Commercial Real Estate to Remain Steady in 2020

Commercial Real Estate to Remain Steady in 2020

By: Max Crampton-Thomas

2 min read February 2020 If there were ever a time or place to consider investing in commercial real estate, now would be that time and the Tampa Bay region would be that place. 2019 proved to be another banner year for the real estate sector and with interest rates remaining low, consistent inmigration into Florida and the Tampa Bay region, rising rental rates and ongoing outside investment into the area, all indicators point to 2020 being just as strong if not better for the commercial real estate sector. 

 

 

2 min read February 2020 If there were ever a time or place to consider investing in commercial real estate, now would be that time and the Tampa Bay region would be that place. 2019 proved to be another banner year for the real estate sector and with interest rates remaining low, consistent inmigration into Florida and the Tampa Bay region, rising rental rates and ongoing outside investment into the area, all indicators point to 2020 being just as strong if not better for the commercial real estate sector. 

“Around $17 billion has migrated to Florida, the No. 1 destination for capital in the country followed by Texas, at $2 billion. People are leaving states that are not tax friendly and coming to Florida, which is very tax friendly. Because the stock market can go up or down, hard assets are attractive. The returns investors can get in commercial real estate are attractive. People are looking at commercial real estate as a means for retirement, passive income,” Christopher Travis, sales manager for the Tampa office of Marcus & Millichap, remarked to Invest:.  

Perhaps the clearest indication of the sector’s continued success has been the large-scale mixed-use projects that are happening throughout the region. Larry Richey, the managing principal and Florida market leader for Cushman & Wakefield, spoke about what these developments mean for the sector. 

“The most talked about projects happening in Tampa Bay at the moment are in the office and mixed-use sectors. In the Hillsborough County market, we have four mixed-use projects that are all very active. Those four new projects are Water Street Tampa in Downtown, Heights Union just on the northern fringe of Downtown, the Midtown project that is being developed at the intersection of I-275 and Dale Mabry and fourth is the MetWest project in the Westshore District on Boy Scout Boulevard,” Richey told Invest:. “We are seeing the highest office rents in the history of the Tampa Bay area right now, and it is because we have the strongest demand for office space that we have ever had. This is good news because it means new development and jobs in the commercial real estate sector. It also means that buildings that were always below what they should have been charging are now charging rents that are justifiable based on the investment that people have put into these properties.” 

These projects, and ultimately the continued success of commercial real estate in Tampa Bay, are the product of taking note and early adaptation to emerging and developing trends within the industry and local economy. While basically all subsectors of commercial real estate are prospering, there are some that industry professionals are keen to keep a particularly close eye on. What may come as a surprise to some is that one of these prosperous submarkets is retail. 

“The retail market continues to be very strong here.  Demand continues to exceed supply in many of the strongest retail markets throughout Tampa Bay.  This continues to drive up rental rates and has limited cap rate decompression for stabilized retail assets,” Scott Dobbins, the founder and principal of Hybridge Commercial Real Estate, said. 

Travis agreed that retail remains one of the stronger segments in commercial real estate, touching on the fact that the e-commerce trend is not as bad as some may think. “Retail has remained strong during the real estate market recovery. Everybody was scared about e-commerce, but it only makes up about 14% of the overall market. Retail is going to be just fine, especially retailers like dollar stores, gas stations, and fast food.” 

While all indications point to another strong year for the commercial real estate market, it will not be without its challenges. Besides 2020 being an election year that could possibly send the national economy into flux, Tampa Bay must address unaffordability in the housing sector and ongoing challenges with transportation in the region. 

Nonetheless, commercial real estate professionals continue to have a positive outlook for the Tampa Bay Region. 

It has always been in the core submarkets, like Westshore and the Central Business District (CBD). Historically, they’ve been the focus of development and I think that will continue. We are seeing new developments in areas like the Heights and Water Street Tampa. Time will tell how these developments impact the marketplace. I think they are both going to be extremely successful, but they are on the outskirts of the Tampa CBD. Perhaps we will see the core of the Tampa CBD start to shift,” Gary Godsey the Managing Director for JLL, said to Invest in regards to the next year for commercial real estate. “Additionally if you just look at the rooftops in Pasco County and in South County, it makes sense for these areas to be considered for future commercial real estate development, despite the lack of transportation. I think we will see developers get creative and maybe look at areas like this. If you look at the I-4 corridor, that is going to continue to be a main driver in the industrial sector.”

To learn more, visit:

https://www.marcusmillichap.com/about-us/offices/tampa-florida

https://www.cushmanwakefield.com/en/united-states/offices/tampa

http://www.hybridgecre.com/

https://www.us.jll.com/en/locations/southeast

 

 

Spotlight On: Patrick Mahoney, Principal, President & CEO, NAI Realvest

Spotlight On: Patrick Mahoney, Principal, President & CEO, NAI Realvest

By: Yolanda Rivas

2 min read February 2020 — Orlando’s real-estate scene has witnessed major changes as people look more for destination experiences and after Amazon changed the rules of retail. While some regions within Orlando are running out of development land, Patrick Mahoney, principal, president and CEO of NAI Realvest, is convinced there is still room for growth.

How has real estate demand evolved in Orlando?

The changes in retail are the talk of the town. We work with Planet Fitness among several other retailers that are marketed as destinations. You still see the national value tendency with examples like HomeGoods and T.J.Maxx. Similar businesses are still coming in and leasing space. Forever 21’s bankruptcy filing had more to do with overleverage. It was more about debt rather than retail. There are certain malls, such as Fashion Square Mall, where a complete redo is scheduled. In these cases, the anchor tenants are likely not going to stay, to the benefit of a more multifamily, mixed-used project. The other extreme is the strip malls: small clothiers that focus primarily on making sure they are in the right location. Park Avenue and Winter Garden are good examples of that. An increasing number of these small boutique clothiers are going to have a small store presence but will start selling online.

 

What advice would you give small retailers to thrive in this market?

It boils down to a two-pronged approach. First, demographics. Remain aware of changes within the demographics around their location and adapt to those changes. Second, plan the required resources ahead of time to weather such changes and make the best use of the available land and redevelop the property. 

 

What primary challenges is your business facing?

The first thing that comes to mind is competition. There is virtually no barrier to entry when it comes to obtaining a real estate license. The spectrum goes from a residential broker dipping its pen in commercial while working from home with no overhead, to groups like us with lots of overhead and a fully-staffed office, and finally the multibillion-dollar competitors that we compete with, such as CBRE. To maintain a sharp edge, we engage in a continuous improvement process, embracing new technology. We invest in the latest software and research tools. As members of NAI Global, we can compete with multibillion-dollar real estate companies on either a national or global stage. Because we are locally owned, we have greater local knowledge and flexibility in the marketplace than our large competitors do. We have the best of both worlds: being able to compete with either the big and small real estate firms. 

 

Financing also remains an issue. Coming out of the last recession we learned who to approach, depending on the property type and what we are trying to accomplish. Increasingly, we are turning to private rather than bank debt. Banks usually are on the fence over lending on land. 

 

Manpower is another challenge. I would consider Orlando a zero percent unemployment market. Whether it is salespeople, administrative help or maintenance engineers and property management, finding talent is difficult. 

 

What is your outlook on commercial real estate in Orlando?

We remain quite bullish about the market, particularly Florida and Central Florida. We are positive that 2020 will be another solid year as there are no variables telling us otherwise. Recruiting is at the top of our list. Our operational focus will remain centered on delivering excellence for our clients, our brokers and property owners through continual improvements. We do not skimp on our resources and invest in the best software available to manage our properties, such as Yardi. We are implementing the tip of the iceberg. We will also continue to guarantee we are as financially secure as possible through solvent debt levels. 

 

To learn more about our interviewee, visit:

NAI Realvest: http://www.naiglobal.com/members/nai-realvest-maitland-orlando-area

Spotlight On: Leor Hemo, Founder & Managing Principal, Vantage Real Estate Services

Spotlight On: Leor Hemo, Founder & Managing Principal, Vantage Real Estate Services

By: Yolanda Rivas

2 min read January 2020 — Real estate investors from high-valuation areas like New York, North Jersey, Texas and California are bringing considerable activity to the Southern New Jersey region due to its affordability, according to Leor Hemo, founder and managing principal of Vantage Real Estate Services. The Invest: team recently interviewed Hemo about the strengths, challenges and areas of growth in South Jersey’s real estate market. 

 

 What unique investor opportunities does South Jersey offer?

South Jersey geographically is positioned to attract not only investors but also companies that require space, such as those in logistics, transportation and warehousing. South Jersey has the land mass to allow for large-scale, industrial developments. I-95 and or I-295 and the New Jersey Turnpike connect to New York, Washington, D.C., Maryland, and further down to the Southern states. Comparatively, the eastern Pennsylvania and Philadelphia markets lack this land mass. With the national economy so strong, low interest rates and small business confidence up, we are experiencing an influx of small businesses leasing office space. There has even been increased activity in the retail world in the past few years. Retail space is being occupied by service providers, such as healthcare and financial services. There is a soaring demand for large-scale developments for multifamily projects in South Jersey. 

 

What is the landscape for healthcare real estate?

The large healthcare systems are taking over the traditional family practices and specialties. Dental specialists and oral surgeons are active in starting new practices or expanding them. The same can be said for physical therapists and chiropractors. These specialty practices are growing and fueling a large demand for space. By the nature of their business, chiropractors, physical therapists and dentists are always interested in retail space for visibility and exposure purposes.

 

What challenges do you face in South Jersey?

The biggest challenge is the bureaucracy from our local governments, as well as the tax burden on businesses and individuals. Real estate taxes are still the No. 1 issue for property owners and businesses because of the impact on rents. Some regulations in place are hampering business and growth.

 

What is your outlook for the company and the market?

In terms of Vantage Real Estate, we just opened a new office in Philadelphia. It is a market we are rapidly growing into. We are also expanding our services portfolio: We have expanded our services and specialties and offer healthcare real estate, business brokerage, investment sales and multifamily as well. If the economy does well, South Jersey will do well, provided the regulatory framework remains unrestrictive. 

 

To learn more about our interviewee, visit:

Vantage Real Estate Services: https://www.vantageres.com/ 

 

Spotlight On: Sean Beuche, Regional Manager, Marcus & Millichap

Spotlight On: Sean Beuche, Regional Manager, Marcus & Millichap

By: Yolanda Rivas

2 min read December 2019 — 2019 was a steady year for Philadelphia’s commercial real estate. The market’s affordability, the city’s position as a logistics hub and its attractive environment for startups has driven strong demand. One of the areas seeing a high amount of activity is King of Prussia. Commercial real estate firm Marcus & Millichap recently relocated to the area, attracted by the growth in the region. Regional Manager Sean Beuche discussed with the Invest: team the neighborhoods seeing the most growth in commercial real estate and his outlook for the sector as we enter 2020. 

Marcus & Millichap relocated its Wynnewood location to King of Prussia. What makes that community attractive?

This relocation highlights our commitment to the area and our optimism about the local economy. The construction and new development activity going on in the King of Prussia market is very attractive. Numerous businesses and baby boomers are moving to the area, where there is more land available, beautiful housing stock, good school districts and less traffic congestion.  King of Prussia is a nexus of a variety of different interstates and that strategic location amid emerging growth and development is much more desirable for us. In addition, we are expanding in a nicer Class A office space that provides our clients and agents with a much brighter and enjoyable place to do business.

 

Which areas are the fastest-growing for commercial real estate in Philadelphia?

We’re seeing fast appreciation in the Point Breeze market, while Fishtown and Kensington have been hot for some time. We are also seeing numerous investments in areas further along the Main Line region. The Lehigh Valley and Central PA markets are both driving a lot of new investors into Pennsylvania. As the yields continue to deliver in some of these secondary and tertiary markets, investors want to move outside of areas where they’re getting squeezed by some popularity. There is a bit of a ripple effect being created by the economy being strong for a long time, and many of the investments that have been made or taken in these core markets are pushing investors further out. 

 

What is your outlook for Philadelphia’s real estate sector over the next 12-18 months?

 

The outlook is positive. There is uncertainty from a political standpoint, we are dealing with some of the trade wars and we are very interested in seeing where that shakes out. We focus on private and middle market clients and, in times of uncertainty, we provide them with market research about existing opportunities. From an income standpoint, rents in the Center City market and many of our urban infill markets are pushed up, and we would need to see some relevant margin changes in household income to afford a greater rent increase. Our clients are seeing strong fundamentals in the main groups that we focus on, which are multifamily, industrial, office and retail. As that financing loosens up and remains affordable, deals are very quickly moving off our shelves and into the hands of investors.

 

To learn more about our interviewee, visit:

Marcus & Millichap: https://www.marcusmillichap.com/ 

 

Spotlight on: Adam Mullen, Market Leader, Greater Philadelphia Region, CBRE

Spotlight on: Adam Mullen, Market Leader, Greater Philadelphia Region, CBRE

By: Yolanda Rivas

One of the main drivers of Philadelphia’s economy is the real estate industry, attractive for its affordable prices, advantageous location and the Pennsylvania I-78/I-81 Corridor. A recent report from commercial real estate firm CBRE showed the corridor saw a total of $132 million in capital investment during Q3 2019. In an interview with Invest:, Adam Mullen, CBRE’s market leader for the Greater Philadelphia region, discussed the areas seeing the most growth in Philly’s commercial real estate and what is spurring growth in the market.

 

What are the lines of business seeing the most growth or demand in Philadelphia today?

It is hard to understate the momentum we are witnessing in the industrial and logistics space. The shift to e-commerce and modernized supply chains have not only created one of the largest warehouse distribution markets in the world in our backyard, the Pennsylvania I-78/I-81 Corridor, but demand continues to be robust for Philadelphia’s industrial properties. A variety of users, including retailers and third-party logistics companies, are driving demand so they deliver goods to consumers more efficiently than ever before. 

At the same time, the local retail market is as vibrant as it has been in years. Philadelphia is at the top of everyone’s list as a major gateway market in the retail space. We have the largest mall on the East Coast, the King of Prussia Mall, which is a prime example of the consumption activity in our region. Also, the food and beverage sector is one of our leading sources of demand, not only in the suburbs and shopping centers, but also in Downtown Philadelphia. Due to the opportunity we see in the retail market, we have had an extreme focus on our retail business in Philadelphia, doubling down on our investments over the last few months. 

We can’t overlook the dynamism in Philadelphia’s office market. Our Downtown office market is larger, in terms of square footage, than Downtown Los Angeles or Downtown Houston, and we are seeing considerable demand from not only tenants but also investors, particularly from Asia and the Middle East. 

Finally, we continue to watch the rise of the multifamily market in the region. Due to low interest rates and a plentitude of available debt capital, the demand for multifamily assets in greater Philadelphia has exploded over the past few years. 

What are the major drivers of growth for Philadelphia’s real estate sector?

The local economy is very strong and is being driven notably by the “eds and meds” segment, which has a unique presence in the Philadelphia region. Not only do the local educational and health services institutions have a huge effect on the economy and are growing rapidly, but they also represent the largest share of our employment base. Consequently, this concentration of talent has created a boom in the local life sciences industry, which is experiencing rapid growth, notably in central Philadelphia where most of the region’s major academic and healthcare institutions are clustered and spurring innovation and new companies. Not incidentally, we are seeing the highest office rents we have ever seen in Center City, and also experiencing a significant uptick in office tenants relocating to Downtown Philadelphia.

To learn more about our interviewee, visit:

CBRE: http://www.cbre.us/people-and-offices/corporate-offices/philadelphia 

Spotlight on: Gary Jonas, President & Principal, The HOW Group

Writer: Yolanda Rivas

2 min read AUGUST 2019 — Philadelphia’s real estate market has been growing steadily over the last few years. Many international and national investors are targeting the sector, where rents are affordable, when compared to surrounding markets, and there are numerous low-risk investment opportunities. This week’s “Spotlight On,” with Gary Jonas, president and principal of the The HOW Group, illustrates the landscape for the city’s real estate industry, including the most in-demand services, top neighborhoods and the trends in the sector.

What HOW Group business lines are seeing the most growth in Philadelphia today? 

The two divisions that are seeing the most growth are construction and real estate. We attribute that to the hole in the market between companies working for themselves and building a small number of units and companies building hundreds of units. There is a spot in the middle where people need contractors to build 50 to 100 units. It is hard to find companies to fill that space because of the labor shortage. It is also hard to find companies that are capitalized enough to work in that space. Because we are able to fill that gap, we have seen significant growth in our construction division over the last year. There is a huge need for that type of work.

Our real estate company does a lot of new construction sales, which speaks to the Philadelphia market. We expect this division to double its business this year. We made a big investment three to five years ago to launch this division, and now we are seeing significant growth. Between those two companies, we are going to do north of $100 million this year.   

 

What areas of Philadelphia are most in demand in residential real estate?

There is a huge growth opportunity in neighborhoods where you can provide housing that is in the $300,000 to $400,000 range. That is an underserved market and there is a lot of development starting to happen in that price range. For example, Mantua is a neighborhood right on the edge of Schuylkill Yards, education centers and the development going on in the area, and it is a great place for these types of projects. University City has a 17% to 20% homeownership rate, but it’s the second-biggest job hub and there is a need for affordable housing in the area. The edges of University City are primed for significant growth. There is a neighborhood next to Grays Ferry, known as the forgotten bottom, which is another great area for development because of its location and access to major highways. We also expect to see growth in south Philly. 

 

What are some trends in Philly’s real estate sector?

We are seeing people who want to do co-living spaces. We are seeing a lot more buildings that provide a product similar to Airbnb. We are also starting to see more micro units because affordability is starting to become an issue. As construction and land costs continue to rise, we are seeing unit size starting to decrease and become a popular option. Because of the inadequate labor pool, we are also starting to see more manufacturing stock like modular and prefab units being placed.

We are always looking to create advancements within the construction division. We are working with manufactured housing developers to figure out ways to use technology to build in a more efficient and cost-effective way. We are working with foundation companies that use proprietary systems and build foundation walls that are more energy efficient and cost-effective than concrete. We are doing these things to differentiate our products.

 

How does The How Group impact the community?

Our charity division, HOW Charities, supports underserved families with homeownership and financial literacy. We want to get people to financial freedom and this year, we are donating two houses. We are working with the Building Industry Association of Philadelphia (BIA) to figure out ways to duplicate this effort on a broader scale. Along with the BIA, we are looking at solutions with the private sector toward affordable housing and job placement within the industry. There is a lot of momentum because of how great the sector and the city are performing.

 

To learn more about our interviewee, visit:

The HOW Group: https://howgroup.com/