12C — January 27 - February 9, 2017 — 2017 Forecast — M id A tlantic
Real Estate Journal
www.marejournal.com
2017 F orecast
here is ever-increasing demand for warehous- ing/distribution build- By Scott K. Perkins, SIOR, CCIM, NAI James E. Hanson High demand for warehousing/ distribution space will continue to power Northern NJ market in 2017 T
coming containers from ships. At its current height of 151 feet, the Bayonne Bridge only allows Panamax ships carry- ing about 5,000 TEUs (Twenty foot equivalent or one con- tainer) of cargo to enter New- ark Bay to dock at the Port of Newark-Elizabeth. Slated for completion in 2017, the project, which will raise the Bayonne Bridge to 215 feet, will enable larger New-Pan- amax ships, with capacities of about 14,000 TEUs dock at Port Newark-Elizabeth The mere fact that larger ships can dock at the port will not necessarily effect demand for goods in the area. Howev- er, it will change the way the containers move off port prop- erty; it will have to be done quicker and more efficiently. With consumer demand creat- ing a change in how goods are delivered, the supply chain in which these goods flows must also change. The knock-on ef- fect for warehouse buildings
modern facilities in the double digits, for the first time ever. In addition to current own- ers, developers and redevel- opers have also recognized that warehouse/distribution centers increasingly repre- sent the highest and best use for more and more commer- cially zoned land in northern New Jersey. Adding to this, we have seen an increase in the pace of the demolition of functionally-obsolete indus- trial properties to allow for the construction of new, modern warehouses able to accom- modate the needs of the ports and e-commerce companies. We are also seeing the demo- lition of outdated suburban office properties to make way for warehousing/distribution oriented buildings. Also impacting the move- ment of goods in the area is the project to raise the Bay- onne Bridge. It looks to change the way the Port of New York and New Jersey handles in-
in the northern New Jersey commercial real estate mar- ket will be the need to accept these containers at expanded hours. This may create issues at a municipal level regarding truck traffic at off-hours and they may also have to adjust when they operate. There are a myriad of issues that need to be addressed in order of the real estate world to keep up with the relatively new era of e-commerce and move in to the future. Operations around the Port of Newark-Elizabeth will con- tinue to be active leading up to and well after the completion of raising the Bayonne Bridge. E-commerce distributors will continue to search out mod- ern warehouses near New York City and northern New Jersey, resulting in continued large scale development and redevelopment of warehouse/ distribution centers well into 2017 and beyond. As avail- able industrial space dries up
around the ports to due high demand and low supply, sec- ondary industrial markets will benefit such as those along the Route 287 and 78 corridors. At NAI James E. Hanson, we have seen e-commerce and warehouse/distribution related tenants in the north- ern New Jersey market look- ing to consolidate businesses into one larger facility versus several smaller buildings in multiple locations. Many land- lords we work with are at or near full occupancy for their holdings and are consistently finding that they can secure premium prices for square- footage in modern buildings versus single digit rents for unimproved, older buildings. Scott Perkins, SIOR, CCIM is managing direc- tor of Corporate Services at NAI James E. Hanson. He is also the regional director for NAI Global Lo- gistics, a specialty practice within NAI Global. n
i n g s f r om e-commerce d i s t r i b u - tors and 3rd party fulfill- ment opera- tions. As con- sumer online p u r c h a s e s increase, ex-
Scott Perkins
pectation of delivery windows are decreasing from two-days to same-day shipping, spur- ring the continued demand for space closer to major popula- tion centers. Northern NJ is one of the densest commercial markets in the country making the search for large pieces of vacant land very difficult. Owners of existing ware- house/distribution space are capitalizing on the substan- tial increase in demand and critically limited supply with rents per square foot for new,
TORONTO, ON —The com- mercial real estate industry ended 2016 as it began – with low interest rates, low cap rates and moderate GDP growth in most nations – but it does not feel like the same environment heading into 2017. Rising pro- tectionism and political unrest have introduced a healthy dose of fear and skepticism as to where we are in the current market cycle and what comes next. Despite job growth, im- proving market fundamentals and superior yields to alterna- tive investments, commercial real estate owners, occupiers and investors disagree about how long this cycle could – and should – continue. It is the sev- enth inning, but how long is this ball game? These are some of the key trends noted in Avison Young’s 2017 North America, U.K. and Germany Forecast. “Take me out to the ball game! It is only fitting that, in a year full of upsets, the Chi- cago Cubs celebrated their first World Series win in 108 years. The nine innings of American baseball have become a meta- phor for the global real estate market cycle, but given the many variables of the current climate, just like the World Series finale, this cycle may be going into overtime,” said Mark Rose , chair and CEO of Avison Young. Avison Young releases 2017 commercial real estate forecast “Will we see 2016 redux, or changes ahead? Pundits have taken both sides of the inter- est rate debate, from low rates indefinitely to a gradual return to historical levels. Meanwhile, virtually all developed coun- tries piled on additional debt, ensuring that no government would lead the charge to raise rates. Economists disagree about how best to proceed, but a majority of business executives understand that we need to normalize rates one day – and sooner rather than later. It is hard to conceive a climate with less consensus.” Rose continues: “Buyers and sellers used Brexit and the U.S. presidential election to pause and gather data points. Decision-making might have slowed in 2016, but the appetite for investment in real estate continues unabated. The over- arching themes of global finan- cial growth from a depressed base and global population top- ping 10 billion in the next few decades provide strong support for everything related to real estate. Technology is a game- changer, potentially impacting what, where and how proper- ties get used and constructed. If history is a guide, technology – like immigration – has redis- tributive impacts but can create meaningful positive economic growth for decades to come.” To make the case for the cycle being in extra innings, Rose pivots back to the baseball analogy. “The widely held opinion is that real estate is in the seventh inning,” he says. “At Avison Young, we disagree. We see something very different. We might be in the seventh or eighth inning from a pric- ing perspective, but given the market forces and attributes that currently exist, we could be in the seventh inning of a very long extra-innings game for our industry. Real estate is a legitimate investment alterna- tive and is currently producing higher yields than stocks and bonds.” Rose adds that the U.K., Ger- many and Western Europe, the U.S., Canada and Mexico boast some of the largest GDP mar- kets in the world, and global trade has not seized up – nor will it. “North America has been the preferred destination for global capital, and will continue to be in 2017,” he notes. “Addition- ally, investors in this region are beginning to harvest gains, creating a ‘wall of capital’ to take advantage of any disloca- tions in the marketplace. This wall is one of the reasons we are predicting that North American global investors will have the U.K. and, specifically, London in their sights in 2017. We believe that well-timed portfo- lio acquisitions could produce significant returns.” “U.S. markets continued to reflect strength in most real estate fundamentals in 2016. The year was marked by con- tinued improvement, resulting in numerous markets breaking decades-long pricing and occu- pancy records. As we forecasted a year ago, the U.S. provided investors with solid rates of risk-adjusted returns, the sup- ply of space kept pace with steadily increasing demand in nearly all asset classes and the influx of foreign capital contin- ued to amplify pricing pressure for the most desired gateway assets,” comments Earl Webb, President, U.S. Operations for Avison Young. “The burgeoning demand for online shopping, while causing some disruption in traditional brick-and-mortar retail assets, has provided immense opportunities in in- dustrial, distribution and ware- house assets as supply chains become increasingly complex and strive for efficiency.” Webb continues: “Demand for office remained strong, mirror- ing solid job growth through- out the year, and rental rates pushed higher. At the same time, leasing demand for CBD office space may be approach- ing equilibriumwith occupancy stabilizing as tenants consider more affordable suburban al- ternatives where reposition- ing has led to a flourishing of quasi-urban live-work-play environments. In the multi- residential sector, demand from millennials, as well as empty- nesters, continues to drive the need for higher-quality urban assets, although apartment rent growth has begun to slow in some metropolitan areas.” “And as we approach the U.S. presidential inauguration and the launch of a new federal administration,” Webb adds, “Avison Young anticipates that an increase in federal govern- ment spending – and a subse- quent breakup of the Capitol Hill gridlock – should have a positive impact on economic activity and, thus, real estate fundamentals.” Cybersecurity, anti-terrorism and rising protectionism senti- ment will likely fuel federal spending, and these issues are forecasted to impact technol- ogy-driven markets. Office leasing again faced challenges and disruption in 2016 as ten- ants embraced efficient office design and lower per-employee utilization rates. Many markets experienced a rise in the co- working model and properties being repositioned by adding tenant amenities in response to this competitive environment. n
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