Categories Narrative

Gaining a Competitive Edge in Office Buildings

 

Below is an interesting article from The New York Times about office landlords seeking a competitive edge in leasing space to tenants.  Our primary market is Phoenix, so when I travel or read, I am always watching out for trends and changes in what owners are doing and what tenants are leasing.  Here are three things that we are just starting to see in Phoenix:

1. New York building owners are installing auto-dimming windows into their offices to try and get a leg up on their competition.  I was on a Southwest flight a month ago and the windows on the plane had this technology.  I found it really cool. I don’t think it would change my decision to lease office space but it was great new technology.

2. $9.6 Billion was invested in Real Estate technologies for office connectivity and other amenities. This is going to be a game changer.  There is a lot of disruption starting to happen.  For example, Audio visual TI’s are $5 – $15/sf  more than they were just 5 years ago. Read this narrative every chance you get as this trend is one of my primary focuses.  

3. There is a ton of focus on automating building systems and creating remote access (which leads to more security risk).  These systems are trying to create a more inviting building for tenants. 

Keeping the above in mind but know that location, transportation, access, and floor plans are still the main decision drivers.  The more change we see, the more the fundamentals remain critical.  I remember back in the 90s there was a developer that built Class A buildings in Class B locations as a strategy.  The idea flopped.  Even today, those buildings are still very nice…and they continue to trade at a far lower price per SF because they can’t attract quality tenants at higher rents. 

If you want to talk more about these trends, shoot me an email or call. 

 

Craig
602.954.3762
ccoppola@leearizona.com

 

 

 

 

As Office Tenants Expect More Tech, Even the Windows Get Smart

To stay competitive, developers and landlords are being driven to add telecommunications infrastructure, video screens and, yes, glass that tints itself automatically.

By Jane Margolies
NYT
April 9, 2019

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Smart windows from View in a building in Midtown Manhattan darken as the sun becomes brighter. Developers and landlords that offer advancements in office space may be able to command premium rents. Credit Jeenah Moon for The New York Times

Office developers and landlords once had to think only about supplying electricity, plumbing and heating to workplaces, leaving tenants to design their offices to their own technical specifications.

But these days, the providers of office space are being driven to provide telecommunications infrastructure and add sophisticated technology like smart windows to better compete.

Every year, office technology becomes more advanced, and developers and landlords have to stay on top of the trends or risk falling behind. Those that have the technological prowess may be able to command premium rents, but those that lack it may be forced to offer a discount.

“It’s placing more pressure on buildings to be that talent magnet for tenants rather than just a people warehouse,” said Phil Mobley, head of research for Building Engines, a property management software company in Boston, and vice chairman of the technology committee of Building Owners and Managers Association International.

The increased attention to technological upgrades has attracted the attention of investors. Venture capital investment in real estate technologies was $9.6 billion in 2018, according to the data supplier CREtech. In the first quarter of 2019, it increased 250 percent to $4.9 billion over the same period in 2018.

The office space market is loosening in some cities. In New York, for instance, the vacancy rate rose to 9.2 percent in the fourth quarter of 2018, from 8.9 percent a year earlier, according to Cushman & Wakefield. As the market softens, office providers are scrambling to meet the expectations of tenants.

DivcoWest, a developer in San Francisco, is placing technology at the forefront of Cambridge Crossing, a 45-acre mixed-use development under construction in Cambridge, Mass. By offering high-tech infrastructure, Cambridge Crossing is angling for the same type of companies that have found a home at Kendall Square, a tech hotbed a half-mile away with tenants like Facebook and Google.

When finished, Cambridge Crossing will have six office buildings with 2.1 million square feet of space. Tucked underground, concealed behind walls and hidden in the ceilings will be an estimated 10 miles of fiber-optic cable, which promises robust Wi-Fi with uninterrupted connectivity everywhere on the premises.

The Dutch technology giant Philips has already signed on, leasing seven floors in the development’s first office building, which is nearing completion, for its North American headquarters.

Cables will enter the building through eight conduits — four in the front and four in the back — enough to accommodate multiple service providers and offer built-in backup, known as redundancy in the tech world. If cables in the front of the building go down for any reason, those in the back will carry the day.

Inside, the conduits route to an equipment room on an underground parking level. The room is capacious and will be climate-controlled — a far cry from the cramped and makeshift spaces, sometimes near the boiler room, that make wiring in older buildings vulnerable to overheating or an accidental whacking by a mechanic.

“In the past, we’ve done spare conduits into a building but not the redundancy,” said Tom Sullivan, president of development at DivcoWest.

As competition to provide the best technology in office buildings increases, some companies are trying to help developers achieve their goals. The New York consultant WiredScore, for instance, certifies the reliability of a building’s internet connectivity. So far, more than 1,800 office buildings globally have registered for or achieved its certification, with about half of them in the United States, according to the company’s founder and chief executive, Arie Barendrecht. Cambridge Crossing is being designed to obtain Wired certification for the entire development.

Real estate experts say traditional considerations like location, access to transportation and floor-plate size remain the main reasons tenants pick one place over another. But hoping to gain some sort of advantage, some office providers are beefing up other sorts of tech in their buildings, including antennae for picking up and amplifying cellphone signals and lighting sensors that track the brightness of the sun.

The windows were supplied by View, a company in Milpitas, Calif., that makes “dynamic glass.” When the sun shines, a coating between the double panes of glass will darken, like self-tinting glasses. This reduces glare (which can cause eye strain, headaches and drowsiness) and heat gain (which may require turning up the air-conditioning, thus increasing energy use), while maintaining natural light.

As smart as the windows are, they will eventually become even more functional, said Rao Mulpuri, the chief executive of View, which in November announced a $1.1 billion investment from the SoftBank Vision Fund. He said windows would eventually be used like computer screens, displaying content and used for videoconferencing.

Some expect smart technology to expand beyond windows. Andrea Chegut, director of the Massachusetts Institute of Technology’s Real Estate Innovation Lab, predicts that interior office walls will one day be “turned into data centers, capitalizing on fiber-optic connectivity.”

Already, wall-hung video screens for sharing content, once seen only in boardrooms, have been proliferating. These types of audiovisual systems account for the largest cost increase in office design in recent years, according to the real estate services company CBRE. Five years ago, audiovisual costs averaged $5 per square foot; now, it’s common for developers to spend $10 to $20 per square foot on the systems.

At the gleaming new headquarters of the electronic trading platform MarketAxess, in Manhattan’s Hudson Yards and designed by the architecture firm Spacesmith, screens glow in practically every meeting space on the firm’s three floors, including the small “huddle” rooms where employees can duck in for quick one-on-one meetings.

In other ways, however, technology is intentionally concealed at MarketAxess — or it is moved off site. In the boardroom, there is no messy tangle of wires erupting from the table’s smooth marble surface; drawers under the tabletop provide electrical outlets and data ports. The room has two jumbo wall screens, but all the equipment powering them is tucked away in a walk-in closet down the hall. The office’s main data center is in New Jersey.
 
Daylight sensors along the windows dim lights when the sun is bright. Window shades go up and down depending on the time of day.

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Despite all the automation, some workers like to maintain a little control over their environment. At MarketAxess, software developers on the 17th floor decided the overhead lighting was too bright, so they shut off some of the lights in the ceiling fixtures above their desks. And the firm’s chief executive, Richard M. McVey, did not like the constant creep of window shades in his corner office.

“We turned his off,” said Daniel Wolff, global head of infrastructure for the firm.

Motion sensors that shut off lights in empty rooms have long been used in offices to save energy, but the monitoring information they provide, along with other building data, is increasingly being shared with employees.

Using mobile apps or computer software platforms often provided by the landlord, employees at some companies can use their cellphones to, say, scope out different gathering areas before deciding where to meet colleagues. After checking data on occupancy, daylight and temperature, they can decide whether to head to a sunny part of the office where others are already congregated or to a quieter spot where they can work without distractions. In turn, the data is being monitored by building operators to determine things like whether to increase the flow of fresh air to a crowded part of the floor or scale back janitorial services in a less-frequented area.

All of which raises the Orwellian specter of surveillance that tends to make some Americans skittish. Some companies in China have embraced facial recognition software at building security points, which, for example, allow employees to move from the lobby to an elevator without pausing to slap down building identification cards at turnstiles. But there has been resistance to such technology in the United States.

And even proponents of connectivity admit that the more digital offices become, the more security risks are created.

“There are so many great benefits of a digitally enabled building,” said Mr. Barendrecht of WiredScore. “There’s also a downside.”

 

Categories Narrative, Office Market

1-Minute Phoenix Metro Office Market Update: Q2 2019

It’s July in Phoenix and it is hot — both in temperature and in the office market.  The office market remains hot but office net absorption (job growth) cooled off in the 2nd quarter, posting just 245,000 SF in Q2.  Mid-year net absorption stands at 1.5 million SF and will likely hit 3 million SF by the end of the year.  There is 2.2 million SF of new construction in progress with most of it delivering by Q4 this year.  All these numbers mean vacancy held still at 16.9% during the first half of 2019.  We believe we will see a noticeable decrease in six months maybe even getting vacancy into the 15% range.  By Q4, we will have experienced another year where tenant demand outpaced new supply, and vacancy continues to tighten.

For this quarter’s report, I thought it would be helpful to compare Phoenix’s stats to the rest of the country.  Here is a link to a national Costar report released last month.  It’s 25 pages if you have the time to read it, but if you can’t, don’t worry, I have highlights:

  • National vacancy sits at approximately 9.75%, compared to Phoenix at 16.9% — This is normal as Phoenix is a growth market.  We cannot grow with vacancies in the low teens much less single digits.
  • Over the past 12 months New York delivered 4.9 million SF of new buildings; Phoenix delivered 2 million SF.
  • Compared to the 2.2 million SF under construction Lee & Associates Arizona reported this quarter, New York has 25 million SF under construction!
  • Phoenix’s net absorption over the past 12 months reached 4.4 million SF.  The ONLY area that scored higher was New York at 5.5 million SF.
  • Phoenix experienced a 3.6 % increase in rent growth while San Jose (Silicon Valley) grew at 7.6%.  No surprise, we are seeing a ton of activity from Northern California companies in Metro Phoenix.

Below is a link to our Lee & Associates Arizona Second Quarter Office Report and as always, here are my 3 local takeaways:

  • Tempe is the Tom Brady of Submarkets in Metro Phoenix.  This city continues to beat its competition for job growth, all the time…… Just like it did in the first half of 2019.
  • WeWork signed yet another big lease.  The CoWorking giant took 90,000 SF in Downtown Phoenix with plans for additional locations.  They are coming to Phoenix in a big way.
  • Sublease inventory is declining.  A year ago, subleases accounted for 1.9% of the available space on the market. Today they are only 1.3%

Please give me a call to discuss these trends further or how I can help you with your office needs.

 

Andrew

602.954.3769

acheney@leearizona.com

Click to Read the Report

Categories Narrative

5 Generations in the Work Force

I saw the below graph and article and it hit me:  there are 5 generations now in the work force.  How is anybody managing that?  Then my commercial real estate mind immediately kicked in and thought:  how are we designing space to accommodate the various needs of each cohort?

The truth is, I’m sure we are….at all.  What we are seeing is almost exclusive focus on the largest group—the millennials.  Why?  In 2016, they became the largest generation in the work force and they keep coming. 

Here are a few takeaways:

– How does management handle 5 different generations with many different opinions and work ethics?  This is really not a takeaway, rather a question because I don’t know the answer.
– Millennials now account for the largest generation in the workforce (35%), surpassing Gen Xers (33%).
– Millennials are more tech savvy. How will this affect the future of the workplace?
– Post millennials (born after ’96) already make up 5% of the workforce.
– With many Baby Boomers retiring every year, their presence in the workforce is declining and losing influence.

We deal with macro questions like this every day.  While we might not have all the answers, we can continue to ask better questions and help our clients navigate issues like these as they relate to their office space.

602.954.3762

ccoppola@leearizona.com



Millennials are the largest generation in the U.S. labor force

BY RICHARD FRY
 
APRIL 11, 2018

More than one-in-three American labor force participants (35%) are Millennials, making them the largest generation in the U.S. labor force, according to a Pew Research Center analysis of U.S. Census Bureau data.

As of 2017 – the most recent year for which data are available – 56 million Millennials (those ages 21 to 36 in 2017) were working or looking for work. That was more than the 53 million Generation Xers, who accounted for a third of the labor force. And it was well ahead of the 41 million Baby Boomers, who represented a quarter of the total. Millennials surpassed Gen Xers in 2016.

Meanwhile, the oldest members of the post-Millennial generation (those born after 1996) are now of working age.

Last year, 9 million post-Millennials (those who have reached working age, 16 to 20) were employed or looking for work, comprising 5% of the labor force.

These labor force estimates are based on the Current Population Survey, which is designed by the U.S. Bureau of Labor Statistics and serves as the basis for its unemployment and labor force statistics.

In 2017 the Generation X labor force was down from its peak of 54 million in 2008. The decline reflects a drop in the overall number of Gen X adults (Census Bureau population estimates indicate that their population peaked in 2015). In addition, last year only 82% of Gen Xers were working or looking for work, which is lower than their share in the labor force in 2008 (84%).

Though still sizable, the Baby Boom generation’s sway in the workforce is waning. In the early and mid-1980s, Boomers made up a majority of the nation’s labor force. The youngest Boomer was 53 years old in 2017, while the oldest Boomers were older than 70. With more Boomers retiring every year and not much immigration to affect their numbers, the size of the Boomer workforce will continue to shrink.

While the Millennial labor force is still growing, partly due to immigration, it is unlikely that the Millennial labor force will reach the peak size of the Boomer labor force (66 million in 1997). The Census Bureau projects that the Millennial population will peak at 75 million. At that number, a high rate of labor force participation would be needed to reach a labor force of 66 million.

Note: This post was originally published on May 11, 2015, under the headline “Millennials surpass Gen Xers as the largest generation in U.S. labor force,” which reflected the Center’s definition of Millennials at the time (born between 1981 and 1997). This updated version reflects the Center’s newly revised definition, under which Millennial births end in 1996, and the incorporation of more recent information.

Categories Narrative

The Shrinking Middle Class

 

There has been a lot of talk about the middle class getting squeezed and the numbers below bear this out.  Take a look at the graphs.  What does this mean to the average worker?
 

  • Rent, medical costs and tuition have increased more than income, shrinking savings.
  • The median hourly wage in the U.S. is $27.35.
  • Since 1995, compensation for graduate degree holders has risen 28%.  Despite all the tech companies saying you don’t need a degree, the numbers don’t tell the same story.  I am happy to say my fourth child, Claire, just earned her undergraduate degree from LSU. All four of our kids have now graduated with at least a bachelors degree.  This statistic is one of the reasons why we pushed our kids to go to college.
  • Since 1995, compensation for those with only a High School diploma has only risen 5%.—This segment should be focused on a trade where the compensation is much higher.

 
This article was written at the end of 2018.  There is some evidence that wages are starting to rise pretty rapidly for those with only a HS diploma.  Let’s hope that continues.

Give me a call or email me if you would like to discuss this any further. 

 

Craig
602.954.3762
ccoppola@leearizona.com

 

 

 

 

 

 

The Shrinking Middle Class: By the Numbers

By Nicolas Rapp and Matthew Heimer
Fortune
December 20, 2018

The American middle-class ideal was forged in the decades after World War II, when economic growth and wage increases climbed in lockstep for nearly 30 years. That pairing dissolved abruptly in the 1970s. Between 1973 and 2017, according to the Economic Policy Institute, the productivity of the economy grew 77%—but average compensation rose only 12.4%, adjusted for inflation. This divergence coincided with a shift in economic gravity, away from manufacturing and toward services and “knowledge industries.” That shift weakened the labor unions that had helped rank-and-file workers in many professions claim a bigger share of the bounty. Just as important were tax reforms that favored investment and real estate earnings over wage income. The upshot: an economic order in which the capital-owning class enjoys great advantages—and the costs of admission to and exclusion from that class grow ever higher.

shrinking middle class 1

The Tightening Squeeze of City Living
The information revolution has increased the concentration of jobs in certain U.S. cities, especially in a few hotly competitive coastal metro areas. That dynamic has driven housing costs beyond what many middle-class earners can afford, making it harder for them to save for home ownership or other financial goals. (The median U.S. hourly wage was $27.35 in November; it’s lower in most of the Midwest and South.)
Methodology info (PDF)

shrinking middle class 2

To The Victors Go The Spoils
Tax breaks for investors and property owners have helped concentrate wealth among the top 10%. The growing impact of higher education on earnings has had a similar effect. Since 1995, average income for graduate degree holders has risen 28%; for those with only a high-school diploma, that figure is 5%.

shrinking middle class 3

In Awkward Global Company
The bottom 90% of U.S. earners take home a smaller share of income than do their counterparts in most industrial economies—including in far less free societies like China’s.

shrinking middle class 4

Purchasing Power And Savings Wane
Incomes haven’t risen as fast as rent, medical costs, or tuition—three of the biggest burdens for U.S. households. As a result, savings rates have declined, leaving middle-class earners more vulnerable to being bankrupted by an emergency or a job loss—and less able to put away money for retirement or for future generations.

 

Categories Narrative

The National Office Market continues to roll on

 

I keep telling my team:  right now is what the top of the market feels like.  In the United States, one out of every seven people moving out of state moves to Arizona.  The economy is hot.

How long can it continue?  Who knows, but NAIOP is forecasting another great year for the rest of 2019 and into 2020.  I have highlighted a few key points but the whole report can be accessed by clicking here or the link at the bottom. 
 
1—The U.S. economy is still growing.  Arizona is doing even better.
2—An interesting trend is more SF per employee.  This is the first time we have seen a reversal in the trend of more and more employees into smaller spaces.  I think this is an anomaly.
3—Office employment is growing at twice the rate of general employment.
4—These are the good ole days. Enjoy the ride.

 

Craig
602.954.3762
ccoppola@leearizona.com

 

 

 

 

The NAIOP Office Space Demand Forecast
Office Leasing Activity Expected to Grow Amid Sustained U.S. Economic Strength

 

Second Quarter 2019 Report
NAIOP
Bennett Gray

 

 

NAIOP Office Space Demand Flier 2Q19_Page_1

Read the entire article here

Categories Narrative

Being A Successful Real Estate Investor

 

When I wrote How to Win in Commercial Real Estate Investing, I spent all my words on the process of investing.  Not the psychology of the business.  Below is a great (and short) article on the 4 P’s of being a successful investor. I would recommend that everyone think about these words before they jump into the CRE investing world.  
 
–       Be passionate about investing in real estate. This is what ensures longevity throughout the investment.
–       Be persistent when the going gets tough. You will have your fair share of problems, you must stay strong and get through them.
–       Be patient. Rash decisions can get you into trouble in this type of investing.
–       Know and trust the process. Shooting from the hip can result in bad decisions along the way.

Investing in CRE can be very rewarding and frustrating and fantastic and horrible and well…every emotion.  I was recently on the 7 Rules Podcast with Nick Raithel where we discussed my 7 Rules for Real Estate Investing.  It’s a great podcast to listen to if you want to focus on the important issues when investing in Commercial Real Estate.  If you want to listen, let me know and I will email you the link.  If you decide to get on board, enjoy the ride.

 

Craig
602.954.3762
ccoppola@leearizona.com

 

 

 

 

 

 

4 P’s of a Successful Real Estate Investor
By wpuser
GC Realty
November 6, 2017

So you want to be a successful real estate investor?  It seems so easy looking in from the outside.  Working for yourself, setting your own hours, making money on vacation are just some of the perks of being a real estate investor.  But it takes a lot of hard work and the 4 P’s to be truly successful as a real estate investor.
 
Passion

“Passion will move men beyond themselves, beyond their shortcomings, beyond their failures.” – Joseph Campbell

Do you wake up ready to take on the world?  You can hardly sleep because you are excited about what you are doing.  Passion is what makes it no longer work.  You don’t even realize how many hours you put in because it isn’t work.  It is deeper than that.  It is in your soul to be a real estate investor. This passion carries you and makes it easier to get through those difficult times.

Persistence

“Persistence is to the character of man as carbon is to steel.” – Napoleon Hill

Your passion allows you to persist when things are bad.  And believe me they will get bad.  Whether it is problem tenants, a down turn in the market or too many repairs; at some point you will question what you are doing. But your persistency is what will keep you going and you will persist through because of the passion that you have for investing in real estate.

Patience

“The key to everything is patience.  You get the chicken by hatching the egg not by smashing it” – Arnold Glasow

I can’t say enough about patience.  Patience is what keeps you out of trouble.  So you have all this passion and you are fired up, ready to buy your first real estate investment property.  Your patience is what prevents you from jumping into a deal too quickly.  Patience allows you to do your due diligence.  Patience allows you to realize that if you don’t get this deal, it is ok because there are many deals after this one.  I’ve been around plenty of people that couldn’t just sit on their hands and wait.  Sometimes there isn’t anything to buy and you have to be OK with that.  Spend that time on something else in your business.  It is the deals that you rush into that cost you the most.  It could cost you time, aggravation and worst of all money.

Process

“If you can’t describe what you are doing in a process, you don’t know what you are doing.” –W. Edwards Deming

Process brings everything together under one united system.  Without the processes, there is no business.  There is a free for all where you make decisions based upon a gut response rather than the facts.  The process keeps you in check.  The process is like a safety net.  If you set it up and stick to it (assuming it catches everything) you should be in good shape.  Typically problems happen when you decide that you know better than the process that you spent hours working on.
 
Passion, persistence, patience and process will help you become a successful real estate investor.  It is what gets you out of bed in the morning. It keeps you going when the going gets tough.  It allows you to be at peace while you wait for the right opportunity.  It brings all of these together into a plan, so you can stay focused on what you are doing.  These form the foundations of a successful real estate investor.

Categories Narrative

Vertical Warehousing

 

The entire world is being disrupted.  Readers of this narrative know this.  Here is the latest disruption: vertical warehouses with four stories. Why are these taking off? 
 
–Consumer demand for instantaneous delivery has caused the industry to take a hard look at the “last mile” and seek new ways to speed up delivery.
–Developers are looking to Asia and cloning their multi-tier warehouses and bringing them to a city near you.
 
Below is a great article on this trend. Here is another if you want to read more. 

Currently, the ideal locations for these warehouses are:

  • Densely populated urban areas
  • Areas with low vacancy rates and high rents
  • Areas with high land costs requiring density of development

 The whole supply chain is being remade, this is just one way it’s manifesting itself.  

To discuss these disruptions further, feel free to give me a call.

 

Craig
602.954.3762
ccoppola@leearizona.com

 

 

 

 

In the age of Amazon there’s nowhere to go but up
JANUARY 16, 2019
building design
JOHN CAULFIELD, SENIOR EDITOR

 

Multistory warehouses could help speed ecommerce delivery in urban centers.

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“Ecommerce needs three times the space of any other kind of retailing.”

That observation came from Hamid Moghadam, CEO of Prologis, the world’s largest warehouse owner and developer, during a March 14, 2017, interview with Jim Cramer on the TV business program Mad Money.

That same month, Prologis paid a reported $28.3 million to acquire a 205,409-sf former ABC Carpet & Home outlet in The Bronx, N.Y., which Prologis converted into the first multistory distribution center in the eastern U.S.

Online sales pivot on distribution. Consumers who purchase merchandise from their desktop computers or mobile devices have high expectations about quick and reliable delivery. As ecommerce approaches an estimated 12.4% of retail sales by 2020, it is imperative for distribution centers (DC) to be near where consumers live, especially in cities whose transportation infrastructure did not anticipate exponentially more delivery trucks.

But close-in urban real estate is expensive and often difficult to come by for the massive acreage that these DCs require. So some developers are taking a fresh look at building warehouses vertically, and justifying the added cost by the rents these facilities might fetch.

Last October, Prologis, working with Craft Architects and Sierra Construction, completed its first ground-up multitier distribution center in the U.S., a three-story, 589,615-sf facility named Georgetown Crossroads for the Georgetown neighborhood in Seattle where it’s located.

Ware Malcomb, in collaboration with developers DH Property Holdings and Goldman Sachs Asset Management, has designed a 375,000-sf, three-story warehouse on four acres in the Red Hook section of Brooklyn, N.Y., whose construction (by design-builder Hollister Construction Services) was expected to begin in January 2019, with completion scheduled for early 2020. (The developers paid nearly $50 million for this land, according to The Real Deal.

The Red Hook facility, at 640 Columbia Street, is one of five multistory warehouses in New York City that Ware Malcomb is involved in various stages of production, confirms Michael Bennett, LEED AP, Principal with the firm’s Woodbridge, N.J., office.
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Ware Malcomb’s three-story warehouse in the Red Hook section of Brooklyn, N.Y., is one of five it has under development.

LAND COSTS DRIVE VERTICALITY
While still a rarity in North America, multistory warehouses are common in Asia, where land costs are prohibitive and smaller trucks are used to ship products. Through October 2018, Prologis had opened 84 multistory warehouses in Asia, and has another 25 under construction, according to Rick Kolpa, Senior Vice President and Market Officer in the firm’s Seattle office.

The attraction of multistory warehouses to American developers corresponds with the doubling over the past five years of land prices for single-story warehouses in the U.S. Spurred by ecommerce, demand for industrial real estate exceeded supply for 32 consecutive quarters through mid-2018, according to CBRE.

Ecommerce’s growth has also instigated demand for instantaneous delivery services. In the first quarter of 2017, UPS polled 5,000 online shoppers in the U.S., 64% of whom expected orders placed by 5 p.m. to qualify for next-day delivery; 61% expected orders placed by 12 p.m. to qualify for same-day service. Three-quarters of respondents said they would pay a premium for expedited shipping.

Meeting those expectations is problematic to achieve, however, as America’s aging infrastructure deteriorates, with one result being intractable traffic congestion.

“Acceptable routes of delivery are diminishing,” laments Kolpa. Quicker delivery increasingly depends on the proximity of warehouses to the product’s destination, the so-called “last mile.” But finding closer-in land within some urban cores with enough acreage to support a single-story distribution center has become exceedingly hard—and expensive.

Based on their population densities, vacancy rates, and potential ecommerce penetration, CBRE sees several metros—including San Francisco, Miami, Chicago, Los Angeles, Dallas/Fort Worth, Houston, and Atlanta—as being ripe for multitier warehouses.

“At some point, there’s a need for an urban distribution solution, and multistory warehouses seem to be the logical fit,” says Ed Klimek, AIA, NCARB, Partner with KSS Architects, which designed a 700,000-sf, two-story warehouse that is expected to start construction in March 2019 on a 20-acre site along Bruckner Boulevard in The Bronx. Its developers Innovo Property Group and Square Mile Capital Management reportedly paid $75 million for the parcel.

Situated at a six-way interstate intersection with highway access to port and city, this building, when completed in late 2020, would be 15 minutes from 9.4 million residents. The design includes 28- to 32-foot ceiling heights, a two-lane ramp, a 130-foot truck court, 90 loading docks, 800-lb floor load capacity, a fenced perimeter, and onsite parking with 486 spaces. The building will also offer 55,000 sf of corporate office space.

“Innovo wanted something that would maximize the land, optimize the building, and would be adaptable for single and multiple tenants,” says Scot Murdoch, AIA, Partner at KSS.

In designing the facility, KSS and its development partners took into account the business audience, the state building codes for entrance and egress, the balance between total square footage and the number of truck docks needed, and even how to skin the building (its façade blends precast panels below and heavy-metal panels above).

Prologis, says Kolpa, hasn’t found much difference in the construction cost of multi- vs. single-story warehouses. (Prologis hasn’t revealed the cost for Georgetown Crossroads in Seattle). But Bennett of Ware Malcomb says the cost for a multistory warehouse in New York would run anywhere from $185 to $280 per sf, depending on how its rentable space is defined. That compares to a construction cost of between $60 to $110 per sf for a comparably located single-story warehouse.

Without revealing numbers, KSS’s Klimek and Murdoch say their cost estimates pencil out within Bennett’s range.

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KSS Architects has designed a two-story, 700,000-sf distribution center, 2505 Bruckner Boulevard, that could get started in 2019.

BETTER LOCATION, HIGHER RENTS?
Multistory warehouses nearer to urban centers are expected to be able to charge higher rents, although proof of that theory is still anecdotal.

Bennett believes higher rents can be justified by emphasizing that a vertical warehouse “provides tenants with a Class A opportunity, closer in.” He also notes that such warehouses are nearer job centers at a time when warehouse tenants in general are having a harder time hiring and retaining workers.

What makes a multistory warehouse unique, says Bennett, is its “stacking and ramping” features that can handle 53-foot trailers. Ware Malcomb’s design also “future proofs” the building so that it can accommodate “vertical transportation” elements like robotic rovers for picking and drones for delivery. The façade will include solar panels to get the building as close to net zero energy consumption as possible. And its layout will be flexible enough to convert to more office space if warranted. Bennett anticipates that Red Hook’s third floor will be leased primarily for light manufacturing.

Prologis’s Seattle warehouse is equally flexible on each of its three floors, which can be subdivided. Its first two floors, with 24-foot and 28-foot clear space, respectively, have up to 100 dock-high doors available. The third floor is for build-to-suit office and maker spaces.

Kolpa was reticent about discussing where else Prologis is looking to build multistory warehouses. He would only confirm that a facility in San Francisco is “pending.”

It remains to be seen how broadly developers embrace this concept, particularly in markets like Texas where land is still plentiful and relatively affordable.

JLL reported last spring that a large parking lot near New York’s John F. Kennedy International Airport was in the planning stage to become a three-story warehouse. And KSS has two warehouse projects in the works in Washington, D.C., one of which would be multistory.

Klimek observes that while multistory warehouses are definitely a trend, they won’t be the be-all and end-all solution. “Multistory warehouses will continue to be site-specific,” he says.

amazon 4

amazon 5

The 2505 Bruckner Boulevard facility has 74 loading dock doors on the first level, with the second level for freight and office space.

Categories Narrative

Analyzing Business Opportunities

 

We all know we have to do our homework when analyzing any business opportunity.  Doing due diligence  from every side and perspective will help protect your interests (and money).  Below are some reminders and a priority list for conducting your due diligence to limit your risks and hopefully ensure your ROI:
 
Financials first, all else is a waste of time until the numbers pass the smell test.
SWOT (strengths, weaknesses, opportunity, threats) analysis. Assess all sides of the business to see if it is sustainable for the future.
– Is the owner essential to operations?
– Know what you will owe in tax post-acquisition.
– And the biggest takeaway is to always work with a team of accounting, legal, and commercial real estate professionals to understand all sides of the deal.
 
Several times a year, we will have a client bring us into an acquisition (under an NDA) or strategy change to analyze the potential transaction or change from a real estate perspective.  They get real numbers for their project, not just a plugged number that may be way off.
 
We are here to help. Call us if you have any questions.

Craig
602.954.3762
ccoppola@leearizona.com

 

 

 

 

A Guide to Analyzing Business Opportunities

By Barry Stuart
the broker list
April 21, 2018

guide to analyzing bus opps

There are important elements to consider when analyzing business opportunities and reviewing a business with the intent to purchase. Taking the time complete a thorough investigation is critical to discover the hidden facts.

First Glance
Don’t invest time or energy until you’ve seen the financials. I estimate that only 30% of owners who request an evaluation have realistic expectations. It is my policy to see a recent 12 month income statement before investing too much time.

Important Questions
Why is the owner selling?

Is there competition or new technology threatening the business? Answering this question will typically involve speaking with owners of similar operations in other markets and using as many other resources as possible to investigate completely.

Can future potential income be taken into consideration? It’s important to know the potential that exists to add value to the operation. That future potential should not be used to form your opinion of how much it is currently worth.

How integral is the current owner to the success of the business? If the owner is the current principal driver, are you able to find a suitable replacement who can achieve your future growth expectations?

How do you deal with unreported cash taken from the business? It’s difficult to substantiate and cannot be used to determine its current value.

Make sure the owner has talked to his accountant and is aware of tax implications of the sale. You don’t need to hear after investing time and money in your due diligence process that the owner has decided not to sell due to excessive tax that will be triggered upon disposition.

Determining the price
Internally generated income statements are acceptable for my initial review. An important part of my formal due diligence must be analysis of “Notice to Reader” statements used for tax purposes.

There are obviously many different types of businesses which means that there could be a high amount of capital assets (such as a manufacturing plant) or low or no assets (such as an insurance company). Typically the value of the business will be more weighted on the reconstructed EBITA rather than the value of the assets.

EBITA is an acronym for earnings before interest, taxes and amortization. Before calculating EBITA it is always necessary to determine if it is necessary to reconstruct the expenses. Examples of when adjustments are required include but are not limited to, attributing market value numbers for all wages including Operations Management ( the current owner(s) may be paying themselves above or below market ), removing personal insurance or vehicle expenses, adjusting for a one time legal expense or an unusual non-reoccurring capital improvement.

There may be occasions when you know that property taxes or lease costs will be increasing considerably next year. Factors such as these could significantly reduce the bottom line.

Businesses such as hotel/motels, apartments and self-storage facilities are commonly appraised by applying a cap rate to EBITA to arrive at a combined value for the business and real estate.

The formula is different in examples where the business could easily operate from an alternate location but the real estate and businesses are nonetheless being purchased together. In that case it is necessary to calculate the value of the real estate and the business with separate methods.

Differences between an Asset Sale & Share Sale
Agreeing to enter into a “share sale” means that you will be assuming the owners depreciated book value of the current assets. This will impact your annual corporate tax payable. I advise that the owner’s accountant calculate the consequences of a “share sale” to both buyer and seller. Be sure that the “share sale” purchase contract provides for the liability of future employee remuneration and unknown legal issues that could surface.

It is common practice to establish an “asset sale” value based on 3 to 4 times EBITA on businesses under $10M.  Businesses with a value above $10M warrant a higher multiplier. Once the “asset sale” number has been established, the “share sale” value is arrived at by reducing the “asset sale” price by an amount equal to the savings in tax that a seller will realize by entering into that “share sale”.

Other Considerations/Questions
Is there deferred maintenance or outdated systems which will require significant capital expenditure in the near future?

Does the business rely upon one or two key clients or is it well diversified?

Is it important for the owner to spend time training the new owner?

Financial institutions aren’t typically excited about lending based on “goodwill”. Are you aware of the amount of initial investment and ongoing cash that will be required?

Is the purchase/sale contract a document which has been developed for this type of specific business purchase? There are many elements of a business sale that differ from a real estate purchase.

This gives you a quick overview of some things to consider. Be sure to engage a team of professional accounting, legal and commercial real estate advisors to assist with due diligence and closing.

 

Categories Narrative

1-Minute Phoenix Metro Office Market Update: Q1 2019

 

The Metro Phoenix Office market continued its trend of positive net absorption this quarter in a BIG way.   Fresh off a year of posting 2.8 million SF of net absorption (job growth) in all of 2018, Metro Phoenix hit 1.1 million SF in just the first quarter 2019, sending vacancy down to 16.9% from 17.57%.  If this, or something close to this, rate of absorption continues for the rest of the year, tenant demand will substantially outpace the 2.2 million SF of new building supply delivering this year.

Aside from one major lease over 150,000 SF (Voya Financial), the transactions in the first quarter underscored steady, medium-sized growth in the Valley. We love this consistent growth.  Many businesses expanded operations here while several groups continued to plant their first flag in the region.  Greater Phoenix clearly holds an unfair advantage over other metropolitan markets with its quality of life, quality of workforce and it doesn’t hurt to have the nation’s most innovative university, Arizona State University (ASU), in our backyard.

Similar previous trends continued over the past three months including Tempe (home to ASU) remaining the hottest submarket with high demand and single-digit vacancy. All other areas south and east of Sky Harbor airport captured the most leasing activity.

Below is a link to our Lee & Associates Arizona First Quarter Office Report and as usual, I’ve included my top 3 takeaways:

  1. New Product Leases– Digging deep into the 1.1 million SF of net absorption in the first quarter, 889,000 SF of it took place in buildings constructed in 2010 or later.  This means 80% of employers want the buildings being built this cycle.
  1. Camelback Corridor turns the Corner– After a negative absorption of 110,000 SF in 2018, The Camelback Corridor posted 155,000 SF of positive net absorption in Q1 2019.  By the way, this submarket holds the highest average lease rates across all classes at $35.56/SF.
  1. WeWork Continues to Make a Splash– WeWork signed the 2nd biggest lease in Q1 at 68,968 SF, three months after it signed 54,000 SF in another submarket.  Time will tell how well the co-working giant competes with traditional landlords in this market.

 

Want to talk more about these trends or how I can help you with your office space?  Give me a call.

 

Andrew

602.954.3769

acheney@leearizona.com

 

 

 

 

Click to Read the Report

2019 Q1 Office Report 1

Categories Narrative

Building Collaborative Areas vs. Coworking Space

 

For those who have followed my narrative for a while now, you might recall that WeWork and the overall rise of Coworking office space has been on my radar for the past few years (Click here to read “Rise of Collaborative Workspace” and here to read “WeWork now a $5 billion co-working startup”).
 
The market is always shifting.  Building owners are adjusting to what many see as a long-term trend in office space that is here to stay.  But is it?  
 
Here are some of my key takeaways:

  • Common area amenities such as Tenant Lounges, Conference Rooms, Gyms and Cafés/Food trucks no longer just get you the tour, they are mandatory.
  • The more urban the building the “cooler” the building has to be to compete.
  • Co-working space in a building is seen as an advantage by less traditional tenants (Start-ups & tech companies).
  • Technology and Flexibility are here to stay — adapt or die.
     

If you want to talk about the Coworking trend and what you or your company is doing, shoot me an e-mail.

 

Craig
602.954.3762
ccoppola@leearizona.com

 

 

 

 

CRE Trends, Economics and More
A Wide-Ranging Conversation
By Trey Barrineau
NAIOP
Winter 2018/2019

Excerpt from Development Magazine ‘CRE Trends, Economics and More’
 
Despite the rise in work-from-home options, Harris said statistics show that demand for of­fice space continues to grow.

“Of­fice-using employment has grown at times at almost double the rate of the general employment growth rate factor,” said Harris. “And yet office absorption just undershoots what it should. I think companies are still very hesitant to expand and spend more money for space, but they’re hiring people. I would say historically something has to give. You can’t expect people to work in a Starbucks-like environment for so long. There’s got to be a pain point.”

The downside to the equation is that a recession could leave coworking companies like WeWork “pretty exposed,” said Harris.

“WeWork is basically a services-based hotel model,” he said. “WeWork is about flexibility. When you’re locked into a 10-year lease in a traditional of­fice space, it’s hard for a business to plan. The flexibility you get with WeWork is extremely valuable.

Harris said it is important for companies to have slack space in order to hire more people.

In response, Foster noted that the NAIOP Research Foundation recently published a paper, “Activating Of­fice Building Common Spaces for Competitive Advantage,” that looked at co-working in of­fice buildings. It showed that owners of of­fices like having a co-working center in their building because it serves as the flex space, so as tenants expand and contract, they can do so in that building.

Stapp wondered if what’s happening with WeWork is challenging how the commercial real estate industry deals with built space.

He noted that use of space has typically been tied to a speci­fic place, for a speci­fic period of time, with the space commitment sealed by a lease. He suggested that if a landlord owns 20,000 apartment units, his objective is to keep cashflow in his portfolio. The user, on the other hand, wants extreme mobility. Rather than having a lease for a defined space over a defined period of time, why not operate a portfolio that’s available to everybody? Through the use of technology, if a tenant wants to move, he or she can pick a new unit that’s available somewhere in the portfolio.

“It’s a total rethinking about how we generate revenue, how we keep people in space, how we use space, and the extreme mobility that it provides,” Stapp said.

Harris said WeWork is providing “space as a service” to businesses, a concept seconded by Stapp.
Activating Office Building Common Spaces for Competitive Advantage

By Richard B. Peiser, Ph.D. and Raymond G. Torto, Ph.D.
NAIOP
November 2017

CommonSpaces

Click here to read the full article. 

Categories Narrative

Affordability

 

One of the most daunting tasks our national clients face is to quantify the key metrics for making decisions for their office locations.  I review no less than 30 different reports a year on this topic and the items people track are, well…daunting. Demographics, traffic patterns, access to amenities, cost of labor, office space costs, taxation, and the list goes on and on.
 
As you look for a new office location, there are two particular metrics our clients review for opening a new office.  The first is, can you attract new people to that market?  With the U.S. at full employment, you either have to steal someone else from their existing job, or lure them to move to your new city.  This means:  Do they want to move to that city?
 
And the next question — is it affordable?  Sure this is pretty simplistic, but here is a great quote I have been using:  “Simple wins because simple executed without excuses.  Everywhere.” -Brian Knight
 
Below, is a simple article looking at the top 25 cities that new graduates would consider affordable (highest salary and cheapest rents).  Guess what, Arizona has two cities—one metric why Arizona is growing and growing. 
 
Simple wins.

Are you looking for a new office location? We deal with these metrics everyday, give us a call.

P.S. I was recently on the Finding Your Frequency Podcast with Jeff Spenard and Ryan Treasure.  We discussed real-estate, my new book, family and more! Click here to listen.

Craig
602.954.3762
ccoppola@leearizona.com

 

 

Top 25 Most Affordable Cities to Live and Work in 2019
Ranking Highest Salaries with Cheapest Rents

Published On: November 27th, 2018

business student

By Jennifer L. Gaskin

 

 

For recent graduates, young professionals or folks considering a career change, affordability of housing often becomes the deciding factor in where they choose to look for a job. Of course, we all want to make the highest possible salary, but a souped-up paycheck in a city with sky-high rent won’t do you much good since you’ll have very little left over each month once you’ve paid your landlord.

 

At BusinessStudent.com, wanted to see which areas of the country, and which specific cities in those areas, give business professionals the biggest bang for the buck, so we compared the highest quoted salaries from over 100 business-related jobs on Indeed.com to average rent for a two-bedroom apartment across America from Rentjungle.com and came up with the top 25 most affordable cities to live and work.

 

You can see the full listing below, but here’s a quick summary of what we learned:

 

  • The average salary for the full top 25 is $72,230, and the overall average income left after rent is about 81 percent.
  • Texas, the nation’s second most-populous state, is by far the overall leader on our list, placing a total of five cities in the top 25. The highest-rated Texas city on our list is Fort Worth, where the average worker has more than 80 percent of their income left after rent.
  • The Midwest placed eight cities on our list, including three in Ohio alone.
  • No spoilers, but you should strongly consider Oklahoma, as the Sooner State boasts two of the top three cities, including the overall No. 1.
  • Dallas had the highest average salary at $82,609, while its Texas neighbor, College Station, had the lowest average salary at just $55,086.
  • The cheapest average monthly rent was $863 in Tulsa, while the highest average rent was Dallas’ $1,422.

 

Before you start your new job search, be sure to consult this list of the 25 most affordable cities to live and work in the U.S., but you also remember to take into account things like income tax (two of the states on our list, Texas and Nevada, have no personal state income tax), transportation and insurance costs.

Here’s our list, in ascending order, of the 25 cities that provide the highest salary after deducting rent:

 

25 most affordable cities 1

 

25. Tempe, AZ

Average salary: $71,290
Average rent: $1,259
After-rent salary: $56,182
% income after rent: 79%

24. Houston, TX

Average salary: $79,579
Average rent: $1,401
After-rent salary: $62,767
% income after rent: 79%

23. Greenville, SC

Average salary: $68,675
Average rent: $1,201
After-rent salary: $54,263
% income after rent: 79%

22. Dallas, TX

Average salary: $82,609
Average rent: $1,422
After-rent salary: $65,545
% income after rent: 79%

21. Irving, TX

Average salary: $77,527
Average rent: $1,327
After-rent salary: $61,603
% income after rent: 79%

20. Raleigh, NC

Average salary: $78,391
Average rent: $1,323
After-rent salary: $62,515
% income after rent: 80%

19. Cincinnati, OH

Average salary: $74,927
Average rent: $1,260
After-rent salary: $59,807
% income after rent: 80%

18. College Station, TX

Average salary: $55,086
Average rent: $906
After-rent salary: $44,214
% income after rent: 80%

17. Cleveland, OH

Average salary: $72,636
Average rent: $1,168
After-rent salary: $58,620
% income after rent: 81%

16. Columbus, OH

Average salary: $71,341
Average rent: $1,139
After-rent salary: $57,673
% income after rent: 81%

15. Kansas City, MO

Average salary: $73,869
Average rent: $1,178
After-rent salary: $59,733
% income after rent: 81%

14. Detroit, MI

Average salary: $81,197
Average rent: $1,292
After-rent salary: $65,693
% income after rent: 81%

13. Phoenix, AZ

Average salary: $74,519
Average rent: $1,178
After-rent salary: $60,383
% income after rent: 81%

12. Louisville, KY

Average salary: $66,832
Average rent: $1,049
After-rent salary: $54,244
% income after rent: 81%

11. Indianapolis, IN

Average salary: $70,284
Average rent: $1,102
After-rent salary: $57,060
% income after rent: 81%

10. Omaha, NE

Average salary: $65,089
Average rent: $1,009
After-rent salary: $52,981
% income after rent: 81%

9. Grand Rapids, MI

Average salary: $68,546
Average rent: $1,048
After-rent salary: $55,970
% income after rent: 82%

8. Birmingham, AL

Average salary: $73,758
Average rent: $1,120
After-rent salary: $60,318
% income after rent: 82%

7. Fort Worth, TX

Average salary: $75,797
Average rent: $1,108
After-rent salary: $62,501
% income after rent: 82%

6. Columbia, SC

Average salary: $68,541
Average rent: $999
After-rent salary: $56,553
% income after rent: 83%

5. Memphis, TN

Average salary: $69,866
Average rent: $984
After-rent salary: $58,058
% income after rent: 83%

4. Las Vegas, NV

Average salary: $74,199
Average rent: $1,038
After-rent salary: $61,743
% income after rent: 83%

3. Oklahoma City, OK

Average salary: $73,132
Average rent: $958
After-rent salary: $61,636
% income after rent: 84%

2. Lexington, KY

Average salary: $69,917
Average rent: $889
After-rent salary: $59,249
% income after rent: 85%

1. Tulsa, OK

Average salary: $68,147
Average rent: $863
After-rent salary: $57,791
% income after rent: 85%

 

Conclusion

There’s no doubt you’ll consider probably dozens of factors when thinking about where it is you want to make a life for yourself. But for most of us, having ample disposable income, regardless of what city we call home, is one of the best ways to ensure that we can lead the kinds of lives we want.

If it’s time for you to make your first start, or just a fresh start, a clear-eyed examination of hard data is the best place to begin. Whether you choose the winning entry on this list, Tulsa, or another city, be sure you’ve done your homework and are certain you’ll be able to get a lot of bang for your buck.

 

Business Jobs Used in Analysis

A career in “business” is broad enough that it can mean just about anything. Hundreds, if not thousands of jobs, can be classified as “business” related work ranging from being an accountant to a chief medical officer. We created an index of 127 business careers, where we tracked the average salaries and how they vary by location. While these jobs are by no means comprehensive of all jobs in business, they comprise a representative index of business management careers and their highest paying salaries as well as jobs most commonly reported on Indeed.com.

The highest paying job paid $187,000 on average in the United States (Medical Director). The lowest paying business job we track is (Security Supervisor), which pays $31,000 per year. The average business job we track pays $75,000 per year.

 

25 most affordable cities 2

 

 

Fair Use Statement

Information is power. Please share our content for editorial or discussion purposes. All we ask is that you link back to this page and give proper credit to our author.

https://www.businessstudent.com/topics/affordable-cities-live-work-2019/

Categories Design, Narrative, Tech Industry

Chinese Company Headquarters WAY different than U.S.

 

Chinese company, Tencent, just finished its global headquarters.  In previous narratives, I have discussed US-based tech companies’ cool new headquarters (Click here to read my narrative on Apple’s HQ). This week, I have included two different articles about the same building.

What is different?

  • Technology.  In China, the government allows some technology that is not accepted here, including facial-recognition.  This allows WeChat App to check bus schedules and book conference rooms, and of course, increase security.
  • The buildings are not campus orientated.  Rather, see below.  Two massive towers (one is 50 stories with three really cool multi-story sky bridges). 
  • Below is a graphic on the bridges. They include health and gym facilities, a cafeteria, and a 500-person auditorium.
  • Robots act as guides in the lobby.

These are huge differences compared to US-based companies (other than Salesforce HQ in San Francisco – click here to read my narrative on this topic).  The comparisons open up lots of new directions to analyze.

P.S. I was recently on the 7 Rules Podcast with Nick Raithel.  We discussed my 7 Rules for Real Estate Investing.  Great podcast to focus you on the important issues when investing in Commercial Real Estate.   Click here to listen.

Craig
602.954.3762
ccoppola@leearizona.com

 

 

Inside Tencent’s new $599 million Shenzhen headquarters
The company’s headquarters flips the sprawling tech campus on its side.
BY YASMIN GAGNE

10.29.18


[Photo: Tim Griffith/NBBJ]

When it comes to their headquarters, American tech companies tend to favor sprawling campuses with pathways, pantries, and soccer pitches designed to foster interaction among employees across different departments. For its new, reportedly $599 million home, in Shenzhen, China, internet giant Tencent tasked the architecture firm NBBJ with turning this model on its side and imbuing a 50-story skyscraper with the same collegiate-style atmosphere for 12,000 employees. Step one, says lead designer Jonathan Ward, was splitting the building into two towers and connecting them by three bridges, “so there is a conversation happening between them.” Below, a look at how the firm brought new energy—and a green sensibility—to the corporate high-rise.

1. LOCATION
The building is in a burgeoning tech district next to Shenzhen University, on the city’s far west side—an area intended to be China’s answer to Silicon Valley. Constructed on land reclaimed from the sea, the towers were built to comply with China’s Sponge City initiative, which tackles runoff pollution and flooding by making urban landscapes more capable of filtering and holding water.

2. THE PLAZA AND ROOFTOP GARDENS
The building’s one-acre plaza is covered in permeable ceramic bricks made from recycled materials that filter rainwater as it drains into the ground. This absorbent layer—along with gardens atop the roofs and bridges—has more than doubled the building’s water-retention rate compared with traditional construction techniques.

3. FIRST BRIDGE
Nicknamed the “brain” of the building, the top bridge houses Tencent University, where employees can take classes to brush up on skills such as coding. Several conference rooms are located here, as well as space for after-work activities, such as guitar and English lessons.


[Illustration: Adam Quest]

4. SECOND BRIDGE
The “heart” bridge contains more than 25,000 square feet of health and gym facilities, including a track, climbing wall, basketball court, dance studio, 2 badminton courts, 6 billiards tables, and 12 Ping-Pong tables. There’s also a juice bar.

5. THIRD BRIDGE
The lowest link contains a museum about the history of Tencent, two levels of cafeteria space, and a 500-person auditorium.

6. BUS STATION
Tencent buses pick up employees throughout the city and drop them off in an underground terminal below the building. Escalators rise up to plaza level, allowing natural light to filter in.

7. FACADE
The glazed, self-shading exterior regulates how much sunlight and heat penetrate the building, reducing the need for air-conditioning. NBBJ estimates that the building uses 40% less energy than a typical office tower.

8. LOBBY
Tencent is developing a building-wide internet-of-things system to help automate heating, air-conditioning, and security. Already, facial-recognition technology identifies employees and allows them to access certain floors. Smart rooms within the building can adjust their temperature based on how many people are in them. Robot guides in the lobby show people to bathrooms and other facilities.

 

New Tencent Headquarters Offer Glimpse Into Workplace of Future
Workers at the Seafront Towers headquarters use facial recognition technology and an official WeChat app for employees
By  Dominique Fong and
Shan Li

Jan. 22, 2019 9:00 a.m. ET

SHENZHEN, China—Tech giant Tencent Holdings Ltd.’s new twin-tower headquarters in this southern megacity offers a glimpse into the future of office life, a future where China is pulling ahead in the race for innovative workspaces.

Tencent—a company best known for developing WeChat, the social-networking mobile app with over a billion users—began moving employees into its centerpiece high-rises, the Seafront Towers, in October to prepare for future expansion.

Cammy Liu, a 24-year-old Tencent secretary, enjoys the new home base’s state-of-the-art benefits. A camera scans her face using facial-recognition technology so she can enter the elevator and go up to her floor. She can order meals via smartphone and have them delivered to her in some of the staff dining areas.

It was so convenient, “I gained five to six kilos after the move,” Ms. Liu said.

Tencent declined to disclose its total investment in the new headquarters, but analysts estimate construction costs at around $600 million.


Bridges connecting the two towers provide communal gathering spaces, like quads in a vertical campus. PHOTO:TIM GRIFFITH/NBBJ

The complex, with a shared lobby connecting the two towers, is among a new crop of buildings in China that reflect a growing change in corporate work culture. Chinese firms are encouraging a stronger sense of community by featuring more open gathering spaces and advancing new technologies to make office life more efficient.

Tencent, partnering with an architecture firm, envisioned a twist on the Silicon Valley-style tech office space. Instead of a flat suburban box, the headquarters is split into two vertical towers. Two midair bridges connect the towers and provide communal gathering spaces, like quads in a vertical campus.

One reason for the vertical design was that nine years ago, Tencent could buy only a small real-estate parcel in Shenzhen, which was running out of open urban land during its makeover from a small fishing village to China’s leading tech hub. The building’s design was also intended as a solution to create more mobility and flow, leading to more chance encounters among employees.

“The challenge of the high-rise building is it’s inherently anti-connection, a series of these stacked plates,” said Jonathan Ward, a Los Angeles-based design partner at architecture firm NBBJ and the lead architect for Tencent’s HQ project. “They go up in the sky and nobody can see each other. We have to rethink the high-rise building.”

Mr. Ward said cultivating a family spirit within its headquarters was a priority for Tencent in China. “I don’t see that so much in the U.S. as a fundamental driver,” he said.

On a recent visit, Tencent employees were on the bridge at the 21st floor, playing ping pong and basketball together and lining up for a rock-climbing wall. Tencent wanted the bridge to promote health and wellness and to symbolize the heart of the complex. The bridge beginning at the 34th floor includes a Tencent University training center for employees.


Open meeting spaces scattered throughout the towers encourage workers to change up their routines. PHOTO: TIM GRIFFITH/NBBJ

Sebastian Hill, an architect at NBBJ in Hong Kong, said open meeting spaces scattered throughout the towers encourage workers to change up their routines. About 8,000 Tencent employees moved from another building in Shenzhen to the new offices, which can handle a total of 10,000.

“The old headquarters wasn’t very big, so you had to stay at your desk to work,” Ms. Liu said. “But now there is plenty of space, lots of sofas and places to sit and work and chat with co-workers. We don’t just sit at our desk.”

Chinese companies are becoming more willing to experiment with new workplace technologies, analysts say. At Tencent, people can book conference rooms and check shuttle-bus schedules using an official WeChat account for employees. Facial recognition to enter office buildings is becoming commonplace.

Many people in the U.S. and even more so in the EU, would see that as an invasion of privacy, but in China people really appreciate the convenience it creates,” said Jordan Kostelac, property technology director at JLL, a real-estate brokerage firm.


The Seafront Towers design, a vertical version of a Silicon Valley tech campus, was meant to encourage mobility, flow and more chance encounters among employees. PHOTO: TIM GRIFFITH/NBBJ

Elsewhere in Shenzhen, one of China’s largest insurers, Ping An Insurance, took inspiration for its new headquarters from the shape of New York City’s Empire State Building. The second-tallest skyscraper in China, it was completed in 2017. (China’s tallest skyscraper is the 128-story Shanghai Tower.)

“We really wanted to have a statement,” said Florence Chan, an architect at New York-based Kohn Pedersen Fox Associates, which designed the tower.

Ping An Financial Centre also employs a facial-recognition system for employees. And from about noon to 1:30 p.m. the ceiling lights dim, so employees can comfortably nap at their desks, a common practice in Chinese work culture.

In Hangzhou, a prosperous coastal Chinese city, employees at the headquarters of Ant Financial, an affiliate of Alibaba, work in open spaces referred to as Z-Space, which is meant to encourage “hierarchy-free collaborations and straightforward communications,” an Ant Financial spokesman said. Employees can book meeting rooms and receive automated alerts for package deliveries via a smartphone app.

During its building heyday starting around the Beijing Summer Olympics, China was a playground for global architects testing out whimsical showpiece designs, like the iconic China Central Television building in Beijing designed by Rem Koolhaas, which looks like a pair of entangled trousers, or the egg-shaped National Centre for the Performing Arts in Beijing.

The enthusiasm has cooled in the years since President Xi Jinping called for an end to “weird” buildings in 2014. That remark caused some architects to pre-emptively tone down designs to avoid possible government scrutiny.

Architects have since begun to “rethink” splashy tower designs in China, Ms. Chan said.


Categories Narrative

The Commercial Real Estate Appraisal Process

 

We are constantly asked by owners and prospective owners to value buildings. As brokers, we can prepare BOV’S (Broker Opinion of Values).  This is our opinion of a specific property’s market value if put on the market for sale.  Full valuation for Lenders and partners to benefit all parties is called an Appraisal.  Below is a nice summary article on the commercial real estate appraisal process which includes:
 
–Physical inspection, including a complete walk through
–Research on zoning and all applicable city ordinances
–Comparables and analysis
 
All of this is then reviewed and compiled into a report that values the property. 
 
Sometimes it’s good to review the basics.  Today’s narrative is just that.  Hope you find something you didn’t know. 

Call me with any questions.

 

Craig

602.954.3762

ccoppola@leearizona.com


 

The Commercial Real Estate Appraisal Process
By Real Estate Matrix
real estate matrix
Thursday, July 12, 2018

Two of the most important factors to someone obtaining a commercial real estate appraisal is speed and accuracy. If this is important to you during the appraisal process keep communication in mind. Communication, or lack thereof, is one of the factors that can contribute to delays.

Starting the Commercial Real Estate Appraisal Process

How long does a typical commercial real estate appraisal take? It could depend on lots of factors. The typical commercial real estate appraisal should only take 3-4 weeks once the work has been agreed to. However, lack of communication from the borrower can significantly slow down the process. What holds it up? When someone provides information that is incomplete, late or inaccurate.

What can you do to speed up the process?

1.     Provide very accurate information to the appraiser.
2.     Provide all existing and relevant documents that have been requested.
3.     Prompt communication is always helpful. When the appraiser asks a question, respond the same day and provide clarifications on anything that is requested.

What Goes into a Commercial Real Estate Appraisal?

A commercial real estate appraisal usually starts with a physical inspection of the property. Either the borrower or someone that represents them should attend the site inspection.

A walk-through of the property is done to check out both the interior and exterior of the building(s) and property.

The walkthrough does not include any sort of environmental inspection. Nor does the appraisal inspection include an assessment of the working condition of the mechanical or structural elements of the building.

This is an opportunity for the appraiser to ask any questions that arise.  The types of questions that may arise could be about the property itself, development plans, development plan timelines, and operations of the business.

The appraiser will also takes pictures and include them in a written report.

Once the physical inspection is complete next comes the research phase. The information about zoning, regional, city and neighborhood data are all collected and considered.

Also researched at this time is information about comparable properties. These properties could be close, however, they could also be some distance away if it is difficult to find something comparable. For instance, factories that make automobiles aren’t that common, in this case another location may be considered as comparable.

Commercial Real Estate Appraisal | List of Considerations

When analyzing properties that may be comparable the appraiser will consider:

·        The age of the buildings
·        Costs and depreciation
·        The cap rates for comparable investments
·        The other buildings on the premise
·        The condition of the buildings
·        That the size of the site area
·        Comparable sales
·        The size of the buildings

Commercial Real Estate Appraisal | The Final Phase in the Process

During the final step of the appraisal process, all the information is gathered into a written report that includes:

·        An overview of the most significant points about the property
·        Definitions – The description section provides the scope of the report, definition of market value, information about the property and overview of the appraisal process
·        Descriptions – This section goes into the analysis of the community, the neighborhood, the site, any improvements to the property and the highest and best use analysis of the property
·        Valuation Conclusion – This section outlines the methodology used, and the values obtained through a cost approach, a direct sales approach, and an income approach. A final conclusion is also provided.

Once the written appraisal is complete, it is provided to both the lender and later to the borrower for their review.

The lender can then move forward with the completion of the loan process. Either party should direct any questions to the appraiser for clarification. The final written report includes a conclusion on the value of the property based on the appraiser’s analysis.

Categories Narrative

Relationships- Deep and Meaningful

 

This narrative typically talks about office space leases, trends and all things commercial real estate.  Today, I wanted to talk about how we have thrived over 35 years in an incredibly tough business.  It’s pretty simple — we build deep meaningful relationships with our clients. How do we do this? 
 
We have a number of non-negotiables including:
 
–Do what you say you will do {Click to Tweettwitterlogo_1x}
–Finish what you start
–Show up on time
–Say please and thank you.

(I learned these from Dan Sullivan and The Strategic Coach over 25 years ago and they are the cornerstone of who we are).
 
We also do a lot of what Elizabeth Bernstein talks about below about building relationships.  Here are a few key points she makes:
 
–Listen more than you talk
–Assume the best from the beginning
–Make time for the ones you love in life
–Do more for others than they do for you
 
We would like to build a deep meaningful relationship with you and your company.

Call or email me and I would love to set up a meeting.

Craig

602.954.3762

ccoppola@leearizona.com


 

The Best Relationship Advice of the Year
Top suggestions from readers include spoiling your partner, listening, assuming the best and knowing when to chuck it all.

By Elizabeth Bernstein

WSJ

January 4, 2018

relationships 1

I receive thousands of letters from readers of my Bonds column each year, and many offer hard-earned relationship advice. Much of it is excellent and inspiring. One reader says she is mindful not to compare her life to characters in movies—or to friends on Facebook. Another says he always tries to say something positive instead of negative. A third recommends giving people “a gift” of attention without expecting anything in return.

This year I’ve decided to share the bounty. Here’s the best advice I’ve heard from readers this year.

 

Listen, Breathe, Listen
Steve Miksis, a 66-year-old accountant in Santa Rosa, Calif., believes there is no greater gift than genuinely listening to a person, without interrupting or judging or inserting your opinion. And so he works hard at being a better listener.

He employs a technique he learned when he was mountain climbing on Mount Whitney in California. While descending a particularly harrowing passage, he felt panic rising. He thought of an article he’d read about how the Marines train their snipers to “plan, breathe and execute,” because deep breathing dissipates cortisol. Then he plotted out his next step, sucked in a deep breath, and took it.

 

Bonds: On Relationships
Now, he reminds himself to “just breathe” when he is listening to someone, especially when he starts to feel defensive, or triggered to react. As he takes deep breaths, he says, his hearing sharpens, he becomes more attuned to non-verbal cues, and he feels more emotionally open to what he is hearing. “That breath stops time—it gives you a space and it gives the other person a space,” he says.

 

Assume the Best
Too often, we jump to conclusions and assume the worst about a situation or a person’s intentions. (Think of how you feel when someone doesn’t return a text or call—Is this person angry? Rude? Dead in a ditch?) Don’t do this.
Geoffrey Greif, 68, a professor at the University of Maryland School of Social Work who lives in Baltimore, says he learned this tip through his work, which is focused on finding the strengths in others. If he is not sure what someone thinks about him or what the person means by what he or she said, he tries to assume it is positive. This helps him to feel calm and steady. And it keeps him from entering into the discussion on the defensive, he says.

The tactic comes in handy with colleagues, students and his wife of 43 years, who is also a professor. Dr. Greif says both he and his wife often get absorbed in their work and can sometimes ignore each other. “If we each assume the lack of responsiveness has nothing to do with our relationship and more to do with a love and commitment to our work, the better off we are,” he says.

 

Prioritize Your A Team
Everyone’s busy. We need to consciously make time for the people we love.

Lo Myrick, 30, a business consultant in Charlotte, N.C., thinks of the people in her life as belonging to teams or squads. Her “A” squad is made up of her closest friends and family, her “B” squad is “friends and professional network” and her “C” squad is made up of acquaintances. This approach helps her prioritize and make sure she sees the people she is closest with in person often enough. She also stays in touch with everyone via phone, text or social media.

“It takes a strategy to build relationships and have a happy life, just like it takes a strategy to build a career or business,” Ms. Myrick says.

 

Mutual Spoliage
Kevin Caron, 57, a sculptor in Phoenix, says he and his wife compete with each other—to see who can be nicer. The couple, who has been married 25 years, calls this “mutual spoilage” and even has a flag with the phrase on it, in Latin.

Here’s how the concept works: One spouse spots something that needs to be done—emptying the dishwasher, taking out the trash, doing the laundry—and does it before the other person does. The tasks may be mundane, Mr. Caron says, “but each is a small act of love and respect.”

The only rule: You can’t point out what you did. (That would be asking for credit.) “The silence is part of the fun,” Mr. Caron says. “And we all benefit, including the dog and the cat.”

 

Be Easy to Love
Relationships can be stressful. You need to consider your role in the situation, says Margit Sylvester, 46, a civilian police supervisor in Cary, N.C.

She gives examples: “Boss snubs his/her nose at you upon first greeting of the day? It’s not all about me!” “Left a message for a friend and they haven’t responded? Don’t jump to conclusions which would suggest there’s something wrong with me or the relationship.” “Hubby not a naturally romantic guy? Learn to recognize the ways in which he expresses his devotion and tell him out loud how much you appreciate it.”

“Everyone is on a journey that only they can fully recognize,” Ms. Sylvester says. “Don’t make the mistake of filling in their gaps with your story.”

 

F— it Bucket
Life can be overwhelming. Not everything is worth worrying—or even thinking—about.

To file away “the trash,” 81-year-old Don Nelson, a retired president of a security-systems company in Falmouth, Mass., has created a mental bucket. Then he sorts his information, addressing issues that are important—his wife’s decline from Alzheimer’s or charity work, for example. Everything else? “F— it and into the bucket.

What’s in there? Everything political that is harsh and nasty. (“It’s a good thing the bucket has no bottom in today’s scene.”) News of tragedies that are upsetting but he can’t change. And sports. (“The Red Sox blew the game? Into the bucket. They play again tonight.”)

“Give it a try,” says Mr. Nelson. “It’s like cleaning your mental closet.”

Categories Narrative, Office Market

1-Minute Phoenix Metro Office Market Update: Q4 2018

It’s time for us to look back at the Metro Phoenix Office Market for 2018. Readers of this narrative know that I am an office broker who works every day representing tenants and landlords as they navigate real estate nuances and opportunities. I (along with my incredible team) am based in Phoenix but work around the country and internationally as well. We are hired for all kinds of reasons including our in-depth, up-to-the-minute market knowledge.
 
Here is the latest…
 
The Metro Phoenix Office Market tightened in 2018 and is expected to follow the same script in 2019. This is not happening across the rest of the country. Phoenix is poised to continue growing longer and in a more robust fashion than the vast majority of U.S. cities. The Valley of the Sun’s value proposition continues to persuade existing companies to expand and entice new groups to experience the region. Simple as that.  

Net absorption of office space (the key measure of job growth) improved dramatically from 2017’s figure of 1.8 million square feet (SF), to 2.8 million SF in 2018. Vacancy started 2018 at 19.7% and ended the year at 17.6% — the lowest vacancy since 2008.

As vacancy drops, Class A lease rates have increased, albeit a small amount, to an average of $29.28/SF at year end 2018. We are set to hit an all-time high in 2019 with Class A average lease rates expected to eclipse $30/SF across the Valley. Additionally, available sublease space decreased from 2.5 million to 1.9 million SF during the year.
 
Below is a link to our Lee & Associates Arizona Fourth Quarter Office Report and as usual, I’ve included my top 3 takeaways:
 

  1. It Pays to be the Value Option — The Sky Harbor Airport submarket absorbed the most space in 2018 (869,833 SF). Asking rates in this area are $6/SF lower than the market average and clearly a price refuge for tenants. There is rate shock for tenants as leases expire. This will continue in 2019. 
  2. Co-working is Ramping Up — WeWork entered our market with a 54,000 SF lease in the Esplanade I at 24th Street and Camelback, one of the top five leases of the quarter. Right now, WeWork is negotiating at other locations around the Valley and will add to over 450,000 SF of existing co-working operations including Serendipity Labs, Industrious, Workuity, Co+Hoots, etc. (All Regus Executive Suite units are not included in this figure)
  3. Expect Lease Rates to Climb In 2019 — WHY? Tenant demand remains strong and will likely outpace new supply again this year. Additionally, high construction pricing is forcing landlords and tenants to reduce concessions or inflate rates to make deals pencil.  (Make sure you have a good broker looking out for you!)

Want to talk more about these trends or how I can help you with your office space?  Give me a call. 

Andrew

602.954.3769

acheney@leearizona.com

PS- Here is a link to Lee & Associates Arizona’s Historical Office Market Statistics with some great information as well.


Click to Read the Report
Q4_OfficeReport First Page
Categories Narrative

What do Baseball and Commercial Real Estate Have in Common?

Some of you may know that I was drafted out of college and played professional baseball for the Minnesota Twins organization before I got into Commercial Real Estate.  If you play baseball, you learn statistics. As sportswriter Arthur Daley said:  “A baseball fan has the digestive apparatus of a billy goat. He can, and does, devour any set of statistics with insatiable appetite and then nuzzles hungrily for more.

I follow stats for our Commercial Real Estate business just like when I was still playing baseball. Check out our 2018 numbers below.  If you want more, trust me, we have them — we track all kinds numbers for the market, current trends, and for your building(s).

Our team had another incredible year in 2018 and are so grateful to our clients, friends and family like you.  We look forward to another year of hustling, working for our clients, and giving them best of class service.  We invite you to work with us, we promise you will be completely satisfied.  

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 Click Here to View the Full Graphic

 

Craig

602.954.3762

ccoppola@leearizona.com

P.S. Every year, the Lipsey Company lists the Top 25 Brands in an Annual Commercial Real Estate Rankings. We want to ask you to take a moment to vote for us. Cast your vote here and write in “The Coppola-Cheney Group”. Note: it will make you fill out all the fields, so feel free to put us for all the others too 🙂 

 

 

 

xxx

Categories Narrative, Office Market

Piling On

I’m adding to my narrative two weeks ago (click here to read) on the effects of open office plans.  Today is not about the science but rather the complaining and emotional impact on employees after moving to open office space.  I’m not taking a side, rather just piling on more information from two weeks ago. 
 
Workers are simply not as happy in open spaces. They are 15% less productive (depending on the type of work), more likely to get sick, and more.  This is interesting. Some people want open collaborative space and others beg for an office where they can “get my work done”.  This is exacerbated by the fact that your best team players are probably getting recruited by other companies who might be offering them an alternative. 
 
The workforce is in a major shift in demographics and what do new workers (millennials and Gen X) really want?  Who knows anymore?   Based on our experience completing 125 leases every year, I can say with conviction that—it depends. Here are a few of the questions we ask our clients as we begin the process and to set direction:
 
1—How do you and specifically your teams work?  What type of work is being done and what is the need for interaction?
2—Who is your best cohort you hire?  Where do you get them from and why?  What is your turnover rate and why?
3—What happens in a recession? (During recessions, businesses fight to stay in business and cutting costs becomes more urgent.)
4—What do you have now?  What works and what doesn’t? 
 
I won’t continue to harp on this topic.  I just thought I would spend a couple narratives looking at open office from a different perspective. Has the pendulum swung too far to open offices with over 70% of all offices now open?  What are your thoughts?  Let me know.  

 

Craig

602.954.3762


Why open offices are bad for us
By Bryan Borzykowski

Wednesday, July 11, 2018

open office space

Four years ago, Chris Nagele did what many other technology executives have done before — he moved his team into an open concept office.

His staff had been exclusively working from home, but he wanted everyone to be together, to bond and collaborate more easily. It quickly became clear, though, that Nagele had made a huge mistake. Everyone was distracted, productivity suffered and the nine employees were unhappy, not to mention Nagele himself.

In April 2015, about three years after moving into the open office, Nagele moved the company into a 10,000-square foot office where everyone now has their own space — complete with closing doors.

We’re 15% less productive, we have immense trouble concentrating and we’re twice as likely to get sick in open working spaces

Numerous companies have embraced the open office — about 70% of US offices are open concept — and by most accounts, very few have moved back into traditional spaces with offices and doors. But research that we’re 15% less productive, we have immense trouble concentrating and we’re twice as likely to get sick in open working spaces, has contributed to a growing backlash against open offices.

Since moving, Nagele himself has heard from others in technology who say they long for the closed office lifestyle. “Many people agree — they can’t stand the open office,” he says. “They never get anything done and have to do more work at home.”

Small distractions can cause us to lose focus for upwards of 20 minutes

It’s unlikely that the open office concept will go away anytime soon, but some companies are following Nagele’s example and making a return to private spaces.

The more focus the better
There’s one big reason we’d all love a space with four walls and a door that shuts: focus. The truth is, we can’t multitask and small distractions can cause us to lose focus for upwards of 20 minutes.

What’s more, certain open spaces can negatively impact our memory. This is especially true for hotdesking, an extreme version of open plan working where people sit wherever they want in the work place, moving their equipment around with them.

We retain more information when we sit in one spot, says Sally Augustin, an environmental and design psychologist in La Grange Park, Illinois. It’s not so obvious to us each day, but we offload memories — often little details — into our surroundings, she says.

We retain more information when we sit in one spot

These details — which could be anything from a quick idea we wanted to share to a colour change on a brochure we’re working on — can only be recalled in that setting.

We don’t collaborate like we think
For many of us, it’s the noise that disturbs us the most. Professors at the University of Sydney found that nearly 50% of people with a completely open office floorplan, and nearly 60% of people in cubicles with low walls, are dissatisfied with their sound privacy. Only 16% of people in private offices said the same.

They asked people in various office types how dissatisfied they were with their space  and in 14 different respects, including temperature, air quality and sound privacy, closed fared better than open.

People do talk to each other more, but they don’t talk to each other more about work-related things

Beside the cheaper cost, one main argument for the open workspace is that it increases collaboration. However, it’s well documented that we rarely brainstorm brilliant ideas when we’re just shooting the breeze in a crowd. Instead, as many of us know, we’re more likely to hear about the Christmas gift a colleague is buying for a family member, or problems with your deskmate’s spouse.

People do talk to each other more, but they don’t talk to each other more about work-related things,” says Augustin. Think about it: if you work in an open office, you’ll book a meeting room to brainstorm. It’s still an act that requires some level of planning and privacy.

And it turns out our best work is done when we have total focus, says Augustin. We can work in a busy space, but the final product won’t be as good as if we are in a quiet locale.

It’s a shame to waste people by not giving them a place that supports what they actually do

“[It’s] inefficient,” she says. “It’s a shame to waste people by not giving them a place that supports what they actually do.”

Of course, she says, it’s important for us to bond and to get to know each other. But there are plenty of ways to bond in closed offices. Nagele’s team, for instance, eats lunch together every day. A few ideas come out of lunch time chats, he says, but most are developed from more focused brainstorming sessions.

Finding the right balance  
For jobs that require focus,  like writing, advertising, financial planning and computer programming, some companies that aren’t ready to ditch open plans are experimenting with quiet rooms and closed spaces.

Some of us even feel that escaping to a quiet room is a sign of weakness

The trouble with that, is some of us don’t feel comfortable leaving the team to go off on our own—it can feel as if we’re not pulling our weight if we’re not present. That’s particularly true in high-pressure environments. Some of us even feel that escaping to a quiet room is a sign of weakness, Augustin says.

Other companies are creating closed spaces for smaller teams. Ryan Mullenix, a partner with NBBJ, a global architecture firm, has worked with tech firms that have built offices for between three and 16 people.

They can still collaborate, but they can also block out noise from other teams of people they don’t need to hear from. Technology can also help. Mullenix’s own office has sensors, placed 10 feet apart, that can track noise, temperature and population levels. Staff can log on to an app and can find the quietest spot in the room.
 
People can now do focused work and they have more time to work

Against the grain
Some of us thrive in open offices. Those who do repetitive tasks represent one group. Another: more junior employees. For them, it’s easier to learn by watching how others work. If new-to-work staff get their own office from the start, they may lose focus and perform at a lower level, Augustin says.

The bad news for unhappy open-office dwellers: the concept isn’t going away any time soon.  But, says Nagele, more companies should consider what he’s found. His employees are happier and more productive—and that helps not just the company, but the team.

“People can now do focused work and they have more time to work,” he says. “That’s helped everyone’s mindset.”

Categories Design, Narrative

Open Plans Kill Productivity

In my ongoing effort to explore both sides of the open office vs. traditional office debate, here are some thoughts based on science.  The Journal of Environmental Psychology jumped into the fray and came out with a huge study (40k+ workers and over 300 companies).  What did they find out?
 
— Closed offices outperformed open offices for productivity.
— Proxemics issues (how people feel when close) create uncomfortable workers (and therefore less productivity).
— Noise and visual disruption (or as Geoffrey James says below “visual and noise pollution”) creates distraction and focus issues.
 
Read below for more.  The debate continues and there are fatal flaws to both sides.  

 

Craig

602.954.3762


Open-Plan Offices Kill Productivity, According to Science

By Geoffrey James

Wednesday, July 11, 2018

Earlier today, I got a story pitch on the “office of the future” that featured the following bullet points:

  Remote Work Will be the New Norm: According to recent Fuze research, 83 percent of workers don’t think they need to be in an office to be productive, and 38 percent said they would enjoy their job more if they were allowed to work remotely.
  Physical Space Will Shrink: We’ll see more companies shift to a more collaborative office space model with workspaces that bring together teams, spark conversation, and create the best ideas.
  Traditional Desks Will Disappear: The so-called cubicle farm will become a distant memory and people will start embracing an environment that suits their needs — whether it be a table at a coffee shop, a standing desk, or collaboration space.
  “Office Hours” Will Become Obsolete: The workday isn’t 9 to 5 anymore, it’s 24/7. In fact, a recent Fidelity survey found that Millennials will take a pay cut for a more flexible work environment.

The list (which is very much “conventional wisdom”) illustrates the crazy-making way that companies think about open-plan offices. Can you see the disconnect? Bullets 1 and 4 are saying that people don’t want to work in an office, while bullets 2 and 3 are defining the very office environment where people don’t want to work.

And isn’t that the sad truth? Most people would rather work at home and or tolerate angry stares from the other patrons in a coffee shop (should one need to make a call) than try to get something done in an open-plan office.

In previous posts, I’ve provided links to numerous studies showing that open-plan offices are both a productivity disaster and a false economy. (The productivity drain more than offsets the savings in square footage.) I’ve even posted some videos showing how wretched (and in some cases ridiculous) these environments truly are.

Well, just in case you weren’t yet convinced, here’s some new evidence from a study of more than 40,000 workers in 300 U.S. office buildings–by far the most comprehensive research on this issue. The results, published in the Journal of Environmental Psychology, came to the following conclusion:

“Enclosed private offices clearly outperformed open-plan layouts in most aspects of IEQ (Indoor Environmental Quality), particularly in acoustics, privacy and the proxemics issues. Benefits of enhanced ‘ease of interaction’ were smaller than the penalties of increased noise level and decreased privacy resulting from open-plan office configuration.”

Don’t let the jargon confuse you. The term “proxemics issues” refers to how people feel uncomfortable when they’re forced into close proximity with other people. To be perfectly clear, here’s what the paragraph says: “Open-plan offices aren’t worth it.”

BTW, it isn’t just the noise and the interruptions that cause people to hate open-plan offices. According to a recent Wall Street Journal article:

“All of this social engineering has created endless distractions that draw employees’ eyes away from their own screens. Visual noise, the activity or movement around the edges of an employee’s field of vision, can erode concentration and disrupt analytical thinking or creativity.”

Unlike noise pollution, which can be remedied with a pair of headsets, there’s no way to block out the visual pollution, short of throwing a towel over your head and screen like a toddler’s play tent.

So, getting back to the story pitch and the conventional wisdom it represents: Yes, indeed, people want to work at home, and yes, indeed, they’re willing to take a cut in pay to get away from the open-plan office that you’ve offered them.

What’s weird is that the people who design office spaces and the executives who hire them don’t see the connection. They seem unable to understand that forcing open-plan offices down everyone’s throat is not only ruining productivity but it’s actively driving good employees to avoid to coming into the office.

So let me make it simple.

Dear Executive: Do you want your employees to come into the office and work long hours while they’re there? THEN GIVE THEM PRIVATE OFFICES. At the very least, give them high-walled cubicles that provide a modicum of privacy.

For crying out loud, is this really that difficult a concept to understand?

Categories Narrative

Happy Holidays from The Coppola-Cheney Group

At the end of each year, we take the opportunity to reflect on the past 12 months. 2018 was exceptional for our team.  We had a great year, fantastic clients (old and new), continued to grow our team with quality (and talented) people, and we traveled.  Boy, did we travel. Travel has long been a part of The Coppola-Cheney Group. It’s in our DNA and I think you will see how deep this goes with our slideshow of photos from all over the U.S. and world.   
Thank you for reading our narrative throughout the year. We wish you a fantastic holiday and a wonderful new year.

 

Craig

602.954.3762


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Click Here to View the Card

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Categories Architecture, Design, Narrative

Exposed Ceilings Are Cool But Not Cheap

Exposed ceilings are all the rage, but users pay a price for this look. Most of our clients think it’s less expensive to just demo the ceiling and have a cool open space.  Not so fast.
 
Here are some of the additional costs that come with an exposed ceiling:

– Re-running electrical cabling and HVAC ductwork with the added pressure of making it look cool (“cool” is another word for additional expense).
– Painting the now-exposed components.
– Sound proofing/noise mitigation.  If not designed AND negotiated properly, this could be an after-relocation expense to the tenant. 
 
These are costs to actually construct the open ceiling.  Many times the open ceiling will come with increased utility bills because you have more space to heat and, in Phoenix, to cool.  While this is usually negotiated into the Base year, if the building has more tenants moving in and opening up the ceilings, expenses will continue to rise. 
 
This is something to put in the back of your mind as you contemplate your next office.  OR you can just call us.  We live these issues daily.

 

Craig

602.954.3762


HEADS UP: THE 5 HIDDEN EXPENSES OF OPEN CEILINGS
By Clay Edwards

March 4, 2018
Open ceilings, with their exposed ductwork and industrial vibe have become popular – but trendy rarely equals inexpensive. For many years, omitting the traditional drop ceiling was assumed to be not just cooler but also to cost less. Common sense seemed to be that by choosing open ceilings, the cost of the drop ceiling was simply avoided, saving on labor, materials and time.

2008 study of retail and office interior construction in five cities seemed to back up that assumption. Sponsored by the Ceilings & Interior Systems Construction Association (CISCA), the study found that initial construction costs for suspended ceilings were 15-22 percent higher than for open plenums in offices, and 4-11 percent higher in retail spaces.

Great news! Or was it? It appeared this popular feature that conveys a sense of spaciousness and casual charm also saved money. Unfortunately, the news was premature.

Our years of experience have shown that open plenum ceilings have many benefits, but being cheaper isn’t one of them. It’s important to consider the hidden costs of open ceilings, which almost always make them more expensive, particularly over a building’s life cycle.

Hidden expense #1: Open does not mean unfinished
At first glance, it might seem contradictory to think that an open ceiling would cost more than installing a suspended ceiling system and infrastructure. The catch: there’s work required in both cases. Even when ductwork is exposed, it’s anything but unfinished. Hidden ductwork is typically blocky, dirty, oily and generally not aesthetically pleasing. Round or oval ducts deliver a more “finished” look but are significantly more expensive.

Hidden expense #2: Higher labor costs
As commercial construction has ramped up in recent years, developers are seeing a shortage of skilled labor in many trades, driving up construction costs. Open ceilings may involve lower material costs than suspended ceilings, but any savings is more than offset by the cost of labor-intensive tasks required for open plenum. For instance, this may include running all electrical distribution conduit tight to the deck above with the associated additional bends in the runs, rather than running all of the conduit that crosses paths at different elevations.

Hidden expense #3: Making it pretty
At a minimum, space users want everything painted, from the exposed ceiling to the ductwork and plumbing — a job that’s more complicated than simply painting walls. More significantly, existing infrastructure that’s been hiding behind suspended ceilings is often unsightly, requiring major work to make it attractive to employees or customers. In other words, the casual look of an open plenum is actually the result of substantial work.

Hidden expense #4: Sound considerations
In addition to visual considerations, open plenum plans come with a need for acoustical treatments. The panels in suspended ceilings are called acoustical tiles for a reason: they absorb sound to keep ambient noise levels from being disruptive. The hard surfaces of an exposed ceiling can create an echo effect that gets amplified as people talk louder to be heard over ambient noise.

Avoiding noise problems in open plenum plans comes at a cost. Office and retail users may install acoustical panels directly onto the deck, or suspend baffles to absorb sound in critical areas. Another solution: spray-on acoustical material on the ceiling’s hard, reflective surfaces. These products soften the surfaces to absorb some of the noise, and typically have other benefits such as thermal insulation and fire protection.

Hidden expense #5: Skyrocketing energy bills
Even if open plenum ceilings can be installed cost-effectively, there are operational cost considerations that can change the equation somewhat. A major trend in construction cost estimation is to look at the entire life-cycle cost of different solutions, including the cost of energy consumption and maintenance over time, as well as the initial materials and labor.

The CISCA study mentioned previously noted that energy costs were found to be lower in suspended ceilings than in open plenum ceilings. The savings ranged from 9 percent to 10.3 percent in offices, and from 12.7 percent to 17 percent in retail spaces studied. In addition, CISCA noted that open ceilings required frequent cleaning and periodic repainting. “Considering both first-time and operating costs, suspended ceilings are extremely cost effective,” the study concluded.

Weighing the pros and cons
The additional cost of open plenum ceilings shouldn’t be a deal-breaker. Office and retail space should be designed and built to maximize its appeal to employees or customers and to enable productive use of the space; incurring an incrementally higher cost structure is a secondary concern. But users who are getting ready to build out space should be aware of the true cost of different alternatives to avoid surprises during construction. It’s natural to make the assumption that an informal, exposed ceiling is less expensive than a suspended ceiling — but the reality is often quite different.

Categories Architecture, Design, Narrative

The Legacy of Steve Jobs and Office Space

Apple moved into their spaceship this year.  I wrote about it while under construction and now you have probably have seen finished photos all over.  If not, here are some.But today’s narrative is not about this inspired headquarters.  Today, I want to talk about Pixar’s headquarters built in the late 1990’s.  The standards of creative office (and all the baseline design for the new Apple HQ) came out of Job’s vision for one of his early companies. 

This headquarters had:
·       Open space so that the workers could be more creative.
·       All specialties among workers were split up within the premises.
·       A cafe, foosball, fitness center, two 40-seat viewing rooms, and a large theater—keeping them in the office longer.
·       Open atrium so people will run into each other creating interactions.

So what is my point?  Three things struck me when I read the below article:

–Good design lasts—we know that but in office space, it’s the same.  We can build something that we love that does not need to be torn down every 5 years.
–Committing to what you need is critical.  We know how you work today.  What works, what doesn’t.  Where is technology taking you and your team?  
–Having the right team is paramount. This includes brokers—that’s us—plus design, contractors, furniture, etc. Make sure the team is the right on for you and your business.

We can help.

Craig

602.954.3762


Pixar Headquarters and the Legacy of Steve Jobs

Source: Office Snapshots
Date: 8/30/18

The first office ever posted on Office Snapshots was Pixar’s Emeryville headquarters – and is naturally one of the most popular. It is a place where, just by looking at it, one can tell that creativity abounds. After 5+ years of studying, posting pictures of, and writing about office design – it seems like a good idea to take an in depth look into just what makes their office space so special.

A New Campus VisionThe story behind Pixar’s headquarters starts in 1999 with Steve Jobs. As Pixar’s CEO, Jobs brought in Bohlin Cywinski Jackson – famously known for designing Bill Gates’ Washington residential compound – to flesh out his vision for the campus, which was planned to hold up to 1000 employees.

According to Jobs’ recent biography, the headquarters was to be a place that “promoted encounters and unplanned collaborations.”  Given that collaboration has recently been one of the major topics in office design, and that the late 90’s were filled with cubicle farms, his ideas were clearly ahead of the curve.

Jobs also strived for a campus that stood the test of time. Tom Carlisle, Pixar’s facilities director adds that, “He didn’t want a standard office-park building—one with corrugated-metal siding or ribbon windows. The building had to look good 100 years from now. That was his main criterion.”

The Atrium and Unplanned CollaborationsPixar’s campus design originally separated different employee disciplines into different buildings – one for computer scientists, another for animators, and a third building for everybody else. But because Jobs was fanatic about these unplanned collaborations, he envisioned a campus where these encounters could take place, and his design included a great atrium space that acts as a central hub for the campus.

The biography adds that Jobs believed that, “If a building doesn’t encourage [collaboration], you’ll lose a lot of innovation and the magic that’s sparked by serendipity. So we designed the building to make people get out of their offices and mingle in the central atrium with people they might not otherwise see.”

The atrium houses a reception, employee mailboxes, cafe, foosball, fitness center, two 40-seat viewing rooms, and a large theater – and was planned by Jobs to house the campus’ only restrooms. The idea was that people who naturally isolate themselves would be forced to have great conversations, even if that took place while washing their hands. Today, they do have more than one restroom, of course. But it was the idea behind it that was important.

Brad Bird, director of The Incredible and Ratatouille, said of the space, “The atrium initially might seem like a waste of space…But Steve realized that when people run into each other, when they make eye contact, things happen.”

And did it work? “Steve’s theory worked from day one,” said John Lasseter, Pixar’s chief creative officer “…I’ve never seen a building that promoted collaboration and creativity as well as this one.”

Jobs’ Meticulous Eye for… Steel Beams?

Steve Jobs is well-known for his meticulous eye for elegance and design when it comes to Apple’s products. But another area where this fanaticism for detail came out was with regard to the steel beams used in the construction of the Atrium.

“The architects used cold-rolled, bead-blasted steel, and all connections are custom-bolted, not welded, purely for aesthetics’ sake.”

His biography adds more, “Because the building’s steel beams were going to be visible, Jobs pored over samples from manufacturers across the country to see which had the best color and texture. He chose a mill in Arkansas, told it to blast the steel to a pure color, and made sure the truckers used caution not to nick any of it.”

And some additional investigation found that, “A field painter cleaned it again and applied a “clear coat” of paint to it. All of the bolts that were visible had round heads in lieu of hex heads to give the illusion riveted connections. Rivets have not been used since the 1950′s.

At one point in time Pixar asked that the round head of the bolt have the Pixar “ant” stamped into the head. They abandoned this idea due to cost.”

A Clean Interior Slate to Allow Organic Creativity

Moving beyond the atrium itself, the entire building plan was meant to provide a clean slate that gave Pixar the ability to creatively fill the space as it saw fit – in a very organic way.

One fun way in which this organic creativity manifested itself was in the creation of a hidden speakeasy known as the Lucky 7 Lounge – which has been visited by many special visitors like Randy Newman, Michael Eisner, Michael Cera, and even Steve Jobs himself. Though the lounge was not in the original plan, allowing for fun and spontaneous elements was.

Office Spaces That Live and Breathe

Having tried a much more open, cubicle-based plan at their previous headquarters and noting the difficulty in getting work done, Pixar opted to go with a much more closed environment this time around. Many offices are arranged in U-shaped units of 5-6 individual offices – with a central gathering area in the middle that brings the idea of the creating unplanned collaboration down to a smaller, workspace-sized concept.

In terms of decoration and style, employee office spaces are a sight to be seen. Some work in small house huts, other share space, some stand up. John Lasseter’s office (image right, click to zoom) is filled to the brim with toys – clearly not your average executive office.

Brad Bird notes, “If you walk around downstairs in the animation area, you’ll see that it is unhinged. People are allowed to create whatever front to their office they want. One guy might build a front that’s like a Western town. Someone else might do something that looks like Hawaii…John [Lasseter – Pixar’s Chief Creative Officer] believes that if you have a loose, free kind of atmosphere, it helps creativity.”

Many employees, especially animators, are given setups with 2-3 very large monitors, some 3d enabled with Pixar specific animation software that was developed in-house.

Steve Jobs’ office was described as being the cleanest office at Pixar – which from the looks of it houses a very minimally spaced set of Eames Plywood chairs, a Noguchi Table, a Razor scooter, and not much else.

Elsewhere in the campus lie office chairs that originally were owned by Walt Disney Studios from the 30’s. Though the original plan called for a very mid-century modern aesthetic, utilizing classic design as well as rugs that were handwoven by Tibetans in Nepal.

The campus itself also houses modeling workshops, storyboard rooms, a massive render farm, and of course orchestra and sound recording facilities.

An Epic Campus Landscaping Plan

Though most companies do not have the ability to develop a major campus landscaping plan, Pixar wished to use their 20-acre campus as a special, unified place carved out of the surrounding urban context. “The landscape, designed by Peter Walker Partners, is agrarian than manicured in character, with many seemingly undiscovered places to walk, sit and talk, or eat lunch.”

The exterior campus includes a 600-seat outdoor amphitheater, a soccer field, and an organic vegetable garden used by Pixar’s chefs, flower cutting gardens and a wildflower meadow. And for both fun and fitness, they also have an olympic-sized swimming pool, volleyball court, jogging trail, and basketball court.

As Jobs put it – these amenities were meant “to keep his young animation staff happy – and animated.”

In order to create the desired agrarian atmosphere, the exterior is filled with both native and exotic plants and trees – including European beech, live oak, palms, redwoods, Japanese maple, and cottonwood trees. The visitor entrance also boasts a series of beautiful rose gardens.

To Fence or Not to Fence?

An interesting point of contention in the development of the campus came, oddly enough, over Pixar’s desire to fence in the property during the second phase of the campus. Why fence in the property?

The company’s Director of Facilities explained, “We are a movie studio, and this is what movie studios do, now that we are a more successful company, people want to get into Pixar. We get fans and tourists; we call them ‘looky-loos. But we also get people who want to steal our intellectual property, our ideas, It’s no laughing matter that the world is a much different place than in 1998.”

Emeryville’s city council initially denied the expansion plans over the fence, but it seems after pressure from Pixar – and a threat or two to leave Emeryville – the plan (fence included) was approved.

Connecting with the Workplace

Creating a work environment that people enjoy working in can be one of the most challenging aspects of modern office design. And surely one of the most memorable features of Pixar’s are the many characters, both big and small, that find their way around the campus. Outside you’ll find a huge version of Luxo Jr., while the cast of The Incredibles and Monsters Inc. can be found within the atrium.

Why do they do this? Sure it adds some brand value to a campus that otherwise might seem plain, but for a company like Pixar who slaves for many years bringing their films to life, I think it represents a connection to and love of their work.
There can be no greater feeling that walking around the workplace and being reminded of the great work you helped to produce – as well as seeing the smiles of the many visitors as they recollect the ways each movie touched their lives.

Coming Back to Reality

If you’ve been reading and thinking about how much your work environment need improvement in order to match up with Pixar, you aren’t alone. The company currently employs around 1200 people – has since built several more phases which have added room for more employees in additional buildings which include a rooftop garden, central hearth, as well as bringing much of the campus to LEED Silver certification.

Much of the latest work has been completed by Huntsman Architectural Group, and Gensler.

Now while the campus has expanded significantly past its original bounds, the plan designed around creating an atmosphere where creativity thrives is still very much intact.

But while we can sit around and mope about how our offices are stiflingly terrible, we should actually be considering what things we can learn from this design and how we can implement them into our own workplaces.

Here are a few things to help create that ‘Pixar feeling’ in your office:
1.    Be intentional about designing for collisions and unplanned collaboration – rather than using managerial force.
2.    Use the office space to remind employees why they work for the company.
3.    Make the office fun and a place employees want to work, rather than have to work.
4.    Allow employees to express themselves through their workspaces.

Additional Photography

While my original post on Pixar included some shots, I have since come across a number of additional campus views that I hope you will enjoy. Much of the following photography – specifically the beautiful architectural photography – was completed by Sharon Risedorph Photography. The photo of Luxo JR was taken by Jason Pratt.

Categories Narrative, Office Market

1-Minute Phoenix Metro Office Update: Q3 2018

Below is my quarterly take on the Metro Phoenix office market. Readers of this narrative know that I am an office broker who works every day representing Tenants and Landlords as they navigate real estate nuances and opportunities.  I (along with my incredible team) am based in Phoenix but work around the country and internationally as well. We are hired for all kinds of reasons including our in-depth, up-to-the-minute market knowledge.

Here is some…

Wow! The Metro Phoenix Office Market absorbed nearly one million square feet (SF) of space in just the third quarter; and saw vacancy drop to 17.25%. Net absorption, the key indicator of a market’s health, represents job growth.  Vacancy has not dipped this low since 2007 and should continue to hover around this figure as new buildings come online to capture tenant demand.  With a strong Q3, net absorption now stands at 2.7 million SF YTD — 2017’s figure for the entire year reached 1.8 million SF.

The bottom line is that we finally hit strong net absorption for Metro Phoenix.  This shows we still have sustained growth left in their cycle. 

Through negotiating leases and sales each week, I’m noticing two significant trends:  1) Companies continue to relocate significant business units to Greater Phoenix, and 2) they choose to expand existing operations here versus other markets across the country.  And it’s not just because of affordable real estate.  Quality of life, right to work state, and the nations’ most innovative university, Arizona State University, are just a few of the many reasons more jobs are ending up here.

Below is a link to our Lee & Associates Arizona Third Quarter Office Report and as usual, I’ve included my top 3 takeaways:
 

  1. Tenants want more Tempe space – At 8.6%, the Tempe submarket holds the lowest vacancy and developers with sites are responding to the lack of supply.  Around 822,000 SF is under construction with several other projects trying to enter the pipeline soon. 
  1. While the tide is rising around Tempe, next door, the Sky Harbor/Airport submarket posted almost 600,000 SF of net absorption in Q3.  South and Central Scottsdale continue to enjoy some of the healthiest occupancy rates in town.  All of these submarkets are adjacent neighbors that provide quality alternatives to the Tempe buzz.
  1. Class B buildings leased over seven times the amount of class A buildings in Q3.  As class A rents continue to escalate along with the cost to build them out, we may see even more businesses select class B buildings to keep their occupancy costs in check.   Class A leasing has significantly outpaced class B progress over the past few years.

Want to talk more about these trends or what we can expect from 2019?  Give me a call. 

Andrew

602.954.3769
acheney@leearizona.com

 


 

 

Q3_OfficeReport

Click Here for the Full Report

 

 

 

 

Categories Narrative, Tech Industry

Humans are Underrated

One trend I actively follow is automation. In 20 years, what jobs will be done by robots? With new advancements in technology, it’s not just the routine data entry and labor jobs that are in danger anymore. Robots can now analyze emotions, perform surgical operations, even drive semi-trucks across the country. 

All these developments beg the question: is there anything robots can’t do? In my book Chasing Excellence, which I co-wrote with Lee & Associates founder Bill Lee, I discuss this topic. I argue, as does Geoff Colvin in the below article, that this is the wrong question to ask. Instead, we should be asking, “What are the activities that we humans…will simply insist be performed by other humans, even if computers could do them?” 

We both believe: 

We can trust human leaders. CEOs, politicians, judges, we trust humans to make leadership decisions. If you are a leader in your field, your job will be safe for a long time. 
Humans can collaborate. Teamwork is vital to our society. A team of people working together not only knows how to solve a problem, but they can identify which problems are worth solving.  
Humans like interacting with other humans. This is the big one. How often do you call a customer service number only to get frustrated with the automated voice system? We like talking to humans. Period. 
 
Want to discuss what this means for you or your business? Give me a call. 

Craig

602.954.3762


Humans are underrated

By GEOFF COLVIN
 
July 23, 2015

As the Pepper robot from Softbank scurries about your home or office, it reads your emotions by your words, tone of voice, facial expressions, and body language. It then responds in all those ways; its hands and posture in particular are remarkably expressive. If you thought emotions were beyond the competencies of robots, you were right for a long time. But no more.

Maybe you believe that humans uniquely will always have to perform the highest-stakes, most delicate and demanding tasks in our lives, such as surgery. But researchers at the University of California at Berkeley are training a robot to identify and cut away cancerous tissue—not like today’s surgical robots, which are actually tools used by human surgeons, but entirely on its own.

Or perhaps you figure technology, for all its wonders, is just nibbling away at the edges of human employment. There aren’t that many surgeons, after all. But in May, Daimler began testing the first self-driving semitruck on the roads of Nevada. The No. 1 job among American men, held by 2.9 million of them, is truck driver. Not that women are safe. Technology will continue to devour clerical and office tasks, and the No. 1 job among U.S. women, held for now by 3 million of them, is administrative assistant.

The greatest anxiety troubling workers today is embodied in a simple question: How will we humans add value? Popular culture is obsessed by it. Humans, a new series on the AMC network, spins a story from the promise and perils of eerily humanoid robots called synths. That seems to be Hollywood’s 2015 theme of the year. Think of Ex Machina (humanoid robot outsmarts people, kills a man, enters society as a person) or Terminator Genisys (Arnold Schwarzenegger’s humanoid robot must again save the world) or Avengers: Age of Ultron (humanoid robot tries to eradicate humanity) or Chappie (bad guys try to destroy humanoid robot police officer who is reprogrammed to think and feel). The big idea is always the same: For good or ill, machines become just like people—only better.


We humans have good reason to be uneasy. Strange things are happening in the economy. Ever fewer men of prime working age—the group that historically has been the most thoroughly employed—are working (see chart), and while several factors are feeding the trend, most economists believe that advancing technology is one of them. In factories and offices, on construction sites and behind counters, technology keeps doing more jobs better than people.



Why are so many men not working?
The share of U.S. men in their prime working years who aren’t employed has risen sharply since 1980, through recessions and expansions—a dramatic and unprecedented long-term shift in employment. Many economists believe that technological unemployment is an important factor in the trend, suggesting it’s unlikely to turn around soon.St. Louis Fed from OECD Data


Fear of technological unemployment is as old as technology, and it has always been unfounded. Over time and across economies, technology has multiplied jobs and raised living standards more spectacularly than any other force in history, by far. But now growing numbers of economists and technologists wonder if just maybe that trend has run its course. That’s why former Treasury Secretary Lawrence H. Summers says these issues will be “the defining economic feature of our era.”

How will we humans add value? There is an answer, but so far we’ve mostly been looking for it in the wrong way. The conventional approach has been to ask what kind of work a computer will never be able to do. While it seems like common sense that the skills computers can’t acquire will be valuable, the lesson of history is that it’s dangerous to claim that there are any skills computers cannot eventually acquire. The trail of embarrassing predictions goes way back. Early researchers in computer translation of languages were highly pessimistic that the field could ever progress beyond its nearly useless state as of the mid-1960s; now Google translates written language for free, better all the time thanks to feedback from human users, and Skype translates spoken language in real time, for free. Hubert Dreyfus of MIT, in a 1972 book called What Computers Can’t Do, saw little hope that computers could make significant further progress in playing chess beyond the mediocre level then achieved, but IBM’s (IBM, -0.62%) Deep Blue beat world champion Garry Kasparov in 1997. Economists Frank Levy and Richard J. Murnane, in an excellent 2004 book called The New Division of Labor, explained how driving a vehicle requires such complex split-second judgments that it would be extremely difficult for a computer ever to handle the job; Google (GOOG, -1.49%)introduced its autonomous car six years later. Harvard psychologist Steven Pinker observed in 2007 that “assessing the layout of the world and guiding a body through it are staggeringly complex engineering tasks, as we see by the absence of dishwashers that can empty themselves or vacuum cleaners that can climb stairs.” Yet iRobot soon thereafter was making vacuum cleaners and floor scrubbers that find their way around the house without harming furniture, pets, or children, and was also making other robots that climb stairs; it could obviously make machines that do both if it believed demand were sufficient. And the Armar IIIa robot, developed at Karlsruhe Institute of Technology in Germany, can unload (and load) the dishwasher.

The pattern is clear. Extremely smart people note the overwhelming complexity of various tasks, including some, like driving a car, that people handle almost effortlessly, and conclude that computers will find mastering them terribly tough. Yet over and over it’s just a matter of time until the feat is accomplished, often less time than anyone expects. We just can’t get our heads around the notion of computer processing power doubling every two years. At that rate, infotech power increases by a factor of a million in 40 years. The computing visionary Bill Joy likes to point out that jet travel is faster than walking by a factor of 100, and that changed the world. Nothing in our experience prepares us to grasp a factor of a million. At the same time, increasingly sophisticated algorithms let computers handle complex tasks using less computing power. So year after year we reliably commit the same blunder of underestimating what machines will do.


Yes, figuring out what computers will never do is an exceedingly perilous route to determining how humans can remain valuable. A better strategy is to ask, What are the activities that we humans, driven by our deepest nature or by the realities of daily life, will simply insist be performed by other humans, even if computers could do them?

Humans will remain in charge

A large category of those activities comprises roles for which we demand that a specific person or persons be accountable. A useful example is making decisions in courts of law, which we will require that human judges render for quite a long time to come. It’s an example in which the human vs. computer question is not hypothetical. Parole decisions are made by judges in some countries, such as Israel, where researchers investigated how those decisions are influenced by the critical human issue of lunch. Over the course of a day, the judges approve about 35% of prisoners’ applications for parole. But the approval rate declines steadily in the two hours before lunch, almost to zero just before the lunch break. Immediately after lunch, it spikes to 65% and then again declines steadily. If you’re a prisoner, the number of years you spend behind bars could be affected significantly by whether your parole application happens to be the last one on the judge’s stack before lunch or the first one after. Data-driven algorithms have proved superior to human judges and juries in predicting recidivism, and it’s virtually certain that computer analysis could judge parole applications more effectively, and certainly less capriciously, than human judges do. Yet how would you rate the chances of that job getting reassigned from judges to machines? The issue isn’t computer abilities; it’s the social necessity that individuals be accountable for important decisions. Similarly, it seems a safe bet that those in other accountability roles—CEOs, generals, government leaders at every level—will remain in those roles for the same reason.

Humans must work together to set collective goals

In addition, humans rather than computers will have to solve some problems for purely practical reasons. It isn’t because computers couldn’t eventually solve them. It’s because in real life, and especially in organizational life, we keep changing our conception of what the problem is and what our goals are. Those are issues that people must work out for themselves, and, critically, they must do it in groups. Partly that’s because organizations include many constituencies that must be represented in problem solving, and partly it’s because groups can solve problems far better than any individual can.

Only humans can satisfy deep interpersonal needs

A more important category of people-only work comprises the tasks that we must do with or for other humans, not machines, simply because our most essential human nature demands it, for reasons too deep even to be articulated. We are social beings, hardwired from our evolutionary past to equate personal relationships with survival. We want to work with other people in solving problems, tell them stories and hear stories from them, create new ideas with them, because if we didn’t do those things on the savanna 100,000 years ago, we died. The evidence is clear that the most effective groups are those whose members most strongly possess the most essentially, deeply human abilities—empathy above all, social sensitivity, storytelling, collaborating, solving problems together, building relationships. We developed these abilities of interaction with other people, not machines, not even emotion-sensing, emotion-expressing machines. We may enjoy the Pepper robot, but we didn’t evolve to interact with it.

A U.S. Army officer meets with local elders in Afghanistan. The U.S. military has realized that its most important work is now conducted in                    “the human domain”; it’s ahead of most other institutions in training skills of personal interaction.
A U.S. Army officer meets with local elders in Afghanistan. The U.S. military has realized that its most important work is now conducted in “the human domain”; it’s ahead of most other institutions in training skills of personal interaction.ROBERT NICKELSBERG—GETTY IMAGES

We want to follow human leaders, even if a computer could say all the right words, which is not an implausible prospect. We want to hear our diagnosis from a doctor, even if a computer supplied it, because we want to talk to the doctor about it—perhaps just to talk and know we’re being heard by a human being. We want to negotiate important agreements with a person, hearing every quaver in his voice, noting when he crosses his arms, looking into his eyes.

To look into someone’s eyes—that turns out to be, metaphorically and quite often literally, the key to high-value work in the coming economy.


It isn’t just theory. Changes in the nature of work of exactly this type are happening on a significant scale. Ask employers which skills they’ll need most in the next five to 10 years, as the Oxford Economics research firm did, and the answers that come back do not include business acumen, analysis, or P&L management—left-brain thinking skills that computers handle well. Instead, employers’ top priorities include relationship building, teaming, co-creativity, brainstorming, cultural sensitivity, and ability to manage diverse employees—right-brain skills of social interaction. Those responses fit well with big-picture data on how Americans work today vs. how they worked in the 1970s. The biggest increases by far have been in education and health services, which have more than doubled as a percentage of total jobs; professional and business services, up about 80%; and leisure and hospitality, up about 50%. The overall trend is a giant employment increase in industries based on personal interaction. That’s why Oracle group vice president Meg Bear says, “Empathy is the critical 21st-century skill.”

Other research supports that impression. The McKinsey Global Institute found that from 2001 to 2009, transaction jobs (bank teller, checkout clerk) decreased by 700,000 in the U.S., and production jobs decreased by 2.7 million. But jobs of human interaction—doctors and teachers, for example—increased by 4.8 million. All those trends have continued. The institute reported that interaction jobs have become “the fastest-growing category of employment in advanced economies.”

No one should be surprised. Harvard professor William H. Bossert, a legendary figure at the school with wide-ranging interests in math and biology, taught a pioneering computer science course for undergraduates in the early 1970s, the first such course ever offered at Harvard. He devoted his final lecture to the future of computing and its likely effects. Intel had just produced its first chip, and people were worried about computers eliminating jobs. Bossert’s emphatic response was that computers would indeed eliminate jobs, and we should be grateful because we could then focus on the essence of being human, doing what we were meant to do. That observation led him to a memorable conclusion: “If you’re afraid that you might be replaced by a computer, then you probably can be—and should be.”

It has taken a while, but the large-scale takeover of many thinking tasks by computers, leaving people with the deeply human tasks of social interaction, is becoming a broad phenomenon.

Since the dawn of the Industrial Revolution—the machine age—much human success has derived from our being machine-like. For decades, most of the physical work in factories and the mental work in offices were repetitive and routine. They were designed to be that way; that’s why Henry Ford complained, “Why is it every time I ask for a pair of hands, they come with a brain attached?” It was the kind of work for machines to do, only the machines of the era couldn’t do it. The machines improved, slowly at first, then rapidly, driven by the ever-quickening advance of infotech. Now they can actually do most of the machine work of our world.

As a result, the meaning of great performance has changed. It used to be that you had to be good at being machine-like. Now, increasingly, you have to be good at being a person. Great performance requires us to be intensely human beings.

To put it another way: Being a great performer is becoming less about what you know and more about what you’re like.


The emerging picture of the future casts conventional career advice in a new light, especially the nonstop urging that students study coding and STEM subjects—science, technology, engineering, math. It has been excellent advice for quite a while; eight of the 10 highest-paying college majors are in engineering, and those skills will remain critically important. But important isn’t the same as high-value or well-paid. As infotech continues its advance into higher skills, value will continue to move elsewhere. Engineers will stay in demand, it’s safe to say, but tomorrow’s most valuable engineers will not be geniuses in cubicles; rather they’ll be those who can build relationships, brainstorm, collaborate, and lead.



As demand for empathy grows, supply shrinks
Researchers analyzed 72 studies that measured empathy in about 14,000 college students since 1979 and found a broad decline over time. Their empathy seems unlikely to increase; separate research suggests this quality declines with age.Sarah Konrath, Edward H. O’Brien, and Courtney Hsing, “Changes in Dispositional Empathy in American College Students Over Time: A Meta-Analysis,” Personality and Social Psychology Review (2010)


As a changing economy revalues human skills, it seems logical to see the trend as the latest step in a long progression: For centuries people have improved their living standards by mastering new skills that a new economy rewards. But the skills that are becoming most valuable now, the skills of deeply human interaction, are not like those other skills. Learning to be more socially sensitive is not like learning algebra or how to operate a lathe or how to make a well-functioning blog in WordPress. That means that some people will have a much easier time adapting than others will.

On average, women are better at many of these increasingly valuable skills than men are. Overall, they reliably score higher on tests of empathy and social sensitivity than men do. Since research shows that the best-performing groups tend to be those whose members are best at those skills, it follows that groups with a higher proportion of women tend to do better. In fact, some research shows that groups consisting entirely of women are more effective than groups that include even one man.

That doesn’t mean that men are doomed to irrelevance. Within genders are enormous differences in the interpersonal abilities that people bring to adulthood, even before any training they may receive, which for most people is little or none. Everyone can get better, but it will be hard for some people, and some simply won’t want to do it. It isn’t about what they know. It’s just the way they are.

Southwest Airlines (LUV, -2.33%) once hired a high-level employee for its information technology operations and quickly began to suspect it had made a mistake. After he’d been on the job for only a week or so, the company’s HR chief asked him how things were going.

“People here are strange,” he replied. “They want to talk to me in the hallway! They ask how my day has been, and they really want to know! And I just want to go back to my cube and work.”

An IT guy who wants to be left alone in his cube is not exactly a surprise. It’s practically a stereotype. But it was a big problem at Southwest.

This company succeeds in one of the world’s most miserable industries. It prospers because, as its managers have always understood, it knows the value of human interaction externally and internally. The ability of employees to engage customers with humor, energy, and generosity is crucial to creating value in an experience that is not, on its face, all that appealing. For employees who work strictly with one another behind the scenes, the business is as grindingly competitive as it is for any other airline, and doing the job is not a walk in the park. Co-workers who ask about each other and like to tell a joke are key to keeping everyone going.

So an employee who’s uninterested in human interaction is trouble. His immediate depressive effect on those around him, bad enough by itself, could start to spread. Even if it doesn’t, it’s a problem. The company’s culture is a big reason, maybe the main reason, that so many people want to work there. It’s why, when the company has 3,000 jobs to fill, it gets 100,000 applications. If a newly hired young person comes to work on his first day and meets this guy, he’ll conclude that the Southwest culture isn’t at all what he had thought. He’ll be unhappy, possibly resentful, and he’ll spread the word.

So Southwest’s managers decided that their new IT guy, despite his excellent credentials, had to go. He was dismissed in short order.

For people like him, life will be increasingly difficult. Organizations used to have places for them, in solid middle-class jobs in offices and factories. But those are the jobs that technology is already taking over rapidly. As the shift in valuable skills continues, organizations are finding not only that they have no jobs for the disengaged and socially inept, but also that such people are toxic to the enterprise and must be removed.

The Cleveland Clinic learned a similar lesson. Over the past five years it has developed a pathbreaking and dramatically effective program to train all employees and contractors in empathy and relationship building. The clinic found that a few of its people were in the wrong business. “Off-board people who don’t belong,” concluded Dr. James Merlino, who led the transformation effort. “One disengaged employee who does not support the organization or the mission can have negative consequences for an entire department. The hardworking and engaged employees will resent these people being around.” When the human experience is what counts most, one wrong human is one more than you can afford.

High-value skills: Medical researchers conducting clinical trials of an Ebola vaccine in Sierra Leone (above) confer after interviewing community                    leaders about cultural issues that could affect the trials; without deep cultural knowledge, obtained in person, the trials might not succeed.
High-value skills: Medical researchers conducting clinical trials of an Ebola vaccine in Sierra Leone (above) confer after interviewing community leaders about cultural issues that could affect the trials; without deep cultural knowledge, obtained in person, the trials might not succeed.The current transformation of how people create value is historically quite sudden. Most people’s essential skills remained largely the same from the emergence of agriculture 12,000 years ago to the dawn of the Industrial Revolution in the mid-18th century. The transition to an industrial economy in the Western nations, and the accompanying shift in skill values, took well over 100 years. The subsequent turn to a knowledge-based economy took most of the 20th century. Now, as technology gallops ahead with longer strides every year, the transition to the newly valuable skills of empathizing, collaborating, creating, leading, and building relationships is happening faster than corporations, governments, education systems, or most human psyches can keep up with. That’s disorienting, and it gets more so as the fundamental nature of value shifts from what you know to what you’re like.

As economies have evolved over the centuries, we’ve always looked outward to get the new skills we require, to elders, schools, trainers, and employers that knew and could teach us what we needed to know. Now, for the first time, we must also look inward. That’s where we find the elements of the skills we need next. Developing those abilities will not be easy or comfortable for some, and it is likely to get harder for everyone, because as the abilities become more valuable, standards will rise. Even those who are good at them will have to get better.

If the prospect sounds worrying, it shouldn’t. On the contrary, it’s wonderful news. Just think of what we’re being asked to do—to become more essentially human, to be the creatures we once were and were always meant to be. Odd as it may sound, that’s a significant change from what we’re used to. For the past 10 generations in the developed world, and shorter but still substantial periods in many emerging economies, most people have succeeded by learning to do machine work better than machines could do it. Now that era is ending. Machines are increasingly doing such work better than we ever could. We face at least the opportunity to create new and better lives.

Staking our futures to our profoundest human traits may feel strange and risky. Fear not. When you change perspectives and look inward rather than outward, you’ll find that what you need next has been there all along. It has been there forever.

In the deepest possible sense, you’ve already got what it takes. Make of it what you will.

Categories Narrative

Working Remotely

There is such freedom in working remotely.  But, as is the case with everything, there is a dark side.  People who get to work remotely have flexibility and save time from not having to commute. But are these benefits worth the stress?Remote workers also deal with the following: 
 
–          Feeling disconnected from their team.  And even worse, never even having a team.  You are a solo practitioner.
–          Communication is dramatically impacted.  Because a large portion of communication is nonverbal, remote workers communicate less, have more miscommunication and in general are less informed about direction, goals and scope of projects. 
–          New types of interruptions and distractions arise from family and chores and life.
          Obligation to work longer—as described below, remote workers tend to work longer hours
 
What is the point of all this?  We see a growing trend to have a space for everyone at your office. The advent of open design offices can bring remote workers back to the office part time, and begin to solve some of the issues above. Here are some solutions we are seeing.
 
–          Have a landing place in your office…then use it every week.
–          Connect with team members on a weekly basis. Go to the office.  Meet with your coworkers and colleagues. Or schedule Skype sessions if you are in a different city.
–          At home, have a starting and ending time, just like the office
–          Limit interruptions. Figure out a way to let those around you at home know that you are working so they do not interrupt you.
 
For office space needs, furniture options, a redesign of your current space to accommodate remote workers, or just to kick these ideas around, email or call me.

Craig

602.954.3762


I’ve Worked Remotely For 5 Years, And It’s Stressing Me Out

By Martin De Wulf
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February 23, 2018
work remote

In software engineering, remote working makes a lot of sense since, most of the time, you only need a computer and an internet connection to perform your duties. There are fewer reasons to force people to sit in an office every day. As a result, it’s become an important feature of a lot of IT jobs, even here in Belgium–which in my experience isn’t always the most forward-looking job market–where remote work is common for at least a couple days a week.I’ve been working remotely for a little more than five years now, and it doesn’t come without stress. I think it’s taken a toll on me over the last couple years in particular, especially when I went almost fully remote for a year, from June 2016 to June 2017. In that period I’ve sometimes felt like I existed in a “remote-developer black box”:

It’s Hard To Communicate
Communication tends to stick to structured channels when you work remotely: the chats, daily standups, maybe a few global meetings every other week, Jira for the tasks and bug reports, and lots and lots of emails.

This works well to accomplish structured tasks, but it’s easy to feel  disconnected sometimes. The fact that most of this communication happens in written form or in front of groups makes them unsuitable for small talk or more informal information sharing. And it can hamper your work, as just chatting about the general atmosphere at work can deliver important information about the smooth progress of projects. Worse, it can prevent you from feeling like part of a community.

In addition, written exchanges are more prone to misinterpretation, even with people you know very well. Plus, if you already spend your day typing on a keyboard to accomplish your technical tasks, it’s annoying to have to communicate in written form, too; you end up feeling like a text-processing machine. I began to miss the coffee chats that I’d previously thought to be unproductive wastes of time. I felt detached from the team, especially when the teams I worked with were made of people working in the same place (and seemed to be having fun).

It Causes Interruptions And Multitasking
When working remotely as a developer, chat platforms (usually Slack or HipChat) quickly become your lifeline; that’s the way most people contact you. And to me, being responsive on chat accomplishes the same as being on time at work in an office: it creates an image of reliability. If you don’t want to give the impression that you’re taking a lot of breaks, you might find yourself checking your notifications during lunch, for example. Whereas had people seen you working the whole morning, or had you just talked face-to-face with your coworkers by then, you wouldn’t feel the need to be so responsive. I’ve noticed other remote colleagues get criticized for not answering quickly by chat.

Since people don’t see you physically, they can’t really judge if it’s a good moment to interrupt you. So you get interrupted a lot, and if you’re like me, you feel forced to answer quickly. So you interrupt your own work a lot (programmers in particular tend to loathe this, since it saps their productivity and breaks their focus).

The other problem with remote chat is that people don’t know whether you’re already speaking with somebody else. I can’t count the number of times I’ve been juggling three different conversations at the same time, which to me can become stressful, especially when I have tasks to finish by the end of the day.

There are often “leisure” chats as well, about non-work stuff (usually a lot of memes), which can become very, very chatty. To keep my sanity, I mute these chats most of the time, but when you come back, catching up on everything that was said can be a daunting task, even though it may be my only opportunity to take part in the “office spirit” I’m missing by being a remote worker.

 
It Encourages Overwork
Most jobs come with at least two types of obligation:

  1. Obligations of results, where you commit to give a certain result by a given date. Typically for a developer that means completing a sprint with a given set of bugs/features to develop by a certain deadline.
  2. Obligations of means, where you mainly commit to spending some of your time every day on your work, and you just deliver the results you’ve managed to produce within that time.

I’m not naïve, and I know that in the end (especially in software engineering), most jobs are really about results–you’ll get fired if you produce nothing–and not means. But since people can’t see you work remotely, you might feel more obliged to show results every day, even if it forces you to work way past eight hours a day. I can’t count the number of times a configuration problem or a customer call took a few hours of my day, but I still felt forced to finish the task I’d committed to that day, just so nobody could assume I was slacking off instead of working. Had my coworkers seen me in front of my computer all day, I probably would’ve felt relaxed enough to finish it that task later.

This instinct has led to two things for me: being really appreciated for the reliability of my output, and being seriously overworked. According to Basecamp CEO Jason Fried, this is “the true challenge of managing remote workers: People who work too hard.” In the end, it comes down to the question of trust: My employer trusted me a lot, allowing me to work on my own terms, and in exchange I’ve always felt compelled to work a lot more than if I were in an office.

It’s Challenging Being A Stay-At-Home Dad
When you spend a good part of your time at home, your family sees you as more available than they sometimes should. Even if you have places dedicated to work that should be off-limits to your kids, it’s still tempting for them to come ask you “just a little something.” It’s hard to expect children to compartmentalize their home–actually, it’s hard for me, too.

This can make video calls a bit stressful. You’re talking with a customer for example, and your kids end up just appearing behind you on video. Remember this?

I also know some people have problems resisting the need to perform home duties, like cleaning the kitchen. This has never been too much of an issue for me, but it’s created tension with my wife from time to time, since it was difficult for her to understand how I could’ve left a dirty dish on the dining room table all day while I was actually at home. (Answer: I was working and avoiding interruptions . . . )

It Can Feel Lonely
Working at home can mean a lot of loneliness. I do enjoy being alone quite a lot, but even for me, after two weeks of only seeing colleagues through my screen, and then my family at night, I end up feeling quite sad. I miss feeling integrated in a community of pairs.

Interacting on social networks might help you fight that loneliness a little, but the experience isn’t different enough from working on your computer. Plus, it’s also well-known that spending a lot of time on social networks tends to make you less happy than the opposite. Eventually, I really started to hate being alone; it began to impact my mental health and my mood (another well-documented phenomenon).

Working Outside Your Home Has Drawbacks
One of the most common ways to fight this is to work in coworking spaces. But I find them a mixed bag; they cost real money (which your employer might agree to pay, or not) and often ask for time commitments (usually at least a month). They can create social environments and work opportunities, but at the risk of feeling a bit too much like a vacation camp, with activities every day (cooking, massages, meet-ups) designed to force people to socialize. I actually found myself going to coworking spaces only when those events weren’t scheduled–and gave up going altogether rather quickly, since it seemed pointless to use a coworking space to avoid loneliness only to not talk to anybody.

Commuting to a coworking space takes time, and when you’re there, you may work with headphones all day to avoid distractions, barely taking breaks (because you lost time commuting), and feeling awkward for not taking advantage of the community. As an added problem, video calls are more difficult to do in these settings, since there’s not much space to be alone, always a bit of noise, and the risk you’ll annoy people in earshot (or you have things to say that you don’t want them hearing).

Working remotely outside my home–whether in a coworking space or not–sometimes means not knowing where I’ll be working every day, and it’s stressful having to think about which hardware I need to take with me (keyboards, DVI adapters, chargers). Coffee shops are usually a bad idea, at least for full days: there’s too much noise, and I don’t like feeling obligated to buy something to eat or drink periodically to justify my presence.

Obviously, when you work remotely you don’t leave your workplace at night. And if your coworkers are in different time zones, you end up communicating a lot after your workday is over (I did that for months when working with people based in New York or San Francisco). It often makes sense; otherwise you might have few chances to speak with your team, which can really slow down projects, but it means there’s little time free of work-related concerns.

Finally, working at home doesn’t leave time to cool off while coming back home from work. For me, the ideal commuting duration is 15–20 minutes. That gives you some time to walk (which means at least some physical exercise) and change your thoughts a bit. Many evenings, I’d go from a video meeting to a family dinner in 30 seconds, making it hard to offer my kids my full attention.It Comes With Unforeseen Costs
If you want to gain responsibilities over time, working with limited visibility can be a problem. At one employer I felt that people in the office were preferred for promotions. To be sure, working remotely over the last few years has been a boon to my family while our kids were small. It made it possible for my wife and me to pursue our careers with minimal hassle, since I was more available to take care of the kids when they were sick (which happens a lot in their infancy). And while that meant catching up on work in the evenings and weekends, I appreciated that flexibility.Remote working also allowed me to join high-quality teams I wouldn’t have found in my local job market. So while I’m still a fan of remote work, it really took a toll on my mental comfort sometimes, which has impacted my family relationships–mainly just through my own irritability. In my experience, remote work can cut you off from the human interactions that make all those work-related tasks feel meaningful. Ultimately, for all its benefits, I don’t like being in the remote-developer black box.

Categories Narrative, Tech Industry

The Digitalization of Everything

Technology is changing everything, from the way we eat and drive, to how we communicate and work. The “digitalization of everything” is changing how we work and therefore the skills we need to do our work.  Brookings produced a study in late 2017 that is highlighted below and here is a link to the full study. Here are a few takeaways:

  1. Necessary Skills – Digital skills are becoming a requirement for getting a job, almost on the same level as a degree or any other standard qualification. You don’t need to be an expert coder (yet), but for most jobs, being proficient in excel is a necessity.
  2. Wages – High-level digital jobs wages have gone up, and the mean salary sits just under $73,000/year.  These will continue to rise.  One interesting finding is that low-level digital jobs have seen a decrease in wages down to $30,393/year. Why?
  3. Automation – Robots are taking the tasks typically performed by employees. For those entering the digital workforce, or trying to move within the workforce, developing some quality digital skills is the one way to ensure job security and stay one step ahead of automation. 

What is certain is the ability to start a career in an industry and stay there for three decades (like I have in brokerage) will be increasingly hard to do.  Today, continuing to grow, learn new skills, and be comfortable being uncomfortable are all critical for your future.

 

602.954.3762


Nearly every job is becoming more digital — Brookings study
Not everybody needs to go to a coding boot camp but they probably do need to know Excel”


November 15, 2017
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The shares of U.S. jobs that require substantial digital knowledge rose rapidly between 2002 and 2016 — mostly due to large changes in the digital content of existing occupations. (source: Brookings analysis of O*Net, OES, and Moody’s data)Digital technology is disrupting the American workforce, but in vastly uneven ways, according to a new analysis of 545 occupations in a report published today by the Brookings Metropolitan Policy Program.

The report, “Digitalization and the American workforce,” provides a detailed analysis of changes since 2001 in the digital content of 545 occupations that represent 90 percent of the workforce in all industries. It suggests that acquiring digital skills is now a prerequisite for economic success for American workers, industries, and metropolitan areas.

In recent decades, the diffusion of digital technology into nearly every business and workplace, also known as “digitalization,” has been remaking the U.S. economy and the world of work. The “digitalization of everything” has increased the potential of individuals, firms, and society, but has also contributed to troublesome impacts and inequalities, such as worker pay disparities across many demographics, and the divergence of metropolitan economic outcomes.

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Mean digital scores and share of jobs in high digital skill occupations in 100 largest U.S. metro areas, 2016 (source: Brookings analysis of O*Net, OES, and Moody’s data)While the digital content of virtually all jobs has been increasing (the average digital score across all occupations rose 57 percent from 2002 to 2016), occupations in the middle and lower end of the digital skill spectrum have increased digital scores most dramatically. Workers, industries, and metropolitan areas benefit from increased digital skills via enhanced wage growth, higher productivity and pay, and reduced risk with automation.

The report offers recommendations for improving digital education and training while mitigating its potentially harmful effects, such as worker pay disparities and the divergence of metropolitan area economic outcomes.

“We definitely need more coders and high-end IT professionals, but it’s just as important that many more people learn the basic tech skills that are needed in virtually every job,” said Mark Muro, a senior fellow at Brookings and the report’s senior author. “Not everybody needs to go to a coding boot camp but they probably do need to know Excel and basic office productivity software and enterprise platforms.”

Key findings of the report

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(credit: Brookings Metropolitan Policy Program)WagesThe mean annual wage for workers in high-level digital occupations reached $72,896 in 2016 — a 0.8 percent annual wage growth since 2010, whereas workers in middle-level digital jobs earned $ 48,274 on average (0.3 percent annual wage growth since 2010), and workers in low-level digital occupations earned $30,393 on average (0.2 percent annual wage decline since 2010).

Uneven job growth: While job growth has been rapid in high and low digital level occupations, middle digital occupations (that can be more readily automated), such as office-administrative and education jobs, have seen much slower job growth.

AutomationNearly 60 percent of tasks performed in low-digital occupations appear susceptible to automation, compared to only around 30 percent of tasks in highly digital occupations.

Gender: Women, with slightly higher aggregate digital scores (48) than men (45), represent about three quarters of the workforce in many of the largest medium-digital occupational groups, such as health care, office administration, and education. But men continue to dominate the highest-level digital occupations, as well as lower digital occupations such as transportation, construction, natural resources, and building and grounds occupations.

Race/ethnicity: Whites and Asians remain over-represented in high-level digital occupations such as engineering, management and math professions; blacks are over-represented in medium-digital occupations such as office and administrative support, community and social service, as well as low-level digital jobs; and Hispanics are significantly underrepresented in high-level digital technical, business and finance occupational groups.

Regional disparities: The most digitalized metros include Washington, Seattle, San Francisco and Boston; fast followers such as Austin and Denver; and university towns such as Madison and Raleigh. Locations with low digital scores include Las Vegas and several metros in California , including Riverside, Fresno, Stockton and Bakersfield.

Categories Narrative, Office Market

The “Coffice”

In our ongoing discussion about the future of office space, here is a nice stat:  In this cycle, office space users have been taking approximately ½ of the space they took as they grew in the last cycle. 

We know why—open office, the explosion of the tech companies and shared space environment and all the startups actively trying to disrupt every business on the earth. So where does this go?   Below are my thoughts followed by an article by Sarah Knapton, a futurologist  I liked because of her use of the “Coffice”—Coffee office.
 
– The workforce will become more and more mobile—this is happening and it will continue unabated.
 
– Most white collar jobs will figure out how to become more flexible so you don’t have to be there all the time.

– Offices will continue to gravitate towards an open environment but solutions to decrease the added distractions created by these offices will continue to emerge. 

– People will want an office to go to, even if they only go occasionally. AND they will want it to be their company, not just a bunch of other mobile workers they hang out with.  Culture eats strategy for lunch.  The only place to get your company culture is at YOUR office. 
 
Anybody want to add to or argue against these?  Send me an email.

Craig

602.954.3762


Open-plan offices don’t work and will be replaced by the ‘coffice’, says BT futurologist
By Sarah Knapton,
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October 11, 2017

They were supposed to generate a sense of camaraderie, enhance teamwork and encourage an open flow of ideas between colleagues after decades of segregation in booths.

But open-plan offices are actually bad for productivity, allowing workers to be interrupted every three minutes by a range of distractions, a futurologist at BT has warned.

Dr Nicole Millard, an expert in data, analytics and emerging technology, said that large offices are inefficient, especially for introverts who work better when they are not disturbed, and predicted they will soon die out.

Instead, she has forecasts that employees in the future will become ‘shoulder-bag workers’ carrying their offices in backpacks and collaborating in small teams in coffee shops – or ‘coffices.’

Although many firms believe large, open-plan workspaces help collaboration, in fact, unless staff are in close proximity ‘you might as well be in Belgium’, said Dr Millard. However research has shown that put workers too close together and they clam up, as if being stuck in a lift together.

“The trouble with open-plan offices is they are a one-size-fits-all model which actually fits nobody,” Dr Millard said at New Scientist Live in London yesterday.

“We’re interrupted every three minutes. It takes us between eight and 20 minutes to get back into that thought process. Email. We get too much. Meetings, colleagues. It’s all distracting.

“Is being switched on making us more productive? The answer is no. The problem of the future is switching off. The big damage is task-switching. You can tell you have been task switching when you switch off your computer at night and find there several unclosed windows or unsent emails still there because you were interrupted.

“So we will become shoulder bag workers. Our technology has shrunk so we can literally get our office in a small bag. We are untethered, we don’t have to have a desk anymore.”
However Dr Millard said that offices are still important, if only for socialising.

“We need a balance between we and me,” she added. “We need to give people options of how they can work, such as home working.

“But I do go a tiny bit nuts if I am just at home, so I think we will start to embrace ‘the coffice’ I need good coffee, connectivity, cake, my wifi wings to fly me into the cloud. I like company. The ‘coffice’ could be a coffee shop or a hotel lobby.”

Dr Millard said the ageing workforce will also change how offices work, because older people will no longer want to work nine to five or commute for long distances.

By 2039 the Office for National Statistics expects that the number of people aged 75 and over will have risen by 89pc to 9.9 million and one in 12 of the population will be 80 or over.

When the state pension was introduced in 1909 it was intended to aid those aged 70 or older at a time when the average man died at 59 and the average woman at 63.

“The average pension pot is designed to last only 18 years, so we’re going to be working a lot longer,” she said.

“We have an older workforce, which is fantastic because they have accumulated experience gained over many years but they are probably not going to work nine to five, or commute into work. In fact, I can’t remember the last time I worked from nine to five.”

She also said that it was unlikely the robots would take most jobs.

“A lot of these technology won’t replace us they will help us to the dirty, dull and dangerous jobs that we don’t want to do. It’s very difficult for robots to replicate humans. They don’t have the dexterity, the empathy, the gut feelings.

“I think the rise of the droids is a positive trend and can make us feel more valuable as human beings.”

Categories Narrative, Office Market

Suburban Offices are Back

First, let me say, I told you so.  I have been saying for some time that the huge shift to urban core will not be sustained.  There are companies that want/need to have that environment so I am still bullish on urban cores, but there are others who will reverse the three-decade trend of moving offices closer and closer to the employees’ (and primarily the decision makers’) home.  Below is a Bloomberg article about businesses seeing millennials growing older and betting on them settling down in the suburbs.
 
Here are some summary points:
 
–        “Open and creative offices” are moving to the suburbs.
–        Millennials want to be closer to the city when they are young but as they start families they move to suburban areas.
–        Companies are taking urban office features and incorporating them into suburban areas to attract millennials.
–        Suburban offices are cheaper than urban offices – this will change as market conditions change. Contact our team to see what the differences are today in your market and submarket.
 
This is where having a seasoned professional on your side is critical.  That is what we do—represent tenants as they evaluate their office space and locations.  Call us if you need some sound advice from a trusted source.

 

Craig

602.954.3762


Suburban Offices Are Cool Again
By Patrick Clark and Rebecca Greenfield

October 17, 2017First you leave the city for a kid, a garage, and a backyard. Then you get a job in an office park—only maybe it’s an officepark with yoga and food trucks.For millennials, the suburbs are the new city, and employers chasing young talent are starting to look at them anew.For years companies like Twitter, Salesforce, and GE have headed downtown, framing their urban offices as recruiting tools for young talent. After opening a new headquarters in downtown Chicago last year, Motorola Solutions bragged that it got five times the job applicants it had in the suburbs. Suburban landlords like Charles Lamphere kept hearing a common refrain from tenants: “We need to go to the city to get millennials.”

Fresh college graduates might be attracted to downtown bars and carless commutes, but these days, for older millennials starting families and taking out mortgages, a job in the suburbs has its own appeal. “What people find is that the city offers a high quality of life at the income extremes,” says Lamphere, who is chief executive of Van Vlissingen & Co., a real-estate developer based in the Chicago suburb of Lincolnshire, Ill. “The city is a difficult place for the average working family.” 

Many employers, hoping to attract millennials as they age, are trying to marry the best of urban and suburban life, choosing sites near public transit and walkable suburban main streets. “What’s desired downtown is being transferred to suburbanenvironments to attract a suburban workforce,” says Scott Marshall, an executive managing director for investor leasing at CBRE Group. 

Marriott International’s recent search for a site to replace its old office park in the Washington suburb of Bethesda, Md., led it not into Washington but just across town, into Bethesda’s more transit-accessible downtown. (Jim Young, Marriott’s vice president of corporate facilities, cites access to “some of the nation’s top public schools”—something more millennials will care more about as their kids get older.) When Caterpillar Inc. announced its move from Peoria, Ill., to the Chicago suburbs earlier this year, CEO Jim Umpleby bragged that the new site “gives employees many options to live in either an urban or suburbanenvironment.”

Suburban landlords are upgrading office parks with amenities to mimic urban life, too. At Van Vlissingen’s properties, that’s meant fitness centers, food-truck Fridays, beach volleyball courts, and a fire pit and amphitheater where monthly concerts are staged. Origin Investments, a real-estate investment firm, recently spruced up a dated office building outside Denver with a 4,000-square-foot fitness center and a “barista-driven” coffee lounge and stationed a rotating cast of food trucks outside a building it owns near Charlotte.

Suburban office parks appeal because they’re cheap compared to downtown buildings, says Dave Welk, a managing director at Origin, which is based in Chicago. But his firm’s suburban thesis builds on the belief that city-loving millennials will eventually opt for suburban accoutrements. 

“The thinking has been, ‘We’re in a 20- to 30-year supercycle of urbanization,’” Welk says. “I believed that five years ago. I don’t believe it anymore.”

None of this means the suburbs are going to supplant central cities as job hubs. After all, jobs traditionally based in cities—jobs in professional industries as well as the service jobs that support them—are growing faster than those typically based outside of them, according to Jed Kolko, chief economist at Indeed.

At the same time, Americans are more likely to live in the suburbs today than they were in 2000, and even the young, affluent ones drawn to cities tend to move once their kids reach school age, Kolko’s research shows. Many of those workers will suffer long commutes into the city center. Others will opt for jobs closer to their suburban homes.

Jack Danilkowicz, 29, moved to Chicago in 2012 for a job at a financial job downtown, but within a few years, he got married and started plotting his move to the suburbs. He landed a job at Horizon Pharma, a drugmaker with offices in the northern suburb of Lake Forest, and moved with his wife to nearby Libertyville, trading city nightlife for the good public schools their newborn son will one day attend. “I grew up in the suburbs,” he says. “Probably in the back of mind, I always thought the suburbs would be the place to raise a family.”

 

Categories Narrative, Office Market

2018 Top 10 Issues Affecting Real Estate

The changing demographics of workers in the U.S. is HUGE and it’s changing everything. This is probably the biggest issue we are facing in office space leasing, and it features predominantly on the 2018  Counselors of Real Estate (CRE)  Top 10 Issues Affecting Real Estate.

Below is the release and a link to the full report. I spend ample time on this topic throughout the year so here are my top three issues:
 
1. Everyone has known it was coming, and it’s here-interest rates are rising and it’s starting to affect sales. Rising rates will begin to move cap rates, which will have ripple effects.

2. I continue to be amazed at municipalities’ lack of infrastructure investment.  Little has been done or will be done until the crisis explodes.  Long-term inattention to physical infrastructure will be an issue in the coming decade.

3. A favorite topic of this narrative—disruptive technology is here for real estate. From ecommerce changing retail,  Uber changing parking,  connectivity changing the nature of the workforce and use of office buildings, EVERYTHING is being disrupted.
 
A calm voice of reason and wisdom is needed when so much is changing.  That’s where we come in.   Give me a call or email me. Almost 35 years and plenty of scars to help you out.

 

602.954.3762


External Affairs Alert – Top Ten Issues Affecting Real Estate™ 2018-2019

https://www.cre.org/wp-content/uploads/2018/06/2018-19-top-ten-h.png

Summer 2018

Click here for the Full Report

New for 2018-2019: Current and Longer-Term Impacts Identified

Counselors’ clients seek advice on today’s issues which will impact property today–and today’s issues which will impact their decisions over the next ten years.  In a break with how The Counselors’ has announced its Top Ten list in past years, the Top Ten Issues Affecting Real Estate™ 2018-2019 differentiates between current and longer-term impacts on real property.

1. Interest Rates & The Economy

For years the market has anticipated rising interest rates.  With the Federal Reserve now nudging rates upward, flattening of the yield curve is underway. Historically, this has been a powerful signal of market expectations of an economic down cycle.

The Tax Cut and Jobs Act passed into law in December, 2017 enacted fiscal stimulus by cutting individual and corporate tax rates, and pumping money into the economy via the Omnibus Spending Bill passed in March, 2018.  That bill is projected to increase spending by $1.3 trillion but the consequence is a large required increase in Federal borrowing to fund a growing deficit. Some see the effects as a “crowding out” of private borrowers from the debt markets, and such borrowers may face higher interest rates; an economic slowdown could result.

For real estate, the issues that must be faced include:

  • Is it time for investors to focus on playing defense at the end of this long cycle?
  • Will it become more difficult or more expensive for commercial real estate participants to finance deals, and will this further slow transaction volume which has already dropped 13% since 2015?
  • Will residential mortgage rates rise in tandem with the increase in Fed Funds?
  • As consumer rates pegged to Treasuries increase, will this slow retail purchases, placing additional stress on the already beleaguered retail sector?
  • Cap rates have remained decidedly flat, despite the fact that risk-free benchmarks like the 10-year Treasury rate have broken the 3% mark. When will cap rates begin rising, and what will that mean for asset valuation?  Will that mean less financing availability for tertiary markets, as investors pull back into standard gateway markets perceived to provide more liquidity in case of the need to exit?

 
 

2. Politics & Political Uncertainty

The most pertinent near-term issues about U.S. politics driving real estate right now can be divided into two topics:

Policy changes with indirect effects on real estate:

  • The Tax Cuts and Jobs Act – whether it benefits corporations more than individuals and whether or not it will result in a boost in GDP growth in 2018, but then revert to recent averages closer to 2%. Corporate benefits appear to be resulting in increased investment and business spending, not just stock buybacks.
  • Trade wars with China, Canada, Mexico, and the European Union, and geopolitical fears about how the North Korea and Iran situations are being managed.

Policy changes with direct effects on real estate:

S.2155, recently signed into law, likely has the most effect on real estate.

Broadly speaking, the bill frees smaller lenders from the toughest requirements of the Dodd-Frank Act, such as the Volcker Rule.  It also provides banks with less than $250 billion in assets a pathway to shed the ‘too-big-to-fail’ stigma as well as certain enhanced prudential standards. The bill increased the asset threshold for automatic designations of banks to $100 billion – subject to a discretionary review by the regulators. In effect, this gives the Fed the ability to apply the stricter standard on a case-by-case basis to a bank with $100 billion to $250 billion in assets to promote its safety or mitigate risks to the financial system.

HVCRE: This provision would exempt income-producing property, allow banks to continue to use the 15% borrower contributed capital exemption, allow borrower distributions if the minimum-required capital is maintained, allow current appraised value of real property to be counted in equity contributions, and grandfather loans closed prior to January 1, 2015.  The legislation does leave regulators leeway about applying these rules, including the risk weight that should be applied to higher-risk construction lending.

HMDA: This provision reduces the number of data fields collected by insured depository institutions (but not non-depository institutions) which have originated, in each of the two preceding calendar years, fewer than 500 closed-end mortgage loans and fewer than 500 open-end lines of credit.
Overall, S.2155 is broadly viewed as a modest tweak of existing regulation – more targeted toward community banks than larger regional and systemically important institutions.

3. Housing Affordability

The crisis of affordability squeezes from both sides of the supply/demand equation.

  • The U.S. has had general underproduction of housing for almost two decades, even accounting for the boom that accompanied the subprime housing bubble. However, since 1999, the net underproduction of housing has been nearly 2 million units.
  • But there has also been a demand side weakness. Income stagnation for all but the highest income households has hampered access to affordable homes and rental units.  A 2017 study by the Hamilton Project at the Brookings Institution calculates that since 1979, real wages for the top income quintile have risen more than 24%, while the bottom quintile has seen a decline in real wages. The next lowest quintile, the lower-middle class, has had less than a 1% gain in real wages over more than 35 years, and the middle quintile (the heart of the middle class) has gained less than 3.5% over that span.

Within this context, there is also pressure growing in cities, and now in select suburbs, as gentrification by Millennials and others directs demand toward neighborhoods and older housing stock that has been serving as the de facto affordable housing in older but growing metropolitan areas. As this issue plays out in the next year or two, key questions in order to find solutions are “Who pays?” and “How?”

4. Generational/Demographic Change

One could argue that historically real estate markets have primarily been driven by key demographic groups, 25 – 34, 35 – 54, etc.  But real estate now is seeing and reacting to the influence of FOUR groups: the Millennial generation, aging baby boomers, Gen X (those born between the mid-1960s and the early-1980s, which exhibit characteristics of the two large groups on either side of the age spectrum), and Gen Z (born between 1995 and 2010).

The direct real estate impact is already being seen in the changes in work processes, space utilization, and where companies choose to locate.  The housing market must adjust to changing demands as these groups age.  This will impact student housing, single family, and multifamily housing markets.

There are similarities between the wants and needs of the generations, but ultimately the differences in timing (Millennials forming households later) and differences in desires (move to walkability) will offer risks and opportunities.

5. E-commerce & Logistics

The U.S. Department of Commerce estimates there were $123.7 billion in retail sales through online channels in the first quarter of 2018.  That represents 9.5% of total retail sales, up from less than 1% in 1999, when the Commerce Department began tracking the data.  The growth in online sales has also outstripped the growth in total retail sales during that entire – almost twenty year-period.  For example, in the first quarter of 2018, online sales grew by 16.4%, while total retail sales only grew by 4.5%.  Adjusting total retail sales, and deducting numbers from automobile and gasoline sales (which typically are not sold through online channels), e-commerce or online sales as a proportion of total retail sales rises to near 30%.

Media articles have largely focused on “the death of the U.S. mall” and coverage of store closures.  But as some businesses close, others open.  As Toys “R” Us closed stores, Ulta, The Gap, Target, and others continue to open stores.  Employment in restaurants and other service-related retail establishments has consistently been positive.  Amazon is known for its dominance of online channels – but when Amazon buys a brick and mortar chain like Whole Foods, it indicates it is not about “online versus brick and mortar” – but rather an ongoing quest for firms to dominate every available business channel.

Retail real estate is directly impacted by these evolving channels, with discount retailers and high-end luxury stores surviving the onslaught best. And e-commerce has been a major boon for warehouse/distribution properties, in response to the need for storage space for that “last mile,” ensuring the fulfillment of one- or two-day delivery promises.

Longer-Term Issues

1. Infrastructure

Infrastructure tops the 2018-2019 longer-term impacts list (and has been included on several past year lists) as there has been little serious effort to address America’s needs despite political efforts to do so. Long-term underinvestment has elevated the level of risk – both in the short- and long-term – of economic drag due to inattention to physical infrastructure (roads, bridges, dams, levees, transit – all of which are rated “D” or lower by the American Society of Civil Engineers) and human capital infrastructure (education, health) directly affecting economic productivity.

Real estate – both existing properties and needed new development – depends upon reliable, well-maintained infrastructure.  Consider housing without access to utilities, roads, bridges; offices with poor transit routes; warehousing and shipping of goods with poor-condition roads; hotel properties if guests have difficulty getting there over poor roads, inadequate airports, risky bridges, as examples.

2. Disruptive Technology

The real estate industry, like the rest of the world, is poised to adopt new technologies – blockchain, artificial intelligence, autonomous vehicles, cryptocurrencies, transaction platforms that disintermediate human agents – all of which will qualify as “this changes everything” interventions in the real estate industry or real estate markets.

E-commerce has drastically changed the retail property sector and has linked online sales to stores, with online retailers buying store groups or opening new store models (Amazon Go stores). Ride-sharing companies such as Uber and Lyft are altering transportation, and likely will alter the need for garages in future housing and multi-family development.   Data has been, in general, commoditized, from transaction transparency to enhanced demographic targeting to nearly unlimited interconnectivity to sophisticated cybersecurity and privacy controls.  Homes, offices, warehouses, hotels, multi-family properties, and every facet of real estate – from business and property management to architectural design – is enhanced by adopting ever-improving technology.

Real estate practitioners, owners and investors can embrace new technological tools, but ultimately must carefully choose which is most appropriate for the business, property, service, or problem/solution – not be pressured to rush toward “technology for technology’s sake.”

3. Natural Disasters & Climate Change

The impact of climate change and natural disasters on real estate is perceived to be increasing over time. Insurance analysts at Munich Re, a major reinsurer, forecast that rising sea levels and increasing storm frequency could raise average annual losses by 170% in the coming decades. Since 2006, a significant share of overall loss has come as a result of climatological events such as extreme temperature, drought, and forest fire. During 2017, Seattle set a record of 55 consecutive days without rainfall.  During that time, and afterwards, haze from wildfires in the Cascades and as far away as British Columbia degraded air quality in the Puget Sound region.

While the percentage of total U.S. area under drought conditions has fallen from 38% to 26% as of late August, 2017, the fraction under the most severe category of drought has risen.

Communities are responding with initiatives that are intended to mitigate the effects of disasters, such as  Miami/Dade County, which has embarked on efforts to limit the impact of rising seas on its water and sewer systems, while seeking more compact developments limiting urban sprawl and tackling automobile dependence.

Municipalities and real estate developers must navigate a myriad of state and local energy and sustainability regulations; there are no overarching Federal policies.  This continues to make it difficult for companies to work with state and local officials in multiple locations regarding corporate relocation, or to expand operations while satisfying green building and operations demands.  Companies with multiple locations (or brands with multiple outlets, branches, or restaurants, etc.) may even avoid some locales to avoid the maze of regulations.

4. Immigration

The RAISE Act (Reforming American Immigration for Strong Economy) affects undocumented workers by restricting legal immigration, thus dropping the number of green cards from the present 1.1 million annual number to 500,000. The arguments in favor of the bill emphasize the putative impact of low-cost immigrant labor on wages for lower-skilled U.S.-born workers. The bill seeks to recast immigration policy to apply a “merit-based” points system favoring highly educated, English-speaking, and often already affluent candidates.

Alex Nowrasteh, a senior immigration policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity, has published an analysis which disproves such a system results in a positive wage effect, noting that the current system is actually quite effective in matching immigrant skills to U.S. economic needs.  The National Immigration Law Center stated that the RAISE bill “inaccurately suggests less legal immigration means more jobs for American workers.” Importantly, the technology industry – which has long coveted larger immigration volumes from the STEM (science, technology, engineering, and mathematics) skill set – maintains that RAISE “would severely harm the economy and actually depress wages for Americans.”

There are economic impacts on real estate, which start with the fundamental growth dilemma facing the U.S. for the coming decade: the labor supply shortage driven by age demographics.

The policies of the Immigration and Naturalization Act of 1965 – which the RAISE bill explicitly seeks to undo – enabled the United States to supplement demographic “natural increase” (the surplus of births over deaths) to a degree unmatched by our major global competitors, where immigration exclusions were more severe. Immigration was therefore able to bolster the U.S. agriculture sector, as an example. Decreasing immigration could also hamper one of industrial real estate’s principal sources of demand – ecommerce. Amazon’s August 2, 2017 job fairs around the nation sought to hire 50,000 employees for picking, packing, and shipping jobs at its fulfillment centers.

 5. Energy & Water

Municipalities are increasingly enacting policies that require real estate owners to invest in storm water management systems and devices, and also create new green space.  The impact for real estate is the ability to create value, such as through increased development yields, providing tangible amenities for residents and tenants, reduced operating costs, and improved preparedness for flooding and drought.

“Smart” buildings are becoming more common because of new technology, which impacts building operations, and provides both efficiencies and connectivity which is increasingly being sought by tenants.  The challenge is in ensuring cybersecurity, to avoid service impacts and prevent intrusions by hackers.

While the majority of buildings do not depend on oil, but rather natural gas, and other energy sources (including solar and wind), it is noteworthy that trends in energy production and prices have taken a turn lately, with oil and gasoline prices increasing as a response to OPEC moves.  Gasoline prices rose 3% month-over-month, pushing headline inflation to a 14-month high in April, 2018 at 2.5%.  There is a chance that higher energy prices, combined with higher financing costs due to increasing interest rates and mortgage rates, may act as headwinds to the most optimistic growth forecasts for 2018.

Recent studies suggest that only 1.2% of the U.S. suffers from disastrous levels of water shortage, but some states (California, for example) are more severely affected by water shortages and drought.  While the percentage of total U.S. area under drought conditions has fallen from 38% to 26% over the past year (as of late August 2017), the fraction under the most severe category of drought has risen.  In a developed country like the U.S., where 80% of the population live in urban centers or highly urbanized suburbs, the demand for water is likely to remain concentrated, and rise, putting pressure on these centers of real estate to both protect resources, and provide for the population.

Other impacts on real estate include increased risk of widespread wildfires, poor growing conditions in some sections of the U.S., water-rationing days, and poor air quality days which all can affect location choice for residents, investors, and companies seeking to mitigate risk and experience better quality of life. Some communities and states could experience significant population loss as homeowners, renters, companies, and corporate employees settle elsewhere.

On the Watch List

  • Construction Costs
  • Tax Cuts
  • Urbanization/Suburbanization
  • Societal Leadership

Construction Costs

Rising construction costs are impacting the timing and overall costs of commercial development, redevelopment and tenant improvements.  In addition, rising costs are contributing to higher residential housing prices.

To a developer, rising costs make it more difficult to get new projects to “pencil out” economically, especially in an environment where construction lenders are being more conservative.   But on the other side of the issue, more subdued levels of new supply have allowed fundamentals to improve despite the slower rates of growth in the current economic cycle.

Engineering News-Record’s construction cost index has risen 3% in the past year, with labor costs up 2.9% over the same term. But components such as lumber are up 9.8%, concrete block 4.5%, and asphalt paving 4.4%. The tariffs announced on steel and aluminum are poised to put upward pressure on these building materials. In all likelihood, inflation in construction costs will be sharply higher than the Consumer Price Index itself.

If construction costs continue to rise, companies and practitioners may react with changes as to how space is utilized, moves to lower-cost markets, and introduction of technology to reduce costs.

Tax Cuts

The Tax Cuts and Jobs Act of 2017 has prompted expectations that changes in the deductibility of state and local taxes (SALT) will advantage states with low SALT levels, and disadvantage states with a relatively high SALT burden. Consider, however, these benchmarks:

The most recent twelve-month job change data for the 10 highest and 10 lowest tax burden states show that in the past year, the low-burden states (led by Texas, Nevada, and Tennessee) have added 462,100 jobs, for a 2% growth rate (above the U.S. average of 1.6%). But high-tax states (such as California, New York, and Oregon) have generated more jobs (657,600). However, because of their larger economies, there was a slower growth rate (1.3% versus the U.S. 1.6%). It is possible that in coming years, the cumulative result of the recent tax cuts may have the putative effect of accelerating growth overall and thereby widening the gap between low-tax and high-tax locations.

Note also the impact on productivity. The ten low-tax states have a total Gross State Product (GSP) of $2.9 trillion (15.5% of GDP), or an average of $124,039 per worker. The high-tax states contribute an aggregate GSP of $7.3 trillion (38.0% of GDP), or $146,478 per worker.  Productivity in the high-tax states is 18.1% higher than in the low-tax states. Government incentives which redirect economic activity to low-tax states carries risk of diluting output per worker on a national basis. It is relatively easy to make a simple business case for seeking lower-tax locations, but productivity gains demand investment in physical and human capital – such as infrastructure and education.  Low-tax states historically have not committed as much public spending to such investments as high-tax states have done. That is a significant part of the reason that taxes are low in the low-burden states.

For real estate, the direction of job movement and of capital flows could be affected, especially if the argument that low costs, especially low taxes, is a primary motivating factor turns out to be persuasive. However, strength in output per worker and the ensuing top line benefit could trump the low-cost argument and point to a reason why the high-rent, high-value cities maintain strong occupancies when compared with many of the Sunbelt markets that are competing on the basis of cost.
 

Urbanization/Suburbanization

Recent comments on “the plight of suburbs” or whether or not Millennials will continue to pursue urban living into their late 30s and early 40s present the Urban/Suburban divide as unnecessarily binary.  Similarly, when the Tax Cuts and Jobs Act specified restrictions on the ability of homeowners to deduct mortgage interest, as well as state and local taxes, from their tax bill – numerous articles were written ranking “high-tax states” and estimating how much home prices would fall, with speculation about how people would relocate to lower-tax geographies.

But these examine only parts of the overall equation.  Individuals and institutions with the ability to move decide where to locate based on their preferred package of goods, services, and benefits conveyed.  Urban areas offered diversity, entertainment, job opportunities and other such benefits.  But in the 1980s, the costs (and negatives) associated with city living – crime, congestion, poor quality schools – prompted a larger proportion of the population to move to the suburbs.  That trend began reversing in the mid-1990s as cities became safer, and a larger share of the population began preferring to commute less and enjoy city benefits – even if it meant smaller, more expensive living spaces.

This does not mean that suburbs are not evolving.  Real estate developers who wish to capitalize on the theory that older Millennials will want larger suburban space with urban-like amenities have begun producing mixed-use developments a stop or an exit away from the nearest urban enclave.

High-tax areas do not necessarily lose population: homeowners move into high-tax locations knowing they will be paying relatively higher bills – and higher home prices – because there are benefits such as good schools and a safe community.

Local government competition has become formalized and professional, with most cities and suburban areas staffed with economic development officials – often offering tax abatements and other enticements for firms and individuals to locate in their area.  For example, Amazon’s quest for their “HQ2” demonstrates an example of location consulting, which is now a standard offering of accounting and consulting firms.  As cities and suburbs evolve, what’s valuable in real estate is also changing (mixed-use residential/office/retail, for example) and not so valuable (regional malls).

Societal Leadership

How can the real estate industry be a leader in providing environments in which people live, work, play and interact safely, securely, sustainably, and productively?

The Millennial generation, as a whole, looks beyond the bottom line and shows a broader desire to be involved in more social and environmental improvement.  In response, many companies are changing approaches to their real estate footprint and how these companies can facilitate improvement through their business model.

It now appears that this generation, and even those in their teens and early 20s, may be unwilling to accept the status quo – something unseen since the 1960s.  This type of activism has potential to move beyond the issues of sexual harassment and gun control, to issues such as homelessness and housing affordability.

Another issue to consider is whether growing political polarization makes it more difficult to own real estate – and whether differences of political views can influence variables such as tenant mix – and whether property owners must develop and have in place action plans to manage an incident should it occur at a property.

Perhaps the greatest shift over the past two years has been in the surge in women to the forefront of issues discussions. As of April 30,2018, 527 female candidates were in races for seats in the U.S. Senate or House of Representatives. An additional 40 women filed to run for governor in various states this year. The #MeToo movement is having impact in politics and in private business. In real estate – especially in the commercial property business and in the previously male stronghold of construction/development – women are rising to senior positions, and are holding a greater proportion of jobs preparing for the top echelon.

Categories Narrative, Office Market

1-Minute Phoenix Metro Office Update: Q2 2018

Readers of this narrative know that I am an office broker who works every day helping Tenants and Landlords navigate the nuances and opportunities across geographical areas and product types.  I (along with my incredible team) am based in Phoenix but work around the country and internationally as well. We get hired for all kinds of reasons including our in-depth, up-to-the-minute market knowledge. Below is my quarterly take on the Metro Phoenix market. 

The key statistic indicating a market’s health is net absorption, which represents job growth.  The Metro Phoenix office market posted another strong quarter with 732,248 SF of positive net absorption.  This net absorption is why many local brokers are feeling busy. If this pace keeps up, 2018 could double the net jobs that were added in 2017.  After two quarters this year, net absorption stands at 1.4 million SF, while 2017 provided 1.8 million SF for the entire year.

The substantial leasing activity continues to inspire confidence in developers and more importantly in lenders, which has turned on the new construction pipeline with 2.7 million SF now under construction. Around 87% of this new product is speculative, with no preleasing.

Below is a link to our Lee & Associates Arizona Second Quarter Office Report and as usual, I’ve included my top 3 takeaways:

1)      Central heats up- Central Avenue Leasing represents the 3rd-highest YTD net absorption for 2018. Tenants seem to be taking notice of the substantial investment being poured into Downtown and Midtown (have you seen Renaissance Square lately?) and the competitive pricing available.

2)      Sometimes tight is too tight- Central & South Scottsdale were so tight in Q2 2018 they lost tenants mainly due to lack of product.  This lack of product, however, recently helped launch SkySong 5 and Chaparral Commerce Center III.

3)      New speculative construction- Tempe and Chandler have 1,473,414  SF of speculative construction underway.  Tenants continue to desire proximity to ASU and the excellent labor market in the Southeast Valley.

During the first half of 2018, we completed over 50 lease transactions. Want some insider scoop on your submarket and/or building? Please give me a call—wherever you may live.

 

602.954.3769
acheney@leearizona.com


 

 

Q2 2018

Click Here to Read the Full Report

 

 

Categories Narrative, Tech Industry

Amazon Headquarters Selection Process

Over the past few months, Amazon has been very public about their search for a second headquarters. (They have looked at 238 different cities.)  I wanted to share a bit of this process and what it might mean to the economic development communities across the country. The Amazon announcement will play out over the next year, but the process is what interests me. Below is the summary page of a great whitepaper on the site selection.  (Read the full report here: “Amazon HQ2: A Reset Button for Site Selection.“)
 
At the same time, Apple is looking for a similar requirement.  Bet you didn’t know that.  Why? Because they are doing their search completely different than Amazon. They are looking at a short list and doing it very confidentially.  I’ve linked to two articles to find out why and how:  article 1 and article 2.
 
I have not had the opportunity to represent either firm, but we have been blessed to work with other corporate headquarters relocations and have dealt with state and city government and economic development incentive packages.  Here are some takeaways from my experiences:
 
–The economic development process is getting disrupted in numerous ways.  Traditional business is changing, new types of companies and the type of employees they hire are miles from what we have seen over the last two decades.  –The only answer is workforce.  The only question is:  where can I hire the employees I need to grow my business?  If you can’t answer this question, your community will not grow.

–Individual companies will decide how they want the search to proceed.  New companies can dictate how they want their process to unfold as cities and states now understand the value of a vibrant growing community.

–Hiring a local advisor is paramount.  Neither the market nor the requirement matter; each company needs a local advisor to work with them on the nuances and specific issues for each market AND submarket in the finalist cities they are pursuing. 

We know the ins and outs of Metro Phoenix and its submarkets. We’ve been working in them for over 25 years. If you need a local advisor to help with your company’s relocation, big or small, call me.

Craig

Click Here for the Full Report
amazon's key ideas
Categories Economy, Narrative

Rules for Capital

When writing my LIFEies (my weekly blog on personal development) I get to share very complex ideas that are made simple by lots of people. Like Albert Einstein said, “The definition of genius is taking the complex and making it simple.”

For this narrative, however, I focus on more complex Commercial Real Estate developments. But every now and then someone like Brian Watson (below) catches my eye with ideas that are pretty profound and simple. 
 
Brian wrote four simple rules for capital:
 
Capital will flow to:
1– Where it’s most wanted
2– Where it’s respected
3– Where it’s safe
4– Where it has the highest probability of market-rate adjusted returns.
 
This is exactly what we do with our tenant advisory clients; turn a complex, highly stressful renewal or relocation into our proven unique process (for more info, check out our website: http://www.c2advisors.com/our-service.html).   Call us if you have a need, or just want to start a relationship.

As always, thank you for reading my narrative.

 

Craig

602.954.3762
ccoppola@leearizona.com


 

 

Smaller American cities are attracting investment capital from overseas
Brian Watson
9/12/17 

There are four simple rules about capital investment, especially in commercial real estate: It will flow to where it’s most wanted, where it’s respected, where it’s safe, and where it has the highest probability of market-rate adjusted returns.

And that’s exactly what’s driving international capital into commercial real estate right now in the U.S., in ways that will impact everything from rents to the eventual shape of our skylines.

Global investors, concerned by a cooling Chinese economy and ongoing concerns related to Brexit and the future of the European Union, are increasingly turning their attention to the U.S. for safety, cash-flow, higher returns and stability, bringing much of the investment capital that used to flow into Europe and China with them.

Some investment is even coming in from Venezuela, which is mired in strife and turmoil, and many other South American countries.

The result?

The big gateway city markets in this country—New York, L.A., and Miami, for example —where international investors tend to focus their attention, may be overheated. Prices in those cities, particularly in real estate, are reaching all-time highs, reducing the potential upside and pricing out even deep-pocketed investors.

As a result, major metros like New York may be in the 9th inning for investors — everyone is getting in their last at-bats. But the music could be over soon. All markets eventually cool off or plateau, as what goes up, comes down eventually.

Yet, there is another side to this trend that’s worth noting.

Given the overheated gateway markets, international capital is now seeking purchase in second-  and third-tier American cities —places like Denver, Phoenix and Nashville​.  In communities like these, the economic impact from energy (think fracking) and manufacturing (think self-driving cars) are likely to mean rising incomes and values. 

Some of these cities are just plain hot. The cost of doing business ​in Nashville, for example, is 20% less than the rest of the country. Others are experiencing population and job growth where investors are finding greater value and greater potential returns.

Salt Lake City, for instance, posted some of the fastest job growth in the nation last year at 3.4 percent and payrolls were at an all-time high. ​ And in Raleigh, N.C., highly paid millennials now account for more than 23 percent of the city’s population.  They need places to spend that income and their spending will help other local businesses as well.

On the one hand, this is great news for the U.S. as more capital is infused into local markets, which creates construction jobs, provides new space for companies, and frees up capital for sellers of existing assets to deploy into other investment opportunities.

But the impact on prices in the tertiary markets remains a question. Excess capital has been inflating real estate prices in gateway cities for a variety of reasons, including foreign investors viewing them as more stable when held up against other, riskier overseas markets. This risk can take the form of both economic and political.

Over time, this trend may begin happening in places such as Oakland and Tulsa as overseas investors pile in, creating opportunity for the average American seller, and more competition for local buyers seeking to buy property in their own city. The potential is there to begin pricing out domestic buyers in mid-sized cities, much as they have been priced out of many major markets.

But one thing is clear: international interest in the U.S. is not going away.

In fact, the potential changes that are coming to domestic regulations, infrastructure spending, energy development and more all point to a U.S. market that will continue to be very attractive for overseas capital for the foreseeable future.

Brian Watson is Chairman and Chief Executive Officer of  Northstar Commercial Partners

 

Categories Narrative, Office Market

Commercial Real Estate Designations

 

I come from a family of educators.  Both my parents were school teachers.  After getting my bachelor’s degree, I felt the need to continue my education.  Today I have earned my MBA and the three most prestigious designations in the Commercial Real Estate industry: CCIM, CRE, and SIOR.  Andrew has earned the same three designations.  We are two of only 33 people in the world to hold these three. 

Do these designations matter when you select a broker to represent you?  We think it does.   Why?
 
–The market and how we deliver our services is always changing.  Continuous education is paramount.
–Skill set.  We simply have more training in more areas than any of our competitors, giving us the ability to view your requirement from many different perspectives.
–Commitment to our craft.  This is our life’s work. We are committed to being the best of the best.  This ensures our clients are never under represented.
 
What designations do we hold?
 
Certified Commercial Investment Member (CCIM)—Called the PhD of Commercial Real Estate, this designation provides critical expertise in market, financial, and investment analysis as well as negotiations.

Society of Industrial and Office Realtors (SIOR)—Only the best become SIOR’s. A leader in their field, and top-producing professionals who meet education, production, and ethical requirement.

Counselors of Real Estate (CRE)—This is invitation-only with 1,100 counselors across the world handling the most complex and difficult assignments for clients.
 
Designations matter. 

Craig

Do Designations Matter When Choosing A Commercial Real Estate Broker?

Chad Griffiths

forbes
October 1, 2017

Commercial real estate transactions are some of the most important deals that a person or business can make. Finding the right commercial real estate can make or break a business venture. That is why people want the best professional commercial real estate broker available to guide them through the process.

But how can you separate the best professional real estate brokers from the rest?

Degrees And Designations
Most other important professions have a degree or designation that any practitioner is required to have by law. Lawyers have the J.D., doctors the M.D., engineers the P.Eng and so on. Yet there are no professional designations that are required to practice as a commercial real estate broker.

Fortunately, commercial real estate broker associations have created professional designations that allow you to identify those practitioners who have gone above and beyond to become masters of their craft. While anyone who has met the necessary licensing requirements for their jurisdiction can become a commercial real estate broker, these professional designations help the best stand out from the rest and give you the peace of mind that you have found someone that you can trust to guide you through these important decisions.

What’s In A Degree Anyway?
A degree or professional designation signifies that the holder has the necessary education and experience to safely practice their profession. These designations are designed by professional associations to represent at least a bare minimum of knowledge and experience that every practitioner needs to do their job effectively and to a minimum standard of performance expected by their professional peers. Anyone who meets these standards can be relied upon to make the right decisions when practicing their craft.

Commercial real estate designations signify knowledge in relevant areas of law and finance, as well as the customs and ethics of the commercial real estate industry. These professional designations also signify a commitment to ongoing education and regular participation in the professional community and industry events.

Professional Designations In Commercial Real Estate
Two of the best designations for commercial real estate brokers are the CCIM and SIOR. Either of these designations signifies that you are working with a true professional with years of knowledge and experience in the industry.

The CCIM designation stands for Certified Commercial Investment Member. The CCIM pin signifies that the owner has successfully completed advanced courses in market and financial analysis, and has demonstrated significant experience in the commercial real estate industry. CCIM professionals are recognized as the leading experts in commercial real estate.

More than anything, a CCIM designation represents reliable expertise in market, financial and investment analysis, as well as negotiations. Courses for these central competencies are instructed by industry professionals, which ensures that all materials reflect the state of the contemporary industry. Using their real-world education, CCIM professionals can be relied on to guide their clients to:
• Minimize risks
• Enhance deal credibility
• Make appropriate decisions
• Close deals effectively

The other leading credential, an SIOR designation, is a professional achievement for those commercial real estate practitioners who have a strong history in fee-based services, brokerage or executive management.
The SIOR designation signifies:
• A specialist in office and/or industrial markets
• A transaction closer who is recognized by lenders, developers and investors
• A top producing professional who closes more than 30 transactions each year
• A top performer who meets SIOR’s exacting education, production and ethical requirements

An SIOR designation can be granted in one of the six specialist categories:
• Industrial
• Office
• Industrial & Office
• Sales Management
• Executive Management
• Advisory Services

A Commercial Real Estate Professional Designation Is More Than Just A Title
The great thing about professional designations is that they provide buyers with the confidence that you can rely on that person for the latest and best professional advice. The designations are more than just a few years of coursework done many decades ago. These professional designations signify an ongoing commitment to staying informed about all relevant knowledge and practicing their craft to a high standard every single day.

When you need to make a commercial real estate transaction, trust the professionals and look for a commercial real estate broker designation that signifies the years of knowledge and experience that you can count on.

Categories Narrative, Office Market

The Rise of Collaborative Workspace

I have been representing tenants across the US and overseas for 34 years.  As I write this narrative, I want to provide value, spot trends and get business.  If you have a question or need office space, call me.  We would love to work with you. 

One huge trend that has had a meteoric rise this cycle is collaborative workspace.  Staples came out with a cool study on millennials (click here to see the whole study) and at the end, they have a short section on collaborative workspaces. Like the iPhone, this is a category that did not even exist 10 years ago and now they are everywhere.

WeWork, the industry leader, is now valued at $21 Billion. No typo – BILLION.  When I wrote about this start up in 2015 they were overvalued (IMHO) at $5 Billion (read that narrative here).  Well the cycle continues and they, along with other knockoffs, category killers and specially groups, are still adding more to the market. 

Below are two graphs showing the size of the market and how this type of working environment has altered work style.  While the growth has slowed, the change is here, affecting office space and office space users and changing the market.

My takeaways:

–In the next recession, we will really see if this type of space will endure and have a gut check on the size of the market.

–The market is always changing.  Don’t be a dinosaur.

–Planting a flag in a new market has never been easier, cheaper, faster, and more efficient.

–Temporary space for growing companies is available now.  

 

Always growing,

 

Craig

602.954.3762

ccoppola@leearizona.com


 

Click Here to Read the Full Article from GCUC

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Click Here to Read the Full Report from Staples
Categories Economy, Narrative, Office Market

The Highest Taxed Buildings in America

In many ways, I am jaded after being in the CRE brokerage business for so long.  Representing office tenants means you get to see just about everything. But I also live in an Arizona bubble most of the time. So I was SHOCKED at the amount of property taxes that the highest-taxed buildings in America pay.  

Consider this:

  • 82 of the buildings are in New York.
  • 74 are office buildings including the #1 highest taxed building.
  • The oldest building is 111 years old.
  • Median age of the buildings are 54 years old.
  • Average taxes paid: $24,444,281 A YEAR!

 
Grand Canyon University campus is the highest taxed property (the whole campus) in Arizona at $6.5 million.  A steal compared to the $71 million the GM Building pays in NYC.
 
My takeaway:  It’s good to be in Arizona

 

Craig

602.954.3762
ccoppola@leearizona.com


 

The Highest Taxed Buildings in America

Iona Neamt


May 24th, 2017 

The fact that Manhattan dominates the rankings doesn’t come as a shock, but the difference in numbers might. The list compiled by COMMERCIALCafé is quite the mixed bag.
 
Property owners in the U.S. shell out substantial–sometimes huge–amounts of cash on property taxes every year, and those taxes only increase as a building changes hands at a higher price and becomes more appealing to investors. The fact that the top taxpaying buildings in the U.S. are located in Manhattan won’t necessarily come as a shock, either, but the difference in numbers might. The New York City commercial real estate market remains the destination of choice for national and offshore investors alike, and some of the largest corporations in the world are based there. So it makes sense that Big Apple property owners would pay sky-high amounts in taxes–but the numbers are much higher than you think. Take the General Motors Building, for instance: Boston Properties spends more than $71 million on taxes alone for its Fifth Avenue office building. That’s an excessively high price in itself, but when you compare it with property taxes paid elsewhere in the U.S., that number seems downright outrageous. However, there are a few properties outside of New York that also fork over big wads of cash on taxes every year. Some you’ll recognize, and some might surprise you, but they all earned a spot on COMMERCIALCafé’s list of the top 100 taxpaying properties in the U.S. Check it out below:

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Categories Economy, Narrative

Meet Your New Landlord At Home

I have a great friend, Trish, who has been a mentor to me for the past 30 years.  She is in the residential ownership and management business, and has been a great insight into the changes happening in that sector. Which is why I’m not surprised by the below article, and the size of the companies now involved in buying homes.

Last year the residential landscape started changing. Drastically. Here are some key thoughts from the Wall Street Journal article below:

  • Institutional investors have entered the residential housing market for the first time since the recession.
  • Big sums of investor money flooding the market has created competitive buying conditions for both families and investors.
  • Families that are not able to pay elevated prices in inflated areas are obligated to pay higher rental rates.
  • Investors are not only building equity, they are exceeding their monthly mortgage obligations in rental income.

When $40 billion and 200,000 homes are bought by investors (not users), and the buyers are Wall Street notables like Colony Starwood—Blackstone, Goldman Sachs, etc., it’s a sure sign the market is changing.  While this is only 2 percent of the overall market, that is enough to move the market—increasing prices now when there is more demand than supply and holding prices down when these giants decide to sell (and they will).

Keep your eyes on this trend, and call me if you want to discuss.

 

Craig

602.954.3762
ccoppola@leearizona.com


 

Meet Your New Landlord: Wall Street

By: Ryan Dezember & Laura Kusisto

July 21, 2017







Company Town

Big investment firms began buying single-family homes in Spring Hill, Tenn., in 2012 and offering them for rent. Four firms now own about 5% of the houses in town.

SPRING HILL, Tenn.—When real-estate agent Don Nugent listed a three-bedroom, two-bath house here on Jo Ann Drive, offers came immediately, including a $208,000 one from a couple with a young child looking for their first home.

A competing bid was too attractive to pass up. American Homes 4 Rent AMH 0.14% a public company that had been scooping up homes in the neighborhood, offered the same amount—but all cash, no inspection required.

Twelve hours after the house went on the market in April, the Agoura Hills, Calif.-based real-estate investment trust signed a contract. About a month later, it put the house back on the market, this time for rent, for $1,575 a month.

A new breed of homeowners has arrived in this middle-class suburb of Nashville and in many other communities around the country: big investment firms in the business of offering single-family homes for rent. Their appearance has shaken up sales and rental markets and, in some neighborhoods, sparked rent increases.

On Jo Ann Drive alone, American Homes 4 Rent owns seven homes, property records indicate. In all of Spring Hill, four firms—American Homes, Colony Starwood Homes , SFR 5.15% Progress Residential and Streetlane Homes—own nearly 700 houses, according to tax rolls. That amounts to about 5% of all the houses in town, a 2016 census indicates, and roughly three-quarters of those available for rent, according to Lisa Wurth, president of the local Realtors’ association.

Those four companies and others like them have become big landlords in other Nashville suburbs, and in neighborhoods outside Atlanta, Phoenix and a couple dozen other metropolitan areas. All told, big investors have spent some $40 billion buying about 200,000 houses, renovating them and building rental-management businesses, estimates real-estate research firm Green Street Advisors LLC. Still, they own less than 2% of all U.S. rental homes, according to Green Street.

The buying spree amounts to a huge bet that the homeownership rate, which currently is hovering around a five-decade low, will stay low and that rents will continue to rise. The investors also are wagering that many people no longer see owning a home as an essential part of the American dream.

“The rental stigma has really subsided,” says Michael Cook, operations chief at closely held Streetlane Homes, which owns about 4,000 houses. “People are realizing that houses are not necessarily the best places to store wealth.”

Corporate homeowners in Spring Hill have turned many single-family homes into rentals.

For many years, the rental-home business was dominated by small businesses and mom-and-pop investors, most of whom owned just a property or two. Big investment firms concentrated on other real-estate sectors—apartment buildings, office towers, shopping centers and warehouses—reasoning that single-family homes were too difficult to acquire en masse and unwieldy to manage and maintain.

That all began to change during the financial crisis a decade ago. Swaths of suburbia were sold on courthouse steps after millions of Americans defaulted on mortgages.Veteran real-estate investors raced to buy tens of thousands of deeply discounted houses, often sight unseen. The big buyers included investors Thomas Barrack Jr. and Barry Sternlicht —who later merged their rental-home holdings to create Colony Starwood— Blackstone Group LP, the world’s largest private-equity firm, and self-storage magnate B. Wayne Hughes, who is behind American Homes.

On the first Tuesday of each month during the crisis, investors sent bidders to foreclosure auctions around Atlanta, where the foreclosure rate exceeded 3% in 2011, according to real-estate analytics firm CoreLogic Inc. They toted duffels stuffed with millions of dollars in cashier’s checks made out in various denominations so they wouldn’t have to interrupt their buying sprees with trips to the bank, according to people who participated in the auctions.

Similar scenes played out in Phoenix, where the foreclosure rate hit 5% in late 2010, and in Las Vegas, where it nearly reached 10%.

The big investors accumulated tens of thousands of houses around those cities and others, including Dallas, Chicago and all over Florida, then got to work sprucing them up to rent. Often, renovations were major. Invitation HomesInc., the company Blackstone created to manage its rental homes and took public in January, says it spent an average of $25,000 fixing up each of the foreclosed homes it bought.
 
A young resident of Spring Hill played ball last month on Cynthia Lane, a street with multiple rental properties.

The bulk-buying brought blighted properties back to life and helped speed the recovery of some of the regions hardest hit by the housing crisis. Executives at the investment firms say they offer homes in good school districts to families that may not be able to buy in those neighborhoods because of damaged credit and tighter postcrisis lending standards.

One of those firms, Progress Residential, is owned by a private-equity firm formed by Donald Mullen Jr., a former Goldman Sachs Group Inc. mortgage chief who oversaw the bank’s lucrative bet against the housing market a decade ago. Progress now owns about 20,000 houses.

On a call with investors earlier this year, Mr. Mullen said Progress was betting that much of the middle class will have to rent if it wants to maintain the suburban lifestyle of the past. He said Progress offers “aspirational living experience” to tenants he described as typically about 38 years old and married, with a child or two, annual income of about $88,000, less-than-stellar FICO credit scores of 665 and $45,000 of debt. “Our residents are quite a ways away from being able to purchase a home,” he said.

Home prices in many markets are nearing their 2006 peaks, prompting some investors who bought homes during the downturn to flip them at a profit. But the big buy-to-rent investors are hanging on to their properties and looking to grow.

With fewer foreclosure properties available to buy, those firms have devised other ways to accumulate homes, including buying out rivals, building homes themselves, and buying properties one-by-one on the open market. They are focusing on places where they have gained scale through early foreclosure purchases, or around booming cities such as Nashville, Denver and Seattle.

Corporate buyers prefer easy-to-maintain newer homes in entry-level price ranges and in neighborhoods governed by homeowners associations. 

With family renters in mind, they rarely consider anything smaller than a three-bedroom. They prefer easy-to-maintain newer homes in entry-level price ranges and in neighborhoods governed by homeowners associations, which can help look after their properties. They often outfit their homes with the same appliances, fixtures and flooring so that their maintenance crews have parts on hand when they make house calls.

They have deep pockets and are dispassionate buyers, paying with cash and never fussing over the carpet or paint color.

Spring Hill is about an hour’s drive south of downtown Nashville. It has attracted investors for the same reasons families flock there. It boasts top-rated schools and has been adding jobs at one of the fastest clips in the country. General Motors Co. kick-started the town’s growth in 1990 when it opened a vast plant for its now-defunct Saturn brand. The population has grown from about 1,500 back then to some 36,000 today, with subdivisions covering what had once been farmland.

American Homes arrived in 2012, the year after it was founded by Mr. Hughes, now 83 years old, who made billions in the self-storage business, and David Singelyn, who is the company’s chief executive. Mr. Hughes told one of his earliest investors, Alaska’s state oil fund, that he imagined the sort of tenants he wanted—families with school-age children—and then went looking for suitable houses in good school districts.

Nashville’s foreclosure rate never exceeded 2%, so American Homes approached a local builder, John Maher, who had been renting unsold homes in his subdivisions. The company bought about 50 homes from him and later paid about $10 million for 42 rental homes in the area from local landlord Bruce McNeilage and his partners. Then it enlisted local brokers to find more.

Bruce McNeilage and his partners sold 42 rental homes around Nashville to American Homes 4 Rent.

Colony Starwood and Progress followed. The proliferation of rental homes spooked owners in some neighborhoods. A few subdivisions voted on whether cap the number of homes that could be rented, but the proposals failed.

“People want to sell their homes to the highest bidder, no matter who it is, and they want to be able to rent their home,” says Jamie Shipley, president of the Wakefield Homeowners Association, which governs a subdivision in which 11% of the homes are owned by institutional investors.

Soon after American Homes closed its deal with Mr. McNeilage, the local landlord, it increased rents on some of the properties by hundreds of dollars a month, according to Mr. McNeilage and some of his former tenants. “People who were on month-to-month leases got a real rude awakening,” he says.

American Homes, which owns more than 48,000 houses nationwide, controls nearly half of Spring Hill’s rental homes, leaving aggrieved renters limited choices. “If you want to be in that subdivision and have your kids go to that elementary school, you have to deal with them,” Mr. McNeilage says.

Jack Corrigan, American Homes’ operations chief, says rent increases for tenants renewing leases average 3% to 3.5%, and the company generally restricts larger hikes to new leases. “We try to be very reasonable with all of our tenants,” he says.

When Aaron Waldie moved to Spring Hill for a job in the finance department of a new hospital, he and his wife, Jessica, intended to use profits from selling their California home to buy a new house. Despite offering thousands of dollars above asking prices, the couple lost several bidding wars and settled for a rental owned by Colony Starwood. “It’s a lot more expensive than homeownership,” he said.

Aaron Waldie and his wife lost several bidding wars for homes in Spring Hill before settling for a rental.

To assess how rents sought by Spring Hill’s big four corporate owners compare with the monthly costs of owning the same properties, The Wall Street Journal analyzed information from the companies’ marketing materials and county sales records for 27 homes purchased by the four since the beginning of March. The analysis—which assumed 10% down payments and 30-year fixed-rate mortgages, plus taxes and insurance—found the posted rents on those homes averaged 32% more than the monthly ownership cost.

The average rent for 148 single-family homes in Spring Hill owned by the big four landlords was about $1,773 a month, according to online listings since early May viewed by the Journal. Other landlords also have raised rents, local brokers say.

“The rent is crazy,” says Bruce Hull, Spring Hill’s vice mayor and owner of a local home-inspection business. “It hasn’t been that long since you could get a three bedroom, two bath for $1,000 a month.”

At a recent conference in New York, Mr. Singelyn, the American Homes CEO, told investors that the average household income declared by those applying to rent from American Homes had risen to $91,000, from $86,000 a year earlier.

“Their wherewithal to pay rent today as well as pay rent in the future, with increases, is sufficient,” he said. “It’s just up to us to educate tenants on a new way, that there will be annual rent increases. This has been a very passively managed industry for 30, 40 years up until institutional players came in.”

When rents are significantly higher than the cost of ownership, renters tend to become house hunters. Builders who were sidelined during the recession are rushing to catch up to demand. Spring Hill issued more than 1,100 residential building permits for single-family homes since 2015, and over the past year its planning commission has rezoned and subdivided properties to accommodate thousands more, according to municipal records.
 
David Bowater, with his fiancée, Alexa Callanan, says rent increases on their townhouse in Spring Hill prompted them to buy a house in Columbia, Tenn.

David Bowater and his fiancée were priced out of Spring Hill when the rent on their two-bedroom townhouse rose to about $1,100, from $875, over four years. “It’s cheaper to buy at this point,” Mr. Bowater says.

After bidding on six homes, they won the seventh. The house is even deeper into the middle Tennessee countryside and farther from the restaurants where they work. Mr. Bowater says it is costing him about $100 a month more to own the home than he was paying in rent on the townhouse, but that it is far cheaper than it would be to rent a comparable home with a yard.

“We had to make a big offer,” he said. “I just hope the bubble doesn’t burst and our loan goes upside down.”

 

Categories Economy, Narrative, Office Market

1-Minute Phoenix Metro Office Update: Q1 2018

The long and stubbornly slow recovery continues.  Q1 2018 numbers are out and the Metro Phoenix office market absorbed 686,469 square feet of net positive space, lowering overall vacancy to 19.39%. 

We are now into the 8th straight year of positive absorption in office jobs.  Vacancy varies throughout the Greater Phoenix area with a high of 30.5% in the Sky Harbor Airport submarket, right next door to a low of 9.5% in Tempe.  With such a wide range, I spend a lot of time helping tenants and landlords navigate nuances (opportunities) across geographical areas and product types.

 
Below is a link to our Lee & Associates Arizona First Quarter Office Report and as usual, I’ve included my top 3 takeaways:
 
Tempe is #1 Again– Central Scottsdale spent a short time last quarter as the most occupied submarket (90.5%), but Tempe is back after a strong quarter of tenant demand.
 
Class A Vacancy is 16.7%– Businesses continue to lease the best quality space they can as there is huge competition to acquire and keep their best talent.Southeast Valley Continues momentum– Chandler has nine speculative office projects under construction – a testament to strong demographics and tenant demand in that area of town.  Look for vacancies to rise in this market creating some aggressive concessions.

 
My team and I represent office tenants and landlords throughout Metro Phoenix and the US – and we do international work as well.  Please contact me if we can help you. 
Andrew
602.954.3769
acheney@leearizona.comPS- My partner, Craig Coppola, found this incredible and insightful old-school video on the history of Phoenix.  I hope you enjoy every minute of it.  What a trip back in time!


Click here to read the full report
2018 Q1 Office Report_Page_1
Categories Economy, Narrative

Growing Together

I grew up 20 minutes from the Mexican border.  My dad and three of my siblings still live in Sierra Vista, AZ.  I know firsthand the good and bad of living next to an international border and all the issues surrounding both sides. 

 
Given the recent political turbulence surrounding globalization, NAFTA, and the United States’ strained economic relationship with Mexico, I figured I’d arm my readers with some background information.  For this week’s narrative, I’ve attached a Wilson Center report that goes in depth on the complexity of our partnership with Mexico.

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The report presents data from 2015, but is still relevant today. For up-to-date statistics, here are a few more resources: 

This is not a political dialogue, rather some information to help you learn more about cross-border trade. 

Thanks,

Craig
602.954.3762
ccoppola@leearizona.com


Growing Together: Economic Ties between the United States and Mexico


by Christopher Wilson

Click Here to Read the Full Report

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Click here to enlarge chart

 

Categories Economy, Narrative, Office Market

Underlying Organizational Costs

The biggest waste we consistently see is clients underutilizing their office space.  Planning for growth that never occurs, thinking you “need” the space for visiting people, and making work areas and offices too big — there are multiple ways that companies waste money.

Office space, and even more important facilities, can significantly reduce costs through in-depth expenditure assessments. To maximize cost efficiency, it’s important to remember and consider the following:

  • Workplace satisfaction prompts productivity and retention. AMEN.
  • Invest in the work setting.  The key word here is “invest.”  Your workplace is an investment in your people, culture and efficiency. 
  • Periodically  replace/upgrade obsolete areas and systems.  Do you have a quarterly checklist of items that need to be reviewed, tested or replaced?
  • Strongly address energy and utility systems efficiency. Energy runs between 5-20% of our clients’ facility costs.  There are programs within the local utilities, sensors to turn off lights, energy management systems, and more that can help cut utility costs.  Today’s technology saves money.

Below is a longer article on these topics and a few more.  Looking to make sure you are on top of your costs?  Give me a call or shoot me an email.  We can help.

 

Craig

602.954.3762
ccoppola@leearizona.com


 

Real Estate: The Surprising Cost of Inaction
Are executives overlooking the real cost of underperforming real estate and facility assets?

Tammy Carr
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February 2017

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With real estate and facilities as two of the largest expenses (and assets) for the average organization, it may be surprising to learn a sizable portion of that spend is going toward wasted energy and lost productivity associated with unsuitable and inefficient performance of the physical work environments. This is not just an issue for Fortune 500 companies; increasingly, “middle market” companies, institutions and agencies are finding that conducting assessments of their holdings yields valuable data and results in actionable plans that have a significant impact on their bottom lines. Across industries and commercial real estate (CRE) segments, leadership is paying closer attention to the composition, scope, condition and value of their real estate portfolios.
 
How can executives minimize the drain on capital and expenses associated with the underperformance of their commercial corporate real estate portfolio and its impact on employee attraction and retention? A comprehensive portfolio assessment will analyze both the visible and hidden costs to an organization. Fundamentally, with this knowledge, executives are able to develop and implement strategies that will optimize their portfolio and maximize return on their facilities and real estate footprint.
 
Too often, however, executives are paralyzed by the initial financial investment and/or staff investment that may be required to engage in reversing the trend, even if the internal rate of return may meet or exceed their requirements.
 
The truth is, inaction can quietly kill a bottom line. In fact, hundreds of examples exist that illustrate a variety of ways in which a facility upgrade/renewal/replacement can positively affect a company’s profitability by contributing to overall operating cost efficiency, employee productivity and worker retention.
 
Ignored cost drivers: operations & maintenance
 
The cost of maintaining a space that has deferred maintenance and/or higher-than-average operations and maintenance (O&M) costs, can be surprisingly high. During a recent real estate and facility assessment for a corporate customer, our analysis uncovered inefficiencies within its 10-year-old building resulting in $1.09/square foot annual costs, simply due to subpar energy and systems performance.
 
A renovation or new space investment offers the opportunity for businesses to take advantage of the latest technology to lower utility costs. LED lighting, daylight harvesting techniques, high-efficiency boilers and other mechanical system improvements should all be reviewed for potential ROI. With one of our clients, for example, a small step such as implementing new daylighting controls for a four-floor corporate office reduced energy use from lighting by 45 percent over standard code, with a three-year payback period.
 
It is important for firms to conduct the necessary legwork to benchmark their own performance for O&M costs against their peers. Factors such as location, age, size and type of facility must be considered in the calculation. For the majority of our customers, we typically find they are meeting expected targets in one area, only to be underperforming in other areas. Rarely do firms exceed benchmarks without having begun their operational renewal process with a specific plan and targets in place. Without this understanding, businesses are missing a big piece of the puzzle required to determine the true costs of waiting to make investments with attractive returns.
 
Underappreciated cost drivers: productivity, innovation, recruiting & retention
 
Additionally, while the initial investment involved with a project may seem overwhelming, the truth is it can pale in comparison to an organization’s employee-related costs, which typically amount to 70 to 90 percent of a company’s overall operating costs, according to Gensler Consulting in The LEADER magazine.
 
But do employee-related costs have anything to do with a potential facility project? In short, they have everything to do with it, as numerous studies have shown that office design can have a positive impact on both the productivity and wellbeing of employees. Undertaking a new project offers a business the opportunity to leave outmoded environments behind and construct modern office spaces that can improve employee health, productivity and retention.
 
According to the GSA’s Innovative Workplaces report, businesses lose approximately $1 million per year for the average office building (370 employees) due to poor space planning alone. And those aren’t the only costs. In fact, Gensler’s U.S. Workplace Survey 2016 found that innovative businesses are five times more likely to prioritize modern workspace best practices, and employees operating in these modern workplaces are more likely to innovate.
 
Investing in the workplace does not just pay off in employee performance; it can also help businesses keep those high-performing employees around, as a 2012 study in the Journal of Vocational Behavior found that changes to the work environment can increase an employee’s commitment to the organization.
 
This is important because labor market growth is slowing in the U.S., and constantly recruiting and training new talent is costly. In the US, the labor force is expected to grow only 0.5 percent between 2014 and 2024, according to the Bureau of Labor Statistics, which means the supply and demand shift will be favorable for employees to seek out the best possible workplace environment.
 
Meanwhile, the cost of turnover for average workers making less than $75,000 a year, which covers 9 in 10 workers in the U.S., is roughly equivalent to 20 percent of the worker’s salary. Expect the price tag to increase to 150 percent of salary for turnover of knowledge workers earning around $75,000. Rather than paying those costs over and over again, businesses need to focus on improvements that incentivize employee satisfaction and loyalty.
 
A study commissioned by HASSEL also found that an appealing workplace can double a business’ chances of landing potential employees and a “modern workplace aesthetic” can triple an employer’s appeal.
 
Not only can an organization drastically reduce the costs of turnover, but additionally increase productivity and engagement in employees by providing them with a workspace that suits their needs. Knoll found in a study that a $200,000 investment in workspace capability upgrades, including the quality of meeting spaces, can substantially reduce annual costs with total payback after two years.
 
Identify the true cost of inaction
 
Today, employees may sit in cubicles or half partitions; they may work in an activity-based design or have their own private office — the options are abundant. Each company has different needs and objectives, and it’s essential to find the workplace environment that aligns with the firm’s objectives, while ensuring employee satisfaction and retention within its industry.
 
A facility conditions assessment done right — coupled with benchmarking data and expert analysis — will deliver visibility into hidden annual expenditures, provide insight into potential future surprises, and identify information critical to market valuation for underutilized facilities or properties. Whatever the situation, it’s important to know what underperforming space is costing relative to the income statement. This analysis is essential to planning investments for maximum effectiveness and ROI.

 

Categories Architecture, Design, Narrative, Tech Industry

How Tech Office Space Sets the Bar for Everyone Else

What would you do if you had an unlimited budget to improve your company’s next office renovation?  Below is a great article detailing what some tech giants are doing to their interior design to keep their employees happy, productive and in the office. 
 
One simple takeaway is that these companies are doing THE most innovative and comprehensive buildout you can possibly build.  AND they are applying everything in the real world.  We find that our clients, regardless of industry, are watching and observing all these changes and then incorporating as many of their favorite features as they can afford into their own space.
 
Contact me if you would like to see some examples in Phoenix or across the US.

Andrew
602.954.3769
acheney@leearizona.com


 

Technology firms and the office of the future
Their eccentric buildings offer clues about how people will work


April 29th 2017
 

FROM the 62nd floor of Salesforce Tower, 920 feet above the ground, San Francisco’s monuments look piddling. The Bay Bridge, Coit Tower and Palace of Fine Arts are dwarfed by the steel-and-glass headquarters that will house the software company when it is completed later this year. Subtle it is not. Salesforce plans to put on a light show every night; its new building will be visible from up to 30 miles away.

It is not the only technology company erecting a shrine to itself. Apple’s employees have just begun moving into their new headquarters in Cupertino, some 70 kilometres away, which was conceived by the firm’s late founder, Steve Jobs. The four-story, circular building looks like the dial of an iPod (or a doughnut) and is the same size as the Pentagon. At a price tag of around $5bn, it will be the most expensive corporate headquarters ever constructed. Apple applied all its product perfectionism to it: the guidelines for the wood used inside it reportedly ran to 30 pages.

Throughout San Francisco and Silicon Valley, cash-rich technology firms have built or are erecting bold, futuristic headquarters that convey their brands to employees and customers. Another example is Uber, a ride-hailing company, which is hoping to recast its reputation for secrecy and rugged competitiveness by designing an entirely see-through head office. It is expected to have some interior areas, as well as a park, that will be open to the public.

The exteriors of the new buildings will attract most attention, but it is their interiors that should be watched more closely. The very newest buildings, such as Apple’s, are mostly still under wraps, but they are expected to be highly innovative in their internal layout. Some of that is because of fierce competition within the tech industry for the best engineering and other talent: firms are particularly keen to come up with attractive, productive environments. But these new office spaces will also signal how work is likely to evolve. Technology companies have already changed the way people behave in offices beyond their own industry, as a result of e-mail, online search and collaboration tools such as Slack. They are doing the same for physical spaces.

The big idea championed by the industry is the concept of working in various spaces around an office rather than at a fixed workstation. Other industries have experimented with “activity-based working”, but tech is ahead. Employees may still have an assigned desk but they are not expected to be there, and they routinely go to different places to do various tasks. There are “libraries” where they can work quietly, as well as coffee shops, cafés and outdoor spaces for meetings and phone calls. The top two floors of Salesforce Tower, for example, will be used not as corner offices for executives but as an airy lounge for employees, where they can work communally and gaze out at the views over a latté.

A fluid working environment is meant to allow for more chance encounters, which could spur new ideas and spark unexpected collaborations. Facebook’s central building is the world’s largest open-plan office, designed to encourage employees to bump into one another in its common spaces and in a nine-acre rooftop garden. Communal areas are meant to be casual and alluring. John Schoettler, head of real estate at Amazon, says he aims to make them into “living-room-like spaces”. For offices to feel like home, it helps to hire a designer with expertise in residential real-estate, says Elizabeth Pinkham of Salesforce. In common areas at the firm’s offices, there are TVs, couches and bookshelves. Framed photos of a few employees add to the effect.

The new “working at home”

For those who scoff at the creative benefits of being surrounded by pictures of Colin from accounts, there are more tangible payoffs. The lack of fixed workstations shrinks the amount of expensive real estate given to employees without leaving them feeling too squeezed. Tech firms devote around 14 square metres to each employee, around a quarter less than other industries, according to Randy Howder at Gensler, a design firm. Young workers are thought to be more productive in these varied environments, which are reminiscent of the way people study and live at university. One drawback, however, is that finding colleagues can be difficult. Employees need to locate each other through text messages and messaging apps.

Collaborative spaces can also expose generational tensions, says Louise Mozingo, an architecture professor at the University of California, Berkeley. Tech firms’ elderly employees (otherwise known as the over-40s) can struggle to adjust to moving around during the day and to the frequent disruptions that come from large, open-plan offices. Many of Facebook’s employees do not like their office because it is noisy, and some Apple employees are hesitant to move into their new building for the same reason. Plenty also balk at the massive distances they will need to walk.

That may not be the only thing to cause employees concern. Tech firms are increasingly keen to use their own products in their headquarters. Jensen Huang, the chief executive of Nvidia, a chipmaking firm whose graphics processing units are widely used in artificial-intelligence programmes, says his firm plans to introduce facial recognition for entry into its new headquarters, due to open later this year.

Nvidia will also install cameras to recognise what food people are taking from the cafeteria and charge them accordingly, eliminating the need for a queue and cashier. A self-driving shuttle will eventually zip between its various buildings. And Nvidia’s own AI will monitor when employees arrive and leave, with the ostensible aim of adjusting the building’s heating and cooling systems.

The data that firms can collect on their employees’ whereabouts and activities are bound to become ever more detailed. Another way of keeping tabs on people is through company-issued mobile phones. “Every employee has their own tracking device,” observes Mr Howder at Gensler. “Technology firms will sooner or later take advantage of that.”

Few of them are willing to share details of their future plans because of concerns about employees’ privacy. However, some of their contractors signal what sort of innovations may be in the pipeline. Office-furniture makers, for example, are experimenting with putting sensors in desks and chairs, so that firms will be better able to monitor when workers are there.

Such data could be anonymised to allay privacy concerns. They could also save electricity or help people find an empty room to hold a meeting. But it is not hard to imagine how such data could create a culture of surveillance, where employees feel constantly monitored. “Technology firms could be an indicator of what will happen with privacy in offices more generally,” says David Benjamin of Autodesk, a company that sells software to architects, among other clients.

Silent discos and Bedouin tents

A less controversial trend is for unusual office interiors. These can distinguish companies in the minds of their employees, act as a recruiting tool and also give staff a reason to come into the office rather than work from home. For companies that do not ship a physical product, such offices can serve as important daily reminders of culture and purpose.

Last year LinkedIn, a professional social network, for example, opened a new building in San Francisco that is full of space set aside for networking, and that includes a “silent disco”, where people can dance to music with headphones on. Instead of offering generic meeting rooms with portentous names, Airbnb, a tech firm that lets people rent out their homes, has designed each of its meeting spaces after one of its rental listings, such as a Bedouin tent from Morocco. It also has a meeting room (pictured above) that is an exact replica of the rental apartment where the founders lived when they came up with the idea for Airbnb. Every detail, including the statue of Jesus in red velvet on top of the fireplace, is accurate, says Joe Gebbia, one of the company’s founders.

Nvidia is obsessed with triangles, the basic element of computer graphics used to create lifelike scenes in video games and movies. Its new headquarters, which cost $370m, is shaped like one (see picture), and its interior is full of them. Everything, from the skylights to the benches in the lobby, is triangular. “At this point I’m kind of over the triangle shape, because we took that theme and beat it to death,” admits John O’Brien, the company’s head of real estate, who pointedly vetoed a colleague’s recent suggestion to offer triangle-shaped water bottles in the cafeteria.

Such workspaces remind staff that they are choosing not just an employer but a way of life. In the tech bubble of the late 1990s companies disrupted the workplace by offering foosball tables, nap pods, blow-up castles and free lunches. Now the emphasis is on amenities that help employees save time. Larger firms, including Facebook, Alphabet and LinkedIn, offer their staff something akin to the services used by the extremely wealthy, helping employees to find places to live, adopt pets and the like. Some large tech groups offer on-site health care.

The effect of all this is that the typical office at a technology firm is becoming a prosperous, self-contained village. Employees have fewer reasons than ever to leave. With the spare cash they can throw at their employees, tech giants have vastly raised the bar for other kinds of company, which also want to recruit clever engineers and techies for their projects.

Other industries would be wise to take time to watch how tech firms are structuring their work environments. There is certainly a chance of a backlash against those that use their products to watch employees too closely. Workers may like free lunches and other perks associated with the tech business, but probably not enough to surrender their privacy entirely.

 

Categories Economy, Narrative, Office Market

Businesses are Relocating to AZ

t’s always warm in Phoenix.  In the summer, we go above 110 degrees on a regular basis. On the other hand, the Phoenix office market continues to move along at a steady pace…like it’s 70 degrees.
 
BUT, all is not lost.  Many companies are beginning to realize the true cost of having all their office space eggs in one location basket — namely, Silicon Valley.  It’s not a smart strategy.  The rents are astronomical, their people can’t buy a house within 50 miles, the traffic is a mess and California taxes are some of the highest in the country.Arizona on the other hand has:
–Reasonable rental rates
–Space available now
–Ample people to hire at reasonable salaries. (And if we don’t have enough, don’t worry, more will move here. We are a destination where millennials want to live and raise a family.)
–Reasonable taxes
–Normal housing prices
–You can get around the city
–Pro-business governmentBelow are a series of articles discussing the rapid migration to Phoenix. To read all the articles in their entirety, click here to go to our website. 
 
We understand Phoenix – it’s where we work, raise our families, and engage with the community. It’s our home and our business. Since 1984, we have negotiated successful transactions for premier office tenants locally and nationally, from Metropolitan Phoenix and all over Arizona and beyond. We’re proud to be the leading office brokerage team in Arizona.  We stand ready to work with you when you need a broker.

Craig
602.954.3762
ccoppola@leearizona.com


Goodbye New York, Hello Arizona

By Natalie Sherman

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October 13, 2017

The subway stops near Wall Street are still crammed in the mornings yet financial firms in New York – once the centre of the money universe – aren’t expanding the way they used to.

Companies in far-flung states such as Arizona and Texas are seeing the rise in financial jobs instead.

The shift in part reflects population trends in the US, where states in the south and west – often dubbed Sun Belt states – are growing faster than their counterparts in the north.

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It’s also driven by growth in insurance, investment advice and consumer lending jobs, over the trading and securities roles historically based in New York.

Just as important, companies say, is that new technology and the rise of online banking means they can look more broadly when making location decisions.

“You don’t need to go into a bank anymore. You don’t need a brick-and-mortar building. You can do it from anywhere,” says Gay Meyer, assistant vice president for regional human resources at the banking and insurance company USAA.

“That allows us as a company to think outside of, ‘We have to be in New York or have to be in Chicago’.”

‘Influx of people’

As the economic recovery takes hold and low interest rates persist, demand for home loans, credit cards and other products has picked up.

That’s translated into jobs. The number of finance and insurance jobs in the US expanded by 1.8% over the 12 months that ended in March, finally rebounding to pre-financial crisis levels.

New York remains home to about 8% of those positions. But at the end of 2014, Texas overtook it as the state with the highest number of jobs in the sector.

Meyer is based in Arizona, a desert state on the border with Mexico that is better known for the Grand Canyon than banking. But over the 12 months to March, hiring for finance and insurance jobs grew faster than any other state in the country.

Its rise as a regional financial hub is fuelled by expansions from companies such as USAA, State Farm and Charles Schwab, which have been drawn to the area by affordability, booming population and a large pool of university graduates and potential recruits.

USAA, an insurance and banking firm that serves military and veteran families all over the world, hired nearly 600 people in Arizona last year, as demand for credit cards and mortgages boomed, Meyer said.

 

Forty minutes south, insurance giant State Farm hired about 2,000 people in 2016 and expects to bring on a similar number this year, in roles such as customer service, sales and IT, said Naomi Johnson, a State Farm public affairs specialist. She transferred to the Phoenix-area campus last June after working for the company for 16 years in her home state of New York.

Johnson, 39, said she’s seen the way the job growth is boosting the local economy, spurring new food and shopping spots to open.

She regularly gets calls from builders, checking on hiring – the campus now holds about 6,600 and the firm is aiming for 10,000 – as they start new housing projects.

“I’m constantly sharing that information because they’re preparing for this influx of people,” she says.

Limitless opportunities

New York leaders are aware their lead is slipping.

In 2015, the business association Partnership for New York City published a report titled At Risk: New York’s Future as the World Financial Capital.

It called for “public actions”, such as tax breaks and investment in transport and housing, to keep New York competitive with international rivals and the smaller US cities nipping at its heels.

Now banks are cheering signs of looser regulation under US President Donald Trump.

The tumult caused by the UK vote to leave the European Union last summer has also fuelled hopes that London’s loss could be the Big Apple’s gain.

“There are a lot of discussions with people saying Prague, Amsterdam may be the next financial centre in Europe, but meanwhile the US may get its own share as well,” says Ahu Yildirmaz, co-head of the research institute at payrolls processor, ADP.

“Brexit may actually make New York more of a centre.”

But the momentum outside of New York is unlikely to stop. ADP announced its own expansion in Arizona last year with plans for 1,500 jobs.

‘Not in New York’

Ascensus, a financial company headquartered in Pennsylvania that handles back-office operations for financial advisors, plans to open an office in Arizona this year with about 170 people and room for more.

Chief executive Bob Guillocheau said the industry is in a good position, as the country ages and relies more on private accounts to pay for retirement, college and health care.

For his firm, which provides record keeping and administrative services for the accounts, the opportunities to grow are “sort of limitless”.

But it won’t be happening in New York, he says.

“I grew up in New York. I know that New York has a tremendous amount to offer, but given the nature of our business… it’s not that we need to be in New York City to do that.”

http://www.bbc.com/news/business-39808446


– The number of tech companies in Phoenix has grown by over 350% since 2012.
– 5,000 new “tech jobs” have been created in Arizona since the tech boom started.
– Renaissance Square is improving some of their office space to appeal to tech companies.

 

What’s driving a downtown Phoenix tech boom?

By Brenna Goth

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October 12, 2017

A San Francisco tech company that announced an expansion from Silicon Valley to downtown Phoenix last week cited a lively business climate and a light-rail stop as primary factors in choosing the city.

Representatives of a semiconductor packaging company moving its corporate headquarters in May from California to south of Phoenix Sky Harbor International Airport said the city is cost-effective and has the workforce they need.

These recent examples are part of what Phoenix leaders say is a flood of tech industry leaders and startups looking to open in the city. Mayor Greg Stanton highlighted the growth in his State of the City speech on April 25.

Stanton said the number of tech companies downtown has nearly quadrupled in the past five years. He credited adaptive reuse projects in the Warehouse District and new tech hubs as a source of the success.

The numbers Stanton used include more than the central core, according to the Community and Economic Development Department. The increase encompasses the area from Buckeye Road to Indianola Avenue between Seventh Street and Seventh Avenue.

But Phoenix economic development leaders agree the most notable noticeable uptick is in the city center.

“Throughout the city, we see how innovation breeds innovation,” Stanton said in his speech.

Phoenix offers ‘sense of community’

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Keith Evans of Wespac Construction walks through the lobby area of Renaissance Square on April 27, 2017, in Phoenix. Renaissance Square is undergoing rennovations to attract a younger, tech-oriented, workforce to its building. Phoenix has seen an increase in tech companies in recent years. 

Since 2012, the number of tech companies in the roughly 4-mile stretch grew from 67 to about 260, said Joseph MacEwan, research assistant for the Community and Economic Development Department.

The department used a combination of data from the Maricopa Association of Governments, which tracks companies with five or more employees, and the city to calculate the increase. The department filtered data for tech companies, MacEwan said.

Over the same time period, technology jobs in that area increased from about 1,800 to more than 7,000, according to the Community and Economic Development Department. Technology jobs, however, are tracked more closely now by the city than in 2012, a spokesman said.

GROWTH:  Is sunshine and affordable homes enough to bring high-paying tech jobs?

The city’s definition of tech jobs isn’t represented directly in federal numbers, but U.S. Bureau of Labor Statistics data show employment in industries like manufacturing, trade and financial activities has increased in the past year in the greater Phoenix area.

Most cities market themselves as walkable, connected and a good place to live, said Christine Mackay, Phoenix Community and Economic Development Director. But she said Phoenix highlights that every company has room to grow here.

“What people are really grabbing onto is a sense of community.”

Christine Mackay, Phoenix Community and Economic Development Director

“What people are really grabbing onto is a sense of community,” Mackay said.

Upgrade, Inc., the San Francisco credit platform company moving downtown, plans to hire about 300 people in the next two years, according to a press release. The company will take two floors of the Renaissance Square building, which is undergoing a $50 million renovation on Central Avenue.

The energy of downtown compared to other parts of the city is one factor tech executives cite in choosing the location, Mackay said.

“That’s more of the vibrancy they’re looking for,” she said.

But big moves go beyond Phoenix’s center. Last week, the city announced the new corporate headquarters of RJR Technologies, Inc., the semiconductor packaging company based in California.

The move will add about 100 jobs south of the airport, according to a press release.

The company cited “financial advantages” over California and a “cost-effective and stable business environment,” the press release said. RJR Technologies already had a small office here.

Building makeovers aim to draw tech

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Mark Majerus, security supervisor at Renaissance Square, walks the 15th floor on April 27, 2017. The building to undergoing extensive renovations to help attract tech companies that could relocate to Phoenix. (Photo: Mark Henle/The Republic)

Some downtown developers are building new office space to attract tech companies. Others are renovating existing spaces to make them more appealing to that workforce.

Companies today are looking for a type of office that’s different than what was built in previous decades, Mackay said. They are asking for big, open spaces and natural light as well as common areas that promote collaboration, like “high-top tables where you can charge your phone,” Mackay said.

Downtown sites like the 111 West Monroe Building and the Heard Building, for example, recently renovated office suites and highlight their walkability, architecture and local retail tenants.

Renaissance Square just started construction on upgrades to its lobbies, elevators, conference room and office suites. A second phase will improve the connection between the two towers and repurpose 3rd-floor tennis courts into outdoor space, said Mark Wayne, principal of Cypress Office Properties, LLC., that owns the building in a joint venture with Oaktree Capital Management, LP.

The improvements will make the building, constructed in the 1980s, more attractive to both Millennial workers and employers that want to attract and retain top talent, Wayne said. Outdated and dark lobbies will transform into places where people can connect and get out of their individual offices, he said.

The movement of tech companies to downtown Phoenix is clear, Wayne said. They are transforming a business area that used to be dominated by law firms and government offices, he said.

“Our strategy is to meet that demand,” he said.

 

http://www.azcentral.com/story/news/local/phoenix/2017/05/01/downtown-phoenix-tech-industry-boom/100950480/


– Boeing moved to Falcon Field Airpark in Mesa from Seattle, Washington.
– The division of Boeing plans to be fully moved in to Arizona by 2020.
– Other divisions are moving from Seattle due to costs of working there.
– Mesa employees will be paid less than Seattle employees.

 

Boeing plans to shift hundreds of jobs to Arizona

By Dominic Gates

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October 13, 2017

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Boeing plans to transfer a substantial piece of the work of its Shared Services Group out of the Puget Sound region. Potentially hundreds of jobs will move to Mesa, Ariz. The company hopes to avoid layoffs and to shed many of the jobs here through attrition.

Boeing plans to transfer yet another substantial work group out of the Puget Sound region, the company confirmed Wednesday. The work shifting to Mesa, Arizona, will involve hundreds of jobs.

The changes are coming at Boeing’s Shared Services Group (SSG), which employs about 3,000 people in the Puget Sound region and provides a wide range of support services to Boeing’s corporate and production units.

The unit’s leadership has initiated a sweeping review and has begun to inform specific groups that their work is pegged for moving.

It’s part of Boeing’s intense corporate drive to cut costs, which is largely responsible for the loss of more than 18,300 Boeing jobs in the state since the most recent employment peak in fall 2012.

Boeing aims to complete the SSG reorganization by 2020, but SSG president Beverly Wyse will move from Renton to Mesa sooner.

Wyse, a longtime Boeing exec who previously ran Boeing’s South Carolina complex and headed the Renton 737 assembly plant, said the reorganization will also take out some layers of management and is aimed at making SSG more efficient and productive.

Wyse said managers have begun meeting with employees and working out details. At this point, she said, it’s too early to tell how many jobs will be moved.

“In the next six to eight weeks, we’ll understand everyone’s preferences and develop a transition plan for each employee,” Wyse said.

In one affected group, a person with knowledge of the plan said Boeing will offer relocation packages to just 5 to 10 percent of the current employees who are considered critical to the work.

To stay at SSG, the person said, others will have to reapply for their jobs and accept a lower salary offered in Mesa.

Wyse said the terms of the work transfer will differ from one work group to another.

“We are working through service by service what proportion of each team has critical skills that we have to transfer,” she said.

Job cuts by attrition

SSG, which at the end of May employed almost 5,900 people companywide, provides more than 100 services across Boeing.

Some are specific to each work site, such as security and fire protection, building and equipment maintenance, and real-estate management.

Other SSG groups are responsible for broader services across the entire Boeing enterprise, including human-resources functions such as pay and benefits; back-office functions such as management of company vehicles, travel expenses and accounts payable; business planning; purchasing non-production equipment and office supplies; and managing the logistics of delivering aerospace parts to Boeing plants across the country.

The groups providing services all across Boeing are the ones tapped for moving to Mesa, Wyse said.

About half of the total SSG employees are now based in the Puget Sound region, she said.

And because many of their jobs relate to the specific production sites here, “the Puget Sound is our largest footprint and it’ll continue to be our largest footprint” even after the work transfer, she said.

In addition to transferring work to Mesa, the reorganization will reduce jobs through attrition.

With the Puget Sound business economy booming, driven by tech companies like Amazon, attrition in some of her business-services groups is as high as 8 to 12 percent per year, she said.

Since Wyse took over as head of SSG in June last year, total employment in the group already has dropped by just over 1,400 people.

Employees rattled

Boeing has transferred work out of Washington state steadily since 2013.

That year, it announced the move of 1,500 IT jobs to St. Louis, Missouri, and North Charleston, South Carolina; nearly 700 commercial airplane engineering support jobs to southern California; and 1,000 research engineering jobs to Huntsville, Alabama; St. Louis and North Charleston.

In 2014, it announced the transfer of 1,000 more commercial airplane engineering- support jobs to southern California and then 2,000 defense-side jobs to Oklahoma City, Oklahoma, and St. Louis.

Most of the employees affected by those earlier work transfers were members of the white-collar Society of Professional Engineering Employees in Aerospace (SPEEA) union.

In contrast, most SSG employees are nonunion. About 140 SPEEA members work in facilities for SSG and will not be affected by the work transfer, Boeing said.

Wyse said she’s striving to make the process of moving work to Mesa a humane and deliberate one that gives “the people who have gotten us to where we are today the opportunity … to make a respectful transition.”

She said she is hoping for “minimal, if any, involuntary layoffs” as some employees leave for other companies and others find positions in Boeing’s other operations here.

She said SSG employees working in finance, planning or supplier management can look for jobs within the Commercial Airplanes unit that demand similar skills.

“We’ll give this a long tail,” Wyse said. “People deserve the opportunity to find a good transition.”

However, employees are understandably rattled.

One young SSG analyst said an all-hands meeting last week raised fears of job losses without providing any reassurance about the chances of still having a future at Boeing.

“We didn’t get good answers,” the analyst said.

He said he understands that Boeing needs to be more competitive and cut costs. He said SSG has many inefficiencies, such as multiple databases that don’t interact so that it’s difficult to track total spending.

Still, he said, the company needs to be less “heartless” in making decisions that profoundly affect employees and their families.

He’s now actively looking for another job.

“Boeing will do what it needs to do to survive,” the analyst said. “So will I.”

 

https://www.seattletimes.com/business/boeing-aerospace/boeing-plan-could-shift-hundreds-of-jobs-to-arizona/


– Phoenix is the 6th largest city in the nation
– Phoenix rated one of the best cities for young professionals
– AZ quality of life is high while the costs of living are low

 

Why Businesses Are Moving to This Valley Instead (Hint: It’s Not Silicon)

The Mayor of Phoenix and two local companies talk about why the Valley of the Sun is great for business.

By John Boitnott

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October 12, 2017

Silicon Valley has long been considered the tech hub of the U.S., with many of the top companies in the world keeping their headquarters there. However, as housing prices and the overall cost of living have increased in the San Francisco Bay Area, many startups are jumping ship and choosing alternatives, bringing jobs and economic growth to other cities and states.

I’ve done stories on the scenes in VegasPortlandNew York City and Austin over the years. People write all the time about Seattle, Denver, Houston, Chicago and more. But one that never crossed my mind was Phoenix, Arizona. Turns out the country’s sixth largest city (who knew?) is one of the top metro areas experiencing an injection of innovative companies.

Yelp, Uber, and Shutterfly have all recently opened offices in Phoenix, drawn by lower housing costs and hot weather. City officials hope this draws more new tech businesses to the area. The city has also recently been called one of the best cities for young professionals in the U.S.

“No city in the country has gone through a greater transformation,” says Phoenix Mayor Greg Stanton. “Especially in the downtown area where you see this unbelievable building boom, particularly residential. People are moving to the heart of the city in a magnitude that has never happened before.”

I spoke to Mayor Stanton about the city’s transformation in recent years, as well as two executives who have been part of that change, and have found great success with their Phoenix-based companies.

A diversifying economy

If you haven’t been to Phoenix lately, you’d be excused for thinking the city’s economy was still reliant on “real estate on the desert’s edge,” as Stanton puts it. The bustling desert metropolis is seeing transplants arrive at a fast pace from all over the country now, and the economy has diversified along with that. Stanton points to the opening of a new bio-science campus in the heart of downtown, along with the influx of tech companies from Silicon Valley.

inRead invented by Teads

“The quality of life (is so high) and the cost of living here is so much less,” says Stanton. “So many companies are discovering Phoenix, either moving their entire operations or at least major operations, growing here in Phoenix because they know that they can get a sophisticated workforce at a significantly lower cost than Silicon Valley…That combined with ‘hashtag-yes Phoenix,’ which is sort of our name for our converging startup and entrepreneurial community. You get those cross-pollinating, our existing startup community combined with all these people moving in from Silicon Valley, we got something special going on here.”

Staying close to home

The Valley of the Sun isn’t just a place where people bring their companies for a better shot at success. It’s someplace where companies get their start and grow. Marketing-software company Infusionsoft is an example of that and is a tech darling of sorts in the area at this point. It started in the Phoenix suburb of Chandler in 2001, with no goal to grow into a large corporation, according to CEO Clate Mask.

They operated in survival mode as they developed customized software for a small list of clients. Mask and his team worked long hours for years before developing the software package that was the predecessor to Infusionsoft. It eventually grew from being a small family business to a thriving startup, to a popular solution now used by companies all over the world.

“I wish I could say we had this grand vision of what we were going to do, but we were just building the business in our backyard because we were already in Phoenix, and that was home to us,” Mask says. “So that’s why we built it there.”

Growing in place

Even as one of the fastest-growing private companies in Arizona, Infusionsoft has no plans to move. The company has about 600 employees and more than 140,000 users. Not only is Phoenix home for Mask and his employees, but he has hired top executives who don’t even live in Phoenix. They fly in from Silicon Valley and other locations around the country each week, often doing a four-day work schedule in Pheonix, and a 3-day break back at home.

“It’s all about the culture,” Mask says. “If you’ve got great culture fit and people who are totally passionate about helping small businesses succeed. Then, if they’ve got the right skills, then we want to bring them into the Infusionsoft culture. And they’ll travel for that. They’ll come be a part of that because they see what we’re up to and they have a passion to help small businesses succeed in sales and marketing automation.”

Why one company moved to Phoenix from the Bay Area

Popular mattress seller Tuft & Needle is an example of a company founded in Silicon Valley that needed a change of scene. J.T. Marino and his co-founder didn’t want to build the typical Valley startup. They realized that they could achieve that more easily in Phoenix.

“We saw it as one of those fundamental problems in the mattress industry that being on the open market really drives towards higher prices, higher margins, lower costs, and sales tactics which has really what got this industry in this conundrum in the first place,” Marino recalls. “This is why we set out to solve these issues. So we saw this (moving to Phoenix) as important to essentially, kind of stay pure, stay employee owned.”

Like Infusionsoft, Tuft & Needle has seen big growth during its time in Phoenix. Founded in 2012, the company has 150 employees and an annual revenue of more than $100 million. By locating there, the company was able to avoid the high San Francisco Bay-area rents, and they wisely chose to put some of that savings toward purchasing their own building. They’ve accomplished all of that without taking funding, which is something they likely wouldn’t have been able to do if they’d chosen to stay in Silicon Valley.

“I can pay myself and our team members better proportionally here than there,” Marino says. “So we have a better lifestyle. It’s not like a premium, high sought-after place. There’s a lot of weird economic influences that are happening in cities like New York, and San Francisco and L.A. I view it like it’s a weight that is holding you down.”

A different kind of job applicant

Marino says company turnover is close to zero and during the interview process, candidates are more interested in the type of work they’ll be doing and the future they’ll have with the company. In Silicon Valley, interviewees are more likely to ask about exit strategies and being vested.

“They’re not viewing it like a gamble, like to cash out or something like that versus when I interview people from some other places, the conversation goes very differently so people here are thinking more long term,” Marino says. “They’re not thinking, ‘I’m going to vest, and then I’m going to leave and go join another start-up.’ They’re thinking, ‘Why would I work here? How am I going to grow?'”

Little things like that are a big reason why companies are setting up shop in Phoenix and then attracting knowledge workers. Another reason, according to Mayor Stanton, is that the city doesn’t have a lot of “old boy networks.”

“Those companies that grow to be Fortune 500 companies in other cities, in older cities, haven’t had that chance yet here in Phoenix,” Stanton says. “We don’t have a lot of old boy networks which means if you come to Phoenix, the only thing holding you back from just killing it in this town is your own work ethic and willingness to build your career. And that’s why we keep consistently popping up as one of ‘the best of’ for starting up a business, ‘the best of’ for young professionals. The future of the U.S. and the future of Phoenix are one in the same. We have a wonderfully diverse population, soon to be a majority Latino population, so we’re diversifying ahead of America and how well we do here is gonna be a real indicator of how well America does. That’s another reason of why Phoenix is so important.”

https://www.inc.com/john-boitnott/bwhy-businesses-are-moving-to-this-valley-instead-hint-its-not-silicon/b.html


– State legislation passed in 2015 made for a more friendly business environment in Arizona.
– AZ is rated one of the top 10 states to do business, according to Chief Executive.

 

Businesses On The Move To Arizona

By The Governor’s Office

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October 12, 2017

Arizona has always served as a trailblazing model for the nation to follow. Now, as other states move backward, businesses and the jobs they bring are turning to our state to grow and thrive.

BBC News recently published an article about how financial firms—looking for a place to thrive—are saying, “Goodbye New York, Hello Arizona.” The story notes that, over the 12 months leading to March 2017, hiring for finance and insurance jobs in Arizona grew faster than any other state in the country:

“The subway stops near Wall Street are still crammed in the mornings yet financial firms in New York—once the centre of the money universe—aren’t expanding the way they used to.

“Companies in far-flung states such as Arizona and Texas are seeing the rise in financial jobs instead. . . .

“. . . Meyer is based in Arizona, a desert state on the border with Mexico that is better known for the Grand Canyon than banking. But over the 12 months to March, hiring for finance and insurance jobs grew faster than any other state in the country.”

 

We’re leading the nation when it comes to embracing the 21st century for financial services and many other sectors of the economy.

 

We passed legislation in April 2015 making it easier for entrepreneurs to get the financing they need to open and expand. Since then, we’ve made a number of policy improvements to build upon that success and ensure that businesses can continue to flourish in our state.

 

That’s why Chief Executive ranked Arizona as one of the Top 10 states in the U.S. in which to do business when the magazine released its annual rankings last week.

 

It’s the same reason Kiplinger wrote this month that Arizona is “poised to do well as more tech firms relocate from Calif. and elsewhere to the Grand Canyon State, where the operating costs are lower and the regulatory climate is friendlier.”

Arizona is the place to be.

Steve Forbes, editor-in-chief of the eponymous Forbes magazine, highlighted our state’s economic success in his newest column:

“While all eyes on are on Washington these days to see how well the bold Trump agenda advances, Arizona Governor Doug Ducey is quietly creating a case-study in how to achieve economic growth and create the jobs of the future. He is luring high-tech innovators, attracting scores of start-ups, and incentivizing corporate expansion. . . .

“. . . Governor Ducey should be a role model for conservative chief executives, legislators, and city leaders throughout the nation. What he accomplished in Arizona can be duplicated by any other state that is willing to work with tech companies and other businesses to help them succeed.”

There’s certainly still work to do, but—with the lowest unemployment rate since 2008, higher credit ratings and consumer confidence, and a real-estate market on the rise—let’s keep up the momentum and continue being a state where workers, businesses, and entrepreneurs feel welcome.

https://azgovernor.gov/governor/blog/2017/05/businesses-move-arizona


– Rogers Corp. has a 180-year history in Connecticut   
– Rogers Corporation, Carlisle Group, and Kudelski Group are all moving to Arizona.

 

 

BREAKING: New global corporate headquarters headed to Phoenix area

By Eric Jay Toll

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October 12, 2017

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Arizona just landed its third corporate headquarters relocation this year.

 

Rogers Corp. (NYSE:ROG), an engineered materials solution firm, is moving its global headquarters from namesake Rogers, Connecticut, to Chandler.

 

The company already has a major business and manufacturing process in the city.

 

Bruce D. Hoechner, president and CEO of Rogers, said the decision supports the company’s long-term strategy and is an integral part of its plans for growth and expansion.

 

“Relocating our corporate headquarters to Arizona improves our access to the growing business and technology centers on the West Coast,” Hoechner said.

 

Rogers Advanced Connectivity Solutions division is headquarters in Chandler, and has been in the area for 50 years. The company has 400 Arizona employees. Another 70 corporate employees will make the move to the Southeast Valley as part of the headquarters relocation.

 

Carlisle Group from Charlotte, North Carolina, and Kudelski Group, from Switzerland, both announced corporate relocations into the Valley this year. Cardinal IG is building a regional headquarters in Buckeye, and Farmers Insurance also announced a major regional headquarters in Phoenix this year.

 

Rogers Corp. has a history going back more than 180 years, founded in Connecticut in 1832. It is retaining a manufacturing, research and development center in Connecticut. All the corporate functions — human resources, information technology, finance and technology — are relocating to Chandler.

 

The company operates facilities in the U.S., China, three in the European Union and South Korea. All global functions will be administered from Arizona.

 

https://www.bizjournals.com/phoenix/news/2016/08/08/breaking-new-global-corporate-headquarters-headed.html

 

Categories Narrative, Tech Industry

Getting Disrupted

In this narrative I talk about disruption quite a bit.  My own industry, brokerage, is in the bullseye of all tech companies.  Below is a Forbes article discussing how technology will do 90% of my job within a decade. Scary, right?

Here are some highlights of this work:

– Automation may be capable of taking over various disciplines within commercial real estate brokerage including surveys, data collection, lease preparation, market monitoring, etc.

– The most repetitive and simple tasks could be delegated to automation, such as rent collection and monitoring market conditions.

– One area not progressing that far yet is Interpersonal skills. Humans are still superior in this area, so far.

Our team eagerly anticipates all of these changes.  We see automation and technology as adding more value to our REAL service — representing tenants in negotiating their leases.  While the process will continue to get streamlined, the value we bring has never been about touring options, or sending out proposals.  Rather it’s about understanding our client’s business, developing a trusted relationship and negotiating the best terms. As you read below, you’ll notice none of these are on the automation list.

If you want a trusted advisor, backed by the best team in the industry, that’s us. Give me a call.

 

Craig

602.954.3762
ccoppola@leearizona.com


 

Commercial Real Estate Brokers And Appraisers: Technology Will Do 90% Of Your Job In A Decade

By: Mike Phillips

August 23, 2017

 

forbes

 

The real estate industry is covering its eyes and ears, humming loudly and pretending it is not listening. But a new report says that in a decade, up to 90% of the core tasks undertaken by people in real estate service firms could be done by technology.
The report, The Impact of Emerging Technologies on the Surveying Profession, looks at how a sector that has been slow to adapt to technological change can hold back the tide no longer.

It was not commissioned by a technology firm looking to talk up the prospects of its own business; it comes from the Royal Institute of Chartered Surveyors, the nearly 150-year-old body that represents brokers, appraisers and other real estate service providers in the U.K.

The report by Remit Consulting broke down the core jobs of real estate service providers into 43 different tasks and analyzed how susceptible they were to automation in the next decade as a result of technology like artificial intelligence and machine learning, the Internet of Things and block chain.

“Surveying appears to be an industry in which 88% of the core tasks are ripe for automation to a greater or lesser degree,” the report concluded. Surveying is the catch-all term for everything from investment and leasing brokers, to property managers and valuers /appraisers, to construction consultants.

And yet the profession simply does not think this will happen. Remit asked real estate services professionals in the U.K. how likely they thought it was that some of their job could be automated. Respondents predicted an average of 46% of their job could be done by technology, a much lower figure than that arrived at by the researchers.
 
RICS Article – The Impact of Emerging Technologies on the Surveying Profession
Predictions that automation will make humans redundant have a long history, going back to the First Industrial Revolution, when textile workers, most famously the Luddites, protested that machines and steam engines would destroy their livelihoods.

The Fourth Industrial Revolution has started with billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to information.

The opportunities that this situation presents will be magnified by emerging technologies such as artificial intelligence, robotics, new materials, energy storage, and quantum computing. The idea that manual work can be carried out by machines is already familiar; now the Fourth Industrial Revolution sees machines performing tasks done by information workers too. This is likely to usher in a period of disruptive change for all industries including surveying.

Each of these is likely to be disruptive in its own way and in particular areas of the industry. In the assessment of impact, this paper takes as its starting point the structure of the surveying profession as defined by RICS, overlaid with the functional structure of the industry. This allows us to draw up a skills matrix for surveying functions. Surveyors are multi-skilled professionals.

Each job title will share a set of basic tasks and add to this a specialism. For example, brokers will share a set of common task descriptions covering reporting, monitoring of market information, etc. with other disciplines, but will focus on specialist expertise in sales or lettings. In order to model the impacts of a digital future, this research uses the Remit process model as a guide to break down these functions into a set of 43 tasks.

Each task has then been scored according to its content in five areas:
• Data content
• Algorithmic content
• Learning content
• Interpersonal skills
• Physical presence

Of these tasks 18 – nearly half – exhibit a high degree of vulnerability (70%-100%) to automation now and over the next decade. A further 20 show a significant degree of vulnerability (20%+) over the same period. Surveying appears to be an industry in which 88% of the core tasks are ripe for automation to a greater or lesser degree. This finding acts as a harbinger for discontinuous and disruptive change. How aware are industry participants of this coming change? In order to take soundings from the whole industry, an online survey was used to solicit opinion. 154 responses were received. The questions covered nine scenarios based upon the likely impact of technology in different areas:
• Data
• Valuation
• Risk evaluation
• Lease preparation
• Monitoring of market conditions
• Lease management
• Rent collection
• Service charge collection
• Acquisition and disposal of investment property.
 
Responses were solicited as to likelihood on a scale of zero (unlikely) to 100 (very likely). The overall mean across the survey was 46/100. The most likely area for automation was felt to be collection of rent which scored 70/100. The least likely candidate for automation, at just over 28/100, was felt to be acquisition and disposal of property. The majority of other responses were clustered around the mean. At a functional level the impact of automation is likely to be especially disruptive in the areas of lease management, valuation and property, and asset and facilities management and will be seen in different ways:
 
• An increase in the consistency, transparency and timeliness of transactions;
• A step change in the accuracy and timeliness of reporting;
• An explosion in the number of sensors deployed under the IoT umbrella will increase the visibility and responsiveness of all buildings and facilitate remote facilities management;
• A reduction in the cost of managing a portfolio of buildings, it being likely that the headcount in particular areas – valuation for example – will be reduced significantly; and
• A change in the skillset required. Surveyors are likely to become either data scientists or client managers. This has implications for real estate education going forward.
 
Longer term, this revolution paves the way for property to compete on a level playing field with other asset classes, becoming a wholly securitized, flexible, and dynamic asset underpinned by its residual value.

 

Categories Narrative, Office Market

1-Minute Phoenix Metro Office Update: Q4 2017

Positive and Steady. That’s how I would describe the Metro Phoenix Office market’s performance for 2017.  The market posted its 7th straight year of positive net absorption (net gain in office jobs) finishing at 1.83 million SF. For reference, our 25-year average is 2.5 million SF, and 2016 net absorption reached 2.9 million SF.
 
Across the US, there are many investors who think the market is nearing the end of the cycle.  We may be, but it’s interesting to note that overall vacancy is currently 19.7%, and Metro Phoenix tightened to 12% just before the Great Recession.  So like a lot of other voices in the market speculating, we believe the Metro Phoenix market has some significant runway to it. 
 
Within the 19.7% overall vacancy is a wide range of vacancies between submarkets. This means that there are nuances and opportunities, for landlords and tenants, throughout the Valley.
 
Below is a link to our Lee & Associates Arizona 4th Quarter Office Report and as usual, I’ve included my top 3 takeaways:
 
The Big Winners Are – Instead of one dominating area, there were three submarkets (Camelback Rd Corridor, South Scottsdale and Chandler) that absorbed the most amount of space for all of 2017. They all posted between 250k and 300k SF of space leased.
 
Tenants Want Quality Buildings – 1.4 million SF of speculative office is under construction with good activity.  Developers remain encouraged this space will get leased quickly since 60% of all net absorption in 2017 occurred in Class A properties.
 
Job Growth was Organic –  A handful of leases over 100,000 SF (8 to be exact) were signed in 2017; with the biggest deal in Q4 totaling only 58,000 SF.  With no giant transactions, this means a lot of our growth came from existing Metro Phoenix companies growing modestly.
 
My team and I represent office tenants and landlords throughout Metro Phoenix and the US – and we do some international work as well.  Please contact me if we can help you.  More info can be found at www.coppolacheney.com

 

Andrew
602.954.3769
acheney@leearizona.com

PS – Click here to read a great article on technology in the brokerage business featuring Jeff Rinkov, CEO of Lee & Associates.

 


 

Click here to read the full report

Q4 2017 Office Report_Page_1

Click here to enlarge

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Categories Narrative

C2 By the Numbers

Every year we look back and reflect on the deals, relationships, and memories we made over the past 12 months. We had another excellent year in 2017, and as we look back on the numbers we’re incredibly grateful for amazing clients and friends like you. 

Now that we’re a few weeks into 2018, we’re excited for new opportunities heading our way. Thank you for being a part of our future.

2017 By the Numbers

Craig

602.954.3762
ccoppola@leearizona.com

P.S. As you may know, Dan Sullivan has been my coach and mentor for 25 years.  He is one of the primary reasons for my continued success and almost  ALL of the concepts we teach and use in our company.  Here is a link to the recently-released movie about his life called “Gamechangers”. Watch it and learn.  The man is genius.

 

Categories Narrative, Office Market

How High-Net Worth Investors Invest in CRE

As the wealthiest people in the world continue to grow their wealth, they are looking more and more at Commercial Real Estate for their portfolios.  We are now seeing the uber-wealthy put 6-25% of their portfolio into CRE.  This is a big trend because the rich are getting richer.

  Here are a few stats:

  • HNWI’s (High Net Worth Investors) wealth is projected to surpass $100 trillion by 2025.
  • HNWI are now paying much more attention to income-producing properties vs. what they have invested in previously (stocks and bonds).
  •  Single tenant NNN properties are the investment of choice for these investors.   Stable returns, no management, and owning a piece of property are all reasons why this segment of the market has taken off.

Below is an article from the end of last year that explains this trend in greater detail.  Capital markets is not our core business. We represent office tenants.  You can still call or email me for more on the state of the capital market and NNN leased properties, as I have a personal interest in these trends. Coppola-Cheney helps our clients navigate the commercial real estate industry. I am proud to have the 2018 President of the Arizona Chapter of the National Association of Industrial and Office Properties (NAIOP) as my partner.  Congratulations, Andrew. 

Craig
PS –  It’s the finale of The Bachelor-NAIOP Edition Season 2. Who will win the rose and the heart of the deal? It’s a shocking turn of events in the final episode of the season.  And it’s a must-watch video.

 


Part 1: How HNWI Invest in CRE

By: David Bodamer and Diana Bell

Dec 14, 2016  

The world’s wealthiest individuals keep getting richer. That bodes well for commercial real estate, which continues to hold a place in the allocation strategy for high-net-worth and ultra-high-net-worth individuals and family offices.

Global high-net-worth investor wealth is projected to nearly triple in size from 2006 to 2025 to surpass $100 trillion by 2025, according to data from Capgemini. The population of high-net-worth investors grew 4.9 percent in 2015, the most recent year for which data is available, while their wealth grew 4.0 percent.

Capgemini’s World Wealth Report 2016, meanwhile, found that real estate and construction ranked as the fifth highest sector among sectors expected to drive wealth growth through 2015.

Exclusive research from NREI’s survey on high-net-worth investors  (HNWI) shows that these players still hold real estate in high regard, although reaching them, educating them about the intricacies of investing in the sector and meeting their sometimes aggressive return expectations all pose challenges for commercial real estate pros.

How they invest

HNWI made approximately $3.2 billion in acquisitions in the first half of 2016, compared to about $4.2 billion in the first half of 2015 and about $2.8 billion in the first half of 2014, according to data provided by New York City-based research firm Real Capital Analytics (RCA).

A majority of respondents to NREI’s survey estimated that most HNWI allocate somewhere between 6 percent and 25 percent of their portfolios to real estate. Overall, 63 percent of respondents answered that HNWI are in that range. A minority (22 percent) answered that HNWI have even greater allocations (26 percent or more of their portfolio).

HNWI have a variety of options for investing in the sector. A majority of respondents (54 percent) say those placements come in the form of investments in private real estate equity funds. Other popular options include direct investment in either multi-tenant or single-tenant netlease assets, according to 45 percent and 36 percent of respondents respectively. Options that are less common, according to respondents, include club deals and crowdfunding (each at 13 percent) and investment in non-traded REITs (16 percent).

But according to some survey respondents, such investors are placing high demands on fund operators.

They “have forced private real estate investment funds like ours to show exceedingly high projected returns before considering a new investment,” one respondent wrote.

“One profile of investors prefers single-tenant properties with long-term credit leases and/or multi-tenant legacy infill product in dense locations, such as in West L.A., to hold long-term. These investors know returns are low on these types of assets, but are pursuing a generational strategy for preservation of capital,” says Don MacLallen, senior managing partner at Faris Lee Investments, which represents HNWI when they search for retail properties. “Another profile of investors is looking at higher cash flow properties with intrinsic low rent from low price per square foot. [They] want to get higher yield by taking advantage of low interest rates. These cash flow investors are looking into secondary locations.”

Part 2: How to Reach HNWI

One of the biggest challenges from the real estate side of the equation is getting access to high-net-worth investors (HNWI) looking to make allocations to the sector.

“Access is through intermediaries who often are reluctant to invest with newer sponsors,” one respondent wrote. “Also, the huge amount of capital being invested with a small number of big name firms (Blackstone, Starwood, etc.) makes it difficult to compete.”

Another respondent talked of the “layers of advisors” that you have to work through, most of whom are “not fully conversant in the intricacies of commercial real estate.”

Another obstacle is that it can be difficult to find investments that fit what HNWI are looking for. They often want low-risk, high-yield plays, which are difficult to come by given the intensely competitive investment landscape for real estate assets.

Respondents also pointed to the need to educate HNWI on some of the nuances of playing in the commercial real estate space, getting them to understand the basics of real estate investment, rates of return and illiquidity.

“They understand (or at least think they do) equity investments, but many do not have the experience or patience to understand complex real estate transactions,” one respondent wrote. “For example, [they don’t understand] why they can’t take their money out six months after they invested.”

Another respondent wrote that real estate professionals working with HNWI must ensure there is “a comprehensive strategy and understanding of both what the real estate is intending to do, and how it knits with the overall portfolio.”

“Many HNW investors have acquired their real estate assets … on an opportunistic basis, with little regard to how it meets their family objectives,” the respondent noted.

The plus side to working with HNWI, however, is also substantial. For one, they represent a large and growing pool of capital. Moreover, given that investment decisions are made by an individual or a small group in a family office, there can be greater speed and certainty of deal completion when deal objectives are clear.

Part 3: What Do HNWI Want from CRE?

The biggest objective respondents identified for high-net-worth investors (HNWI) in buying real estate was preservation of wealth. On a scale of 5, wealth preservation scored 4.5 in the survey. But other options were close behind. Those included income production (4.0), asset value growth (3.9), tax purposes (3.6) and estate planning (3.5).

While many respondents said that these factors have not changed in the past 12 months, others said they have seen some shifts.

Several respondents argued some HNWI have put a greater emphasis on income production. One respondent argued that “income has become more important as other investment yields remain low and as cap rate compression starts to slow down.” Another said that worries of a coming “flat decade” for equities, along with low bond yields, have led to increased interest in real estate’s income-producing potential.

That echoes what some expert observers are seeing as well.

“We continue to predict real estate is starting to be much more about income,” says Yolande Barnes, director of world research for Savills. “Part of this is a function of the difficulty getting yield from other investments like bonds. Most HNWI have already invested into store of wealth asset investment. Now they are paying much more attention to income-producing properties.”

Yet, conversely, other respondents said that volatility, uncertainty and a sense that the real estate cycle has peaked has led to wealth preservation rising in importance as a goal for real estate investment. It’s “become a more important goal as the cycle has peaked and Trump was elected, resulting in increased uncertainty,” one respondent wrote.

Other objectives respondents identified for HNWI included 1031 exchanges, wealth augmentation and having self-control of investments, unlike with stocks and bonds.

One respondent said the objectives ultimately vary with the investors themselves.

“I work for a HNW individual who is all about maximizing returns and is willing to embrace the risk,” they wrote. But “our biggest outside investor, also HNW, is backing off of his risk profile and focusing more on preservation of wealth.”

Another respondent argued that the uncertainty introduced by the election of Donald J. Trump had likely changed the dynamic. “Preservation of capital has probably moved to the top of the list,” they wrote. Another echoed that statement writing, “The election has caused some urgency to seek brick-and-mortar security.”

Categories Architecture, Design, Narrative

World’s Coolest Offices 2017

Every year, we share the most innovative offices from around the world (and a few from our own clients).  Below is our list from 2017. 

First, you get a few of the best clients we were fortunate enough to work with this past year. We can hold our own here in the Valley of the Sun.  Below our clients are the international companies from Inc. Magazine. It’s amazing to see the creativity that goes into building out all of these spaces.  
 
Pick your favorite. I love Kudelski (our client—but I’ve been in the space), and the Airbnb space in Dublin.  Scroll down, it’s worth your time. 
 
Enjoy,

Craig

PS — In addition to the coolest offices of 2017, we had a client (Oaktree Capital and Cypress Properties) turn loose 4 architects to build out 4 spaces without direction or budget.  We called it Project Future (check out this background video). These 4 spaces turned out fabulous and the 600 people who toured them on opening night loved the show. Click here to see the spaces and the party.


MindBody

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SkySong 4

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Greater Phoenix Economic Council

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Booker Software

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Kudelski Security

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And of course, our home, Lee & Associates

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15 OFFICES THAT WILL MAKE YOU INSANELY JEALOUS

By JEREMY BITTERMANN
Inc._logo
December 29th, 2017

 

Crazy indoor plant life. Castles and opium factories converted into headquarters. Inc. has been keeping tabs on the very coolest offices throughout the year. Here are the best of the best. 

1.    One with nature

If you can’t work outdoors, bring the outdoors inside. Swedish gaming company King used real lichen and trees built out of plywood to create a hideaway that feels like a Scandinavian forest. 

IMAGE: KING; DESIGN: ADOLFSSON & PARTNERS; PHOTOGRAPHY: JOACHIM BELAIEFF

2. Nod to yesteryear

Airy and filled with natural light, WeWork’s flagship China office is built into what used to be an opium factory. The space uses the building’s original staircase and steel beams, painted green for a more natural feel. 

IMAGE: DESIGN: WEWORK & LINEHOUSE; PHOTO: WEWORK

3. Color by number

Dutch architecture firm MVRDV designed a wing of its headquarters to resemble a doll house. The rooms are color-coded by purpose, from the red TV lounge to the dark blue meeting room.

IMAGE: PHOTOGRAPHY: OSSIP VAN DUIVENBODE

4. Through the years

The offices of genealogy company Ancestry pay tribute to the firm’s employees–and their roots. Portraits of long-tenured workers are hung next to photos of family members from generations ago.

IMAGE: DESIGN: RAPT STUDIO; PHOTO: JEREMY BITTERMANN

5. Over the rainbow

Media agency Canvas outfitted its office with dichroic glass, which reflects light at different angles. The glass changes color depending on the time of day and the angle at which you view it. 


IMAGE: CANVAS WORLDWIDE; DESIGN: A+I; PHOTO: MICHAEL WELLS

6. Get nutty

Vice’s Toronto office has a bar designed to feel like a throwback saloon. Made of walnut, it’s stocked with coffee and tea, plus bourbon and whiskey for after hours.


IMAGE: ADRIEN WILLIAMS

7. A colorful history

British startup Money.co.uk converted a Victorian castle into its new home. The new digs combine old-fashioned decor with kitschy elements and pops of color for a truly unique feel. 


IMAGE: DESIGN: INTERACTION; PHOTO: CHRIS TERRY

8. Stepping up

Airbnb’s Dublin office is the first one the company has designed from scratch. It’s broken into 29 distinct “neighborhoods,” and the staircase at the center serves as a lounge and meeting area.


IMAGE: DESIGN: HENEGHAN PENG ARCHITECTS; PHOTO: DONAL MURPHY

9. Recharge

PwC’s new Switzerland office gives employees the chance to catch up on rest in the nap room. The natural color palette gives the space a calming, outdoorsy feel.


IMAGE: DESIGN: EVOLUTION DESIGN; PHOTO: PETER WUERMLI

10. Keep it green

Instead of dividers or walls, co-working space Second Home separates its cubicles with greenery. The Lisbon, Portugal-based office is home to more than 1,000 plants, which also helps improve the office’s air quality.


IMAGE: DESIGN: SELGASCANO; PHOTO: IWAN BAAN

11. Grayscale

Squarespace went with a sleek, minimalist scheme for its 98,000 sq. ft. New York office. It’s almost entirely black, white, and gray, with the only splashes of color coming from the plant life. 


IMAGE: DESIGN: A+I; PHOTO: SQUARESPACE

12. The ring

Apple’s new spaceship-like headquarters give life to a vision initially laid out by Steve Jobs. The campus is home to 12,000 employees and 9,000 trees, and it relies entirely on renewable energy.


IMAGE: COURTESY APPLE

13. It’s alive

That’s not a painting: LinkedIn’s 26-story San Francisco headquarters feature a living wall next to the 17th story juice bar. It’s made of various types of moss and has both depth and texture.

IMAGE: DESIGN: IA INTERIOR ARCHITECTS; PHOTOGRAPHY: ERIC LAIGNEL

14. Dual purpose

Boston-based Pillpack outfitted its lounge with a refurbished Prohibition-era bar. It serves espresso during the day and turns into a DJ booth during nighttime events.


IMAGE: DESIGN: HALEY MCLANE, PHOTOGRAPHY: JARED KUZIA

15. Looking forward

Google broke ground on its new London headquarters in late 2017. The 1,066-foot “landscraper” will contain offices, swimming pools, and basketball courts, and will be almost as long as the Empire State Building is tall.


IMAGE: COURTESY GOOGLE

 

 

Categories Narrative

Happy Holidays and Our 2017 Travels

Every year my team and I are lucky enough to travel to some incredible places. From exploring countries across the sea to discovering the hidden gems of our own Arizona backyard, 2017 was definitely one for the books. We’ve put together a 2-minute slideshow of our favorite memories from our travels this year to share with you. 

 
I also wanted to take this moment to thank you for another incredible year. We are grateful for our clients, potential clients and friends.
Wishing you and your family a very happy holiday season,

Craig
602.954.3762
ccoppola@leearizona.com

 

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Click here to view our Christmas Card!

Categories Economy, Narrative, Office Market

10 Issues Affecting Commercial Real Estate 2017

One thing I constantly stress to my team is that to be successful in this industry, you have to be willing to learn and adapt to the times, or quickly become obsolete and watch your business disappear. As a 20+ year Counselor of Real Estate (CRE), I love our annual top ten issues affecting commercial real estate. They are thoughtful, insightful, and always ahead of the curve.  Below is this year’s Top 10.
 
Here are my top 3 (But be sure to read below as there are 7 others that are equally important):

  1. Retail Disruption – Customer traffic is now being driven by “Experiential” retail like restaurants, entertainment centers, and gyms rather than traditional brick and mortar. (See our special report on retail here)
  2. The Technology Boom – A major study of automation by McKinnsey & Company suggests that up to 47% of today’s jobs could be replaced by automation. Disruption is no longer coming, it’s here. 
  3. Polarization and The Effect on CRE – The current political uncertainty about changes to trade, travel and immigration policy threaten cross-border investing, hospitality properties, retail, and manufacturing supply chains. 

Keeping our readers (and our clients) up to speed on Commercial Real Estate is the purpose of this narrative.

Craig

602.954.3762
ccoppola@leearizona.com

P.S. It’s time for a critical rose ceremony. Who will go home, and who will have the chance to meet the architect? Watch the video to find out!

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The CRE 2017-18 Top Ten issues Affecting Real Estate

 

1. Political Polarization and Global Uncertainty

Political Polarization and Global Uncertainty are impacting decision-making at every level of government and throughout the business community.  On an international level, recent elections in the U.S., France, Austria, the U.K. and other countries point to resurging nationalism, testing existing diplomatic and trade relationships around the globe as exemplified by Brexit and NATO.  Potentially devastating military conflicts seem more likely in Asia and existing conflicts in the Middle East are more volatile.

Even at the local level, there is continuing and intensifying polarization between and within political parties, making it virtually impossible for representatives to find the common ground needed to resolve differences and move ahead. Decisions cannot be made when compromise is viewed as weakness and people with differing points of view have difficulty being in the same room. If people struggle to express and hear divergent opinions, it will be nearly impossible to address existing and emerging problems going forward.

Negative implications on real estate are immediate. Uncertainty about changes to trade, travel and immigration policy threaten cross-border investing, hospitality properties, retail, and manufacturing supply chains, among other effects.  Rising interest rates and retail inflation will make middle-class homeownership that much more difficult.  Longer-term implications could be much more severe, as polarization prevents long-term fixes to issues such as infrastructure, affordable housing, local and state pension liabilities, and education.  And so, one or both of these trends affects virtually every issue on this year’s list and a host of others that didn’t make the cut.

 2. The Technology Boom
The tech start-up boom is revolutionizing real estate operations across the board.  One of the biggest changes this year is not a killer app, but an unprecedented wave of commercial real estate technology innovations that are expected to change the way real estate is bought, sold, and managed.  Commercial real estate tech start-ups were impressive in 2011, with $186 million invested. This has grown exponentially. In 2016, investment reached $2.7 billion. MIT’s real estate innovation lab has identified 1,600 real estate tech start-ups worldwide.

Robotic learning, a research field testing robots that can acquire new skills and adapt to their environment, has accelerated automation of the workplace. This year, robots showed that they can work as teams, learn from videos, and rely less on specialized human programmers. Thirty percent of banking jobs are expected to disappear in the next decade, and fully robotic lettuce farming is expected to open in Japan this year. A major study of automation by McKinnsey
& Company suggests that up to 47% of today’s jobs could be replaced by automation.

Big Data has  come to real estate planning, and space planning decisions are now informed by real-time information.  Autonomous vehicles, especially trucks, are projected to go mainstream.  Automated cars could knock 85 percent off taxi and ride-share costs, competing favorably with car ownership.  When autonomous vehicles cost less than cars, we’ll need to find something else to do with our garages, parking lots, and much of our streetscape. Reliable, fast, complete information also drives the sharing economy, as tech savvy users drop ownership in favor of dependable access.

In retail, the question has shifted from “Do you shop online?” to “How many deliveries did you have today?” Online retail continues to drive warehouse demand – but each foot of new warehouse space leased by online retailers translates into eight feet of vacant retail. Smart lenders and investors are already insisting that new construction reflect future demand patterns, not those with which we are currently familiar.

Get ready to change uses – you won’t need as much parking or retail, and anything that can be shared will be. Financing commercial construction will require this kind of foresight.  Homes with features that take advantage of these trends (secure package dropoff and access to bandwidth) will also draw more attention in the marketplace.

3. Generational Disruption
Boomers’ and Millennials’ divergent views of where they live, work, and play increasingly impact the property markets.  The Baby Boom generation of approximately 74.0 million (born between 1946 and 1964) is now smaller than the Millennial Generation of some 75.4 million (born roughly between 1980 and 1997).   A significant number of today’s real estate decisions, as well as those connected to the workplace and consumer spending, are made by people under the age of 40.  Yet Boomers, too, remain engaged, continuing as productive members of  the workforce in increasing numbers far beyond the traditional retirement age of 65. Millennials are moving into management positions and looking to raise children and own homes at the same time that Boomers seek to downsize or age in place.  The generations are crossing paths everywhere:  in the workplace, in housing and at the local bar and grill, intersecting and sharing spaces, despite their often disparate priorities when it comes to the built environment.

Studies project that Millennials will ultimately behave in a fashion similar to Boomers – but do so ten years later.  This generation is characterized by:

  • Leading a more transient, “experience-oriented” lifestyle in their 20s.
  • Marrying, having children, and buying homes in their 30s as opposed to their 20s.
  • Living in the city before moving to the suburbs (or rapidly emerging “urban burbs”) in search of the larger, more affordable home and better school.

Boomers, on the other hand, are exhibiting behaviors often associated with Millennials:

  • Transitioning to a more transient, “experience oriented” lifestyle in their 60s.
  • Selling their homes and renting (in the same buildings as younger generations).
  • Abandoning the suburbs for city living (or choosing urban like locations a bit further out).

Real estate developers, investors, owners, and builders will need to understand not only the location preferences of each group, but the design and amenity features of housing units, whether rental or owner occupied.   One size will not fit all and supply will need to match rapidly changing demand.  In coming years, Boomers will be looking for aging options and amenities while Millennials, with an ingrained reliance on social media, will prioritize “networks” offering product knowledge and immediate, online access to goods and services.

At work, Boomers tend to favor the traditional office design of earlier generations, an onsite work environment, and structured schedule. Millennials, now entering the work force in large numbers, prefer “collaborative” office designs and flexibility in where and when they work.  Particularly interesting is the new dynamic which places these diverse interests side by side.  While employed Baby Boomers tend to be the decision makers in their workplace, a shift is underway, as Millennials literally climb the ladder – no longer to the corner suite – but to the standing desk in the middle of an open office arena with a private “wellness room” and exposed kitchens and snack bars.  The challenge for builders, landlords, owners, and tenants alike will be in finding an acceptable design balance that appeals to the contrasting audiences they serve – now and in the future.

4. Retail Disruption
The trend toward transforming retail into “experiences” continues to develop, and is offsetting shrinkage in the physical “bricks and mortar” consumer goods platform.  “Experiential” retail drives customer traffic to a more diverse and highly participatory environment targeted to a variety of age groups and interests.   This sector has transitioned into a kind of “Omni Channel”– encompassing e-commerce, reduced or repurposed physical elements, and a host of previously unforeseen spaces, both physical and virtual – with a current emphasis evolved from bricks and mortar shopping to the timely, efficient transfer of goods from source to inventory to consumer.  Many traditional retailers are adopting an “Amazon-like” approach, creating new warehouses, new distribution methods, and new fulfillment models (same-day deliveries, easy return methods, etc.). An irony of this is the recent embrace by  “disruptive retailers” such as Amazon of the traditional retail model characterized by the opening of physical stores, which allow consumers to “see, feel, and return” what they purchase.

It is no secret that the U.S. has been “over-retailed” for decades.  In a recent study by Cowan and Company, the United States boasts 40% more shopping s