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NAIOP CRE Sentiment Index: Cautious Optimism for U.S. Commercial Real Estate Market Over Next 12 Months

NAIOP has released the latest CRE Sentiment Index based on a survey of member developers, owners, and investors on whether their 12-month outlook for commercial real estate development is positive, neutral or negative.
The Fall 2017 Index is 0.49, registering the second lowest reading in the history of the three-year-old survey, decreasing from 0.56 as measured in the March 2017 survey. This survey reflects an expectation that the CRE market will be moving ahead at a more cautious pace than what was expected six months ago. 
 
Key takeaways:
  • The Fall 2017 Index returned to the level noted in September 2016, when commercial real estate fundamentals were generally positive but uncertainty regarding the U.S. presidential election clouded the general economic outlook.
  • The two largest positive changes in the survey that helped keep the Index in positive territory were much greater confidence in the availability of debt and equity capital.
  • However, respondents were much more concerned about the costs of construction materials and labor – with these two survey components hitting all-time lows. 
View graphs and observations for each of the 10 questions about jobs, the space markets, construction costs, the capital markets and more.
View the Report
To share your feedback or inquire about participating in the next Sentiment Index survey, contact index@naiop.org.

Surveys: Green Building and Employee Wellness Matter

Posted on October 13, 2017

A recent survey conducted by construction management firm Structure Tone found green building is still a major market differentiator, and employee wellness is increasingly important to tenants. Structure Tone sent its “Client Sustainability Survey” to a nonscientific sample of corporate real estate and facilities management professionals. Questions centered on participants’ opinions on third-party certification systems like LEED, challenges to building green and the newer pressures of wellness and climate change in the built environment. Findings indicated that 62 percent of respondents agreed that LEED is a valuable market differentiator, but cost is the primary barrier to adopting sustainable building practices. Over 80 percent of the respondents consider employee wellness essential to their retention and recruitment; more than 50 percent reported they plan to seek external expertise to incorporate wellness into their buildings.

Amazon’s HQ2 RFP: A Blueprint for Future Economic Development?

Posted on October 12, 2017

Amazon’s search for a second headquarters has North American cities scrambling for ways to attract the world’s fourth-largest corporation. However, jurisdictions, even those not in the running, should take their economic development cues from Amazon’s HQ2 Request for Proposals (RFP), according to Brookings Institution’s Amy Liu and Mark Muro. In a recent Harvard Business Review article, “What Amazon’s HQ2 Wish List Signals about the Future of Cities,” Liu and Muro’s advice to cities that want to attract high-tech industry is “not to just polish up branding and marketing materials and wait for the next Amazon-scale business attraction opportunity,” nor rely on assembling parcels and offering generous subsidies. Rather, cities need to examine the criteria outlined in the RFP and “ask whether they’ve done enough to build up the fundamental assets prized by innovative firms and industries.” Those assets include:

  • Capacity to produce skilled technical talent, including partnerships with higher education institutions along with science programming in K-12 education.
  • Modern infrastructure. The presence of highway networks, international airports, and high-speed broadband to reach global and domestic markets.
  • Connected and sustainable placemaking. Amazon’s RFP emphasizes its “interest in promoting walkability and connectivity between densely clustered buildings through sidewalks, bike lanes, trams, metro, bus, light rail, train and additional creative options.”

Localities that invest in people, infrastructure and quality places rather than offering only traditional incentive packages, according to the authors, will attract the attention of forward-thinking firms.

U.S. Cities' Revenue Growth to Contract in 2017

Posted on October 11, 2017

According to a report by the National League of Cities, U.S. cities’ revenue growth will shrink for the second consecutive year in 2017. The findings in “City Fiscal Conditions 2017,” based on a survey of finance officers from 261 cities, “signal a trend that was last seen in 2006 before the Great Recession.”

Key discoveries include:

  • “General Fund revenues are slowing. General Fund revenues grew by 2.61% in 2016, and revenues are projected to stagnate with just 0.9% growth in 2017.”
  • “Property tax revenue growth is budgeted much lower than in 2016. Finance officers have budgeted for 1.6% growth in property tax revenues in 2017, compared to 4.3% in 2016.”
  • “Finance officers project a decline in sales and income tax revenues for 2017. Both sales and income tax revenues grew in 2016 (by 3.7% and 2.4%, respectively), but finance officers project a decline in 2017 (by 0.2% and 2.7%, respectively).”
  • “Confidence of municipal finance officers has waned. Although the majority of finance officers (69%) are confident in the fiscal position of their cities, widespread optimism hit its peak in 2015.”

Is Your 2018 Salary and Bonus Package Competitive?

Posted on October 10, 2017

Is your 2018 salary and bonus package competitive? Find out with the 2017 NAIOP/CEL Commercial Real Estate Compensation and Benefits Reports.

These valuable reports are the national standard allowing commercial real estate businesses to stay current on salaries, bonuses, and benefits for CRE professionals from executives to entry-level positions.

The reports include:

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Tax Reform Provisions Important to CRE

Posted on October 9, 2017

Below are some details on the recently released Unified Framework for Fixing Our Broken Tax Code, in which the Trump administration and congressional Republican leadership have outlined chief areas of agreement for tax reform legislation.

While House and Senate GOP leaders and members of President Trump's economic team left many details of the legislation for the tax-writing committees in both chambers to resolve, there are several agreed-upon major provisions of interest to CRE:

  • Reduction of the number of tax brackets from seven to three: 12, 25 and 35 percent, leaving open the possibility of an additional higher bracket for the highest-income taxpayers to ensure the share of taxes paid by the wealthy remain the same.
  • Reduction of corporate tax rates to a maximum of 20 percent, down from the current rate of 35 percent.
  • A top rate of 25 percent applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations (pass-through entities). The framework contemplates that the committees will adopt measures to prevent any recharacterization of personal income taxed at ordinary rates into business income taxed at the lower pass-through rate, done solely for purposes of avoiding taxation.
  • Immediate expensing for new investments in capital assets, not to include structures, but leaving open the possibility for increased expensing for small businesses and modernizing current depreciation schedules for assets not provided immediate expensing.
  • Partial limitation for deductibility of interest expenses for C corporations, asking the committees to consider the appropriate levels of deductibility for other types of businesses.
  • Elimination of the Alternative Minimum Tax.
  • Repeal of the Estate Tax.

We believe that these provisions will spur stronger economic growth and job creation, benefitting our industry in the long term, but many questions remain unanswered.

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Concord to Host Drop-In Session on Proposed Land Use Plan

Posted on October 9, 2017

The City of Concord invites the public to get the first glimpse into the policies and maps that will guide the development of the community over the next 10-15 years. The 2030 Land Use Plan public input session is scheduled for 6:30 p.m. on Tuesday, October 10 CFA Village Suite 75 located at 280 Concord Parkway N.

With the assistance of Tindale Oliver, Planning and Neighborhood Development staff have been working to update the City's Land Use Plan to provide the framework for land use and development through the year 2030. The existing Land Use Plan, referred to as the 2015 Land Use Plan, was created in 2004 and updated in 2007.

The process is updating a land use map and supporting text document that contains data, specific goals, and policy recommendations focused on land use and development. The final plan will also guide City officials as they develop future budgets, plan infrastructure and other services, make important land use decisions, and revise current policies within the Concord Development Ordinance.

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Budget First, Tax Reform Next

Posted on October 6, 2017

Lawmakers in the House and Senate say they’re determined to pass a sweeping tax reform bill this year. But first, for procedural reasons, both houses need to pass a Fiscal Year 2018 budget. FY 2018 began on October 1.

Republicans on the Senate Budget Committee released a draft budget that it says would balance within nine years. But committee members haven’t explained where they would find $5 trillion in spending cuts. That draft budget will be voted on by the full Budget Committee this week, then go to the floor of the Senate later this month. The House drafted a budget plan over the summer and plans to hold a vote on Thursday.

After the two chambers come to an agreement on budgetary spending levels, lawmakers would be able to turn to tax reform, which is a key priority for NAIOP. Throughout the year, NAIOP has met with lawmakers and Hill staffers to deliver the message that all federal spending and tax reform bills should protect the interests of the CRE industry.

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Venture Capital Increasingly Attracted to Real Estate Startups

Posted on October 6, 2017

According to a recent TechCrunch article, “VC Doors are Wide Open for Real Estate Startups,” seed and early-stage investment in real estate technology have increased by $100 million over the past 12 months. Cultural and demographic shifts along with rising property and rental prices account for the rising interest in startups.

“Real estate and its adjacent industries are broadly behind in technology adoption, so many investors look at the space as low-hanging fruit,” says Constance Freedman, managing partner at real estate-focused venture capitalist (VC) firm Moderne Ventures.

The article identifies several companies that are experiencing early-stage funding:

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To Survive, Malls Must Reposition

Posted on October 5, 2017

A report by CBRE, “What’s Wrong with American Shopping Malls?” finds retailers with low-growth rates, such as department stores, occupy a majority of U.S. shopping malls’ gross leasable area compared to retailers with higher-growth categories such as restaurants and home furnishings. This disparity, according to CBRE, indicates malls should lease to different retailers to stay competitive.

However, shifting the merchandise mix will take time. The report states retail leasing structures, such as reciprocal easement agreements that require a retailer’s permission before modifications are made to the shopping center, and the overall reluctance to change among department stores will delay the process. Those who “shift the tenant mix toward higher-growth, lower e-commerce penetration spending categories can create room for revenue growth.” CBRE also notes super-regional malls, characterized by larger sizes and diverse combinations of tenants, have demonstrated a sharp increase in net operating income over regional malls during the past four years.

RECAP: Connectivity: Planes, Trains and Automobiles

Posted on October 5, 2017

On September 19, 2017, NAIOP Charlotte hosted a breakfast that discussed Moving people and products into, around and outside of Charlotte with bikes, automobiles, trucks, airports, light rail, and trains.  It all impacts the future growth and development of our region.  This breakfast discussion included diverse perspectives on local, state and national policy and the priorities and challenges for the next 25 years.  Are their tools to help move the priorities forward?  How does the 2040 Transportation Plan, managed lanes, and rail impact your business and the future of development?  And, how can our industry help ensure good mobility in our region?  

A special thank you to our panel, moderated by Tracy Dodson and including Ned Curran, Northwood Office, and former NCDOT Chair, David Howard, NC Department of Transportation and former Charlotte City Council Member, John Lewis, CATS.

Click here to view more photos from the event.

Some of the areas of discussion include:

Where do we get the funding?

  • North Carolina has the second largest road system in the US (second to Texas) because there are no county-managed roads
  • Take advantage of Federal Grants
  • We need to find new funding sources as the gas tax is not enough.  Can counties around Charlotte use the .04 cent to fund regional connectivity?
  • Tax Increment Financing
  • Encourage regional conversations
  • Exhaust local opportunities to fund, then go to state for help
  • Old model – 50% FEDERAL, 25% STATE (now 10%)

Future Conversations

  • Value Capture proposal – Blue Line extension (the incremental tax revenue not necessary new tax, allocated to future growth)
  • P3 (Denver, CO example)

Public-Private Partnerships as a Powerful Tool

  • To move transportation forward
  • Because of the controversy of North I-77, fear to consider P3

Regionalism and Connectivity

  • Need visionary leaders – need forward thinking
  • Embrace the new means of mobility (fixed rail, managed lanes, etc.)
  • Need multi-modal app
  • CATs – support of Economic Development

Call to Action

  • Get involved with the politics – know what is going on and advocate for the opportunities in our community.
  • Make sure the elected officials know the issues – now
  • Look bigger than your project
  • Get involved – serve on a committee
  • Share information with city staff
  • Discuss with region about the benefit of Charlotte growth and small towns and counties connectivity

Using Tech Tools to Solve Construction Challenges

Posted on October 4, 2017

By: Todd Burns

Between rising costs, dwindling talent pools and looming uncertainty, today’s construction leaders are grappling with some seriously disruptive forces. But a closer look at each of these “disruptions” reveals some serious opportunities, too, as the sector begins to ramp up its technology strategy.

Though still in the early stages of change, the sector’s movement toward tech innovation represents a meaningful cultural shift, considering that it’s traditionally been slower to embrace technology than other industries.

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2017 NAIOP Charlotte/CRCBR Golf Tournament Winners

Posted on October 4, 2017

Congratulations to our Tournament Winners!
Thank You to all our Participants and Sponsors!

Thank you to everyone who came out on Monday, October 2 for the NAIOP Charlotte and CRCBR Annual Golf Tournament at Carolina Golf Club. Congratulations to all of our tournament winners.

Click here to view photos from the event.

GROSS Winners

Our first place winners based on GROSS were:

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Welcome New NAIOP Charlotte Members

Posted on October 4, 2017

We are proud to introduce our new association members! The following is a list of individuals who have joined NAIOP Charlotte since July 18th:

  • Brion Blais, SpeedPro Imaging Charlotte Center
  • Brian Boehm, ElmTree Funds
  • Christopher Kouri, Nexsen Pruet, PLLC
  • Derek Lanning, Miles-McClellan Construction

The Benefits and Risks of Triple Net Leases

Posted on October 3, 2017

By: Richard R. Spore III

What do office and retail property owners need to know about triple net leases?

A commercial real estate project’s value is typically based on its net operating income, which equals rental income minus operating expenses. The allocation of operating expenses between the landlord and tenants is, therefore, an important factor in the project’s value. Most commercial leases use some variation of two basic operating expense allocation models:

Gross rent model: The landlord pays 100 percent of operating expenses from gross rent paid by the tenants.

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Time for a Tax Reform Online

Posted on October 2, 2017

After months of discussions behind closed doors, a group of six policymakers is scheduled to pull back the shades this week – perhaps as soon as Tuesday – and put out an outline for comprehensive tax reform. After the outline is released, “the tax-writing committees are going to take feedback and input, and then they’re going to go produce their bills in the weeks ahead,” House Speaker Paul Ryan says.

NAIOP’s legislative team has been working ahead of the process, meeting with lawmakers and their staff members throughout the year. NAIOP has emphasized that spending and tax reform bills should protect the interests of the CRE industry. That includes maintaining Section 1031 like-kind exchanges, protecting the deductibility of interest payments on financing and taxing real estate carried interest as capital gains instead of ordinary income.

Last week the Senate Finance Committee held a hearing on the importance of corporate tax reform. “Our current business tax system and the disparity between the U.S. corporate rate and our foreign competitors’ corporate rates has created a number of problems and distortions,” Senate Finance Committee Chair Orrin Hatch said.

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Piecing Together the Population Puzzle

Posted on September 29, 2017

Richard Fry, Ph.D., Senior Researcher, Pew Research CenterMillennials, Gen-Xers and baby boomers have distinct demographic profiles and approach jobs, debt and their living situations differently, Pew Research Center senior researcher Richard Fry, Ph.D., tells GlobeSt.com. Fry will be presenting the session “Piecing Together the Population Puzzle” during NAIOP’s CRE.Converge conference in Chicago Oct. 10-12. The session will dive into the patterns and predilections of demographics, related economics and what it all means for CRE. We spoke with Fry about how millennials’ characteristics have changed over time, how debt influences their living-situation decisions and how Gen-Xers, millennials and baby boomers differ in their economic perspectives.

GlobeSt.com: What has changed about the characteristics of millennials over time?

Fry: The Pew Research Center currently defines millennials as adults ages 18 to 36. There are at least three things have changed for the millennials over time, and some of them will continue to change. Demographically, immigration has changed them and it is going to continue to have an impact on them. In 2015, the number of millennials in the US was about 75 million, and according to Census Bureau population projections, this number will peak in size to 81 million in 2036, so this group is still growing. The reason for this growth is when the US receives immigrants, they tend to be in the family or early-working years, and most arriving immigrants tend to be in the age range of 17 to 44—the young-adult years. So, millennials demographically are changing; they haven’t peaked in size yet and are going to continue to grow.

Click here to read the full article.

Medical Office Space May Defy Market Volatility

Posted on September 28, 2017

According to CBRE’s inaugural report on the U.S. medical-office market, the steady demand for and investor confidence in healthcare-related workspace indicates it may be a “resilient sector, able to weather economic downturns and political changes.” The age 65-and-over population – now accounting for the highest per-capita healthcare spending – will nearly double by 2055 and drive an increased need for medical office space. Some findings include:

  • “Cost containment is driving health care industry consolidation and fueling demand for less expensive delivery settings, such as medical office buildings and urgent-care facilities, as well as new technologies that can produce better patient outcomes at lower costs.”
  • “Absorption of medical office space has outpaced new supply for the past seven years, lowering the segment’s national vacancy rate to 8% as of Q1 2017.”
  • “Rising investor confidence in medical office space has resulted in increased transaction volume in the segment, which reached nearly $10 billion for the year ending Q1 2017 and pushed cap rates to a record-low average of 6.8%.”

The report includes 30 U.S. market profiles and identifies metropolitan areas with low concentrations of healthcare employment and rapidly aging populations, including Atlanta, Las Vegas and Denver. According to the report, these markets will need to ramp up healthcare employment to meet current and future needs.

US Ports Booming: Challenges and Opportunities

Posted on September 27, 2017

A recent article titled “Power of the Ports” in Real Estate Forum magazine highlights the challenges and opportunities faced by U.S. ports in the wake of e-commerce demand and the Panama Canal expansion. Investors are increasingly drawn to ports – economic forecasters predict $155 billion in capital project investments over the next 5 years creating 1.6 million jobs. In 2014, U.S. coastal ports generated $4.6 trillion for the economy, accounting for 26 percent of U.S. GDP.

The biggest investments will occur along the Gulf Coast due to the existence of energy processing plants and transfer facilities. Most growth has occurred around East Coast ports, which are benefiting from strong economies, product demand, population growth and interest from foreign exporters. Chinese shipping companies have found it more cost effective to dock in New Jersey than in West Coast ports, as the ships can then go on to ports in Europe and South America.

Experts doubt that trade restrictions will have a dramatic effect on U.S. ports. What is more concerning is the scarcity of remaining developable land surrounding high-activity ports. Builders are forced to locate on sites farther away from the port’s hub, thereby increasing the distance from customers and resulting in potentially higher costs for shippers and manufacturers.

Building with Resiliency in Mind

Posted on September 26, 2017

After a hurricane, the cost to rebuild and repair can run into the hundreds of millions. Construction firms are taking action, investing in resilient buildings that can withstand flooding and power outages from future natural disasters.

“It’s entirely a builder or a property owner’s choice of whether they want to do extra work to prevent property damage or have the right insurance or not,” Simon Koster, a mechanical engineer and principal at JDS Development Group, told Science Friday. “Those are the choices that people are starting to make voluntarily.” After Hurricane Sandy hit New York City in 2012, Koster’s group decided to design a building, American Copper, resilient to hurricanes. The lobby is lined with stone that will not weaken with moisture, and the mechanical equipment, typically found in the basement, is located on the second floor above the flood line. Additionally, a park doubles as a bioswale and helps divert water from the building. Koster predicts building resilient architecture will become the “new normal” for cities and that it is no longer a question of if a storm will strike, but when.