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Slowing Development in CA May Point to Nationwide Issue

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California is something of a bellwether for the U.S. economy and for commercial real estate. Thus Golden State trends are important. According to the recently released Summer/Fall 2017 Allen Matkins/UCLA Anderson report, broad segments of the market will be slowing down in the coming years.

Though unemployment has dropped and income and spending are increasing, there’s an ebbing of market optimism about the future from developers, which should lead to a slowing of development, the report said.

SECTOR-WIDE DEVELOPMENT SLOWDOWN

For instance, developer sentiment for all northern California markets has been declining since at least June 2016, and the latest survey provides continued evidence of a downturn in the office market. The outlook in Los Angeles is decidedly more optimistic, although less so than two years ago. The difference between LA and the other California cities is Hollywood and Silicon Beach.

Sentiment about the next three years in California industrial markets has abated somewhat, but only because this has been the hottest market throughout the state in recent memory. E-commerce will continue to drive a hot market for warehouse space, just not quite as hot as before.

In virtually every retail market in California, panelists see 2020 as being a worse year for development than today, when we’ve already seen an increase in vacancies. The few retail development projects planned will most likely be redeveloping existing space or be a component of mixed-use projects, Allen Matkins/UCLA Anderson Forecast said.

In multifamily, it looked as though development at the mid- to high-end had reached a peak only six months ago, and that land and building prices had edged out lower-end projects. This still seems to be the case, at least for more modestly priced apartments. California continues to be a leader in job and income gains, and multifamily developers now see opportunities in new projects for the coming three years.

By: D.C. Stribling

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Sportswear-maker Puma has signed a deal for a flagship store along Manhattan’s Fifth Avenue shopping corridor

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German sportswear-maker Puma SE has signed a lease deal to open a flagship store on Manhattan’s Fifth Avenue shopping corridor, creating a marquee location that will be the first of its kind for the company in North America.

Puma is taking a three-level, 24,000 square-foot space at 609 Fifth Ave. at 49th Street, according to SL Green Realty Corp. , the real-estate investment trust that owns the building. The real-estate investment trust has launched a redevelopment that will include double-height storefronts that wrap around the building.

Puma Chief Executive Björn Gulden described the location as iconic, situated on one of the most prestigious streets in the world. While Puma has stores in the U.S. and Canada, none has the breadth of the company’s product categories this location will showcase, said Russ Kahn, senior vice president of retail for Puma North America.

“For the past several years PUMA has been focused on becoming the fastest sports brand in the world and we feel now is the perfect time to show the world who we are,” Mr. Gulden said in a statement.

Puma joins other sportswear companies such as Nike Inc., Under Armour Inc. and Adidas AG , which have leased space along the Fifth Avenue shopping corridor. The district hasn’t been immune to the effects of online retail growth, which has caused turmoil among traditional bricks-and-mortar retailers in the past few years.

In the first quarter of the year, the average asking rent on the lower stretch of Fifth Avenue from 42nd to 49th streets, which encompasses 609 Fifth Ave., declined 5.4%, to $1,060 a square foot, compared with the same quarter last year, according to real estate services firm CBRE Group Inc. Asking rent on the stretch of Fifth Avenue from 49th to 59th streets dipped 0.5%, to $3,700 a square foot.

Author: Keiko Morris

Source: The Wall Street Journal

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Southern California home sales crash, a warning sign to the nation

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Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

Sales fell 1.1 percent compared with May, but the average change from May to June, going back to 1988, is a 6 percent gain.

The weakness was especially apparent in sales of newly built homes, which were 47 percent below the June average. Part of that is that builders are putting up fewer homes, so there is simply less to sell.

“A portion of last month’s year-over-year sales decline reflects one less business day for deals to be recorded compared with June 2017,” noted Andrew LePage, a CoreLogic analyst. “But affordability and inventory constraints are likely the main culprits in last month’s sales slowdown, which applied to all six of the region’s counties and across most of the major price categories.”

Fewer affordable homes

The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared with June 2017. While part of that is due to a mix shift, since there are fewer lower-priced homes for sale, it is becoming increasingly clear that fewer buyers are able to play in the higher price ranges.

“Sales below $500,000 dropped 21 percent on a year-over-year basis, while deals of $500,000 or more fell about 3 percent, marking the first annual decline for that price category in nearly two years,” said LePage. “Home sales of $1 million or more last month rose just a tad – less than 1 percent – from a year earlier following annual gains of between 5 percent and 21 percent over the prior year.”

LePage points to the rise in mortgage rates over the past six months, increasing significantly a borrower’s monthly payment. Rates haven’t moved much in the past month, but are suddenly going higher again this week, pointing to even further weakness in affordability.

In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country. Home prices have been rising everywhere, amid a critical housing shortage. Prices usually lag sales by several months, and sales are beginning to crumble, even as more inventory comes on the market. The supply of homes for sale increased annually in June for the first time in three years, according to the National Association of Realtors, but sales fell for the third straight month

Author: Diana Olick

Source: CNBC, July 2018

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Strong Retail Sales in June Boosted Growth

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Consumer spending is bustling and likely propelled strong overall economic growth in the recently completed second quarter.

Retail sales—a measure of spending at U.S. stores, websites and restaurants—rose 0.5% in June from the prior month, the Commerce Department said Monday. May’s already strong spending growth was revised up to a robust 1.3% from 0.8%.

Many economists estimate the nation’s gross domestic product—a measure of output—expanded robustly in the second quarter. Ahead of Monday’s report, forecasting firm Macroeconomic Advisers projected growth had hit a 4.9% rate. After the report was released, the firm upped its forecast to 5.1%.

The Commerce Department will release its first estimate for second-quarter GDP on July 27.

Consumer spending, including outlays on many services not tracked in Monday’s report, accounts for more than two-thirds of U.S. economic output.

Vehicle sales and higher gas prices helped drive sales up last month. Spending at health and personal-care stores also increased by the largest monthly margin in more than 14 years. Department-store sales, buffeted by online competition, fell 1.8%, the largest decline in more than two years.

Partly due to soft spending in the first quarter, GDP growth slowed to a seasonally and inflation-adjusted annual rate of 2% in January through March, according to the Commerce Department’s latest estimate. But spending picked up in recent months. Retail sales during the second quarter climbed 5.9% from the second quarter of 2017.

Gasoline prices rose swiftly earlier this year, but leveled off in June. The national average price for a gallon of regular gas in June was $2.89, down 1 cent from May but up 41 cents from December, according to the U.S. Energy Information Administration.

Gas-price fluctuations could have skewed the headline retail-sales number, which wasn’t adjusted for inflation. Gasoline-station sales rose 1% in June from the prior month.

Meantime, consumers are on track to spend $215 billion on new vehicles in the first half of the year, nearly $5 billion more than the first six months of 2017, according to J.D. Power. The retail sales report showed auto purchases rose 0.9% in June.

When excluding gasoline and autos, retail sales rose 0.3% from May. When excluding gas, cars, building supplies and food services—a gauge followed by economists because it feeds directly into quarterly GDP estimates—spending was flat in June, according to analysts. But spending growth was up 0.8% in May for this measure, again pointing to robust consumer demand.

Compared with a year earlier, overall sales were up 6.6% in June. Spending continued to outpace inflation, with the Labor Department’s consumer-price index rising 2.9% in June from a year earlier.

Tax cuts appear to be propelling robust consumer demand. Many households are experiencing less withholding from their paychecks thanks to the tax overhaul. David Berson, chief economist at Nationwide Mutual Insurance Co., an insurance company, said they are also reaping some benefits from a stronger business sector.

“Businesses are expanding as a result of tax cuts, hiring more workers, and solid job numbers are boosting consumer spending,” Mr. Berson said.

The low unemployment rate, which was 4% in June, and growing wages have buoyed consumer spending. Measures of consumer confidence have remained high in recent months, supported by continued job gains and broader economic growth.

Analysts think recent tariffs and trade actions by the U.S. and China could impact the economy in different ways, either by hitting consumers directly with higher prices or by draining profit margins if businesses choose to absorb price increases for the products they sell.

Author: Sharon Nunn at sharon.nunn@wsj.com

Source: The Wall Street Journal, July 2018

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In Strong Retail Economy And Tight Labor Market, Retailers Tout Incentives

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The strong economy continues to set records. April marked the 91st straight month of job gains, the longest stretch in history. That’s good news for retailers, who added 1,800 jobs last month and continue to demonstrate their resilience and innovation as the economy improves.

The hiring spree has also created stiff competition for candidates. The unemployment rate stands at 3.9%, the lowest rate since 2000. Those numbers are expected to remain low through 2020. Even with all the investments in technology and automation, consumers still crave human interaction, and retailers still rely on experienced people at all levels to get the job done.  As retailers discover how difficult it can be to find and retain talent, they are using a variety of incentives to attract workers and keep them happy.

Walmart, the country’s biggest private employer, announced a slew of new employee benefits at the beginning of the year. The company expanded its family leave policy from six to 10 weeks of paid maternity leave, along with six weeks of paid parental leave. Walmart also added financial assistance for full-time and salaried workers who are adopting children, and increased its starting hourly wage to $11 per hour.

 Retailers have long used one-time payments to entice candidates, and the practice is going strong. In a survey by the National Association of Colleges and Employers, nearly 57% of respondents said they planned to offer signing bonuses to the Class of 2018. That figure has been on the rise for four straight years.

While bonuses get candidates in the door, some retailers are testing incentives to support workers over the long term. Lowe’s, the home improvement retailer, recently started a workforce development program called “Track to the Trades.” Eligible workers get financial assistance to learn carpentry, plumbing and other trades to address skills gaps in the company and the wider workforce.

Other retailers are investing in workers’ skills and development, too. Kroger recently announced new benefits for long-term employees, including up to $3,500 for continuing education, professional certifications and advanced degrees. A report by the Lumina Foundation found that education benefits can pay for themselves by reducing turnover and personnel costs.

Cash bonuses and tuition assistance are among the headline-grabbing incentives for retail workers, but they aren’t even the main appeal of retail jobs. In a survey of nearly 1,500 U.S. retail workers, respondents ranked scheduling flexibility and types of work as the biggest draws for working in retail. In fact, flexibility is so essential that twice as many candidates want part-time opportunities than in any other business.

There are other, broader changes in the job market for retailers to follow. Retail jobs historically have been popular among teens and young adults looking for part-time, flexible work. But increasingly, manufacturing firms, technology companies and other businesses are snapping up pools of younger workers. According to the Census Bureau, the share of teens working in health services has doubled in the past 20 years.

Still, the retail industry accounts for one out of every four American jobs. Ask around and you won’t be surprised to hear that for many people their first job was in retail, either at the mall, the local ice cream shop, or maybe even bagging groceries. This still holds true today, but the difference is the best people are getting harder to recruit and retain.

Retailers need to turn on the charm to stay ahead of these trends, but this isn’t new for an industry accustomed to constant evolution and change. They are used to creating great experiences for customers. A changing labor environment means they’ll also have to use creativity when building their teams. Hiring managers have to dig deep for talent, because fierce competition for workers is unlikely to ease up anytime soon.

Author: Tom McGee

Source: The Wall Street Journal, May 2018

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Retail’s Other Problem: Too Few Clerks in the Store

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Many of America’s biggest retailers, under assault from Amazon.com Inc., have been slashing staff even faster than they have been closing stores, a dynamic that has left fewer clerks and longer checkout lines at remaining locations.

Despite operating roughly the same number of stores as it did a decade ago, Macy’s Inc. -1.88% has shed 52,000 workers since 2008. At J.C. Penney Co. , workers have disappeared twice as fast as department stores. That has led to an average of 112 total Penney employees for every store today, down from 145 a decade ago, according to a Wall Street Journal analysis.

Similar per-store staff declines occurred over the past decade atKohl’sCorp.KSS -1.09% NordstromInc.,JWN -1.40% TargetCorp.TGT -1.34% and WalmartInc.,WMT -1.75% regardless of whether the retailer opened or closed stores, according to the Journal’s analysis. The employment figures are for all full- and part-time staff and don’t distinguish between store, warehouse and headquarters workers. Industry executives say store employees make up the vast majority of retailers’ workforce.

“Retailers are shooting themselves in the foot trying to save pennies by lowering labor costs, and that’s costing them dollars on the top line,” said Rogelio Oliva, a business school professor at Texas A&M University. He recently analyzed the relationship between sales and labor at a women’s clothing retailer and found that many of the stores were understaffed by as much as 15%, leading to potentially lower sales.

Some companies attribute the declining head count to staff cuts at headquartersand a switch to smaller stores that need fewer workers. Others have added technology such as self-checkout lanes or shelf-ready packaging that they say makes existing workers more productive. And still others have hired more full-time workers, eliminating the need for two or three part-timers.

Now, some retailers are discovering they may have gone too far and are beginning to replenish staff—just as the booming U.S. economy is creating historic labor shortagesand forcing companies to pay higher wages and offer perks such as better training and benefits.

KrogerCo.KR -2.60% said this month it will hire 11,000 workers to improve customer service and speed checkouts at its nearly 2,800 grocery stores.

Dick’s Sporting GoodsInc.DKS -0.94% wants to increase store labor by about 10%, said Chief Executive Edward Stack, reversing a decadelong trend. Over the holidays, Dick’s added more cashiers, “because if there’s one thing that drives me nuts, it’s waiting at the register,” Mr. Stack said in an interview.

Macy’s said it is adding staff this year at 50 stores, in areas where the extra bodies will have the most impact, including in fitting rooms and in its dress, women’s shoes and handbag departments.

Retail staffing hasn’t kept pace with growth in the broader economy or population gains in the past decade. The number of salespeople at retailers grew by 1.5% over the past decade, even though the population served by each store has increased 12.5%, according to government data. At clothing and accessories stores, the number of cashiers is down more than 50% from 2007.

“Many retailers are at the tipping point of cutting too much labor,” said Craig Rowley, a senior partner in the retail division of Korn Ferry International, an executive-search firm. “If you cut staff every year, pretty soon you’re at minimal staffing.”

Gilbert McGarvey has worked at the flagship Saks Fifth Avenue store in New York City for 24 years, most recently in the shoe department. “It used to be what we sold was service,” he said, “Now, they’ve cut that to the quick.”

Saks last year closed the service desk at its flagship store and reduced support staff who process returns, restock shelves and fulfill online orders. That has meant salespeople now have to handle some of those tasks, which takes them away from selling, Mr. McGarvey said.

A spokeswoman for Hudson’s Bay Co., which owns Saks, said the Manhattan store had trimmed support staff by 2%, but added 15 service advisers near the store’s entrances to help guide shoppers. The spokeswoman said the service desk was eliminated to make it easier for shoppers, as they can now return items at any cash register in the store.

Across the board, workers had been stretched so thin that the Retail, Wholesale and Department Store Union stipulated in its latest contract, signed last year, that its members have the right to drop all other responsibilities to help take care of customers first.

“If brick-and-mortar retailers can’t compete on price in an online environment, the only thing that allows them to survive is to provide a positive in-store experience,” said Stuart Appelbaum, the union’s president.

Jessica Tokarski recently stopped by a Target store in Orchard Park, N.Y., to buy a phone case. But the 23-year-old couldn’t find anyone to unlock it from the rack, so she left the store without making a purchase.

“I’ve turned to online shopping, because customer service in stores has gotten really bad,” Ms. Tokarski said.

A Target spokeswoman said the retailer has added workers to its stores over the past year and is providing them with more training. She said a large part of Target’s head-count reduction was the result of the 2015 sale of its pharmacy business to CVS HealthCorp. , which shifted 15,000 jobs.

Over the past 12 months, 86% of U.S. consumers say they have left a store due to long lines, according to a survey conducted by Adyen, a credit-card processor and payment system. That has resulted in $37.7 billion in lost sales for retailers, Adyen estimates.

Retailers typically set staffing as a percent of sales, but a growing body of research suggests it should be based on foot traffic. The problem is twofold: Many retailers don’t track traffic and even if they do, they are reluctant to add labor, which is already among their biggest costs.

“If you’ve got a lot of foot traffic, but a lull in sales, you need to put more staff in your stores,” said Mark Ryski, the chief executive of HeadCount Corp., a data-analytics firm that tracks footfall at stores around the country.

Some companies are listening. After installing cameras last year, Cycle Gear Inc., a 130-store chain that sells motorcycle apparel and accessories, noticed sales dipped during the afternoon at its Orlando, Fla., store even though it was packed with shoppers.

“That told us the salespeople were overwhelmed,” said Rodger O’Keefe, a vice president. “We added two more salespeople during those hours, and sales have been up since then.”

Source: The Wall Street Journal

Author: Suzanne Kapner

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How Do You Empower Women In Commercial Real Estate?

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How do we empower women in commercial real estate? How do we help elevate women, support working mothers and encourage female entrepreneurialism in this industry? I was recently discussing these issues on a panel at Harvard’s Real Estate Weekend. Many industries face these questions, and there is no perfect answer. When I launched KIG CRE, I set out to create a more dynamic, insightful and transparent multifamily brokerage firm.

Having been in the real estate industry for decades, I can empathize with various stories coming out, such as a recent editorial about real estate’s own #MeToo movement. I believe if we focus on female representation in the industry, employ practices that support working mothers and encourage entrepreneurship, the industry will evolve and look less like a grown-up fraternity.

Representation

Only 9% of commercial real estate C-suite positions are held by women. While this indicates some progress, there is a lot more room for improvement. NASDAQ recently signed the Parity Pledge to demonstrate a commitment to interview a minimum of one qualified female candidate for all open position at the VP level and above. This is a practice the commercial real estate industry can easily adopt to help increase female representation.

study released by CREW Network found the percentage of women in brokerage and finance declined between 2006 and 2015, from 39% to 29% in brokerage and from 44% to 42% in finance. However, asset management and development saw increases in the number of women working in each field. Development is particularly interesting, seeing an increase from 23% to 38%. An increase in women in development truly means that the industry is changing. The study also notes that the wage gap is shrinking. But it is still significant, with the median total annual compensation including bonuses, compensation and profit sharing having a 23% gap between men and women.

Supporting Working Mothers

Offering maternity and even paternity leave is just the first step to supporting working mothers. Firms would be wise to consider flexibility as the key ingredient to supporting working parents. Employers should be exploring what they can do to support moms at the office and ask these women personally and directly. Some ideas to consider include flexible work hours, offering childcare in the office, the ability to bring the child to work and keeping open lines of communication for those moments when life happens. Working hours and babies’ schedules really do not align.

Consider offering flexible start and end times as well as work from home flexibility. One of our employees works 10 a.m. to 6 p.m. in order to best fit with her child’s schedule. We also welcome babies one day a week into the office. Now, we are a small firm, and I am the Principal, so this may not be as easy to implement at larger firms, but it’s this line of thought and dialogue with new mothers that supports them returning to work.

Encouraging Entrepreneurship

Startups with female founders are noted by one small study as growing faster than ones led by men, and only 14% of startups are founded by women. Let’s encourage young professional women to go for it — in any industry and especially in commercial real estate. This industry is a known laggard in desperate need of innovations. I’ve seen many women make calculated and delayed starts to their entrepreneurial endeavors. With men, however, I can say I’ve seen more just jump right in and go.

Personally, I think there is less to lose and infinitely more to gain as a young founder. Even if the startup fails, the experience is valuable. Corporations should embrace founders who’ve decided to move on from their startup. These are some of the most hardworking people out there.

There are plenty of ways for us to empower women in commercial real estate. Female representation in the industry, employing practices that support working mothers and encouraging entrepreneurship are just the tip of the iceberg to creating a better workplace and work life for today’s professional women.

Three Reasons Commercial Real Estate Professionals Should Be More Open To Tech

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The real estate industry isn’t exactly known for being receptive to new technology. Many in the industry view technology as unnecessary, as countless people have built real estate empires and made untold millions from hammering the phones. Today, though, it’s getting harder and harder to compete in real estate without technology. In particular, there are three distinct advantages of technology that should have real estate professionals more open to adopting new developments.

Technology can help you conduct more business.

Whatever your role within the real estate industry, everyone can agree that you need to do more deals to make more money. If you’re an investor, you need to underwrite and bid on more investment opportunities. If you’re a broker, you need to convince more people to list their properties. If you’re an appraiser, you need to complete more appraisals — and so on.

My firm has found that the average real estate analyst takes several hours to initially underwrite a property and understand its surrounding market. This means looking at nearby properties and identifying rent comps, analyzing rent growth and demographic trends in the market, quantifying any value-add potential (whether through physical or operational improvements) and distilling everything into a concise summary to discuss with management.

People have limits, though. Just as you’d hire more people to increase volume, technology can be “hired” to improve deal flow. While CRM systems have had better adoption in the market helping real estate professionals track customer conversations, analytical tools have yet to really be adopted. Many analytical tools can be employed to help your analysts leverage data more effectively — reducing those hours of analysis time to only a few minutes in some instances. Other tools can help you dynamically visualize the results of your analysis and achieve insights more quickly.

Technology can help you conduct better deals.

When it comes to determining the market value of investment properties, appraisers are among the most trusted voices. However, even appraisers aren’t perfect. A 2011 study on appraisal accuracy found that commercial appraisals are typically up to 12% above or below the subsequent transaction price.

To address this same issue in home sales, many automated valuation platforms have applied data science and machine learning to come up with automated single-family home valuations. This technology has been around in single-family for a while, but it’s now starting to be applied more and more in commercial real estate too. Our product uses a similar approach to provide automated underwriting tools for multifamily — but there are plenty of other valuable tools to help you better analyze individual parts of deals.

As we all know, money is made in real estate when you buy a property. Today, technology today can help you make smarter acquisitions and improve returns.

Technology can help you resolve disagreements.

Have you ever seen asset management and acquisitions teams disagree on the feasibility of rent projections? Have you ever seen a broker and an owner disagree on rent comps? Of course, if you’re in real estate, the answer to both questions is yes. It’s bad for both clients and brokers when a deal is taken to market at the wrong price, and it’s bad for any company to have internal tensions. And no one likes to admit they’re wrong.

I think the most useful application of real estate technology is to be “the bad guy” or the tie-breaker to help resolve disagreements. It’s very common to point to third-party surveys and reports to justify assumptions, but it will likely become more and more common to do the same with new technology products.

From increased efficiency to increased accuracy to making the best investment decisions, today’s real estate technologies are here to help. Real estate professionals should be more open to technology — it’s an essential piece of the business today.

Author: Marc Rutzen

Source: Forbes. March 2018.

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How Driverless Cars Could Disrupt The Real Estate Industry

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Driverless cars could become a regular feature of the roads as early as April – at least in California, which has decided to allow fully autonomous vehicles to be tested on the roads (none of those pesky humans who have been present in test drives so far). Arizona has already become a fair-weather center for testing driverless vehicles, thanks in large part to the governor’s support, and Uber announced last week that it has finished testing its self-driving trucks in Arizona and is now beginning to use them to move goods across the state.

It’s not just the U.S., either. The British government launched a review last week of laws governing self-driving vehicles, with the aim of getting autonomous cars on the road by 2021, and other countries around the world are also experimenting with autonomous vehicles.

Clearly a big step for the technology and automotive industries – no surprise that companies working on driverless vehiclesinclude Google and Uber, as well as traditional automakers like Audi, BMW, Ford, GM, Volkswagen and Volvo – the advent of human-less driving could also redirect the traffic of our days, how we live our lives and get around. Perhaps somewhat less obviously, a future filled with autonomous vehicles could also spur some big changes in where we live and work, thus affecting the real estate market in addition to the transportation and tech industries.

Of course, we realize that for all the buzz, driverless cars could turn out to change the world no more than Google Glass or to transform transportation no more than the much-hyped Segway. While the success rate of driverless cars may not be as predictable as some may like to believe, it can still be instructive to peer through the windshield of a driverless future and see what twists and turns might lie on the road ahead.

The value of transit hubs

One question worth considering is what the proliferation of autonomous cars could mean for public transportation and the value of the real estate that has been built around transit hubs.

The proximity of office and residential buildings to public transit hubs has traditionally been seen as adding value to the property by making commuting easy, a phenomenon that would seem to be bolstered by the low car-ownership rates of millennials.

“Clearly, any sort of big transit infrastructure program can act as a huge stimulus for the development of surrounding real estate,” said Scott Homa, a director of United States office research for real estate firm JLL. “It’s starting to emerge as a universal theme across the U.S.”

Sections of the U.S. that have seen real estate development near new rail systems or train stations include the Somerville suburb of Boston; Chicago’s Fulton Market; downtown Kansas City, Missouri; and Austin, Texas, the New York Times reported last spring.

It’s possible that the availability of driverless vehicles could, like the increasing prevalence of ride-sharing, simply become one more reason for urbanites to avoid buying a car – thus making proximity to public transit at least as valuable as before.

But there’s another possibility, too: The introduction of a driverless vehicle option could make access to public transit less important to commuters. And that could have a major impact on the needs and demands of the buyers, tenants and renters of office and residential properties (whether single-family or multifamily).

“AVs [autonomous vehicles] are expected to significantly reduce travel cost, time and congestion, while increasing safety,” accounting firm KPMG said in a 2017 report on the impact of autonomous vehicles on the public transport sector. “Cost-efficient self-driving cars could change commuter preferences away from conventional public transport.”

It’s important to remember that it’s not just privately owned four-door sedans that could be roaming the roads without any humans behind the wheel. The Netherlands, China and Switzerland have been testing self-driving public transportation options such as electric driverless shuttles with capacities of up to nine people, as well as full-sized driverless buses.

With driverless cars, shuttles and buses thrown into the mix, offices and residential buildings that might previously have been seen as less attractive for commuters because of their distance from transit hubs could become more appealing than before. Seen through a real estate lens, that greater appeal could translate into increasing demand and rising property values.

The flip side is that properties that commanded high value due to their proximity to transit hubs could suddenly find themselves losing their edge.

Even in neighborhoods already served by public transit, autonomous vehicles could potentially become a threat to existing transportation systems. By supplementing public transit – or in some cases, even replacing it – autonomous cars could potentially render the existing public transportation system less important, ultimately voiding the assumption that proximity to transit hubs boosts property values.

The need for parking

Many of us drive to work in the morning and park near the office, where our cars sit unused until we’re ready to head home at the end of the day. The average privately owned car in the U.S. is in use just 5% of the time and spends the rest of the time parked, according to architecture, planning and consulting firm Gensler.

“America’s parking footprint, estimated at 500 million parking spaces, consumes more land than Delaware and Rhode Island combined,” Gensler said in a report on driverless cars. In New York City alone, parking covers the equivalent of two Central Parks.

But that picture could change to the extent that autonomous vehicles roll into action.

If driverless cars really do put the pedal to the metal, one ramification of having a car zoom away as soon as you get to your destination could be a reduced need for parking lots – which are, of course, a form of commercial real estate, even if they typically don’t involve buildings.

“AVs remove commuters’ demands for street and lot parking,” KPMG said in its autonomous vehicles report. Consulting firm McKinsey & Co. estimates that autonomous vehicles could reduce the need for parking space in the U.S. by more than 61 billion square feet.

That’s because driverless cars could potentially pick people up from their homes, drop them off at the office or the mall and then leave to park in a less prime area – or, like taxis, won’t even need to park, but will just move on to the next customer and the next trip.

Uber, already a popular alternative both to cars and to public transit, in November agreed to buy 24,000 SUVs from Volvo to form a fleet of driverless vehicles. Uber has said its driverless cars could hit the roads as early as next year.

A reduced need for parking could have a mixed effect on commercial real estate.

It could reduce the real estate costs for owners who currently assume they need to be able to provide parking, and it could spark construction and development on the site of existing parking lots and garages, such as 143 W. 40th Street and 14 S. William Street. Both Manhattan sites are among the 300 locations run by Icon Parking, New York City’s largest parking lot operator, which would presumably need to decide how it wants to change lanes should driverless vehicles lower demand for parking.

On a larger scale, in densely packed cities like New York, where land is at a premium, a diminished need for parking lots and garages could have a dramatic effect on the supply and demand equation. If there were to be a sudden influx of land available for redevelopment (and yes, that’s a big if), that could go a long way to creating a buyer’s market.

And once we’ve got driverless cars pulling up in the pretty near future and reducing the utility of parking lots, the next question is: What’s going to happen to those parking lots?

The answer: We don’t know what exactly they’ll become, but it’s safe to say that if all the ifs and whens come to pass, those suddenly superfluous parking lots and garages will be turned into something, meaning increased construction and development.

Driverless cars are increasingly getting the green light. Whether they’ll become merely one more transportation option or fundamentally alter the way we go is still unclear – but if it’s the latter,  transportation is not the only industry that will be disrupted. The prospective ubiquity of autonomous vehicles might ultimately turn out well for commercial real estate as a whole, but we would be wise to expect some potholes along the way.

Author: Ely Razin is CEO of CrediFi, a commercial real estate platform providing CRE professionals and financial institutions with big data on properties, loans and securities in the U.S. market. He can be reached at ceo@credifi.com.

Source: Forbes, March 2018

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The Unloved Retail Sector Is Quietly Attempting a Rebound

posted by: Admin in News

After one of their toughest years ever, beleaguered U.S. retailers are enjoying a pickup in quarterly sales, helping to boost the shares of many brick-and-mortar operators even as the stock market stumbles this year.

The moves mark a partial respite for retailers, which have reckoned with sliding sales, record store closures and bankruptcy filings as consumers have increasingly shifted to shopping online. The bleak outlook led many investors to sour on the sector last year, sending shares of several department stores, including Macy’s Inc.,J.C. PenneyCo. and Sears Holdings Corp., down by double-digit percentages, while the S&P 500 knocked out a 19% gain.

But in recent weeks, a string of retailers has posted stronger-than-expected earnings, driven by a pop in holiday sales and further rounds of cost-cutting. That has helped spur a rally in shares of companies running everything including department stores, electronics chains and bargain outlets. The S&P 500 department stores subindustry index has climbed 19% this year, while an S&P 500 index tracking the performance of electronics retailers has risen 6.7% and the broad S&P 500 has gained 0.7%.

“Right now we’re seeing the perfect scenario for retailers: high consumer confidence, relatively low expectations [around their performance] and stronger-than-expected consumer spending. When you put all these things together you have the retail earnings season in a nutshell,” said Victor Jones, director of trading at TD Ameritrade.

To many, the retail sector’s early gains are the latest indication that the consumer is on strong footing—something that bodes well for the broader economy. Investors and analysts closely monitor measures including employment, household wealth and consumer confidence, as consumer spending accounts for about two-thirds of the U.S.’s total economic output.

Recent data have mostly been encouraging, showing U.S. consumer confidence rising in February to its highest level since 2000, even after the stock market tumbled. Retail sales slipped in January, but some economists say the figures could pick up, especially with many workers starting to take home larger paychecks following the U.S. tax overhaul.

While the broader stock market has managed to rise for years even as many retailers lagged behind, investors and analysts say a pickup in shares of brick-and-mortar operators would be an encouraging sign that the economy is continuing to grow.

“It’s good to see the consumer discretionary sector moving up, especially after it not being a leader for so long,” said Lori Calvasina,head of U.S. equity strategy at RBC Capital Markets, adding that consumers are looking fairly strong.

Macy’s is among the beaten-down stocks that are seeing a bounce. Shares jumped 3.5% Tuesday, bucking the S&P 500’s 1.3% decline for the day, after the retailer posted stronger sales over the holiday quarter and said it had signed a deal to sell part of its Chicago store. The stock is now up 21% for the year.

“We know consumers are out there, and it’s up to us to win with them,” Macy’s Chief Executive Jeff Gennette said on the company’s earnings call.

Discount apparel retailer TJX Cos. also tore higher, with its shares rising 7% to a fresh 52-week high on Wednesday after strong holiday sales helped it beat analysts’ estimates for fourth-quarter same-store sales. For the year, it is up 9.4%.

Dillard’s Inc., the Little Rock, Ark.-based department store, surged 17% Tuesday after it reported earnings and revenue that topped analysts’ expectations, while shares of Best Buy Co. jumped 4% Thursday, even as the S&P 500 fell 1.3%, after the electronics retailer reported same-store sales surging in the holiday quarter as demand for video games rose.

But not all retailers have shared in the recent gains. Within the S&P 500 consumer discretionary sector, which includes dozens of retailers, as well as e-commerce giant Amazon.com Inc. and online streaming service Netflix Inc., nearly half the stocks are posting losses for the year.

Among the biggest laggards: Victoria’s Secret parent L Brands Inc., whose shares have slid 28% this year as the company has struggled to reverse a decline in sales. The firm reported better-than-expected revenue for the fourth quarter Wednesday afternoon, but lowered its forecast for first-quarter profits, sending shares sliding.

Newell Brands Inc., the maker of food containers, Mr. Coffee machines and Elmer’s glue, has fallen 14% in 2018 after having to lower earnings forecasts several times last year.

Despite a flurry of strong results, the S&P 500 consumer discretionary sector is expected to post slower earnings growth than many of its counterparts. With nearly all results in for the latest quarter, earnings for the sector are expected to rise 9.1% from the year-earlier period, according to FactSet, below the 15% projected for the broader S&P 500. For the following quarter, earnings are expected to grow 6.6%, versus 17% for the S&P 500, according to FactSet.

The disparate gains in the sector have led some to caution that, once again, it pays to be picky within the retail space.

“Even though there’s underlying strength in the data supporting the overall sector, you still have to be careful here,” said TD Ameritrade’s Mr. Jones.

Author: Akane Otani
Source: Wall Street Journal, March 2018
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