January 2018 - Sachse Construction

Multifamily Property Investors Spent Less in 2017, but Bought More Apts.

Investors spent less money on apartments in 2017 than the previous year, according to CoStar research, but bought more multifamily properties.

The math may be a little counter-intuitive, but resulted from sales in the most expensive urban infill markets dropping off as owners of newer downtown properties decided to hang on to their assets or demanded rich pricing. Yield-hungry investors, in turn, looked to suburban and secondary markets – where multifamily properties are cheaper, and older assets and workforce housing are in vogue as well.

That combination resulted in a mixed outcome in 2017 – more property trades, but less total investment in the multifamily market.

“No doubt this is the case,” says Josh Goldfarb, co-head of Cushman & Wakefield’s multifamily sales platform. “We are seeing more interest in the suburbs and secondary markets caused by overheated costs and land pricing in large metropolitan areas, combined with minor oversupply.”

CoStar’s year-end tally of apartment sales shows that $156.3 billion traded hands in 2017, down about 4% dollar-wise from 2016, when a towering $163.1 billion in multifamily sales was recorded.

But CoStar counted 34,468 property deals last year, up from the then-record high of 32,252 in 2016. And a further look at the sales bears out what many multifamily sales experts have been reporting anecdotally – sales in the ‘burbs are up, while downtown sales are off.

In New York City, for instance, apartment sales plunged from $14.2 billion in 2016 to $9.1 billion last year. That $5 billion drop in this market alone accounted for almost half the national sales total drop-off from 2016.

San Francisco saw sales of apartments fall from $2.5 billion in 2016, to $1.6 billion last year.

Meanwhile, many secondary markets saw a surge in apartment sales. Minneapolis, for instance, which posted only $827 million in apartment trades just two years ago, racked up $1.4 billion in sales last year. Orlando’s apartment sales moved from $2 billion in 2016 to $2.6 billion last year.

Blake Okland, the head of Newmark’s Apartment Realty Advisors sales platform, said the move by investors into secondary markets and older, less-expensive properties isn’t just about investors seeking higher returns in those locations and in the value-added space, it’s simply a function of what’s available in the market.

“It’s not as if there’s not institutions that want core downtown stuff, but a lot of that has traded, and you have owners who are happily holding,” Okland said. The move from core to secondary is “as much a function of what’s available as it is preference.”

Investors expect the trend to continue. A big spike in new apartment supply is predicted for the first quarter of this year. The bulk of new units are primarily located in downtown submarkets such as Boston, New York, Chicago and Atlanta and should temporarily soften rent growth and occupancy rates – and further slow property sales in those locations.

In its forecast for the 2018 multifamily market, CoStar sees smaller cities and suburbs as the most likely benefactors of investor attention.

“We’re forecasting that price growth will be greatest in fast-growing secondary markets,” said John Affleck, research strategist for CoStar. “Places like Orlando, Las Vegas and Jacksonville, FL.”

These Sensors Can Expedite Jobsite Evacuations

Triax Technologies has released what the company says is the first real-time construction-specific alert system for jobsite evacuations.

Dubbed Spot-r EvacTag, the device is integrated with Triax’s proprietary network and a wearable clip. It emits a high-decibel siren and visible LED alert, which personnel can trigger onsite via the Spot-r dashboard.

The dashboard allows supervisors to tally headcounts and locations by floor and zone via the Spot-r clips on each worker, allowing for safe and thorough evacuation procedures, the company said.

Last year, Triax integrated its Internet of Things-enabled wearable tracking system, Spot-r, with Autodesk’s BIM 360 platform to help boost jobsite connectivity and monitor workers and equipment. With that announcement came the Spot-r EquipTag, which the firm said transmits real-time data about workers’ and equipment’s activity, location and safety in an effort to reduce jobsite risk and maximize insight as to how jobsite operations work. The EvacTag is the company’s latest addition to the connected sensors line aimed at enhancing workplace safety.

According to a Dodge Data & Analytics SmartMarketReport, technology such as BIM, drones and wearables all have a positive effect onsite to improving safety. Investing in safety also has positively impacted project budgets, schedules, quality and the ability to contract new work. Despite construction companies being slow to adopt wearables — only 13% in the study use them — 82% of that group indicated wearable technology has had a positive impact.

Artificial intelligence (AI) also is helping to boost understanding of how to protect workers. Researchers form the University of Waterloo in Ontario, Canada, are using motion sensors and AI to study how master masons move in an effort to reduce wear-and-tear injuries. Thanks to the multi-part study’s findings, researchers now are developing a system of sensor suits that will give trainees immediate feedback and encourage them to modify their movements to be more ergonomic and reduce body strain, thereby curtailing premature wear.

In some cases, technology is replacing humans altogether in the name of safety, such as through a rebar-tying robot and a robot miner that can dive where humans cannot go safely. Gramazio Kohler Research is in the midst of developing robots to perform various construction tasks and automate jobs like stacking materials in nonstandard arrangements.

There’s Never Been a Better Time to Open Retail Stores in NYC

Retailers from China and Korea, Germany, the Netherlands and Latin America are scouring city streets for deals they could have only dreamed of in the past. Additionally, Italian and Aussie fashion companies that tested out the market with pop-ups (and liked it) now want a more permanent piece of New York’s retail pie.

“There are more foreign tenants from a wider variety of countries — not just the UK, France and Italy,” says Joel Isaacs, president of Isaacs and Company. “There is definitely a good population of European and foreign brands.”

With rents finally dropping to a deal-making level, the smart companies are rushing to stake out locations they love.

And most building owners are now ready to give them a hand up with handouts. In the past, concessions of any kind would have been laughed at. Now, owners are being creative to lure tenants.

In some cases, especially in new towers, owners have provided full build-outs to deliver turnkey spaces. They are waiving percentage rents (arrangements in which the retail tenants pays their landlords a percentage of their gross sales) for the entire lease, and have delivered other perks from air conditioning to outdoor spaces.

“It’s an adjustment to the market,” says Richard Skulnik, executive vice president of Ripco Real Estate. The owners, he says, want to know: “How can I be competitive?”

As word of plunging rents spread last fall, tenants decided it was time to look, Isaacs says. “It’s hard to time the bottom of the market.”

But now brokers and owners report activity and tours have taken on a frenetic pace as the new year rang in and contenders raced out of the starting gate.

“There is a belief that rents have stabilized and if you want to make a deal, it’s a good time,” says Joanne Podell, executive vice chairman of Cushman & Wakefield. “This means if you need to grow your business, you make a commitment.”

As to the high-priced superstore mega deals that are touted for special spaces, Skulnik calls them “outliers in every shape and form.”

The end of last year, for instance, saw Levi’s trade for a newer 17,250-square-foot flagship in Times Square at Vornado Realty Trust’s 1535 Broadway, where it will open later this year.

And FAO Schwarz will be playing around in 19,000 square feet in Rockefeller Center after being storeless in the city for two years.

Similar to what is occurring with office tenants, many retailers are also “rightsizing” by taking smaller spaces that are more in line with their urban locations, sales volumes and customers who don’t like traveling up and down numerous floors.

Take Lord & Taylor, which is lopping off the top of its building in an $850 million sale to Rhone Capital and WeWork.

The latter will use the upper floors for coworking space while the department store downsizes in the base to better fit its own sales needs and customers.

Target, which has sprung up in various neighborhoods with its urban format, and was one of the most prolific lease-signers in 2017, is also on the prowl. Now that Kmart locations are opening up, some may prove a match for the cheap, chic newcomer.

Vacant retail condominiums that have been stagnating are now being pitched for sale to end users such as medical offices, nonprofits and others that can benefit from an ownership tax structure. “The pricing is not [as high as] it was two years ago,”says Adelaide Polsinelli, senior managing director of Eastern Consolidated. “But it doesn’t make economic sense for someone who wants to control their future to lease.”Forever 21, which briefly had a spot in a high-rent swath of Fifth Avenue, is now trying to lever its way into a cheaper space between 46th and 54th streets, sources say.

Retailers were “cautious” with their inventory for the holiday season, says Faith Hope Consolo, chairman of retail at Douglas Elliman. Rather than competing head-to-head, she says online divisions of retailers are now working in tandem with their brick-and-mortar counterparts.

“I’m feeling positive because the retail numbers were good, and while there was plenty of online shopping, there was plenty of in-store shopping,” says Consolo.

Retailers are also adapting to the changing environment with experiences that make going to the actual store memorable.

For instance, as barricades rose around Trump Tower, there were worries customers were not making it into the adjacent Tiffany flagship store on Fifth Avenue.

The jeweler has since added a turquiose-toned café that riffs on the movie by serving up breakfast at Tiffany’s (as well as lunch). Now there is often a line.

“Everybody said no one will come to New York because of Trump, but we had a record 62 million tourists,” says Consolo. “It’s not only the shopping city, it’s where everyone wants to live and work.”

While there’s plenty of chatter about vacancies, Skulnik says, “Great spaces lease in any market. But bad space with low ceilings and too many columns won’t lease in any market.”

Tenants are now hoping to cash in and secure great spaces before they once again have to face leftovers.

Aging Population Driving Medical Office Demand in U.S.

According to CBRE’s recently released 2018 U.S. Real Estate Market Outlook, the aging U.S. population will be a significant tailwind for medical-office demand in the years ahead.

“We expect demand for medical office buildings to grow, fueled by a shift away from the delivery of patient services on hospital campuses, the adoption of new technology, the aging population, health care job growth, tight market conditions and the relative recession-resistance of these properties,” said Andrea Cross, Americas head of office research, CBRE.

The population aged 65 and above is expected to increase by 1.7 million (3.3 percent) in 2018 and by 9.2 million (18 percent) over the next five years, driving short- and long-term demand for medical services. Health care employment has jumped by 47 percent since 2000, compared with 12 percent for total employment, and has weathered the past two recessions well. The education and health services sector is expected to add nearly 1 million jobs over the next five years–the second-highest total among the major employment sectors.

“Medical providers are willing to sign long-term leases for locations near large patient populations and buildings that are well-equipped to offer specialized services like dialysis centers or ambulatory surgery centers,” said Jim Hayden, executive managing director, Healthcare, Global Workplace Solutions, CBRE. “Providers looking to reduce costs and make their services more easily accessible to patients will also shift to lower-cost settings like retail centers.”

The medical office market has performed well in recent years, registering a lower peak vacancy rate than traditional office properties during the 2008 recession and showing a steady decline in vacancy during the recovery. Net absorption has outpaced new supply in 24 of the past 29 quarters, with particularly large imbalances since 2015.

Gross asking rents have been stable, reflecting consistent user demand and long lease terms that limit tenant turnover. New medical space completions have also been low relative to pre-recession levels, and the amount of space under construction has decreased slightly from the Q2 2016 peak.

“Investment trends reflect strong medical-office market fundamentals and a broadening pool of interested investors,” said Chris Bodnar, vice chairman, Healthcare, CBRE Capital Markets. “While uncertainty about health care policy poses a risk to the medical office market, favorable demographic trends point to continued strong health care demand, regardless of any policy changes.”

Grocery Shoppers Could Move Online Twice as Fast as Originally Anticipated

The majority of U.S. grocery shoppers could be buying online within five years, according to a joint report from Food Marketing Institute and Nielsen.

That timeline represents a faster pace of adoption than previously believed, as both organizations originally estimated it could take up to 10 years for consumers to warm up to buying groceries on the web.

According to projections, 70 percent of shoppers will be buying some portion of their groceries online within five to seven years. That could equate to $100 billion in total spending. The shift online will impact grocery shopping in stores, where consumers are still expected to spend 80 percent of their grocery dollars.

“There is a fundamental shift in retail, and we are seeing an acceleration,” said Thom Blischok, global retail strategic advisor to Nielsen. “You can now find the basics of living online pretty easily.”

Traditionally, the grocery industry has been more insulated from e-commerce disruption than its peers in the apparel and book sectors. Shoppers tend to be loyal to their grocers, and the grocery supply chain is so complex.

However, the rise of meal kits and delivery services has helped to change shoppers’ expectations. Amazon’s acquisition of Whole Foods, which threatens to combine data, logistics and automation in a way the industry has not seen, has put the entire industry on notice. Earlier this month, Amazon launched its first automated grocery store.

The shift is already evident: 49 percent of all shoppers bought a packaged good online within the last three months. That includes 61 percent of millennials and 44 percent of baby boomers. It also includes 54 percent of affluent households and 40 percent of low-income households.

Grocery stores, cognizant of the price transparency the web affords, will feel the pressure to keep prices low. The largest ones, like Walmart, are expected to put an extra focus on low prices to help win their battle for market share. To help keep prices down and make shopping an event in itself, they will continue to invest in automation and grab-and-go technology.

Both large and small stores will continue to emphasize fresh and prepared foods, as well as meat, in an effort to compete with goods not easily ordered online.

Changes will also transpire behind the scenes, as brands and retailers look to use data they get through new technology to inform pricing, selection and promotion. Albertson’s launched a new service this month to use shopping data in its stores to better assess online ads.

92% of Employers say Skills Shortage Affects Productivity, Job Satisfaction

More than half of the 3,000 U.S. employers and managers in the Hays U.S. 2018 Salary Guide said they’re hiring in 2018, but three-quarters said their industries face severe skills shortages. So severe is the shortage that 92% of employers say the problem is negatively affecting productivity, employee satisfaction and turnover. The industries reporting the greatest shortages are construction and life sciences.

Hays says with the skills shortage and high demand for talent, employers must be proactive about hiring and retention. According to the guide, the most common recruiting methods are promoting company culture (48%) and offering competitive salaries (43%). Respondents cited competitors who can pay more as their biggest threat; the greatest cause of employee turnover is money, according to the survey.

Two-thirds of respondents saw business activity increase in 2017 and three-quarters believe activity will increase in 2018. Respondents said a lack of training and development and fewer workers entering their industry were the main causes of the shortage. Hiring is also on the upswing for gig workers, with three-quarters of employers using contingent workers last year and 43% of that number hiring more.

Employers will need to use all the tools at their disposal to clear the skills gap. Promoting their culture, or brand, can be an effective way to showcase the advantages of working at their organization. Employers with both traditional and innovative voluntary benefits, flexible work schedules, development opportunities and paid leave, a highly valued benefit for parents, caregivers and workers of child-bearing age, will be a step ahead of their competitors.

Employers didn’t plan to offer significant wage increases for 2018, as studies by both Willis Towers Watson and Aon showed. In fact, wages have been relatively flat for several fiscal-year quarters. But employers might not have a choice but to offer more competitive salaries if they want to compete in a tight labor market. Highly specialized tech jobs, like cybersecurity analysts and data scientists, can command high-end salaries. A Forrester report says employers might have to pay 20% above market salary rates to attract these specialists.

Of course, there’s also the separate issue of training and skill development, for which employers bear an increasing amount of responsibility. More than ever, employers will have to embrace real-time, practical learningexperiences alongside the traditional classroom model in order to prepare workers for a changing job market.

December construction starts up 12%, total year starts up 3%

Since the 2016 presidential campaign, President Donald Trump has been touting a $1 trillion infrastructure program that would create jobs and repair or replace elements of the nation’s roads, bridges and other public assets, but he told a group of mayors gathered at the White House earlier this week that the value of his plan could reach $1.7 trillion.

A leaked document also surfaced this week, reportedly a White House draft of the president’s infrastructure plan, according to Axios. If the information is accurate, then the administration will boost outside investment by requiring state and local agencies to contribute a larger financial share to infrastructure projects, with the federal government pledging only 20% of project costs through grant awards.

This strategy would likely force more states to seek out private-sector partners for big infrastructure projects or adopt measures similar to those in California and Indiana, where lawmakers have raised gas taxes and other motorist fees to pay for repairs and upgrades to transportation systems, schools and other public assets.

Some states like Maryland have also turned to bond financing, both municipal and private activity bonds (PAB). Like municipal bonds, PAB’s are tax-free but allow private developers to take advantage of the low-cost borrowing usually reserved for local government agencies. The Purple Line light-rail project in Bethesda, MD, being delivered under a public-private partnership (P3), benefited from more than $300 million in PABs.

2018: The Year for Customer Experience Transformation

The customer experience as we know it is changing. The industry today is being transformed by some of the most significant technological developments of our generation including artificial intelligence (AI), big data, analytics and robotic process automation (RPA).

It is a fascinating and exciting time to be in the retail industry, and as we look into 2018, there are three important and transformative customer experience trends that we should be considering.

1. Rise of the Virtual Assistant
Artificial Intelligent virtual personal assistant (VPA) speakers, such as Alexa and Google Home, are going mainstream. In the first quarter of the first quarter of 2017, 710% more VPA speakers were sold than in the same quarter the year before.

Some businesses have started to use these devices to make day-to-day tasks easier, such as starting a conference call or scheduling meetings, but very soon these new “toys” used in the office will fundamentally change the way retailers across the world interact with customers.

Although Amazon has only just made it possible for third parties to create their own skills for Alexa, customer service companies are in full gear ahead. Alexa can now enable organizations to receive and respond to customer inquiries made through popular virtual personal assistant (VPA) speakers. Right now, for example, a customer can say to Alexa, “Alexa, open ABC Bank” to initiate a conversation and then the user can ask, “What was my last deposit?”

VPA speakers are going to be able to handle ever more sophisticated commands as the technology evolves and, much like the smartphone, consumers will depend more and more on these devices in everyday life.

2. Voice of the Customer (VoC)
Have you ever made business decisions based on customer feeling and emotions? You should try.

Research firm Forrester argues that in nearly every industry, emotion has a bigger influence on loyalty than that of effectiveness or ease of interaction. Forrester defines a VoC program as a systematic approach to collecting customer feedback, mining that feedback and data for insights, and then incorporating the insights into business decisions.

It is all about listening through data and analytics. Data-driven evidence from customer feedback and other data points can modify, optimize and transform every touchpoint for customers. The ability to capture customer feedback and use that to retain customers, increase revenue and grow, is causing more retailers to invest in the technology.

3. Agent of the Future
Robots are not replacing humans anytime soon, but they will continue to change the way we work.

As AI evolves, it will take on and support lower level, simple, day-to-day work, enabling agents to focus their time on resolving the trickiest customer calls. To make this effective, the agent of the future will need the knowledge and capabilities to handle more high-level conversations across various platforms and channels.

In 2018, and beyond, it will be vital that companies invest in providing the proper means for their agents to handle such calls. Training is important, but so is the technology and data available to them.

Retail is undergoing a transformation and old models, and ways of operating are being tested like never before. Get ahead of the trends above this year, and you will thrive.