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Wednesday, January 27, 2016

Current mix of five generations in workplace poses challenges and opportunities

By Jim Becker (Detroit)

The current mix of generations in the workplace is unprecedented and will pose both challenges and opportunities within the workplace. Critical to the commercial real estate decision process will be a clear understanding of the generational differences, including, but not limited to, the approach to work, collaboration, communication, privacy, mentoring and productivity.

Avison Young released this week its perspective on the impact that the multi-generational workforce will have on corporate real estate leaders in the coming years.
The underlying theme of our comprehensive evaluation is that every company and culture will be different and the general inclusion in any specific solutions will be "it depends". At a minimum, our evaluation provides a useful overview of the generational characteristics of the Millennials, Generation X, Generation Y, Baby Boomer and quickly approaching Generation Z workforce, along with a logical checklist to assess exactly how your strategy needs to adapt.

We hope you enjoy the collective work of our Avison Young Global Enterprise Solutions team, which includes Andy Hammond, Graham Halkyard, Rodney McDonald and Starr Argyrakis.

Sunday, January 24, 2016

Mixed year ahead for Retail in Canada

by Amy Erixon, Toronto

On this eve of the industry's annual pilgrimage to Whistler for ICSC, many are wondering about the resilience of Canadian retail environment.  Against a potentially foreboding mix of key indicators, such as the  falling currency, rising taxes, job losses due to the commodities rout and fallout from retreat of Target, a new wave of competition is arriving - notably Sak's 5th Avenue and Nordstrom among others.  Canadian superstar retailers, such as  American Apparel and Lululemon have encountered organizational difficulties, often from their founders, but retain strong customer appeal.  Behemoths the likes of Loblaws, Chapters Indigo and Canadian Tire are reinvesting billions in their platforms to modernize stores and launch e-commerce platforms to keep pace with global trends.     

The fact is, retail has been among the highest performing real estate sectors in Canada for many years.  While it is possible that portends slower times ahead, many believe Canada may still be under-stored, with 15.35 square feet of retail space per capita vs. 23.66 square feet per person in the US.   One year following Target's embarrassing departure from the Canadian landscape, only a few of the stores left behind remain unleased.   A variety of big box retailers stepped up to backfill the space.  Retail sales year over year are increasing, albeit slowly, and productivity remains far about comparable levels in the US with an average retail sales volume for enclosed malls  of $655per square foot vs. $474 per square foot in the US (all figures for year end 2014 from ICSC), up 1.7% from a year prior. 

 The retail environment, however is becoming a lot more like its US counterpart, with strength at the extremes.   Discounters and high end destinations are growing whilst smaller centers and more marginal locations bear the brunt of the fallout.  The most competitive sector in recent years has been groceries.  There are now over 1200 Dollar stores in Canada, which along with yoga studios, seem to have been the primary strip center tenants backfilling spaces left vacant by the move by the grocers in recent years to repatriate activities (ranging from prescriptions to prepared food) into the store and out of the strip. 

Top Canadian retailers have room to adjust and have begun doing so.  Two years ago I published a blog about Canadian grocery wars which certainly came to pass.   Loblaws has since launched a REIT to own its stores and invested $1.2 billion in store upgrades in 2015 alone.   Remarkably, they have started a push to reduce operating costs through installation of rooftop solar, copying US competitor Walmart, who expanded by 29 additional supercenters in Canada just last year.  The good news is most of Canada's major tenancies and large footprint retail centers are in very strong hands.  Ownership is dominated by very few large REITs and mega Pension Funds who have the deep pockets required to invest as required in modernization of the properties to keep them competitive. 

So while the glory days for retail properties may be coming to a close it is too soon to cast doubt on the sector's ability to withstand a downturn. 

Avison Young 2016 Forecast: Uncertainty may spell opportunity

By Mark Rose (Toronto)

As the books close on 2015, which was another strong year, 2016 opens differently – with some uncertainty and unresolved questions that could impact the way owners and occupiers operate and invest. To successfully navigate the real estate markets in 2016, stakeholders will need to:

·        keep a global perspective;

·        stay abreast of changes in the broader environment;

·        and, increasingly, devise innovative solutions to complex problems.

The global real estate industry has had a tremendous run. It has been more than six years since the Great Recession.

However, while financial and real estate markets look stable as we begin 2016, variables now surfacing could undermine short-term prosperity.

View Avison Young’s 2016 Canada, U.S. and U.K. Forecast, which includes detailed commentary on 55 markets in North America and the U.K.

Click here to view Avison Young CEO Mark Rose’s 2016 Commercial Real Estate Forecast VIDEOCAST, covering market trends in North America and Europe:

Real estate industry must remain clear-eyed
As reluctant as we might be to acknowledge that we’re entering a period of transition, we must remain clear-eyed. Our industry has always been cyclical, and factors that negatively affect pricing or trading velocity are, in turn, countered with opportunistic buyers and lessees.

At Avison Young, we believe that 2016 will be a very choppy, but ultimately stable, year. It’s important to note the following.

·        The U.S. remains in a strong position. Continued economic growth in 2015 solidified the nation’s overall recovery. Nearly every market registered employment growth. This stronger economic performance was reflected in gains across all commercial property sectors.

·        Overall office vacancy within the 4.4 billion square feet of inventory in the U.S. tracked by Avison Young declined to 12.4% at the close of 2015, and continued modest improvement is forecast for 2016. Industrial vacancy rates declined to 6.3% at year-end 2015, and tight market conditions have kept rental rates on the rise.

·        U.S. sales in 2015 recorded double-digit percentage growth and approached the half- trillion-dollar mark at year-end 2015, although transaction volume did flatten somewhat in the latter part of the year.

·        Importantly, long-anticipated, modest interest rate increases mark a return to monetary normalization. An abundance of capital remains available for real estate’s higher yields – and relative stability in the year ahead.

·        In Canada, the end of the commodities supercycle, uneven employment growth, disruptive technologies and evolving workplace strategies are testing the country’s otherwise stable commercial real estate sector.

·        Canada’s year-end 2015 overall office vacancy rate of 10.6% is expected to rise to 12.2% by year-end 2016, due in part to a continued strong development pipeline. Industrial vacancy remains tight. We anticipate a modest rise to 4.6% vacancy by year-end 2016 from 4.1% in late 2015.

·        On the investment front, Canada is awash in capital. Despite a finite investable marketplace, Canada is very much on the investment radar screen, with domestic players increasingly facing off with foreign buyers who are raising their allocations to real estate.

Year will be choppy but stable
Interest rates, elections and the spread of terrorism will continue to dominate headlines throughout 2016. At the top of the list are interest rates and government policy. There are consistent trends in some areas, but uncertainty in others.

In the U.S., interest rate increases mark a return to monetary normalization. The U.S. interest rate increase could actually have a positive impact on the markets. Following December’s initial hike, the Federal Reserve has communicated a neutral stance and worked to alleviate any fears of a rapidly increasing interest-rate environment. This is also a presidential election year, and politics and rhetoric will choke the airwaves.

Canada has lowered its interest rates and employed a low-dollar approach to spur manufacturing. The potential for budget surpluses will give way to government-sponsored investment under new Prime Minister Justin Trudeau.

The United Kingdom continues with a low-interest-rate policy. Economic growth in London and southern regions will continue to outpace the rest of the U.K.; however, the economic ripple effect from the south to the north means that opportunities in the areas of the “Northern Powerhouse” and “Midlands Engine” will only increase.

Germany continues to be the stabilizing force in continental Europe, but shoulders the burdens of the countries of the EU.

And rounding out our Avison Young markets, Mexico is stable and opportunities to grow are available as the country’s economy matures.

Fundamentals, global capital flow remain strong
Turning to the broader environment, fundamentals continue to be generally strong.

Occupiers, other than energy companies, are stable and employment is growing in most sectors. For oil and gas, we may see a prolonged period of very low prices. Once drilling slows (as it will), and weaker regions (such as South America, Africa, and Russia) pass a breaking point, we will see stability and possibly upward movement.

As 2016 begins to unfold, global capital flows remain strong. Cross-border flows are accelerating for many reasons, but foremost is the perceived, or real, lack of opportunities in certain domestic markets. Despite some suggestions that prices are very toppy, investor surveys suggest that these trends are continuing to increase in the short term.

Technology’s impact accelerating
A key trend to watch is technology’s impact on real estate, which continues to accelerate as we head further into 2016.

Tech company valuations and space absorption have reached record levels. Some businesses are moving their operations out of buildings and onto the Web, while others such as hydroponic farming and data storage are expanding rapidly into specialized facilities.

Innovations are almost too numerous to mention. But the growing experimentation and the rollout of real estate apps – especially in the residential and crowdfunding areas – are notable. The same goes for the increasing utilization of cutting-edge materials and modular techniques to construct high-performance buildings for lower cost. But these are just some instances of the vast impact that technology is having on real estate.

Building resilience into our business plans and adapting real estate strategies to evolving demographic, technological and political realities around the world will be critical in the year ahead. For example, with new patterns of terrorism, operations and planning will need to address not only physical, but cyber safety to protect people and enterprise systems. And, more closed international borders could substantially increase costs for global logistics providers and their customers.

The bottom line?

Uncertainty often delivers exceptional opportunities to those who are diligent in anticipating and adapting to it. Our Avison Young professionals can tap a world of expertise to help guide your real estate decisions in these watchful times, and help unlock opportunities lurking amid the uncertainty.

From all of us at Avison Young (, we wish everyone a happy, healthy and prosperous 2016.

Thursday, January 14, 2016

A word of caution about free real estate search engines

Lindsay Romaniw (Columbus, Ohio)

By now, most of us are familiar with residential real estate websites that help users find apartments and homes for lease or sale, such as Zillow, Trulia, etc. These search engines certainly provide benefits to prospective tenants, buyers, landlords, owners and brokers, but they also have drawbacks that are less obvious and can hurt all parties involved.

In the last few years, similar models were used to create free search sites for commercial space. Using a site like 42Floors, businesses can conduct free searches for office space available for lease in their desired area. A free commercial space search site seems like a great idea for prospective tenants – as well as landlords and listing agents. So why do I advise everyone to use cautious when using these sites?

Two reasons.

1.       Many contain inaccurate information.

While you will find inaccuracies on almost any real estate website due to the fast-paced nature of the industry, the error rate is particularly high for free sites like 42Floors, Zillow, Trulia, etc. These listings are often unverified because the site rarely has a relationship with the landlord or agent, but rather pulls listings from various uncited sources. This practice causes available space to be missing or misrepresented, floorplans to be inaccurate,  flyers to be outdated, and  the list goes on. Users miss out on numerous office space opportunities and landlords/agents lose potential customers and clients. Redfin did a study on the accuracy of residential real estate websites, finding local brokerage sites to be more accurate – and timely –  than Zillow or Trulia. One can assume this conclusion would apply to commercial real estate websites as well.

2.       Sites gives users a false sense of confidence.

For someone new to the commercial real estate industry, market knowledge takes time – and resources to which an individual using a free site simply does not have access. Looking for office space is not an easy task; commercial real estate is a significant investment – and leasing or buying decisions can make or break a business. According to the American Law Institute, leasing commercial office space is one of the largest expenses incurred by new and expanding businesses. Hence, a real estate professional is a crucial part of the transaction. When backed by an established firm, agents have access to the most recent market data and sales and leasing activity. From site selection to negotiation, agents make sure their clients find the best space for the best price.

Personal Story: I’m constantly searching the residential real estate market in my area. One morning, I came across a home within my budget and immediately contacted the listing agent provided by Zillow, but the agent did not get back to me. A few hours after I called my own real estate agent, she was able to tell me that not only was the home unavailable, but that the owners stopped accepting offers at noon earlier that day – although a deadline was not posted on the site – while I was waiting for my Zillow message to go through from days before.

My experience with 42Floors was not any better. Being responsible for my office’s marketing efforts, I try to stay up to date on the latest commercial real estate websites. When I discovered 42Floors, I found a few Avison Young listings with old brochures attached, incorrect suite availabilities, and one active listing that was posted as unavailable. I immediately contacted the company, and while I did receive a timely response allowing me to update the listings, it was the first contact I had had with anyone from 42Floors in the years that it has been actively advertising listings.

The industry is changing constantly, and these websites are going to continue to pop up, as they are becoming a useful tool for everyone involved in real estate, particularly buyers and tenants. Avison Young offers a free and accurate search for property listings right on its website – listings that are posted directly by the broker and updated frequently.

My advice to users is to seek professional help from the beginning and to verify all options. (Yes, even the ones that say they are unavailable.) Many times, the space you find online may be unavailable, but the agent knows of a similar space that will be available in the next few months and is not yet posted. Or better still, it actually is available, and the site just had the details wrong.

In any case, don’t leave one of the largest financial decisions that your business will make in the hands of a free website provider.

Thursday, January 7, 2016

Is it considered bragging if what you say is true?

By: Rand Stephens (Houston) 

Larry Bird would say, no.  So, I’m not bragging about nailing my predictions for Houston in 2015!  I was also dead-on with my 2014 predictions.  

Below is a reconciliation of my 2015 Houston market predictions:

  • There will not be a recovery in oil prices in 2015.  
    We had a couple of false recoveries during the year which gave the Houston economy some hope, but we ended the year at $35/bbl.

  • Job growth in Houston will be positive but down considerably from the last several years.  
    As of November 2015 Houston had positive job growth of 23,700.  It looks like Houston will finish with 15,000 new jobs after the dust settles compared to 100,000 jobs in 2014.  As I predicted, the petrochemical and medical industries carried the day and offset the job losses from the upstream energy industry.

  • Occupancy rates in the office and the industrial markets will decline but not enough to impact rental rates significantly.
    The occupancy rate for the office market has declined by 3.2% from 89.6% to 86.4%.  The industrial market had a nominal decline in occupancy from 95.7% to 95.4%.  This includes vacant sublease space. 

    Rental rates in office have remained flat and have gone up in industrial.

  • Leasing volume will decline in 2015. 
    Office leasing volume was off 44% and off 37.8% in industrial.

  • Sublease space will increase significantly.  
    Sublease space in the office market increased 72.2% from 4.5M square feet to 7.7M square feet and in the industrial market sublease space increased 58.4% from 1.7M square feet to 2.7M square feet. 

    (For a more comprehensive look at the sublease market, the recently released Houston Office Sublease Report is available for download by clicking here.

  • The vultures will be circling, but there won’t be blood in the streets with respect to real estate.  
    Well, it is debatable whether the vultures were circling, but there was no blood in the streets.  As I have been saying all along, real estate assets have been responsibly capitalized since 2008 mitigating the risk of negative cash flow in the inevitable economic downturn.  

    This is definitely what has happened in Houston evidenced by a very flat year in sales volume in the office market.  However, the industrial market had a robust year of sales with all-time record prices from a price per square foot standpoint.  Record breaking price per square foot for industrial buildings was not an obvious phenomena for 2015 particularly with a declining upstream energy industry.

  • The Texans will make it to the play-offs!
    This was my riskiest and most fun prediction.  After the first 7 games, no one would have believed that the Texans would make it to the play-offs let alone win their division.  As the late Yogi Berra said, “it ain’t over ‘til it’s over”.

    Hold tight because my 2016 predictions will be out soon.

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