Market Data

Market Trends(11)

Tune in at the Office

Affiliate commercial real estate brokerages and other large organizations face the challenge of transmitting corporate culture, best practices, and business policies to far-flung offices both nationally and internationally. Going a step beyond the company newsletter is internal TV, a network of television programming devoted to a company’s in-house communications. The Los Angeles–based startup company Meat Team helps companies develop and produce TV episodes that play at regularly scheduled times over existing IT infrastructure. For example, an architecture firm created a series of 12 episodes profiling different offices, featuring interviews with each office’s employees. Meat Team provides guidance, editing, and a season of weekly broadcasts for about the same cost as producing a company-wide newsletter.

The Future of Parking

Automated parking garages may be an idea whose time has finally come, especially given the land crunch in many U.S. cities. Automated parking garages double the amount of space by stacking cars vertically, freeing up square footage for additional uses. New York–based American Development Group transformed a former 100-space parking garage into a 64-space parking garage with 26 luxury condos and retail space. Another Manhattan parking lot conversion as well as mixed-use Groupand condo projects in the Bronx also feature automated parking garage installations.

Boston has approved its first automated parking garage for a waterfront mixed-use development. A.P.T. Parking Technologies will build a 300-space garage at Lovejoy Wharf, a $200 million condo and retail project. Experts say that even at the cost of $12,000 to $16,000 per space, automated parking garages save developers money by reducing the amount of land needed by half, since automated garages require no exit ramps.

Green Is Growing

With energy costs as the largest controllable expense in office buildings, a recent McGraw-Hill Construction report targets 2009 as the green building tipping point, predicting that within two years sustainable buildings will comprise 16 percent of large corporations’ real estate portfolios. Here’s the estimated payback on green commercial real estate:

  • 8 percent to 9 percent decrease in operating costs;
  • 7.5 percent increase in building value;
  • 6.6 percent ROI improvement;
  • 3.5 percent occupancy increase; and
  • 3 percent rent increase.

Self-Storage Snapshot

Property Location $/PSF (net rentable) Size (net rentable sf)
Cubical Self Storage Egg Harbor, NJ $111 58,350
All Size Mini Storage Sacramento, CA $88 56,016
Noah’s Ark Self Storage Orlando, FL $77 67,625
Casual Cartage Portfolio Fort Wayne, IN $59 127,400
Rocky Mountain Self Storage Loveland, CO $40 75,275

Source: Marcus & Millichap

Briefly Noted

  • HOSPITALITY — The median price of all hospitality properties is $82,000 per room, up 8 percent from a year ago, but substantially less than the 30 percent increase of two years ago, according to Marcus & Millichap.
  • INDUSTRIAL — 1Q07 construction averaged 25 million sf with large blocks of new space in Chicago, Columbus, Ohio, Dallas, Indianapolis, Los Angeles, and Phoenix, reports CB Richard Ellis.
  • MULTIFAMILY — With one in nine condominiums empty nationwide, “We won’t see much burn off in excess condos in 2007 or 2008,” says Ron Witten, president of Witten Advisors, who blames the 100,000-unit excess inventory on too many conversion projects.
  • OFFICE — A flight to quality by former B and C tenants to new construction in many markets has vacancy rates creeping up, while net absorption declines, according to Commercial Real Estate Outlook.
  • RETAIL — Finding space for European retailers expanding into the U.S. and American retailers spinning off new concepts is the current challenge for mall owners such as General Growth Properties, whose overall occupancy last year was at 93.6 percent, says Shopping Centers Today.

Fast Growth for Fast-Casual

Overall the 500 largest chain restaurants posted a 6 percent annual sales growth last year, according to Technomic, an industry consulting company. Much of that growth comes from fast-casual restaurants, which understand the importance of site selection in growing their brands, according to Fast Casual magazine. But some chains are wary of using commercial real estate brokers to pick sites, preferring instead to use in-house people to scout and select locations and leave the lease negotiations to the brokers. “No one knows better where the next franchise should be located than the people who know the restaurant’s core values,” says Jeremy Behar, chief executive officer of Cirrus Tenant Lease Services. Some fast-casual chains believe that eliminating the broker from the site-selection process also eliminates conflicts of interest.

Fast-casual restaurants look for white-collar, college-educated, $50,000-household-income demographics and many brands that rely on lunchtime traffic look for daytime drivers such as hospitals, universities, and office buildings. They also look for successful co-tenants that generate a lot of traffic, such as Panera Bread and Starbucks. But increasingly fast-casual chains are exploring nontraditional locations: Atlanta-based Raving Brands’ Planet Smoothie and Doc Green’s concepts are locating in airports, athletic stadiums, and amusement parks.

Five Fastest-Growing Restaurant Chains
Sales greater than $200 million based on year-over-year sales increase
Rank Sales Increase 2006 Over 2005 Unit Change
1. Qdoba Mexican Grill 43% 34%
2. Famous Dave’s 40% 15%
3. Bonefish Grill 39% 32%
4. BJ’s Restaurant and Brewery 34% 24%
5. Moe’s Southwest Grill 32% 22%

Source: Technomic

Tricks of the Trade

If you want to be perceived as a smarter decision maker, take a lesson from the apes and learn to appear bigger than you are, says Lara Tiedens, Stanford University associate professor of organizational behavior. While humans don’t engage in chest beating too often, we do display other dominant behaviors that society accords certain status and influence, she says. These visual and verbal clues convey dominant behavior:

  • taking an open posture and conveying the appearance of height;
  • gazing directly at others, speaking loudly in a deep or low voice, and interrupting frequently;
  • using strong, hard gestures; and
  • standing or leaning in close, reducing interpersonal space.

“It’s not just our natural body space, it’s how people take up more space that conveys dominance,” Tiedens says. She cautions that women gain dominance more effectively with visual clues and by softening the verbal impact. However, for both genders, dominance has its downside. “Dominating people are perceived as less nice, less likeable, and less warm,” Tiedens says. Also meeting dominance with dominance can be a risky strategy: “You may not be able to get the best possible outcome or value in negotiation.”

Keep Supply in Check

"While the expansion will go on and demand for commercial real estate will continue to be positive, we are not entering into another 1990s-style boom, at least not in the next few years. Therefore, we certainly don’t want to have 1990s-style development. Thus far we don’t, but we’re getting pretty close."

— Craig Thomas, senior vice president and director of research and research systems, Torto Wheaton Research

Top 5 Hotel Transactions in 2006

Based on sales price

Property Location Price(in millions) Rooms Price per room
Four Seasons Resort Hualalai Big Island, Hawaii $502.8 243 $2,069,136
Westin St. Francis San Francisco $440.0 1,195 $368,201
Swissôtel The Drake New York $440.0 495 $888,889
Westin Kierland Resort & Spa Scottsdale, Ariz. $393.0 732 $536,885
Crowne Plaza Hotel Times Square New York $362.0 770 $470,130

Source: Jones Lang LaSalle Hotels

Nonprofits Go Condo

Not-for-profit organizations are fueling a mini office condo boom in Chicago’s central business district, according to Illinois Real Estate Journal. In Illinois, as in most states, nonprofit organizations are exempt from real estate taxes and that can add up to significant savings on the buy side. For example, the Jane Addams Hull House Association, which bought a 40,000-sf condo to use as its headquarters, will save more than $1.6 million over the next 10 years, a 21 percent cost reduction over leasing. Nineteen Chicago CBD office properties, mostly class B and C buildings, list office space to buy, ranging in size from 12,000 sf to just over 1,000 sf and ranging in price from $170 psf to $480 psf.

CBD Office Gains

CBD Sales volume change from 1Q06 to TO 1Q07
Boston 195%
Philadelphia 116%
Atlanta 106%
Chicago 75%
Washington, D.C. –14%
San Francisco –19%

Source: 1Q07 Korpacz Real Estate Investor Survey

Industry Bulks Up

GDPCommercial real estate contributes almost as much to the gross domestic product as the government, reports a National Association of Industrial and Office Properties Research Foundation breakdown:

  • Soft costs: $228.9 billion
  • Construction costs: $265.9 billion
  • Maintenance and operating costs: $3.6 billion
  • Commercial real estate’s total GDP contribution: $498.4 billion
  • Federal government’s GDP outlay: $498.8 billion

Seniors-Housing Investment Picks

With limited construction, above average occupancy growth, and strong revenue growth, seniors-housing investors should look at these markets, says Marcus & Millichap:

  • Independent living: Los Angeles
  • Assisted living: Washington, D.C.
  • Skilled nursing: San Francisco, New York, Minneapolis
  • Dementia care: San Diego, St. Louis

Rewriting Dot-Com History

Out of 2,000 businesses started during the dot-com boom, at least 55 percent of them stayed active two years after the Nasdaq reached its lowest point in September 2002, squelching the misperception that all dot-com start-ups failed. But the fact that so many companies survived may mean that not enough new companies were started, says “Lessons from the Last Bubble,” a research report published in Strategy+Business. The dot-com boom opened up a new frontier of Internet possibilities: But instead of putting all their money behind the first start-ups with the biggest expansion plans, venture capitalists should have diversified their funding into smaller companies. “Avoiding the ‘get big fast’ strategy and the herd instinct allows for a more thorough investigation of the terrain. … The dot-com era taught us that testing ideas with small bets and constantly challenging conventional wisdom offers the best path to finding the right market timing.” To read the entire report, go to www.strategy-business.com/resiliencereport.

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