Originally published by GlobeSt Holidays and extreme weather conditions prompted a typical seasonal office demand slowdown in December, according to the VTS Office Demand Index (VODI). However, the year-over-year decline for the month was slightly larger than in previous years.  New demand for office space ended the year 31.3 percent below its May 2022 peak and fell 20.7 percent year-over-year to a VODI of 46 in December.  The report said that a tight labor market, layoffs, threats of another COVID-19 variant, and interest rate hikes have “given pause” to prospective office tenants.  Nick Romito, CEO of VTS, said in prepared remarks, “The reality is that the outlook for the U.S. economy is still unknown, and expectations of a recession continue to loom large in 2023. Where the economy heads will be the through-thread for office demand decisions as we head into the new year.”  Romito said a silver lining is a significant momentum in return-to-office trends. “Continued momentum in return-to-office will undoubtedly provide a tailwind for office demand in 2023 and beyond,” he said while acknowledging that “realistically, it seems unlikely to ever revert in full.”  A weekly report from Kastle that measures office worker occupancy showed the national average of 49.5% of workers were in the office compared to pre-pandemic. The Kastle measurement has not exceeded 50% since COVID-19 set in.  Tech Layoffs and Potential Recession Won’t Help  Doug Ressler, business manager, Yardi’s Commercial Edge, tells GlobeSt.com that office-using sectors of the labor market lost 6,000 jobs in December, according to the Bureau of Labor Statistics, only the second monthly decrease since the onset of the pandemic in early 2020.  Financial activities gained 5,000 jobs in the month, but information lost 5,000, and professional and business services lost 6,000. Year-over-year growth for office-using sectors has rapidly decelerated in recent months.  Office-using employment growth will further decelerate as tech layoffs bleed into 2023 and a potential recession loom. Between January 2021 and July 2022, office sectors added an average of 117,000 jobs a month. In the last five months, they have averaged only 25,000 jobs per month.  “Even as some firms become more forceful in bringing workers back into the office, many have fully committed to hybrid and remote work policies,” Ressler said. “This will be another year of uncertainty and change in the office sector as it moves toward a post-pandemic status quo. Significant change will depend on the duration of the recession, rising interest rate stabilization, and the acceptance of a hybrid or pre-pandemic work model.”  Remote Work Makes Office Leasing Picture is ‘Hazy’  Lanie Beck, Northmarq Senior Director, Content & Marketing Research, tells GlobeSt.com that the outlook for office leasing is a bit hazy right now, with many factors influencing tenant demand.  “Merger and acquisition activity, and the resulting consolidation of physical space that often occurs, can impact office demand,” she said. “Layoffs too can alter a tenant’s need for space.  “But the remote work trend has been one of the primary drivers in recent years, and for employers who haven’t mandated a return-to-office, they’re undoubtedly evaluating both their short and long-term needs for traditional office space.”  Desired Space Shrinks by One-Fourth  Creighton Armstrong, National Director, Government Services, JLL, tells GlobeSt.com tenants committed to leases in 2022 leased space that was, on average, 27% smaller than their prior lease.  However, despite the smaller average, the overall volume of space leased held steady between 2021 and 2022 due to a slightly higher number of deals closed.  Seattle Office Demand in Hibernation  Bret Jordan, president of the Northwest region at Ryan Companies US, tells GlobeSt.com that office demand in Seattle went to sleep in July of 2021 and hasn’t yet awoken from its slumber.  “We’re seeing the large layoff announcements oxygenating the smaller scale and start-up companies’ labor choices, so we are expecting office demand to awaken mid-year,” Jordan said.  “The caveat is that demand will be smaller in nature given the past cycle was full of giant demand deals. This is a reversion to our norm and not a fundamental shift in the underpinnings of our region.  One data point supporting this is the net new demand for residential, he said.  “While again lower in total than the heady pandemic years it remains resilient and in excess of the foreseeable supply,” Jordan said.  Minneapolis to Seek New, Amenity-Rich Assets  Peter Fitzgerald, vice president of real estate development at Ryan Companies US, tells GlobeSt.com that despite the downward trend of office demand, he expects an unprecedented flight to the newest and amenity-rich assets in the Minneapolis-St. Paul market.  He said that new construction is leading the market with several buildings 90%+ leased. One example is 10 West End. Ryan Companies sold the Class A office building in St. Louis Park, Minn. to Bridge Investment Group.  “The building opened in January 2021, in the thick of the pandemic, and experienced nearly 300,000 square feet of leasing activity until it was sold in November 2022,” Fitzgerald said.  Office Tours Increasing Significantly  Chicago-based developer Bob Wislow, Parkside Realty, tells GlobeSt.com that while winter months can sometimes put a damper on real estate tours, especially in colder climates like Chicago, he hasn’t seen a decrease in activity this year.  “Tour requests at all five of our office buildings have significantly increased this month, with one seeing the highest level of activity in years,” Wislow said.  “Companies that need new space because they are expanding operations or have a lease expiring are looking at all options available to them because they know their office space represents more than just a place to do work.  “With hybrid schedules becoming the norm, it’s more important than ever to offer a dynamic environment that promotes collaboration and engagement and provides the amenities and conveniences workers want in exchange for their commute. It also helps to be in an area that is buzzing with activity, as that energy and vitality can’t be recreated in a remote setting.”  South Florida Worker Office Occupancy 60% to 70%  Tere Blanca, founder, chairman, and CEO of Blanca Commercial Real Estate, tells GlobeSt.com that across South Florida, there is a “tremendous” return to the office, especially across the finance sector and it seems that three to four days a week has become prevalent in many industries.  “Because Miami, Fort Lauderdale, and Palm Beach (South Florida in general) is experiencing such constant, amazing migration, with the demographics very strong, many companies are moving here and whatever contraction we might see is mitigated by new buildings being created,” Blanca said. “There is quite a bit of new product in the pipeline to deliver over the next three to seven years; whatever is available right now is getting leased.”  She said buildings are seeing employee occupancy at 60% to 70% in most cases.  “The reality is, even before COVID, when a building was leased out, you still never had full occupancy, Blanca said. “This was from people traveling, being out for meetings, having a family situation, etc. This is why parking garages can oversell by 15% to 20%.”  Offices Need Tech Modernization  Katie Klein, North America Country director at WiredScore, tells GlobeSt.com that what people look for in an office has changed.  “To bring employees out of their homes and back into the office, office landlords must provide appealing properties and spaces. One way to do this is to provide the technology platform that modern office tenants require,” she said.  According to WiredScore North American Office report, only 38% of offices are considered advanced ‘smart offices,’ yet 80% of employees state they would be more inclined to go to the office if their building had smart technology.  © 2022 ALM Global Properties, LLC. All rights reserved. 

Northmarq investment sales broker Jeff Enck arranged the $3.33 million sale of Governor’s Walk, a 21,280 sq. ft. multitenant retail property. Within 29 miles of the Atlanta CBD, the property is located at 1980 GA Highway 54 in Peachtree City, Georgia. Governor’s Walk totals 14 units and was 100 percent occupied at the time of contract signing. Northmarq’s Jeff Enck represented the Florida based seller as well as the California-based 1031 exchange buyer in the sale.  “Despite the new interest rate environment, we were able to generate ten offers on the property and close with a 1031 exchange buyer who put a large cash payment down with a small loan. The property had several physical challenges including a 30-year-old metal roof and an aging septic system, so we needed an experienced investor who was willing to do some work,” said Enck. “We are finding that patience is critical in today’s market to maximize price. It often takes weeding through several potential buyers to find the right investor for the right asset.”  Governor’s Walk is situated on a highly visible site off GA Highway 54 and is surrounded by national retailers including Publix, Sprouts, CVS Pharmacy, Starbucks, Dunkin’, Zaxby’s, and a newly constructed Advance Auto Parts. As a principal city of the Atlanta MSA, Peachtree City averages a household income of $139,000 within a three-mile radius of the property.  Tenants at the property include: Car Wash, Donut Shop, Peachtree Pawn, Fresh Smoothie Café, Mary Nails, Curves, Carolina Hemp Co., Southern Crescent Spa, Peachtree Wax Studio, La Plaza R&R Inc., Flooring Store, Men’s World Barber, Rene’e Paige Salon, and M&R Alterations. 

Originally published by GlobeSt Logistics and parcel delivery remains No. 1 in million square feet requirements for industrial space but other industries have been making traction, according to a new report from JLL.  The report showed that the automotive industry has seen its demand increase by more than 156% since 2021 to serve an influx of electric vehicle and battery manufacturing endeavors across the country.  And demand for construction, machinery and materials companies grew by more than 41% this year because of the oversized pipeline of commercial and residential demand for housing.  JLL added that with companies reevaluating their existing operations and addressing the COVID-induced supply chain disruptions, demand will continue to increase for manufacturing and automotive users.  From a macro perspective, supply chain woes continue to create backlogs at the ports. The concept and practice of reshoring have come into play, and many occupiers have placed this at the forefront of their business operations.  Tight availability, high rents, and port congestion along the West Coast have pushed many occupiers to the Southeast region and to ports along the East Coast, such as Savannah and Charleston, which are seeing record TEU volumes.”  Industrial Outperforming Other Sectors  Meanwhile, investor interest in industrial continues to flourish. Northmarq’s Jeff Tracy, senior vice president, Tulsa, tells GlobeSt.com that while there has “obviously” been an impact on cap rates, “we continue to see the broad industrial sector perform well in relation to the other sectors.  “From an industry perspective, logistics and general light manufacturing continue to garner the most interest from buyers,” Tracy said. “Additionally, outdoor storage and assets that require quality outdoor yard space for operations are also popular amongst buyers at this point and seem to achieve the most aggressive pricing compared to other asset classes and sectors.”  Tracy added that the Midwest and Southeast are performing the best in relation to other locations around the country.  Robust Online Retail Sales Boosts Logistics Demand  Northmarq’s Rob Gemerchak, vice president, Toledo, tells GlobeSt.com that despite the challenges in the economy, there continues to be strong user demand across a range of industrial sectors, including logistics, technology, and manufacturing.  “Logistics demand is the strongest and is being driven by robust online retail sales and a national focus on supply chain efficiencies,” Gemerchak said.  “While the largest industrial markets such as Chicago, Dallas, Atlanta, New York, and Los Angeles continue to grow and thrive, there has also been tremendous growth in several notable markets such as Indianapolis, Kansas City, Phoenix, and Columbus.  “Looking towards the future, we expect that industrial demand and development will follow population growth in regions such as the Southeast and Southwest, as companies seek to locate near consumers and with strategic access to a growing employment base.”  Charleston, Savannah, Jacksonville E-Commerce Magnets  Avery Dorr, vice president at Stonemont Financial Group in Atlanta, tells GlobeSt.com that he’s seeing “a significant bump” in demand in port markets across the country, with the East Coast outpacing the West in recent years.  “The practice of reshoring is more important as supply chain woes continue to create backlogs at the ports,” according to the JLL report. “Tight availability, high rents, and port congestion along the West Coast have pushed many occupiers to the Southeast region.”  This year the Southeast region was the top market in terms of demand, accounting for 240 msf in requirements.  Dorr said that Charleston, Savannah, and Jacksonville have been magnets for e-commerce users and third-party logistics providers, and Stonemont continues to source out new speculative development opportunities in those markets.  “Florida and Texas have been at the top of our radar due to the tremendous population growth, deep labor pools, and overall business-friendly climates in both states,” Dorr said. “Investor appetite in these areas is particularly strong and we anticipate activity will remain healthy there in 2023 despite recent economic headwinds.”  High-Barrier, Major Urban Markets Should Thrive  Ryan Nelson, Managing Principal of Turnbridge Equities, tells GlobeSt.com that high-barrier-to-enter, major urban markets will see the greatest industrial growth in 2023.  “Businesses are striving to be as close as possible to the end user, and this has made urban markets with high population densities and land constraints a hotspot for last mile logistics,” Nelson said.  “Recently, Turnbridge topped out Bronx Logistics Center, the largest industrial development in the NY Metro Area, set to be complete in Q3 of 2023, which is one of a very limited number of new industrial projects that will be delivered in the market, given land scarcity, construction costs, and debt capital markets dislocation.”  Nelson said projects that will be delivered in 2023 will have been financed in the last cycle with the majority delivering pre-leased.  “New development starting in 2023 and delivering in 2024 or later will largely be limited to build to suit, as spec construction will be constrained by capital market dislocation,” he said.  3D Printing Shrinking Commercial Space Requirements  BKM Capital Partners’ CEO Brian Malliet, tells GlobeSt.com, “The small-bay, light industrial landscape has been transformed over the last decade and a half as tenant demand shifted towards dynamic growth industries such as e-commerce, technology & innovation, and advanced manufacturing.  “E-commerce demand has reshaped the supply chain, which has driven demand for industrial product to new levels,” Malliet said. “As consumers demand faster delivery times, retailers require well-located and highly functional light industrial warehouses to reduce transportation costs and meet customer needs.”  He said that new technologies are driving further use of chip capabilities, such as autonomous vehicles and robotics, that now utilize light industrial spaces for their operations since many of these spaces offer flexible zoning for multiple uses, including office, assembly, warehousing, and manufacturing.  Companies capitalizing on advanced manufacturing and 3D printing are also migrating toward smaller facilities, according to Malliet, with 3D printing allowing businesses to accomplish operations in just 10,000 square feet that would previously have needed five times the space.  Desire to Produce Goods Closer to Customers  HSA Commercial Real Estate recently broke ground on four speculative industrial warehouses totaling 1.9 million square feet along the Interstate 94 corridor between the Chicago and Milwaukee metros.  “We’re bullish on adding modern warehouse space along major logistics arteries,” Robert Smietana, vice chairman and CEO of HSA Commercial Real Estate, tells GlobeSt.com.  “Robust tenant demand for this space ranges from traditional retailers and e-commerce companies to third-party logistics firms, to manufacturers that are reshoring all or a portion of their operations. Across industries, there’s a desire to produce and store goods closer to customers as a means of mitigating future supply chain disruption.”  Logistics Firms Lessening Negative Impact of E-Commerce’s Pullback  Pedro Nino, vice president, head of Industrial Research and Strategy, Clarion Partners, tells GlobeSt.com that after some demand pulled forward in 2021, pushing net absorption to the highest levels on record, US industrial net absorption began normalizing in 2022.  “Despite some deceleration from e-commerce users, which accounted for most of the recent surge in” absorption, the industrial market still recorded its second-highest total for overall annual net absorption in 2022,” Nino said.  “This highlights the pent-up demand in the market as record low vacancies, limited supply, and an ultra-competitive leasing environment previously left some unfulfilled requirements on the sidelines.”  A combination of Clarion’s portfolio data, which includes more than 215 million sf and nearly 1,000 industrial properties across the US, as well as data from leading brokerage shops, show that third-party logistics firms and general retailers have sufficiently lessened the negative impact of an e-commerce leasing pullback.  “This makes sense as traditional retailers continue building out their modern/e-commerce distribution strategy, all while 3PLs offer comprehensive solutions, and ultimately, flexibility, in all things related to transportation and order fulfillment,” Nino said.  ‘Even a Recession’ Won’t Stall E-Commerce Demand  Contrarily, CommercialEdge said that e-commerce growth will continue to drive high levels of demand in the industrial sector for the foreseeable future, but it will not reach 2020 levels again.  “New supply has yet to match demand, and even a potential recession is unlikely to cause e-commerce sales volume to fall.”  CommercialEdge said that in-place rents have grown the most in the Inland Empire (13.1%), Los Angeles (10.7%), and New Jersey (8.9%). The lowest rates of rent growth were found in Tampa (2.5%), St. Louis (2.6%), Memphis, and Houston (both 2.8%).  The national vacancy rate measured 3.8% in November, falling 20 basis points from October. Despite record levels of new supply delivered in 2022, the vacancy rate fell throughout the year.  In-demand markets in the inner portion of the country also have low vacancy rates, including Nashville (1.2%), Columbus (1.7%), Indianapolis (2.5), Kansas City (2.5%) and Phoenix (2.9%). The abundance of space available on the outskirts of these markets for new development keeps rent growth lower than what is being seen in most port markets.  When Amazon Slowed Its Network, Others Stepped Up  Adrian Ponsen, Director of U.S. Industrial Market Analytics, CoStar, tells GlobeSt.com that as supply chain bottlenecks eased in 2022, imports into the U.S. surged to record highs.  To help process this increased flow of goods, “third-party logistics companies stepped up and increased their overall leasing in 2022 relative to 2021, helping to compensate for the fact that Amazon slowed its distribution network expansion,” Ponsen said.  He said that building material and gardening supply retailers like Home Depot and Lowe’s, which are some of the largest U.S. industrial tenants, also accelerated their leasing in 2022, mainly to increase the speed and scale of their home delivery offerings.  Additionally, industrial leasing by retailers like Dollar General, Rite Aid, and Target also accelerated in 2022, as these companies sell day-to-day necessities that have remained in high demand even as households feel the pinch of inflation.  © 2022 ALM Global Properties, LLC. All rights reserved. 

Originally published by BizJournals Despite lingering uncertainty in the economy, some retailers are preparing to roll out robust expansion plans in 2023 and subsequent years.  An analysis by Minneapolis-based commercial real estate firm Northmarq found, among several retail categories, which tenants have plans to expand in the coming years. Most identified retailers expect to add dozens of new locations in 2023 and later, but companies with more aggressive growth plans anticipate opening hundreds or even thousands of storefronts in the next several years.  Dallas-based convenience-store chain 7-Eleven Inc., for example, has plans to open 6,000-plus stores in North America in the future, according to Northmarq's analysis, as part of a long-term plan to open 20,000 stores in the U.S. Meanwhile, Chesapeake, Virginia-based Dollar Tree Inc. (Nasdaq: DLTR), which also owns Family Dollar Stores Inc., could see 5,000 or more store openings under both brands by the end of 2024.  Among quick-service restaurants, Seattle-based Starbucks Corp. (NYSE: SBUX) has plans to open 2,000-plus locations by 2025, on the heels of opening 428 U.S. stores in fiscal year 2022. It's spending $450 million for that expansion — focusing on pick-up stores, drive-thru and delivery-only locations — as well as to update existing stores.  Bank of America Corp. (NYSE: BAC), based in Charlotte, North Carolina, is on track to open 500 new bank branches in the coming years. Louisville, Kentucky-based Texas Roadhouse Inc. (Nasdaq: TXRH) — which opened 23 restaurants last year — is seeking to open 30 locations this year, tracking toward an ultimate goal of opening 900 locations in the U.S., mostly in smaller markets, according to Northmarq.  At Home Group Inc., the Plano, Texas-based big-box home goods retailer, wants to eventually have 600 stores in operation, which would more than double its current 255-plus stores in operation. Take 5 Oil Change LLC has aggressive growth plans, too, with a long-term plan to open 950 new locations in the coming years, according to Northmarq.  Although not called out in Northmarq's report, The Wall Street Journal recently reported bookstore retailer Barnes & Noble Inc. is also planning to open new stores after years of closing locations, in something of a comeback story for big-box retail. Separately, California fast-foot chain In-N-Out Burger said this week it was investing $125.5 million to open offices and retail locations in Tennessee.  It's not expansion across the board in retail, though.  Union, New Jersey-based Bed Bath and Beyond Inc. (Nasdaq: BBBY) this week said it was closing an additional 62 stores across the U.S. as it considers filing for bankruptcy protection. Those store closures will create significant vacancy in centers where the big-box retailer serves as an anchor.  Although not as substantial, New York department-store chain Macy's Inc. (NYSE: M) is also closing four stores in malls this year, after years of shuttering dozens of locations.  Mike Sladich, managing director at Northmarq, said certain categories of retail, such as convenience stores and dollar stores, tend to have aggressive growth plans in any given year.  But many retailers that are planning to grow in the coming years may find vacancy to be tighter in years past, as new retail development has slowed dramatically in the past decade and much of the existing retail space has been redeveloped to other uses.  Moody's Analytics Inc. found neighborhood and community shopping center net absorption was up 44% in Q4 2022, as compared to Q3. New construction delivery fell to less than 600,000 square feet, which brought inventory growth to a little more than 3 million square feet for the year.  The national vacancy rate for neighborhood and community shopping centers remained flat, at 10.3%, for the fifth straight quarter, according to Moody's.  "No one is really building large shopping centers," Sladich said. "Malls are being repurposed. It feels like everything wants to be live-work-play. We're seeing a huge ramp-up as retailers need their own prototype ... that’s where you've seen the low vacancy because no one is building those spaces."  It's gotten pretty expensive to develop a new site for, say, a new convenience store, which may mean some pushback on rental rates so developers can achieve the pricing they require, Sladich said.  With less vacant retail space sitting on the market, that could present new challenges for companies accustomed to backfilling that space.  "There will have to be some kind of intersection to make those deals pencil," he continued. "There are not as many sites to backfill, which was something Dollar Tree used to do."  Commercial real estate firm Integra Realty Resources Inc. in its 2023 forecast report predicts 38 of 61 retail markets nationally will be in recovery or expansion mode in 2023, versus 23 in hyper-supply or recession mode. That suggests positive rotation in the sector, something that hasn't necessarily been felt within retail in a number of years.  Anthony Graziano, CEO of Integra Realty, said his firm's market cycle predictions are based on a combination of factors. A expansion retail market will see declining vacancy rates, construction could be starting to pick back up, there's good absorption and at least moderate employment growth.  "Those characteristics in 2022 and heading into 2023 are better than they were in the past," Graziano said. "Retail was really the first property type to take a hit during Covid."  Coming out of the initial pandemic shock, retail owners were focused on repositioning and working with tenants as business were slowing coming back. Many retailers went bankrupt and ultimately vacated their spaces.  More recently, retail has had something of a comeback, although certain categories will be adversely affected if a recession does occur this year. Consumer spending has been closely monitored and, if that starts to pull back, retail types such as restaurants, home-goods stores and department stores will likely be hit first, as they represent discretionary spending households tend to eliminate first if they're worried about finances.  Still, total retail sales between Nov. 1 and Dec. 24 — the primary holiday shopping season — were up 7.6% on an annual basis while in-store spending grew 6.8% as compared to last year, according to the MasterCard SpendingPulse published in late December. Restaurants had a big comeback, in particular, with 15.1% more spending in those establishments this holiday season.  But if consumer spending slows in early 2023, that would likely dampen expansion plans for affected retailers — and affect retail owners.  "Overall, from a pricing perspective, retail is in a much better position right now than most of the other asset classes," Graziano said. He added other property types had been aggressively priced in recent years, and are now facing a more dramatic deceleration in demand, but that had not been happening in retail because of its long oversupply and how hard the sector was hit by Covid-19.  Pricing for retail real estate, on the whole, seems more reasonable now compared to other asset classes, Graziano continued. 

Ryan Roedersheimer, senior vice president in Northmarq’s Cincinnati office, has completed the sale of a multi-tenant retail property in Vincennes Indiana. Kimmell Crossing is a 44,962-square-foot shopping center located at 636-648 Kimmell Road and was fully leased to 10 tenants at the time of sale. Roedersheimer represented the seller, DPPM Management, who acquired the asset in early 2022 from Regency Properties. A local investor purchased the property for approximately $5.2 million in a 1031 exchange.  “This was my first experience at selling a property twice in the same calendar year. We never planned it this way, although the seller knew he acquired the property at a great bargain. The only drawback was the distance from his home state of NC,” said Roedersheimer. “After six months, my teammate, Chris Vitori, presented the off-market details to his client and it was the perfect fit! All sides couldn’t be happier with the outcome!”  Built in 1997, Kimmell Crossing sits in a dense retail corridor at a signalized intersection. The Walmart shadow-anchored strip center includes tenants such as Dollar Tree, Maurices, Sally Beauty Supply, T-Mobile, and CATO. Situated on 4.24 acres, Kimmell Crossing is just off the exit ramp of U.S. Highway 41, providing excellent visibility and access.  

Northmarq, one of commercial real estate’s leading investment sakes brokerage firms, has completed the sale of the Shops at Tanger Parkway, a 15,600 sq. ft. multi-tenant retail center located at 240 Tanger Outlets Blvd in Pooler, Georgia. The Savannah MSA development was 100 percent leased to eight tenants with excellent performance indicators at the time of the sale.  David Annett and Anne Perrault of Northmarq’s Tulsa office represented the seller, a Utah-based developer. The buyer, a private equity firm based in Mexico City, was represented by Mark Lovering of Northmarq’s Chicago office.   “We have been involved in this deal since pre-development stages, bringing the equity to the developer to construct the asset, followed by the ultimate consummation of the sale upon stabilization,” said Annett.   “The Shops at Tanger Parkway is a trophy asset that’s located front and center of the Tanger Outlets Mall --- an 800K shopping center that boasts over 4.5 million annual visits,” explained Lovering.   Built in 2020, the property is strategically positioned along the Pooler Parkway frontage road, offering major road access to all national retailers in the trade area. Major tenants of the retail strip include Tropical Smoothie Café, Tin Drum Asian Kitchen, LAX, T-Swirl Crepe, Wayback Burgers, Which Wich?, America’s Best Contacts & Glasses, and Pita Mediterranean Street Food.  “Our marketing produced a very competitive bidding environment – we started with approximately 10 letters of intent and were ultimately able to produce great value for the seller while selecting a buyer who had a solid resume,” said Perrault. “The capabilities of the buyer and his commitment to the transaction turned out to be critical down the stretch. I appreciated collaborating with Mark to produce a great outcome for our clients.” The center sold for $7.3 million reflecting a cap rate in the high-6’s on the current NOI.  “Due to strength of the underlying real estate and long-term leases, the buyer was able to secure accretive financing despite the choppy environment in the capital markets,” added Lovering. “All in all, this was a win-win for the seller & the buyer, and sourcing this deal internally illustrates the benefits of the Northmarq platform.” 

Summary of future growth plans for the top 100 retailers, as selected by brand recognition, expansion rate and frequency of investment sale transactions Average cap rate and sale price information for the most commonly traded retailers Credit rating summary with parent company information Average square footage ranges and store counts for each tenant

Originally published by Wealth Management The past few months brought a lot of news stories about upcoming office distress. Just last week, for example, office building owners in Washington, D.C. warned city government it wasn’t prepared for the falling property values in the sector, according to Bisnow. Meanwhile, Financial Times declared that “New York ‘Zombie’ Office Towers Teeter as Interest Rates Rise.”  But while there is a lot of talk about the potential for office distress, the figures from the firms that track commercial loan delinquencies, including Trepp, Fitch and Moody’s, don’t bear this contention out. In October, the office CMBS delinquency reported by Fitch stood at 1.23 percent, up from 1.19 percent in September, but still behind delinquencies for hotel, retail and mixed-use properties. Trepp reported the office delinquency rate for the month at 1.75 percent, up from 1.58 percent in September. The firm’s researchers tied the increase to lease expirations in the sector. Meanwhile, Moody’s reported the conduit delinquency rate for office properties at 2.69 percent, up 13 basis points from September and 30 basis points from a year ago.  Similarly, data from MSCI Real Assets shows only about $1.1 billion in distressed office sales this year, or about 1 percent of the total of $93 billion in office sales overall. In fact, there were more distresses property sales happening prior to the pandemic than in recent years, according to MSCI, though, of course, the total office sales figures were higher too. So, for example in 2019, when $140 billion in office sales closed, about $3.2 billion, or 2 percent, were distressed sales.  The industry is expecting distressed office sales to emerge in some market pockets nationally, but the impact will likely not be widespread and will not affect all investors equally, according to Aaron Jodka, director of research, U.S. capital markets, at real estate services firm Colliers. That said, with limited distressed property sales to date, he suggests that given the low starting base, any increase could look big on a percentage basis. Properties with occupancy concerns, inferior locations and deferred maintenance are most at risk for distress.  A signal of potential instability in the office sector is weakening demand for office space and a marketplace increasingly favorable to tenants. Tenants are waiting until the end of their leases to consider renewal or negotiation, notes Asher D. Wenig, senior vice president at real estate services firm Northmarq. “Landlords are increasing tenant improvements (TIs) allowances, and with a flux in office rents, it’s become a bit difficult to know the backfill options in many markets,” he adds.  The office sector will likely undergo a lot of changes in coming years, with different tenant footprints and worker demands, Wenig says. While people are returning to the office, large gateway markets including New York, San Francisco and Chicago are seeing rent corrections and companies downsizing their office space.  The good news is there is enough liquidity in today’s market for financing distress transactions, according to Mike Walker, executive vice president, debt & structured finance, with real estate services firm CBRE. Over the past two months, a number of the firm’s clients have expressed interest in providing mezzanine, preferred equity and rescue capital to fill the gaps between the loan payoff amounts and what the new senior debt market will provide, Walker says. He notes that this funding can also help to cover carry costs or provide capital costs for TIs and leasing commissions.  At the same time, “We are nowhere near the conditions of the Great Financial Crisis,” says Jodka. “The big difference between the GFC and today are interest rates. Coming out of the GFC, lenders were able to ‘kick the can,’ and low interest rates and quantitative easing (QE) allowed many loans to essentially work themselves out.”  Interest rates are higher today, so loans needing to refinance face a different market environment, Jodka notes. “Market consensus is for the Fed to increase its borrowing rate into 2023, but eventually pivot. It is difficult to predict interest rates and economic conditions, but it is less likely for a QE situation to help support near-term loan maturities.”  Walker suggests that continued upward movement in the Fed rate has made CMBS loans a more attractive option for office owners in need of refinancing. Previously, CMBS financing wasn’t particularly appealing because it didn’t price efficiently, but compared to the coupons on most floating rate, SOFR-based (Secured Overnight Financing Rate) loans today, a five-year CMBS execution is now attractive because it can be accretive and limit further interest rate increases, he notes. Another benefit is that unlike with five-year floating-rate debt, with a CMBS loan there is no requirement to buy a SOFR cap or hedge, which is quite expensive in this environment.  Banks should also be back in play next year, according to Walker, with some funding for investments in distressed office properties. A number of CBRE bank clients have expressed an intent to return to the market in 2023 after sitting on the sidelines in the second half of 2022.  While much of their focus will remain on industrial, life sciences and multifamily deals, he expects some bank allocations to trickle back into the office sector. “This will start by focusing on the stronger, well-located and cash-flowing assets with top-tier borrowers, but it will also make its way to debt funds via the A-note market and warehouse lending, which will help some of the less stabilized assets secure financing—albeit at higher yields,” Walker says.  There will be no tidal wave of funding for stabilizing distressed office assets, but any increase will be a welcome change from the second half of this year. Then, if inflation levels off and there are no expectations for further drastic rate hikes, that “trickle” of funding will probably evolve in the second half of 2023, Walker adds.  Meanwhile, while investors are waiting on the sideline for opportunities to snap up distressed office properties at bargain prices, many of these assets will be repositioned for other uses or razed and replaced, notes Jodka. He cites numerous future scenarios that could play out for distressed office assets: conversion to life sciences space in select markets, housing, government facilities, schools or medical use are all likely outcomes.  At the same time, he notes that the narrative about large-scale office-to-residential conversions in practice revolves around a challenging strategy because building floor plates have to be compatible with residential use. “Cost is also a factor, as is zoning,” Jodka adds. 

Originally published by GlobeSt Small market and suburban office sales lately are holding up better than their urban counterparts for three reasons: they are smaller assets, they are better basis plays, and they are typically occupied by users who are more likely to have returned to work, according to Craig Tomlinson, Senior Vice President of Northmarq.  He tells GlobeSt.com this and that for Q3 22 in the net lease office sector, there were 71 arm’s length sales in small markets and 90 large (primary) markets.  For small markets, the average deal size was 34,000 SF and avg sale price was about $8.5 million and modest $245.00 SF.  In large markets, Tomlinson said the buildings averaged 54,000 square feet, selling for $25.5 million, a “whopping” $480 per square foot,” Tomlinson said.  “Smaller loan amounts and lower basis muted the effects of negative leverage for these buyers,” he said. “Small market office buildings are typically occupied by tenant’s who decision makers are local and more likely to mandate return to work measures.”  Tomlinson said all these factors gave small market office a leg up and he expects the trend to continue.  Flight to Quality ‘Will Drive Tenancy for Foreseeable Future’  The Newmark Office Report finds that “overall transaction cap rates have been stable, but there have been some relatively notable shifts within the office market. The spread between central business district (CBD) and suburban cap rates had closed in 2022.  “Higher-quality, Class A assets in suburban markets have performed better than CBD office markets thus far in 2022,” according to Newmark. “Similarly, secondary office market yields have closed relative to major metros, highlighting the strength of non-gateway markets, including Dallas, Austin, Atlanta, etc.”  Furthermore, Newmark’s report said that flight to quality “will drive tenancy for the foreseeable future, though high-quality assets in dynamic suburban markets may hold an advantage over traditionally stable downtown assets.”  Relatively high availability, downward pressure on rents and greater demand for a vibrant worker experience will benefit the upper tier of the office market.  For those with more risk appetite, capitalizing on low pricing for Class B+/Class A- buildings with plans to modernize “could be attractive, along with build-to-core in markets structurally lacking in top-tier office space.”  © 2022 ALM Global Properties, LLC. All rights reserved. 

Northmarq’s Isaiah Harf, managing director, completed the sale of a multi-tenant healthcare property located at 1830 North Richmond Road in McHenry, Illinois. The brand new, 7,000-square-foot building is 100 percent occupied by Aspen Dental and WellNow Urgent Care. Harf represented the seller, a Chicago-based developer. A Missouri-based 1031 exchange private buyer acquired the asset for approximately $4.7 million.  “Upon marketing commencing we were able to find a 1031 exchange buyer within the first few days who had tremendous familiarity with Aspen Dental and was willing to pay near asking price for the asset,” said Harf. “While inquiry from the market remained high for the asset all the way to the end, we were able to close this asset with our first buyer smoothly and without hiccup.”  As medical and healthcare tenants are in strong demand, this built-to-suit supports one of the largest and fastest-growing dental service providers in the United States, Aspen Dental. The WellNow Urgent Care, a wholly owned subsidiary of Aspen Dental, benefits from the rise in demand for quick, affordable care. Roughly 50 miles from downtown Chicago, the property is situated on approximately 0.76 acres with excellent access and visibility from North Richmond Road. Surrounded by a major retail corridor, neighboring national retailers include Walmart, Home Depot, Meijer, JCPenney, Dick’s Sporting Goods and more. 

For investors evaluating a shopping center purchase, the anchor tenant can make or break the deal. Although grocery stores and big-box retailers have traditionally topped the list of ideal anchors to help draw customers to retail centers, another worthy option deserves investor attention: fitness centers.   When we think of traditional anchors in multi-tenant retail, names like Walmart, Target, Hobby Lobby, T.J. Maxx, most grocery stores, and other big box retailers come to mind. While gyms may not check all the same boxes as traditional anchors, over the last several decades they have emerged as resilient tenants that bring steady traffic to neighboring retailers and a great investment.  Resiliency  When retailers shut down at the beginning of the pandemic, fitness centers were among the first places to empty—and many of the small, local gyms stayed that way. However, the large fitness chains like Planet Fitness demonstrated that even a global crisis would not stop them. Almost as soon as they opened their doors again, Planet Fitness operators began repaying rent deferments, often ahead of schedule, putting themselves right back on their pre-pandemic trajectory.  Fitness buffs made do with home equipment, outdoor runs and streaming workouts during the pandemic, but many missed the community of their local gym. By second quarter 2022, gym patrons returned in force, leading to a 15.9 percent increase in fitness visits compared to second quarter 2019 according to retail traffic data firm, Placer.ai.  Health and Wellness is Here to Stay  In recent years, scientific data has continued to demonstrate the physical, mental and emotional benefits of exercise—and Americans are paying attention. According to IBISWorld, over the last five years the number of gym, health and fitness clubs in the U.S. has grown an overage of 2.7 percent annually, reaching more than 112,000 locations in 2022.  While attaining a beach body may have been the ultimate goal of exercise a decade ago, the top two reasons that Americans work out today are to reduce stress and feel better mentally. Big fitness brands are adapting with more wellness services, stress-busting workouts and community events. Some are even adding new services like hydro massages and cryotherapy, creating even more incentives for members to make regular visits.   Additionally, a heightened focus on mental health has opened eyes to the social benefits of exercise. Gymgoers appreciate the opportunity to mingle with like-minded people multiple days a week.   Steady Foot Traffic  Unlike grocery and big-box retail patrons, fitness center members typically make several visits in one week—sometimes even daily. Moreover, they tend to linger. After a long workout, a member may stop by the café next door to pick up an iced coffee or smoothie or grab a quick dinner at a nearby restaurant. In family-friendly shopping centers, parents might bring their children to a neighboring trampoline park after they’ve been cooped up in the gym’s kids club for an hour or two.   The data backs up these anecdotes. Analysis of cellular tracking data shows that one popular fitness location had 572,000 visits in a single month from people who made at least 10 visits that month—compared to 191,000 visits to a traditional AAA credit retail anchor. The fitness market outlook is bright as consumers increasingly prioritize self-care, wellness and community engagement. As consumers once again fit gym visits into their schedules, it’s time to consider whether fitness-anchored retail fits into your portfolio. While every investment is unique, a highly trafficked, loyalty-based tenant can have a significant influence on a shopping center’s overall synergy and long-term success. As you begin to evaluate fitness-anchored centers, consider the following general tips: To download a copy of this report, please provide the following information: hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "4e6713d2-ff33-454c-94f7-b3a2c5036179" });  

Originally published by Wealth Management Retail brokers and consultants expect strong interest when Sears spinoff Seritage Growth Properties starts to liquidate the remainder of its assets, as recommended by its board of trustees. But these industry insiders expect discounts will be necessary in order to consummate transactions.  Shareholders recently approved a plan that will bring additional Seritage properties to the market during a time of rising interest rates and a slowdown in commercial real estate deals.  Despite that added challenge, Seritage assets are bound to garner a lot of investor interest, says Margaret Caldwell, investment sales broker at Northmarq, which provides capital markets services to commercial real estate investors. Many of these properties are located in prime markets, with strong population and income levels, she notes.  Typically, a Sears box attached to a regional mall includes the parking field surrounding it, which can add a significant number of acres to the property, making it all the more attractive to potential investors, according to Caldwell.  “There are lots of investors and developers that continue to look for opportunistic investments where they can create value,” Caldwell says. “Many of the Seritage properties provide exactly these types of opportunities—repositioning an asset, for example, through redeveloping these boxes into other uses, such as multifamily or exterior-loaded retail.”  Industrial and self-storage could also be among potential uses for those sites, according to other industry insiders.  The investor demand will be there as long as the pricing on the assets is in line with the market expectations for absorbing risk, backfilling vacancies and undertaking redevelopment, says Matt LoPiccolo, first vice president specializing in retail with Matthews Real Estate Investment Services. He expects that to be the case because Seritage has a loan payment due to Berkshire Hathaway.  “The demand is there, and it’s just a function of their expectation on the price and that’s why some of their deals have sat on the market for a while or fell out of contract,” LoPiccolo says. “[There’s interest] because you’re going to be well below replacement costs and land value. The opportunity creates value in terms of backfilling with better quality tenants or in-demand tenants. All of that just boils down to the time and cost to reposition or redevelop the site.”  The main challenge to completing sales of remaining Seritage assets will likely be what’s going on in the debt markets, says Daniel Taub, senior vice president and national director of retail with real estate services firm Marcus & Millichap. Some of the deals where there will be opportunity to create higher value are also going to be capital-intensive, and matching up those investment opportunities with the right capital—including both debt and equity—is likely to be more challenging due to the current instability in the capital markets, he says.  Neil Saunders, managing director at research firm GlobalData Retail, is a little more pessimistic. While there will be some demand for the assets, it won’t be as strong as it would have been a year ago, he notes. The market has turned downward, and people are more concerned about taking on debt to finance new transactions. Real estate values under more pressure as well, he adds.  “I think some of the yields people see coming from it are much weaker than they were last year and before the pandemic hit,” Saunders says. “There’s definitely something they can do in terms of a sale, but I don’t think they will get the maximum value out of these things. There are certain properties they will have to sell at a discount if they want to unload them.”  In the end, Saunders says, he sees the liquidation sales going through because Seritage must realize it could be more difficult to close deals in 2023 if rising interest rates and lower consumer sentiment further damages the economy.  “Maybe the thought process is to get rid of them now because they might get less in a year’s time,” he adds. “It’s not a great time to be selling, but the risk is if you leave it, it might be even worse.”  Pricing  Seritage properties will most likely be priced based on land values per acre in the local market or price-per-sq.-ft. for existing older buildings, according to Caldwell. Pricing would be maximized, however, if investors are provided the option to purchase these assets separately or in mini portfolios, she adds.  Caldwell doubts that the remaining assets can be easily sold as a portfolio other than at a discount, given the significant number of remaining properties and the diversity of locations included.  According to Taub, it’s hard to feel confident about prices and their impact on private and institutional investors at this time.  “Pricing seems to be the most difficult to get your hands around because of what it was 30, 60 or 90 days ago and what it is today, being materially impacted by what’s going on in the capital markets,” he says. “The market to varying degrees is impacting all asset classes in retail.”  Some of the assets, if there were stabilized and depending on their location, could have sold at cap rates in the high 5 or 6 percent over the summer. The ones offering more of a value-add approach or more of a redevelopment opportunity, could see cap rates reach the 7.5 to 8.5 percent range, Taub notes.  Potential buyers  The mix of interested buyers for Seritage properties could range from retailers to developers looking at the best possible uses, including multifamily, says LoPiccolo. Most former Sears and Kmart properties hold strategic locations and could also offer an opportunity to develop mixed-use projects, he notes.  Saunders expects potential buyers to include real estate developers, mall owners and private equity investors. That buyer pool is going to be a lot smaller than it would have been before the current economic environment set in, he notes.  “There would have been a whole suite of people interested, but now the prospective field is a bit thinner,” Saunders says. “I think you’re more likely to get some of those investment firms if they can see these as a long-term win for them. I don’t think you will get much interest from the retail community, quite honestly. There are buyers, but they are a bit more discerning, and you have to work hard to find them.”  Some buyers, however, will be attracted by the risk-adjusted returns and property locations, according to Taub.  “The real estate in many instances is fundamentally good real estate, including those in non-primary markets,” Taub says.  If the asset is attached to an enclosed mall, the mall owner may be the one to buy it because they could see it as a way to control their destiny and create additional value for their mall, Taub says.  In addition, the liquidation could open opportunities for investors who can complete all-cash transactions and wait out the current economic cycle, he says.  Where the assets are  During an initial offering, Seritage brought about 38 assets to market, and Taub says he’s awaiting an announcement for the next batch.  Seritage owns properties across the country, but primarily east of the Mississippi River, he notes. They are located along the East Coast from New Hampshire, New York, Delaware to Virginia, the Carolinas and Florida. There will also be opportunities in Ohio, Illinois and Wisconsin in the Midwest, Texas and Arizona in the Southwest, and California on the West Coast.  The properties vary tremendously, but the majority of the Seritage sites are in traditional suburban locations  “With some of them, [Seritage] had successfully executed on the majority, if not the entire business plan, on repurposing those spaces,” Taub says.