Demand for New Multifamily Developments Expected to Stay Strong Through 2030

From 2012 through 2016, developers completed an average of 225,000 new apartments per year, according to National Real Estate Investor (citing data from Multifamily Housing Council (NMHC) and the National Apartment Association (NAA)). To meet growing demand and compensate for the loss of older properties, 4.6 million new multifamily units must deliver to market between now and the end of 2030 (an average of an average 325,000 units/year). The western U.S., Texas, Florida and North Carolina are expected to have higher than average demand for additional housing units.

Houston’s Impervious/Pervious Cover Ratio

Houston’s flood problems are more a distinctive feature of its topography, geography and the sheer magnitude of Harvey and less the result of the city’s limited zoning and land use regulations. A 2013 study of the city’s impervious/pervious cover ratio by the Houston-Galveston Area Council found that over 90 percent of the land within Houston city limits is generally considered pervious (water-absorbing green area or the like). Out of a total acreage of 383,737, 52,912 acres of Houston is parkland, according to The Trust for Public Land.

Houston’s Impervious/Pervious Cover Ratio – Image: Houston-Galveston Area Council – Data: Data sources: City of Houston; Google Earth 2011 Satellite Imagery

Harvey’s Impact on Houston CRE

A CoStar Group assessment of the impact of Hurricane Harvey and the subsequent flooding shows 175 million square feet of commercial space located within Metro Houston’s 100-year flood zone. This total includes 72,000 apartment units and 20 million square feet of office space that may have been affected by the storm. Another 225 million square feet is located within the 500-year floodplain. A total of 27 percent of that market’s gross leasable area (about 12,000 properties worth approximately $55 billion) is located within these two floodplains and is at risk. At 1.6 billion square feet, Greater Houston is sixth largest CRE market in the U.S., according to the report.

The Durability of Brick-and-Mortar Retail

Over 6,000 retail stores have closed so far year, according to Business Insider. In the same time period, the value of Amazon has increased by 31 percent, buoyed in part by the acquisition of Whole Foods Market which it will likely integrate into its retail and distribution platform. Despite the impressive growth of e-commerce, brick-and-mortar retail still represents about 85 cents of every retail dollar transacted and even if e-commerce grows at 15 percent per year for the next five years, brick-and-mortar would still retain a 70 percent market share with distribution centers and showrooms doing especially well, according to the report (citing analysis from Goldman Sachs).

New Construction NNN Properties Command Premium

New construction triple net investment properties are commanding a premium, according to National Real Estate Investor (citing analysis from The Boulder Group). Net lease QSR-occupied buildings sold at an average cap rate of 5.56 percent during Q2—2017 whereas restaurant buildings constructed in 2016 and 2017 sold at an average cap rate of 5.25 percent, about 30 basis points lower. Rents on new construction single-tenant QSR properties increased by eight percent year-over-year as of Q2—2017, according to the report.

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