Search this blog:
Follow Avison Young:

Tuesday, July 10, 2018

The Last Mile May Be Taking a Vertical Leap

By Rand Stephens (Houston)
The growth of e-commerce over the last ten years has exploded.  In 2008, less than 4% of national retail sales came from online ordering.  Today, the Census Bureau of the Department of Commerce reports nearly 10% of total retail sales is from e-commerce.  The first quarter 2018 e-commerce increased more than 16% from last year’s first quarter and there are no signs of slowing down as online giants like Amazon, Walmart and Target continue to thrive.  We are a click or a swipe away from ordering products and having them delivered within 24 hours, or in some cases, within two to four hours.  With consumer demand for instantaneous delivery on the rise and with people willing to pay more for the convenience, how will that impact last-mile distribution facilities?

Most industrial real estate is concentrated in distribution centers around heavily populated major metropolitan areas such as Atlanta, Chicago, Houston, New York City and Dallas.  E-commerce is primarily driven by a specific demographic of those populations – millennials.  Millennials have grown up in a world of instant gratification.  And now that they have aged and are earning a living, they can sit on their sofa, download a movie of their choice in a matter of seconds, while shopping for the latest fashion trends or groceries and have them in hand the next day.  Getting goods to this growing consumer base in the shortest amount of time is the challenge that supply chain logistics and the industrial market are now facing.

Georgetown Crossroads multi-level warehouse in south
Seattle opens later this year - Courtesy of Prologis
Land proximity to urban centers is limited and costly, but companies must get closer to their consumer base to ensure customer satisfaction and stay competitive.  Thinking outside the big-box warehouse model, Prologis developed an innovative solution – make it vertical. The 580,000-square-foot, three-level, first of its kind warehouse in the United States is set to open later this year just outside downtown Seattle. It will have ramps for truck access to second-floor loading docks and a freight elevator that will connect the third floor to ground floor loading docks.

Multistory warehouses are a new concept in the U.S, but they are common in Asia, Australia, Singapore and Japan.  Will this be a trend that we see more of in industrial markets across the country as delivery lead times are reduced to satisfy the “must have it now” economy?  Companies are already exploring tight urban spaces such as New York City and the San Francisco Bay Area for possible multistory warehouses.  However, the cost for these types of facilities comes at a high price – rental rates for the Prologis warehouse are as much as 50% higher than standard warehouse rates.

This may or may not be a trend coming to Houston any time soon.  However, the city currently has 20 warehouse buildings in the downtown area, with only one 15,000-square-foot space available, according to our research.  Last mile logistics and the innovative impact it will have on distribution warehouses will be interesting to watch over the near future.

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

Wednesday, July 4, 2018

North America is Falling Behind

by Amy Erixon, Toronto

“There is no time to lose”
Pope Francis, “Energy Transition and Care of Our Common Home”. 

The week of June 3, 2018 was a potential bell-weather for climate education, featuring a 2-day climate action summit at the Vatican - attended by glitterati including leading global oil executives and decision makers from the world’s largest investment houses, and a concurrent North American event: the Canadian and World GBC’s joint conference on climate action held in Toronto, Canada.  Despite the record attendance at both events, and carefully researched and professionally delivered presentations from academic, political and business leaders, the week was also punctuated with the election in Ontario of a Premier committed to fighting Canadian climate action and the Trump team repudiating the G-7 joint statement (including climate action) in Quebec.   

North America appears to be politically mired somewhere between confusion and denial, but the rest of the world has moved on from debating the compelling economic, employment and environmental benefits of clean energy and is moving quickly into the post-carbon world.  This includes the leading oil and gas economies, such as Saudi Arabia, Venezuela and Iran.  

Leading corporations around the world, from tech companies such as Apple and Microsoft to traditional companies such as Kellogg's, General Motors, Walmart and JP Morgan are already net zero for operations.  These business leaders will tell you they are motivated less by altruism and attracting millennials (which are reasons sometimes cited for “going green”) than by compelling market economics, and downside risk mitigation.  Renewable energy and battery technology have been riding Moore’s Law, getting much cheaper and more efficient every day, (improving 70% on both dimensions in just the past 4 years) and at utility scale, (unsubsidized) now represent the cheapest, and generally the most local, source of power - everywhere. Corporate CEOs say that being energy self-sufficient is a good way to insulate their firms from the (more than academic) risks of divisive politics making an even worse mess of national energy policy.   

Political upsets in many places are aggravating an already difficult long term planning process in which the inputs and circumstances are changing very rapidly.   This disconnect between government and business leadership seems reflect the fact business is better equipped to incorporate technological change in modeling and adapting to technology upgrades and changing economic realities.   

A few highlights from the Toronto conference included the plenary session I moderated, where Mark C. Jacobson, professor of civil and environmental engineering at Stanford, and Director of its Atmosphere/Energy Program delivered a carefully researched and detailed roadmap based on existing technology and cost structures for immediate transitioning of the entire world to 100% renewable energy with battery backup.  This transition would result in: 1) lower overall electricity costs, 2) net increase of 24 million jobs worldwide (net of lost carbon-based fuel employment), while 3) guaranteeing seasonal and peak grid stability, and 4) lowering costly, unfunded health related hazards associated with carbon based fuels.  You can find his research here:; and at

A second speaker, Piers McNaughton, Associate Director of the Healthy Buildings Program at the Harvard T.H. Chan School of Public Health, provided an academic and inspiring look at the longitudinal research into the role of high performance buildings in supporting human health, wellness, productivity and “presentism”.  These findings are remarkable, with as much as 78% lower absenteeism, 46% reduction in allergy symptoms and headaches, 70% improvement in worker satisfaction and 56% higher worker productivity tied to improved acoustic, light, comfort and ventilation generally associated with “green” buildings.  His research is available on the T.H. Chan School website.   In Europe health factors inform parts of the zoning code.  In North America, business is leading the way to secure more healthy, happy workers via leasing and building properties providing high levels of environmental performance. 

The job of managing governmental decision making would made be easier if carbon pricing transparently incorporated the cost of treating ill health effects and environmental damage of burning fossil fuels (which today functions as a hidden subsidy to industry).   More people would feel comfortable converting to renewable power if they realized 1) it is less expensive, 2) battery technology has improved dramatically, and 3) used batteries no longer head to landfills, but instead can be used to power city lights and schools which have lower voltage requirements.   More education around the causes and solutions to the ill health effects is badly needed.

With the promulgation of data about the state of technological innovation and cost of renewables, together with health and wellness benefits and new job creation, taking bold climate action shouldn’t be so difficult.   How best can we deliver this information over the clanging denials of certain current populist leaders?  After all, there is no time to lose. 

Tuesday, June 19, 2018

Office Market on the Upstream

By Rand Stephens (Houston)

While the industrial market is thriving in Houston, the office market is moving at a slower pace. For eight of the last nine quarters, there has been negative direct net absorption. The direct vacancy rate is at an all-time high of 16.2% for the first quarter of 2018, and the combined direct and sublease availability rate is at 22.4%. Meanwhile, the industrial market has remained below a 5% vacancy rate and the momentum fueled by distribution centers and robust activity around the Port of Houston continues.  Oil prices are above $65 a barrel and the unemployment rate in the Houston Metro Area is down from 5.4% in 2017, to 4.2% today.  So, why the lopsided recovery among the industrial and office sectors?

The answer is energy efficiency – and not the kind that reduces your light bill. The energy industry is becoming more efficient and shrinking their office footprint by doing more business with less people, thus, easing the need for office space. Houston’s biggest oil and gas companies have scaled back and consolidated their office spaces as they cautiously emerge from the downturn. The average-sized deal has decreased by roughly 10,000 square feet and although more deals are being made, they are smaller in size.

Traditionally, when the oil industry is flourishing, it has a ripple effect throughout the Houston economy, including commercial real estate. And, most economic sectors have seen an improvement. However, it’s going to take more than just an increase in oil prices to have a positive impact on energy jobs and office space.  The office market, particularly along the Energy Corridor, is shaped by the upstream industry.  Drilling in the Gulf of Mexico and other deep waters has decelerated considerably since 2010, but the administration is offering lower royalty rates for offshore activities and larger tracts for bidding in an effort to revitalize exploration and production.  Office activity is likely to see a boost as more offshore projects are launched.

Shell's Appomattox platform in the Gulf of Mexico
It is encouraging to see major energy companies such as Royal Dutch Shell, BP and Exxon Mobil announce exploration projects in the Gulf and the Mediterranean.  Shell recently completed and launched their new deepwater Appomattox  platform in the Gulf and also discovered the Dover well about 13 miles from the Appomattox. That’s Shell’s sixth discovery in the Norphlet region of the Gulf. BP is also working on the Mad Dog Phase 2 platform, which is expected to produce first oil by 2021. 

The anemic upstream activity of recent years did not bode well for the office market, but these projects indicate that there is light at the end of the tunnel.  The office market will stabilize as opportunities for job creation and added space by the energy industry increase. It’s going to take some time, but it’s headed in the right direction.

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

Monday, May 21, 2018

Making the Connection

By Rand Stephens (Houston)

The economy in Houston is looking strong.  Unemployment is down. The energy sector is bouncing back and 
Memorial Park Connector - Land Bridge
the city is close to full recovery from Hurricane Harvey. And now, Houston is about to get a little greener, thanks to Rich and Nancy Kinder, the Houston Parks and Recreation Department, the Memorial Park Conservancy and the Uptown Development Authority. Recently, the Kinders, via the Kinder Foundation, pledged an historic
$70 million to the Memorial Park Conservancy for improving the 1,500 acre urban park – the largest in the nation and double the size of New York’s Central Park.  This collaborative effort will have a long-lasting impact on the community and visitors for generations to come.  Connecting public and private resources and partnerships produce innovative results.

Established in the 1920s, Memorial Park is the only former WWI training camp in the country that has not been completely developed. With more than 4 million visitors a year enjoying its running and bike trails, and sports facilities for volleyball, baseball, swimming and golf, it makes sense to invest in a plan that will connect neighborhoods to neighborhoods, link the park to Houston’s expanding hike-and-bike networks and provide access points to the hundreds of acres of inaccessible land.  Although not part of the plan, connecting Memorial Park to Buffalo Bayou Park would mean approximately six miles of park trails extending from downtown Houston to uptown Houston – a bold concept to make this city an even better place to live, work and play.
Houston leads the nation in implementing public-private partnerships to improve and care for public assets.  Each member in this alliance is to be commended for transforming their vision into reality.  Having the foresight to include Memorial Park to the Uptown Houston Tax Increment Reinvestment Zone (TIRZ) was critical to making this plan happen.  [Unique to Texas, the state tax code allows a county or municipality to designate a geographic area a TIRZ to promote development or redevelopment of the area.Connecting group resources of government, non-profits and private philanthropy is no easy feat, but Houston emerges as a shining star for this collaboration which, will have a lasting positive impact on the community for generations to come.

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

Thursday, May 17, 2018

Sound fundamentals, e-commerce and innovation drive rapidly evolving North American and European industrial sectors

by Mark E. Rose (Toronto)

Sound fundamentals, the logistics requirements of e-commerce, and innovations in building design and utilization continue to drive the rapid evolution of the industrial property sector across North America and Europe. An under-supply of available space remains a central issue in most markets, and developers have responded with notable new construction to anticipate occupiers’ growing needs. Major online players are altering the supply chain, and new technologies and innovations are determining how, where and what type of industrial product is being built. Meanwhile, the needs of big data and the cannabis industry (in some markets) are adding to an already crowded playing field. Unknown factors potentially impacting the sector – and the global economy in general – include geopolitical changes such as the renegotiation of NAFTA and the U.K.’s exit from the European Union.

These are some of the key trends noted in Avison Young’s Spring 2018 North America and Europe Industrial Market Report, which covers the industrial markets in 59 North American and European metropolitan regions:

The push to find cost-effective solutions for same-day or next-day delivery to consumers is continuously challenging the retail sector – and, by association, the industrial sector, which frankly are becoming more intermingled than ever before. Although e-commerce sales make up only a small, but rapidly growing, fraction of overall retail sales, stakeholders looking to service the retail sector are thinking long-term. Strong demand is reflected in declining vacancy rates which, by the way, are at or approaching historic lows in many markets and countries, leading to rising rental rates for industrial space. This situation has increased asset values – a fact that has made industrial assets hot commodities among investors and users as well as occupiers.

Confidence in the long-term viability of the industrial sector and e-commerce has recently been demonstrated not only by the sheer leasing velocity and demand for space, but also by some notable M&A activity, such as the all-cash transaction valued at C$3.8 billion, including debt, between Blackstone and PIRET earlier this year in Canada, as well as a recently announced merger agreement in which Prologis will acquire DCT and its 71 million square feet (msf) of real estate in a US$8.4-billion stock transaction, including the assumption of debt, in the U.S.

According to the report, of the 59 industrial markets surveyed by Avison Young across North America and Europe, vacancy declined in 38 markets, remained unchanged in three, and increased in 18 during the 12-month period ending March 31, 2018.

The analysis also revealed that, with demand in most markets outpacing new supply, the development of new product has escalated. Nearly 235 msf was completed across all markets surveyed by Avison Young in the 12 months ending with the first quarter of 2018 – an increase of more than 5 msf compared with the prior 12-month period. Meanwhile, the amount of space under construction increased more sharply, jumping more than 13 msf year-over-year to nearly 234 msf.

(Mark 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.