Source: Adobe Stock.

Innovating today’s office

Office space continues to see a shift between an overhead expense and a recruiting tool. Tenants are citing “walkability” as a top priority in site selection as the convergence of live/work/play becomes increasingly popular and an amenity, in and of itself, for attracting talent. Space efficiency remains a strong component in office design, and occupiers are focused on having the right balance of collaborative and focused areas, which can vary widely depending on the tenant’s industry or even an individual business unit. Robust connectivity in WiFi, cell phone reception, and antennae systems are a must-have for many companies as well. Aesthetically, there have been more requests for flexibility in a space’s ceiling system to allow for an open, exposed appearance; additionally, enhanced natural lighting and brighter color selections are all becoming more preferential among tenants and building owners alike.

Across the region, and throughout 2017, energy has been the standout industry for leasing demand in terms of square footage as oil prices continue to rebound, followed by the technology sector. The two major tech markets of Texas—Dallas/Fort Worth and Austin—are hot spots for net absorption growth; in fact, both metros are among the top 10 markets nationally when it comes to net absorption figures year-to-date. Office rent growth continues to be a prevalent trend among Texas and Oklahoma markets, with San Antonio’s downtown and DFW’s suburban product charting the highest annual percent growth, at 11.0% and 7.9%, respectively. The outlook for office capital markets in 2018 is positive with the Texas economy and fundamentals showing strength, including population growth and tenant demand.

Retail transformation

As brick-and-mortar brands continue to increase online business volume and incorporate omnichannel platforms into their day-to-day business model, they cannot rely on a single distribution center. Additional, smaller warehouses that reside closer to both consumers and traditional retail locations will allow for expedited shipping, quicker returns, and a nimbler approach to shifting inventory requirements. As the traditional supply chain is upended, and massive amounts of data are analyzed by retailers accepting this shift, companies are able to improve delivery services, become more efficient, and keep their customers happy.

Interestingly, in the past couple of years, traditional online-only retailers have started opening brick-and-mortar stores in major cities and suburbs throughout the country, looking to capitalize on a healthy demand for a physical presence. The vast majority of consumers still prefer to shop at a brick-and-mortar location seeking the tactile experience, social opportunity, and personalized services that cannot be matched online. The demand for an experience in retail is paramount to incorporating an omnichannel presence for both brands and retailers. Warby Parker, Bonobos, Untuckit, and Modcloth are all examples of major e-commerce players who have found success with traditional locations throughout Texas.

Industrial resurgence

In the last five years, the industrial sector has emerged as a leading performing property type. Industrial occupancy is at an all-time high and its annual returns are pushing near 13%, more than double compared to all other major property sectors. E-commerce is often credited behind the recent industrial rally, and this notion is difficult to argue against. Online sales continue to increase at a growing rate (2017 Black Friday and Thanksgiving online sales were up 17.9% compared to last year) and CBRE Research estimates that close to 5%, or 13 million sq. ft., of all Texas industrial activity since 2010 has been directly captured by e-commerce.

What started as a market cycle largely dominated by the large big-box warehouses, an average of 74% of new deliveries since 2012, has quickly encompassed a market for smaller, last-mile, and increasingly institutionally-owned facilities. While specifics of what constitutes a last-mile facility may vary by market, the one commonality is location—inside city cores with resident/employee density. This comes with challenges due to land availability, zoning, and overall inefficiency of existing (generally older) space. This is emerging as an opportunity for investors to think outside the traditional industrial “box” when it comes to meeting future tenant demand. While there may not be a multi-story warehouse in Texas anytime soon, redevelopment of older properties into streamlined distribution centers is certainly gaining traction as pressures for speed and service push distributors and retailers evermore closer to consumers.

Looking ahead to 2018

CBRE Texas-Oklahoma Research has worked hard to be ahead of trends and on top of changes that impact our industry. Looking ahead, we expect 2018 to be just as dynamic and fast-paced for our growing region. Stay tuned!
 

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Robert Kramp 
Director of Research and Analysis - Texas-Oklahoma-Arkansas Region
T 713 577 1715
robert.kramp@cbre.com