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CRE Investment Market Defies Economic Headwinds
GlobeSt.com :: June 28, 2011
Last year’s robust recovery in commercial real estate sales volume won’t be repeated but the movement toward more normalized trading activity is on track. Several factors skew the numbers behind last year’s recovery and this year’s growth. First, last year’s near doubling of sales volume to $160 billion in the four major property types – apartment, industrial, office and retail – came off the extremely low sales volume of 2009. Second, the recovery is still being driven by a top-down movement of capital with institutional and major private investors dominating the market with $20 million-plus acquisitions, usually of higher quality properties in primary markets. In the past 12 months, the dollar volume of $20 million plus transactions has jumped 160%, compared to a 35% jump in the $1 million to $20 million segment. Public REITs, pension funds and large national private investors remain dominant buyers, particularly public REITs whose low cost of capital and rich valuations have positioned them well to lead development and acquisition. Trading activity among smaller private investors has lagged in the rate of improvement but this is mostly a result of a smaller decline in activity during the financial crisis. Overall sales volume is on track to increase by 20% to 30% over 2010 to $245 billion. This is similar to the 2003-2004 levels, which provide a good benchmark for a generally normal trading environment. This level of activity is fueled by low interest rates, improved availability of financing, a sense that pricing has generally bottomed, expectations that at least a moderately paced economic recovery will endure beyond the current slowdown, little new supply coming online in most product types over the next two to three years and competitive overall yields compared to alternative investments, with the exception of ultra-low cap rate trophy assets.
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Office Sales Confined to Core Markets, Trophies
GlobeSt.com :: July 20, 2011
With the surprising amount of large office towers being sold and put out for sale this year, one would think that the recent recession that killed jobs and plunged rents was a decade or so in the past. However, office experts say that unless a property is in one of four-to-five core markets, or an extremely well-leased, well-positioned trophy property in a secondary market, the chances of it attracting the wave of high-priced buyers is probably still nil. Camille Julmy, vice chairman at locally based US Equities, tells GlobeSt.com that like everyone else in the industry, he’s pleasantly surprised at the amount of money available looking for the right transaction in the core class A markets of New York City; Washington, DC; San Francisco; and even Boston or Seattle. Properties that have sold include Market Square in Washington, DC selling for $615 million, Fosterlane buying 750 Seventh Ave. in New York City for $485 million and 300 N. LaSalle in Chicago selling for $505 per square foot. Relaxed lending requirements combined with low interest rates have created a high-yield scenario in these markets, but the building still needs to be worth the attention. “There has to be great occupancy with long-term leases, as risk lowers the price for a top property substantially,” Julmy says.
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U.S. to Close 800 Computer Data Centers
The New York Times :: July 20, 2011
The federal government plans to shut 40 percent of its computer centers over the next four years to reduce its hefty technology budget and modernize the way it uses computers to manage data and provide services to citizens. Computer centers typically do not employ many people to tend the machines, but analysts estimate that tens of thousands of jobs will most likely be eliminated. The federal government is the largest buyer of information technology in the world, spending about $80 billion a year. The Obama administration, in plans detailed Wednesday, is taking aim at some of that by closing 800 of its sprawling collection of 2,000 data centers. The savings, analysts say, will translate into billions of dollars a year and acres of freed-up real estate. The government is following the lead of private business. For years, companies have been using software that shares computing tasks across several machines in a data center. The task-juggling technology enables computers to run at far higher levels of efficiency and utilization than in the past, doing more computing chores with fewer computers and fewer data centers. In an interview, Vivek Kundra, chief information officer for the federal government, explained that the data center consolidation was part of a broader strategy to embrace more efficient, Internet-era computing. In particular, the government is shifting to cloud computing, in which users use online applications like e-mail remotely, over the Internet. These cloud services can be provided by the government to many agencies or by outside technology companies.
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Are E-Commerce Sales Driven by a Particular Retail Segment?
CBRE Econometric Advisors :: July 18, 2011
There have been increasing fears that e-commerce retail sales are taking away from store sales at retail centers. As yet, there is no concrete evidence that this is occurring, but perhaps we can identify where the risks lie for certain retailers—and thus certain retail centers—by determining what is driving online sales. Consumers flocking to the internet, replacing their store purchases with online purchases would represent a downside risk to the consumer recovery's benefit to retail centers; identifying any such factors that could derail or slow the recovery, is important. It is no secret that e-commerce sales have been growing significantly since the consumer recovery began in late 2009. Tracking electronic shopping and sales by mail order houses (as an indicator of non-store sales) on a monthly basis has shown growth to be in the double digits since the 2009 holiday shopping season. As a subset of this category, e-commerce sales include only those sales that were transacted online. With more and more retailers joining the online community for the first time or expanding their online practices, the threat of online sales taking sales from brick and mortar stores is becoming greater. If the effect is hitting certain retailers or segments harder than others, by breaking down e-commerce sales (e-commerce), we may discover a driver behind this growth. According to the Census Bureau, e-commerce sales have recorded double-digit growth (a similar trend to the electronic shopping and mail order houses sales) since the fourth quarter of 2009, which was the point from which the consumer recovery slowly took shape. Accounting for almost 6% of core retail sales, e-commerce's share has been growing fairly consistently and rapidly since 1999; during the recent recovery, the share has gone from 5% to 5.6%, proving that e-commerce sales are a forced to be reckoned with. It is not surprising that e-commerce sales has shown such strength during the recovery; with deep discounts and free shipping and now high gas prices, consumers are looking to the internet to get the best deals and save themselves the trip to their local retail center.
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USPS Picks CBRE As Sole Provider
GlobeSt.com :: July 20, 2011
The US Postal Service, beleaguered by budget woes, has decided to consolidate its corporate real estate services operations under one service provider. CB Richard Ellis is the lucky recipient of this assignment, which includes a portfolio of some 35,000 facilities that total more than 300 million square feet. CBRE has been working with the USPS since 1997--but as one of many service providers. There is no dollar value assigned to the new contract, a spokesman for the USPS tells GlobeSt.com. "Under the contract we define the scope of the work for each transaction," he says, adding that there are approximately 200 transactions a year. CBRE’s Brian Murphy led the pursuit team, which consisted of partners in the local office as well as in Denver and New York. John Chichester will serve as the alliance director for the account. CBRE declined to comment on the deal beyond the press release. Under its new contract with the USPS, CBRE will provide transaction management services, including leasing and disposition. For several years, the Postal Service has been culling, consolidating and otherwise streamlining its operations--including its real estate--in order to meet its budget constraints, a separate issue from the federal deficit drama currently underway in Washington, DC.
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