Categories Narrative, Office Market

Operating Expenses? Yes! And It’s Important.

For the past 30 years we have been analyzing operating expenses for the tenants we represent. It’s vital for tenants to understand how operating expenses work because this is a huge potential long term and expensive hidden cost.

Here are a few items to watch out for in a tenant lease:
–Not getting a grossed up and approximate base year at the time of your lease negotiations.
–Annually monitoring pass through common area maintenance (CAM) reconciliations.
–Analyzing controllable expenses.

We do all this for our clients. Below is a quick summary graph and an additional link to the complete report of Metro Phoenix office expenses. We have partnered with Bob Knight of Knight Management on this project since 1991. Some 2015 key findings are:

1-Overall expenses peaked in 2008. Today they sit just 7% below that peak and are climbing.
2-Real estate taxes today are 80% of what they were in the 2008 peak, and similar to 2002 levels.
3-Since this report began, Repairs and Maintenance have increased the most (2013 was 4x the amount of 1977) while other line items have experienced more gradual increases.

Over the next month, you will be receiving your “cam rec” notice. If you want our team to review it to make sure you are in line with your lease and particular submarket, give me a call or email.

Andrew
602.954.3769
acheney@leearizona.com


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Click here for the entire report.

Categories Narrative, Tech Industry

The Rise of Robotics

As you know, I make my living in the office space market. However, I still like to keep up with trends outside of the industry and how they will eventually affect office space. Below is an article about the megatrend now taking place in robotics and what amazing changes are occurring. One of the reasons job recovery has been slower than in the past is companies are becoming more efficient and robotics are coming of age. These current changes are affecting manufacturing and distribution. In the coming decade, they will touch all aspects of our lives and how this will change office space usage is still up for grabs. Although, one thing is certain, change is happening. Fast.

Take a look below at the article. If you want to see some cool robots in action, click the video below. I think you will be amazed.

Have any thoughts on what this could lead to for office space? So do I, give me a call if you want to discuss. 

 Robot Dog Video

Craig
602.954.3762
ccoppola@leearizona.com

P.S. We were proud to represent US Bank National Association in negotiating their continued stay at the US Bank Center at 101 N. First Avenue in Phoenix. For a larger image, please click here.

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 The Rise of Robotics

bcg perspectives logo

By: Alison Sander and Meldon Wolfgang
 
August 27, 2014

robotics

When people think “robots,” they often envision vaguely humanoid sci-fi-movie beings with strange speech patterns. But today’s state-of-the-art robots are a far cry from that outdated stereotype. And they are showing up for work. Increasingly flexible, responsive, sensing—even humanlike—robots are beginning to augment and replace labor in a wide range of industries: a megatrend that is transforming the economics of manufacturing and reshaping the business landscape.

Already used to fight wars, remove dangerous land mines, and fill customer orders, robots can also clean, dance, and play the violin; assist with surgery and rehabilitation, bathe elderly patients, measure and deliver medication, and offer companionship; and provide disaster relief, report the news, and drive cars. In short, robots can perform quite a few of the jobs that humans currently do—often more efficiently and at a far lower cost.

Because robots can sharply improve productivity and offset regional differences in labor costs and availability, they’ll likely have a major impact on the competitiveness of companies and countries alike. For instance, countries with a greater number of robotic programmers and robotic infrastructure could become more attractive to manufacturers than countries with cheap labor. Changes such as these will fundamentally alter the competitive dynamics of the global economy.

Despite the potentially far-reaching implications of this trend, few companies have thought about how the next generation of robotics will affect their workforce, operations, business models, and competitive position. And even fewer have considered which approach to embracing robotics will deliver the most sustainable advantage.

Tracking the Megatrend
The size of this coming wave of robotics is staggering: spending on robots worldwide is expected to jump from just over $15 billion in 2010 to about $67 billion by 2025. (See Exhibit 1.) Driving this growth is a convergence of falling prices and performance improvements. The cost of high-quality robots and components is dropping rapidly, while CPUs are getting faster, and application programming is getting easier. As robots become cheaper, smaller, and more energy efficient, they gain flexibility and finesse, increasing the breadth of potential applications.

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Initially, robots were used mainly for dirty, dull, repetitive, or dangerous tasks that did not require high precision, such as painting car doors or spot welding. Today’s robots, by contrast, are moving into a new range of precision applications far beyond the manufacturing realm. For instance, they’re enabling food processors to make products untouched by human hands. At Sweden-based Charkman Group, robots slice and pack high volumes of salami, ham, turkey, rolled pork, and other cooked meats. At the heart of the line is an intelligent portion-loading robot that can handle 150 picks per minute across multiple sizes and types of meat.

The fact that robotics and automation are crossing price, performance, and adoption thresholds is a clear indication that the robotic megatrend is growing in relevance and a tipping point may be near.

Where is demand coming from today? “Robot density,” a metric indicating the number of robots per 10,000 manufacturing workers, is currently highest in South Korea and Japan. Approximately, 40 percent of the industrial robots used today are in the automotive sector, in which robot density already tops 1,000 in five countries—Japan, France, Germany, the U.S., and Italy. But demand for automation isn’t limited to developed economies. China is the fastest-growing market for imported industrial robots, likely due in part to the country’s realization that it can no longer compete on low-cost labor alone.

But another factor may be fueling demand: analysts expect the workforce growth rate to decline worldwide, and China, Germany, Japan, and South Korea will be particularly affected. No wonder growing numbers of countries are looking toward the future and turning to automation of everything from industrial and agricultural production to human caretaking.

In fact, as robotic technologies advance and their potential to affect more and more industries increases, the main factors holding back future adoption rates may be the concerns of politicians, the public, labor unions, and regulatory agencies, as well as human comfort levels at having robots drive our cars, care for our parents, and displace current workers.

From the Factory Floor to the Personal Realm
Robotic applications have evolved over time. Historically, robots were used in manufacturing largely for repetitive tasks that require speed, strength, and moderate precision, such as material handling and processing, welding and soldering, and assembly. With their growing computing power and the development of miniature precision sensors, robots are moving from making cars to driving them. As they become more affordable and application programming becomes easier with more sophisticated user interfaces, robots are making small-batch production economically more feasible, because line changeovers are much faster. Given that product life cycles are getting shorter and just-in-time manufacturing helps minimize the need for inventory, robotic flexibility and responsiveness are important benefits. And since many of the new robots have multiple arms, they can multitask with ease—and without losing focus. In the Netherlands, Philips uses 128 robots to make razors. The only humans are the nine workers who perform quality checks.

Robots can also do without lighting, heat, air conditioning, supervision, food, and bathroom breaks. As a result, “lights out” manufacturing plants that offer significant cost and energy savings are emerging. At some factories, robots are even building other robots, producing about 50 robots per 24-hour shift and operating unsupervised for as long as 30 days at a time. Clearly, the robotic megatrend is fundamentally changing the economics of manufacturing.

Industries with complex supply chains may also benefit from robotics. Consider, for instance, how robots might automate mine-to-port operations. Automated drilling and haulage from the mine would reduce the need for workers in remote locations, increase safety, and improve asset utilization. Driverless trains might transport the loads to ports, where robotic operators would load the ships using sensors such as visual and thermal cameras and lasers. The whole supply chain might be managed remotely from a control center that would manage end-to-end logistics, optimize operations, and minimize waste. Rio Tinto, a global mining-and-metals company, is already exploring these possibilities with its Mine of the Future initiatives, and it is realizing safety, efficiency, and productivity gains. The same concepts might be applied to the supply chains of other industries.

Nonindustrial applications are also emerging, changing competitive dynamics in sectors such as retail. For instance, Amazon.com, the world’s largest online retailer, paid $775 million in cash in 2012 to buy Kiva Systems, which makes warehouse robots. Small, fast, and flexible, these robots are constantly in action, moving large merchandise lots from shelves to the packing and shipping areas. Once a Kiva customer, Amazon acquired the robot maker to improve the productivity and margins in its massive network of warehouses and fulfillment centers. The move has helped Amazon maintain its low-cost advantage and stay a step ahead of the competition by providing a key advantage: the ability to offer one- and two-day guaranteed delivery for a wide range of goods. The company recently announced plans to increase the number of Kiva robots from 1,400 to 10,000 by the end of 2014, which could cut fulfillment costs for an average order by 20 to 40 percent. If Jeff Bezos has his way, robotic delivery drones will be next.

Megatrends affect different industries in distinct migration waves over time. For instance, e-commerce started with travel, books, and music, and then rapidly expanded into virtually every other product category and industry. The same dynamic is beginning to play out in the field of robotics. As prices come down and new performance thresholds are crossed, robots are migrating from industrial and military uses to the personal-service realm, taking on the roles of caregiver, security guard, and companion. Honda is investing in robots that will provide assistance to people such as the elderly or disabled who have mobility problems. In 2000, the company unveiled ASIMO (the acronym for Advanced Step in Innovative Mobility), a sophisticated humanlike robot whose wide range of motion allows it to run and climb stairs.

Agricultural robots, or agbots, are being designed to pick fruit and vegetables, to minimize harvest time pressures, and to prepare for the day when labor laws make it tougher to get large numbers of migrant workers to help with harvesting. Tracking M&A activity related to robotics shows that new players are entering the field. (See Exhibit 2.) For instance, Google has bought more than eight robotic-related companies in the last year, prompting speculation about its plans for the future. The Google car, which drives itself and has a virtually unblemished safety record of 700,000 accident-free miles, is approved for use in the states of California, Florida, Michigan, and Nevada. Inventions such as these hold enormous promise for the elderly and handicapped—not to mention improving the safety of our roads and the ease of our commutes.

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Capitalizing on Robotics

Robots can fundamentally change how work gets done. They can match human performance and even improve upon it in many areas. To prepare for and profit from the robotic megatrend, companies can start by identifying the following:

Strategic Considerations
Just as robotics will mature at different rates in different sectors, the implications and recommended actions will vary by business and industry. Still, the rise and expanding reach of this megatrend raises a set of strategic considerations.

Operational Flexibility and Financial Rigidity.
The speed and shorter changeover times of today’s robots can radically increase the flexibility and productivity of manufacturing and nonmanufacturing operations alike. But this benefit comes with the potential cost of decreased financial flexibility. When demand slackens, workers in many markets can be furloughed, laid off, or moved to other assignments, but debt payments on financed capital equipment such as robots are due each month if the equipment is not liquidated. It’s important to understand all the financial trade-offs.

Minimal Efficient Scale and Operating Architecture. The greater efficiency and speed of robots can change the calculus on decisions related to production facility size and footprint. For instance, it may make sense to have robot-enhanced plants close to local markets so that products can be finely tailored to local tastes; or to set up large robotic plants in countries with cheap energy, since labor costs and availability will be less critical; or to locate facilities in areas with strong cadres of expert workers and engineers who could partner with robots to drive advantaged economics; or to create a hybrid network that could be optimized for high-volume items in a few gigantic plants, while addressing the particular needs of high-value segments locally. Some companies are even splitting production into two shifts: daytime human and nighttime robotic or automated production runs, the latter requiring no on-site supervisors and the attendant overtime costs.

First-Mover Advantage.
Companies need to anticipate the robotic tipping points in their sector and move decisively. The cost advantage conferred by robotics will be whittled away as adoption becomes widespread. First movers will, therefore, capture a disproportionate share of the high margins that accrue to successful early adopters. This point is particularly true for companies that purchase and employ off-the-shelf robots.

Couture Versus Ready-to-Wear.
It may be possible to extend the competitive advantage of robotics by taking a proprietary, “couture” approach. Instead of purchasing off-the-shelf robotic applications that competitors also have access to, some forward-looking companies are investing in bespoke sensor and control-system technologies specifically tailored to their operations. Customized solutions such as these can fundamentally disrupt an industry’s dynamics and provide a long-term source of differentiated value. And they also represent a largely untapped opportunity for sensor and control system companies to partner directly with end users.

These four issues suggest a larger point: leaders must explicitly consider the capabilities and economics of robotics when making a broad range of strategic and operating decisions related to staffing levels, manufacturing footprint, facility location and size, and other aspects of the business model. Companies that fail to stay abreast of the robotic megatrend risk making suboptimal choices—and ceding the competitive high ground to rivals.


  
The megatrend toward mobile, autonomous, multipurpose, and bespoke robotics is gaining traction much more quickly than most corporate executives realize. Forward-looking businesses are already exploring ways to incorporate robotics along the value chain to reduce costs and improve performance. But perhaps the greatest promise lies with the power of robots to transform a company’s value proposition—and fundamentally change the competitive dynamics of an industry.

Categories Design, Narrative

Nesting in Office Space Design

OK, so I am not sure if this is pure genius or complete BS. Then again, I know nothing about anthropological research. Below is a short article that discusses the cultural norm of approximately seven people being the ideal group size. Your teams should be seven (plus or minus two), and your office space groups should be the same. Why?
–The team can build trust faster.
–No one team member can hide.
–Positive and negative behaviors stand out.
–Optimum size of groups are 6-8, extended families of 24 and tribes of 150 (See, is this genius?? Or BS?)

One other thought below is that your physical environment is one of five fundamental planks of your culture. Picking a great advocate, like our team of 6, to help you get into the right office space, designed for your culture at the right price is paramount to your team’s success. Give me a call to find out how.
 
Like the article below states, “Culture is the only sustainable competitive advantage.”

Craig
602.954.3762
ccoppola@leearizona.com


Why You Should Adopt Google’s Nested Approach To Office Layouts

Forbes

By: George Bradt
June 17, 2014

Google's Nested Approach to Offices
Español: Oficina del Googleplex español. (Photo credit: Wikipedia)

It’s all about trust, cultural norms and territoriality. The average family size around the world is seven people, plus or minus two. The optimal team size is seven people, plus or minus two. Google’s new facilities in Switzerland and Ireland are filled not only with wide-open spaces, but with rooms with eight desks in them. Coincidence? Not likely. The anthropological research across cultures indicates that groups of seven people, plus or minus two, create the strongest trust bonds and best reinforce cultural norms.

Woolsey Studios’ Kristine Woolsey took me through her research. She explained that “Google is not very forthcoming about their workplace research,” but you can look at what they are doing – like she did with their new office plans for Switzerland and Ireland. She explained the importance of considering trust bonds, cultural norms and territoriality in designing office spaces:
 
Trust Bonds
Groups of 6-8 people don’t really need a leader or a manager. Group members can operate on equal footings and guide each other. With a group that size, no one can hide. Positive and negative behaviors stand out. As previously discussed in Why You Must Lead Differently As Your Team Grows, teams of this size function like start-ups – or families. These are bonds you’ll want to strengthen by emphasizing environment and values. Physical proximity helps.
 
Cultural Norms
Culture is a group’s collective behavioral, relationships, attitude, values and environmental preferences and norms. These norms are driven by formal and informal reactions to stimuli like “organization charts, programs and amenities and facilities” and “will stick if groups are nested.” Any one person can hide in an organization of 1000 people. Individuals can’t in a group of 6-8. So nest groups of 6-8 in extended families of 24 in tribes of 150. This matters because culture is the only sustainable competitive advantage.
 
Territoriality
We humans are programmed to defend our territory when under threat. This is true for geography, homes – and offices. Woolsey related how Intel sent half their engineers in Arizona “out into the world.” The logic was that they should be spending so much time with clients and customers that they wouldn’t need permanent offices, but rather just flexible stations that they could use when they were in the office.
 
This works when people are comfortable that their jobs are secure. In Intel’s case, offices became a signal of job safety. Those in offices felt most safe. Those in cubicles felt somewhat safe. Those with flexible stations felt uncomfortable and stopped coming into the office at all.

Enjoyable, Collaborative and Fun
iOffice’s Elizabeth Dukes is adamant that work space should be designed to attract and inspire people. As she told me, “Change is going on. Leaders have to embrace that change whether it’s driven by Millennials and technology or the need to optimize the footprint or the need to drive innovation and collaboration…(Organizations) need to define their space to meet their goals.”
 
Dukes does not think there is one right solution for every organization. Like Steelcase CEO Jim Hackett, she knows that office layout impacts corporate culture. Her bias tends towards open offices with no or low cube walls and lots of light. But even in her own open workspace she notes that “people group together in groups of about (6-8).”
 
There are conflicting forces at work here. On the one hand, more closed offices enable more private conversations. On the other hand, more open offices encourage collaboration, let in light and save money through more flexible space utilization. A more open, but nested approach may be the right blend for you.

Capitalize on these insights:

1. Pay attention to your team’s physical environment. It’s one of the five fundamental planks of your culture.

2. Be careful of the unintended consequences of completely open plan, flexible offices. You’ll certainly save money. But at what cost in terms of trust, reinforcement of cultural norms and feelings of security?

3. Physically nest teams of 6-8 in extended families of 24 in tribes of 150.

Categories Narrative

Hiring a RE Expert for Litigation

The first 15 years in brokerage, I occasionally took assignments as a real estate expert in litigation. I stopped for a number of reasons, but primarily because I could not figure out how to be great at brokerage and be great as a real estate expert in litigation. I know only a small portion of the readers will find this article and summary interesting today. BUT, keep it around; You will probably need it sometime in the future. Below my bullet points is a great article with highlights covering the subject in much greater detail. (Please click here for the entire article.)

–Criteria to look for in an expert – Knowledge, skill, experience, training or education.
–Other factors — Make sure they look the part, have good eye contact, and they are credible and objective.
–When to engage — Early in the process. An expert might be able to help with deciding if the case has merit or if the potential outcome is worthy of the time and energy necessary to litigate.
–How to find an Expert — A referral from someone you know is always best. Other ways are outlined in the article.
–Conflicts — I found this spot on: “Surprisingly, while attorneys are governed by strict ethical rules, conflicts-of-interest rules for experts are virtually nonexistent. Experts rely on their credibility and reputation…”
–Fees — Most are paid by the hour.
 
Hopefully, you’ll never need an expert. If you do, I hope this helps you get to the right person that can help you down the path.

Craig
602.954.3762
ccoppola@leearizona.com

P.S. Two weeks ago, I did a video interview along with Jay Olshonsky, President of NAI Global, called Brokers Unplugged: A Candid Conversation. If you’re interested in our latest thoughts, click the video below. I think you’ll enjoy it!

Spring 2015 SIOR Globe St Interview

 


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Categories Economy, Narrative

Snapshot of Arizona Economy

Below is a great snapshot of Arizona and where we are with our economy. In addition, I’ve added a couple extra tidbits that are not in the below infographic:
 
–Arizona still lags in job creation. We are not quite back to 100 percent of our jobs lost (even though we have regained 314,000). This is the first time ever that Arizona has not lead the country. Why? The housing market continues to be lackluster. Everything else is doing well. This is ultimately a great sign for Arizona.
 
–Arizona has a very pro-business environment. The state maintains a balanced budget and added no new taxes this year. If you want to see 10 things that happened so far this year, click here.
 
–Here is a little background about Banner Health Care becoming our largest employer—They bought the University of Arizona Medical School adding 8,000 employees. This is just the beginning of the story regarding growth in Arizona for medical related jobs. Read here for more.
 
Arizona is doing just fine.

If you would like to talk about job creation and its effect on the real estate market give me call.
Thank you,

Craig
602.954.3762
ccoppola@leearizona.com


Please click here for the entire article.

Arizona Employment Rates

Categories Narrative

The Changing Face/Space of Parking: Impact on Commercial Real Estate

Last year, we sent an article to a select few Landlord clients that we work with who own buildings. That email was one of the most opened narratives we have ever sent. The topic?—Parking lot security. I didn’t see that coming. 
 
Inspired by that email, below are two cool articles about what is going on in the modern world with parking and parking lots.
 
Did you know:

–People can spend up to 85 hours a year looking for a parking spot.
–Technology, now in use, can show you where there are open spots in downtown SF from a cell phone app.
–Parking lots are beginning to vary parking rates at any time depending on the demand for those spots. Rates change from $.25 to $6 
an hour.

–You can pay for parking by credit card and by a phone app now. Pocket change is so last year.
 
For more cool information on parking lots and what is coming see below. You can always just scan my highlights.

If you want to know my thoughts on parking and how it is affecting both tenants and landlords, give me a call.

Craig
602.954.3762
ccoppola@leearizona.com


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