the oil and gas industry has a ripple effect on nearly every business sector in the greater metro area. In the commercial real estate sector, the energy industry has the biggest effect on the office market. With stability in the energy industry, 2018 was a positive year for the office sector. However, there is still a considerable hangover of available space that will take some time to burn-off, but 2018 finally saw an improvement in the overall office market after a three-year decline. There was also increased offshore energy exploration this year, which really generates jobs that fill office buildings. However, for a full recovery in the office market, particularly in Houston’s Energy Corridor, there needs to be more robust revitalization in offshore exploration.

Flight-to-Quality Soars

This was a year that many firms and companies made the move from older heritage buildings to newer modern buildings. Tenants increased their demand for higher quality spaces with amenity-rich work environments. This flight to quality is happening despite the highest vacancy rate in 20 years. People are scratching their heads as to why companies are choosing to locate to new class A+ buildings that are charging rents often double the cost of older generation class A buildings. The reason is that Class A+ buildings are much more efficient and allow companies space layouts using up to 50% less space per employee. So, tenants can upgrade at the same cost per employee. This is a positive trend for Class A+ development as evidenced by Hines’ announcement of their new downtown building on Texas Avenue. Flight to quality ignited a spark that increased momentum for Class A office space in 2018.

Industrial Strength

The industrial market is the strongest commercial real estate sector in Houston. E-commerce suppliers spent most of 2018 meeting the expectations of their growing consumer base which resulted in an increase of leasing activity. For example, big box retailers such as Best Buy and Conn’s HomePlus both expanded their space to satisfy increased customer demand. Port Houston also contributed to the industrial sector’s stronghold, as a boost of petrochemical activity occurred in the southeast. The fundamentals of Houston’s industrial market had a solid year and are consistent with the performance of the market nationally.

The year of 2018 did not bring the commercial real estate industry any major surprises. As expected, the energy industry bottomed out with a healthy recovery, our local economy is strong and Houston’s commercial real estate sectors are doing well. What can we expect next year? Forecast and predictions for 2019 will be revealed in January’s blog.

(Rand Stephens is a Principal of Avison Young and Managing Director of the company’s Houston office.)

Monday, December 17, 2018

Two Easy Things to Do Over the Holidays to Boost your Health (and help fight climate change)


By Amy Erixon, Toronto


         Donate your extra food.

2   Eat more fruits and vegetables. 

Doing these two things will not only make you feel great, but surprisingly, these are the most accessible and effective methods to reduce your personal carbon footprint and greenhouse gas emissions.   No kidding.  Your mom was right.  We can all do this. 

I used to listen to carols while trimming the tree, but in recent years, my multi-task activity of choice is searching the internet for inspirational podcasts, videos and courseware to learn how I can do more to move the needle on the issues that matter most to me.  Importantly, I nearly always discover something easy to share to help make the world a better, healthier, more equitable place. 

In a recent TED talk by Chad Frischmann, drawing from the NY times bestselling book he wrote with Paul Hawken entitled “Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming”, he outlines the top 20 steps, from the 100 most substantive solutions available to us today or in the near-term future.  Surprisingly, in the top 20 only 5 relate to energy, while 8 relate to the food system, including the 3rd and 4th most impactful, which are easy to do, save money, and don’t disrupt any jobs. 


In case you doubt whether such straightforward steps can really make a difference, the chart on the left shows the top 20 ways to reduce CO2 emissions over the period from 2020 to 2050, compared to a 2014 baseline.  The unit of measure is gigatons.  For reference, globally we are currently emitting 40 gigatons of CO2 annually, of which 25% is being absorbed by our oceans, leading to dangerous ocean acidification.  These 20 steps have the potential to reduce emissions by 740.83 gigatons, which represents 18 years worth of annual emissions over the next 30 years.  Just reducing food waste and eating more plants has the potential to eliminate emissions by more than 10% (136.64 gigatons, or just under 3.5 years).   This does not require becoming a vegetarian, rather the model assumes reduction in growth of meat consumption by 50% over the period.  For information about the methodology underlying the food recommendations, go to www.drawdown.org/solutions/food/plant-rich-diet.


Experts estimate that up to 35% of food in high-income countries is disposed of as waste.   Lower income countries cannot contribute much to this dimension.  Again, the drawdown methodology assumes that half of the increase in food waste is eliminated or composted (which reduces by 70% the harmful environmental impact, and delivers numerous additional benefits, including enriching soil, increasing crop productivity and stabilizing runoff, diminishing the harmful effects of torrential storms).   My community (Mississauga) has a both a comprehensive recycling and food and yard waste compositing program.  Based on personal experience, participating in those programs has made me far more aware of my consumption (and waste) profile.  In order to drive composting and reduce Great Lake algae blooms and other harmful ecological effects, new in-sink garbage disposals have been banned.   While this was an abrupt behavior change at first, after about one or two weeks, composting habits became a no-brainer.   If this solution set appeals to you, and your community has not commenced a composting program, the EPA has a handy on-line how-to guide complete with a directory of local resources to get started. 

In the spirit of giving during the Holidays, I wish you all health and happiness.

 The entire talk, and introduction to the Drawdown Project can be accessed at: www.ted.com/chad_frischmann_100_solutions_to_climate_change#t-208954. 

Wednesday, December 12, 2018

CRE executives see their future roles as more strategic, data-driven

By Brian Bellew (Chicago)

Global real estate executives gather for Avison Young’s inaugural North American CRE Forum.

Commercial real estate (CRE) executives believe their roles will change dramatically in the future.

Executives who attended Avison Young’s inaugural North American CRE Forum expect their roles to become increasingly strategic and financially focused.  Specifically, they predict that more analytically focused skills will increase in importance relative to some traditional property-related abilities.

According to a survey of forum participants, more than 90% of CRE executives also believe that data analysis will be the key skill sought when they are recruiting for their teams, while 72% predict that business planning and reporting expertise will be crucial for future job performance. Overall, the CRE leaders who attended the forum believe that being able to use data intelligently will be positive for CRE staff compensation.

More than 80% of forum participants expect that new technologies will reduce their teams’ workflows, allowing professionals to focus more on cross-functional collaboration as well as operational/predictive analysis that will increase the agility of their businesses. Lastly, these leaders predict that maximizing, and investing in, emerging technologies will become a shared responsibility between property owners and tenants.

The forum, held November 8 in Rosemont, IL, included executives from across a wide range of industries, including energy, financial services, healthcare and telecommunications.

Two industry experts, Amy Erixon, a Principal of Avison Young and Managing Director of Investment Management; and technology consultant Frank Adelman discussed the impact of emerging technologies on corporate real estate. The CRE Forum also included a panel discussion and roundtable dialogues/reports from the assembled group of more than 30 professionals.

For more information regarding the North American CRE Forum, please contact Brian Bellew at brian.bellew@avisonyoung.com.

(Brian Bellew is a Principal of Avison Young and the firm’s Managing Director of Enterprise Solutions. He is based in Chicago.)

Tuesday, November 20, 2018

Baby Boomers and Millennials Fueling Multifamily Sector

By Rand Stephens (Houston)

Although baby boomers and millennials are in opposite phases of their lives, they share a common desire – to reside in a care-free, amenity-rich condo/apartment environment. In fact, these two generations may be the driving force of multifamily development around the country. As one generation looks to settle into their glory years of retirement, another looks to kick off their adulthood of career and family – and both are seeking the conveniences and concierge services of apartment-living.

Freddie Mac recently released a survey, “Profile of Today’s Renter” that revealed results that bode well for the multifamily sector.  All generations of renters believe renting is more affordable than homeownership, more than 5 million baby boomers are likely to rent instead of buy their next home and more than 60% are not only satisfied with their rental experience, but plan to continue renting their next residence.

Prior to Hurricane Harvey, Houston’s apartment market had a tremendous amount of inventory due to the overbuilding boom of 2015 and 2016. During that period, developers added 41,600 units when the area was suffering job losses. Relocations due to Hurricane Harvey flooding were able to absorb the surplus and a year after the Harvey bump, units are still full and the market has stabilized.

Courtesy of Astoria
Millennials may be the largest living generation according to Pew Research, but baby boomers have the upper hand when it comes to purchasing power and they tend to stay in one place longer than any other demographic. Millennials have exceeded baby boomers in Houston and are quickly filling up trendy apartments such as Modera Shepard, The Pearl Washington and Elan Heights.  Expensive condos like Arabella and Astoria in the River Oaks area are more appealing to baby boomers with more disposable income than the younger generation.

With Houston’s robust economy, population growth, high employment rate and target demographic ready to move into turnkey hi-rises and luxury apartments, why haven’t developers ramped up activity? Project development costs continue to escalate and many prime locations are not viable due to affordability of rents. Construction lenders are also cautionary.  They do not want to see oversaturation of the market and have a repeat of 2015-16. Continued rental rate growth is the key for new development but what the market can afford is the key question.

Saturday, November 17, 2018

Avison Young to acquire U.K.-based GVA in transformational deal


by Mark E. Rose (Toronto)

Avison Young was thrilled to announce last week that we have entered into a definitive agreement to acquire U.K.-based GVA in a transformational deal that will reposition Avison Young on the global commercial real estate services stage. (The transaction is expected to close in Q1 2019.)

This is a game-changing event that underpins our ambition and intent to significantly expand our footprint in Europe and beyond, and we are thrilled to welcome GVA to Avison Young.

GVA is a multi-disciplinary business working with occupiers and owners covering transactions (leasing and sales), property management, project and construction management, and consultancy, as well as planning, development and ratings. GVA covers all major property types and has 15 offices in all major U.K. markets as well as a presence in Ireland and Poland. GVA is also a founding member of GVA Worldwide Ltd., an international organization of licensed affiliate commercial real estate companies with offices across 25 countries. Including GVA Worldwide, our combined operations will have 5,000-plus professionals in more than 120 offices across 25 countries.

This acquisition adds gravitas, weight, coverage and profile to our international operations as we continue to solidify our global platform while preserving our culture as a Principal-led company. Avison Young’s U.K. business will now be a genuine challenger brand firmly established among the top commercial real estate advisors in the U.K., North America and the world. 

You can read the press release here:

The acquisition will establish our Canadian-based company as the only privately held, Principal-led, global, full-service commercial real estate services firm. More than 5,000 Avison Young professionals and affiliates – aligned with our clients – will now be delivering the next generation of solutions through our innovative, non-siloed and collaborative platform and approach.

We are excited by the international collaboration potential and the opportunity to continue to build our unique partnership model. Joining forces with GVA will provide us with a greater level of scale and capabilities to service our clients globally, and to fuel Avison Young’s continued aggressive growth.

This transaction is a monumental achievement for a company that embarked on a global growth strategy just 10 years ago. Even more significant, the fact that a company of GVA’s prominence and reputation is joining forces with our vision and strategy is a testament to the power of our culture.

Having just spent time with GVA CEO Gerry Hughes, his management team and staff, along with Avison Young’s U.K. leader Jason Sibthorpe, in London, there is an energy and an uncommon sense of partnership at these early stages. We look forward to working with new Principals and Avison Young family members.

As always, we thank our clients, partners and employees for their continued support.


(Mark E. Rose is Chair and CEO of Avison Young)

Tuesday, October 16, 2018

Autonomous Vehicles on the Fast Track

By Rand Stephens (Houston)

In April, I discussed the oncoming tidal wave of autonomous vehicle technology and its impact on traditional mass transit systems. I made the case for municipalities to embrace the innovations being made in transportation rather than continuing to invest in traditional mass transit infrastructure. It is increasingly apparent that these transit systems will become obsolete as autonomous vehicle options develop into viable alternatives.

Photo:GM
Fast-forward six months to October. GM has requested regulatory permission for as early as 2019, to deploy vehicles without manual controls such as steering wheels and pedals and Honda recently announced its $2.75 billion investment into GM’s self-driving vehicle startup, Cruise. The 12-year deal includes an immediate $750 million and another $2 billion for development and deployment as agreed upon by GM and Honda. Another major collaboration on self-driving cars is Toyota and Uber. Toyota will invest $500 million in Uber Technologies for the launch of Uber’s ride-hailing network in 2021.

Do you think the driverless wave will become reality in just a few short months? Years? Or, are we still decades away? Let us know what you think in the survey below, we'll post the results on the November blog.



Click here if the embedded survey isn't working.

(Rand Stephens is a Principal of Avison Young and Managing Director of the company’s Houston office.)

Friday, October 5, 2018

Tenants: Don’t lose your rights – seek professional advice before it’s too late

By Louise McElarney (London)

It’s so simple. As a tenant, you have rights. Know these rights and exercise them – because not doing so could cost you dearly.

At Avison Young, we advise on both sides of the coin – for landlords and for tenants - and will always seek the best deal possible for our client in each case.

The U.K. lease advisory team at Avison Young, which operates nationally, recently acted for a landlord client on a lease renewal in the Midlands. As the tenant failed to serve a formal notice – in order to protect the tenant’s right to a new lease when the original lease expired – the landlord was able to secure a new tenancy agreement and, therefore, pocket an extra £250,000 over the length of the lease. Of course, that meant the tenant in question was now out of pocket to that tune.

The tenant lost its negotiating position through not exercising its right to a new lease. If the tenant no longer wanted to occupy the premises, that would have been absolutely fine. However, the tenant was over a barrel, so to speak. It was crucial for the tenant to stay put. As a furnishing company using a large warehouse, it did not want to leave. Therefore, when the landlord raised the rent, the tenant had no choice but to accept the terms. If the tenant had planned early and exercised its right to a new lease and sought professional advice, it could have negotiated a better deal.

Property costs are still the largest outlay for businesses after staff costs. Taking on or dismissing a staff member is a decision not taken lightly, and this should always be the case for your property requirements. It is advisable to diarise important dates in a lease contract and seek guidance early from a professional who can advise on the rights of both the landlord and tenant to avoid sticky situations – and ultimately, improve your firm’s bottom line.

(Louise McElarney is Director, Lease Advisory in Avison Young’s London West End office, specializing in landlord and tenant representation in the industrial/logistics sector.)

Thursday, October 4, 2018

Investors seek opportunities to deploy capital outside their traditional parameters


By Mark E. Rose (Toronto)

Capital continues to flow into global commercial real estate markets, inhibited only by the scarcity of available product for sale. 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.

These are some of the key trends noted in Avison Young’s Fall 2018 North America and Europe Commercial Real Estate Investment Review:
https://avisonyoung.uberflip.com/i/1034498-ayfall18namericaeuropeinvestmentreviewoct3-18final The report covers commercial real estate investment conditions in 59 markets in six countries on two continents.

Public and private capital continue to target commercial real estate assets around the globe, pushing asset values higher and making it more difficult for investors to find rewarding opportunities – leading to more joint-venture, value-add and redevelopment opportunities. Investment capital flowing into the sector is buoyed by sound property leasing fundamentals with good demand; and with some exceptions, supply is still relatively constrained.”

With prime assets delivering slim returns, there’s a real quest for consistent growth across countries and asset types. All of these dynamics are occurring against a backdrop of ongoing geopolitical concerns, including the negotiations leading up to the new trade agreement between the U.S., Mexico and Canada, trade-war tensions in Asia-Pacific and Brexit in the U.K., not to mention the prospect of higher long-term interest rates and the impact on asset pricing – all of which continue to weigh on the minds of investors.

According to the report, even while the U.S. was in the process of negotiating a new trade agreement with Mexico and Canada, cross-border investment into the commercial real estate sector continued to flow, especially from Canada to the U.S. Mexico’s stable and healthy macroeconomic fundamentals have made the country a well-regarded destination for global investment capital and one of the most open economies for international trade and investment.

Across the Atlantic, London’s commercial real estate market has continued to show remarkable resilience in the face of stiff headwinds – enduring significant political and economic uncertainty caused by the EU referendum result, the shock result of the snap U.K. election and growing tensions between the U.S. and China, which have raised fears of a trade war that could have global economic impacts.

Across Germany’s five major markets, office assets once again attracted the most capital as already tight capitalization rates continued to compress. Frankfurt posted the country’s largest single transaction of the first half, while in Berlin, alternative asset types gained popularity with investors. In Romania, the capital city of Bucharest remains in top position with positive fundamentals and improving liquidity, and still offers favourable returns compared with other countries in the region.

While concerns over rising interest rates and their impact on values remain, we don’t expect to see a material decline in investor appetite during the second half of 2018.

(Mark E. Rose is Chair and CEO of Avison Young)

The postings on this site are those of the bloggers and do not necessarily represent the views or opinions of Avison Young.