Office leasing is off to a good start in 2016. Here in Metro Phoenix, the market saw 641,000 square feet (SF) of net absorption (office jobs added) recorded in the first quarter. This means Metro Phoenix is on track to absorb approximately 2.5 million SF for the year. That would mean another year of consistent, average net absorption, since 2.5 million SF matches our 25 year average.
However, based on current activity early in the second quarter, I wouldn’t be surprised if we have another outstanding year of job growth like last year (3.4 million SF absorbed). While there are still some dead spots within the market, activity is mostly up across the Greater Phoenix region. For tenants I represent, there is often activity on spaces under consideration, and they no longer have months to make a decision. I’m also seeing increased tour volume at the buildings I lease across the Valley. Vacancy, at 19.4%, has remained virtually unchanged from Q4 2015 due to the 1.1 million SF of new construction that delivered this quarter. A 19.4% vacancy seems very high, especially when compared to other major markets across the United States. For Metro Phoenix, it just means that we’re getting closer to equilibrium levels for vacancy of 15-17%. At these figures, it’s neither a tenant’s nor a landlord’s market.
Below is a link to our Lee & Associates 1st Quarter Report and as usual, I’ve included my top takeaways below:
1. Numbers show that Tempe and South Scottsdale remain the two most desirable places for offices. Tempe led the way with the most net absorption with 256,000 SF while South Scottsdale boasts the lowest vacancy of any major submarket at 11%.
2. The Superstition Corridor had the second highest net absorption in Q1. With lease rates heating up in choice submarkets like Tempe, it makes sense that tenants would be priced out and looking for less expensive buildings along the US 60. It also speaks to the strong demographics of the East Valley.
3. The top lease in the market was CVS who took all of Four Gateway (444 N. 44th St., Phoenix), a very nice 140,000 SF block of space formerly occupied by State Farm. Negotiations started taking place before State Farm’s lease expired at the building. The large blocks of space that State Farm will vacate in the 44th Street and Tempe submarkets may not have such an adverse effect on vacancy as everyone thinks.
If you have a question on your lease, want to find out how much your building is worth, or just want to talk about the market, please give me a call.
How that affects commercial real estate is a brand new topic to this narrative. I have been thinking about it and believe that this will change a couple of paradigms. First, quality locations with limited parking will become even more desirable. Second, over the past 30 years, we have been adding more and more parking due to increased densities. In Phoenix today, we have been constructing buildings with 5 spots for every 1,000/sf. In time, this requirement will disappear, creating areas that will need to be repositioned. Until then, you still need all the parking you can get. How we navigate this transition will be interesting to watch.
Read below for more on this topic from the Wall Street Journal.
P.S.- In this week’s video, I discuss one of my rules on life–living without moderation. Whether it’s dedication to our business or a 100-mile run, we are relentless until we achieve our goals– click here to see the full video on our website. Give us a call if you’re looking for this type of determination for your real estate needs.
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Private car ownership is on the road to becoming a rarity
In 25 years, the only people owning cars will be hobbyists, hot rodders and Flat Earthers
By: Dan Neil
Published: Dec 23, 2015 11:53 a.m. ET
Driverless cars, a dream since the mid-20th century, will soon become reality and ultimately commonplace — and can be counted on to accelerate the recent trend away from private automobile ownership.
Henry Ford was a smart guy, but he never did the math when he decided to put every American household on wheels.
A century after the Model T, the world has a problem with cars. The U.S. and China will consume about 40 million light vehicles in 2015, according to IHS. Globally, we’re on track to hit 100 million vehicles in 2020.
That’s not a lot of cars. That’s an ocean of cars, an inundation, wave after wave breaking on the shores of the industrialized world. And yet policy makers and common folk alike have been powerless against the siren song of the automobile. Even in the most car-blighted burg in the world, the toxic parking lot they call Beijing, the appetite for the automobile—as status item, as luxury, as totem of personal mastery in a fragile postcolonial mind-set—is driving millions more into its smoggy embrace, despite limits on ownership and the government’s rising alarm.
The absurdity of our century-old, ad hoc approach to mobility is captured in one statistic: The utilization rate of automobiles in the U.S. is about 5%. For the remaining 95% of the time (23 hours), our cars just sit there, a slow, awful cash burn, like condos at the beach.
But what if, like condos, automobiles could be shared? It’s one of life’s first lessons—how to share toys, parents, rooms, feelings. But as little consumers grow into adults, they forget the joys of selflessness. That’s about to change. And I don’t mean the collaborative consumerism we see around us—peer-to-peer transportation like Uber—which is symbolic and transitional, lasting only until automation happens, at which point we can get rid of the wetware. And by wetware, I mean us.
Within a generation, automobiles will be endowed with what’s known as Level 4 autonomy—full self-driving artificial intelligence for cars—which will not so much change the game as burn down the casino. Autonomy will make it possible for unmanned automobiles to be summoned, via app, to your location. And not just any passing tramp steamer, but exactly the vehicle you need for the occasion, cleaned and fueled, for as little or as long as you need (offers may vary in your state). When you’re done—poof!—it will go away.
You don’t pay for the car. You pay for the miles. And only the miles. It’s a whole new way to fly. Let’s start small. Need a pickup for three weekends a year but don’t want to pay for the other 49? Autonomy can make that happen easily without a visit to the dreaded U-Haul depot. Need a car to take mom to the doctor’s, or fetch a spouse from the airport? A decade hence, major auto makers and smaller players will be at each others’ throats for the privilege of sending consumers vehicles a la carte, for a one-way trip, an afternoon, a weekend, a month. These transactions will move through the glowing bowels of your monthly credit accounts, and you won’t even feel them.
Americans will look back on pre-autonomy like the age of Casio calculators and DOS prompts. Remember cab drivers? Remember traffic jams? Remember when parents lived in dread that their children would die in a car accident? Death and major injury from traffic accidents will drop drastically. The automobile’s other costs—decreased productivity, fuel burned in uncoordinated traffic—will be swept away. “Beyond the practical benefits, autonomous cars could contribute $1.3 trillion in annual savings to the U.S. economy alone,” wrote Ravi Shanker, a Morgan Stanley analyst covering the U.S. auto business. Global savings? Somewhere in the neighborhood of $5.6 trillion.
You may be wondering, back here in 2015, if the auto industry is worried about shared mobility. Doesn’t it spell declining sales? It could. But in a mature market like the U.S. turnover will remain fairly stable. What would change is the number of passengers that passed through every vehicle—including a vast untapped market that doesn’t drive today. “Level 4 AV technology, when the vehicle does not require a human driver, would enable transportation for the blind, disabled or those too young to drive,” says the Rand Corporation in a report on the subject. “The benefits for these groups would include independence, reduction in social isolation, and access to essential services.”
These same benefits would return mobility to millions on the margins, including the elderly, the working poor and those who have lost their driving privileges due to a criminal record. (It’s not hard to see the throughline between autonomy and the hobbling economic effects of mass incarceration.)
In August 2015, Morgan Stanley nearly doubled its price target for Tesla TSLA, +0.26%, to $465 per share, based on an analysis of Tesla’s so-far secret shared-mobility plan. “We view this as a business opportunity,” wrote Morgan Stanley analyst Adam Jonas, “[that could] more than triple the company’s potential revenues by 2029.”
And, far from funneling consumers into fleets of lustless electric drones, autonomy could have the opposite effect. Immersive-connected consumers will be able to draw from a vast and constantly replenished motor pool of shared vehicles—dune buggies, pickup trucks, German luxury sedans—with little or no notice, a cast of automotive avatars.
At this point a fair reader might wonder if I have ever been to America. The notion that we as consumers will forgo the awesome pleasures of the automobile—the privilege, the mobility, the identity—to share vehicles is, I grant, unfamiliar.
But America’s much-sung-about love affair with the automobile has grown cold. Rates of motor-vehicle licensure are already plummeting among young Americans. The obligations and costs of transportation—an average 17% of household budgets—are driving them out of automobility altogether. And enthusiasm for automotive culture is waning too, as the empty seats at Nascar events attest.
Personal-vehicle ownership isn’t going away. Some people will own and cherish cars. But those people and their cars will be considered classics. Rates of ownership will decline, an artifact of an era of hyperprosperity and reckless glut. Twenty-five years from now, the only people still owning cars will be hobbyists, hot rodders and Flat Earth dissenters. Everyone else will be happy to share.
I spend a ton of time working with my team on growing their individual skills, increasing our deliverables and really making sure we are engaged. As we work with big and small companies and I talk to our clients, engagement has become one of the most desired (and least attainable) traits in companies today. A few years ago, Gallup blew everyone out of the water with its first State of the American Workplace in 2013. Sadly, there has not been much change in the past 18 months. The war for talent is hot and getting hotter. How we all perform is directly attributed to our teams.
Below is a good summary on why engagement is not getting better and some suggested changes to your management style and methods. Winning the war for the best people is a start. Then you have to engage them. I can tell you unequivocally that my team is the best in the business and they are engaged. I am also happy to discuss how we hire, what we do to train and how I know my above statement is true.
Read below for more. Of course I have highlighted for easy reading using two colors to separate some interesting statements and some suggested changes you can make in your organizing to get on the right path for engaged employees.
Employee Engagement Isn’t Getting Better And Gallup Shares The Surprising Reasons Why
By: Mark C. Crowley
Dec 9, 2015
American business is losing its war on engagement.
As a quick reminder on why we took up arms in the first place, it was June 2013 when Gallup first released its State of The American Workplace study that revealed only 30 percent of the nation’s workers were fully engaged in their jobs.
Since then, companies have gone on to launch all kinds of well-intended missions, campaigns and strategies, all with the goal of upending apathy, discontent – and the low discretionary effort too often displayed by their rank and file employees.
Yet despite all these noble and seemingly effective efforts, we’re confronted with a sobering truth: we’ve gained very little ground. According to Gallup, growth in engagement has remained flat for most of 2015 – and we’ve seen little more than a two-point increase over the past two and one-half years.
“How could this possibly be?” is a question many people will be asking, particularly if their organization’s deployed significant resources to rally back their troops.
To help me provide the most informed answer, I recently met with Dr. Jim Harter, Gallup’s engagement Jedi for the past three decades. I asked him to weigh in on why engagement remains such a critical metric for organizational success, why we have so little to show for all the additional focus that’s been given to improving it – and to share some of the uncommon things high-performing companies have discovered move the engagement needle in a more meaningful way.
One thing’s for certain. Traditional leadership practices have produced the enemy that is low engagement. To defeat it, we must have the courage to reject many of our archaic methods, and to adopt ones known to have the greatest impact on inspiring human performance in the workplace.
Why The Engagement Metric Matters
When Gallup began measuring engagement in the 1990’s, scepticism about the meaningfulness of the metric was common. But over time, as other well-known research organizations initiated their own studies, it’s become much more widely accepted that engagement elements predict how well an organization will perform – all the way down to the bottom-line.
According to Harter, “those outcomes range from basics such as absenteeism, employee retention rates, service levels and productivity; and ultimately it all adds up to about a 22 percent difference in profitability when you compare top quartile business units to the bottom quartile.”
Most Organizations Are Just Moving Peas On Their Plate
Perhaps the biggest reason engagement hasn’t budged is because many organizations are under the illusion that they’re already succeeding.
“What a lot of companies have done,” says Harter, “is to simply replace the terminology for their annual survey and call it an engagement instrument. Making things worse, they vary widely in terms of their definitions and what they measure. A whole lot of things are now being called engagement that shouldn’t be.”
Very often, Gallup finds that the hodgepodge of questions being asked produces greatly inflated engagement scores that create a false comfort. “Reporting high numbers seems to make a lot of leaders feel good,’ says Harter, “but those won’t get them where they need to be.”
It may also come as a surprise that the top organizations Gallup works with have just 65% of their workers fully engaged. While this number is twice the national average, and is inherently best-in-class, it belies what many of us imagined represented the highest level of success.
Engagement’s A Big Ship That Won’t Move Quickly If All We Do Is Measure It
I asked Harter if he was surprised that the engagement needle hadn’t been more significantly improved over the past 30 months, and he reminded me that big ships don’t turn quickly. “When you’re changing the culture of a working population, it’s going to take time.”
Nevertheless, the best companies Gallup works with consistently see a 7-to-9 percent improvement in a given year, and it’s because they intentionally align their performance management so that everything they do is on the same path. Stressed Harter, “the employee engagement survey is not treated separate from everything else they’re trying to get done.”
The rapid progress of the most successful organizations led me to wonder if most American companies have really begun taking engagement seriously. And Harter had this rather unambiguous answer at the ready: “I’d say it’s serious enough that it’s become a check-the-box HR activity, but not serious enough to have a meaningful impact and raise their score.”
To get engagement moving – and for all employees to believe its something to which the organization is fully committed – “it really needs to start at the CEO and executive level,” Harter told me. “The reason is that people need to know that it’s a firm expectation to which every manager and leader in the company is fully accountable. The gap today is that engagement’s being consistently surveyed, yet few companies have created the culture that lines up with their expectations.”
Most Perks Have Modest Impact
Gallup is surprisingly indifferent to perks noting that they’ve proved to be neither a cure-all to an ineffective boss, or even an influence on high achievement. Perks often give workers joy and convenience, but they don’t prove to retain people.
But extensive research has revealed two particularly valuable insights:
Engagement Has The Hallmarks Of Flow: “When people work too many hours, don’t have enough vacation time or are expected to look at e-mails after normal work hours,” says Harter, “the data shows their stress levels increase significantly. But we’ve discovered that employees who have the right work environment, and who are truly engaged in their work, really manage that stress.” Said another way, being engaged in one’s job directly influences feelings of well-being even when that job is especially demanding.
Flex-Time Is A Great Perk: Harter told me he does some of his most important work from his home office, and for 30 years Gallup has afforded all of it’s workers tremendous work-day flexibility. “Letting people work from home some days, arrive at work later to avoid a tedious commute or stay home with a sick child – these accommodations are highly valued by people. What makes it so meaningful is that it’s individualized. Employees know that you’re intentionally being supportive of them, and those feelings drive up engagement.” Harter insists that this flexibility must be accompanied by accountability, yet people often work harder in response to caring support.
Engagement Largely Comes Down To Whether People Have A Manager Who Cares About Them, Grows Them And Appreciates Them
“We’re now at just 32 percent engagement; and for all the people in management roles today, this is their scorecard,” says Harter. “There’s simply no question that managers are one of the top root causes of low and flat-lined engagement.”
The clear implication is that many people in managerial positions are failing for one of two reasons. They either lack the skills needed to effectively motivate people to perform, or they lack an understanding of what practices consistently drive workers to become fully engaged.
“We think high-performing managers have five talents,” says Harter. “These are leaders who not only engage their teams, but who consistently drive high productivity, service levels, retention and profit:
- They’re motivators. They’re excellent at challenging themselves and others to improve.
- They’re assertive. They push past obstacles and make tough decisions.
- They accept accountability. They create processes to help their team deliver on goals.
- They’re relationship builders. They’re naturally good at personalizing how they manage.
- They’re decision makers. They have a natural capacity to solve complex issues and plan ahead.
Remarkably, Gallup’s discovered that only twenty percent of the entire population possess all these talents – that they’re hard-wired into very few of us. And even with focused training, only three-in-ten people will ever successfully master all five.
Consequently, if organizations really want to see their engagement skyrocket, their first and most important step going forward must be to ensure only people who demonstrate these unique abilities ever get promoted into management roles.
But for companies who are truly committed to driving uncommon engagement, they must raise the bar even further. That’s because there’s another traditionally unappreciated quality that’s been consistently proven to turn managers into talent magnets: they care deeply about their people.
“They share, teach, coach, support, and appreciate their employees,” Harter told me. Regardless of what’s on their plate, they invest the time to know their people personally, what motivates them – their career dreams and aspirations. And “this kind of nurturing is the undercurrent of all five talents.”
Within its 12-question engagement survey, Gallup asks workers whether they “feel someone at work cares about them as a person.” And as soft as this one question may seem, it’s proven to have a direct impact on a multitude of hard business outcomes including employee retention, discretionary effort – and profit. The key take-away from all of this: Managers with highly engaged teams intentionally lead with heart.
While American businesses have taken aim at improving engagement for quite some time now, meaningful progress has so far proved illusive. So I asked Harter if Gallup would put out a challenge for 2016:
“Assuming companies really got behind it and began to adopt many of the practices known to greatly improve engagement, how much higher could the US score be at the end of next year?”
“If the commitment is really there, we could hit 40% engagement by next December, Harter insisted. “And if we get there, we’d all have a tremendous achievement to celebrate, not to mention some great organizational success that will undoubtedly come with it.”
This narrative is focused on all things commercial real estate. We also like to look outside our world to see what will be coming soon to a commercial project near you. Below is a short article about a building currently under construction on Cornell Tech’s Roosevelt Island Campus. In short, it is the first high-rise residential building in the world to be built to Passive House (PH) standards. These standards surpass LEED, upping the ante for energy conservation.
Some of the features of this building include:
–Super insulated building façade creating an airtight building
–EVR-energy recovery ventilation system
–A louver system that are like “gills” allowing the building systems to breathe
Sustainability is here, and PH standards are pushing the envelope.
P.S.- Michael Kosta is back in this week’s preview. To learn more on how C2 will perform for you, just give us a call. The full video is on our website, click here to check it out.
Cornell Tech to build first passive house residential high-rise
Story Contacts: George Lowery, Joe Schwartz
June 17, 2015
Provided. Cornell Tech announced that the first residential building on the Roosevelt Island campus will become the first high-rise residential building in the world built to passive house standards.
The first residential building on Cornell Tech’s Roosevelt Island campus will become the first high-rise residential building in the world built to passive house (PH) standards, a rigorous building standard for energy consumption. The building will become the beacon of the Cornell Tech campus and a symbol of the school’s commitment to sustainability. Construction is set to begin this month on the 26-story building; it will comprise 350 residential units and open as part of the campus’s first phase in 2017.
“Constructing the first passive house residential high-rise in the world is the latest and most exciting example of our effort to set new benchmarks in sustainability and innovation,” said Cornell Tech Dean Dan Huttenlocher. “We hope this will serve as a model for how passive house standards can be brought to scale in the United States and create a new template for green design here in New York City.”
PH buildings consume 60 to 70 percent less energy than typical buildings, surpassing modern standards like LEED and NYSERDA. They incorporate a super insulated building façade, an airtight building envelope and an energy recovery ventilation (ERV) system to create a comfortable interior climate without drafts and cold spots. The ERV system constantly pulls in fresh air and removes stale air, while recovering the energy in the climate-controlled air leaving the building.
Cornell Tech Residential will incorporate a number of sustainability-focused design elements. The façade will act as a thermally insulated blanket wrapping the building structure. At the southwest façade, facing Manhattan, the exterior façade opens to reveal a louver system that extends the entire height of the building. This reveal is designed to be the “gills” of the building, housing the heating and cooling equipment and allowing the building system to “breathe.” Low VOC‐paint, which limits off‐gassing and improves indoor air quality, will be used throughout the building, among many other elements. Compared with conventional construction, the building is projected to save 882 tons of CO2 per year, equal to planting 5,300 new trees.
Developed in partnership with the Hudson Companies and Related Companies and designed by New York City-based Handel Architects, the high-rise will be the tallest building on Cornell Tech’s campus. A state-of-the-art, color-changing paint will make the building’s exterior shimmer when reflecting light, shifting color from silver to warm champagne. The interior is designed to provide a comfortable living experience that reinforces the social and intellectual connectivity that is at the heart of the school’s mission, and it will feature a number of collaborative interior and exterior spaces.