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Commercial Real Estate Economic Update 9.9.22

Featured topics:

  1. Futures Market Forecasts 75 bp Hike

  2. Beige Book Analysis

  3. CMBS Delinquencies

  4. Single Family Rental CMBS Issuance

  5. Independent Landlord Rental Performance

  6. Consumer Sentiment

  7. Jobs Report

  8. Mall Visits Fall Across US

  9. Manufacturing PMI

  10. Post-GFC High for AD&C Loans

1. FUTURES MARKET FORECASTS 75 BP HIKE

• Fed Futures markets are now firmly predicting another 75-bps hike at the FOMC’s September meeting based on estimates from the Chicago Mercantile Exchange.

•Following the committee’s July meeting, future markets were initially forecasting a more moderate increase of 50 bps come the September meeting, as seen in May and June before the Fed turned up the heat. As of September 8th, 86.0% of the Fed Futures market forecasts a 75-bps hike at the Fed’s next meeting on September 20th-21st.

• Since late July, markets have digested several key data points, including above-expectations job growth, a rebound in consumer sentiment, and a modest but unconvincing decline in year-over-year inflation. During recent talks at the annual Jackson Hole Summit, Fed officials also maintained a relatively hawkish tone, signaling a sustained willingness to raise rates to tackle inflation.

2. BEIGE BOOK ANALYSIS

• The September 7th version of the Federal Reserve’s Beige Book shows that economic activity remains relatively unchanged across the nation compared to recent weeks, with most businesses reporting steady or growing activity.

• Most federal reserve districts reported steady consumer spending levels, but purchases are moving away from discretionary items and toward food and other essentials, and inflation pressures mount. Auto sales continued to be hampered by low inventory and high prices, while hospitality and leisure remained relatively strong throughout the summer.

• Commercial real estate experienced softened activity, particularly for office space. Loan demand was reportedly mixed with solid demand for credit cards and commercial and industrial loans, while residential (buying) demand continued to weaken in the face of rising mortgage rates.

3. CMBS DELINQUENCIES

• CMBS delinquencies registered a slight decline in August, falling eight bps to 2.93%, according to Trepp— it is the first time delinquencies have fallen below 3% since the COVID-19 pandemic began.

• Delinquencies have steadily declined over the past two years as most Commercial Real Estate segments recovered, but recent improvements in the Hotel and Retail sectors have fueled the latest reductions.

• August represents the 24th decline in CMBS delinquencies in the past 26 months. Industrial continues to boast the lowest delinquency rate of 0.51% through August. Multifamily follows close behind with a rate of 0.95%. The rate for Office stands at 1.5%, Lodging (Hotel) at 5.18%, and Retail at 6.45%.

4. SINGLE FAMILY RENTAL CMBS ISSUANCE

• A new report by Trepp looks at the rise in Single-Family Rental CMBS issuance in recent years, as the sector has risen from just 7.22% of all CMBS issuance in 2018 to 13.92% so far in 2022.

• According to the analysis, $73.53 billion of Single-Family Rental CMBS has been issued since 2013, dominated mainly by players such as Progressive Residential, CoreVest American Finance, Invitation Homes, and Tricon, which accounted for more than half of all SFR issuance. SFR issuance in 2021 was more than double its 2019 level.

• While it appears that SFR will remain a notable portion of the CMBS market for years to come, the sector has seen a similar slowdown in recent months as seen in the broader CMBS market. Trepp notes that a total of five new deals so far in Q3 totaled $2.11 billion, on pace to fall below the $7 billion total hit in Q2.

5. INDEPENDENT LANDLORD RENTAL PERFORMANCE

• The on-time collection rate for independently operated residential properties fell by 55 bps between July and August, landing at 79.7%, according to the latest Independent Landlord Rental Performance Report by Chandan Economics.

• Gateway markets have maintained higher on-time payment rates than units located elsewhere for eight consecutive months through August 2022. Measured month-over-month, gateway market on-time collection rates rose by 16 bps but are down 211 bps year-over-year. The July on-time rate for Gateway markets stands at 81.4%, while non-gateway markets registered an on-time rate of 79.5%.

• Sun Belt rentals have underperformed the rest of the US for five consecutive months, standing at 78.4% in August compared to 80.3% for non-sun belt rentals. The Sun Belt’s growing success has seen some affordability issues arise, as markets re-price more quickly than some existing residents can handle.

• 2-4 Family rentals maintained the highest on-time payment rate of all sub-property types in August, rising 52 bps month-over-month.

6. CONSUMER SENTIMENT

• Despite growing recession concerns over the summer, consumer sentiment appears to have stabilized. The University of Michigan’s final August Consumer Sentiment estimate was revised up from 55.1 to 58.2. Moreover, consumer expectations saw a significant revision from a previously estimated 47.3 to a final reading of 58.0.

• The Consumer Sentiment Index has risen from its all-time low level of 50.0 in June, climbing in consecutive months. The upswing has been widespread across most demographics, though lower-income consumers’ sentiment has risen higher in recent readings, even exceeding that of higher-income consumers, bucking the historical trend.

• Inflation expectations have also receded, falling from 5.3% in July to 4.8% in August.

7. JOBS REPORT

• The US econom y added 315,000 jobs in July while the unemployment rate rose slightly to 3.7%, according to the Bureau of Labor Statistics.

• This month’s jobs report fell slightly below expectations and signaled a slight loosening in the labor market. Still, job-adds continue to be strong, notably in professional and business services, health care, and retail trade.

• The uptick in the unemployment rate primarily reflects the reentry of some workers into the labor force, as the US labor force participation rose to 62.4%. Average hourly wages also climbed, increasing 5.2% year-over-year.

• Professional business services employment climbed the most during the month (+68,000), followed by healthcare (48,000) and retail trade (44,000). Meanwhile, leisure and hospitality job gains receded from their recently typical high levels, remaining relatively unchanged from July.

8. MALL VISITS FALL ACROSS U.S.

  • Globe Street reporting of an analysis by Placer.ai finds that visits to American malls have started to decline as inflation eats into consumers’ wallets, falling in August after two consecutive years of increases.

• Year-over-year foot traffic to indoor malls, open-air lifestyle centers, and outline centers declined during the month. Indoor malls saw the steepest fall from the month before, falling by 1.1% month-over-month.

• Despite the declines, their shallow nature presents a dose of optimism for brick-and-mortar businesses in the face of recent economic headwinds. According to the Placer.ai report, all three segments of the mall sector ended August more strongly than they began, with indoor malls and open-air centers posting their most significant week-over-week gain since June 27th. Moreover, Retail REIT Simon Property Group recently reported strong occupancy and leasing volume, showing a 26% year-over-year increase in sales per square foot through the second quarter of 2022.

9. MANUFACTURING PMI

• S&P Global’s US Manufacturing Index declined to its slowest growth rate since July 2020 during August, registering a reading of 51.5. An index reading above 50 indicates growing activity in the sector, while a reading below 50 indicates declining activity.

• New orders reportedly fell for the third consecutive month amid weak client demand caused by high inflation and rising economic uncertainty. Output also contracted for the second consecutive month.

• On the flip side, supply chain disruptions are reportedly the least severe that they have been since October 2020, while input price inflation was its slowest since January 2021.

10. POST-GFC HIGH FOR AD&C LOANS

• In the second quarter of 2022, acquisition, development, and construction (AD&C) loan volume reached its highest level since the Great Financial Crisis, according to an analysis by the National Association of Home Builders (NAHB).

• However, pushing up volume levels is a rise in loan balances stemming from homes remaining in inventory for longer as homebuying slows, filtering into a slowdown in home-building activity.

• Balances are expected to decrease in the coming months as rising borrowing costs slow the rate of new borrowing. According to NAHB’s latest survey on AD&C financing conducted in August, the average effective rate on AD&C loans rose across all loan types between Q1 and Q2. The rate on Land acquisition loans rose from 6.32% to 8.19 quarter-over-quarter. Land development loans saw rates climb from 7.85% to 9.55%. Speculative single-family loans saw rates rise from 7.38% to 8.48, while pre-sold single-family loan rates rose from 7.90% to 8.63%

 

SUMMARY OF SOURCES

  1. https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

(2) https://www.federalreserve.gov/monetarypolicy/beigebook202209.htm

(3) https://www.trepp.com/instantly-access-delinquency-report-august-2022?hsCtaTracking=6851c4cd6d3a-4f5c-895d-3e93db2cd92b%7Cd6075c9b-7c7e-49f6-aec4-d810563171a9 

(4) https://www.trepp.com/trepptalk/single-family-rental-issuance-flourishes-will-lending-continuewhat-does-it-mean-for-affordability

(5)chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.chandan.com/_files/ugd/df56fe_4e79d75ae2db4bb9a890fbe35f9eb9bc.pdf

(6)http://www.sca.isr.umich.edu/

(7) https://www.bls.gov/news.release/empsit.nr0.htm

(8) https://www.globest.com/2022/09/08/mall-visits-slump-as-inflation-heats-up/

(9) https://tradingeconomics.com/united-states/manufacturing-pmi

(10) https://eyeonhousing.org/2022/09/adc-loan-balances-rise-as-sales-slow/?_ ga=2.64372591.1796051761.1662673965-1254428321.1662496463

 

View More Economic Updates:

Economic Report 8.26.2022

Economic Report 5.13.2022

Economic Report 3.18.2022

Economic Report 2.25.2022

 

Commercial Real Estate Economic Update 8.26.22

 

Featured topics:

  1. Second GDP Estimate

  2. Real Estate Sentiment Index

  3. MSCI RCA Commercial Property Price Index

  4. Industrial Demand Forecast

  5. New Home Sales

  6. Senior Loan Officer Opinion Survey

  7. CMBS Issuance

  8. Retail Inventories Excluding Auto

  9. Office Occupancy

  10. Rent Growth Variations

Commercial Real Estate Economic Update 8.26.2022 – (Download Full PDF)

1. SECOND GDP ESTIMATE

• Real gross domestic product (GDP) decreased at an annual rate of 0.6 percent in the second quarter of 2022, according to the BEA’s second estimate released on August 25th. The revision shows that the US economy contracted less than expected, though directionality suggests that we are in a technical recession. Real GDP fell 1.6% in the first quarter.

• The latest update revises up both consumer spending and private inventory investment , the latter which led to overall declines in the second quarter. Consumer spending remained the strongest contributor to growth. On the flip side, there was a downward revision in residential fixed investment, which was also one of the leading categories of decline in the second quarter.

• The most significant contributors to the economic contraction were pullbacks in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment. Meanwhile, exports and consumption increased, leading all positive contributions to the index.

2. REAL ESTATE SENTIMENT INDEX

• According to the Real Estate Round Table’s Q3, 2022 Sentiment Index, commercial real estate executives are pessimistic about the sector’s current state, though optimism remains on the horizon.

• The overall index, which included both current and future conditions, fell from 51 in Q2 2022 to 44 in Q3 2022 (note: above 50 = positive conditions). The overall index is down by 34 points compared to one year ago.

• The overall index decline was entirely due to reductions in the “current conditions” sub-index, which registered a Q3 observation of just 38— its lowest reading since 2020. Among the reasons cited for the decline, inflation, supply chain disruptions, and the impact of rising interest rates all topped the list.

• Optimism for future conditions rebounded in Q3 2022, registering a reading of 51. It was the first time since early 2021 that the future conditions sub-index rose quarter-over-quarter.

3. MSCI RCA COMMERCIAL PROPERTY PRICE INDEX

• Commercial real estate prices climbed by 16.8% year-over-year through July, according to the latest data from MSCI RCA’s All-Property index. The index rose by 0.9% month-over-month.

• July’s pace of growth remained strong but was the second consecutive month where growth decelerated. Annual growth in commercial real estate properties reached a record 19.5% year-over-year in May.

• Industrial continued to outpace all other property types in quarterly and annual growth rates, climbing by 1.2% and 24.4%, respectively. July marked the tenth consecutive month of above-20% year-over-year growth for the sector; however, it is down from the nearly 27% annual growth registered earlier this year.

• Apartments registered the second highest annual growth in July but slipped from the previous month, falling to 20.9.

• Annual growth in Retail climbed 17.7%, down 1.0% from June but still significantly above its historical average.

• Suburban office slowed to 7.8% year-over-year, while CBD office also slowed to 7.7%.

4. INDUSTRIAL DEMAND FORECAST

• According to the latest industrial space demand report from NAIOP, retailers and logistics firms have begun to slow the rate at which they acquire new industrial space.

• Net absorption of industrial space fell sharply to 151.2 million square feet in the first two quarters of 2022, down from 2021’s record pace but still relatively higher than prior years. NAIOP forecasters expect the market to cool further and revert to pre-pandemic levels by 2023.

• The combining factors of falling pressure on supply chains, increased inventory carrying costs, an economic contraction, and slowing e-commerce expansion contribute to the fall in demand. According to the NY Fed’s Supply Chain Pressure Index, supply chain congestion eased during the year’s first half, resulting in retailers buying up less space than in recent quarters.

5. NEW HOME SALES

• New single-family home sales fell sharply in July, down -12.6% month-over-month and -29.6% year-overyear.

• The median sales price on a new home was $439,400, up from $402,400 in June.

• Just 511,000 homes were sold in July, down from 585,00 in June and 726,000 one year ago. July’s volume is the lowest monthly sales total since January 2016.

• The continued decline of new residential sales indicates rising mortgage rates and other cost pressures are affecting would-be homebuyers despite robust overall housing demand. The average rate on a 30- year mortgage never dropped below 5% during the month and is at least 2% higher than any rate made available in January of this year.

• Builders are also reporting continued construction woes, adding additional pressure to prices. While some expect a correction in pricing, most economists predict that it will be far from the drastic pullbacks seen during the housing crash of 2008 as today’s economy continues to be supported by both strong job growth and housing demand, which was not a feature of the previous downturn.

6. SENIOR LOAN OFFICER OPINION SURVEY

The Federal Reserve’s July Senior Loan Officer Opinion Survey, conducted over the second quarter of 2022, signals that lenders continue to tighten underwriting standards across all cross-sections of real estate.

• For commercial properties, a net 41.5 percent of lenders report tightening lending standards— the highest share since the October 2020 survey. The decidedly risk-averse reading in the most recent survey comes after an equal split of underwriters tightening and loosening in the prior survey (April 2022).

• For Multifamily, a net 30.3% of respondents reported tightening underwriting standards in the July 2022 survey—a shift of 39.5 percentage points from April.

• Construction lending saw the largest share of underwriters pulling back on the reins, as 48.4% reported tightening standards.

7. CMBS ISSUANCE

• CMBS issuance have slowed in 2022 as higher interest rates reduced available leverage, pushing loan coupons and debt yields higher, leading to an overall slowdown in the market.

• While there have only been two significant CMBS deals so far in the third quarter, some important trends appear to be taking shape. The percentage of multifamily loans dropped from 12% to 6% quarterover-quarter, while hospitality loans climbed from 1% to 9%. While the decline in multifamily issuance may be explained by more loans being securitized as CRE CLOs than CMBS, the uptick for hospitality is less evident given the sector’s struggles, implying stronger underwriting metrics.

• LTVs for hospitality loans fell by about 5% while LTVs on hospitality loans declined close to 10%. Uncertainty regarding the sectors’ outlook drives the more conservative underwriting standards, potentially constraining future lending.

8. RETAIL INVENTORIES EXCLUDING AUTO

 

• Rental inventories excluding autos increased by 1.5% in July, according to the Census Bureau. While inventory growth has come down from highs hit towards the end of 2021 and the beginning of 2022, they still sit significantly higher than historical averages as pent-up orders from earlier in the year get stocked away. The development is in line with the observed fall in Industrial real estate property volume so far this year but with growth in overall dollar transaction volume.

• Durable goods, excluding defense orders, increased by 1.2% month-over-month in July, the third consecutive month order growth either increased or stayed the same relative to the previous month.

• Meanwhile, wholesale inventories continue to decline month-over-month. With July data set for release on August 26th, this could also be a key indicator impacting the outlook for the Industrial sector.

9. OFFICE OCCUPANCY

• Offices appear to be getting a slight boost from the back-to-school season, as occupancy climbed by 30 basis points to 43.5% of pre-pandemic levels in the most recent week of reporting. While the level remains historically low , occupancy has hovered around 43% since April— the uptick was evident across most major cities, except New York, Philadelphia, and Washington, DC.

• Dallas experienced the most significant increase, climbing by 1.6% week-over-week to 52% of prepandemic levels. Likely fueling the climb, relative to the lack thereof in northeastern metros, was a return to school for many students across the south in the past week.

10. RENT GROWTH VARIATIONS

• A recent blog by Trepp looks at the differences between rent growth rents across metros in June, which showed to be significant. In June, rents climbed by an average of 5.8%, according to Trepp’s calculations, but the deviation between the #1 metro for rent growth and the #5 metro for rent growth was 5.3%.

• The Phoenix-Mesa-Scottsdale, AZ metro registered the highest increase in net operating incomes, climbing by 9.2% year over year. Detroit-Warren-Dearborn, MI, which came in 5th, risen by 3.9% yearover-year.

• Sun Belt Metros continue to outpace non-Sun Belt metros in various metrics, with four of the top five metros for revenue and NOI being from the region.

SUMMARY OF SOURCES

• (1) https://www.bea.gov/news/2022/gross-domestic-product-second-estimate-and-corporate-profitspreliminary-second-quarter

• (2) https://www.rer.org/docs/default-source/economic-sentiment/2022/q3-rer-sentiment-report—final. pdf?Status=Master&sfvrsn=46ac4e42_3

• (3) https://www5.rcanalytics.com/webmail/71612/1320089930/ d196fa9edcdbcd8870f742246c5dcb4284d1bc9d62a4b45c2f8d05f65f5dc44

• (4) https://naiop.org/en/Research-and-Publications/Space-Demand-Forecasts/Industrial-SpaceDemand-Forecast

• (5) https://www.census.gov/construction/nrc/pdf/newresconst.pdf

• (6) https://www.federalreserve.gov/data/sloos/sloos-202207-chart-data.htm

• (7) https://cre.moodysanalytics.com/insights/cre-news/cmbs-new-issuance-market-unfreezes/

• (8) https://tradingeconomics.com/united-states/retail-inventories-ex-autos

• (9) https://www.kastle.com/safety-wellness/getting-america-back-to-work/?utm_ source=adwords&utm_campaign=Kastle_EVG_LG-PROS_GSN-Brand&utm_medium=ppc&utm_ term=kastle&hsa_ver=3&hsa_grp=121717591581&hsa_acc=9348517971&hsa_ad=533979302346&hsa_ src=g&hsa_tgt=kwd-540451063&hsa_kw=kastle&hsa_cam=13059609033&hsa_mt=p&hsa_ net=adwords&gclid=CjwKCAjwu5yYBhAjEiwAKXk_eFh1Gz-pBiE2snvnzJ_j27_VORy9l_ Low0q7gxHjAVylhfLHX1CnWhoCr8QQAvD_BwE

• (10) https://www.trepp.com/trepptalk/cpi-fyi-report-a-deeper-dive-into-the-geographic-variation-ofgrowth-rates

©2022 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

 

View More Economic Updates:

Economic Report 5.13.2022

Economic Report 3.18.2022

Economic Report 2.25.2022

 

Time’s Up for Non-Cooperation in CRE

Why now?

By Kevin Maggiacomo

The clock is ticking on what is a systemic issue in commercial real estate investment sales: Non-cooperation and misaligned incentives create a loophole where brokers’ interests take precedence over sellers’ interests, resulting in an environment where most sellers are selling for less than fair market value. This model and way of doing business means that money is being left on the table by brokers and, more importantly, their clients.

In this white paper, we argue that:

  • Today’s typical way of selling CRE assets is illogical and driven by misaligned incentive structures, instead of sound economic principles
  • The CRE industry urgently needs to embrace cooperation to drive shared value in the future
  • Cooperating proactively with the brokerage community is the most effective way to increase demand for CRE assets on the market
  • Savvy brokers have the chance to embrace efficient, modern, and informed ways of working to achieve the best price and the best terms for their clients. We should know — SVN has been working like this for over 36 years.

Read the full White Paper Here (click to download)

Why now?

Why now?

Despite this systemic disconnect, the CRE industry is not in bad shape, you might argue. Indeed, the real estate industry was a top three contributor to the uptick in the US’s GDP in the fourth quarter of 2021 . Why change an apparently winning formula, and why now? **

The two main reasons – that your clients will demand it and that technology will make it inevitable – are closely intertwined. While the CRE industry has been temporarily immune to this and other global trends, this won’t last forever as expectations change. The broker of the future is going to be driven by a more informed client, who is armed with real estate data that they simply didn’t have access to a decade ago. Now and moving forward, clients will have the ability to profile and understand a CRE market from 3,000 miles away, or from the other side of the planet.

The broker that doubles down on a matchmaker role is going to be usurped by the broker who understands that clients have unprecedented access to data, and what they really need is someone who can make sense of that data to drive actionable information and insights that no one else has. Meanwhile, the matchmaker role is inevitably going to be automated.

What’s more, clients intrinsically understand the power of a network. From hiring, to booking holidays, to shopping, to commuting, people tap into the networks every day. They’re not going to be convinced that a single broker’s database will magically produce the perfect buyer for their property compared with the reach of a network of brokers and their distribution channels. Furthermore, the profile of CRE buyers is changing, with more foreign direct buyers, international investors and first time CRE buyers than ever before. Clients of the future will demand broker cooperation and the generation of organized competition through fee sharing to get the best deal at the best terms for their properties.

THE BROKER OF THE FUTURE IS GOING TO BE DRIVEN BY A MORE INFORMED CLIENT

** BUREAU OF ECONOMIC ANALYSIS, US DEPARTMENT OF COMMERCE

What you need to know

The clock is ticking on what is a systemic issue in commercial real estate investment sales. Misaligned incentives create a loophole where brokers’ interests take precedence over sellers’ interests, resulting in a situation where most sellers are selling for less than fair market value. This model and way of doing business is causing sellers to leave money on the table. Savvy brokers have the chance to embrace efficient, modern, and informed ways of working to achieve the best price and the best terms for their client. We should know, as SVN was founded on the basis of these principles in 1987 and have been working like this for 36 years.

IF YOU’RE INTERESTED IN LEARNING MORE ABOUT THE POWER OF COOPERATIVE BROKERAGE, VISIT WWW.SVN.COM

Stay tuned for a new featured topic each week:

  1. The law of supply and demand
  2. Leaving money on the table
  3. The unfortunate power of misaligned incentives
  4. What does cooperation look like? & What do SVN® franchisees say about cooperation in CRE?
  5. Why now? & What you need to know

About SVN

The SVN® brand was founded in 1987 out of a desire to improve the commercial real estate industry for all stakeholders through cooperation and organized competition. SVN is now a globally recognized commercial real estate brand united by a shared vision of creating value with clients, colleagues and our communities. When you choose SVN, you mobilize the entire SVN organization of experts and all our trusted relationships to act on your behalf. This shared network is the SVN Difference. To learn more, visit our website, www.svn.com.

Time’s Up for Non-Cooperation in CRE

What does cooperation look like?

By Kevin Maggiacomo

The clock is ticking on what is a systemic issue in commercial real estate investment sales: Non-cooperation and misaligned incentives create a loophole where brokers’ interests take precedence over sellers’ interests, resulting in an environment where most sellers are selling for less than fair market value. This model and way of doing business means that money is being left on the table by brokers and, more importantly, their clients.

In this white paper, we argue that:

  • Today’s typical way of selling CRE assets is illogical and driven by misaligned incentive structures, instead of sound economic principles
  • The CRE industry urgently needs to embrace cooperation to drive shared value in the future
  • Cooperating proactively with the brokerage community is the most effective way to increase demand for CRE assets on the market
  • Savvy brokers have the chance to embrace efficient, modern, and informed ways of working to achieve the best price and the best terms for their clients. We should know — SVN has been working like this for over 36 years.

Read the full White Paper Here (click to download)

What does cooperation look like?

No doubt, when asked, some brokers will claim to cooperate with other brokers. But if this cooperation is little more than a referral fee it creates yet another misaligned incentive situation. This is because, yet again, the monetary reward does not match the amount of effort required to earn it, and brokers representing buyers are better off spending their time elsewhere, connecting their motivated buyer to a seller where the deal offers them more than 25% of the commission fee.

What does cooperation look like?

If the above scenario is not cooperation, what does true cooperation look like? In our world, cooperation is an all-in situation. It starts with an equal split of the commission between the listing broker and the buyer’s broker, but extends beyond this.

TRUE COOPERATION IN THE COMMERCIAL REAL ESTATE WORLD HAS TO BE:

1. A 50%-50% COMMISSION SPLIT BETWEEN BUY AND SELL SIDE AGENTS

2. COMPANY POLICY

3. ORGANIZATIONALLY LEVERAGED: EVERYONE HAS TO DO IT ALL THE TIME TO CREATE AN EFFICIENT MARKETPLACE

What do SVN® franchisees say about cooperation in CRE?

Our cooperative culture and business model means we can cast a much wider net and drive value. It has definitely increased our market presence and opened doors to more opportunities. This is something we embed in our team early, starting with the onboarding process, and our advisors believe in the value it creates.

Nolan Julseth-White, CCIM, Managing Director, SVN | THE EQUITY GROUP

The value of a cooperative culture and business model is invaluable! I’ve been in this industry for two years at four different firms, and I’ve had my best income producing years since we started our SVN franchise in 2018. In fact, talking about the SVN culture of collaboration at listing presentations has definitely played a part in landing listings.

Janet F. Kramer, JD, CRRP, Managing Director, SVN | INSIGHT COMMERCIAL REAL ESTATE ADVISORS

Building a business with a foundation of cooperation and collaboration strengthens relationships both within and outside the office, increasing communication and deal flow. We regularly attract dozens of offers on listed properties because the brokerage community knows there is a fair fee attached to our listings. In addition, it means we can hire top talent that is attracted to the cooperative model where they can be a part of something bigger than just themselves or their team.

Perry Laufenberg, Managing Director, SVN | DESERT COMMERCIAL ADVISORS

Stay tuned for a new featured topic each week:

  1. The law of supply and demand
  2. Leaving money on the table
  3. The unfortunate power of misaligned incentives
  4. What does cooperation look like? & What do SVN® franchisees say about cooperation in CRE?
  5. Why now? & What you need to know

About SVN

The SVN® brand was founded in 1987 out of a desire to improve the commercial real estate industry for all stakeholders through cooperation and organized competition. SVN is now a globally recognized commercial real estate brand united by a shared vision of creating value with clients, colleagues and our communities. When you choose SVN, you mobilize the entire SVN organization of experts and all our trusted relationships to act on your behalf. This shared network is the SVN Difference. To learn more, visit our website, www.svn.com.

Time’s Up for Non-Cooperation in CRE

The unfortunate power of misaligned incentives

By Kevin Maggiacomo

The clock is ticking on what is a systemic issue in commercial real estate investment sales: Non-cooperation and misaligned incentives create a loophole where brokers’ interests take precedence over sellers’ interests, resulting in an environment where most sellers are selling for less than fair market value. This model and way of doing business means that money is being left on the table by brokers and, more importantly, their clients.

In this white paper, we argue that:

  • Today’s typical way of selling CRE assets is illogical and driven by misaligned incentive structures, instead of sound economic principles
  • The CRE industry urgently needs to embrace cooperation to drive shared value in the future
  • Cooperating proactively with the brokerage community is the most effective way to increase demand for CRE assets on the market
  • Savvy brokers have the chance to embrace efficient, modern, and informed ways of working to achieve the best price and the best terms for their clients. We should know — SVN has been working like this for over 36 years.

Read the full White Paper Here (click to download)

The unfortunate power of misaligned incentives

This behavior indicates that when the principle of supply and demand meets the force of misaligned incentive structures in a commission-only environment, the latter wins out. This happens in two main ways.

WHEN THE PRINCIPLE OF SUPPLY AND DEMAND MEETS THE FORCE OF MISALIGNED INCENTIVE STRUCTURES IN A COMMISSION-ONLY ENVIRONMENT, THE LATTER WINS OUT

Incentive disconnect 1

With no base salary to fall back on, brokers need to be clever when it comes to how they spend their time. Any increase in seller price, although of great importance to the seller, only translates into an incremental increase in the money in the broker’s pocket at the end of the deal. Take a $5 million commercial sale as an example. If you assume a 4% commission, it is clear that if the listing broker hustles hard and achieves $5.5 million instead, they only gain $20,000 in additional commission. To be sure, the $480,000 added to the sale price is significant for the seller but does the slight gain in commission ($220,000 vs $200,000) make sense to a broker, who could be using that additional effort on a new deal altogether? Clearly this structure does not incentivize brokers to get the best possible deal for their seller, no matter how long it takes and how much effort is required. In other words, brokers are not motivated to drive the maximum possible demand for each property. Instead, this structure incentivizes brokers to get a good enough deal by spending the least amount of time, money and effort, and to move on quickly to the next deal. (Top tip: if you haven’t already, dig out a copy of Steven D. Levitt and Stephen J. Dubner’s book Freakonomics to read their data informed discussion about how this incentive misalignment plays out in the residential real estate market. Their final takeaway is that the data shows that real estate agents do not sell their own properties in the same way they sell clients’ properties. When it comes to their properties, they spend the time creating demand and hold out for the best deal.)

Incentive disconnect 2

No doubt, when asked, some brokers will claim to cooperate with other brokers. But if this cooperation is little more than a referral fee it creates yet another misaligned incentive situation. This is because, yet again, the monetary reward does not match the amount of effort required to earn it, and brokers representing buyers are better off spending their time elsewhere, connecting their motivated buyer to a seller where the deal offers them more than 25% of the commission fee.

 

Stay tuned for a new featured topic each week:

  1. The law of supply and demand
  2. Leaving money on the table
  3. The unfortunate power of misaligned incentives
  4. What does cooperation look like? & What do SVN® franchisees say about cooperation in CRE?
  5. Why now? & What you need to know

About SVN

The SVN® brand was founded in 1987 out of a desire to improve the commercial real estate industry for all stakeholders through cooperation and organized competition. SVN is now a globally recognized commercial real estate brand united by a shared vision of creating value with clients, colleagues and our communities. When you choose SVN, you mobilize the entire SVN organization of experts and all our trusted relationships to act on your behalf. This shared network is the SVN Difference. To learn more, visit our website, www.svn.com.

Time’s Up for Non-Cooperation in CRE

leaving money on the table

By Kevin Maggiacomo

The clock is ticking on what is a systemic issue in commercial real estate investment sales: Non-cooperation and misaligned incentives create a loophole where brokers’ interests take precedence over sellers’ interests, resulting in an environment where most sellers are selling for less than fair market value. This model and way of doing business means that money is being left on the table by brokers and, more importantly, their clients.

In this white paper, we argue that:

  • Today’s typical way of selling CRE assets is illogical and driven by misaligned incentive structures, instead of sound economic principles
  • The CRE industry urgently needs to embrace cooperation to drive shared value in the future
  • Cooperating proactively with the brokerage community is the most effective way to increase demand for CRE assets on the market
  • Savvy brokers have the chance to embrace efficient, modern, and informed ways of working to achieve the best price and the best terms for their clients. We should know — SVN has been working like this for over 36 years.

Read the full White Paper Here (click to download)

Leaving Money on the table

For the most part the CRE industry resists brokerage cooperation and fee sharing. A study we carried out spanning 10 years and 10 states showed that only one in six of the 15,000+ CRE deals surveyed was clearly cooperative*. Instead, in almost 85% of CRE transactions, listing brokers do not market to other brokers at all, miss out on all their relationships, and wind up producing the buyer on their own – referred to as a “double-ended” deal.

Indeed, today most brokers do the exact opposite of the companies mentioned earlier. Instead of tapping into the power of the network and distribution channel of the industry (i.e., the 100,000 brokers who exist within it) through cooperation, they actively work to shut this down, only exposing their sellers’ properties to a fraction of the potential buyers in the market. Looking at this through the lens of the supply and demand principle, this means that demand is reduced, sales prices are unlikely to be optimized, and will certainly not result in a fair, achievable, market rate. Undoubtedly money is being left on the table by both CRE brokers, and more importantly, their clients.

What is driving this clearly illogical behavior by the CRE industry? In an industry where you eat what you kill, surely any opportunity to drive up the sales price should be eagerly grasped? A happy seller means a long-term relationship and more deals down the line.

However, the undeniable logic of supply and demand goes head-to-head with a misaligned incentive structure. Far from ensuring that listing brokers and their sellers are on the same team, the current incentive structure puts them at loggerheads. And further, it disincentives cooperation and the ability to reach accurate, fair market prices more often and more easily, thanks to the power of the network.

MONEY IS BEING LEFT ON THE TABLE BY BOTH CRE BROKERS, AND MORE IMPORTANTLY, THEIR CLIENTS

*The 9.6% report: A report on the pricing advantage of cooperation*

Stay tuned for a new featured topic each week:

  1. The law of supply and demand
  2. Leaving money on the table
  3. The unfortunate power of misaligned incentives
  4. What does cooperation look like? & What do SVN® franchisees say about cooperation in CRE?
  5. Why now? & What you need to know

About SVN

The SVN® brand was founded in 1987 out of a desire to improve the commercial real estate industry for all stakeholders through cooperation and organized competition. SVN is now a globally recognized commercial real estate brand united by a shared vision of creating value with clients, colleagues and our communities. When you choose SVN, you mobilize the entire SVN organization of experts and all our trusted relationships to act on your behalf. This shared network is the SVN Difference. To learn more, visit our website, www.svn.com.

Time’s Up for Non-Cooperation in CRE

The Law of supply and demand

By Kevin Maggiacomo

The clock is ticking on what is a systemic issue in commercial real estate investment sales: Non-cooperation and misaligned incentives create a loophole where brokers’ interests take precedence over sellers’ interests, resulting in an environment where most sellers are selling for less than fair market value. This model and way of doing business means that money is being left on the table by brokers and, more importantly, their clients.

In this white paper, we argue that:

  • Today’s typical way of selling CRE assets is illogical and driven by misaligned incentive structures, instead of sound economic principles
  • The CRE industry urgently needs to embrace cooperation to drive shared value in the future
  • Cooperating proactively with the brokerage community is the most effective way to increase demand for CRE assets on the market
  • Savvy brokers have the chance to embrace efficient, modern, and informed ways of working to achieve the best price and the best terms for their clients. We should know — SVN has been working like this for over 36 years.

Read the full White Paper Here (click to download)

The law of supply and demand

The residential real estate industry has got this. This part of the real estate world has long embraced the notion that increased exposure to a property can boost that property’s selling price. Residential real estate brokers are comfortable with the fact that they can’t possibly know every potential buyer for every property they sell. Their response is to widen the net by cooperating with a network of brokers who have relationships with buyers. They know that this approach means shared value for everyone. This dynamic comes down to one of the essential and fundamental laws of economics: the law of supply and demand. If the demand for a product or service is driven up, higher prices will follow. Conversely, reduced or sluggish demand for something means lower prices.

AT SVN WE ARE CONVINCED THAT, JUST AS IN THE RESIDENTIAL REAL ESTATE MARKET, COOPERATING PROACTIVELY WITH THE BROKERAGE COMMUNITY IS THE MOST EFFECTIVE WAY TO INCREASE DEMAND FOR COMMERCIAL PROPERTIES FOR SALE

To carry this logic over to the real estate world, more offers on a property means a higher sales price for the seller. So far, so obvious, correct? The principle of supply and demand is something we all see playing out every day. Today, global supply chain issues are making a plethora of items scarce, driving up global competition and demand for those products and consequently resulting in higher prices. At SVN we are convinced that, just as in the residential real estate market, cooperating proactively with the brokerage community is the most effective way to increase demand for commercial properties for sale. Empirically, this plays out in practice time and again.

Stay tuned for a new featured topic each week:

  1. The law of supply and demand
  2. Leaving money on the table
  3. The unfortunate power of misaligned incentives
  4. What does cooperation look like? & What do SVN® franchisees say about cooperation in CRE?
  5. Why now? & What you need to know

About SVN

The SVN® brand was founded in 1987 out of a desire to improve the commercial real estate industry for all stakeholders through cooperation and organized competition. SVN is now a globally recognized commercial real estate brand united by a shared vision of creating value with clients, colleagues and our communities. When you choose SVN, you mobilize the entire SVN organization of experts and all our trusted relationships to act on your behalf. This shared network is the SVN Difference. To learn more, visit our website, www.svn.com.

Time’s Up for Non-Cooperation in CRE

By Kevin Maggiacomo

The clock is ticking on what is a systemic issue in commercial real estate investment sales: Non-cooperation and misaligned incentives create a loophole where brokers’ interests take precedence over sellers’ interests, resulting in an environment where most sellers are selling for less than fair market value. This model and way of doing business means that money is being left on the table by brokers and, more importantly, their clients.

In this white paper, we argue that:

  • Today’s typical way of selling CRE assets is illogical and driven by misaligned incentive structures, instead of sound economic principles
  • The CRE industry urgently needs to embrace cooperation to drive shared value in the future
  • Cooperating proactively with the brokerage community is the most effective way to increase demand for CRE assets on the market
  • Savvy brokers have the chance to embrace efficient, modern, and informed ways of working to achieve the best price and the best terms for their clients. We should know — SVN has been working like this for over 36 years.

Read the full White Paper Here (click to download)

About the author

KEVIN MAGGIACOMO PRESIDENT & CEO

Kevin Maggiacomo serves as President & Chief Executive Officer of SVN International Corp. and is responsible for the company’s mission & vision. Propelling the company’s expansion across the globe, Maggiacomo has facilitated SVN’s growth from 7 US offices in 2001, to more than 200 in 8 countries today. During his 21-year tenure, SVN has won numerous awards including being named the #1 Fastest Growing Property Management Company by MHN, twice named to Inc. Magazine’s list of the Fastest Growing Private Companies in America, acknowledged by the Lipsey Co. as one of the most recognized brands in commercial real estate, and twice ranked as a Top Impact Company by Real Leaders®. Maggiacomo has been named a 2022 Top Impact CEO by Big Path Capital and has been recognized as one of the Executives of The Year by CPExecutive.

Stay tuned for a new featured topic each week:

  1. The law of supply and demand
  2. Leaving money on the table
  3. The unfortunate power of misaligned incentives
  4. What does cooperation look like? & What do SVN® franchisees say about cooperation in CRE?
  5. Why now? & What you need to know

About SVN

The SVN® brand was founded in 1987 out of a desire to improve the commercial real estate industry for all stakeholders through cooperation and organized competition. SVN is now a globally recognized commercial real estate brand united by a shared vision of creating value with clients, colleagues and our communities. When you choose SVN, you mobilize the entire SVN organization of experts and all our trusted relationships to act on your behalf. This shared network is the SVN Difference. To learn more, visit our website, www.svn.com.

Commercial Real Estate Economic Update 5.13.22

Featured topics:

  • Consumer Price Index

  • April Jobs Report

  • Interest Rates and Yield Curves

  • EY Work Reimagined Survey

  • Commercial and Multifamily Originations

  • Evictions

  • Stock Market Volatility

  • NMHC Apartment Survey

  • NAIOP CRE Sentiment

  • NY Federal Reserve Housing Survey

Commercial Real Estate Economic Update 5.13.2022 – (Download Full PDF)

1. CONSUMER PRICE INDEX

• Consumer prices rose 8.3% year-over-year through April, according to the Bureau of Labor Statistics’ Consumer Price Index (CPI). April’s reading was the first reduction in annual inflation since August 2021, but price pressures remain near 40-year highs.

• Prices rose just 0.3% month-over-month, a modest reduction from the monthly rates registered at the start of the year and the lowest 30-day increase since September. If prices grew at this rate over the course of one year, the annual inflation rate would sit at 4.1%.

• Core CPI, which excludes food and energy prices, accelerated on a month-over-month basis, rising from 0.3% in March to 0.6% in April.

• Energy prices moderated after facing significant pressures in March. The overall energy subcomponent of CPI fell by 2.7% month-over-month, down from an increase of 11.0% in March.

2. APRIL JOBS REPORT

• Non-farm payrolls increased by 428k in April, according to the Bureau of Labor Statistics. The unemployment rate held steady at 3.6%, while the number of unemployed persons remained virtually unchanged at 5.9 million.

• Jobs in leisure and hospitality, the hardest-hit sector from the pandemic and one of the leading recovery categories, have slowed for five consecutive months. While continued gains are positive, the slowing of growth as COVID-related impacts wane may indicate a cyclical hiring peak for the sector.

• Construction added just 2k jobs in April, down significantly from 20k in March and 54k in February. The slowdown is notable given that the sector typically sees a seasonal ramp-up of hiring in the Spring. Further, the slowdown may be indicative of the qualified labor shortage the sector has faced in recent months.

3. INTEREST RATES AND YIELD CURVES

• At its May meeting, the Federal Reserve’s policy-setting committee raised interest rates by 50 basis points from a range of 0.25%-0.50% to a range of 0.75%-1.00%. The policy move was the first half percentage point hike by the Fed since 2000, and it follows its initial quarter-percent point hike in March that began the tightening cycle.

• While a Summary of Economic Projections was not released alongside the May policy meeting, forecasts tabulated by the Chicago Mercantile Exchange’s Fed Watch Tool show an average year-end projection of 2.75%-3.00% for the Federal Funds Rate.

• Yields on the 10-year Treasury pulled back to 2.84% on Thursday, May 12th, as investors continue to run for safety in bond markets given recent selloffs in stocks and little relief from this week’s inflation data. The yield on the 30-year Treasury dropped 5 bps to 2.99%.

4. EY WORK REIMAGINED SURVEY

• A new survey by Ernst & Young dives underneath the “Great Resignation” surface to detail employees’ motivations and shifting sentiments. Workplace flexibility was of particular focus, with 80% of employees indicating a desire to work from home at least two days per week and just 20% indicating a hesitance towards fully remote working.

• Notably, workers with shorter commutes are more open to working in the office. For employees with less than a 30-minute commute, roughly 40% are comfortable with a full return to the office. This drops to 25% for employees with a commute of more than 60 minutes.

• 68% of employers say that turnover has increased in the past 12 months, while 43% of employees say they will likely leave their current employer within the next year — up from just 7% in the last year’s survey. Percentages are higher for Gen-Z and millennials compared to older generations.

5. COMMERCIAL AND MULTIFAMILY ORIGINATIONS

• Originations for both Commercial and Multifamily mortgages rose by 72% in Q1 2022 compared to Q1 2021, according to recent data from the Mortgage Bankers Association.

• Loan originations fell quarter-over-quarter from Q4 2021, falling 39% but remain in line with typical seasonality trends. MBA Vice President of Commercial Real Estate Research Jamie Woodwell says that the “strong momentum in commercial and multifamily borrowing and lending at the end of 2021 carried into the first quarter,” indicative of continued strong demand for certain property types, notably Industrial and Multifamily.

• By property type, Hotel originations increased the most year-over-year, rising by 359%. Industrial increased by 145% year-over-year, while Retail climbed by 88%. Originations for Health Care properties rose by 81%, while Multifamily increased by 57%. Office dropped by 30% year-over-year. On a quarter-over-quarter basis, declines were widespread due to seasonal trends.

6. EVICTIONS

• An ongoing weekly tracker by the Cleveland Fed that has tracked eviction filings throughout the pandemic finds that evictions are falling relative to 2019 levels, particularly in places that did not have blanket eviction bans in place over the past two years.

• Between April 22nd and April 30th, the latest dates of data availability, in areas with no previous local eviction ban, evictions fell 8.6% below their 2019 comparative week benchmark.

• Almost all eviction protections have been lifted since the start of the year, and the Fed data lends support to the idea that the risk of an “avalanche” of evictions was likely overstated. Still, evidence of rising stress has surfaced in recent weeks as emergency rental assistance continues to stall and dry up, and rising rents create affordability issues.

• HUD recently announced that it would double the size of its eviction protection program, which helps tenants seek legal assistance during proceedings.

7. STOCK MARKET VOLATILITY

• Beyond recent yield curve drama in bond markets, equity markets have experienced an uptick in volatility in recent weeks as the Federal Reserve policy changes alongside rising geopolitical risks unnerve markets.

• CBOE’s Volatility Index, better known as the “VIX,” finished at 34.75 on Monday, May 9th, up from 21.16 one month earlier. The VIX typically experiences daily fluctuations but has been in a heightened state since late January, when warnings of an impending Russian invasion of Ukraine started to spook markets. Since the actual invasion has taken place, VIX has become more elevated and reacted to other uncertainty-inducing events, such as the COVID lockdowns in China and a shift in Fed policy.

8. NMHC APARTMENT SURVEY

• The NMHC’s Market Tightness Index registered an observation of 60 in the second quarter of 2022 — remaining above 50 for the fifth consecutive quarter, reflecting a still tightening market. Still, the index has now come down for three straight quarters after reaching a high watermark of 96 in Q3 2021.

• The Equity and Debt Financing Indicines dropped to 35 and 9, respectively, signaling an overall challenging capital raising environment amid rising interest rates and growing market volatility.

• When asked about to what extent respondents are worried about rising inflation and interest rates, 42% reported being “very concerned,” while 55% were “somewhat concerned.” Only 3% reported being either “not at all concerned” or unsure.

9. NAIOP CRE SENTIMENT INDEX

• NAIOP’s bi-annual CRE sentiment index remained above 50 in its April release, a sign that more favorable market conditions are expected over the next 12 months. At the same time, the index fell from 56 in its prior release (September 2021) to 53 in April, marking declining optimism.

• In a shift from the September 2021 results, most respondents expect cap rates across CRE to rise this year, reflecting the impact of rising interest rates and inflation.

• CRE professionals firmly believe that both construction materials costs and construction labor costs will rise appreciably this year. • While equity financing conditions remain slightly positive (index reading = 51), respondents are pessimistic about the availability of debt, as its index fell from 54 in September 2021 to 39 in April 2022.

10. NY FEDERAL RESERVE HOUSING SURVEY

• According to the New York Federal Reserve’s SCE Housing Survey, renters are increasingly pessimistic about their ability to buy a home in the current market environment. Only 42% of renters in the 2022 survey think they will buy a home in the next three years — down 10 percentage points from 2021.

• Contributing to the outlook are current perceptions of underwriting standards. 33.5% of renter respondents felt it would be very difficult to obtain a mortgage, while an additional 29.7% thought it would be somewhat difficult.

• Only 20.5% of renter respondents felt it would be very or somewhat easy to obtain a mortgage — a decline of 5.5 percentage points from last year.

SUMMARY OF SOURCES

• (1) https://www.bls.gov/news.release/cpi.nr0.htm

• (2) https://www.bls.gov/news.release/empsit.nr0.htm

• (3) https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf

https://www.cnbc.com/2022/03/16/federal-reserve-meeting.html

• (3) https://www.cnbc.com/2022/05/12/us-bonds-treasury-yields-fall-following-hot-inflation-data. html

• (4) https://www.ey.com/en_gl/workforce/work-reimagined-survey

• (5) https://www.mba.org/news-and-research/newsroom/news/2022/05/12/commercialmultifamily-borrowing-jumped-72-percent-in-the-first-quarter-of-2022

• (6) https://www.clevelandfed.org/en/newsroom-and-events/publications/communitydevelopment-briefs/db-20200902-data-updates-measuring-evictions-during-the-covid-19-crisis.aspx

• (6) https://www.nbcnews.com/business/consumer/federal-eviction-protection-program-doublesfunding-rcna28005

• (7) https://fred.stlouisfed.org/searchresults?st=vix

• (8) https://www.nmhc.org/research-insight/quarterly-survey/2022/nmhc-quarterly-survey-ofapartment-conditions-april-2022/

• (9) https://www.naiop.org/Research-and-Publications/Sentiment-Index

• (10) https://www.newyorkfed.org/microeconomics/sce/housing#/renters_1

©2022 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

OFFICE SPACE IN A POST PANDEMIC WORLD

SVN Now: Your Update on CRE Trends and News

“Through innovations and change, our needs for connectivity and interaction with one another haven’t changed much at all. The successful CRE Advisor of tomorrow will not forget that fact.” 

In this market update, Kevin Maggiacomo, SVN International Corp. President and CEO, focuses on office demand in a “post-pandemic” world where the workforce demands a balance between in-office connection and work from home culture.

Tune in below!

Click here to view this week’s topic: Office Space in a Post Pandemic World

Read on for the video transcript!

Speaker 1

Hello, everyone. My name is Kevin Maggiacomo, and I’m president and CEO of SBS International. As we stand here today, in the spring of 2022, let’s take a moment to reflect on what a time of transformational change we live in on a day to day basis.

So I can now go to a museum and see pagers and flip phones on display. Literally, that’s really the way that pundits have talked about the roles of physical retail and office space over the past couple of years, they will likely be forecasting that US commercial real estate sectors should start looking for their museum display cases themselves, but not so fast, as quickly as our economy and our technological tools change around us, our wants or desires or needs as people haven’t changed much at all. So call me old fashioned, or maybe just call me human. But I like being around others, down to our DNA is what makes us who we are. And that’s not going to change at any time. So let’s take a quick stock of where we are as we start to establish a post pandemic normal and focus on the place where the most intense commercial real estate space use debates are taking place, which is the office sector.

And this shouldn’t really come as a surprise to any of you the letters W, f and h are in some circles, a three letter acronym, and in others a four letter word. The last two years have prompted the honest question of whether or not we really need to be going into the office. And finally, it seems like we’re starting to get some concrete answers to that question. First companies requiring that workers be at their physical office desk, five days a week is obviously outdated. That said this doesn’t mean that the new normal should become 8:59am wake ups and a total detachment from the office. In fact, in early 2022, Pew Research Research survey 60% of the new remote workers say that they feel less connected to their co workers than they did pre pandemic when they were working in an office full time. So culture matters. And that’s a sustainable tale. For the office sector.

According to a Slack survey, 72% of workers say that they want to work some days from home and some days in the office and don’t want to be completely and physically disconnected. And so we’re starting to gain a concrete understanding of what go forward office space demand looks like, which is a physical office footprint in use case in the workplace of tomorrow. But our innovations will always be changing. They’ll change how we live our lives, sometimes little by little incrementally.

Sometimes you sort of look up, and the world that we live in is dramatically different from what it was just a few years earlier, nevertheless, through innovations and change our needs for connectivity and to interact with one another haven’t changed much at all in the successful commercial real estate of tomorrow.

We would love to discuss this with you further

Meet the whole SVN Southland team

View all current SVN Southland listings here.

View the latest SVN Economic Updates

Economic Report 5.13.2022

Economic Report 4.29.2022

 

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