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Retail-industrial Trend Poised to Spark Real Estate Innovation

Vans

By Linda Strowbridge 


Growing convergence between the retail and distribution sectors could have profound impacts on the commercial real estate industry. As retail and industrial clients adjust to shifts in consumer behavior and the overall economy, CRE professionals will be challenged to change their thinking about how to truly serve their clients. That challenge, however, could also produce innovative real estate products and new opportunities. That’s according to Dustin C. Read, Ph.D./J.D., author of the NAIOP Research Foundation report, “New Places and New Spaces for E-commerce Distribution: Three Strategies Bringing Industrial and Retail Real Estate Closer Together.”

What was the most interesting or significant discovery you made while researching the paper?

Read: It was probably that some of the most important phenomena related to the convergence of industrial and retail real estate were the ones that received the least attention. In the popular press, there has been lots of discussion of the conversion of obsolete retail buildings into distribution facilities. When you really drill down – even though there have been hundreds of articles written on that topic – the number of [these retail-to-distribution conversion] projects that have been successful in the U.S. is relatively small. I was surprised to see when you really start pulling back layers of the onion, there is more talk about it than there is actual execution of those types of projects.

The amalgamation of all the obstacles a developer must overcome to do one of these projects successfully is significant. The project has to be acquired at a relatively low purchase price and have the right access to infrastructure. It must be in a market that has good industrial characteristics and an area where the municipality has given up on the site as a viable retail location and is willing to rezone it for potential distribution. When all those things come together at the same time, there are opportunities for conversion. But often, they don’t all come together.


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Can Industrial be a Good Neighbor in Residential Areas?

 

 

Industrial

By Trey Barrineau

Industrial properties are often built near neighborhoods, but that isn’t always popular with the residents, who have legitimate concerns about noise, traffic and pollution from the increased volume of trucks and vans.

A recent NAIOP online panel discussion examined how developers can work with local communities to address these worries through outreach and engagement, as well as with design and technological innovations.

“Education is key to establishing that relationship early on,” said Sven Tustin, executive vice president with Conor Commercial, who moderated the panel. “The developer has to listen to concerns. Residents look at a site plan that shows 200 dock doors, and they assume that there will be 200 trucks coming in and out 24/7.”

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November Bonds Ahead for Charlotte, Gastonia; CLT Groups Form From 2040 Plan

Bonds on November Ballot For Charlotte, Gastonia

On Nov. 8, Gastonia residents will vote on a $75 million Transportation General Obligation Bond Referendum. The City Council approved the bond referendum at its Aug. 2 meeting.  

Proposed projects include:

  • Street and road repairs
  • Pedestrian walkways (sidewalks)
  • Street resurfacing
  • Utility relocations
  • Street intersection improvements
  • Street light improvements

For more information, visit this link.       

Charlotte voters will also have the opportunity to vote on a $226 million bond package that will upgrade and enhance streets, build housing for low-to moderate-income individuals and families, and improve infrastructure in the city's older neighborhoods and emerging high-growth areas. 

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Mitigating Environmental Risks in Life Science Leases

Dangerous chemicals and infectious diseases are among the many hazardous materials that are handled inside life science facilities. Getty Images
By Michael Pollack

A lot of hazardous material passes through these facilities, so caution is necessary.

Life science industries span a range of uses — clinical research and trials; biologics; medical devices; pharmaceuticals; vaccines research, development, manufacturing, and distribution; plant and animal technology; and veterinary products, to name just a few. Leases for life science facilities can present unique challenges and considerations for building owners. Besides the particular demands life science uses place on electrical capacity, HVAC, floor loads, and waste removal, the activities within these facilities can pose many other risks.

Inherent in many life science facilities is the utilization, storage, and/or distribution of hazardous or toxic materials under applicable environmental laws. Of course, most common leases will contain standard indemnification clauses allocating responsibility to the tenant for losses resulting from its activities. 

When it comes to environmental issues, though, there are unique concerns for owners of life science properties. These include the ecological indemnity the principal owners provide to their lender (which typically comes from a well-funded source other than the property owner). There’s also the strict liability imposed under federal law on anyone in the chain of title for additional cleanup costs, whether or not they caused the contamination. 

Also, another lingering fact involves the owner would typically only have recourse from the tenant for a breach of the lease’s environmental restrictions.

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CommercialEdge: Charlotte Office, National Sales and Vacancy Rates Up in Midyear 2022

By Eliza Theiss 

Two and a half years after the pandemic began, the short-term future for the office sector remains uncertain, with record vacancy rates adding to the industry’s woes, according to a recent office report from CommericalEdge. And as hybrid and work-from-home business models continue to take hold — and rising inflation rates further deter workers from returning to traditional office settings — the sector’s long-term prospects are also murky.

Top Markets for Highest Listing Rate Growth

The average full-service equivalent listing rate in the top 50 U.S. office markets was $37.58 per square foot in June — up two cents from the previous month, but down 2.6% from the previous year.

With a 15.6% gain year-over-year (Y-o-Y), Charlotte, North Carolina, continued to lead the market in price growth, increasing its average full-service equivalent listing fee to $33.45 per square foot. Prices in this market grew at progressively faster rates for the fourth straight month.

Similarly, Miami office space ($47.23/square foot) had a gain of 8.4% over the previous year and continued to be one of the fastest-appreciating office markets. But Boston still outperformed it with a 12% increase, thanks to the city’s thriving life sciences industry.

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Revenue Surpluses Provide Opportunity for Tax Relief within States

US map

By Toby Burke

The economic slowdown from the COVID-19 pandemic initially raised concerns within states that general revenue collections would be lower than anticipated and, as a result, create shortfalls in maintaining a balanced budget. Although revenue collections from specific sectors of the economy, such as hospitality and tourism, were lower, overall revenue shortfalls from the pandemic did not materialize in most states. Partially bolstered by e-commerce and the collection of state sales tax from internet transactions, revenue collections increased, producing budget surpluses. These surpluses provided an opportunity for states to enact various tax relief measures.

To put it in perspective, the Fiscal Survey of the States, spring 2022 version, from the National Association of State Budget Officers (NASBO), indicates that general revenue collections have increased in 49 states for the fiscal year 2022. The estimated 3.2% growth in revenue collections for the fiscal year is projected to be followed by a more nominal growth of 1.4% for the fiscal year 2023.

Midway through the fiscal year 2022, the National Conference of State Legislatures (NCSL) also reported that revenue collections remained strong and surpassed expectations based on personal income taxes, sales taxes, and other revenue sources. These budget surpluses from more vital than anticipated revenue collections have spurred state legislatures to debate and pass legislation that reduces taxes and provides economic incentives and other tax credit measures within their budgets for the fiscal year 2023. The Georgia General Assembly, for example, passed HB 1437 this year, which replaces the state’s graduated income tax – the top level of 5.99% – with a flat tax starting at 5.49% that will gradually reduce to 4.99% by 2029.

An overview by the Tax Foundation of tax reform measures within the states included:

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Industrial Space Demand Forecast, Third Quarter 2022

NAIOP research

By: Hany Guirguis, Ph.D., Manhattan College and Michael J. Seiler, DBA, William & Mary

Amid lower pressure on global supply chains, increasing inventory carrying costs, a cooling economy and a decrease in the rate of e-commerce expansion, retailers and logistics firms have slowed the rate at which they acquired additional industrial space this year. Net absorption of industrial space in the first two quarters of 2022 was 151.2 million square feet, down sharply from 2021’s record pace but still notably higher than in prior years (see Figure 2). The authors expect the still-hot industrial market to cool, and they forecast that the net absorption rate will continue to decline until it returns to the pre-pandemic trend. Total net absorption of industrial space in the second half of 2022 is forecast to be 112.4 million square feet, and full-year absorption in 2023 is forecast to be 209.4 million square feet (see Figure 1 for quarterly projections).

The Industrial Market

Supply chain congestion eased during the first half of 2022, as illustrated by the decline in the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index from 4.35 in December 2021 to 2.41 in June 2022. As a result, retailers and logistics firms have shown less interest in leasing or buying industrial space before it is needed, a trend that contributed to higher absorption in 2021. Amazon’s decision to substantially scale back its expansion plans is the most prominent example of this shift in demand for industrial space. Nonetheless, smaller e-commerce firms, and even traditional retailers, continue to lease more distribution space despite slowing e-commerce growth as more consumers return to shopping at bricks-and-mortar retail. Industrial vacancy rates remain historically low as the ability to supply new space continues to face physical and political limitations in land-constrained markets. These low vacancy rates continue to cause asking rents, and ultimately transaction prices, to increase. Premium prices are being paid for properties with soon-to-expire leases and even vacancies as they allow owners to lease out more space at record-high market rates.

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What the Urban to Suburban Shift Means for the Office Sector

Office

By Marie Ruff

Since the start of the pandemic, sleepy small towns and suburbs have taken on new luster as people have migrated en masse from the urban core, drawn by the lower cost of living and with the flexibility afforded by increased remote work options. Will this be the new normal, or will people move back to the major metropolises once we put the pandemic behind us? What does it mean for office real estate in the short and long term?

In a recent NAIOP webinar, experts from Marcus & Millichap shared their research and insights into how these trends are shaping the investment landscape for urban and suburban office spaces. They began by examining the broader economic context underlying the urban to suburban shift before discussing recent office sale trends, the impact of demographics and what’s ahead for this sector.

U.S. Office Supply and Demand Trends

Office vacancy rates have been elevated since the onset of the pandemic; however, office rate absorption has also been positive for five consecutive quarters. “Although it is soft, it is not as soft as some people perceive,” said John Chang, senior vice president, national director research services, Marcus & Millichap. There was only a brief period of net negative office space absorption in 2020 and have been making a recovery, albeit sometimes slowly, since.

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Top Five US Metros for Life Sciences In 2022

Life sciences

TOP FIVE US METROS FOR LIFE SCIENCES IN 2022

By 

Growth in the life sciences sector has driven demand in recent years for both commercial real estate space and labor to accommodate this specialized sector. A new study by commercial real estate platform CommercialCafe set out to identify the best metros for life science companies in 2022 and assessed more than 40 metropolitan statistical areas (MSAs) in terms of regional talent pool and workforce; accessibility of local office markets; the degree of availability of existing dedicated property; as well as the state of the local pipeline aiming to expand local life sciences capacity.

Boston took the number one spot on the list, with San Francisco in second place, then San Diego third, New York fourth, and Washington, D.C., rounding out the top five.

A longtime “flagship market” for life sciences, the Boston metropolitan area remains a leader in the sector. The MSA stood out for several key indices scored in the ranking: Boston boasts the largest labor pool among the metros analyzed, as well as the largest life sciences real estate market — nearly 25 million square feet of existing dedicated property, of which just under 14 million square feet was LEED-certified space. What’s more, with an additional 23.8 million square feet of new life sciences developments in the pipeline — under construction, as well as in the planned and prospective stages — Boston seems firmly placed at number one for the foreseeable future.

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The Unexpected Challenges (and Solutions) of Multilevel Warehouse Design

Costco
  • By Russ Hazzard, Jonathan Chang, Development Magazine (photo of Vancouver, B.C. Costco by Raef Grohne)

Experiences in Canada and Asia provide case studies for building these complex properties.

Over the past 15 years, multilevel warehouses — particularly those used for retail purposes — have been a growing trend across Asia and, more recently, in the United States. However, some challenges accompany their design and construction that are not encountered in the traditional approach to large-format retail. With operational criteria at the top of the list, these challenges vary heavily based on several factors, including location, footprint, environment, jurisdictional requirements, and cultural and community influences.

The increase in demand for and construction of multilevel warehouses has unearthed numerous unique considerations not present in traditional warehouse environments. These challenges — each intricate in their own right — have required creative solutions and careful programming to successfully bring each project to life.

Parking and Vehicle Flow

One of the most critical design challenges for vertical warehouses is the traffic flow of vehicles and the structure’s parking. While the goal is to keep the sales level on a single floor for ease of operations and the consumer’s shopping experience, parking for multilevel warehouses can reside either above or below grade. Both options have pros and cons: Below-grade parking requires excavation, which can increase costs and complications. However, it provides a solution for lot coverage or height restrictions in situations where those apply. Above-grade or rooftop parking is preferred as it saves both construction time and money.

Customized resolutions to optimize vehicle traffic flow and increase ease of parking have also been employed, varying from warehouse to country to country. For example, in Sinjhuang, Taiwan, indication lights for open parking spaces are used to determine capacity at a glance. In Suzhou, China, car ramps at the entrance steer customers directly up to each floor, allowing them to bypass complete levels. Larger-than-regulation parking spaces — typically very compact in Asia — are also used, granting customers peace of mind. There is no need to worry about maneuvering around tightly packed vehicles in the garage. As an added benefit, large spaces also increase vehicle flow; running in and out of an area is completed in one move vs. two or three.

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NAIOP on Carried Interest and Update on Senate Passage of Reconciliation Bill

Last week, the U.S. Senate passed the Inflation Reduction Act of 2022, a $740 billion budget reconciliation measure with provisions to address climate change and energy security, extend federal healthcare subsidies, and allow Medicare to negotiate prescription drug prices. As we informed you last week, the bill, which had been negotiated by Senate Majority Leader Charles Schumer (D-NY) and Senator Joe Manchin (D-WV), contained a proposal changing the taxation of carried interests that would have harmed the commercial real estate industry and real estate entrepreneurs.

When the Schumer-Manchin agreement was announced, NAIOP and NAIOP Arizona, along with our national real estate allies, mobilized to support Senator Kyrsten Sinema (D-AZ) in her efforts to oppose the proposed changes to carried interest. In order to ensure her vote, the proposal was dropped from the bill before the legislation was brought up for floor debate.

We are gratified that the concerns of NAIOP and the real estate industry were considered on this very important issue. For more than a decade, NAIOP has successfully opposed various proposals to alter the tax treatment of carried interests, or “promotes” as they are known in real estate. While characterized in the media as affecting Wall Street hedge fund managers, these tax increases would have had a much broader economic impact, impacting real estate partnerships, the venture capital industry and others. We have been engaged with policymakers long before this latest proposal was introduced, and our members’ support has been extremely helpful.

Senator Sinema promised to continue working with Senator Mark Warner (D-VA) to develop legislation reforming carried interest taxation. I want to assure every NAIOP member that, on this and the other important issues affecting commercial real estate, we and our NAIOP chapters will continue our strong advocacy on behalf of you and our industry.

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Crescent Managing Director Rathie a 2022 Developing Leader

Congrats to Sagar Rathie for being named a 2022 Developing Leader award winner by NAIOP. Sagar Rathie

Sagar joined Crescent Communities in 2016, and leads all aspects of Crescent Communities Commercial development and new investment growth through the East and West, including North Carolina, Tennessee, Georgia and Florida. His primary responsibilities include acquisitions, predevelopment, and financing, as well as managing Crescent Communities' $800 million commercial pipeline. Rathie has extensive capital markets experience, having collectively raised over $3 billion in capital throughout his career.

Previously, he was Crescent Communities' Director of Corporate Finance and Investor Relations, and led the execution of the Company's multiyear strategic plan. Sagar received his MBA from UNC-Chapel Hill, Master's in Engineering from Duke University, and BS in Biomedical Engineering also from UNC-Chapel Hill.

City Council Members Meet with NAIOP Charlotte for LWAL

Last week, NAIOP members met with City Council Candidates Dimple Ajmera and Marjorie Molina to discuss important issues impacting Charlotte’s CRE industry.

LWAL two

The Lunch with a Leader series provides NAIOP Charlotte members an exclusive opportunity to meet and interact with key leaders in our community. Look for upcoming NAIOP Charlotte fall events here.

LWAL one

UDO: Planning Committee to Review and Recommend

Compiled from REBIC, staff reports

REBIC’s Rob Nanfelt reported Tuesday that the City’s Planning Committee is taking up the matter of the proposed Unified Development Ordinance. Next month, committee members will take any additional recommendations before the third/final draft.

Last week, the Charlotte City Council received comments from the community during a public hearing on the proposed UDO. Click here to view the resolution. The entire hearing is available to view here – beginning approximately at the 2:51:30 mark.   

Next is a review and recommendation from the City’s Planning Committee scheduled to begin Tuesday, July 19, at 5 p.m. Those interested can view it on the City’s Planning Department YouTube Channel. The complete agenda and meeting packet is available here.

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Charlotte UDO Public Hearing Held Monday

UDO

On Monday, Charlotte's proposed Unified Development Ordinance (UDO) public hearing took place in the City Council Chambers. 

Many in the audience turned out for the Public Forum portion of the plan, but several neighborhood activists were also on hand. That group mainly wanted to challenge the ordinance provision allowing for higher-density dwellings in single-family neighborhoods. REBIC supports a wide range of housing types and believes the development of additional units is necessary to meet current and future demand.

The City Council also voted 9-2 to adopt a policy providing source of income protections to prospective renters of properties developed using a taxpayer-provided subsidy, conveyance of property, or infrastructure reimbursement incentive such as a Tax Increment Grant (TIG). The policy seeks to promote the use of Housing Opportunity Vouchers that some property managers and landowners have been reluctant to accept. Proponents have argued the policy is necessary to eliminate a discriminatory practice. Opponents are concerned it will result in less affordable housing units for future development.

More from the meeting

The Charlotte City Council received comments from the community on Monday at a scheduled public hearing on the proposed Unified Development Ordinance (UDO). Click here to view the resolution. The entire hearing is available here - beginning approximately at the 2:51:30 mark.   

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UDO Meeting Set For July 11; CLT Water Plan Review Back On

REBIC's Rob Nenfelt and his team put together this week's Two For Tuesday and UDO takes center stage early next week.

UDO - Public Hearing Scheduled for Monday

The Charlotte City Council has scheduled a public hearing on the proposed Unified Development Ordinance (UDO) for Monday, July 11. The Council Action Review begins at 5:00 pm followed by the Public Forum/Business meeting at 6:30 pm. An agenda should be available here by Friday afternoon. Click here to sign up to speakRebic Logo

Also, Planning Staff has just released responses to public comments submitted prior to last Thursday's deadline. Additional changes will be reflected in the next and likely final draft when it is released which will occur prior to the expected vote on adoption in late August. Here's a link to the page containing the Second Draft Public Comments - With Staff Responses.

For additional UDO resources, please visit Charlotte's Unified Development Ordinance (UDO) - (charlotteudo.org).

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Charlotte Future 2040 Policy Map Now Official

The Charlotte Future 2040 Policy Map took effect on July 1. This map will replace the current Future Land Use tool. The city thanked all who participated and provided input.

To give some history about the plan, the Charlotte Future 2040 Comprehensive Plan was adopted in June 2021. Charlotte City Council adopted the Charlotte Future 2040 Policy Map on March 28. 2040 Map

To access the map, go to here. To see the 2040 Comprehensive plan, go here.

Have more questions about the Policy Map?
Planning Department staff will host virtual and in-person office hours each month
for the rest of the year to answer additional questions.

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RECAP – Industry Forum: Charlotte’s UDO and Next Steps

UDO dom photo

June 23, 2022:  More than 100 commercial real estate professionals registered to hear a panel of local industry professionals share their feedback on the latest draft of Charlotte’s Unified Development Ordinance (UDO). Roger Manley (BB+M Architecture), Jon Morris (Beacon Partners), Tim Sittema (Crosland Southeast) and moderator Rob Nanfelt (REBIC) discussed their participation and impacts the new ordinance will have on the future of commercial real estate development.

Some of the highlights included:

Affordability after the UDO's implementation.  Yes, development and housing costs will go up. But the new draft should offer more flexibility.

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Vacant Storefronts Can be Repurposed into Retail Incubators

Retail incubator

Vacant Storefronts Can be Repurposed into Retail Incubators

They can provide an immediate boost in shopping districts and grow future businesses into long-term tenants.

  • Written by Ilana Preuss, Development Magazine

The COVID-19 pandemic has left America’s retail districts pockmarked with empty storefronts, but there is a creative solution. These vacant spaces, which often can be purchased or rented at reduced prices, are prime targets for conversion into retail incubators.

Retail incubators, like business incubators, nurture new or small-scale entrepreneurs during the startup phase. They mitigate some of the challenges of opening a business by providing financial and technical assistance, such as the basics of marketing and business plans. Tenants typically share space, ideas and operating expenses in locations that they could not otherwise afford. Many spaces have flexible or temporary lease terms. Some allow for small-scale manufacturing and hold community events, such as product demonstrations, fashion shows and art openings.

In addition to real estate, retail incubators provide fledgling businesses with valuable resources such as technical and financial assistance.  

According to the U.S. Chamber of Commerce, new business applications in the United States set an all-time record of 5.1 million in 2021. At the same time, the pandemic has led to consolidation of space and locations by major retail brands, which reduced the prospect of attracting businesses. The challenge for small businesses is they can’t immediately fill the footprints of major store closings. However, they can make temporary use of retail space to establish their businesses, and occupying formerly abandoned stores can help energize struggling downtowns.

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2040 Planning Academy Starting Tuesday, June 21

2040 Planning Academy

2040 Planning Academy Starting Tuesday, June 21

Do you have questions about all the development you see in CLT? Do you want to know more about how CLT plans for its future? Are you interested in influencing the future of your neighborhood?

The 2040 Planning Academy, formerly the Community Planning Academy, is a free 5-class program aimed at helping residents better understand the role planning plays in building communities. Through group discussions, presentations, and interactive activities, participants will learn when and how they can be involved in planning processes and help influence the future of their community.

The application window is open starting today, Tuesday, June 21, 2022, and will close on Sunday, July 17, 2022, at midnight.

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