Categories Narrative

Population Realities — A Two-Part Series. Today–The World

Today and next week, I am going to spend a little time on population and share some interesting realities. Below is a link to a very cool interactive map from Brookings. To get more detailed information on the cities that interest you, click on the individual cities.

Here are a few world realities:
–300 places in the world have 20% of the population
–Those 300 places, account for nearly 50% of all global output
–Developing metro areas accounted for 80% of the growth in 2014

This is worth 5 minutes of your time. Click away.
If you want to talk about Phoenix’s 133rd ranking and where I think we are heading, give me a call.

Craig
602.954.3762
ccoppola@leearizona.com


Brookings logo 2

With only 20 percent of the population, the world’s 300 largest metropolitan economies accounted for nearly half of global output in 2014. This interactive and report compare growth patterns in the world’s 300 largest metro economies on two key economic indicators—annualized growth rate of real GDP per capita and annualized growth rate of employment. These indicators, which are combined into an economic performance index on which metro areas are ranked, matter because they reflect the importance that people and policymakers attach to achieving rising incomes and standards of living and generating widespread labor market opportunity.

Global Metro Monitor Map 2

Phoenix - Global Metro Monitor Map

SOURCES: Brookings analysis of data from Oxford Economics, Moody’s Analytics, and the U.S. Census Bureau.

Findings

Developing metro economies continue to be the sites of faster growth in 2014, further converging with their more developed peers. In an economic performance index combining employment and GDP per capita growth, developing metro areas accounted for 80 percent of the top performers, led by metro areas in China and Turkey. Six developed metro economies from the United States and United Kingdom were also among the top performers.

Metro areas continue to power national economic growth; most registered faster GDP per capita or employment growth in 2014 than their respective countries. A third of the world’s 300 largest metropolitan economies were “pockets of growth,” outpacing their national economies in both indicators, revealing that specific characteristics of metropolitan economies often differentiate their economic performance from that of their countries. 

Sustained growth means that a majority of the world’s metro economies (60 percent) have recovered to pre-recession levels of employment and GDP per capita. At the other end of the spectrum, just over one-fifth of metro areas are “not recovered” in either indicator; 90 percent of this group is comprised of North American and Western European metro economies.

Metropolitan areas specializing in commodities registered the highest rates of GDP per capita and employment growth in 2014. Utilities, trade and tourism, and manufacturing specializations were also associated with higher growth. Metro areas with high concentrations of business, financial, professional services grew more slowly.


 

Categories Narrative, Office Market

Trends in Square Feet per Office Employee

It’s no surprise that square feet per office employee is declining. The open office concept is changing the world and the biggest user of office space in this cycle is…..Tech companies. But this trend has been coming for a long time; see the graph below.

In addition to the SF per employee graph there are two others below that are very interesting. Class A properties lease sizes are steady but B and C properties are declining. Finally, which industries are shrinking their leases? The answer: Accounting, Insurance and Law firms.

Is this true for your office? I want to hear about it. Give me a call.

Craig
602.954.3762
ccoppola@leearizona.com

P.S. After sending my series on Tech companies’ headquarters in January, I am now following the world’s largest, coolest companies and what they are doing with their HQ. Uber just unveiled their new design. More to follow as I keep looking for the latest and greatest.

Uber


Trends in Square Feet per Office Employee


 

Categories Narrative, Office Market

Market Insight: Q2 2015 Phoenix Office Report

Like the national office market, the Metro Phoenix Office Market is rebounding at a gradual pace. Last week Craig sent out a good update on the national office market from The Wall Street Journal. (Click here for his narrative in case you missed it) Today I’m sending you an update on the progress we’re seeing in Phoenix. The WSJ article mentions that office markets across the U.S. are highly dependent on the strength of local economies. Similarly, Phoenix’s Office Market strength is improving but varies widely between local submarkets. Tempe and South Scottsdale are leading the way with the lowest vacancy rates (9.9% and 10.4%, respectively) while areas like Midtown and some of the outlying submarkets suffer from vacancies in the high 20’s. Overall, absorption continues its positive streak across the entire market but it has been too weak to push rents up across the entire market.

To put things into perspective, here is how Phoenix’s office vacancy rate compares to a few key cities across the country:

San Francisco                 6.9%
New York                       7.8%
Austin                            9.5%
Los Angeles                   11.2%
Chicago                         13.9%
Dallas/Ft Worth              14.2%
Phoenix                         20.8%

(National figures reported by CoStar)

Below is the link to our 2nd quarter report and my top three takeaways:

1. Metro Phoenix Office Vacancy still is above 20%. Unless a tenant requires a trophy location or in the South Scottsdale/Tempe area, there are competitive deals to be made.

2. There is 4.6 million SF under construction. The majority of that construction is build-to-suit product for State Farm, Wells Fargo, Isagenix and ATS. But, there is 1.9 million SF of spec construction underway and it is leasing up successfully.

3. After a good but not great 2014 (2.4 million SF of net absorption), the first half of 2015 has been, well disappointing. We have absorbed 452,000 SF. We remain hopeful that we can have a strong second half.

If you have a question on your lease, want to find out how much your building is worth, or just want to talk about the market, please give me a call.

Andrew
602.954.3769
acheney@leearizona.com

P.S. We were proud to have represented Piedmont Office Realty Trust in expanding their tenant, GM Financial, into a total of 153,000 SF in the beautiful Chandler Forum located at 1975 S. Price Road in Chandler.

For the whole postcard and a larger view, click here.

ChandlerForum-GMFinancial-PostCard-Updated1


For the entire report, click here.

Q2 2015 Office Report_Page_1

 

Categories Narrative, Office Market

Office Market Is on a Slow Roll

I just got a peek at our Q2, 2015 Metro Phoenix office numbers and once again we are mirroring the national office market. It’s a methodical and frustratingly-slow recovery. Andrew will highlight Phoenix in the next few weeks, but today I am focusing on the National office market. Below is a nice Wall Street Journal update on the national office market with a few highlights.

If you are in Seattle, Silicon Valley, and Washington DC—enjoy the roll. For the rest of us—Conquer the Grind.

If you want to know how we Conquer the Grind, give me call or shoot me an e-mail.

Craig
602.954.3762
ccoppola@leearizona.com

P.S. I recently did an interview with Joe Fairless who runs a podcast called The Best Real Estate Investing Advice Ever. Here it is if you want to listen: http://joefairless.com/blog/podcast/jf209-one-expense-everybody-underestimates-when-buying-office-buildings/   Not only have I been a guest on the show, but I enjoy listening as well. He has numerous big name guests that provide a wide perspective on investing in real estate, including advice from my friend and partner, Robert Kiyosaki, Author of Rich Dad. Poor Dad. If you are interested in more, click here to check it out:http://joefairless.com/blog/


Office Market Is on a Slow Roll

Increase in office space was strong in second quarter but a relatively modest expansion by historical standards

WSJ 2

By: Eliot Brown
Updated July 1, 2015

Office Market on Slow Roll_WSJ (2)
The skyline in San Francisco, where rents rose 6.3% over the past 12 months, second only to Seattle, at 7.2%.
PHOTO: MARCIO JOSE SANCHEZ/ASSOCIATED PRESS

U.S. office buildings are filling up—gradually.

Employers took on 8.2 million square feet of additional office space in the second quarter, marking one of the stronger periods since the recession but a relatively modest expansion by historical standards, according to real-estate research service Reis Inc.

The increase left the overall office vacancy rate flat for the quarter at 16.6%, which is just a nudge down from the peak of 17.6% reached in 2010, according to Reis, which tracks 79 markets. Rents rose to an average of $24.60 a square foot, up 3.2% over the past 12 months.

“I don’t think we’re in the clear yet, but we are definitely heading in the right direction,” said Ryan Severino, an economist at Reis. “It has taken a little bit longer than usual to get back to where we’d like to be.”

Filling Up Market Update

The overall picture of still-sluggish growth stands in contrast to some other economic indicators, such as job growth. While the U.S. recovered to its prerecession employment level a year ago, employers occupy about 36 million square feet less than they did at the peak in 2007. That is about a year’s worth of growth at the current rate, although it could disappear faster if the pace picked up. From 2005 through 2007, for instance, the amount of occupied office space increased by an average of 14.9 million square feet a quarter.

Analysts cite different reasons for the sluggish recovery in the office market. Many believe the biggest factor is that employers are pushing into denser spaces, jettisoning private offices and large cubicles for a cozier layout. Others believe employers simply have been more cautious about expanding in this cycle.

By and large, though, the office market is a patchy one, highly dependent on the strength of local economies.

Leading the way in terms of rent and occupancy growth are regions driven by the technology sector. The Seattle area registered as the strongest in terms of rent growth over the past 12 months, with rents rising 7.2% to $26.84 a square foot, including landlord concessions. Seattle was followed by the San Francisco area, where rents rose 6.3% to $40.18 a square foot, and the San Jose area, where they increased 5.9% to $28.28 a square foot.

In all those markets, falling vacancy rates and fast-expanding companies have led to a race for space, tilting the scales heavily in favor of landlords.

Take the five-year-old education technology startup Udemy Inc., which offers online courses in a wide range of topics taught by contributors to the site. The company last month signed a lease to move to a 40,000-square-foot office in San Francisco, which would mark its fourth move since the start of 2014, when it occupied just 4,500 square feet.

“It seems like every time we sign something, the prices go up,” said Dennis Yang, the company’s chief executive. “You’re a price taker, you’re not a bidder.” He said the lease is more than $60 a square foot, at least double what the company had paid a few years back.

The mood is more relaxed elsewhere in the country, as cities generally are experiencing slow and steady growth in rents and occupancies.

One exception is Houston, which is facing a drop in demand thanks to the fall in oil prices as well as a surge in supply from builders that started towers when the price of crude was higher.

The vacancy rate climbed to 15.6% in the second quarter, up from 14.4% a year earlier.

“It’s a really bad one-two punch right now,” Mr. Severino said. “For the next 12 to 18 months or so, it’s definitely going to be a little bit dicey there.”


 

Categories Narrative

4th Asset Class: Real Estate

Real Estate as the fourth asset class is finally becoming a reality. Why is this important? Well, the amount of capital that has and will flow into our industry is astonishing. Billions of dollars, an additional $500 billion to be exact. This money will make our market more liquid, provide for stability in markets and will change the way properties are sold. Below is a great article describing the long climb the industry is making to be at the table with stocks and bonds.
 
I have highlighted some key thoughts but here are some items changing right now:
–Yield compression
–70% of institutions outsource the management of their real estate assets
–Prices are ahead of fundamentals
  
At Lee and Associates, we have been selling a number of big and small assets this year (Over $95 million already in 2015). If you want to talk more about this or the market, give me a call or email me.

Craig
602.954.3762
ccoppola@leearizona.com


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Categories Narrative, Tech Industry

Tech Firms Moving to the City

As competition for hiring millennials continues to increase, companies are trying to lure them by moving into the city to offer urban living as a perk. Is this a long term trend? For me, I think it is something that may continue for the next 5-10 years. But I believe that millennials will ultimately start having families, even if they are delaying now. They will eventually want to have space to raise a family, great schools to educate their kids and short commutes to spend more time at home.

This is just our opinion, but that is what our clients hire us for—our wisdom. If you have any questions about long term trends for your industry or target hiring base, give me a call or email.

Craig
602.954.3762
ccoppola@leearizona.com


City Living Lures Technology Firms
Move to Urban Clusters Seeks to Foster Collaboration Among Employees

WSJ

By: ELIOT BROWN
Updated Dec. 25, 2014

Google bldg 2
The Google building on 8th Ave in Manhattan. RAMSAY DE GIVE FOR THE WALL STREET JOURNAL
 
Gradually and quietly, Google Inc. is creating something in New York that most of the city’s oldest and largest employers lack: an urban campus.
 
Since it first planted a flag in Manhattan in 2000, Google has expanded from a single executive working out of a Starbucks to controlling over 3.5 million square feet of space—more than the capacity of the Empire State Building.
 
In 2010, it paid $1.9 billion for a hulking former freight terminal and Port Authority headquarters that is one of the city’s largest buildings. Hungry for more, it leased much of the office space across the street in Chelsea Market, a onetime Nabisco factory.

This fall, Google agreed to lease a chunk of another former Nabisco factory just west of the Chelsea Market at 85 10th Ave. In all, Google now controls or occupies a strip of Manhattan buildings more than six football fields long.

There could be more to come. Google, which now has more than 4,000 employees in the city, is in preliminary talks to lease part of a former marine terminal that juts into the Hudson River across the street from its newest offices, people familiar with the matter said.

City Living map
 
Google’s accumulation of property is a vivid example of a shift taking place nationwide. In the past, companies that needed large amounts of space often fled to low-slung campuses in the suburbs. Those that decided to keep primary operations in a city often spread other employees throughout the region in search of lower rents. For some banks, dispersion of operations became a security strategy after the Sept. 11, 2001, terrorist attacks.

But now, more fast-growing employers, especially technology companies, are eschewing suburban campuses for clusters in cities. A chief reason: They are following the younger workers they prize, those in the millennial generation who today are in their 20s and early 30s.

Young workers today live in cities in far greater numbers than in the past, attracted in part by the live-work lifestyle, said Mitchell Moss, an urban-planning professor at New York University.

“You have a workforce that has found they function well when they’re near activities and work,” Mr. Moss said. “Suburbs are just basically too isolated.”

J.D. Lumpkin, an executive director at real-estate services firm Cushman & Wakefield who advises landlords and tenants on office space in San Francisco, said tech companies want buildings clustered to prompt their workers to interact more. “Collaboration is typically at the core of their culture,” he said.

City Living pic
A Salesforce.com building in San Francisco.
The companies’ real-estate moves highlight a trend away from suburban office space toward clusters in cities.
PRESTON GANNAWAY FOR THE WALL STREET JOURNAL
 
Even suburban-based tech firms such as LinkedIn Corp. and International Business Machines Corp. are building large urban outposts, while newer companies like TwitterInc. and Dropbox have made their headquarters in San Francisco, not suburban Silicon Valley.
 
By taking over buildings near each other—even if it costs more and they aren’t flashy new construction—the whole company benefits, top executives at these companies believe. Employees can share ideas when they bump into each other for coffee or on the sidewalk. Further, an anchor company like Google or Twitter is likely to attract hip stores and restaurants, making the area more desirable for employees, the companies believe.

Such is the thesis behind Google’s voracious appetite for Manhattan real estate. The streets outside its buildings are often filled with sweatshirt-clad employees.

“We like to keep our employees close so they can interact and exchange ideas…that is the essence for creativity,” said William Floyd, Google’s New York head of external affairs.

Of course, many of these companies aren’t abandoning the suburbs—Google has been rapidly buying real estate near its headquarters in Mountain View, Calif.—and many employers still prefer the lower rents and greater space offered outside urban centers.

But recruiting for talent is easier in cities, fast-growing tech companies say. San Francisco, for example, saw its high-tech jobs grow 18% between 2012 and 2013 to 47,633, the fastest rise of large U.S. cities, according to real-estate services firm JLL Inc.

The trend is helping to reshape entire neighborhoods. Amazon.com is credited with breathing new life into South Lake Union, a former warehouse-lined district near Seattle’s downtown, when it moved its headquarters there a few years ago. Now other companies have come flocking, while Amazon is building three skyscrapers and a host of smaller buildings. Office rents in the neighborhood are among the highest in the city.
 
In San Francisco, Twitter took over much of an enormous Art Deco building that formerly housed a wholesale furniture mart and all of an adjacent building, which it plans to connect with a sky bridge.

Nearby, Salesforce.com this year made a big bet that it would keep growing, signing up to lease half of what is to be the city’s tallest skyscraper. That structure will be clustered with another tower set to be fully occupied by Salesforce, which offers online software to automate sales and other functions, and a third tower where the company occupies most of the space.
 
Parker Harris, co-founder of Salesforce, said the company benefits when employees work near each other. When Salesforce considered whether to lease so much space in the new tower, it decided “if we don’t do it, someone else is, and we’re going to be spread out all over San Francisco.”