Categories Narrative, Office Market

Positive and Steady: Q2 Office Market Insight

Positive and steady. Those are the two words I would use to describe the office leasing market in Metro Phoenix as of mid-year 2016.  The numbers in the below report also reflect this sentiment that I see every day on the streets of the market.  Across the entire portfolio of buildings my team leases, we are seeing some of the best activity for this cycle.  The tenants I represent feel more confident in their businesses these days and are either staying the same size, or often expanding their footprint.  Additionally, Craig and I were fortunate to negotiate two of the five largest leases for the quarter.
 
The office market continues to chip away at a vacancy that reached 27.1% in 2009, and now stands at 19% across all building classes. It posted another 820,000 SF of positive net absorption (job growth) in the second quarter to reach 1.45 million SF for mid-year.  This means that we are approaching the equilibrium levels of 15-17% vacancy, where on a macro level, it’s neither a tenant’s or a landlord’s market.  However, real estate remains very local, and depending on the part of town, vacancy and rental rates will vary substantially.
 
Below is a link to our Lee & Associates 2nd quarter office report and as usual, I’ve included my top 3 takeaways below:

1)      Class A vacancy sits at 17.7% today, the lowest of all the building classes – this supports the trend I’m seeing that businesses are paying up for top-grade real estate as a recruiting tool.

2)      South Scottsdale and Tempe continue to boast the lowest vacancies (10%) of all the submarkets- Arizona State University, Downtown Scottsdale and the Mill Avenue Districts remain the epicenter for energy in all of Metro Phoenix.

3)      Transaction Sizes look different – A few years ago, tenant activity seemed to consist mainly of gorillas (100,000 SF+) and minnows (<5,000 SF). Today, the majority of the transaction sizes are 50,000 SF or less.  We are seeing less large-scale consolidations take place and more moderate growth among businesses.

Between the 120-130 transactions my team does annually, we represent a great cross section of the market.  To learn more about how market dynamics affect your building or your business, please call me.

Andrew
602.954.3769
acheney@leearizona.com

P.S.- We know you will get PUMPED up after watching this video. Click Here to see if dreams get deflated in this week’s video.
Inflatable Furniture
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Click Here to Read the Full Office Market Report 

Q2 Market Report

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Categories Narrative

The Collaboration Curse

We have talked a lot about open offices and collaborative work spaces in this narrative. Today’s article discusses the latest buzzword, Collaboration.  While collaboration is important, the real question is:  At what cost? The below article succinctly lays out the disadvantages of collaboration in the office.

My takeaways:
-Less deep work
-Longer time to complete a task
-Money lost on collaboration activities

This doesn’t mean collaboration should be avoided. There are still benefits to working with people with different ideas and skillsets. But like with anything, the key is for companies to find a good balance in their offices.

To find out how we achieved this with our recent office remodel at Lee & Associates, give me a call.

Craig
602.954.3762
ccoppola@leearizona.com

PS- Good news! Arizona was recently named #2 on a list of states with the fastest job growth in 2016. To read the full article, click here


The Collaboration Curse
The fashion for making employees collaborate has gone too far. 

JAN 23, 2016
The_Economist_logo

Screen_Shot_2016-03-09_at_8

IN MODERN business, collaboration is next to godliness. Firms shove their staff into open-plan offices to encourage serendipitous encounters. Managers oblige their underlings to add new collaborative tools such as Slack and Chatter to existing ones such as e-mail and telephones. Management thinkers urge workers to be good corporate citizens and help each other out all the time.

The fashion for collaboration makes some sense. The point of organisations is that people can achieve things collectively that they cannot achieve individually. Talking to your colleagues can spark valuable insights. Mixing with people from different departments can be useful. But this hardly justifies forcing people to share large noisy spaces or bombarding them with electronic messages. Oddly, the cult of collaboration has reached its apogee in the very arena where the value of uninterrupted concentration is at its height: knowledge work. Open-plan offices have become near-ubiquitous in knowledge-intensive companies. Facebook has built what is said to be the world’s biggest such open space, of 430,000 square feet (40,000 square metres), for its workers.

Hitherto, knowledge workers have largely suffered in silence or grumbled in private because their chances of promotion have come to be influenced by their willingness to collaborate. But a backlash is setting in: the current Harvard Business Review (HBR) has a cover story on “collaborative overload”; and Cal Newport of Georgetown University has just brought out a book called “Deep Work: Rules for Focused Success in a Distracted World”.

A growing body of academic evidence demonstrates just how serious the problem is. Gloria Mark of the University of California, Irvine, discovered that interruptions, even short ones, increase the total time required to complete a task by a significant amount. A succession of studies have shown that multitasking reduces the quality of work as well as dragging it out. Sophie Leroy, formerly of the University of Minnesota (now at the University of Washington Bothell) has added an interesting twist to this argument: jumping rapidly from one task to another also reduces efficiency because of something she calls “attention residue”. The mind continues to think about the old task even as it jumps to a new one.

A second objection is that, whereas managers may notice the benefits of collaboration, they fail to measure its costs. Rob Cross and Peter Gray of the University of Virginia’s business school estimate that knowledge workers spend 70-85% of their time attending meetings (virtual or face-to-face), dealing with e-mail, talking on the phone or otherwise dealing with an avalanche of requests for input or advice. Many employees are spending so much time interacting that they have to do much of their work when they get home at night. Tom Cochran, a former chief technology officer of Atlantic Media, calculated that the midsized firm was spending more than $1m a year on processing e-mails, with each one costing on average around 95 cents in labour costs. “A free and frictionless method of communication,” he notes, has “soft costs equivalent to procuring a small company Learjet.”

Mark Bolino of the University of Oklahoma points to a hidden cost of collaboration. Some employees are such enthusiastic collaborators that they are asked to weigh in on every issue. But it does not take long for top collaborators to become bottlenecks: nothing happens until they have had their say—and they have their say on lots of subjects that are outside their competence.

The biggest problem with collaboration is that it makes what Mr Newport calls “deep work” difficult, if not impossible. Deep work is the killer app of the knowledge economy: it is only by concentrating intensely that you can master a difficult discipline or solve a demanding problem. Many of the most productive knowledge workers go out of their way to avoid meetings and unplug electronic distractions. Peter Drucker, a management thinker, argued that you can do real work or go to meetings but you cannot do both. Jonathan Franzen, an author, unplugs from the internet when he is writing. Donald Knuth, a computer scientist, refuses to use e-mail on the ground that his job is to be “on the bottom of things” rather than “on top of things”. Richard Feynman, a legendary physicist, extolled the virtues of “active irresponsibility” when it came to taking part in academic meetings.

What gets measured…

Why have organisations been so naive about collaboration? One reason is that collaboration is much easier to measure than “deep work”: any fool can record how many people post messages on Slack or speak up in meetings, whereas it can take years to discover whether somebody who is sitting alone in an office is producing a breakthrough or twiddling his thumbs. The more junior the knowledge worker is, the more likely he is to spend his time doing things that are easy to measure rather than engaging in more demanding but nebulous work. A second reason is that managers often feel obliged to be seen to manage: left to their own devices they automatically fill everybody’s days with meetings and memos rather than letting them get on with their work.

What can be done to restore balance in a world gone collaboration-mad? Few people have the freedom of a Franzen or a Feynman to unplug themselves from the world. But employees—particularly young ones—need to recognise the long-term costs of working in a constant state of distraction. The HBR article points out that there is an overlap of only 50% between “the top collaborative contributors in any organisation and those individuals deemed to be the top performers.” About 20% of company stars keep themselves to themselves. So organisations need to do more to recognise that the amount of time workers have available is finite, that every request to attend a meeting or engage in an internet discussion leaves less time for focused work and that seemingly small demands on people’s time can quickly compound into big demands. Helping people to collaborate is a wonderful thing. Giving them the time to think is even better.

 

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Categories Narrative

5 Year Email Anniversary

Thank you for reading my weekly narrative.  Some of you have been with us the entire five years. I have been blessed to get tons of great feedback, be recognized for an award, and actually get some business out of this weekly email. See below for a graph charting our progress over the past 5 years.  

Here are the top three questions I get on my narrative:
 
1. Do I write these?  Yes, I personally write each narrative.  I find about 9 out of 10 articles myself.
2. How do I find the material?  I read…a lot. All the time.
3. How do you do it?  I have a great team. See below.
 
Thank you to three special groups:
 
–You—The readers.  The people who send me comments, new stories and their thoughts.  I personally reply to everyone because I value the feedback.  Keep it coming.

–My team. Chelsea Clifton who is my right arm, Gregg Kafka who is the final check, and Andrew Cheney, we call him BASF.  He doesn’t make the narrative, he makes the narrative better.

–Kellie Coppola who is an outstanding editor (www.backslashedits.com). 

I am looking forward to another five years of interesting dialogue.  I hope you are as well!

Craig
602.954.3762
ccoppola@leearizona.com

P.S. – We all have to start somewhere. For Bill Lee, that was with selling copiers. Click here to listen as he tells about his first sales job and how it led him to a life of excellence.

 Selling Copiers

If you’re having trouble viewing the video, click here.

Weekly Narrative Growth

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Categories Architecture, Narrative

17,000 Manhattan Buildings Could Not Be Built Today

Big cities like New York, San Francisco, and LA have always fascinated me from a real estate perspective. To buy land, design and build buildings is a complex process. Zoning and city planning alone create innumerable obstacles for developers due to the limited amount of space.

New York City’s zoning code turns 100 this year, and below is an interesting article about why many of its buildings could not be built today–in fact 40% (17,000 buildings) of them.  Why?

–Too tall
–Too dense (I figured this would be one)
–Don’t conform to zoning code (this is huge—check out the red dots below)  

 We have come a long way in city planning. At what price?  Read on to see some real life examples of projects, and give me a call or respond to this email if you have any interesting examples you would like to share with me. 
Craig
602.954.3762
ccoppola@leearizona.com


40 Percent of the Buildings in Manhattan Could Not Be Built Today

By QUOCTRUNG BUI, MATT A.V. CHABAN and JEREMY WHITE

New York Times
May 20, 2016

These are buildings that do not conform to New York City’s zoning code for at least one reason.

Because They Are Too Tall …

These tend to be apartment buildings concentrated on the Upper East Side and Upper West Side.

Or They Have Too Many Apartments …

The West Village and Chelsea are the biggest offenders in terms of density.

Or Too Many Businesses …

Technically, too many square feet dedicated to commercial uses. Mostly concentrated in Midtown and the East Village.

But They Made New York Great. (Sometimes.)

New York City’s zoning code turns 100 this year. That may not sound like cause for celebration — except maybe for land-use lawyers and Robert Moses aficionados. Yet for almost every New Yorker, the zoning code plays an outsize role in daily life, shaping virtually every inch of the city.

The bays and cliffs of the Empire State Building come from zoning, as do the arcades and plazas of Park Avenue. The code gave us Zuccotti Park and Billionaire’s Rowthe quietude of Greenwich Village and the bustle of the High Line, the glass towers now lining the formerly industrial waterfront and the portion of subsidized apartments that fill them.

New York’s zoning code was the first in the country, meant to promote a healthier city, which was then filling with filthy tenements and office towers. Since it was approved in 1916, the ever-evolving, byzantine code has changed many times to suit the needs of a swollen metropolis. Just in March, the administration of Mayor Bill de Blasio won approval for a vast citywide plan that would encourage sleeker, more affordable developments.

Yet many of New York’s buildings remain stuck in the past.

Whole swaths of the city defy current zoning rules. In Manhattan alone, roughly two out of every five buildings are taller, bulkier, bigger or more crowded than current zoning allows, according to data compiled by Stephen Smith and Sandip Trivedi. They run Quantierra, a real estate firm that uses data to look for investment opportunities.

Mr. Smith and Mr. Trivedi evaluated public records on more than 43,000 buildings and discovered that about 17,000 of them, or 40 percent, do not conform to at least one part of the current zoning code. The reasons are varied. Some of the buildings have too much residential area, too much commercial space, too many dwelling units or too few parking spaces; some are simply too tall. These are buildings that could not be built today.

It is important to note that these estimates rely on public records that can be imperfect. Still, while the data may at times be imprecise, it allows for an insightful view of zoning in New York.

Many buildings in distinctive Manhattan neighborhoods like Chinatown, the Upper East Side and Washington Heights could not be erected now: Properties in those areas tend to cover too much of their lots (Washington Heights), have too much commercial space (Chinatown) or rise too high (the Upper East Side). Areas like Chelsea, Midtown and East Harlem, on the other hand, would look much as they do already.

“Look at the beautiful New York City neighborhoods we could never build again,” Mr. Smith said. “It’s ridiculous that we have these hundred-year-old buildings that everyone loves, and none of them ‘should’ be the way they are.”

As the zoning code enters its second century, it is worth considering the ways it has shaped the city; whether and where it is still working; and how it might be altered so the city can continue to grow without obliterating everything New Yorkers love about it.

A New New York Would Be Less Dense

19jones-photo.jpg 19 Jones Street in Greenwich Village.Pablo Enriquez for The New York Times

On the cover of “The Freewheelin’ Bob Dylan,” there on the right side, its cornice almost grazing the N in Dylan, stands 19 Jones Street. It is one of the thousands of buildings in Manhattan with too many dwelling units for its size.

Built in 1910 as a tenement, 19 Jones Street predates the zoning code by six years. It belongs to a special family of tenements known as dumbbell apartments, so named because of the way the buildings are squeezed in the middle, creating air shafts. Such openings were a requirement of the Tenement Housing Act of 1879, meant to make tightly packed apartments a little bit more livable.

19 Jones Street
Current Building vs. If Built Today

Were 19 Jones built today, it would have to be significantly smaller. The number of apartments would fall sharply, to just eight from 24. The building’s total dimensions would be nearly halved, and a story or two would have to be chopped off.

New York’s zoning rules were intended to create less cramped quarters, but they also have consequences for the number of aggregate apartments in the city. Such limitations can quickly decrease the supply of housing, and most likely drive up rents. If every tenement in the city were reconfigured in these ways, they would be less crowded, but there would also be fewer apartments to go around.

 New New York Would Be Shorter

720park-photo.jpg
720 Park Avenue on the Upper East Side.Pablo Enriquez for The New York Times

Problems persist at the other end of the real estate spectrum.

Take 720 Park Avenue, a Rosario Candela classic from 1928 that rises 17 stories and has only 29 units — one of which, a 7,000-square-foot duplex, recently came on the market for $22.5 million. All that grandiosity is too much for modern zoning, which now constrains such boxy, bulky buildings in this part of town.

The city’s first zoning code was enacted as New Yorkers began to worry that tall buildings would cast the city into eternal darkness. People feared the spread of bulky skyscrapers like the Equitable Building, at 120 Broadway in the Financial District. Rising 42 stories and 538 feet straight up from the street in a hulking limestone slab, it spread a seven-acre shadow over downtown when it opened in 1915.

720 Park Avenue
Current Building vs. If Built Today

In response, the city included a setback rule in the zoning code the next year, which required buildings to step back as they rose. It helped create that familiar saw-toothed shape beloved in so many prewar skyscrapers as well as the ersatz ziggurat in shorter structures like 720 Park.

Yet changes brought about with the 1961 zoning overhaul and tweaks since would create a very different 720 Park today. First, it would have to be much shorter on the 70th Street side. And, since this building reflects a previous era’s rules on bulk and density, it would have to slim down along Park Avenue, as well.

The rules were dreamed up by planners in part to ensure that historic buildings would not be replaced with something totally out of context, like the skinny towers now springing up on 57th Street. Yet they also ensured that many of the existing structures that made up that context would eventually be out of context themselves.

But a New New York Will Still Look a Little Old

Both 19 Jones Street and 720 Park Avenue belong to a vast group of buildings in New York City that are treasured for their architectural value and historical significance. They persevere out of genuine appreciation but also the zoning quirks that determine the fate of almost every building, new or old.

Nearly three-quarters of the existing square footage in Manhattan was built between the 1900s and 1930s, according to an analysis done by KPF, an architecture firm based in New York. In a way, the zoning code helps to preserve such architectural diversity. The laws have gotten more restrictive over time, giving an edge to properties built in earlier eras.

Not all buildings are worth keeping. In Midtown East, many nonconforming structures have low ceilings and columns that make them unappealing to new businesses. Some developers have gone so far as to demolish all but the bottom quarter of their buildings, and then build up from there, allowing them to retain the old zoning for their plots so as not to sacrifice a single square foot. The city is currently reconsidering a proposal that would allow these buildings to be rebuilt to their original size and possibly even larger.

It does not have to be this complicated. In honor of the code’s 100th anniversary, the Municipal Art Society of New York has called on City Hall to consider overhauling the code in a way that would make it intelligible to all.

“To understand zoning, you have to have a law degree, it’s so convoluted and so dense,” Mike Ernst, director of planning at the civic group, said. “The whole process of how buildings get built these days is so confusing and opaque to people. There really should be more transparency, so people can have an understanding of what the future holds for their city.”

Note: Data do not reflect zoning for quality and affordability or mandatory inclusionary housing laws, both of which would have a small impact on Manhattan. Illustrations by Mika Grondahl.

 

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