Coworking Instability Tempers Office Leasing Activity
Considering the headline-grabbing troubles of WeWork in late 2019, leasing activity in office spaces were expected to see consequences. According to a JLL's office outlook for 2020, coworking dropped from a primary driver of tenant demand to an afterthought in 4Q2019. The tech sector leased the largest amount of office space by far, accounting for 23.58 msf compared to runner-up finance/insurance's 15.93 msf.
Deliveries will continue to roll in through 2020 and 2021, which could boost vacancy in highly competitive markets like Silicon Valley; Austin, Texas; and Charlotte, N.C. More mature markets like Chicago, New York, and Washington, D.C., could face diminished absorption compared to additions in supply. But tight markets such as San Francisco (5.6 percent vacancy), New York (7.3 percent) and Grand Rapids, Mich., (8.7 percent) seem primed for additional supply.
Volume Up, Prices Down in Land Deals for 2020
The good news: The size and volume of land sales increased from October 2018 to September 2019 by 2.2 percent and 2.1 percent, respectively, according to the 2019 Land Market Survey by the National Association of REALTORS®. The not quite as positive news: The 826 respondents expected volume to increase another 2.2 percent in the next year, but price growth to drop to 1.6 percent.
Other key factors include:
- Due to reduced sales of timber, recreation, and land sales, the median land sale decreased in size by 47 acres.
- The median price per acre of land in transactions jumped $1,000 to $5,500, due primarily to a boost in residential sales.
- CCIMs represented 9.5 percent of respondents this year, compared to 7.4 percent the previous survey.
Restaurants Streamline Footprints for Delivery-Only Service
Off-premise dining has been on the upswing for years, with third-party delivery options and app-based ordering services making it easier to ditch the restaurant for the couch. The latest trend ditches dine-in and takeout options altogether. These so-called ghost kitchens operate entirely for delivery services. Such operations allow restaurant chains to reduce real estate overhead and employment while reaching new customers with new products.
According to the National Restaurant Association's 2019 survey, compared to the previous year, 39 percent of consumers are using drive-thru more often, 34 percent are using delivery more often, and 29 percent are more likely to order takeout. In response, major chains, like Red Lobster and Chick-fil-A, and smaller operations, like high-end sushi in New York, are exploring ghost kitchens.
Eat, Sleep, Play at Video-Game Hotel
If you had any question that gaming has gone mainstream, Atari announced plans to build video game-themed hotels across the United States, with the goal of breaking ground on an initial location in Phoenix later this year. According to a Jan. 27 release, Atari Hotels plans to include immersive entertainment and virtual reality experiences for various demographics and gaming abilities.
The locations will also feature venues and studios to accommodate esports, a growing industry with an estimated 1.57 billion participants worldwide spending $152.1 billion on games, representing an annual increase of 9.6 percent. Atari is partnering with True North Studio, a Phoenix-based real estate developer, and GSD Group, an innovation and strategy group.
Unlikely Candidates Top List of Cities with Biggest Rental Increases
Increasing rents are major news across the United States. But when it comes to which cities ranked highest in rental increases in the past decade, research by PropertyClub using data from Zillow showed some unlikely candidates beat New York, San Francisco, and Austin, Texas. Of the top 100 cities listed, Aurora, Colo. (79 percent); Boise City, Idaho (53 percent); and San Jose, Calif. (49 percent), saw the biggest increases in median rents from 2010 to 2019.
Rejiggering the data to focus on absolute differences in median rent shows how locations that were already pricey in 2010 are that much more expensive now. San Jose saw the largest absolute increase of $1,083. Meanwhile, Oakland, Calif. ($980), San Francisco ($867), and Boston ($632) clocked in with large bumps in rental costs. Away from the coasts, Midwestern cities saw more modest increases, led by Cincinnati and Minneapolis, both at 33 percent.
An Academic Look at Mixed-Use Zoning's Effect on Affordability
In an ideal situation, mixed-use development solves two problems at once; retail, office, or industrial space is paired with residential units, which can be crucial amid declining supply. But empirical data on the effect of mixed-use projects on housing affordability is lacking. In response, researchers from the University of Toronto Mississauga examined mixed-use zoning and housing affordability in Toronto between 1991 and 2006.
The city center, with the most amenities and highest demand, proved prohibitively expensive for lower-income individuals with increased development. The researchers argued affordability declined more severely in mixed-used zones in the Toronto area, creating a direct tie between zoning and socioeconomic inequality. Though focusing on a single case study, the report highlights potential consequences for further mixed-used developments.
Industrial Remains Hot Despite Cooling Forecast
The industrial sector remains the most popular kid in school. In 2019, for instance, 18.7 percent of all transactions in the U.S. were industrial, representing a major jump from the 9.8 percent figure in 2014. According to a January 2020 report from Cushman & Wakefield, gateway metros attracted the most activity, representing two of every five industrial deals.
The same report forecasts market liquidity for single-asset properties will tick down in coming years, from a 2015-2019 average annual growth rate of 11.8 percent to somewhere between 5 and 8 percent through this year and 2021. Across the market, consolidation will continue to be an overarching trend, with large capital groups looking to expand their industrial portfolios through acquisitions.
Miami Votes for 9-Month Ban on Self-Storage Construction
Miami's planning, zoning, and appeals board approved two ordinances aimed at curbing the city's booming self-storage market on Jan. 15 - one proposes a 270-day moratorium on any new self-storage facility in the city and the second ordinance outlaws self-storage buildings near specific mixed-use residential areas. This move, according to an official with Miami City Commissioner Manolo Reyes' office, came in response to fears of overdevelopment. City officials also noted concerns over illegal dumping, which is common near self-storage areas.
Both ordinances must be passed by the Miami City Commission in order to become law, though all applications for new facilities will not be processed until a final vote.
The move by the Miami zoning board is the latest by municipalities looking to control construction of self-storage units. Birmingham, Ala.; Pompano Beach, Fla.; and New York have all explored possible development freezes.