Germany – North and South

As eastern and western Germany continue integration following reunification, a new economic divide is emerging, this time between north and south, according to The Economist. Tracking roughly along the Uerdingen Line (see map) and with the population roughly the same on each side (about 40MM) the south contains nine of the ten cities with the highest salaries and significantly lower unemployment (1.0MM compared to 1.7MM in the north). Almost three times as many patents were registered in southern Germany compared to the north and state (Länder) debt in the south is less than half of that in the north (€170bn vs. €371bn). The north-south gap in life expectancy is now greater than the east-west one. The south also has a significant advantage in population growth (+1.3MM vs. -100,000), according to the report.

Image: The Economist

Two Capital One Cafés to Open in DC

Capital One will open two Capital One Cafés in DC next year, according to Washington Business Journal. The concept, which has already been implemented in other markets, merges a café and a bank into one location offering coffee, pastries, free WiFi, lounge seating, ATMs, meeting rooms and free consultations with Capital One associates. The DC cafés will be located in two of the most prominent corners in the city – Wisconsin and M NW in Georgetown and 7th and H NW in Chinatown.

Capital One Café – Harvard Square (Cambridge)

How Zoning Regulations Promote Construction of Strip Malls

The prevalence of strip malls throughout the United States is partly due to government regulations, according to Scott Beyer, writing in Forbes. The regulations can prevent more dynamic downtown areas, reduce tax yield per acre, make cities less attractive and stifle economic growth. Some of the regulations that contribute to this architectural trend include:

  • Single-use zoning – restrictions that separate residential, commercial and industrial uses often limiting commercial retail to major thoroughfares;
  • Minimum parking requirements – zoning regulations that require retailers to provide parking spaces (often a generous number of spaces) based on total building area or some other factor such as number of seats in a restaurant;
  • Setback requirements – the required distance between a lot line and a building often enforced on grounds of safety;
  • Density limits – limitations on the number of units (i.e. single family homes versus multifamily buildings or even single-use buildings such as strip malls versus mixed-use developments with retail on the ground level and residential units above).

Australian Brick-and-Mortar Shifts Further Toward Food and Services

Australian brick-and-mortar retail continues to shift toward food and services. Spending at cafes and restaurants increased by 5.5 percent year-over-year while spending on apparel and accessories rose by only 1.7 percent with department store sales decreasing by one percent, according to The Sydney Morning Herald (citing data from the Australian Bureau of Statistics). Vicinity Centres, an 84-center Australian REIT specializing in shopping centers, has experienced similar trends. Over the past five years, Vicinity has cut by 13 percent, floor space dedicated to retailers selling women’s clothes and increased by 17 percent, space for cafes and restaurants. Retail space for services such as salons grew by 44 percent, according to the report.

Meridian Group Enters Joint Venture for Boro Tower

New York-based Rockefeller Group has partnered with The Meridian Group in a 50/50 joint venture for the development of the 437,000sf, 20-story Boro Tower in Tysons Corner, Virginia, according to Bisnow. The Gensler-designed office building is part of a 15-acre, $825 million mixed-use project that will also feature residential units and retail including a 69,000sf Whole Foods Market. The office tower, which is walking distance to the Greensboro Metro station, is 20 percent pre-leased with commitments from Tegna (46,000sf) and Hogan Lovells (44,500sf). Rockefeller Group, the developer of Rockefeller Center, is a subsidiary of Japan’s Mitsubishi Estate Co.

Boro Tower – Image: The Meridian Group

Multi-level Retail – Best Practices

Multi-level retail is experiencing a renaissance of sorts, particularly densely populated cities such as New York. Here are some of the design and planning factors contributing to its revival:

  • Starting interior retail one floor up from street level to prevent the street level from dominating the center;
  • Placing signature draws and anchors on the highest levels;
  • Building internal stairways inside stores to provide additional linkage;
  • Strategically interspersing food courts, restaurants and non-retail destinations such as concert venues, museum spaces and community halls throughout the center and particularly on upper floors to lure shoppers through a typology retail areas;
  • Introducing circulation from unrelated upper floor uses (residences, offices or hotels) to the highest retail floors to compel traffic past shops;
  • Emphasizing street accessibility, clear sight lines and easy links between floors;
  • Emulating exterior spaces;
  • Installing as many escalators as possible, preferably with a terraced or cascading approach;
  • Improving and modernizing aesthetic quality (i.e. replacing bulky handrails and using glass instead of material such as granite and concrete).

Source: CityLab

Oculus New York – Photo: The Port Authority of New York & New Jersey

Airbnb in Canada

According to a new study by McGill University, Airbnb hosts in Canada’s three largest cities earned a total of $430 million in 2016, a 55 percent increase from 2015. The top ten percent of hosts earned a majority of the overall income with the top one percent taking 12 percent of the total revenue. There are a total of 81,000 Airbnb units across Montreal, Toronto and Vancouver and about 14,000 entire homes are rented for 60 days or more per year on Airbnb. In each of the three cities, approximately 60 percent of active Airbnb listings are entire homes, 30 percent are private rooms, and the rest are shared rooms. The entire homes category is growing 25 percent faster than the other categories. The data compiled for the study is not from Airbnb but rather from the consulting firm Airdna which analyzes the Airbnb website and compiles data for market intelligence reports.

Georgetown Property Trades at Record Rate

McLean-based Capital One recently purchase the prime Georgetown property located at 3150 M NW for $50.2 million ($5,720/sf), according to Washington Business Journal. The sale of the 8,769sf retail building breaks the record for a non-redevelopment transaction in DC, according to the report (citing CoStar). Sagamore Development, the development arm of Under Armour founder Kevin Plank was the seller. Sangamore purchased the property in 2014 for $12.2 million and proceeded to renovate the building and create a new basement. The transaction included a ground lease for the adjacent property at 3146 M NW which was not included in the $50.2 million purchase consideration.

3150 M NW – Photo: PoPville

Cyclical Trends in Real Estate

Average U.S. commercial real estate prices fell by 40 percent between the 2007 peak and the trough in 2010, according to Alex Pollock of R Street. Since then, prices have rebounded and are now 22 percent above the 2007 peak in nominal terms (six percent higher than 2007 peak levels in inflation-adjusted terms). By comparison, inflation-adjusted prices in the housing market are at the 2004 level which was about two-thirds of the way to the 2007 peak.

Bank credit to the CRE industry has grown at over 7 percent per year in the last two years and is currently at $1.35 trillion – up $238 billion (21 percent) since the end of 2013.  On the residential side, growth in lending has been slower in part due to increased government regulation aimed at protecting homeowners from foreclosures and reforming capital markets in general. The result has been less liquidity in the housing sector and a lower rate of asset price inflation. Total residential mortgage loans were $2.45 trillion in 2012 and $2.41 trillion in the first quarter of this year with total mortgages outstanding (1-4 family) increasing only from $10.04 trillion to $10.33 trillion in the same period, according to the report.

CRE Prices (Nominal and Real) – Graph: R Street