Cushman & Wakefield: Global Real Estate

We have long maintained that one of the keys to the strength of the U.S. economy in 2014 will be whether and when firms shift from worrying about costs to worrying about losing sales. When companies are more willing to take risk, they are more aggressive in hiring and when that happens, the pace of economic growth accelerates sharply. That is what we have been anticipating for 2014; unfortunately the severe winter has postponed the shift to stronger growth.
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I recently spoke on a panel for CREW San Francisco discussing the “New Cash Economy: Foreign Direct Investment in Bay Area Real Estate.” I began with a broad overview of the global investment landscape looking at the increase in investment activity over the last several years with a focus on capital flows today versus the prior peak of 2007. Interesting to note that across all regions investment volumes are up to 90% of previous peak levels with activity in APAC more than double since 2007. Cross border activity has been a main driver of this increase, driven by economic, demographic and global shifts causing global investors to look for stability and income. Specifically, there has been a tremendous amount of wealth creation in the last decade, especially in emerging economies such as China, India and Brazil as these countries have transformed from rural agricultural economies into industrial ones. In 2009, $43.3 billion of non-financial capital was invested outside of China and by 2013 that figure had doubled to more than $90.2 billion. By 2020, it is projected that China’s investment capital will amount to $16.4 trillion. If only 5% of that money goes offshore, that equals $822 billion – a sizable amount of capital to invest.

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Southeast Texas, specifically the Houston-Baytown-Sugar Land 10-county region, has been one of the most consistently productive and growing metropolitan areas in the country for several years. Since the end of 2011, year-over year (YOY) job growth has remained above 3.0% (often exceeding 4.0%), and ended 2013 with an annual increase of 82,000 jobs. This accounted for nearly one-third of all the new jobs created in Texas in 2013, and led the state in job creation ahead of the Dallas-Fort Worth-Arlington and Austin-Round Rock-San Marcos metropolitan areas.

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Today’s employment report was positive in a number of ways. It indicates that the slower growth experienced in December and January was likely an anomaly caused by the unusually severe weather and not indicative of a slowdown in the general economy. For the real estate sector, this report is particularly encouraging and strongly supportive of our view that the economy is on track for the best year of growth in this recovery.

The U.S. economy added 175,000 payroll jobs in February, the largest increase since November and above the consensus expectation of approximately 150,000. In the last 12 months, the economy has added 2.2 million jobs. The level of employment was revised slightly upward for both December (+9,000) and January (+16,000). Read the rest of this entry »

Along with the passage of a Federal budget at year-end 2013 came cautious optimism for increased GSA leasing in 2014. Typically representing about a third of new leases in the District, GSA leasing soared to nearly half of all square footage leased in 2009 and 2010 as the impacts of the Federal Stimulus Package took hold. After two government shutdowns, numerous budget impasses between Congress and the Administration, and sequestration, GSA leasing dropped dramatically in 2013, representing just 6% of new deals – a root cause of the record-low leasing activity in the District.

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Once a predominantly commercial and marine district that fell into a period of steep decline, Boston’s Seaport has, for the past fifteen years, been enjoying a sweeping transformation and resurgence, and today epitomizes the “live, work, play” concept.

Crucial to the Seaport’s rebirth was the construction and eventual completion of the Big Dig, a decades-long engineering project that resulted in the relocation of Interstate 93, which bisected the city, to an underground tunnel system. With an extension of the public transportation system, the Seaport was effectively and efficiently reconnected with Boston.

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Downtown Toronto astonished market watchers around the world when demand spiked in the wake of the devastating 2008 recession. At the time, 4.5 msf of office supply was under development, demand was expected to tank and vacancy was heading for the mid-teens. Instead, absorption reached an average of 330,000 sq. ft. per quarter between late 2009 and 2012, driven by surprisingly insatiable financial sector demand. By midway through 2013, vacancy had plummeted to 4.1 percent.

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U.S. employment growth remained weak in January 2014 as the economy added only 113,000 jobs, the second-smallest increase in the past 18 months. Only December 2013 experienced slower employment growth when just 75,000 jobs were added.

This back-to-back weakness follows six months when the average gain was slightly more than 200,000 per month, suggesting that the slowdown has been caused by bad weather in December and January rather than by a fundamental economic slowdown. An important positive point in the report was the significant upward revision in employment growth in both October and November, which are now estimated to have added an additional 70,000 jobs.

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In a sure sign of a significant improvement in the outlook, the lexicon of the European market place has changed over the past year.

We still have “austerity” and “deleveraging” to cope with of course and “bad banks” are also still with us – albeit now more likely to be a specifically designated institution rather than a definition for the whole sector.

However in a sign of progress federal “deficit” gave way to federal “deadlock” and that now looks to be changing to federal “fudge”.  More notably, as the eurozone recession has ended and property values and activity have stabilized, “confidence” has clearly seeped back, and in some cases flooded back, into the system.

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Change is constant in New York and retail is no exception.  Perhaps there’s no better example of a changing retail landscape than Lower Manhattan.  Once considered a business address and little else, Lower Manhattan has become a desirable place to live, work and visit.  The residential population has exploded over the last 10 years, tourist volumes are way up, and the number of hotel rooms available and in the development pipeline has grown dramatically.  Add to these changes an ever-diversifying employment base and you have all of the ingredients for a vibrant, growing 24/7 environment ripe for a retail renaissance.

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