THE ECONOMIC OUTLOOK FOR CRE INVESTMENTS WITH DR. MARK DOTZOUR
We are proud to present this special TCN Worldwide webinar featuring Dr. Mark Dotzour. He is a frequent participant at TCN conferences and one of the truly ‘entertaining economists’ to provide an economic outlook and forecast for TCN members as well as their clients, prospects, friends, and family.
Join TCN Worldwide and Dr. Mark Dotzour as he discusses:
The outlook for job growth in the US.
Will the recovery be quick or prolonged?
What is the outlook for inflation in 2021 and beyond?
The outlook for borrowing rates
What is the outlook for cap rates?
What is the outlook for investor demand for US commercial real estate?
SPECIAL GUEST SPEAKER:
Dr. Mark G. Dotzour (CRE Economist)
Former Chief Economist and Director of Research at Texas A & M University
Dr. Mark G. Dotzour is a real estate economist who served for 18 years as Chief Economist of the Real Estate Center at Texas A&M University in College Station. He has given more than 1,450 presentations to more than 250,000 people. He has written over 90 articles for magazines and journals.
Dr. Dotzour makes complex economic issues easily understandable. Above all, Mark’s goal is to provide his audience with a “tool kit” of useful information that will help them make good business decisions. Ultimately, helping their families, their clients, and their company.
His research findings have appeared in the Wall Street Journal, USA Today, Money Magazine and Business Week. Similarly, his clients include banks, private equity firms, real estate investment trusts, construction firms, engineering companies, wealth managers, private foundations, and commercial and residential brokerage firms. In addition, he has made presentations to local and national trade associations all over America.
Special thanks to TCN Worldwide for hosting this webinar.
Questions? Call Paramount Real Estate Corporation.
FOCUS ON WHAT’S IMPORTANT
Companies searching for new office or industrial space in today’s soft office market, or conversely today’s healthy industrial market and listing brokers and landlords are guilty of this as well… They often tend to focus almost exclusively on rental rate. In other words, the lowest price should be enough to positively influence a tenant’s decision to lease space in a building. The result? We’re “commoditizing” commercial space alternatives while losing the focus on what is right and best for the tenant.
SPACE ISSUES BEYOND PRICE
Let me be the first to say that economics are always important and competing buildings must be reasonably similar. However, economics are not the most important element when it comes to making a real estate decision. I have often told clients, “What difference does it make if the landlord provides the space at no cost, if the space is not functional and does not effectively work for you?” Retail clients generally seem to have a better handle on weighing the intangibles when they make space decisions. They understand that there are issues far more important than price. Issues such as exposure, vehicle traffic counts, ease of access, parking and neighboring tenants. Issues that will impact their long‐term success more than a marginal reduction in their base rental rate.
TOTAL COST SOLUTION
So many components go into a good real estate decision, and price is only one of those components. Tenants need to look at a “total cost solution” rather than just a “rental rate” solution. The latter is the proverbial tail wagging the dog kind of decision, and decisions like that never work well over the long term. That’s why establishing a preliminary budget is critical to the process. So that companies don’t waste time looking at what they can’t afford. Companies often do themselves a disservice by discounting the importance that a well thought out facilities plan plays in their long‐term success. Space, like any other component of a firm’s business plan, should function strategically. Ultimately, ensuring long‐term success for the firm. The list of items that ensure long‐term success generally relegates price to the lower tier of importance.
RANKING CRITICAL ISSUES
Companies must address, evaluate and rank the importance of critical issues. These may include parking availability, access, visibility, building efficiency, flexibility to expand and contract, on‐site or close‐by amenities, public transportation availability, security, sustainability issues, building management, landlord financial viability ‐‐‐ and, obviously, the financial structure. Whether internally generated or broker generated, tenants must understand the total cost of the deal. One deal may provide more dollars for tenant improvements; another deal may offer less tenant improvement dollars but more free rent. Yet another may offer to graduate or step the rent and pay moving costs. And in the end, a simple consideration like ease of client access or proximity to public transportation may trump the lower base rent deal.
Guard against making an impulsive, “head in the sand” facility evaluation. Select a member of your team and a competent real estate broker who will ensure that your firm makes a well thought out space decision, not a decision based on a single issue like rental rate. Make sure you have completed the proper due diligence before signing on the bottom line!
NEED HELP FINDING THE RIGHT SPACE?
Reach out to one of our
TRUSTED. DEDICATED. EXPERIENCED.
brokers at Paramount Real Estate Corporation:
Industrial: Fred Hedberg, CCIM, SIOR, Principal Phil Simonet, Principal John Young, CCIM, Vice President Joseph Schultz, Associate Jack Buttenhoff, Associate
Office: Nancy Powell, Vice President
Q3 2020 INDUSTRIAL MARKET UPDATE
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 500 basis points to 7.9% for August 2020 from 2.9% for August 2019. The unemployment rate for the US was 8.4% in August 2020 up from 3.7% last year. State of Minnesota unemployment rate was 7.4%. The Mpls-St Paul MSA saw a decrease in job growth. Also a decrease in industrial job growth in manufacturing dropping 11,200 during the same period.
The Mpls-St Paul industrial market consists of 261 msf in eight counties across the metro and posted over 682,000 sf of positive absorption for Q3 2020 while multi-tenant properties posted 152,000 sf positive absorption. The overall vacancy rate for the market stands at 4.9% and multi-tenant vacancy increased to 8.0% for Q3 2020. The average asking lease low rate was $5.97 and high rate was $9.57 NNN for Mpls-St Paul. To date, there are 19 construction projects throughout the market totaling 2.5 msf and 17 properties were delivered year-to-date with 2.1 msf.
At the close of Q3 2020, the market experienced over 2.5 msf of leasing activity in 180 transactions. ShopJimmy was the largest space leasing 413,000 sf in the Southeast market. The Southeast and Northeast markets vacancy rate being the tightest at 3.9% and 3.8% for all properties while the Southwest market topped at 6.6%. The Northeast market had two of the top five property spots in absorption with Target buying 399,000 sf and Tomas Commercial buying 140,000 sf property. The Northeast market experienced the largest vacancy of Modern Tool with 180,000 sf. Sixty three properties sold with over 2 msf for $124.8 million.
The Mpls-St Paul market consists of single and multi-tenant industrial buildings 20,000 sf or larger or part of a complex larger than 20,000 sf. The geographic area includes Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, Washington and Wright counties. The tracked set does not include selfstorage facilities and non-conforming property types such as grain elevators or fuel storage facilities. All tracked properties are existing. Statistically, net absorption will be calculated based on occupancy change during the current quarter. Asking lease rates are based on an average asking rate and noted on a NNN basis.
Reach out to one of our Industrial Agents with questions: Fred Hedberg, CCIM, SIOR, Principal Phil Simonet, Principal John Young, CCIM, Vice President Joseph Schultz, Associate Jack Buttenhoff, Associate
View Full Report: Q3 2020 MNCAR Industrial Market Report
Source: Minnesota Association of Realtors (MNCAR)
Q3 2020: OFFICE MARKET UPDATE
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 500 basis points. To 7.9% for August 2020 from 2.9% for August 2019. The unemployment rate for the US was 8.4% in August 2020 up from 3.7% last year. State of Minnesota unemployment rate was 7.4%. The Mpls-St Paul MSA saw a decrease in job growth. As well as a decrease in office job growth in professional, financial and information dropping 21,300 during the same period.
The Mpls-St Paul office market, consisting of over 128 msf of space in seven counties across the metro topping 95,000 sf negative absorption for Q3 2020. The vacancy rate for the market stands at 12.5% for all properties. Multi-tenant properties posted 16.4% vacancy with over 64,000 sf negative absorption. The average asking lease rate for Mpls-St Paul came in at $25.02 psf FSG. During Q3 2020 there were 9 construction projects throughout the market totaling just over 1.3 msf.
During the Q3 2020 the market experienced over 1.1 msf of leasing activity in 251 transactions. Class A properties vacancy rate dropped for all properties this quarter to 10.3% compared to 8.8%. It also dropped to 15% for multi-tenant properties compared to 12.7% Q2 2020. For multi-tenant properties the Northwest market posted the lowest vacancy rate at 10.6%, Mpls CBD vacancy was 18.7%, St Paul CBD was 18.4% and suburban markets was 14.6%. Southwest market posted the most positive absorption of 137,000 sf with The Nerdery leasing 60,000 sf and new delivery of Bridgewater Corp. The West market posted the largest negative absorption of 125,000 sf for all property types led by Dominium space available for lease with 53,000 sf.
The Mpls-St Paul market consists of single and multi-tenant office buildings 20,000 sf or larger or part of a complex larger than 20,000 sf. The geographic area includes Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington counties. The tracked set does not include medical or government properties. All tracked properties are existing. Statistically, net absorption will be calculated based on occupancy change during the current quarter. Asking lease rates are based on an average asking rate and noted on a FSG terms with Net type leases grossed up.
View Full Report: Q3 2020 MNCAR Office Market Report
Source: Minnesota Association of Realtors (MNCAR)
INVENTORY STORAGE? Proceed with caution.
Since 2017, days of inventory have increased for manufacturing firms nationwide, which means inventory storage has also increased. Days of Inventory in 2019 hit 59, up from 53 in 2018, and 51 in 2017. Mathematically, a decrease in the cost of sales could be causing this. COGS have actually increased slightly from 75.80% of revenue in 2017 to 75.98% in 2019. This indicates that firms have an increasing amount of inventory. Assuming this is not an over-production issue, firms are not selling as much as years prior.
This could be interpreted as a sign of economic slowdown, even before the Covid-19 storm made landfall. The increase in inventory may lead some businesses to think that they need additional space, which they may have a legitimate need for, but if the underlying reason is because of a weaker economic environment, the right course of action for the business to take might not be committing to a new long-term lease. Companies that absolutely need to move product offsite may want to explore third-party warehousing as an option. It is not as cost-effective as leasing traditional warehouse space on a per square foot basis, but allows the end-user the flexibility to change on a month-to-month time horizon.
The global health crisis has further complicated the situation. Some manufacturers now cannot keep enough stock to satisfy their customer’s needs. This may temporarily reduce the need for additional storage, even though it would be financially feasible. As with most circumstances, each should be evaluated on a case-by-case basis.
Written by: Joseph Schultz, East Team Associate
JOSEPH SCHULTZ JOINS PARAMOUNT REAL ESTATE CORP | TCN WORLDWIDE AS LEASING AND SALES ASSOCIATE MINNEAPOLIS, MN. Paramount Real Estate Corp, Bloomington, MN is pleased to announce the addition of Joseph Schultz to the industrial sales and leasing team. He will be working with Philip Simonet and John Young, CCIM. Focusing his efforts on agency leasing, new business development and buyer/tenant representation in the southeast and northeast Twin Cities submarkets.
Joseph was born and raised a Minnesotan. He graduated from Saint Thomas Academy and attended college at Gustavus Adolphus College. Therefore, he earned a Bachelor’s degree in Economics with a focus in Economic Analysis. He comes to Paramount with real estate experience while previously working as an intern at Cushman & Wakefield before joining Paramount.
In his spare time, Joseph enjoys watching sports, particularly the Minnesota Vikings, and spending time with family and friends.
REAL ESTATE TIP OF THE WEEK: GLOBAL VIEW OF REAL ESTATE
Sure, it is easy to look only at the total amount of real estate you want to own or lease. It is also easy to only look at the economics associated with your choice. However, before one even looks at real estate options, a strategic review is necessary. You want to ensure that your real estate and business goals can be aligned.
Certainly, economics (costs) are PARAMOUNT, but what other aspects of your occupied real estate significantly impact your business operations? For example; productivity, efficiency, growth, access to labor, and ability to attract and retain top talent are all influenced by real estate decisions. Attracting and retaining top talent, a key concern for most businesses, can be enhanced or diminished by the wrong real estate strategy. Employees and visitors want amenities such as restaurants, walking paths, public transportation, and public spaces.
There can be a delicate balance between the human resource aspects of real estate and the hard economics of the bottom line. A clear and well-articulated strategy makes this balancing act much easier when looking at real estate options.
For more information visit out website: www.paramountre.com