Sunday, April 29, 2012
Friday, April 27, 2012
Office Market Nears Rent Growth Tipping Point
Positive Absorption, Vacancy Trends Hold Up Despite Soft Patch In Economic Recovery
The rebound in office-using jobs is spreading to smaller businesses, which dominated office leasing activity during the first quarter of 2012. The continued positive absorption, coupled with dwindling supply of available space, is setting the stage for resumed rent growth in U.S. markets over the next few years, CoStar Group reported this week in its First-Quarter 2012 Office Review & Outlook.
Though weaker than in recent quarters, office space absorption in the U.S. held steady at 11 million square feet in the first quarter while the national office vacancy rate fell 10 basis points to 12.7%, according to the report presented to CoStar clients by Walter Page, director of research for Property and Portfolio Research (PPR), CoStar’s analytics and forecasting division, and Jay Spivey, CoStar senior director of research and analytics.
While overall job growth has been less than expected, the economy is converting the number of temporary jobs to permanent fulltime jobs at a faster clip and employees are working a greater number of hours on average, trends that bode well for office demand and rent growth over the next three years, the CoStar economists reported. If job forecasts hold up, the unemployment rate will fall to its long term of average of below 6% by 2015.
For the first time in several years, none of the top 20 U.S. office markets reported job losses, with hiring especially strong in energy markets such as Houston and Dallas/Fort Worth, and technology markets such as San Francisco, San Jose and Denver.
Meanwhile, rising energy prices are causing a parallel increase in construction costs. This trend, combined with higher interest rates required to support new office construction, will likely curtail the level of new supply until rents begin to justify new supply, buying more time for vacancies to decline further, Page said.
The 11 million square feet in total absorption, while comparable with historical average, declined over the last couple of quarters and remains far below levels from the mid-2000s, when 30 million to 40 million square feet per quarter in office space absorption was routine. Despite solid job growth, office landlords and their tenants continue to hold a large amount of so-called shadow space, unused but not officially listed as vacant.
Gross leasing activity, the type of metric broker commissions are based on, is projected to be nearly 120 million square feet in the first quarter.
"Rents have come down, space is cheap relative to history, and companies are taking advantage of that to move, upgrade or expand into new space, and we’ve seen steep increases from the bottom of the market in 2009," Spivey said. "These leasing levels rival what we saw in the 2000 dot-com period."
Leasing is now dominated by smaller tenants, with over 50% of transactions involving blocks of space measuring 2,000 square feet or less in 2011. At the same time, large tenants are very rare in the market, with transactions over 50,000 square feet representing less than 1% of total activity, according to new data generated by PPR and CoStar.
"Roughly half of the tenants in the CoStar database occupy between 2,000 square feet and 20,000 square feet, and that’s the sweet spot of liquidity within the office sector," Page said.
Tenants are also becoming more efficient in their real estate usage, with footprints on new leases down 6% over the last 10 years. While Class A tenants have seen a modest 3% increase in square footage, the amount of Class B space taken is down by 5% and Class C space down 13%.
CoStar and PPR project the national vacancy to decline to 10.5% by the end of 2015, with the corresponding increase in occupancy leading to boosts in NOI, rent growth and other factors that tend to boost property values. Meanwhile, the supply pipeline will remain at low ebb until 2015, and occupancies should continue to rise ever in the event of a spike in energy prices or a meltdown in the European economy.
Tenants, finding a scarce supply of Class A property, are starting to gravitate to Class B buildings, and smaller tenants are back in the market -- both indications of a broadening of the recovery that’s helping more employers hire more workers.
The rebound in office-using jobs is spreading to smaller businesses, which dominated office leasing activity during the first quarter of 2012. The continued positive absorption, coupled with dwindling supply of available space, is setting the stage for resumed rent growth in U.S. markets over the next few years, CoStar Group reported this week in its First-Quarter 2012 Office Review & Outlook.
Though weaker than in recent quarters, office space absorption in the U.S. held steady at 11 million square feet in the first quarter while the national office vacancy rate fell 10 basis points to 12.7%, according to the report presented to CoStar clients by Walter Page, director of research for Property and Portfolio Research (PPR), CoStar’s analytics and forecasting division, and Jay Spivey, CoStar senior director of research and analytics.
While overall job growth has been less than expected, the economy is converting the number of temporary jobs to permanent fulltime jobs at a faster clip and employees are working a greater number of hours on average, trends that bode well for office demand and rent growth over the next three years, the CoStar economists reported. If job forecasts hold up, the unemployment rate will fall to its long term of average of below 6% by 2015.
For the first time in several years, none of the top 20 U.S. office markets reported job losses, with hiring especially strong in energy markets such as Houston and Dallas/Fort Worth, and technology markets such as San Francisco, San Jose and Denver.
Meanwhile, rising energy prices are causing a parallel increase in construction costs. This trend, combined with higher interest rates required to support new office construction, will likely curtail the level of new supply until rents begin to justify new supply, buying more time for vacancies to decline further, Page said.
The 11 million square feet in total absorption, while comparable with historical average, declined over the last couple of quarters and remains far below levels from the mid-2000s, when 30 million to 40 million square feet per quarter in office space absorption was routine. Despite solid job growth, office landlords and their tenants continue to hold a large amount of so-called shadow space, unused but not officially listed as vacant.
Gross leasing activity, the type of metric broker commissions are based on, is projected to be nearly 120 million square feet in the first quarter.
"Rents have come down, space is cheap relative to history, and companies are taking advantage of that to move, upgrade or expand into new space, and we’ve seen steep increases from the bottom of the market in 2009," Spivey said. "These leasing levels rival what we saw in the 2000 dot-com period."
Leasing is now dominated by smaller tenants, with over 50% of transactions involving blocks of space measuring 2,000 square feet or less in 2011. At the same time, large tenants are very rare in the market, with transactions over 50,000 square feet representing less than 1% of total activity, according to new data generated by PPR and CoStar.
"Roughly half of the tenants in the CoStar database occupy between 2,000 square feet and 20,000 square feet, and that’s the sweet spot of liquidity within the office sector," Page said.
Tenants are also becoming more efficient in their real estate usage, with footprints on new leases down 6% over the last 10 years. While Class A tenants have seen a modest 3% increase in square footage, the amount of Class B space taken is down by 5% and Class C space down 13%.
CoStar and PPR project the national vacancy to decline to 10.5% by the end of 2015, with the corresponding increase in occupancy leading to boosts in NOI, rent growth and other factors that tend to boost property values. Meanwhile, the supply pipeline will remain at low ebb until 2015, and occupancies should continue to rise ever in the event of a spike in energy prices or a meltdown in the European economy.
Tenants, finding a scarce supply of Class A property, are starting to gravitate to Class B buildings, and smaller tenants are back in the market -- both indications of a broadening of the recovery that’s helping more employers hire more workers.
Thursday, April 5, 2012
Thinking Outside the Cube - My Jewish Detroit
Thinking Outside the Cube - My Jewish Detroit
While the commercial construction industry in Michigan has been hit hard, PCI One Source is weathering the storm. Business Development Director, Brandon Pomish explains that the success of his family business is all about adaptation to change, community spirit…and connections. Active on all fronts of Greater Detroit’s rejuvenation, Brandon’s connections to Jewish Detroit include the Federation YAD (Young Adult Division) Board, the YAD Entrée Program & Events Committee, Federation Capital Needs Committee, Federation Security Committee, the Board of Trustees at Temple Israel and Partners In Torah at The Yeshiva.
Thinking Outside the Cube - MEET BRANDON POMISH, 29, BUSINESS DEVELOPMENT AT PCI ONE SOURCE CONTRACTING, COMMUNITY BUILDER, JEWISH DETROIT POWER SOURCE
Building Detroit: One Project and One Click at a Time
While the commercial construction industry in Michigan has been hit hard, PCI One Source is weathering the storm. Business Development Director, Brandon Pomish explains that the success of his family business is all about adaptation to change, community spirit…and connections. Active on all fronts of Greater Detroit’s rejuvenation, Brandon’s connections to Jewish Detroit include the Federation YAD (Young Adult Division) Board, the YAD Entrée Program & Events Committee, Federation Capital Needs Committee, Federation Security Committee, the Board of Trustees at Temple Israel and Partners In Torah at The Yeshiva.
On what inspired him to get started
“My wife Emily and I had a conversation about two lifestyle options when we got married. We could come home every night, cook dinner, talk about our day, watch Jeopardy, and read about what’s going on in the community. Or, we could become actively involved and start rebuilding young Jewish Detroit to again become the prosperous community that it once was. We chose to put our energies into Detroit.”
On how he’s making his mark on Jewish Detroit
“I live to work and enjoy the intensity of response necessary to adapt to change in adverse situations. I am proud to say that I work for my family’s business, a company deeply committed to the community. We believe in the future of Detroit.”
On his volunteer work
“I believe there are countless ways people can and do make a difference. I’m often asked how I find the time to do what I do, and my answer is that I make the time because I’m passionate about building our community. If you’re passionate about something, time is only a function of how involved you want to be.”
On thinking outside the cube
“Our business is about building places where people can be productive and creative. I believe thinking outside the cube also sparks the kind of discussions that lead to inventive solutions for rebuilding Detroit.”
On choosing to move to Detroit or stay here
“We are a close-knit community. One of our best kept secrets is that we have the strength and heart to embrace and support any path that you take, at any level of activity, be it social, professional, volunteer or philanthropic. The auto industry is on its way back and new and exciting industry and innovation opportunities are starting to emerge every day. Detroit isworking again, the destination of the future.”
On hopes or plans for Detroit’s future
“My hope for Detroit’s future is to regain its standing as a vibrant center for business, culture and social life.”
Reading now:
11/22/63 by Stephen King, The Path of the Just (Mesillat Yesharim) by Moshe Cayim Luzzatto.
Favorite building in the Detroit skyline
“The Guardian Building. I think it’s one of the most beautiful buildings built in the last century. Just walk into the lobby, look up and be inspired. The architecture is just mind-blowing.”
Favorite restaurant
“El Barzon on Junction Street between Corktown and Mexicantown. It’s a Detroit hidden gem serving both Mexican and Italian food. Whichever way you flip the menu, you’re in for a good meal.”
Wednesday, April 4, 2012
Twitter Opens Detroit Office In Downtown Madison Building
Twitter Opens Detroit Office In Downtown Madison Building
Social media fans get ready: Twitter is coming to Detroit.
The company announced Wednesday it will open its first Michigan office at Dan Gilbert's tech hub "M@dison" building in downtown Detroit.
"Detroit's emerging mix of automotive and digital cultures made it a natural location for Twitter's newest office," Adam Bain, Twitter's president of global revenue, said in a statement. "We're excited to work face-to-face with the city's most established brands and happy to play a role in downtown Detroit's digital renaissance."
A quick look at the enthusiastic #TwittertoDetroit tweets confirms Twitter picked a city that will give the San Francisco company a very warm welcome.
The M@dison Building, located at 1555 Broadway in downtown Detroit, is owned by developer and Quicken Loans founder Dan Gilbert's company Rock Ventures LLC. It's already home to startups and tech companies like Detroit Venture Partners, Skidmore Studios, Detroit Labs and Doodle Home. The M@dison building is one nine Gilbert purchased in downtown Detroit last year and a cornerstone for his development plans.
Twitter is also a great fit for Gilbert's "WEBward" initiative to re-brand the city's central Woodward Ave. artery.
"Twitter coming downtown is exactly the kind of innovative company Detroit needs to advance our vision of becoming one of the most exciting high-tech and web-centered corridors of growth and activity found anywhere," Gilbert said.
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