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.




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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. 



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

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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.  




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 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. 







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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.



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




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.



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

Summer 2018

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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.


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.





Q2 2018

Click Here to Read the Full Report



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. 


Do Designations Matter When Choosing A Commercial Real Estate Broker?

Chad Griffiths

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,





Click Here to Read the Full Article from GCUC


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





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:







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. 
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, 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.





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

Tammy Carr
February 2017



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 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.


Goodbye New York, Hello Arizona

By Natalie Sherman


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.



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.”

– 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


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’


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


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.

– 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


October 13, 2017


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.”

– 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


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.”

– 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


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.

– 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


October 12, 2017



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.


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



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

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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. 

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 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.



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 space per capita than Canada, five times more than the U.K. and ten times more than Germany.  Retailers unable to profitably transition into the multi-faceted new format have been forced to shutter physical stores, migrate into virtual space, or discontinue operations entirely.   Such stalwarts as Sears, Macy’s, and J.C. Penney join countless other retailers in being forced to close multiple stores throughout the country, leaving malls anchored by these legacy retailers scrambling to reposition huge empty spaces or go out of business altogether.

Despite this massive repositioning, we are not by any stretch of the imagination facing a “Retail Apocalypse.” Restaurants have boomed in recent years and service-oriented outlets  take up ever more space.  Grocery-anchored malls remain steady – at least for now, although change is afoot as grocery models join the fray and prepare to reinvent themselves.  Retailers who cater to a fresh or appealing niche in the marketplace are thriving, exemplified by “fast fashion” venues such as H&M and Zara which turn out, at highly affordable prices, versions of high fashion designs within weeks of their appearance on the runway.  As retailers refine their inventories, distribution methods, and fulfillment models, the retail market will survive and even prosper – but will do so in fresh, new ways.

5. Infrastructure Investment
While both major U.S. political parties appear to support substantial investment in infrastructure, it remains unclear when and if the United States Government will be in a position to move major initiatives forward any time soon. However, initial conceptual plans released by the Trump administration indicate a relatively limited Federal Government investment, placing heavy reliance on local and state governments and public-private enterprises.  Politics aside, this approach presents important opportunities for the private sector which is directing significant funds to infrastructure projects, recognizing the need for – and longer-term rewards of – investment in roads, bridges, tunnels, ports, and airports.  Blackstone plans to create a $40 billion infrastructure fund this year.  They are not alone. Prequin, a leading source of data and intelligence for the alternative assets industry, reports that investors now oversee $376 billion in U.S. infrastructure dollars.

While political winds continue to blow in many different directions, it is clear that the need for infrastructure investment is critical.  The movement of goods, which involves everything from ports to airports to warehouses to roads, highways and railroads, is further straining an aging and highly vulnerable interior framework.  Add to this the need for pipelines, electricity transmission, and water distribution, and the immediacy of infrastructure needs becomes even more pronounced.

Major changes in global transportation routes are also driving infrastructure development. This is exemplified by the Panama Canal, the undisputed catalyst for port development in such cities as Houston, Savannah, Charleston, and other ports along the Eastern seaboard.

How the infrastructure challenge is met — or not met as the case may be – will have major real estate implications.  Reliance on public-private investment means projects must havestrong revenue-generating capacity to be funded — something most rural projects and many water, electricity, and road undertakings cannot achieve,  particularly in struggling communities.

Public transit, which has emerged as one of the most critical investment criteria of institutional investors, cannot meet revenue requirements of public-private funds. Initial federal budgets have zeroed out public transit investment, a dramatic problem for many communities and real estate investments.  The sheer volume of need is also a concern, as state and local financial resources are severely limited due to pension liabilities and limited ability to raise additional revenue.

6. Housing: The Big Mismatch
Safe, decent, affordable housing has been shown to have a stabilizing effect on urban economies, crime, and public health.  A current lack  of inventory has generated a spike in home prices and, as a result, declining affordability for many home buyers, particularly those in lower income sectors.   A critical disparity exists between housing needs and housing supply. Although improving home prices, economic growth, mortgage accessibility and rental development have improved housing access and affordability in many areas, a confounding series of supply-demand mismatches continues to severely impact markets worldwide.  While the United States increasingly wrestles with the issue, a recent study of 300 metropolitan areas around the world ranked North America as a market with far fewer affordability problems than most.

An especially serious issue is the growing affordability gap and limited availability of housing in locations with significant job growth, particularly in major metropolitan areas and coastal regions.  Those working in technology, finance and other highly paid fields have monopolized new, resale, and rental product, raising prices on once affordable rental and for sale housing and creating a crisis for lower paid workers and those who are unemployed.   Younger workers seeking employment opportunities, many carrying substantial student debt, remain priced out of the owner market.  Developers have only begun to address the potential for starter home construction (as was done in the 1940s and 50s) as land and construction costs (as well as regulatory constraints) have created price points that are simply too high to interest those  who might otherwise build or invest in entry-level housing.

In other markets, Baby Boomers seek transitional rental housing, but the lack of multifamily rentals with sufficient space and of buyers for the large homes in distant suburbs they wish to vacate have made this shift in lifestyle a true challenge for an older generation wishing to remain active and engaged.  Insufficient  investment in public transportation,  government limitations on “mother-in-law” and micro units, and creative solutions to what could become an affordability crisis exacerbate the problem – widening the gap, real or perceived, between the “Haves” and “Have Nots” and potentially creating even greater problems long term.

7. Lost Decades of the Middle Class
After successive post-recession years of insignificant gains, median household incomes in the U.S. rose in 2015 by 5.2% to $56,516. Still, despite this welcome increase,middle class incomes have yet to recover their pre-recession highs ($57,403 in 2007), and are actually hovering below inflation-adjusted levels from almost two decades ago ($57,909).  Battered by automation and outsourcing, middle class jobs are still under pressure as the U.S. economy transitions from manufacturing to services.  Middle class disenchantment has been linked to the current rise of populist candidates in many countries; global economic and political uncertainty are intimately tied to a large proportion of the voter base disappointed with what government leaders and the business elite have delivered so far.

Retail properties serving primarily middle class customers are bearing the brunt of store closures. Malls with tenants serving high income buyers are faring relatively better.  Rising costs of living and student debt levels suggest that home purchase decisions will be postponed by the young.  Rentals will not necessarily benefit in the most expensive, desirable urban locations; supply growth in multifamily housing counterbalances demand, and stagnant income levels constrain rent growth.

8. Real Estate’s Emerging Role in Health Care
The U.S. spends over $3 trillion each year on health care, or nearly $10,000 per person. That’s double the average for developed countries worldwide, but U.S. health outcomes and efficiency are poorly ranked in comparison to the rest of the industrialized world.  While political polarization is making it difficult to address quality and access problems, the real estate industry has emerged as a major player to cost-effectively improve people’s health.  Medical services are increasingly being delivered in clinics, urgent care facilities, and ambulatory surgery centers, reducing costly hospital visits.  Virtual care – bundling  digital and wireless (video conferencing, email, photos, etc.) and home and mobile monitoring of patients – is expanding rapidly as security and access problems are resolved.  Applied data analytics also help in this “everywhere care” model.

Building occupants are increasingly demanding that the space they inhabit be designed, constructed, and operated in ways that advance positive health outcomes. It makes intuitive sense that buildings could help or hurt health in that people spend 90% of their time indoors. Research from the Mayo Clinic also concludes that only 20% of health comes from health care, with environmental and behavioral factors accounting for 40%.
Evidence of the importance of this trend is that most major real estate professional groups have recently ramped up their focus on healthy buildings.  Designing buildings to specifically address health behaviors has become the most transformative and rapidly growing subtrend of the “Health and Well Being” macro-trend.

Dramatic growth in business interest is a key factor driving this trend. According to Fidelity’s annual national survey of corporations, over 90% of companies have some form of health management or wellness program with approximately 80% also utilizing incentives.  Powerful recent research on the impacts of carbon dioxide on white collar worker cognition (increase by 61% to 101%) and how adjustable desks affect worker productivity (46% increase) also provide a partial explanation. New and cheaper technologies have also helped.

However, it was not until the emergence in late 2014 of the WELL Building Standard, with over 102 building interventions tied to scientific and medical research, that occupants became more actively involved in the healthy buildings movement. The International WELL Building Institute has registered or certified over 450 projects in 28 countries to become WELL Certified.  With adoption by many leading corporations like Wells Fargo, TD Bank, Deloitte, EY, Microsoft, Genentech, McKesson and investors including Oxford, Cadillac Fairview, Kilroy Realty, Hines, Lendlease, Grosvenor, and AXA, future growth prospects are strong.

9. Immigration
The Trump administration has attempted to enact more restrictive immigration laws, emphasizing concerns about security and terrorism while appealing to a voter base concerned about jobs lost to illegal immigrants. In the meantime, companies ranging from tech firms to real estate finance companies bemoan the lack of qualified workers. Development projects in high supply growth MSAs such as Denver stall because of labor shortages. Demographers point to immigrant groups as the source of household formation and favorable trends in population growth that will benefit the U.S. relative to geographies with aging populations like the EU and Japan.

New immigrants tend to rent, boosting demand for multifamily housing, especially in gateway cities.  Recent surveys suggest that immigrant populations aspire to own homes and to move relatively freely from cities to suburbs and back in the search for employment. Labor mobility and homeownership rates will be constrained by limiting immigration. Industries like tech that demand highly skilled workers may be forced to innovate and substitute capital for labor if they cannot fill vacancies by recruiting foreign workers – constraining job growth. Longer term, if the entry of immigrant populations that tend to have larger households is curtailed, there will be a limit on the so-called demographic dividend for economic growth, with less of a labor force to support an aging population.

10. Climate Change
In January 2017, the National Oceanic and Atmospheric Administration (NOAA) released a new report based on the most up to date scientific evidence on sea level rise that more than doubles the 2013 forecasts of potential sea level rise by 2100 from 2.2 to 4 feet to 6.6 to 8.6 feet.  Sea level rise is caused by both the thermal expansion of the oceans—aswater warms up, it expands—and the melting of glaciers and ice sheets.  These dramatic rises were due largely to new research on the role of the Antarctic in sea rises as well as improved forecast models.  The Atlantic (Virginia Coast North) and western Gulf of Mexico Coasts’ sea rise is projected to be greater than the global average by .3 to .5 meters by 2100.  Alaska and the Pacific Northwest are projected to be 0.1 to 1 meter lower.

While a potential rise of sea level by 6.6 to 8.6 feet by 2100 may seem far in the future, NOAA also estimates that annual frequencies of disruptive and damaging flooding would increase 25-fold with only a 14-inch increase inlocal sea level rise.  Major cities such as Miami, New York, New Orleans, Tampa and Boston are projected to have the most costly problems, with South Florida and most coastal areas all exposed to differing levels of sea rise risk and cost.

The implications of potential sea level rise and related flooding on real estate values is positioned to explode due to dramatic increases in the volume and accessibility of information on the consequences of sea rise. Employers and commercial real estate investors, thanks to hurricanes Katrina and Sandy, can now access municipal and state reports that detail potential risks of sea rise and efforts to mitigate such risks.  Residential and commercial buyers, sellers, brokers, and appraisers can now freely access flood maps and sea rise forecasts that provide detailed assessments of the population, buildings, infrastructure and land that are threatened by rising sea levels.    Websites such as Surging Seas Risk Finder even enable individuals to map potential sea rise and flooding risks of their properties and communities at different points in time and under different sea level assumptions.

Value implications extend well beyond those properties that might be directly affected by flooding.  For example, what if you live or work on a hill, but the access roads and key services you require flood?  Values of all properties will be affected if airports, transportation infrastructure, and other community amenities are negatively impacted.   Commercial properties and local economies in coastal regions will suffer if tenants concerned about community resilience or related tax consequences go elsewhere.

Residential properties are particularly vulnerable to even the potential for value declines due to increased flooding risk because they represent a significant proportion of the retirement nest eggs of many Americans.  Insurance to address such risk is either too expensive or not available in most cases.  For people who are counting on the equity from their home for retirement when they sell in 20 years, few will be willing to roll the dice that sea level rise will not impact value — and many are likely to sell before value declines are fully realized.


Categories Economy, Narrative, Office Market

1-Minute Phoenix Metro Office Update: Q3 2017

The Metro Phoenix office market continued on its eight-year positive course, albeit at a slower pace, for the 3rd quarter of 2017. As any athlete will tell you, a win is a win and all the [market] players will take it.  The 216,037 SF of office space absorbed fell short of expectations, however, some large leases were signed in Q3 and tenant activity is strong as we close out the year. 

Despite a seemingly high 19.6% vacancy across the entire market, sustained confidence from developers has 2.1 million SF of new space under construction. Note that only 31% of that figure has been built at the request of users.  The rest is speculative development in high-performing projects or submarkets.

Below is the link to our Lee & Associates Arizona 3rd Quarter 2017 Office Report and as usual, I’ve included my top takeaways, but expanded them to 5.

1. Big Deals Return – 3 of the top 5 leases signed were 130,000 SF or larger. Hopefully this trend continues. The biggest deal, Union Bank, adds 173,000 SF of net new jobs to the Greater Phoenix market. 

2.  Speculative Development – I believe this is prevalent even in a market with 19.6% vacancy, because companies continue to value new real estate as a great recruiting/retention tool.

3. Sublease Space is Significant – For the first time in years, sublease space is making a comeback.  Some of it has been caused by contraction (e.g. University of Phoenix). But State Farm and many other companies have sublet space due to growth, consolidations and the desire for newer buildings. In total, there is now 2.5 million SF of sublease space available in Greater Phoenix. This is concerning for landlords but an opportunity for tenants.

4. Amenities Will Cost You – The highest average rental rates (over $30/SF/YR) can be found in Downtown, Scottsdale South and the Camelback Corridor; home of some of the highest concentration of restaurants and shopping in the Valley.

5. Chandler Makes a Comeback – Previously quiet over the past couple years, Chandler now leads all other submarkets in net absorption with 538,000 SF, year to date.

Please call me if I can help you with your office lease or a building you own.


P.S. This week on The Bachelor-NAIOP Edition, Season 2, the guys test their tennis skills on a group date. Nothing like a little competition to reveal who’s there for the right reasons.

Screen Shot 2017-11-07 at 8.28.43 PM

Click Here to Read the Full Report

2017 Q3 Office Report_Page_1

Categories Narrative, Office Market

Traditional Retail is Dead

By next year, 36 million square feet of retail space could be vacated and returned to the market.

It’s official – the global landscape of retail is changing and changing rapidly. These changes are driven by a combination of growing e-commerce use and a demographical shift in consumer behavior, which prioritizes experience over tangible goods.

I appeared as a guest on Robert Kiyosaki’s (author of Rich Dad Poor Dad) podcast “Rich Dad Radio Show” a few weeks ago to discuss this very trend. You can listen to our full conversation, titled “Mall Rat” here

This trend is so disruptive, I’ve put together a special report below that includes some interesting articles about mall repurposing. The articles touch on the current state of retail, how past retail is being repurposed, what the “new” in-store retail tenant looks like and what the future holds for traditional brick and mortar.Here are 6 key takeaways from all our research:
  1. 1/3 of malls can’t afford to pay for the maintenance of their structures.
  2. More than 300 department stores are closing this year – Adding 36 million square feet of vacant space back into the market.
  3. Retail space isn’t necessarily overbuilt, it’s under repurposed – We expect to see more restaurants, entertainment venues, grocery stores and even other department stores take up space.
  4. Historically, rents paid by department stores have been extremely low – usually less than $10 per square foot. As they become vacant, owners have a new opportunity to re-tenant the space and create significant financial rewards.
  5. Along with dining & grocers, entertainment tenants are playing a bigger role in shopping centers – The best use for an empty anchor will vary and be dictated by the demographics and lifestyles of the surrounding community, but the many options available might come as a plea.
  6. Seritage Growth Properties, which has 266 properties originally leased to Sears Holdings, is now redeveloping and re-leasing space originally held by Sears and Kmart stores to new tenants. See the chart below to see how they are releasing their properties.

As always, if you have questions about how these massive changes to the retail space will affect you and your business, give me a call.





retail is dead

Source: Seritage Growth Properties, Corporate Profile, March 2017

How Are Owners Reacting? 

  1.  The next occupiers of the vacated spaces run the gamut, sources say, from specialty retailers to service providers to entertainment concepts to industrial and office tenants.
  2. Retail real estate is undergoing an entrepreneurial moment like never before.
  3. Some anchor space is getting repurposed as charter schools, community colleges and call centers.
  4. Medical office space is another contender in the non-retail tenant category – At Hudson Valley Mall in Ulster, N.Y., integrated healthcare system Health Quest will take the 81,000-sq.-ft. space left behind by a shuttered Macy’s and turn it into a medical center.
  5.  What the convergence means for rents on an absolute basis remains to be seenExperiential tenants typically pay higher rent than previous tenants.
  6. There is also Sea Life, a small chain of aquariums that has moved into the big-box space in six to seven malls. But all of those uses come at pretty significant improvement costs.


Wit of Wisdom

Source: Wit of Wisdom, by Henry Moore

Bandier: The New Retail Tenant
  1. Brands like Bandier are putting more of an emphasis on in-store experiences.
  2. Converting space that was once used for merchandise to areas for social and physical activities, i.e. yoga classes, dance classes, live concerts, in-store bars and lounges.
  3. It’s working: Revenue is rapidly increasing and customer/brand loyalty is stronger than ever.
Bandier2 Bandier
Source: Fast Company

Different Visions of Shopping’s Future
  1. Grapevine Mills Mall located in north Texas feels almost like an amusement park. In addition to more than 200 retail outlets and restaurants, it has a Sea Life aquarium, a Legoland and a Round One Bowling and Amusement, which includes 24 lanes of bowling, billiards, video games and a karaoke studio.
  2. In Austin Texas, Highland Mall is being reincarnated as the 11th campus of Austin Community College, under a nearly $900 million public-private initiative that has stirred new life into the surrounding North Austin neighborhoods.
  3. When the owners and developers aren’t sure how to repurpose the existing structure, they are just demolishing the old and repurposing the land.
Mall of America Pic3

For more detailed information, here are our sources:

Categories In the News, Office Market

US Apartment Rents are CRAZY

Remember what you paid as rent for your first apartment? That first rent payment probably felt like a real dent in your paycheck. But I guarantee you it’s not anything like today’s rents. 

Apartments have been on fire for a LONG time this cycle. While I think there is still room for this market niche to grow, it is nearing the top. Across the US, rents in some markets are going through the roof. A one-bedroom in SF is up to $3,300/month. With the exception of Chicago, all of the top 10 highest rents are on either coast. 

Anytime a segment of the market gets too overheated, the inevitable market correction will come. When the market corrects, sky high rents will be one reason why.

By the way, Phoenix’s median one bedroom apartment rent is $1,027/month, and a totally reasonable $698/month for Tucson.

We represent office tenants but are always watching all real estate segments and how they affect our clients and the market in general. I have created a group presentation called Commercial Real Estate 101 that covers all segments of the market and the trends that affect each one. Call or email me if you are interested in hearing it.




The US Cities Where Apartment Rents are Astronomical
by Niall McCarthy, 
Dec 6, 2016


Categories Economy, Narrative, Office Market

2-Minute Phoenix Metro Office Update: Q2 2017

The second quarter was not quite as busy as the first, but there is still good news as our market slowly (painfully slow) continues to improve.  Vacancy held steady at 18.8% despite new construction, and we continued our streak of continuous positive net absorption (job growth).  We haven’t had negative net absorption since 2009.

The pace of net absorption slowed by approximately 500,000 SF in the second quarter, which is the amount of space State Farm absorbed in the final phase of its move to Marina Heights, last quarter.  We now stand at 1.4 million SF of office space absorbed at the mid-year mark.  We will need to absorb another 1.1 million SF in the second half of the year to meet our 25-year average.    

At the street level, my team’s transaction volume remains healthy and I anticipate Q3 will be noticeably better than Q2.  

Below is the link to our Lee & Associates Arizona 2nd Quarter 2017 Office Report and as usual,  here are my top 4 takeaways:  

1.  Downtown Action – Two of the top five leases occurred at the intersection of Central and Washington.  They symbolize a lot of the action and investment going on in our CBD, which helps the entire Metro market look good. Quicken Loans moved from North Scottsdale (the hottest submarket last cycle) into Downtown. Why? The buzz of a vibrant downtown.

2.  Sublease Space – There is 1.9 million SF of sublease space across the entire market.  Not all of it may be great space or have a significant amount of term left; but it means interesting opportunities for tenants and concern for landlords in certain areas. This is a new cycle trend as we have not seen 2 million feet of sublease in a long time.  

3. Lease Rates – Overall across the market, lease rates continue to grow (currently, they average $24.67/SF), but have still have not hit pre-recession levels ($26.55/SF).  Note, this is an average because rates have spiked to nearly $40/SF in a few key micro-markets.

4.  Recovery – Our recovery has come a long way this cycle, and we’ve done it without relying heavily on real estate related companies, like Metro Phoenix has done since there was an office market.  This means our market is increasingly becoming healthier and more diverse. Slower growth but great diversity bodes well for sustained momentum and a smoother ride as the inevitable down cycle comes.   

Need help with your lease or your building? Call or email me anytime.

AC for VR



Click Here to Read the Full Report


Q2 2017 Office Report



Categories Economy, Narrative, Office Market

5 Frequently Asked CRE Questions

estate are simple. A tenant needs office space. An owner needs to lease their space to a tenant. But once you get into the details of the transaction, things become complicated really fast.

A good amount of my time working with clients is spent answering their questions. I even wrote 2 books on the subject (How to Win in Commercial Real Estate Investing and The Art of Commercial Real Estate Leasing). Allen Buchanan, one of our company’s thought leaders, is a true pro, and he put together the below article for the Orange County Register addressing the 5 most common commercial real estate questions. 

Here are the top three questions and my answers for the Metro Phoenix office market, which is a bit different from Allen’s market in Southern California:

– How do commercial agents get paid? 
The property owner pays us. Almost all properties are “listed” and the owner is already paying a fee.  Tenant Advocates share in that fee.

– How long have you done this and what changes have you witnessed?  
Like Allen, I have been doing this since 1984 and was one of the Founding Principals of Lee & Associates Arizona in 1991.  There have been huge changes in the business (consolidation, national accounts, technology, etc.) but, as I explain in my book that I co-wrote with our Founder Bill Lee, Chasing Excellence, one thing never changes: relationships.

– How is the market?  
We are in Phoenix and the market has been a long, slow climb out of the Great Recession.  We have several markets (Tempe and Scottsdale) that are on fire because of the tech boom, and other markets that are still over 20% vacant.  Now is the time to have a real pro on your team.

We are here to answer questions, and make your life easier one transaction, one client at a time.


5 Frequently Asked Commercial Real Estate Questions

By Allen Buchanan
January 21, 2017


I’m often asked questions as a commercial real estate professional. For this week’s column, I considered five of the most commonly asked questions.

Part of my research involved polling colleagues. I believe the questions and the responses are interesting. I will handle these a la David Letterman (remember him?) by discussing in order of least to most relevant.

Question number five: Can I make changes to the space, and if so, who pays for it?

Answer: Generally and it depends.

Changes to a building – adding additional office, a power upgrade, sprinkler retrofit, paint and carpet, moving walls, installing racks, distributing power, etc., can generally be accomplished subject to ownership and governmental approval with the proper permitting and code construction.

Changes to the square footage (for example, adding a structural mezzanine), changes to the common area, fencing required parking spaces, creating windows in bearing walls are not so easy.

Changes are typically paid for in one of three ways: the owner pays for all of the cost and concedes the cost (rare); the occupant pays for all of the cost (even rarer); or some combination of the two. This combination could be an owner paying for the refurbishment of the space – paint, carpet, and cleanup – and conceding the cost and paying for the cost of a sprinkler retrofit and amortizing the cost over the term of the lease.

The “acid test” of who pays depends upon the owner’s ability to pay, the owner’s motivation, the general or specific nature of the improvements (think future marketability) and the market (is the competition delivering space to the market completely refurbished). Sometimes an owner will be willing to compensate a tenant in the form of free or half rent to offset the cost of changes.

Question number four: How do commercial agents get paid?

Answer: The property owner pays us.

A common misconception is the agent’s commission adds to the purchase price or lease rate. The reality is that an engaged professional can achieve a much higher purchase price than the typical owner because of market knowledge and experience. On the occupant side, an experienced professional can negotiate a better lease rate and concession package because of our knowledge of comparables, availabilities, motivation and our expertise. The net result is a better deal for both parties.

Question number three: How long have you done this and what changes have you witnessed?

Answer: Since 1984. Numerous!

Real estate content (comps, avails, absorption, current pricing) is the same, but the method of delivery is different. Who would have foreseen in 1984 that I would be blogging and forwarding location advice electronically in 2017, before fax machines and the world wide web were invented. Or, that we could survey inventory of available buildings – in our car or at the beach – and send a list with images to our clients with the click of a button. Or, that we could send a video, in real time, of the property. Unbelievable!

Question number two: How much is my building worth?

Answer: That depends on a number of factors.

We consider the market – whether it’s trending up or down, the comparables and availabilities. If the market is up, chances are your building is worth more than the comps suggest. If the market is down, you might be best served to price lower than the recent comps and preempt a long marketing cycle.

Marketing time also plays a role. How long can you afford to market the building? A fire sale motivation will cause the building to be worth less. Does the building have special amenities such as excess or surplus land, excess power, fenced yard, freezer/cooler space, special AQMD permits, etc. For the right buyer or tenant, these amenities can add to the price.

Question number one: How is the market?

Answer: Weird.

In Southern California, the market has sufficiently rebounded to cause shortages in certain product – especially manufacturing and distribution space. We are seeing huge price appreciation as well. The occupant’s mindset is that we are still in 2009 and the opposite is true. Our market is healthier than ever! Another thing that has changed dramatically is the amount of regulatory approvals necessary to make a move. A recent 20,000 square foot transaction was reviewed by seven governmental agencies before approval could be achieved. Wow!

Did I leave any out?

Allen Buchanan is a principal and commercial real estate broker at Lee & Associates, Orange. He can be reached at 714.564.7104 or His website is

Categories Narrative, Office Market

Office Lease Checklist

Whenever a client has a problem with their space or lease agreement, 9 times out of 10 we can trace that negativity back to one thing: a communication failure in the original lease negotiation. Leases are unfamiliar territory for many of our clients. Most of the time, they just don’t know the right questions to ask. Below is a nice Office Lease Checklist from Troy Golden, a tenant advisory broker out of Chicago. We use a similar one for all our clients.   Here are a few of the most important questions from his checklist to make sure you ask before you sign a lease. Or you could make it simple and just call us.

  • Does the square footage match the floorplan and ONLY include the space we’re leasing?
  • How much parking will we get with the lease? What is the location and price of the parking?
  • Will other tenants and/or construction be an issue, either with noise or conflicting use?
  • Is the lease Modified Gross, Full Service, or Triple Net? What do these mean?
  • What are the details and constraints of the Tenant Improvements (TI’s) if there is an allowance?
  • Who controls the build out for the space, Landlord or Tenant?    
  • How will all of these factors affect our total expenses per year?

Our team negotiates 50-70 tenant advisory assignments a year.  Our fees are paid by the Landlord and cost you nothing.  Why not skip the headache and use a professional to ensure that all these questions and more are addressed? 


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Office Lease Checklist

By: Troy Golden


October 6, 2016


When negotiating the lease for an office space, the same issues frequently arise.  This article is the first in a series of four articles that provide office lease checklists for office tenants to use to review their office lease.  Use the checklists below and in the articles that follow to make sure your office lease reflects what your tenant representation broker negotiated and to make sure problems won’t arise during your tenancy. These office lease checklists are just a starting point.  Office tenants should retain a qualified, experienced tenant representation broker to negotiate their lease and a commercial real estate attorney to negotiate and review their lease contract.

Office Lease Checklist: What is Being Leased?

  • Does the square footage match what it should be? Is the loss/load factor satisfactory? Is the property described with enough detail that it could be found by someone who had never been there before?
  • Does the property exactly match the provided floor plan? Does the floor plan also include incidental areas such as hallways, equipment areas, etc.?
  • Does the project consist of multiple buildings and/or uses? Is there ongoing construction in the development? How will future construction affect property taxes and your operating expenses?
  • Does the lease describe an agreed-upon method of measuring square footage?
  • Does the lease include parking spaces? Are there any problems with the amount of parking available and the associated fees? How far is the parking from the building? Does the agreement allow the landlord to move parking to an off-site location? Are systems in place for movement to and from parking areas?
  • Are common areas clearly and accurately delineated? How much access and use of common areas is the tenant allowed?

Office Lease Review: What is the Rent?

  • What services will be paid by the landlord? Will the tenant be responsible for building taxes, maintenance, and/or insurance ?
  • Is the tenant responsible for direct payment of utilities or other fees? What are the utility fees? When are they paid?
  •  Does the agreement provide any period of complimentary rent? How much will the rent increase by annually? On what date do increases take effect?
  •  How much is the Pro Rata Share? Does the agreement provide for changes?
  • What will the total operating expenses for a year amount to? What about taxes?
  • Is the tenant granted the right to review and confirm the operating costs?
  • What about the building’s hours of operation? Do they make sense? What days/hours are excluded?
  • Which hours of A/C and heat usage will be added as extra charges? For after-hours usage, how will fees be assessed? How much will charges amount to? Are charges in line with what they should be?
  • Do the operating expenses, as defined in the agreement, match the modifications to base year recorded in Exhibit A? Does the agreement allow for avoiding a reassessment as required by Proposition 13?

Office Lease Checklist: What Does the Work Letter Cover? Build-out controlled by landlord

  • Tenant should have approval over any work plans.
  • Commencement date should not occur until all work has been approved by tenant’s or landlord’s architect as substantially completed, AND the tenant has received a certificate of occupancy for the improvements.
  • When will the tenant be responsible for costs that run over the allotted budget? Until everything on the punch list is finished there should be some hold back.
  • Is the tenant granted a termination right if the leased property is not handed over in the agreed-upon time frame?
  • Is the tenant allowed to enter the premises to install furniture, fixtures, etc. before work has been substantially completed?
  • Will the construction be completed by bid?
  • What control will the tenant have over the construction process? Will their approval be required for items such as the budget, major contractors, and schedule? If the tenant must pay construction costs it is crucial to have these requirements.
  • Is the schedule for the tenant’s deliveries and approvals reasonable?
  • Is the process for making changes to the original scope of work clear?
  • How much is the construction management fee? Will it include hard costs or soft costs? Or some combination of the two?
  • What will be considered a Tenant Delay? Must the tenant be given proper notice before the delay can be counted?
  • Is there any security around the obligation for the tenant to pay for improvements?
  • Will a warranty for the tenant improvements be supplied by the landlord? How long does it last?

Build-out controlled by tenant

  • Will correct plans for the building prior to improvements be provided by the landlord?
  • Have the proposed general contractor and architect been authorized by the landlord?
  • Has the base building core been accurately described? No base building costs should be treated as improvement costs.
  • Is there a tenant improvement allowance? How and when will it be paid?
  • What can the tenant improvement allowance be used for?
  • Will the tenant be able to meet the target completion dates set by the landlord?
  • Can the commencement date be altered if the landlord causes delays?

Office Lease Checklist: Fine Print and Hidden Clauses

Remember to always read the fine print in your office lease.  A quiet, hidden clause at the end of a real estate contract may nullify some of the more noticeable and appealing clauses at the forefront of the agreement.  

Review the following items in your office lease:

Square Footage: Landlords may change the square footage to include closet space or patios due to a general lack of knowledge on the guidelines for official square footage recording.  Upon questioning, a landlord may negotiate down on pricing when pressed on accurate measurements.  

Hidden Fees in Office Lease for Fabricated Amenities: Look for crafty terminology to find included charges that are not standard, such as common room use, or exclusive residence use fees.  

Look for Questionable Audit Phrasing: Be aware of the terminology of issues, problems or suggested future maintenance or service tucked into extensively worded audit reports.  These issues could be problematic and costly if left to the new owner or tenant to resolve.  

Get Precise Wording for Subletting: If the tenant should expect to ever need to sublet the real estate, it is important to first have an accord before signing a lease as to under what confines this can occur, for fairness on the part of both parties.  

Protection from Lenders: A good part of ownership security is a guarantee of no harassment by lenders that have dealt with the landlord. A tenant is well advised to ensure that a contract states no responsibility on their part is made to the lenders. A warning sign of preexisting lender issues is offense taken by the landlord at the request of such from a possible tenant.  

At Golden Group Real Estate, we specialize in tenant representation real estate services for office space users in the Chicago area, helping local business owners find office space and negotiate lease and purchase agreements. We never represent landlords, so we are prepared to negotiate aggressively on behalf of our tenant clients.


Categories Narrative, Office Market

1-Minute Phoenix Metro Office Update: Q1 2017

Q1 2017 was a very busy first quarter! Metro Phoenix office market experienced 800,000 SF of positive net absorption. Annualized, this puts the market on track to absorb 3.2 million SF for the year, and 700,000 SF over our 25-year average.  

Vacancy in the first quarter essentially stayed flat at 18.9%, due to new building deliveries.  Taking a closer look at vacancy shows us that businesses still prefer Class A space, which is now 17.2% vacant, compared to Class B space, which is still over 21% vacant.  Just over 1 million SF of new construction is still underway, with only 271,000 SF of that being preleased.  The rest is speculative…and doing well.  Look for some big announcements from these projects in Q2 and Q3 of this year.         
Below is the link to our Lee & Associates Arizona 1st Quarter 2017 Office Report and as usual, I’ve included my top 3 takeaways.
1. The good news on net absorption is welcomed, but it should be noted that State Farm’s Tempe campus accounted for 55% of the entire market’s success.  It remains to be seen whether we can keep this pace without our “good neighbor” expanding.

2. The size of tenants in the market remains smaller.  Two of the top five transactions this quarter were 35,000 SF and 24,000 SF, respectively.

3. Aside from Midtown, rental rates continued to creep up in all major submarkets.
Have a question on your lease or building? Call or email me anytime.

AC for VR                                                                        


PS- If you want to see how Phoenix compares to other markets across the nation, check out Costar’s State of the U.S. Office Market- 2017 Q1 Review and Forecast.  In particular, check out pages 15 & 17 (Net Absorption) and page 26 (Vacancy)
PPS- I was featured in last week for an article on driverless cars.  We have also prepared a special report on what these new vehicles will do to the commercial real estate industry. Email us to get a copy. 

Click Here to Read the Full Office Market Report 

2017 Q1 Office Report_Page_1


Categories Narrative, Office Market

1-Minute Market Update: Q4 2016 Report

The Metro Phoenix office market’s health continues to improve. Net absorption (job growth) of 2.93 million SF mirrored 2015 figures, which helped push vacancy down to 18.6% (from 19.5% at the end of 2015). Overall, lease rates are higher than they were a year ago with a current average of $24.34/SF Full Service. Rental rates still vary significantly between submarkets and product type so make sure you have a good broker (like Coppola-Cheney Group) to help you navigate any transaction you’re considering.
Below is a link to our Lee & Associates Arizona 4th Quarter Office Report and as usual, I’ve included my top 3 takeaways. BUT, this quarter I decided to add 2 bonus points to help you understand the market better.
1. North Scottsdale is hot again – North Scottsdale finished only second to Tempe in net absorption.

2. Small-Ball continues – Aside from a few large (100k SF+) deals, I continue to see a higher volume of smaller and medium-sized transactions in the market.

3. South Scottsdale got too tight for some tenants –  Some tenants that wanted to expand in South Scottsdale, could not, and had to leave.  This submarket remains one of the lowest vacancies in the Valley, and will backfill space quickly.

4. Camelback Corridor under 20% vacancy – This submarket, heavy with financial and professional services, lagged the market for the past few years but now is right in line with the Metro Market.

5. Class A vacancy fell to 17%, the lowest figure in all classes – These days, tenants still have the confidence to pay up for quality space with more amenities.
Have a question about where the market is heading as we roll into 2017? Email me or give me a call. 

PS – We are excited for 2017!  Of the top three sales last quarter, two of those buyers hired the Coppola-Cheney Group to lease their assets (Renaissance Square located at 2 & 40 N. Central and 3200 N. Central).  Call me anytime if I can help you negotiate your office lease or sale, or check out our website for more information

Click Here to Read the Full Office Market Report 
Q4 2016 Office Report
Categories Narrative, Office Market

Why We Still Need Office Space

Starbucks is not office space. Sure you can have a meeting, grab a coffee, and check your email, but it’s not a real office. There are tons of new co-working or shared office concepts. And yet, office space is not going away. Below is a short and sweet article that gives a few reasons why. 

My top takeaways on why office space will stick around:
–It is cost effective.
–It provides synergy.
–It allows team building.
This made me feel better that my job and company have some long-term plans that we can execute.  Maybe working with you on your office space is one of them. Give me a call. 


Why We Still Need Office Space
By: Don Catalano
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September 19, 2016
Why we need office spaceThe “Business 2.0” punditocracy has been posting dire blog posts for years claiming that office space is obsolete. After all, office space is expensive, employees don’t like commuting, technology enables anyone to work from anywhere, and jobs are fluid. Those four assertions are all true. However, they don’t add up to the obsolescence of office space. In fact, modern business is rediscovering the value of having a central place to work and of having teams together. They aren’t pining for a more simple past, either. Instead, controlling office space as a tenant or owner makes good business sense in the twenty-first century. Here’s why:

Office Space Is Cost-Effective

This is a lesson that your CIO has already learned in choosing between company owned servers and service in the public cloud. Outsourcing can make sense for some services, but the flexibility that comes with outsourcing (and paying another company’s profit margin on those services) typically carries a high price.

Think about the costs of off-site employees. You have to pay higher connectivity costs and pay for travel to and from the home office. Frequently, you put up with lower productivity as well. If you’re renting temporary space, costs per square foot that are anywhere from two to five times what you might pay in a traditional office are common. This might be a great strategy for flexible positions, but for workers who could be at the office, providing your own space is usually less expensive especially if you have enough economies of scale to fully utilize support staff.

Collaboration and Retention Happen in the Office

Offices also offer opportunities for both formal and informal collaboration that are much harder to replicate with a far flung workforce. You can’t chat about a work problem around the water cooler if you don’t share your water cooler with anyone, after all. Companies that have problems to solve frequently pull workers back to a traditional office precisely to enable an atmosphere of collaboration.

Providers of outsourced work spaces claim that they create collaborative spaces. It’s true that one of your workers in a coworking space like a WeWork facility could find someone else with whom to discuss issues. However, those discussions with someone working for a different company or different industry not only fail to build your company’s culture but can even draw members of your workforce into another culture, potentially harming retention. Given the ongoing challenges with finding good employees for many roles, this could be downright dangerous.

Everyone Needs a (Cultural) Home

Finally, your office space can play an important part in giving your company its culture. The type of space, its finishes and the messages that it sends all reinforce cultural messages. They also provide a place for everyone to be together and for your company to have what it needs physically located where it can easily access it. While these benefits may seem to be intangible, they are real and important.

Office space has changed. However, the core benefits that it brings remain the same. It is cost-effective, collaborative and cultural. As long as companies value those three inputs, offices will continue to have a place in the broader business world.


Categories Economy, Narrative, Office Market

CRE Crowdfunding

Crowdfunding Commercial Real Estate acquisitions is all the rage. However, like everything, there are opportunities and liabilities in placing your investment dollars in a crowdfunded deal.  

Below are two different articles with highlights. But first, a quick summary:


  • Investors lack the industry knowledge and experience needed for real estate investments
  • Too many uncommitted investors
  • High legal fees
  • High platform fees


  • Allows for smaller amounts of capital to buy a piece of an investment
  • Gives real estate entrepreneurs another avenue to raise capital other than highly-regulated banks
  • Investors retain tax benefits sooner
  • Provides access to a more diverse portfolio


If you aren’t sure if crowdfunding is right for you, give us a call.


P.S.- Click here to read an article about CRE crowdfunding being used right now for this unique development in Portland, Oregon.

Challenges, Pitfalls and Problems with Crowdfunding Real EstateBy Jordan Wirsz


It seems only a few short years ago, the “holy grail” of raising capital for developers and private issuers opened up. The term “crowdfunding” saw headlines all over the United States, and the sense of optimism that capital raisers had was at an all-time high. We even saw people crowdfunding to start crowdfunding companies. Crowdfunding conferences emerged all around the country, and regulators looked on in horror as every Tom, Dick and Harry had some new gimmick to fund through crowdfunding.

But the reality of crowdfunding is very different than the outward appearance of a sleek, easy and quick way to get deals done. From the outside looking in, a capital raiser would see crowdfunding as an opportunity to put their project onto the investor’s equivalent of “eBay” where people just see the offering, click buy, and all of a sudden your offering is full. However, the realities are a stark contrast to what most people, especially real estate developers and issuers, perceive.

Real estate technology is evolving rapidly, and not the least of which is how developers and investors raise capital. Crowdfunding, the natural evolution of real estate capital sources, has seen an incredible number of platforms (aka websites) rise up, some more successful than others. Competition amongst them is high, and although their business models vary, the net result is a relatively common core group of users that see all of the same deals or at least types of deals.

There are two primary types of crowdfunding real estate investors:

The individual: There are individual investors who like to log-in to online platforms and make their own assessments and judgements of which deals they want to invest in. Unfortunately, these investors might often choose to invest in the best sales-pitch, not necessarily the best deals. From the issuer’s perspective, these investors carry a lot of risk. They are relatively low in experience, and the potential for litigation is high. Additionally, most of these individual investors believe in diversification as a fail-safe to one deal going bad… Which naturally sounds good, but ultimately proves to be a failing strategy when compared to just doing “good deals.” Unfortunately many investors who participate in real estate investments through crowdfunding are of modest means, and no matter how many disclosures they sign, the optimism outweighs the risk in their minds. This is why I have made it a point to only work with accredited investors who have the means and experience in accumulating wealth to understand the risks.

The institution: More and more, institutions are looking at “crowdfunding” type opportunities to diversify their holdings. When an emerging manager, or perhaps even a family office decides to diversify into real estate, they might consider crowdfunding as a means to enter the asset class. Institutions and institutional type investors like simplicity. Unlike the reality that all developers and true hands-on real estate investors understand, institutional folks don’t understand how “hands on” real estate really is. So, they seek a “hands off” approach by finding other people to do the hard work through crowdfunding, or alternatively through publically traded or even private REITs. Institutional types like the “push of a button” buy and sell process. Even to individual investors get romantic about the idea of sitting at a computer screen, clicking a mouse, and getting a good return on their investment. After all, real estate investing is a “sexy” concept.

Trust me, there is nothing “cheap” about raising capital from a crowdfunding platform.

Dealing with the two different investor types can be challenging. On one hand, the individual investors might buy into an investment with less due diligence than an institutional investor would, but the dollar amounts are usually small. On the other hand, institutional investors might bet bigger, but they’ll scrutinize every offering to a high standard, and I’ve found, they often ask the wrong questions and focus on the wrong things. Albeit, they have their own way of doing things.

The real challenge with crowdfunding real estate isn’t necessarily the investors, but more so, the issuers…i.e. the developers or real estate investors who are trying to raise money from outside sources that they don’t understand. Real estate capital raisers are more often than not, self-promoting real estate developers and investors. They are not in the securities business, and they often have little understanding of the implications of being in the securities business. As an issuer raising capital from other investors, there is a complex standard of doing business that not only protects the investors, but protects the capital raiser from extenuating and undue liability, both regulatory and litigation. Believe it or not, the most problems any capital raiser will have is not with the investor who invests $1 million, but the investor who invested $5,000. The lack of sophistication and understanding, in addition to the lack of experience in risk management and risk knowledge, is a dangerous combination.

The other side of the real estate business, when using outside capital, is the securities business, which most real estate investors/crowdfunding issuers don’t have any experience in at all. I liken that scenario to a baggage handler at a local airport, climbing into the co-pilot seat of a Boeing 737. Just because you work in real estate, with investors, does NOT mean that you have a good understanding of the rules and regulations around being a securities issuer, nor does it mean that you understand the risks of regulation.

In addition to the challenges and pitfalls discussed above, one very important problem with crowdfunding is the lack of commitment that any crowdfunding platform will give you to “fill the offering.” I have seen countless examples of investors and developers trying to raise money in crowdfunding sites, only to achieve a minimal percentage of what they actually need to do the deal. So you raise half your funds… Then what? You can’t do half of a real estate deal because you only have half the capital needed. And besides, UNDERfunding yourself is one of the biggest mistakes anyone can make. So, the choice becomes either find another source of money, or don’t do the deal. Frustrating, but no crowdfunding platform will guarantee that you will fill your offering.

Few investors/developers who consider crowdfunding realize how expensive crowdfunding can be, and as such, fail to pro forma the true costs and risks associated with even attempting to raise the funds. Many crowdfunding websites will charge subscribers to look at deals… But they will also charge the issuers who are trying to raise capital. And those fees aren’t always small… It can cost thousands, even tens of thousands, to list your deal on one or more platforms. Next, before you put your deal out to raise capital, you’ll need all the proper disclosure documents. Oh how many times I’ve heard, “Oh Jordan, don’t worry about that – I found a template online!” That is usually the second or third signal to “run” away from that deal. There are no online templates which are sufficient to use for disclosure documents and subscription documents to investors. A lawyer, and an experienced securities lawyer at that, should always be used in the creation of disclosure documents and offering documents. That cost can range from $5,000 to $50,000 very easily, depending on the size and complexity of any given deal.

The next area of cost, is usually a percentage that the platform charges to raise the capital. For example, if you want to raise $500,000, the platform might charge a fee of 5% to 10% of that amount. Not only does that dilute the investor (another disclosure by the way), but it also dilutes the return… And as such, the developer’s profit.

Trust me, there is nothing “cheap” about raising capital from a crowdfunding platform. By the time you figure in legal fees, platform fees, and a good split with the investors, crowdfunding often turns a “great deal” into a mediocre deal at best.

There are many ways to raise capital, crowdfunding included. Crowdfunding has worked well for many issuers, developers and real estate investors. However, there are also other, easier, and possibly better ways to skin that cat. Working with fewer, larger investors who you can count on is by far the best way to raise real estate investment capital. Beware of the allure of crowdfunding, while not completely understanding the challenges, pitfalls and problems of this method of raising capital for your real estate projects.



How Crowdfunding Has Permanently Changed Commercial Real Estate
By Nav Athwal
MAR 21, 2016



Crowdfunding platforms make it possible for investors to connect with private real estate deals online without running into the obstacles that have traditionally been associated with commercial real estate investing. No longer does it take $50,000 or more to invest in a commercial property. Instead, it’s possible to participate in deals with as little as $5,000. Alas, it isn’t only institutions like the Harvard and Yale Endowments that can capitalize on the benefits of adding commercial real estate to the portfolio.
In terms of diversification, crowdfunding is positioned to offer investors a wide range of commercial investment types including office buildings, self-storage units, retail properties, healthcare facilities and multi-family residential properties. These platforms offer both debt and equity investments, which are geographically varied, allowing our investors even more control over their diversification strategy.  Real estate crowdfunding also makes it possible for investors to take advantage of those tax benefits mentioned earlier. Deals are typically structured using a pass-through entity such as an LLC, which allows the value of the various deductions to pass through to investors.
But investors aren’t the only ones benefitting from real estate crowdfunding.  It has also emerged as a new way for entrepreneurs and small companies investing in real estate to raise capital more efficiently than what banks and traditional private money sources can offer.  Coming out of the great recession with banks becoming more regulated and credit getting tighter, real estate crowdfunding has filled the gap by connecting real estate entrepreneurs with a new base of investors and capital.
However, despite its obvious benefits, crowdfunding for real estate is not without its limitations. For example, most crowdfunding for real estate platforms are limited to Accredited Investors only thus serving only a subset of the general public. Additionally, as is inherent with commercial real estate investing, investments in crowdfunded real estate are illiquid and not freely tradable like stocks. Despite these shortcomings, crowdfunding is the first step towards making commercial real estate accessible to investors that have historically been excluded.  And I’m personally excited to see where it goes from here.


Categories Economy, Narrative, Office Market

Suburban Office Markets

The current recovery has been anemic, not just economically but in terms of new office construction as well. Long term, the lack of new buildings is good as overbuilding is not a concern. With the emergence of millennials in the work force and live/work/play environments,  suburban office markets have been even slower to recover. As the Central Business District (CBD) submarkets continue to tighten, developers are now looking more and more to the suburbs.
–       Housing-bust metros (including Phoenix) still lag from normal pre-recession levels. (However, this is finally changing in Phoenix.)
–       Pent-Up suburban office space development is becoming a hot commodity as speculative development in the suburbs has lagged and CBD rents rise as space becomes scarce.
–       The rent premium a tenant will pay for a brand-new building is substantially higher than current rents. We will see if tenants will pay up for new.
Metro Phoenix is an interesting market.  We have Live/Work/Play in several submarkets creating opportunities for tenants to shop the market and really focus in on their needs (employee demographics, access, amenities, etc.).  Let me know if you want to discuss this further.


P.S.- Find out who is more aggressive, Craig or Andrew, in this week’s video with Michael Kosta. Click here to watch.

Why C2 Pt 1
(Having trouble viewing the video? Click here)

Office Developers Size Up Suburban Markets for Spec Development

Major CBD Office Markets Still Where Most of the Action Is, but Suburbs are Getting a Second Look Amid Dearth of Large Blocks of Space

By Randyl Drummer
September 29, 2016


With construction cranes crowding the downtown skylines in the San Francisco Bay Area, New York City, Seattle and other large CBDs, office developers and investors may do well to branch out into markets and submarkets where competition with other projects isn’t so keen and the barriers to entry aren’t as daunting. “There are many markets out there that are late-recovery plays offering significant rent upside and limited risk from new construction,” said Walter Page, director of research, office, CoStar Portfolio Strategy, during a webinar presentation titled “From the Ground Up: Late-Cycle Development Strategies,” presented with Hans Nordby, managing director of CoStar Portfolio Strategy, and managing consultant Lee Everett. 

Certain downtown and suburban submarkets within former housing-bust metros such as Sacramento, Phoenix, Orange County, the East Bay of San Francisco and even the San Fernando Valley submarket in Los Angeles are still only seeing a fraction of their pre-recession construction levels. Tampa, Atlanta, Austin, Miami, Washington, DC; and Boston continue to lag below historical norms for new supply. 


While developers haven’t been building at the feverish clip of the previous cycle, the uptick in interest in development among core and value-add funds, plan sponsors and foreign investors, especially from China, has been tangible in the first three quarters of 2016. 

“Never before have we seen such a diversity of our clients interested in either building development or lending on that construction,” Nordby said. 

The long office supply lag in these late-recovering metros could finally bring development opportunities in the submarkets of such secondary markets such as downtown Milwaukee and suburban Tampa, the CoStar analysts said. 

“If you’re looking to build, it may not be as bad a time to start now as you may think,” Nordby said, citing investment sales, rent growth and occupancy growth in many markets which in many cases exceeds their historical averages since 2000. 

Overall U.S. office supply addition has been muted throughout the recovery. Despite pockets of strong building in Silicon Valley, San Francisco, New York, Seattle, Dallas and a few other top markets, total projects under construction currently make up just 1.5% of U.S. office inventory, well below historical trends, with just 36% of metros seeing more new office space entering inventory than their long-term averages. 

In fact, overall office construction, which has remained flat for more than 18 months, now appears to trending down, Nordby said. By comparison, 79% of metros currently have apartment construction levels above their average since 2000. 

Pent-Up Suburban Demand Could Bring Opportunity

At the same time, the share of U.S. office construction projects in downtown districts versus suburbs is picking up significantly, currently at 38% of all office construction. Suburban office development has fallen in recent quarters, now totaling about half the 250 million square feet under construction in the suburbs at its peak in 2000. 

With brisk levels of office construction already underway in the top coastal markets and CBDs, this slowdown in suburb supply may be a window of opportunities for well-informed and savvy developers. 

Suburban markets such as Tampa and West Portland, OR, are looking like an increasingly good bet for investors based on rising occupancy, lower rents, pricing upside and the virtual absence of construction compared with history. 

Suburban office product is also getting more sophisticated based on tenant feedback. Version 2.0 of the suburban office park includes single-tenant office buildings outfitted with larger, more open floorplates and higher parking ratios. For example, a 150,000-square-foot building developed for GoDaddy in Tempe, AZ, has a whopping 6.7 parking ratio for its 1,350 employees, who are occupying fewer square feet per work and enjoying perks such as a yoga room and indoor go-cart track. 

Spec Resurfaces In Suburbs

Investors are taking their next step into speculative development since the recession in markets with a growing shortage of available space for large tenants. For example, in Tampa, Vision Properties — which in February acquired Renaissance Park, a five-building, 573,053-square-foot master-planned suburban corporate office campus north of Tampa International Airport — vowed eight months ago to consider developing an office building on a four-acre vacant site in its new acquisition without a tenant in tow. 

Vision plans to make good on that vow in November, breaking ground on a three-story, 111,600-square-foot building in the master-planned office campus, acquired for $100 million from Liberty Property Trust. Mountain Lakes, NJ-based Vision has already secured site work permit and applied for a building permit on Tuesday. Construction is expected to take just 12 months. 

Many relocating firms are warming up to secondary Sunbelt markets such as Tampa and Charlotte, and expanding in those metros grow attached to the benefits of lower labor, tax and business costs, including Fortune 500 companies such as Johnson & Johnson, Bristol-Myers Squibb and Citigroup, Will Bertolero, vice president of asset management for Vision Properties, tells CoStar. 

“Even tenants within our own park were skeptical and a bit shocked when we decided to go spec,” Bertolero said. 
“With the lack of large contiguous blocks of space in the market with structured parking, right now is the prime time to move forward.” 

Vision has received many inquiries for requirements of between 30,000 to 50,000 square feet and one prospective tenant may even take around 100,000 square feet, the vast majority of the building, Bertolero added. 

CoStar’s Page noted that spec makes a lot of sense in Tampa, a market generally oriented toward smaller tenants where it’s more difficult to reach the 40% or 50% pre-leasing to begin construction as might be required to construction in larger CBDs. 

“The time is right to do this as construction activity is exceptionally low,” Page said. “We are finding that the rent premium a tenant will pay for a brand-new building is higher than most investors realize.” 

Categories Economy, Narrative, Office Market

Metro Phoenix is Getting Better…Slowly

Steady net absorption (more space being leased due to job growth) continues to chip away at Metro Phoenix’s office vacancy as we head into Q4 2016. This quarter, Phoenix benefitted from medium-sized companies expanding. We hope these companies continue to grow. The metro Phoenix office market is on pace to perform roughly the same as 2015, i.e. just above average.
The market experienced 845,000 SF of net absorption in Q3, lowering vacancy down to 18.6%, and closer to equilibrium levels of 15% – 17% (neither a Landlord’s nor a Tenant’s market). What does this really mean?  It means there are hot spots across the Valley, like Tempe and South Scottsdale, where vacancy is in the single digits, and it’s tough to find Class A space for less than $30/SF/YR.  It also means there are areas like Midtown Phoenix and the Superstition Corridor starting to see more leasing activity due to their discounted pricing and large availability of space. Most importantly, it means that Metro Phoenix is doing well.  Local businesses here are growing and out of state companies are relocating here to take advantage of the great resources Arizona offers.
Below is a link to our Lee & Associates 3rd Quarter Report and as usual, I’ve included my top takeaways below:
1.       The Camelback Road Corridor Comeback- After being negative over the past several quarters, the Corridor finished 2nd in net absorption this past quarter, only behind Tempe. The demand for Class A space with tons of amenities has resulted in the highest average asking rates in Greater Phoenix at $30.14/SF/YR
2.       Spec Construction Doing Well- In addition to the build-to-suit projects, there are eight speculative projects underway. They all have great activity.
3.       Substantial Renovation Construction- In an effort to appeal to today’s tenants, there are four projects totaling 827,000 SF, all undergoing major renovations, all near Tempe and the airport. 

While this quarter saw minimal large (100k SF and bigger) leases executed, there are a number of large users in the market today which will help us finish 2016 with strong momentum. If you have a question on your lease, want to find out how much your building is worth, or just want to talk about the market, please give me a call.

AC for VR


P.S.- This October, Lee & Associates AZ is celebrating our 25th Anniversary. Coppola-Cheney is proud to have been here from the start, and we look forward to what the coming years hold. 

25th Anniversary - Post Card_WEB 2  25th Anniversary - Post Card_WEB2

Click Here to Read the Full Office Market Report 

Q3 Report


Categories Law Firms, Narrative, Office Market

Political Real Estate Issues

Below is a great summary of political issues facing the real estate industry.  I have highlighted some key issues specifically for commercial real estate.  These include:

  • Ongoing tax reform may make “Like Kind Exchanges” more difficult to close and lose tax benefits drying up volume.
  • New standardized accounting principles for leases could decrease cash flow to owners. This is a huge issue for a ton of our clients.
  • The National Flood Insurance Program is up for reauthorization – if not authorized, millions of people will not be able to get mortgages. I am sure it will get reauthorized, but this political season is the craziest of the crazy.
  • New water regulations could cause higher costs for developer permits. We have experienced “navigable” waters in AZ and guess what ….it was a wash.  Federal overreach in this area is, well, CRAZY.
If you want to discuss any of these issues, or others you see in your business, send me an email.


P.S.- We know you will swipe right for this week’s video. The video can be seen on our website by clicking here.

If you cant view this video, please click here.

Advocacy: A Look at Several of the Issues Important to Your Business
May 17, 2016
NAR is actively engaged on issues affecting all aspects of the commercial real estate industry, supported by thousands of staff hours working tirelessly on your behalf to ensure you and your clients can conduct business.
1031 Like Kind Exchanges
Under both House and Senate tax reform proposals released in the 113th Congress, Section 1031 is repealed, and further, the President’s budget for Fiscal Year 2015 proposed limits on the deferral provisions of Section 1031. Although none of these proposals progressed in the 113th Congress, if tax reform plans are introduced in the 114th Congress it is likely that they will borrow heavily from the previous ones, so Section 1031 is still at risk.
What does this mean for my business?
The exchange rules often provide a real estate professional with an opportunity to facilitate two transactions: the sale of the relinquished property and the purchase of the replacement property. Any curtailment of the exchange rules will make both pieces of exchange transactions more difficult to conclude and would mean many transactions would not take place. The like kind exchange technique is among the most important of all tax provisions for real estate investors and commercial real estate professionals.
Commercial Lead-Based Paint
The Environmental Protection Agency (EPA) continues to consider federal rules that would regulate the renovation and remodeling activities in public and commercial buildings to address possible lead-based paint hazards. The EPA is collecting data about the hazards presented by lead based paint and how renovation and remodeling activities in commercial and public buildings would potentially increase the harm to building occupants.What does this mean for my business?

Residential property managers must spend more on staff that now must be EPA certified in lead-safe renovation procedures. The Agency may impose the same regulatory burden on commercial building owners and managers if data show their RRP activities pose a child lead hazard. In addition, contractors must be certified and comply with the lead-safe renovation procedures, which drives up the cost of these renovation activities, which drives up the cost of owning and managing both residential and commercial properties.


Credit Union Lending
The National Credit Union Administration (NCUA) proposed a rule which would eliminate restrictions on credit unions making member business loans (MBL). The proposal would give credit unions more autonomy in creating commercial lending policies unique to each credit union. The proposal would also create a new treatment for construction and development loans.

What does this mean for my business?

What has worked in the past may not work now in terms of accessing credit. Increased banking regulations, particularly in community and regional banks, mean banks are spending more of their capital on regulatory compliance.

Energy Deduction 179D

The Section 179D deduction in the Internal Revenue Code encourages greater energy efficiency in our nation’s commercial and larger multifamily buildings, by allowing for cost recovery of energy efficient windows, roofs, lighting, and heating and cooling systems meeting certain energy savings performance targets. Without section 179D, the same energy efficient property would be depreciated over 39 years (nonresidential) or 27.5 years (residential). In the Omnibus Appropriation bill passed on December 18, 2015, Section 179-D was extended retroactively to include the 2015 tax year and through 2016.

What does this mean for my business?

In addition to reducing energy consumption and saving owners and tenants’ money, these improvements can also increase the property’s attractiveness to new tenants and help them retain value as they age.Short-term extensions of 179D and allowing it to expire, even for short periods that are covered retroactively, can undermine its purpose, as building owners may be unsure as to whether it will apply to improvements they hope to make and opt not to take the risk.

Energy Efficiency
The federal government is moving forward with voluntary energy efficiency policies and programs, as well as regulations to limit the U.S. atmospheric contribution of carbon dioxide (CO2) and other greenhouse gases. Some of these policies, programs and regulations may impact the built environment, including commercial properties.

What does this mean for my business?

If energy efficiency were federally mandated, property owners’ ability to sell their home or building could be at risk without first having to conduct energy audits and improve its heating and cooling system, windows, insulation and/or lighting.

Lease Accounting
As part of a larger effort to converge accounting standards, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have been working since 2005 to develop a standardized approach to lease accounting. The latest reports from FASB indicate it will replace the current dual model approach with a new one: though leases currently categorized as “operating leases” will be brought onto balance sheets under the new rule, “Type A” leases are treated as capital leases and “Type B” leases continue to be recorded as straight-line rent expenses. Most real estate leases will fall into the “Type B” category. The updated standards were released in February 2016 and will go into effect for public companies in 2019 and private companies in 2020.

What does this mean for my business?

The new standards could harm businesses of all sizes, especially lessees and lessors of commercial real estate. With more bloated balance sheets, some companies may see their debt-to-equity ratios increase and find it more difficult to obtain credit, especially those with heavy debt loads or still recovering from the recession. The new standard could also complicate compliance with debt covenants or agreements between the bank and borrower, which usually prohibit companies from borrowing more than they are worth. By capitalizing new and/or existing leases, some businesses could show more debt than allowed in their agreement with the lender, and therefore be in default of their loan. This could force some firms to put up more capital for existing loans or even have their credit lines revoked.

Additionally, the elimination of off-balance-sheet financing could be detrimental to commercial property owners. More frugal lessees will want less space and shorter-term leases without renewal options or contingent rents, which will decrease cash flow for property owners. Shorter-term rents will likely reduce the borrowing capacity of many commercial real estate lessors, who rely on leases and the value of the property as collateral in order to obtain financing. Ultimately, property owners would be forced to increase rent rates due to market uncertainty and reduce tenant improvements due to shorter recovery periods. Conversely, this change could encourage some firms to consider buying instead of leasing commercial real estate.

Leasehold Improvements
The 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties provision expired at the end of 2013; in December 2015, Congress passed and the President signed into law an Omnibus Appropriations bill which makes the provision permanent. Thus, it is now available for all improvements to property placed in service.

What does this mean for my business?

Property owners are required to amortize the costs of improvements made on behalf of tenants over a recovery period that has no relation to the economic life of the assets. This artificially depresses rates of return. Providing a shorter and more realistic depreciation period for tenant improvements allows upgrades for technology and modernization to be more economically feasible. These types of improvements help assure that nonresidential buildings will be adequately maintained and remain technologically current.

National Flood Insurance Program (NFIP)
The National Flood Insurance Program (NFIP) was extended for five years in 2012 by the Biggert-Waters Act, but Congress must reauthorize it again to continue providing flood insurance after 2017. Biggert-Waters also phased out subsidized flood insurance rates for many commercial properties but severe implementation problems threatened to undermine real estate transactions where flood insurance is required to obtain a mortgage. In March 2014 Congress responded to these issues by amending Biggert-Waters with the “Homeowner Flood Insurance Affordability Act.” The new law, among other things, restores the grandfathering of properties under lower risk rates upon remapping, reduces the increased rates of non-grandfathered properties, and repeals rate premium increases at the sale of properties (including refunding increases to those who have already paid them). In June 2015 Reps. Dennis Ross (R-FL) and Patrick Murphy (D-FL) introduced H.R. 2901, the “Flood Insurance Market Parity and Modernization Act,” which clarifies that property owners may satisfy federal flood insurance requirements with either NFIP or private coverage. The bill was approved by the House Financial Services Committee on March 2, 2016.

What does this mean for my business?

Without the NFIP, millions of home and small business owners in more than 20,000 communities nationwide would not be able to obtain a mortgage or insurance to protect their property against the most expensive and common natural disaster in the U.S.: flooding. The NFIP was created because of the lack of access to affordable flood insurance coverage in the private market. It also reduced the number of uninsured properties that otherwise would rebuild with tax payer funded disaster relief after major floods.

Waters of the U.S. Definition
In April 2014 the EPA and the Army Corps of Engineers jointly proposed a rule to “clarify” which bodies of water are “waters of the U.S.,” and thus able to be regulated under the Clean Water Act (CWA). In support of this, the agencies released a draft science report on “connectivity” of various bodies of water in the U.S. Depending on how the definition is finalized, compliance with the CWA under it may require expensive, time-consuming federal permits to develop private property near most water bodies, not just those which are navigable (as under the current regulatory scheme). The final definition was released in May 2015, and several states sued the government. In October 2015, an appellate court ruled to stay the implementation of the rule, effectively halting the rule from going forward.

What does this mean for my business?

Depending on the “U.S. water” definition, the Act will require expensive, time-consuming federal permits to develop private property near most water bodies — not just those which are navigable. In addition, property owners may experience a taking under the regulation without adequate compensation, as prescribed under the 5th Amendment of the Constitution.

Categories Narrative, Office Market

Positive and Steady: Q2 Office Market Insight

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

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

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

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

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


P.S.- We know you will get PUMPED up after watching this video. Click Here to see if dreams get deflated in this week’s video.
Inflatable Furniture
 (Having trouble viewing the video? Click here)

Click Here to Read the Full Office Market Report 

Q2 Market Report



Categories Economy, Narrative, Office Market

Understanding The Office Market: Q1 2016 Phoenix Office Report

Office leasing is off to a good start in 2016.  Here in Metro Phoenix, the market saw 641,000 square feet (SF) of net absorption (office jobs added) recorded in the first quarter.  This means Metro Phoenix is on track to absorb approximately 2.5 million SF for the year. That would mean another year of consistent, average net absorption, since 2.5 million SF matches our 25 year average.

However, based on current activity early in the second quarter, I wouldn’t be surprised if we have another outstanding year of job growth like last year (3.4 million SF absorbed).  While there are still some dead spots within the market, activity is mostly up across the Greater Phoenix region.  For tenants I represent, there is often activity on spaces under consideration, and they no longer have months to make a decision.  I’m also seeing increased tour volume at the buildings I lease across the Valley.  Vacancy, at 19.4%, has remained virtually unchanged from Q4 2015 due to the 1.1 million SF of new construction that delivered this quarter.  A 19.4% vacancy seems very high, especially when compared to other major markets across the United States.  For Metro Phoenix, it just means that we’re getting closer to equilibrium levels for vacancy of 15-17%.  At these figures, it’s neither a tenant’s nor a landlord’s market.
Below is a link to our Lee & Associates 1st Quarter Report and as usual, I’ve included my top takeaways below:
1.       Numbers show that Tempe and South Scottsdale remain the two most desirable places for offices.  Tempe led the way with the most net absorption with 256,000 SF while South Scottsdale boasts the lowest vacancy of any major submarket at 11%.
2.       The Superstition Corridor had the second highest net absorption in Q1.  With lease rates heating up in choice submarkets like Tempe, it makes sense that tenants would be priced out and looking for less expensive buildings along the US 60.  It also speaks to the strong demographics of the East Valley.
3.       The top lease in the market was CVS who took all of Four Gateway (444 N. 44th St., Phoenix), a very nice 140,000 SF block of space formerly occupied by State Farm.  Negotiations started taking place before State Farm’s lease expired at the building.  The large blocks of space that State Farm will vacate in the 44th Street and Tempe submarkets may not have such an adverse effect on vacancy as everyone thinks.
If you have a question on your lease, want to find out how much your building is worth, or just want to talk about the market, please give me a call.



Click Here for the Q1 2016 Phoenix Market Report

Q1 Report


Categories Narrative, Office Market

How Do Star Wars and the Phoenix Office Market Relate? Q4 2015 Phoenix Market Report

Seeing Star Wars Episode VII: The Force Awakens recently I cannot help but draw a parallel to the world of Metro Phoenix office leasing. Why? Because, like “the force,” net absorption awakened in 2015 posting 3.4 million square feet. This is the highest absorption since 2005 and has pushed our vacancy rate below 20% for the first time in eight years. (By the way, 2005 is when the last Star Wars movie was released.)

The first three quarters of 2015 produced gradual job recovery, and the fourth quarter pleasantly surprised us with 1.9 million SF of net absorption. This was 56% of the yearly total in just one quarter. The growth has been driven by large users new to the market (e.g. State Farm Regional HQ & Zenefits), substantial companies existing in the Valley expanding (e.g. Wells Fargo, DriveTime), and many local companies growing. Consistent with the past few years, Tempe and Chandler led all submarkets in annual net absorption, posting 43% of the entire metro market.

Below is a link to our Lee & Associates 4th quarter report and as usual, I’ve included my top 3 takeaways below:

1.       Metro Phoenix Office Vacancy broke the 20% threshold and stands at 19.5% today. This means there will be upward pressure on rents in tight submarkets and certain product types.
2.       Rents continue to spike for trophy buildings or areas with walkable amenities. Some tenants will continue to pay these rates, but others will move to weaker submarkets or lower quality projects. Note that Midtown, with the highest amount of Vacancy in Greater Phoenix, absorbed four times as much space as the amenity-rich Camelback Corridor.
3.       Speculative construction is back in a big way. Over 1.3 million SF delivered in Q4 2015 alone and another 900,000 SF is now under construction. The majority of spec construction has been successful as most users have not been patient for planned projects.

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


P.S.- Following up on our hilarious office space tour video with comedian Michael Kosta, we have a three week series of our real estate version of The Bachelor. In the below preview clip, we give you a first look at getting a rose. Or you can visit our website here to immediately watch the full version.

Bachelor 1 Video 3

If you are unable to play the video, please click here.


Click Here for the Q4 2015 Phoenix Market Report 

2015 Q4

Categories Narrative, Office Market

Trends in Square Feet per Office Employee

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

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

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


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


Trends in Square Feet per Office Employee


Categories Narrative, Office Market

Market Insight: Q2 2015 Phoenix Office Report

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

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

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

(National figures reported by CoStar)

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

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

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

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

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


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

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


For the entire report, click here.

Q2 2015 Office Report_Page_1


Categories Narrative, Office Market

Office Market Is on a Slow Roll

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

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

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


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

Office Market Is on a Slow Roll

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


By: Eliot Brown
Updated July 1, 2015

Office Market on Slow Roll_WSJ (2)
The skyline in San Francisco, where rents rose 6.3% over the past 12 months, second only to Seattle, at 7.2%.

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

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

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

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

Filling Up Market Update

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

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

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

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

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

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

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

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

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

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

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


Categories Narrative, Office Market

Operating Expenses? Yes! And It’s Important.

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

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

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

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

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


2013 Metropolitan Phoenix Suburban Office Bldg_Page_2

Click here for the entire report.

Categories Narrative, Office Market

In The Know: Phoenix Office Report Q4 2014

A lot can happen in a year. Our fourth quarter 2014 Phoenix Office Market Report came out last week and it looks noticeably different than our Q4 2013 report. Below is a link to the report and here’s a brief summary: The metropolitan Phoenix office market absorbed 620,000 net square feet (SF) in Q4 to push net absorption for all of 2014 to 2.4 million SF. This is significant for two reasons: One, this was the highest annual absorption since 2008; Two, 2.4 million SF matches the 25 year average for net absorption in Metro Phoenix. Relative to the last few years, this absorption seems outstanding; taking a broader look, however, will show that Phoenix absorption is finally back to average. 
Given the good progress in 2014, I thought it would be interesting to review Q4 2014 vs. Q4 2013 figures. Here are the top four comparisons I found:

1. Vacancy has dropped to 20.6% from 23.2% in one year. Select submarkets saw substantial rental rate increases in 2014, but once vacancy drops below 20%, the overall market will experience upward pressure on rents. 

2. There is 3 million SF under construction now, compared to 640,000 SF under construction this time last year. (State Farm and Wells Fargo build-to-suits make up half of this figure) 

3. A year ago, SkySong 3 (145,000 SF) was roughly half of only 360,000 SF of speculative office buildings under construction. Today there is 1.1 million SF of speculative office product under construction and SkySong 3 is 90% leased. Building spec is back. 

4. The Scottsdale Airpark Submarket absorbed 400,000 net SF in all of 2014 after recording – 11,000 SF in 2013. This much improved submarket finished second only to South Tempe’s 457,000 SF of net absorption in 2014.

Phoenix made great strides in 2014 and is poised for more success in 2015. Enjoy the big game this weekend.


P.S. Once a year, AZ Business Leaders asks the elite executives in all industries to share the business advice and principles that help their companies succeed. These leaders have experience, vision and influence. When they speak, the community listens. My partner, Craig Coppola, was honored in AZBigMedia’s annual look at the amazing people who guide companies in every business category of Arizona’s economy.

AzBusiness-Leaders-2015-cover-compressed 2   AZ Business Leaders 2015_Craig Coppola 4


For the entire report, click here.

Q4 2014 Phoenix Office Report_Page_1

Categories Narrative, Office Market

Market Insight: Q3 2014 Phoenix Office Report

Finally, some good news. The Metro Phoenix Office posted just under 800,000 SF of net absorption for the third quarter. A significant number of the tenants I talked to while canvassing buildings have either just expanded or are considering expanding in the near future. Despite the strong absorption, vacancy remains high at 21.6% across the entire market. Except for South Scottsdale, Tempe and parts of the Camelback Corridor, rents have stayed flat and will continue to remain there until we fall below 20%. Both Craig and I thought we would be hitting the 19% range heading into the fourth quarter. Looks like 2015 will now be the year to hit the teens in vacancy, something we haven’t seen since 2007.
Below is the link to our third quarter report and my top three takeaways:

    1. 800,000 SF of net absorption is a big news. We are on track to hit 2.5 million SF for the year, which coincidentally is slightly above our 25-year average. So while we think this will be a historically average year, given the recent years of low and negative absorption, we are grateful for this amount of net absorption.

    2. Surprisingly, we have 876,000 SF of speculative office under construction and all of these projects either have preleasing or very good activity. A growing number of owners in Northeast and Southeast Valley submarkets have enough confidence in the market to take a big risk, and they are being rewarded for it . Note there is another 1.5 million SF under construction of build-to-suits including State Farm and Wells Fargo.

    3. Activity is growing in Scottsdale. The collective Scottsdale submarkets as a whole posted five times as muchabsorption in Q3 as they did in Q2. This means Central and North Scottsdale have caught some of the fire South Scottsdale has shown. All three Scottsdale submarkets (16.6 million SF) make up 20% of the Metro Phoenix market. Year-to-date, they account for almost half of the entire market’s net absorption.
I, for one, am looking forward to finishing the year relatively strong and experiencing more robust job growth in 2015.


P.S. Below the Q3 2014 Phoenix Office Market Report is an article with a quick update on our Job market and projections for the remainder of the year. The title of the article below says it all…Hopes for Strong 2014 Job Growth Slipping Away in Arizona.


For the entire report, click here.
Q3 2014 Phoenix Office Market Report_Page_1

Hopes for Strong 2014 Job Growth Slipping Away in Arizona


By: Ronald J. Hansen
October 17, 2014

AZ job growth
Over the past 12 months, Arizona has seen 2.1 percent job growth,
a little better than the nation as a whole and
below the 2.5 percent figure some thought the state could reach in 2014.
(Photo: Cheryl Evans/The Republic)

A hoped-for bounce-back in Arizona jobs this year increasingly looks like wishful thinking.

The state’s unemployment rate officially fell to 6.9 percent Thursday, with Arizona gaining 28,800 net jobs in September.

But the increase largely was the result of teachers and other education-related staffers going back to work. The state’s private-sector employers added just 1,900 jobs last month, with many of those in health care.

Arizona’s jobless rate was 7.1 percent in August.

Over the past 12 months, Arizona has seen 2.1 percent job growth, a little better than the nation as a whole and below the 2.5 percent figure some thought the state could reach in 2014.

The state has hovered around 2 percent annual growth for the past three years, and with three-quarters of 2014 in the books, that seems the path again, economists now say.

“Two percent is definitely where we’re headed for 2014,” said George Hammond, director of the Economic and Business Research Center in the Eller College of Management at the University of Arizona. “To put that in some perspective, our 30-year average is 4.1 percent.”

Those better years typically are driven by solid gains in construction, an industry that pays above-average wages and grew rapidly during the state’s housing boom.

Now, however, the industry has shrunk to 1994 levels — and is still losing workers. Those losses continue to pull down the state’s economy.

Few signs of growth

From construction to manufacturing to the aerospace and defense-related industries, Arizona’s traditional sources of growth aren’t picking up.

The plodding pace means Arizona ranks near the bottom nationally in recovering its job losses from the Great Recession.

Arizona’s unemployment rate remains 1 full percentage point higher than the nation’s.

Jeffrey Kravetz, regional investment director for US Bank Wealth Management in Phoenix, said that Arizona isn’t attracting new residents as it normally does and that Millennials, young adults who should represent the next wave of homebuyers, aren’t buying in large numbers.

“There’s not a huge demand for single-family homes,” he said.

Arizona’s tepid recovery is similar to the soft recovery in California and other states where real estate has outsized value, Kravetz said.

Aruna Murthy, director of economic analysis for the Arizona Office of Employment and Population Statistics, said the state has now regained 62 percent of the jobs it lost in the downturn.

By contrast, in May, the nation as a whole got back to the employment level it had when the recession began in December 2007.

Through August, only three states had fared worse than Arizona by that measure.

Little growth in September

Across the state and in most industrial sectors, employment was little changed in September.

“The private-sector didn’t do as well as expected, but government did better than expected,” Murthy said. “I would have wanted a better private-sector report.”

Drinking establishments, for example, posted their worst September in five years. Leisure and hospitality more broadly continued a five-year trend of smaller job gains in September.

And construction continued to hemorrhage jobs, losing an additional 2,900 last month. Over 12 months, that industry has lost 8,300 jobs, easily the worst in the state.

Over the past year, the state has gained 53,200 non-farm jobs. Of those, 49,700 were in the private sector, and the rest were in government.

Bright spot: Health care

Ambulatory health-care services, the kind of work often done in clinics, was the largest share of the fastest-growing sector. Hospitals and nursing care also posted solid gains.

One example: Abrazo Health, which includes six acute-care hospitals and other facilities, hired 1,165 employees from October 2013 to September 2014. It currently has about 4,300 employees.

After that, employment services, which includes temporary workers, was among the sectors that saw the most employment growth.

Murthy said the number of temporary workers is still climbing, which typically signals the economy isn’t growing as it did a decade ago.

Other recent disappointments have hobbled Arizona’s recovery.

In September, Tesla Motors formally announced that it picked Reno over Arizona and three other states for its planned battery factory.

On Thursday, GT Advanced Technologies, the company Apple paid to make sapphire glass at a factory in Mesa, announced 727 layoffs as part of a bankruptcy that began earlier this month.

The new jobs numbers shouldn’t suggest panic or near-term prosperity, Murthy said.

“If you ask me, it’s the same September as last year,” she said. “At least we’re growing 2 percent. Some states aren’t even doing that.”

As late as October 2007, Arizona’s unemployment rate stood at 3.8 percent, almost 1 full percentage point lower than the nation’s. Arizona’s unemployment rate rose above the national average in June 2008 and has stayed higher ever since.

Nationally, 248,000 jobs were added in September, better than what many analysts had expected.

Also on Thursday, the U.S. Labor Department announced that initial jobless claims nationally had fallen to a 14-year low.

Still, the labor-force participation rate has fallen to its lowest level since 1978, a factor that has helped bring down the unemployment rate without more robust hiring.

Better days ahead?

In some ways, the job report already seems a worryingly late measure of the economy.

Markets around the globe have been churning for a week on fears of a recession in Europe.

Looking toward next year, UA’s Hammond believes 2015 already is shaping up to be little better than 2014.

Kravetz said the U.S. economy seems to be gaining strength, even if Arizona isn’t seeing faster growth. He said that oil prices may lift consumer spending in the near term.

As recently as June, crude oil went for $115 a barrel. Now, it costs $83, a decline that consumers should see at the pump.

“That’s a huge boost for consumers. They will spend that at the mall,” he said.

Some employers, especially in retail, are already expecting a surge in customers.

With holiday shopping around the corner, the Phoenix market has been hiring in slightly greater numbers for several weeks, said Sherri and Charles Mitchell, founders of All About People, a Phoenix-based recruiting and staffing firm.

Many of the jobs are in retail and are seasonal in duration, Sherri said.

“Beyond the holidays, I think there’s a little more skepticism,” Charles said. “There’s a lot of uncertainty out there.”


Data: Job growth by industry sector

Arizona isn’t growing as fast as it usually does or as fast as economists had projected earlier this year.

Here is job growth by major sector over the past 12 months:

Education* and health services: 17,200 jobs.

Professional and business services: 14,400 jobs.

Leisure and hospitality: 9,200 jobs.

Financial activities: 8,400 jobs.

Trade (retail), transportation and utilities: 5,400 jobs.

Government**: 3,500 jobs.

Other services: 2,300 jobs.

Manufacturing: 400 jobs.

Natural resources and mining: 400 jobs.

Information: 300 jobs.

Construction: -8,300 jobs.

* Includes for-profit education companies. ** Includes public and charter-school teachers.

Source: Arizona Office of Employment and Population Statistics

Categories Narrative, Office Market

Market Knowledge: Phoenix Office Report Q2 2014

The Phoenix office market continues to slowly improve. Too slow for my taste, but improvement is always good. Unless you are in Tempe, Chandler or Scottsdale, the market is not improving as fast as owners and investors would like. Lee & Associates Arizona released its second quarter Office Market Update in July and showed that success these days is clearly dependent upon the submarket. The disappointing news is that we only had 143,000 SF of net absorption across the Valley. This comes as a surprise after such a strong first quarter with 730,000 SF of space absorbed. As a result, our overall vacancy dropped only slightly from 22.2% to 21.8%; and rental rates in many submarkets remained flat. However, the market remains on the path to recovery highlighted by some bright spots along the way.

Here are my top three takeaways for the quarter and a link below to our second quarter report:

  1. Slow Office Absorption is caused by lack of job creation, there is no getting around that. It’s also due to companies becoming more efficient with their space. Technology groups in particular now design densities of 7-8 per 1,000 SF leased whereas that figure was 4-5 per 1,000 in the last cycle. Despite this, absorption is happening and will continue to increase as the economy improves.
  1. Confidence Is Increasing for both landlords and tenants. There has been enough absorption in the last few years to give landlords a sense of stability. This confidence translates into the high prices and low cap rates that landlords will pay for quality real estate. For newer buildings with walkable amenities, tenants feel good enough about their business to pay increased lease rates. 
  1. Market Health Varies by Submarket. Craig and I negotiated 2 of the top 5 leases in the 2nd quarter. One was in Scottsdale while the other was a renewal and expansion in the SE Valley. Lease rates in both markets have increased substantially since the recession with vacancies falling into the low teens. SkySong 3 in South Scottsdale, a speculative project we lease, has reached 90% occupancy just weeks prior to its opening. On the flip side, Midtown remains weak at 26.8% vacant with owners competitively bidding for precious tenants.

As the third quarter begins, my team is already negotiating some substantial sales and lease transactions. I hope these deals will be a reflection of success the entire market will experience in the second half of the year. If you have any specific questions on the market or your lease, please call me.


P.S. Click here to see an article on national leasing trends in which I was featured in the current issue of CCIM Institute Magazine.

For the entire report, click here.

Lee AZ Q2 2014 Phx Market Report 2

Categories Economy, Narrative, Office Market

A Look at the Numbers Behind the Current Headlines About Job Creation

Job creation news made headlines a few weeks back touting that the United States had recovered all of the jobs that were lost during the great recession. In Arizona, however, we are still way behind our pre-recession levels. Over the next two weeks, we are going to try to tie jobs, the Phoenix office market, and Phoenix population growth all together to make sense of our market.  

For this week, let’s look at the Phoenix office market and my favorite topic–job growth:

–Job creation remains anemic. In Arizona, we are still a long way away from getting back to our pre-recession levels.

–The office market has bifurcated into two markets—Sales and Leasing. Large investor demand for class A properties has caused the market to compress cap rates, and created demand for the construction of new buildings. The leasing market, on the other hand, remains extremely challenging with all segments still over 20% vacant. A 20% vacancy is not a market where sustained lease rate increases will continue. 

–Absorption for Q1 2014 was very good, creating some justified hope that the market recovery will begin to accelerate.

–I am a realist and I want to see vacancies in the teens (in any class of building A, B or C) before I tell my landlord clients we are on the path to recovery.  

I remain very optimistic over the long term. Seven years into an office market with plus 20% vacancy is daunting. I am hopeful we can keep the year rolling and finally get back into the high teens at the end of this year or at worst case, in 2015.



Historical Phoenix Office Market Statistics 2
To see a larger image, click here.

Linneman Letter Page 5 Graph
To see a larger image, click here.

Unemployment Rate 03.14_Page_03 3

Ofc of Employment and Population Stats_Mar 2014 Report_Page_01 2
View the entire slideshow at:

The Unemployment Puzzle: Where Have All the Workers Gone?

The U.S. unemployment rate is down, but rising numbers of Americans have dropped out of the labor force entirely


April 4, 2014

The problem is not just a cyclical downturn. We need to tackle deep structural issues in the U.S. economy. Bloomberg News

A big puzzle looms over the U.S. economy: Friday’s jobs report tells us that the unemployment rate has fallen to 6.7% from a peak of 10% at the height of the Great Recession. But at the same time, only 63.2% of Americans 16 or older are participating in the labor force, which, while up a bit in March, is down substantially since 2000. As recently as the late 1990s, the U.S. was a nation in which employment, job creation and labor force participation went hand in hand. That is no longer the case.
What’s going on? Think of the labor market as a spring bash you’ve been throwing with great success for many years. You’ve sent out the invitations again, but this time the response is much less enthusiastic than at the same point in previous years.

One possibility is that you just need to beat the bushes more, using reminders of past fun as “stimulus” to get people’s attention. Another possibility is that interest has shifted away from your big party to other activities.

Economists are sorting out which of these scenarios best explains the slack numbers on labor-force participation—and offers the best hope of reversing them. Is the problem cyclical, so that, if we push for faster growth, workers will come back, as they have in the past with upturns in the business cycle? Or do deeper structural problems in the economy have to be fixed before we can expect any real progress? To the extent that problems are related to retirement or work disincentives that are either hard to change or created by policy, familiar monetary or fiscal policies may have little effect—a point getting too little attention in Washington.

Employment Is Recovering
Participation Is Down

The unemployment rate, the figure that dominates reporting on the economy, is the fraction of the labor force (those working or seeking work) that is unemployed. This rate has declined slowly since the end of the Great Recession. What hasn’t recovered over that same period is the labor force participation rate, which today stands roughly where it did in 1977.

Labor force participation rates increased from the mid-1960s through the 1990s, driven by more women entering the workforce, baby boomers entering prime working years in the 1970s and 1980s, and increasing pay for skilled laborers. But over the past decade, these trends have leveled off. At the same time, the participation rate has fallen, particularly in the aftermath of the recession.

In one view, this decline is just a temporary, cyclical result of the Great Recession. If so, we should expect workers to come back as the economy continues to expand. Some research supports this view. A 2013 study by economists at the Federal Reserve Bank of San Francisco found that states with bigger declines in employment saw bigger declines in labor-force participation. It also found a positive relationship between these variables in past recessions and recoveries.

But structural changes are plainly at work too, based in part on slower-moving demographic factors. A 2012 study by economists at the Federal Reserve Bank of Chicago estimated that about one-quarter of the decline in labor-force participation since the start of the Great Recession can be traced to retirements. Other economists have attributed about half of the drop to the aging of baby boomers.

Baby boomers can’t be the whole story, though, since the participation rate has declined for younger workers too. This part of the drop is a function of various factors, including simple discouragement, poor work incentives created by public policies, inadequate schooling and training, and a greater propensity to seek disability insurance. Globalization and technological change have also reduced employment and wage growth for low-skilled workers—which raises questions about whether current policy is focused enough on helping workers to achieve the skills necessary to work productively and earn decent incomes.

Figuring out which explanation best fits today’s labor market is important because the different narratives point to different possible solutions. To the extent that labor-force participation and job creation have a cyclical element, activist demand policies by the federal government may make sense. Does this mean that the Obama administration’s “targeted, timely and temporary” stimulus package was the right approach? Actually, no. Increasingly, it appears to have been a poor match for the severity of the downturn and the magnitude of the required boost.

After the Great Recession’s sharp decline in investment and employment, U.S. business probably needed a more curative jolt to restore confidence. A sustained infrastructure program, rather than a temporary one for “shovel-ready” projects, would have provided more reassurance of longer-term demand. And far-reaching tax reform could have provided both a near-term fillip from front-loaded business tax cuts and a credible prospect for future growth.

What we don’t know is whether the Obama’s administration’s activist policies failed to draw more Americans back to work because they were poorly executed or because they didn’t do enough to raise aggregate demand. A better designed activist fiscal policy would have made more headway in encouraging growth, but deeper factors behind the downward shift in labor force participation still remain.

The Federal Reserve also has used monetary policy, through aggressive “quantitative easing,” to combat the shock from the financial crisis. In assessing this move’s effect on the labor force, a key question again is whether the problem is best seen as cyclical or structural. If labor-force participation is down because of cyclical factors, keeping interest rates low has been a smart policy, even as unemployment falls—in fact, even if it continues to fall to very low levels to draw nonparticipants back into the labor force.

Research by economists at the Federal Reserve Board published in 2013 suggests that bringing Americans back to work in this way might succeed without sparking inflation—if low labor-force participation is largely a result of a conventional downturn in business activity. If the real problem lies in the rules of the game—that is, structural factors accounting for labor force participation—such a highly expansionary monetary policy ultimately runs the risk of igniting inflation.

As I see it, the policy response to our disturbing doldrums in the labor market has indeed struck the wrong balance. Whatever can be said for shorter-term measures to jump-start job creation and business activity, it seems clear by this late date that our problems are in no small part structural. What we need most urgently is to rethink the federal government’s wider role in the labor market. The importance of structural problems doesn’t imply that policy can play no role beyond conventional fiscal or monetary policy.

The fierce debate now going on in Washington about extending unemployment insurance and raising the minimum wage largely ignores these issues. Such policies may affect the incomes of some Americans, but they won’t do much to expand opportunity and bring more people back into the labor force. Sparking a broad-based return to the labor force demands a more ambitious agenda.

In the first place, we need to encourage low-wage workers and remove barriers to their lasting participation in the labor force. This encouragement is particularly important given the downward pressure on wages encountered by many low-skilled employees in the face of globalization and technological change. The Earned Income Tax Credit, which supplements the income of low-wage workers as they earn more, is supported by many conservatives and liberals alike. Expanding this program’s payments for single workers (that is, beyond workers with families)—or using an alternative low-wage subsidy—would create more powerful work incentives. Phasing out the support over a longer income range, so that it provides more help to those who succeed and advance and reduces the marginal tax rate on work as the support phases out, also makes sense. These changes would cost money, but they could easily be accommodated in a broad tax-reform package.

Another priority for bringing low-wage workers back into the labor force is reforming disability insurance, which is part of the Social Security system. Since changes in qualifications in the 1980s made it much easier to receive federal disability payments, the percentage of individuals reporting disabilities who are still working has dropped by half. For some, disability insurance has become an incentive to give up on work—but it doesn’t have to be this way. The program could be restructured to instead provide the employers of disabled employees with tax advantages for retraining them to remain on the job.

The Affordable Care Act, while giving some Americans access to health insurance for the first time, also creates certain disincentives for work. The law’s generous private insurance subsidies phase out as income rises. In a recent study that I co-wrote with John Cogan and Daniel Kessler of Stanford University, we estimate that the amount of the federal subsidy can decline by as much as 50 cents for each dollar of additional earnings. This implicit tax comes on top of existing income and payroll taxes, raising the effective marginal tax rate on earnings to as much as 80% to 100% for some middle-income families. A broader tax reform that gives a more uniform subsidy for health insurance and health spending would reduce this problem.

A second broad area of policy in need of structural reform is unemployment insurance. Unemployment insurance was originally designed to provide income to workers during temporary spells of joblessness. Longer spells of unemployment during the Great Recession have led to continued calls to extend these benefits. Such extensions certainly keep income support in place longer, but they also lengthen spells of unemployment, potentially making workers less attractive to employers going forward.

A better approach would be a policy pivot toward easing the return to work. A first step would be to complement traditional unemployment insurance with block grants to states to support training and workforce development through community colleges and vocational education. Congress could also create Personal Re-employment Accounts for individuals. These accounts would give lump sums to individuals who lose their jobs and make it likelier that they receive some support and training during long periods without unemployment. If such individuals find a job quickly, they could keep some of the money as a re-employment bonus. Advancing and updating skills are also important: Funds currently in other federal training programs could be repurposed to provide this pro-work support.

Finally, in response to the profound change in the demographics of today’s workforce, we really must consider eliminating the Social Security payroll tax on older workers. Today, older workers who delay retirement must keep paying Social Security taxes while receiving virtually no extra benefits—a strong incentive to stop working early. Getting rid of the payroll tax (currently 12.4% for Social Security) for older workers would remove this disincentive and increase employers’ demand for older workers because employers pay half the employees’ payroll tax.

In addition, Social Security reform should dispose of the “retirement earnings test,” which reduces benefits by about 50 cents on the dollar on earnings above $15,000 for individuals aged 62 to 65. This heavy tax directly discourages work. These pro-work reforms to Social Security wouldn’t be budget busters. Additional work by older Americans would produce income and Medicare taxes to offset much of the budget cost—while also slowing down the exit of workers from the economy.

None of the supply-side changes I’ve proposed would be easy to enact. They would require Democrats in Washington to confront the inadequacy of their stimulus policies to raise employment. And they would challenge many Republicans, who have focused their attention on economic growth, pure and simple, rather than on much-needed changes in federal labor policies. They will need to face up to the need for a more opportunity-oriented agenda for work, as Rep. Paul Ryan and Sen. Marco Rubio have argued, rather than simply opposing the extension of unemployment insurance or raising the minimum wage.

John Maynard Keynes once famously declared his fear that, at some point, much of humankind would have to cope with the problems of abundant leisure and little work. Perhaps. But we can no longer sit back and watch as growing numbers of Americans—not just the wealthy or the elderly—exit the labor force. This trend spells trouble for the nation’s economic and fiscal future. It is a bigger and less understood problem than we think, and it requires bolder policy action than we have contemplated so far.

Fewer Working Americans

For the entire article:

U.S. Job Growth Jumps, But Shrinking Labor Force A Blemish

Reuters 2

By: Lucia Mutikani
May 2, 2014

US Jobs 2
A woman looks at her smartphone as she attends the NYC Startup Job Fair in New York, April 11, 2014.

US Jobs 2 3
A help wanted sign is posted on the door of a gas station in Encinitas, California in this September 6, 2013 file photo.

(Reuters) – U.S. employers hired workers at the fastest clip in more than two years in April, pointing to a rebound in economic growth after a dreadful winter and keeping the Federal Reserve on track to end bond purchases this year.

The brightening outlook was, however, tempered somewhat by a sharp increase in the number of people dropping out of the labor force, which pushed the unemployment rate to a 5-1/2-year low of 6.3 percent. Wage growth also was stagnant.

Nonfarm payrolls surged 288,000 last month, the Labor Department said on Friday. That was largest gain since January 2012 and beat economists’ expectations for only a 210,000 rise.

“It lends significant legitimacy to the positive tone in the wide array of post-February economic reports, which have all been consistently pointing to a significant pick-up in economic growth momentum this quarter,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

March and February’s data was revised to show 36,000 more jobs than previously reported.

U.S. stocks briefly rallied on the report, which was later eclipsed by rising tensions in Ukraine. Stocks ended lower, while safe-haven bids pushed the yield in the 30-year U.S. government bond to its lowest level in more than 10 months.

The dollar was flat against a basket of currencies.

About 806,000 people dropped out of the labor force in April, unwinding the previous months’ gains. That helped to push down the unemployment rate 0.4 percentage point to its lowest level since in September 2008.

The labor force participation rate, or the share of working-age Americans who are employed or unemployed but looking for a job, also fell four-tenths of a percentage point to 62.8 percent last month, slipping back to a 36-year low touched in December.

Overall, however, the data suggested the economy was gathering strength and led investors to pull forward their bets on when the Fed will start to raise interest rates.

The strong payrolls growth added to upbeat data such as consumer spending and industrial production in suggesting that sputtering growth in the first quarter was an aberration, weighed down by an unusually cold and disruptive winter.

The Fed on Wednesday shrugged off the dismal first-quarter performance. The U.S. central bank, which announced further reductions to the amount of money it is pumping into the economy through monthly bond purchases, said indications were that “growth in economic activity has picked up recently.”

“It also matches well with the Fed’s expectations for the labor market, excluding the sharp unemployment rate drop, and likely means more $10 billion dollar reductions in monthly asset purchases at future meetings,” said Scott Anderson, chief economist at Bank of the West in San Francisco.


Economists expect second-quarter gross domestic product to top a 3 percent pace. Last month’s drop in the labor force could have been driven by some of the 1.35 million people who lost their longer-term unemployment benefits at the end of last year.

Since they are no longer receiving unemployment benefits they have little incentive to continue looking for work as required by law. Part of the decline in participation in the labor market also reflects changing demographics, as well as people going on disability while waiting to reach retirement.

“Baby boomers are retiring and the various government benefits including disability are contributing to the drop in the participation rate,” said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

Still there is little doubt the labor market is strengthening. A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, fell to a 20-year low of 12.3 percent in April. It was at 12.7 percent in March.

In addition, the number of people who have been unemployed for more than six months saw its biggest decline since October 2011 and the average duration of unemployment fell to 35.1 weeks from 35.6 weeks in March.

The short-term jobless rate hit a new cycle-low of 4.1 percent. Employment gains in April were broad-based, with the private sector adding 273,000 jobs and government payrolls rising 15,000. Manufacturing employment increased 12,000 after rising 7,000 in March.

Construction payrolls gained 32,000 after increasing 17,000 in March. The hiring trend could slow in the months ahead as residential construction loses some steam.

Despite the strong gains, average hourly earnings were flat in April, pointing to lack of wage pressure and still ample slack in the economy.

“There is just no sign of any broad-based wage pressure,” said Josh Feinman, chief global economist at Deutsche Asset & Wealth Management in New York. “There is still slack in the labor market and with labor costs still dead in the water, the Fed is probably not going to have to rush (to raise rates).”

The length of the workweek held steady at 34.5 hours last month after bouncing back in March from its winter-depressed levels.

Categories Narrative, Office Market

Market Insight: Phoenix Office Report Q1 2014

Want to know the latest trends in the Phoenix Office market? Here’s what’s going on: Our first quarter Office Market Report was just released this week with some interesting stats. We had an excellent quarter for net absorption, the most important measure of the market’s health. We absorbed 727,000 SF, and if we keep that pace up, 2014 absorption will more than double 2013’s figure of 1.3 million SF. Landlords need this pace desperately to break the 20% vacancy threshold. Once below 20%, the market will begin to see increases in rental rates across the market.

Below is the link to our first quarter report and my three takeaways below:

1. There is almost 2 million SF of new office product under construction. Only 18% of it is speculative, the rest are build-to-suits.

2. All of the new construction is in Chandler or Tempe, except for SkySong in Scottsdale, which Craig and I lease. The Southeast Valley continues its early domination for tenants in this cycle.

3. Vacancy is still 22%; continuing to cause downward pressure on rents in general. If we absorb approximately 2 million SF or more in 2014, we will break into 19% vacancy range and begin to see a different Phoenix office market.

We have some wind at our backs here in Phoenix; let’s see how strong it stays in 2014.



For the entire report, click here.

Q1 2014 Phoenix Office Market Report_Page_1

Categories Narrative, Office Market

Thoughtful Outlook for Office Space in 2014

Annually, I review a large number of commercial office research. Below is a link to the UBS Global Asset Management US Real Estate Market Outlook 2014. With all of the cumbersome reports published, I find this one to be very concise and insightful. The entire report is 28 pages but we have included the key office pages below.
Many trends occurring here in Phoenix mirror what’s going on nationally, including my top three:

  1. Overall Office Vacancy – It’s still high relative to historical figures. We are not at the incredibly high 27% like we were in the recession, but we are still 23% vacant here in Metro Phoenix. Equilibrium is closer here to 15%.
  2. Type of Recovery – Professional Services (including lawyers, engineers, technology companies) are leading the recovery. If you look at all of the top leases in Phoenix over the past 12 months, these companies top the list, along with some government entities.
  3. Suburban Office Vacancy is Declining – Much of the quality, core (class A, prime location buildings) product has leased up at discounted rates in the recovery. This tight product type now commands as much as a $6-$8/SF/YR premium over suburban office, making suburban offices a much more attractive option. The suburban markets in Phoenix are recovering but still offer many great deals for tenants.

Much like UBS, we have a positive, but conservative, outlook for the office market in 2014.  I CAN tell you I am pleasantly surprised by the leasing activity I’m seeing in this first quarter. I hope we can convert that into results throughout the year.



Entire UBS Global Asset Management US Real Estate Market Outlook 2014

Office Market Report_Page_1

Categories Narrative, Office Market

Q4 2013 Office Market Report

Our fourth quarter 2013 Office market absorption numbers came out last week. A short summary: We are making progress but absorption fell below expectations. We concluded the year just under 1.3 million SF of net (not gross) absorption. Net absorption is the true measure of a market’s performance. The net absorption in 2013 was down 36% from 2012, however, we beat the 1 million SF benchmark figure showing we are growing but at an anemic pace.

Here is a link to the Q4 2013 Office Market Report. These are my top four takeaways:

1.       Vacancy STILL stands at 23.2%, down only 80 basis points from 2012’s year end mark. As long as vacancy is thishigh, there is a drag on the overall market.

2.       There is 643,000 SF of office product under construction (SkySong 3, Allred Park Place, Go Daddy and General Motors). This time last year we only had 68,000 SF under construction. All of these projects had preleasing or were single tenant build-to-suit.

3.       Aside from select submarkets like Tempe, Downtown Phoenix, South Scottsdale and Chandler, rental rates remain flat and competition for tenants remains fierce. Once our market-wide vacancy dips below 20%, the playing field will begin to change.

4.       Office Sales Volume for Q3 and Q4 was four times larger than the consideration in the first half of the year. Sales prices continue to range all over the board due to product type and rent roll. Our Q4 report shows average sales price/SF is down, but this simply reflects more class B properties sold versus class A. We are seeing values generally increase in each class. Craig and I have a good pulse on the sales market after negotiating the largest sale transaction of the year when SkySong I&II traded back in August. Call us anytime to discuss cap rates and deals in the market.

With some wind (net absorption) at its back, Phoenix will, hopefully, get closer to that 20% vacancy mark in 2014. The buzz created in 2013 by major companies like State Farm, GoDaddy, Webfilings, InfustionSoft, and General Motors help give me a positive outlook for this year.


P.S. I just got the below from Elliott Pollack and thought you should see it. Until we see robust job growth and strong in migration, we will continue to have slower than normal office absorption.

The Census Bureau released population data for the year ending July 1st.  It shows what most people already intuitively knew.  Population flows are anemic.  Arizona population was up 1.2% or 75,475 for the year.  Indeed, population flows have been weak for the past 6 years (see attached table). Slow population growth means fewer than normal housing starts.  Over time, population will grow again.  But, as of now, even though Arizona is the 3rd most popular destination for domestic migrants and 18th for international migrants, the total number of people moving nationally and internationally to the U. S. is about half of what it was at the peak. – Elliott D Pollack & Company, January 6, 2014

Q4 2013 Office Absorption Chart

Q4 2013 Office Vacancy Chart