Categories Narrative, Office Market

1-Minute Phoenix Metro Office Market Update: Q2 2019

It’s July in Phoenix and it is hot — both in temperature and in the office market.  The office market remains hot but office net absorption (job growth) cooled off in the 2nd quarter, posting just 245,000 SF in Q2.  Mid-year net absorption stands at 1.5 million SF and will likely hit 3 million SF by the end of the year.  There is 2.2 million SF of new construction in progress with most of it delivering by Q4 this year.  All these numbers mean vacancy held still at 16.9% during the first half of 2019.  We believe we will see a noticeable decrease in six months maybe even getting vacancy into the 15% range.  By Q4, we will have experienced another year where tenant demand outpaced new supply, and vacancy continues to tighten.

For this quarter’s report, I thought it would be helpful to compare Phoenix’s stats to the rest of the country.  Here is a link to a national Costar report released last month.  It’s 25 pages if you have the time to read it, but if you can’t, don’t worry, I have highlights:

  • National vacancy sits at approximately 9.75%, compared to Phoenix at 16.9% — This is normal as Phoenix is a growth market.  We cannot grow with vacancies in the low teens much less single digits.
  • Over the past 12 months New York delivered 4.9 million SF of new buildings; Phoenix delivered 2 million SF.
  • Compared to the 2.2 million SF under construction Lee & Associates Arizona reported this quarter, New York has 25 million SF under construction!
  • Phoenix’s net absorption over the past 12 months reached 4.4 million SF.  The ONLY area that scored higher was New York at 5.5 million SF.
  • Phoenix experienced a 3.6 % increase in rent growth while San Jose (Silicon Valley) grew at 7.6%.  No surprise, we are seeing a ton of activity from Northern California companies in Metro Phoenix.

Below is a link to our Lee & Associates Arizona Second Quarter Office Report and as always, here are my 3 local takeaways:

  • Tempe is the Tom Brady of Submarkets in Metro Phoenix.  This city continues to beat its competition for job growth, all the time…… Just like it did in the first half of 2019.
  • WeWork signed yet another big lease.  The CoWorking giant took 90,000 SF in Downtown Phoenix with plans for additional locations.  They are coming to Phoenix in a big way.
  • Sublease inventory is declining.  A year ago, subleases accounted for 1.9% of the available space on the market. Today they are only 1.3%

Please give me a call to discuss these trends further or how I can help you with your office needs.




Click to Read the Report

Categories Narrative, Office Market

1-Minute Phoenix Metro Office Market Update: Q1 2019


The Metro Phoenix Office market continued its trend of positive net absorption this quarter in a BIG way.   Fresh off a year of posting 2.8 million SF of net absorption (job growth) in all of 2018, Metro Phoenix hit 1.1 million SF in just the first quarter 2019, sending vacancy down to 16.9% from 17.57%.  If this, or something close to this, rate of absorption continues for the rest of the year, tenant demand will substantially outpace the 2.2 million SF of new building supply delivering this year.

Aside from one major lease over 150,000 SF (Voya Financial), the transactions in the first quarter underscored steady, medium-sized growth in the Valley. We love this consistent growth.  Many businesses expanded operations here while several groups continued to plant their first flag in the region.  Greater Phoenix clearly holds an unfair advantage over other metropolitan markets with its quality of life, quality of workforce and it doesn’t hurt to have the nation’s most innovative university, Arizona State University (ASU), in our backyard.

Similar previous trends continued over the past three months including Tempe (home to ASU) remaining the hottest submarket with high demand and single-digit vacancy. All other areas south and east of Sky Harbor airport captured the most leasing activity.

Below is a link to our Lee & Associates Arizona First Quarter Office Report and as usual, I’ve included my top 3 takeaways:

  1. New Product Leases– Digging deep into the 1.1 million SF of net absorption in the first quarter, 889,000 SF of it took place in buildings constructed in 2010 or later.  This means 80% of employers want the buildings being built this cycle.
  1. Camelback Corridor turns the Corner– After a negative absorption of 110,000 SF in 2018, The Camelback Corridor posted 155,000 SF of positive net absorption in Q1 2019.  By the way, this submarket holds the highest average lease rates across all classes at $35.56/SF.
  1. WeWork Continues to Make a Splash– WeWork signed the 2nd biggest lease in Q1 at 68,968 SF, three months after it signed 54,000 SF in another submarket.  Time will tell how well the co-working giant competes with traditional landlords in this market.


Want to talk more about these trends or how I can help you with your office space?  Give me a call.








Click to Read the Report

2019 Q1 Office Report 1

Categories Narrative, Office Market

1-Minute Phoenix Metro Office Market Update: Q4 2018

It’s time for us to look back at the Metro Phoenix Office Market for 2018. Readers of this narrative know that I am an office broker who works every day representing tenants and landlords as they navigate real estate nuances and opportunities. I (along with my incredible team) am based in Phoenix but work around the country and internationally as well. We are hired for all kinds of reasons including our in-depth, up-to-the-minute market knowledge.
Here is the latest…
The Metro Phoenix Office Market tightened in 2018 and is expected to follow the same script in 2019. This is not happening across the rest of the country. Phoenix is poised to continue growing longer and in a more robust fashion than the vast majority of U.S. cities. The Valley of the Sun’s value proposition continues to persuade existing companies to expand and entice new groups to experience the region. Simple as that.  Net absorption of office space (the key measure of job growth) improved dramatically from 2017’s figure of 1.8 million square feet (SF), to 2.8 million SF in 2018. Vacancy started 2018 at 19.7% and ended the year at 17.6% — the lowest vacancy since 2008.As vacancy drops, Class A lease rates have increased, albeit a small amount, to an average of $29.28/SF at year end 2018. We are set to hit an all-time high in 2019 with Class A average lease rates expected to eclipse $30/SF across the Valley. Additionally, available sublease space decreased from 2.5 million to 1.9 million SF during the year.
Below is a link to our Lee & Associates Arizona Fourth Quarter Office Report and as usual, I’ve included my top 3 takeaways:

  1. It Pays to be the Value Option — The Sky Harbor Airport submarket absorbed the most space in 2018 (869,833 SF). Asking rates in this area are $6/SF lower than the market average and clearly a price refuge for tenants. There is rate shock for tenants as leases expire. This will continue in 2019. 
  2. Co-working is Ramping Up — WeWork entered our market with a 54,000 SF lease in the Esplanade I at 24th Street and Camelback, one of the top five leases of the quarter. Right now, WeWork is negotiating at other locations around the Valley and will add to over 450,000 SF of existing co-working operations including Serendipity Labs, Industrious, Workuity, Co+Hoots, etc. (All Regus Executive Suite units are not included in this figure)
  3. Expect Lease Rates to Climb In 2019 — WHY? Tenant demand remains strong and will likely outpace new supply again this year. Additionally, high construction pricing is forcing landlords and tenants to reduce concessions or inflate rates to make deals pencil.  (Make sure you have a good broker looking out for you!)

Want to talk more about these trends or how I can help you with your office space?  Give me a call. 



acheney@leearizona.comPS- Here is a link to Lee & Associates Arizona’s Historical Office Market Statistics with some great information as well.

Click to Read the Report
Q4_OfficeReport First Page
Categories Narrative, Office Market

1-Minute Phoenix Metro Office Update: Q3 2018

Below is my quarterly take on the Metro Phoenix office market. Readers of this narrative know that I am an office broker who works every day representing Tenants and Landlords as they navigate real estate nuances and opportunities.  I (along with my incredible team) am based in Phoenix but work around the country and internationally as well. We are hired for all kinds of reasons including our in-depth, up-to-the-minute market knowledge.

Here is some…

Wow! The Metro Phoenix Office Market absorbed nearly one million square feet (SF) of space in just the third quarter; and saw vacancy drop to 17.25%. Net absorption, the key indicator of a market’s health, represents job growth.  Vacancy has not dipped this low since 2007 and should continue to hover around this figure as new buildings come online to capture tenant demand.  With a strong Q3, net absorption now stands at 2.7 million SF YTD — 2017’s figure for the entire year reached 1.8 million SF.

The bottom line is that we finally hit strong net absorption for Metro Phoenix.  This shows we still have sustained growth left in their cycle. 

Through negotiating leases and sales each week, I’m noticing two significant trends:  1) Companies continue to relocate significant business units to Greater Phoenix, and 2) they choose to expand existing operations here versus other markets across the country.  And it’s not just because of affordable real estate.  Quality of life, right to work state, and the nations’ most innovative university, Arizona State University, are just a few of the many reasons more jobs are ending up here.

Below is a link to our Lee & Associates Arizona Third Quarter Office Report and as usual, I’ve included my top 3 takeaways:

  1. Tenants want more Tempe space – At 8.6%, the Tempe submarket holds the lowest vacancy and developers with sites are responding to the lack of supply.  Around 822,000 SF is under construction with several other projects trying to enter the pipeline soon. 
  1. While the tide is rising around Tempe, next door, the Sky Harbor/Airport submarket posted almost 600,000 SF of net absorption in Q3.  South and Central Scottsdale continue to enjoy some of the healthiest occupancy rates in town.  All of these submarkets are adjacent neighbors that provide quality alternatives to the Tempe buzz.
  1. Class B buildings leased over seven times the amount of class A buildings in Q3.  As class A rents continue to escalate along with the cost to build them out, we may see even more businesses select class B buildings to keep their occupancy costs in check.   Class A leasing has significantly outpaced class B progress over the past few years.

Want to talk more about these trends or what we can expect from 2019?  Give me a call. 







Click Here for the Full Report





Categories Narrative, Office Market, Open Offices

The “Coffice”

In our ongoing discussion about the future of office space, here is a nice stat:  In this cycle, office space users have been taking approximately ½ of the space they took as they grew in the last cycle. 

We know why—open office, the explosion of the tech companies and shared space environment and all the startups actively trying to disrupt every business on the earth. So where does this go?   Below are my thoughts followed by an article by Sarah Knapton, a futurologist  I liked because of her use of the “Coffice”—Coffee office.
– The workforce will become more and more mobile—this is happening and it will continue unabated.
– Most white collar jobs will figure out how to become more flexible so you don’t have to be there all the time.

– Offices will continue to gravitate towards an open environment but solutions to decrease the added distractions created by these offices will continue to emerge. 

– People will want an office to go to, even if they only go occasionally. AND they will want it to be their company, not just a bunch of other mobile workers they hang out with.  Culture eats strategy for lunch.  The only place to get your company culture is at YOUR office. 
Anybody want to add to or argue against these?  Send me an email.



Open-plan offices don’t work and will be replaced by the ‘coffice’, says BT futurologist
By Sarah Knapton,
October 11, 2017

They were supposed to generate a sense of camaraderie, enhance teamwork and encourage an open flow of ideas between colleagues after decades of segregation in booths.

But open-plan offices are actually bad for productivity, allowing workers to be interrupted every three minutes by a range of distractions, a futurologist at BT has warned.

Dr Nicole Millard, an expert in data, analytics and emerging technology, said that large offices are inefficient, especially for introverts who work better when they are not disturbed, and predicted they will soon die out.

Instead, she has forecasts that employees in the future will become ‘shoulder-bag workers’ carrying their offices in backpacks and collaborating in small teams in coffee shops – or ‘coffices.’

Although many firms believe large, open-plan workspaces help collaboration, in fact, unless staff are in close proximity ‘you might as well be in Belgium’, said Dr Millard. However research has shown that put workers too close together and they clam up, as if being stuck in a lift together.

“The trouble with open-plan offices is they are a one-size-fits-all model which actually fits nobody,” Dr Millard said at New Scientist Live in London yesterday.

“We’re interrupted every three minutes. It takes us between eight and 20 minutes to get back into that thought process. Email. We get too much. Meetings, colleagues. It’s all distracting.

“Is being switched on making us more productive? The answer is no. The problem of the future is switching off. The big damage is task-switching. You can tell you have been task switching when you switch off your computer at night and find there several unclosed windows or unsent emails still there because you were interrupted.

“So we will become shoulder bag workers. Our technology has shrunk so we can literally get our office in a small bag. We are untethered, we don’t have to have a desk anymore.”
However Dr Millard said that offices are still important, if only for socialising.

“We need a balance between we and me,” she added. “We need to give people options of how they can work, such as home working.

“But I do go a tiny bit nuts if I am just at home, so I think we will start to embrace ‘the coffice’ I need good coffee, connectivity, cake, my wifi wings to fly me into the cloud. I like company. The ‘coffice’ could be a coffee shop or a hotel lobby.”

Dr Millard said the ageing workforce will also change how offices work, because older people will no longer want to work nine to five or commute for long distances.

By 2039 the Office for National Statistics expects that the number of people aged 75 and over will have risen by 89pc to 9.9 million and one in 12 of the population will be 80 or over.

When the state pension was introduced in 1909 it was intended to aid those aged 70 or older at a time when the average man died at 59 and the average woman at 63.

“The average pension pot is designed to last only 18 years, so we’re going to be working a lot longer,” she said.

“We have an older workforce, which is fantastic because they have accumulated experience gained over many years but they are probably not going to work nine to five, or commute into work. In fact, I can’t remember the last time I worked from nine to five.”

She also said that it was unlikely the robots would take most jobs.

“A lot of these technology won’t replace us they will help us to the dirty, dull and dangerous jobs that we don’t want to do. It’s very difficult for robots to replicate humans. They don’t have the dexterity, the empathy, the gut feelings.

“I think the rise of the droids is a positive trend and can make us feel more valuable as human beings.”

Categories Creative Office Spaces, Narrative, Office Market

Suburban Offices are Back

First, let me say, I told you so.  I have been saying for some time that the huge shift to urban core will not be sustained.  There are companies that want/need to have that environment so I am still bullish on urban cores, but there are others who will reverse the three-decade trend of moving offices closer and closer to the employees’ (and primarily the decision makers’) home.  Below is a Bloomberg article about businesses seeing millennials growing older and betting on them settling down in the suburbs.
Here are some summary points:
–        “Open and creative offices” are moving to the suburbs.
–        Millennials want to be closer to the city when they are young but as they start families they move to suburban areas.
–        Companies are taking urban office features and incorporating them into suburban areas to attract millennials.
–        Suburban offices are cheaper than urban offices – this will change as market conditions change. Contact our team to see what the differences are today in your market and submarket.
This is where having a seasoned professional on your side is critical.  That is what we do—represent tenants as they evaluate their office space and locations.  Call us if you need some sound advice from a trusted source.




Suburban Offices Are Cool Again
By Patrick Clark and Rebecca Greenfield

October 17, 2017First you leave the city for a kid, a garage, and a backyard. Then you get a job in an office park—only maybe it’s an officepark with yoga and food trucks.For millennials, the suburbs are the new city, and employers chasing young talent are starting to look at them anew.For years companies like Twitter, Salesforce, and GE have headed downtown, framing their urban offices as recruiting tools for young talent. After opening a new headquarters in downtown Chicago last year, Motorola Solutions bragged that it got five times the job applicants it had in the suburbs. Suburban landlords like Charles Lamphere kept hearing a common refrain from tenants: “We need to go to the city to get millennials.”

Fresh college graduates might be attracted to downtown bars and carless commutes, but these days, for older millennials starting families and taking out mortgages, a job in the suburbs has its own appeal. “What people find is that the city offers a high quality of life at the income extremes,” says Lamphere, who is chief executive of Van Vlissingen & Co., a real-estate developer based in the Chicago suburb of Lincolnshire, Ill. “The city is a difficult place for the average working family.” 

Many employers, hoping to attract millennials as they age, are trying to marry the best of urban and suburban life, choosing sites near public transit and walkable suburban main streets. “What’s desired downtown is being transferred to suburbanenvironments to attract a suburban workforce,” says Scott Marshall, an executive managing director for investor leasing at CBRE Group. 

Marriott International’s recent search for a site to replace its old office park in the Washington suburb of Bethesda, Md., led it not into Washington but just across town, into Bethesda’s more transit-accessible downtown. (Jim Young, Marriott’s vice president of corporate facilities, cites access to “some of the nation’s top public schools”—something more millennials will care more about as their kids get older.) When Caterpillar Inc. announced its move from Peoria, Ill., to the Chicago suburbs earlier this year, CEO Jim Umpleby bragged that the new site “gives employees many options to live in either an urban or suburbanenvironment.”

Suburban landlords are upgrading office parks with amenities to mimic urban life, too. At Van Vlissingen’s properties, that’s meant fitness centers, food-truck Fridays, beach volleyball courts, and a fire pit and amphitheater where monthly concerts are staged. Origin Investments, a real-estate investment firm, recently spruced up a dated office building outside Denver with a 4,000-square-foot fitness center and a “barista-driven” coffee lounge and stationed a rotating cast of food trucks outside a building it owns near Charlotte.

Suburban office parks appeal because they’re cheap compared to downtown buildings, says Dave Welk, a managing director at Origin, which is based in Chicago. But his firm’s suburban thesis builds on the belief that city-loving millennials will eventually opt for suburban accoutrements. 

“The thinking has been, ‘We’re in a 20- to 30-year supercycle of urbanization,’” Welk says. “I believed that five years ago. I don’t believe it anymore.”

None of this means the suburbs are going to supplant central cities as job hubs. After all, jobs traditionally based in cities—jobs in professional industries as well as the service jobs that support them—are growing faster than those typically based outside of them, according to Jed Kolko, chief economist at Indeed.

At the same time, Americans are more likely to live in the suburbs today than they were in 2000, and even the young, affluent ones drawn to cities tend to move once their kids reach school age, Kolko’s research shows. Many of those workers will suffer long commutes into the city center. Others will opt for jobs closer to their suburban homes.

Jack Danilkowicz, 29, moved to Chicago in 2012 for a job at a financial job downtown, but within a few years, he got married and started plotting his move to the suburbs. He landed a job at Horizon Pharma, a drugmaker with offices in the northern suburb of Lake Forest, and moved with his wife to nearby Libertyville, trading city nightlife for the good public schools their newborn son will one day attend. “I grew up in the suburbs,” he says. “Probably in the back of mind, I always thought the suburbs would be the place to raise a family.”


Categories Narrative, Office Market

2018 Top 10 Issues Affecting Real Estate

The changing demographics of workers in the U.S. is HUGE and it’s changing everything. This is probably the biggest issue we are facing in office space leasing, and it features predominantly on the 2018  Counselors of Real Estate (CRE)  Top 10 Issues Affecting Real Estate.

Below is the release and a link to the full report. I spend ample time on this topic throughout the year so here are my top three issues:
1. Everyone has known it was coming, and it’s here-interest rates are rising and it’s starting to affect sales. Rising rates will begin to move cap rates, which will have ripple effects.

2. I continue to be amazed at municipalities’ lack of infrastructure investment.  Little has been done or will be done until the crisis explodes.  Long-term inattention to physical infrastructure will be an issue in the coming decade.

3. A favorite topic of this narrative—disruptive technology is here for real estate. From ecommerce changing retail,  Uber changing parking,  connectivity changing the nature of the workforce and use of office buildings, EVERYTHING is being disrupted.
A calm voice of reason and wisdom is needed when so much is changing.  That’s where we come in.   Give me a call or email me. Almost 35 years and plenty of scars to help you out.



External Affairs Alert – Top Ten Issues Affecting Real Estate™ 2018-2019

Summer 2018

Click here for the Full Report

New for 2018-2019: Current and Longer-Term Impacts Identified

Counselors’ clients seek advice on today’s issues which will impact property today–and today’s issues which will impact their decisions over the next ten years.  In a break with how The Counselors’ has announced its Top Ten list in past years, the Top Ten Issues Affecting Real Estate™ 2018-2019 differentiates between current and longer-term impacts on real property.

1. Interest Rates & The Economy

For years the market has anticipated rising interest rates.  With the Federal Reserve now nudging rates upward, flattening of the yield curve is underway. Historically, this has been a powerful signal of market expectations of an economic down cycle.

The Tax Cut and Jobs Act passed into law in December, 2017 enacted fiscal stimulus by cutting individual and corporate tax rates, and pumping money into the economy via the Omnibus Spending Bill passed in March, 2018.  That bill is projected to increase spending by $1.3 trillion but the consequence is a large required increase in Federal borrowing to fund a growing deficit. Some see the effects as a “crowding out” of private borrowers from the debt markets, and such borrowers may face higher interest rates; an economic slowdown could result.

For real estate, the issues that must be faced include:

  • Is it time for investors to focus on playing defense at the end of this long cycle?
  • Will it become more difficult or more expensive for commercial real estate participants to finance deals, and will this further slow transaction volume which has already dropped 13% since 2015?
  • Will residential mortgage rates rise in tandem with the increase in Fed Funds?
  • As consumer rates pegged to Treasuries increase, will this slow retail purchases, placing additional stress on the already beleaguered retail sector?
  • Cap rates have remained decidedly flat, despite the fact that risk-free benchmarks like the 10-year Treasury rate have broken the 3% mark. When will cap rates begin rising, and what will that mean for asset valuation?  Will that mean less financing availability for tertiary markets, as investors pull back into standard gateway markets perceived to provide more liquidity in case of the need to exit?


2. Politics & Political Uncertainty

The most pertinent near-term issues about U.S. politics driving real estate right now can be divided into two topics:

Policy changes with indirect effects on real estate:

  • The Tax Cuts and Jobs Act – whether it benefits corporations more than individuals and whether or not it will result in a boost in GDP growth in 2018, but then revert to recent averages closer to 2%. Corporate benefits appear to be resulting in increased investment and business spending, not just stock buybacks.
  • Trade wars with China, Canada, Mexico, and the European Union, and geopolitical fears about how the North Korea and Iran situations are being managed.

Policy changes with direct effects on real estate:

S.2155, recently signed into law, likely has the most effect on real estate.

Broadly speaking, the bill frees smaller lenders from the toughest requirements of the Dodd-Frank Act, such as the Volcker Rule.  It also provides banks with less than $250 billion in assets a pathway to shed the ‘too-big-to-fail’ stigma as well as certain enhanced prudential standards. The bill increased the asset threshold for automatic designations of banks to $100 billion – subject to a discretionary review by the regulators. In effect, this gives the Fed the ability to apply the stricter standard on a case-by-case basis to a bank with $100 billion to $250 billion in assets to promote its safety or mitigate risks to the financial system.

HVCRE: This provision would exempt income-producing property, allow banks to continue to use the 15% borrower contributed capital exemption, allow borrower distributions if the minimum-required capital is maintained, allow current appraised value of real property to be counted in equity contributions, and grandfather loans closed prior to January 1, 2015.  The legislation does leave regulators leeway about applying these rules, including the risk weight that should be applied to higher-risk construction lending.

HMDA: This provision reduces the number of data fields collected by insured depository institutions (but not non-depository institutions) which have originated, in each of the two preceding calendar years, fewer than 500 closed-end mortgage loans and fewer than 500 open-end lines of credit.
Overall, S.2155 is broadly viewed as a modest tweak of existing regulation – more targeted toward community banks than larger regional and systemically important institutions.

3. Housing Affordability

The crisis of affordability squeezes from both sides of the supply/demand equation.

  • The U.S. has had general underproduction of housing for almost two decades, even accounting for the boom that accompanied the subprime housing bubble. However, since 1999, the net underproduction of housing has been nearly 2 million units.
  • But there has also been a demand side weakness. Income stagnation for all but the highest income households has hampered access to affordable homes and rental units.  A 2017 study by the Hamilton Project at the Brookings Institution calculates that since 1979, real wages for the top income quintile have risen more than 24%, while the bottom quintile has seen a decline in real wages. The next lowest quintile, the lower-middle class, has had less than a 1% gain in real wages over more than 35 years, and the middle quintile (the heart of the middle class) has gained less than 3.5% over that span.

Within this context, there is also pressure growing in cities, and now in select suburbs, as gentrification by Millennials and others directs demand toward neighborhoods and older housing stock that has been serving as the de facto affordable housing in older but growing metropolitan areas. As this issue plays out in the next year or two, key questions in order to find solutions are “Who pays?” and “How?”

4. Generational/Demographic Change

One could argue that historically real estate markets have primarily been driven by key demographic groups, 25 – 34, 35 – 54, etc.  But real estate now is seeing and reacting to the influence of FOUR groups: the Millennial generation, aging baby boomers, Gen X (those born between the mid-1960s and the early-1980s, which exhibit characteristics of the two large groups on either side of the age spectrum), and Gen Z (born between 1995 and 2010).

The direct real estate impact is already being seen in the changes in work processes, space utilization, and where companies choose to locate.  The housing market must adjust to changing demands as these groups age.  This will impact student housing, single family, and multifamily housing markets.

There are similarities between the wants and needs of the generations, but ultimately the differences in timing (Millennials forming households later) and differences in desires (move to walkability) will offer risks and opportunities.

5. E-commerce & Logistics

The U.S. Department of Commerce estimates there were $123.7 billion in retail sales through online channels in the first quarter of 2018.  That represents 9.5% of total retail sales, up from less than 1% in 1999, when the Commerce Department began tracking the data.  The growth in online sales has also outstripped the growth in total retail sales during that entire – almost twenty year-period.  For example, in the first quarter of 2018, online sales grew by 16.4%, while total retail sales only grew by 4.5%.  Adjusting total retail sales, and deducting numbers from automobile and gasoline sales (which typically are not sold through online channels), e-commerce or online sales as a proportion of total retail sales rises to near 30%.

Media articles have largely focused on “the death of the U.S. mall” and coverage of store closures.  But as some businesses close, others open.  As Toys “R” Us closed stores, Ulta, The Gap, Target, and others continue to open stores.  Employment in restaurants and other service-related retail establishments has consistently been positive.  Amazon is known for its dominance of online channels – but when Amazon buys a brick and mortar chain like Whole Foods, it indicates it is not about “online versus brick and mortar” – but rather an ongoing quest for firms to dominate every available business channel.

Retail real estate is directly impacted by these evolving channels, with discount retailers and high-end luxury stores surviving the onslaught best. And e-commerce has been a major boon for warehouse/distribution properties, in response to the need for storage space for that “last mile,” ensuring the fulfillment of one- or two-day delivery promises.

Longer-Term Issues

1. Infrastructure

Infrastructure tops the 2018-2019 longer-term impacts list (and has been included on several past year lists) as there has been little serious effort to address America’s needs despite political efforts to do so. Long-term underinvestment has elevated the level of risk – both in the short- and long-term – of economic drag due to inattention to physical infrastructure (roads, bridges, dams, levees, transit – all of which are rated “D” or lower by the American Society of Civil Engineers) and human capital infrastructure (education, health) directly affecting economic productivity.

Real estate – both existing properties and needed new development – depends upon reliable, well-maintained infrastructure.  Consider housing without access to utilities, roads, bridges; offices with poor transit routes; warehousing and shipping of goods with poor-condition roads; hotel properties if guests have difficulty getting there over poor roads, inadequate airports, risky bridges, as examples.

2. Disruptive Technology

The real estate industry, like the rest of the world, is poised to adopt new technologies – blockchain, artificial intelligence, autonomous vehicles, cryptocurrencies, transaction platforms that disintermediate human agents – all of which will qualify as “this changes everything” interventions in the real estate industry or real estate markets.

E-commerce has drastically changed the retail property sector and has linked online sales to stores, with online retailers buying store groups or opening new store models (Amazon Go stores). Ride-sharing companies such as Uber and Lyft are altering transportation, and likely will alter the need for garages in future housing and multi-family development.   Data has been, in general, commoditized, from transaction transparency to enhanced demographic targeting to nearly unlimited interconnectivity to sophisticated cybersecurity and privacy controls.  Homes, offices, warehouses, hotels, multi-family properties, and every facet of real estate – from business and property management to architectural design – is enhanced by adopting ever-improving technology.

Real estate practitioners, owners and investors can embrace new technological tools, but ultimately must carefully choose which is most appropriate for the business, property, service, or problem/solution – not be pressured to rush toward “technology for technology’s sake.”

3. Natural Disasters & Climate Change

The impact of climate change and natural disasters on real estate is perceived to be increasing over time. Insurance analysts at Munich Re, a major reinsurer, forecast that rising sea levels and increasing storm frequency could raise average annual losses by 170% in the coming decades. Since 2006, a significant share of overall loss has come as a result of climatological events such as extreme temperature, drought, and forest fire. During 2017, Seattle set a record of 55 consecutive days without rainfall.  During that time, and afterwards, haze from wildfires in the Cascades and as far away as British Columbia degraded air quality in the Puget Sound region.

While the percentage of total U.S. area under drought conditions has fallen from 38% to 26% as of late August, 2017, the fraction under the most severe category of drought has risen.

Communities are responding with initiatives that are intended to mitigate the effects of disasters, such as  Miami/Dade County, which has embarked on efforts to limit the impact of rising seas on its water and sewer systems, while seeking more compact developments limiting urban sprawl and tackling automobile dependence.

Municipalities and real estate developers must navigate a myriad of state and local energy and sustainability regulations; there are no overarching Federal policies.  This continues to make it difficult for companies to work with state and local officials in multiple locations regarding corporate relocation, or to expand operations while satisfying green building and operations demands.  Companies with multiple locations (or brands with multiple outlets, branches, or restaurants, etc.) may even avoid some locales to avoid the maze of regulations.

4. Immigration

The RAISE Act (Reforming American Immigration for Strong Economy) affects undocumented workers by restricting legal immigration, thus dropping the number of green cards from the present 1.1 million annual number to 500,000. The arguments in favor of the bill emphasize the putative impact of low-cost immigrant labor on wages for lower-skilled U.S.-born workers. The bill seeks to recast immigration policy to apply a “merit-based” points system favoring highly educated, English-speaking, and often already affluent candidates.

Alex Nowrasteh, a senior immigration policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity, has published an analysis which disproves such a system results in a positive wage effect, noting that the current system is actually quite effective in matching immigrant skills to U.S. economic needs.  The National Immigration Law Center stated that the RAISE bill “inaccurately suggests less legal immigration means more jobs for American workers.” Importantly, the technology industry – which has long coveted larger immigration volumes from the STEM (science, technology, engineering, and mathematics) skill set – maintains that RAISE “would severely harm the economy and actually depress wages for Americans.”

There are economic impacts on real estate, which start with the fundamental growth dilemma facing the U.S. for the coming decade: the labor supply shortage driven by age demographics.

The policies of the Immigration and Naturalization Act of 1965 – which the RAISE bill explicitly seeks to undo – enabled the United States to supplement demographic “natural increase” (the surplus of births over deaths) to a degree unmatched by our major global competitors, where immigration exclusions were more severe. Immigration was therefore able to bolster the U.S. agriculture sector, as an example. Decreasing immigration could also hamper one of industrial real estate’s principal sources of demand – ecommerce. Amazon’s August 2, 2017 job fairs around the nation sought to hire 50,000 employees for picking, packing, and shipping jobs at its fulfillment centers.

 5. Energy & Water

Municipalities are increasingly enacting policies that require real estate owners to invest in storm water management systems and devices, and also create new green space.  The impact for real estate is the ability to create value, such as through increased development yields, providing tangible amenities for residents and tenants, reduced operating costs, and improved preparedness for flooding and drought.

“Smart” buildings are becoming more common because of new technology, which impacts building operations, and provides both efficiencies and connectivity which is increasingly being sought by tenants.  The challenge is in ensuring cybersecurity, to avoid service impacts and prevent intrusions by hackers.

While the majority of buildings do not depend on oil, but rather natural gas, and other energy sources (including solar and wind), it is noteworthy that trends in energy production and prices have taken a turn lately, with oil and gasoline prices increasing as a response to OPEC moves.  Gasoline prices rose 3% month-over-month, pushing headline inflation to a 14-month high in April, 2018 at 2.5%.  There is a chance that higher energy prices, combined with higher financing costs due to increasing interest rates and mortgage rates, may act as headwinds to the most optimistic growth forecasts for 2018.

Recent studies suggest that only 1.2% of the U.S. suffers from disastrous levels of water shortage, but some states (California, for example) are more severely affected by water shortages and drought.  While the percentage of total U.S. area under drought conditions has fallen from 38% to 26% over the past year (as of late August 2017), the fraction under the most severe category of drought has risen.  In a developed country like the U.S., where 80% of the population live in urban centers or highly urbanized suburbs, the demand for water is likely to remain concentrated, and rise, putting pressure on these centers of real estate to both protect resources, and provide for the population.

Other impacts on real estate include increased risk of widespread wildfires, poor growing conditions in some sections of the U.S., water-rationing days, and poor air quality days which all can affect location choice for residents, investors, and companies seeking to mitigate risk and experience better quality of life. Some communities and states could experience significant population loss as homeowners, renters, companies, and corporate employees settle elsewhere.

On the Watch List

  • Construction Costs
  • Tax Cuts
  • Urbanization/Suburbanization
  • Societal Leadership

Construction Costs

Rising construction costs are impacting the timing and overall costs of commercial development, redevelopment and tenant improvements.  In addition, rising costs are contributing to higher residential housing prices.

To a developer, rising costs make it more difficult to get new projects to “pencil out” economically, especially in an environment where construction lenders are being more conservative.   But on the other side of the issue, more subdued levels of new supply have allowed fundamentals to improve despite the slower rates of growth in the current economic cycle.

Engineering News-Record’s construction cost index has risen 3% in the past year, with labor costs up 2.9% over the same term. But components such as lumber are up 9.8%, concrete block 4.5%, and asphalt paving 4.4%. The tariffs announced on steel and aluminum are poised to put upward pressure on these building materials. In all likelihood, inflation in construction costs will be sharply higher than the Consumer Price Index itself.

If construction costs continue to rise, companies and practitioners may react with changes as to how space is utilized, moves to lower-cost markets, and introduction of technology to reduce costs.

Tax Cuts

The Tax Cuts and Jobs Act of 2017 has prompted expectations that changes in the deductibility of state and local taxes (SALT) will advantage states with low SALT levels, and disadvantage states with a relatively high SALT burden. Consider, however, these benchmarks:

The most recent twelve-month job change data for the 10 highest and 10 lowest tax burden states show that in the past year, the low-burden states (led by Texas, Nevada, and Tennessee) have added 462,100 jobs, for a 2% growth rate (above the U.S. average of 1.6%). But high-tax states (such as California, New York, and Oregon) have generated more jobs (657,600). However, because of their larger economies, there was a slower growth rate (1.3% versus the U.S. 1.6%). It is possible that in coming years, the cumulative result of the recent tax cuts may have the putative effect of accelerating growth overall and thereby widening the gap between low-tax and high-tax locations.

Note also the impact on productivity. The ten low-tax states have a total Gross State Product (GSP) of $2.9 trillion (15.5% of GDP), or an average of $124,039 per worker. The high-tax states contribute an aggregate GSP of $7.3 trillion (38.0% of GDP), or $146,478 per worker.  Productivity in the high-tax states is 18.1% higher than in the low-tax states. Government incentives which redirect economic activity to low-tax states carries risk of diluting output per worker on a national basis. It is relatively easy to make a simple business case for seeking lower-tax locations, but productivity gains demand investment in physical and human capital – such as infrastructure and education.  Low-tax states historically have not committed as much public spending to such investments as high-tax states have done. That is a significant part of the reason that taxes are low in the low-burden states.

For real estate, the direction of job movement and of capital flows could be affected, especially if the argument that low costs, especially low taxes, is a primary motivating factor turns out to be persuasive. However, strength in output per worker and the ensuing top line benefit could trump the low-cost argument and point to a reason why the high-rent, high-value cities maintain strong occupancies when compared with many of the Sunbelt markets that are competing on the basis of cost.


Recent comments on “the plight of suburbs” or whether or not Millennials will continue to pursue urban living into their late 30s and early 40s present the Urban/Suburban divide as unnecessarily binary.  Similarly, when the Tax Cuts and Jobs Act specified restrictions on the ability of homeowners to deduct mortgage interest, as well as state and local taxes, from their tax bill – numerous articles were written ranking “high-tax states” and estimating how much home prices would fall, with speculation about how people would relocate to lower-tax geographies.

But these examine only parts of the overall equation.  Individuals and institutions with the ability to move decide where to locate based on their preferred package of goods, services, and benefits conveyed.  Urban areas offered diversity, entertainment, job opportunities and other such benefits.  But in the 1980s, the costs (and negatives) associated with city living – crime, congestion, poor quality schools – prompted a larger proportion of the population to move to the suburbs.  That trend began reversing in the mid-1990s as cities became safer, and a larger share of the population began preferring to commute less and enjoy city benefits – even if it meant smaller, more expensive living spaces.

This does not mean that suburbs are not evolving.  Real estate developers who wish to capitalize on the theory that older Millennials will want larger suburban space with urban-like amenities have begun producing mixed-use developments a stop or an exit away from the nearest urban enclave.

High-tax areas do not necessarily lose population: homeowners move into high-tax locations knowing they will be paying relatively higher bills – and higher home prices – because there are benefits such as good schools and a safe community.

Local government competition has become formalized and professional, with most cities and suburban areas staffed with economic development officials – often offering tax abatements and other enticements for firms and individuals to locate in their area.  For example, Amazon’s quest for their “HQ2” demonstrates an example of location consulting, which is now a standard offering of accounting and consulting firms.  As cities and suburbs evolve, what’s valuable in real estate is also changing (mixed-use residential/office/retail, for example) and not so valuable (regional malls).

Societal Leadership

How can the real estate industry be a leader in providing environments in which people live, work, play and interact safely, securely, sustainably, and productively?

The Millennial generation, as a whole, looks beyond the bottom line and shows a broader desire to be involved in more social and environmental improvement.  In response, many companies are changing approaches to their real estate footprint and how these companies can facilitate improvement through their business model.

It now appears that this generation, and even those in their teens and early 20s, may be unwilling to accept the status quo – something unseen since the 1960s.  This type of activism has potential to move beyond the issues of sexual harassment and gun control, to issues such as homelessness and housing affordability.

Another issue to consider is whether growing political polarization makes it more difficult to own real estate – and whether differences of political views can influence variables such as tenant mix – and whether property owners must develop and have in place action plans to manage an incident should it occur at a property.

Perhaps the greatest shift over the past two years has been in the surge in women to the forefront of issues discussions. As of April 30,2018, 527 female candidates were in races for seats in the U.S. Senate or House of Representatives. An additional 40 women filed to run for governor in various states this year. The #MeToo movement is having impact in politics and in private business. In real estate – especially in the commercial property business and in the previously male stronghold of construction/development – women are rising to senior positions, and are holding a greater proportion of jobs preparing for the top echelon.

Categories Narrative, Office Market

1-Minute Phoenix Metro Office Update: Q2 2018

Readers of this narrative know that I am an office broker who works every day helping Tenants and Landlords navigate the nuances and opportunities across geographical areas and product types.  I (along with my incredible team) am based in Phoenix but work around the country and internationally as well. We get hired for all kinds of reasons including our in-depth, up-to-the-minute market knowledge. Below is my quarterly take on the Metro Phoenix market. 

The key statistic indicating a market’s health is net absorption, which represents job growth.  The Metro Phoenix office market posted another strong quarter with 732,248 SF of positive net absorption.  This net absorption is why many local brokers are feeling busy. If this pace keeps up, 2018 could double the net jobs that were added in 2017.  After two quarters this year, net absorption stands at 1.4 million SF, while 2017 provided 1.8 million SF for the entire year.

The substantial leasing activity continues to inspire confidence in developers and more importantly in lenders, which has turned on the new construction pipeline with 2.7 million SF now under construction. Around 87% of this new product is speculative, with no preleasing.

Below is a link to our Lee & Associates Arizona Second Quarter Office Report and as usual, I’ve included my top 3 takeaways:

1)      Central heats up- Central Avenue Leasing represents the 3rd-highest YTD net absorption for 2018. Tenants seem to be taking notice of the substantial investment being poured into Downtown and Midtown (have you seen Renaissance Square lately?) and the competitive pricing available.

2)      Sometimes tight is too tight- Central & South Scottsdale were so tight in Q2 2018 they lost tenants mainly due to lack of product.  This lack of product, however, recently helped launch SkySong 5 and Chaparral Commerce Center III.

3)      New speculative construction- Tempe and Chandler have 1,473,414  SF of speculative construction underway.  Tenants continue to desire proximity to ASU and the excellent labor market in the Southeast Valley.

During the first half of 2018, we completed over 50 lease transactions. Want some insider scoop on your submarket and/or building? Please give me a call—wherever you may live.





Q2 2018

Click Here to Read the Full Report



Categories Narrative, Office Market

Commercial Real Estate Designations


I come from a family of educators.  Both my parents were school teachers.  After getting my bachelor’s degree, I felt the need to continue my education.  Today I have earned my MBA and the three most prestigious designations in the Commercial Real Estate industry: CCIM, CRE, and SIOR.  Andrew has earned the same three designations.  We are two of only 33 people in the world to hold these three. 

Do these designations matter when you select a broker to represent you?  We think it does.   Why?
–The market and how we deliver our services is always changing.  Continuous education is paramount.
–Skill set.  We simply have more training in more areas than any of our competitors, giving us the ability to view your requirement from many different perspectives.
–Commitment to our craft.  This is our life’s work. We are committed to being the best of the best.  This ensures our clients are never under represented.
What designations do we hold?
Certified Commercial Investment Member (CCIM)—Called the PhD of Commercial Real Estate, this designation provides critical expertise in market, financial, and investment analysis as well as negotiations.

Society of Industrial and Office Realtors (SIOR)—Only the best become SIOR’s. A leader in their field, and top-producing professionals who meet education, production, and ethical requirement.

Counselors of Real Estate (CRE)—This is invitation-only with 1,100 counselors across the world handling the most complex and difficult assignments for clients.
Designations matter. 


Do Designations Matter When Choosing A Commercial Real Estate Broker?

Chad Griffiths

October 1, 2017

Commercial real estate transactions are some of the most important deals that a person or business can make. Finding the right commercial real estate can make or break a business venture. That is why people want the best professional commercial real estate broker available to guide them through the process.

But how can you separate the best professional real estate brokers from the rest?

Degrees And Designations
Most other important professions have a degree or designation that any practitioner is required to have by law. Lawyers have the J.D., doctors the M.D., engineers the P.Eng and so on. Yet there are no professional designations that are required to practice as a commercial real estate broker.

Fortunately, commercial real estate broker associations have created professional designations that allow you to identify those practitioners who have gone above and beyond to become masters of their craft. While anyone who has met the necessary licensing requirements for their jurisdiction can become a commercial real estate broker, these professional designations help the best stand out from the rest and give you the peace of mind that you have found someone that you can trust to guide you through these important decisions.

What’s In A Degree Anyway?
A degree or professional designation signifies that the holder has the necessary education and experience to safely practice their profession. These designations are designed by professional associations to represent at least a bare minimum of knowledge and experience that every practitioner needs to do their job effectively and to a minimum standard of performance expected by their professional peers. Anyone who meets these standards can be relied upon to make the right decisions when practicing their craft.

Commercial real estate designations signify knowledge in relevant areas of law and finance, as well as the customs and ethics of the commercial real estate industry. These professional designations also signify a commitment to ongoing education and regular participation in the professional community and industry events.

Professional Designations In Commercial Real Estate
Two of the best designations for commercial real estate brokers are the CCIM and SIOR. Either of these designations signifies that you are working with a true professional with years of knowledge and experience in the industry.

The CCIM designation stands for Certified Commercial Investment Member. The CCIM pin signifies that the owner has successfully completed advanced courses in market and financial analysis, and has demonstrated significant experience in the commercial real estate industry. CCIM professionals are recognized as the leading experts in commercial real estate.

More than anything, a CCIM designation represents reliable expertise in market, financial and investment analysis, as well as negotiations. Courses for these central competencies are instructed by industry professionals, which ensures that all materials reflect the state of the contemporary industry. Using their real-world education, CCIM professionals can be relied on to guide their clients to:
• Minimize risks
• Enhance deal credibility
• Make appropriate decisions
• Close deals effectively

The other leading credential, an SIOR designation, is a professional achievement for those commercial real estate practitioners who have a strong history in fee-based services, brokerage or executive management.
The SIOR designation signifies:
• A specialist in office and/or industrial markets
• A transaction closer who is recognized by lenders, developers and investors
• A top producing professional who closes more than 30 transactions each year
• A top performer who meets SIOR’s exacting education, production and ethical requirements

An SIOR designation can be granted in one of the six specialist categories:
• Industrial
• Office
• Industrial & Office
• Sales Management
• Executive Management
• Advisory Services

A Commercial Real Estate Professional Designation Is More Than Just A Title
The great thing about professional designations is that they provide buyers with the confidence that you can rely on that person for the latest and best professional advice. The designations are more than just a few years of coursework done many decades ago. These professional designations signify an ongoing commitment to staying informed about all relevant knowledge and practicing their craft to a high standard every single day.

When you need to make a commercial real estate transaction, trust the professionals and look for a commercial real estate broker designation that signifies the years of knowledge and experience that you can count on.

Categories Narrative, Office Market

The Rise of Collaborative Workspace

I have been representing tenants across the US and overseas for 34 years.  As I write this narrative, I want to provide value, spot trends and get business.  If you have a question or need office space, call me.  We would love to work with you. 

One huge trend that has had a meteoric rise this cycle is collaborative workspace.  Staples came out with a cool study on millennials (click here to see the whole study) and at the end, they have a short section on collaborative workspaces. Like the iPhone, this is a category that did not even exist 10 years ago and now they are everywhere.

WeWork, the industry leader, is now valued at $21 Billion. No typo – BILLION.  When I wrote about this start up in 2015 they were overvalued (IMHO) at $5 Billion (read that narrative here).  Well the cycle continues and they, along with other knockoffs, category killers and specially groups, are still adding more to the market. 

Below are two graphs showing the size of the market and how this type of working environment has altered work style.  While the growth has slowed, the change is here, affecting office space and office space users and changing the market.

My takeaways:

–In the next recession, we will really see if this type of space will endure and have a gut check on the size of the market.

–The market is always changing.  Don’t be a dinosaur.

–Planting a flag in a new market has never been easier, cheaper, faster, and more efficient.

–Temporary space for growing companies is available now.  


Always growing,





Click Here to Read the Full Article from GCUC


Click Here to Read the Full Report from Staples
1 2 3 5
Join the C2
You will receive concise insights on all things commercial real estate along with top level trade secrets.
Weekly Narrative