By David Boyd, CCIM, SIOR, of Boyd Commercial/CORFAC International in Houston, TX
The Society of Industrial and Office Realtors celebrated its 75th anniversary at the Annual Spring Conference held last month in San Diego. The conference included insights on some of the most relevant topics in commercial real estate. Read below for some highlights and visit http://www.sior.com/conferences/2016-spring-world-conference for a complete conference recap.
Kill the Company: Lisa Bodell, CEO of futurethink
Opening keynote speaker Lisa Bodell is an award-winning author of the best-selling book Kill the Company: End the Status Quo, Start an Innovation Revolution and CEO of futurethink, an innovation-training firm that helps businesses embrace change and become world-class innovators.
Bodell said there is a structured way for change and change is a choice. The future is about who you are becoming, not who you are today. Companies are changing faster than ever before. From a car maker to pharma company. In the future, car sensors could diagnose illnesses and administer medications while you are driving. Smart objects can now self-assemble out of Polymer materials. 3D printers can manufacture a building and 4D printing is coming. Adaptive infrastructure such as self-healing concrete.
Complexity and complacency prohibit change, become your competitor and kill your company. Ask yourself what you should get rid of and then ask why you haven’t done it yet. Many in business today are not leading, just managing — valuing process over culture, we do instead of think. This must change. Ask yourself – where do you do your best thinking? How open is your company to change? To hiring diversity? Look five to 10 years out, not one to three years out. Look at other industries to see what they are doing.
Make simplicity a habit. It’s not about efficiency, it’s more about culture. Change is a choice. Eliminate the unnecessary and challenge your rules.
Surviving and Thriving in an Ecommerce World: Benjamin Conwell, Cushman & Wakefield
Online shopping is growing at a rate of 15 percent per year and comprises 9 percent of all U.S. sales. In today’s climate, shoppers research options online before buying, often comparing at least three retailers. Much of the growth in overall retail sales is online. Industry leaders include Wayfair, Home Depot, Amazon, Kohls, Target, Nordstrom and Walmart, which all have good online growth. Sports apparel retailer Nike has direct-to-consumer sales topping $1 billion.
How are these trends affecting commercial real estate? Fifteen percent of new industrial leasing is ecommerce omni-channel based as retailers are striving to provide a seamless experience across the different interactions. They use personalization, tracking information and present serve-up ads for similar products that reflect your online shopping habits. Research shows that omni-channel shoppers spend three times what a pure in-store shopper spends at a retailer.
“Last mile” and remote delivery are emerging trends. For instance, in the U.K., retailers are delivering merchandise to a locker at a transit center or gas station.
Days of massive fulfillment centers are not over, but they are more prominent in outlying areas. Distribution centers range from 300,000 sf to 600,000 sf. Sortation centers are 200,000 sf to 500,000 sf. The last-mile terminals range from 10,000 sf to 70,000 sf to store fast-moving inventory. Fulfillment is mostly done by third-party logistics providers. As a result, 40′ clear buildings will be needed soon. In addition, high volume space needs a lot of trailer parking and material handling technology is getting better to take advantage of the height.
Commercial Real Estate Market Update and Forecast: Mark Dotzour, Ph.D., Economist
Dr. Mark Dotzour, former chief economist for the Texas A&M University’s Real Estate Center, shared his views on the commercial real estate market and what the industry can do to take advantage of opportunities in the current condition.
Dotzour likened the current economy to “playing ball in the later innings.” The average market expansion is 58 months and currently we are in the 82nd consecutive month of expansion. And, the bullish outlook continues: “We are in the 7th or 8th inning,” Dotzour said.
Corporate profits have been flat since 2011. Energy, farming and manufacturing are slowing now, but technology and other areas increasing. Consumer confidence is strong. Wages are increasing. Small businesses are looking to hire in next three months, while major corporations are mixed. Texas has the highest job growth in last 15 years, followed by CA, FL, AZ, VA, NC, GA, WA and CO. Single-family home construction should increase across the country and help the economy continue to grow.
There are several worldwide economic myths taking place right now. First, the Japanese stock market is strengthening, but they are printing money to buy stock and prop up the market. Second, the Chinese stock market is also increasing. Stock can be purchased, but sales are restricted. The government loans money to the public to use to buy stock, creating an artificial condition. The European Central Bank, which has been loaning money to countries already heavy in debt, is printing money to buy bonds. The common theme here is that these markets may be smoke and mirrors.
The U.S. stock market is now going up when we have bad news because low interest rates push the market up, and bad economic news generally means low interest rates. High-frequency trading drives over half the market activity. A signal of weakness in our stock market is current corporate buy back of stocks rather than investing in growing their business. Margin debt is at a record high. Ultimately, our stock market is not healthy.
Commercial real estate has no competitors for value and returns. Money is out there and needs to go somewhere. U.S. real estate will be the shining star around the world, even at 5% Cap Rates. Property remains in hyper demand.
The Energy War continues to escalate: Saudi Arabia pushed oil prices down, but our technology and capital have made it easier for us to make money at $50 a barrel. The Saudis will be bankrupt in five years if the price of oil doesn’t rise. The U.S. can profit at $50 a barrel, but they need $90 a barrel to pay social contracts. Russia and other global economies are getting hurt in the low pricing environment, but the U.S. will adapt and win the energy war. This will change world energy dynamics.
Dotzour concluded with investment themes for 2016: Interest rates will stay low, home price appreciation will continue, overseas currency declines will reduce foreign purchases in the U.S. Europe, China and Japan will continue to print money. There will be no inflation in the U.S. until oil prices rise. Finally, pension funds will buy more real estate and commercial real estate will continue to serve as an alternative to hedge funds.
— David Boyd, CCIM, SIOR, of Boyd Commercial/CORFAC International in Houston, TX, is Chairman of CORFAC International’s Communications Committee.