• National industrial in-place rents averaged $7.10 per square foot in January, up 6.9% year-over-year  
• The national vacancy rate stood at 4.0%, up 10 basis points month-over-month 
• Nationwide, 691 million square feet of industrial space was under construction 
• Industrial transactions totaled $1.1 billion at an average sale price of $125 per square foot 
• Western markets posted the widest lease spreads, with the Inland Empire registering a spread of 28.2%  
• Columbus recorded the second lowest vacancy rate nationwide at 1.7% 
• Dallas led the nation in development with a 61.6 million-square-foot pipeline 
• New Jersey sales volume second highest among leading markets at $149 million 

Demand for industrial space has remained elevated since the onset of the pandemic and owners are benefiting from this when leases expire. Yardi Market Insight, a cutting-edge service that uses anonymized and aggregated data from other Yardi platforms found that of the 63 markets it covers, 44 reached a lease spread greater than 10%. Of these, 16 markets had spreads wider than 20% in January.  

The widest spreads are generally found in port markets and logistics hubs, although some tertiary and emerging markets have also seen outsized lease spreads as well, the CommercialEdge U.S. industrial market report noted.

“Savvy investors are already seeking out projects with shorter lease expiration schedules and seem to be willing to pay a premium for them. It’s another opportunity to benefit from the historic run-up in rates as vacancy remains tight.”

Peter Kolaczynski, CommercialEdge Senior Manager

With such substantial spreads, properties with leases that expire soon will be more attractive on the transaction market. Given the current interest rate environment and economic uncertainty, leasing expiration schedules could be the difference between a deal penciling out or not. 

Rents and Occupancy: New Supply to Put Slight Upward Pressure on Vacancy Rates 

National in-place rents for industrial space averaged $7.10 per square foot in January, up 6.9% year-over-year and seven cents over December, according to the CommercialEdge industrial market report. Leases signed in the last 12 months reached a national average of $9.01 per square foot, $1.88 more than in-place contracts.  

Some of the widest spreads between new leases and the market average were in Los Angeles ($7.26 more per square foot), the Inland Empire ($6.06), Orange County ($5.43), New Jersey ($3.61), Nashville ($3.35) and Miami ($3.31) — a trend that held steady over the past few quarters with little variation.  

Average Rent by Metro

The national vacancy rate was 4.0%, an increase of 10 basis points over the previous month. After months of decreases, this marks the second month in a row that the national vacancy rate has increased. The upticks have been minor but are likely driven by record levels of new supply. It will be worth watching if vacancies continue a slow upward push or plateau off in coming months. 

The lowest industrial vacancy rates in the country were found in the Inland Empire (1.6%), Columbus (1.7%) and Charlotte (2.2%). Despite the low vacancy rates, heavy new supply is putting downward pressure on industrial rent rates in some markets, especially in those with more developable land. For instance, in Charlotte, rents increased only by 2.8% year-over-year in January, meanwhile industrial projects underway accounted for 5.3% of existing stock — the third largest pipeline nationwide on a percentage-of-stock basis. 

Supply: Logistics Remain a Major Driver of Industrial Development

Nationally, 691 million square feet of new industrial supply was under construction as of January, accounting for 3.8% of existing inventory. An additional 706.6 million square feet were in the planning stages, for a potential stock increase of 7.7%.   

Industrial Space Under Construction (Million Sq. Ft)

While industrial construction is happening in markets across the country, much of it is concentrated in a handful of markets. The 10 largest pipelines make up nearly 40% of all stock under construction and the top two markets (Dallas and Phoenix) account for one-sixth of all square footage currently being built. 

Most of the new construction is fueled by the logistics sector, especially in Dallas. The largest project in the market is a 2.5 million-square-foot Walmart fulfillment center in Lancaster, Texas. Beyond that property, there are 13 logistics buildings under construction — including both new properties and expansions at existing sites — that are larger than one million square feet. 

Transactions: Sales Activity Likely to Slow in 2023 Despite Investor Appetite

There were $1.1 billion in industrial transactions in January, according to the CommercialEdge industrial report. The national average sale price in January of this year came in at $125 per square foot. 

Although demand for industrial real estate remains high, transaction volume is likely to fall this year, industrial property outlooks predict. Rising interest rates are slowing investment across all asset classes and the industrial sector is not immune. The higher cost of capital is leading investors to reevaluate their allocations and underwriting assumptions. 

2023 Year-to-Date Sales (Millions)

Investors are also worried that inflation could continue to eat away at yields if leases at properties include only minor escalations. A potential recession on the horizon could dampen tenant demand in all but prime markets, although vacancies are tight enough that a mild economic downturn would likely have minimal effect.   

The run-up in prices that has occurred over the last few years means that there is a smaller pool of attractive properties that can pencil out for investors. The average sale price of an industrial property in the fourth quarter of 2022 was $134 per square foot, a 76% increase from the first quarter of 2019. 

Western Markets: Southern California Logs the Highest Lease Spreads in the Country 

The ports of Los Angeles and Long Beach set records for numbers of containers handled in recent years and were a key bottleneck during the worst of the supply chain crisis. This led to skyrocketing demand for industrial space and, in turn, to Southern California having some of the nation’s largest leasing spreads.  

The Inland Empire, the hottest industrial market in the country, recorded a lease spread of 28.2%, Los Angeles 22.8% and Orange County 14.9%. Southern California industrial markets are so crowded that nearby markets are experiencing overflow demand. The Central Valley’s lease spread stood at 17.2%, Las Vegas’ at 15.9% and Phoenix had a spread of 16.5%.  For Phoenix, the wide lease spread is especially noteworthy as the market delivered more than 52 million square feet in the last three years for a 15% stock increase. 

Southern California’s wide spreads meant that in Los Angeles a new lease cost $7.26 more per square foot, in the Bay Area $6.18, in the Inland Empire $6.06 and in Orange County $5.43. Taking into account that Orange County, Los Angeles and the Bay Area were the only markets where overall lease rates were in the teens, new contracts were being inked at dizzying rates. In Los Angeles, new contracts were just 5 cents short of $20 per square foot. At the same time, the Bay Area and Orange County averaged $18.30 per square foot for new leases.  

West Regional Highlights 

The four Southern California markets where new leases surpassed $10 per square foot, were joined by two more western counterparts: Portland and Seattle. Here, new leases averaged $10.45 per square foot and $10.72 per square foot, respectively.  

Similarly, Western markets also claimed some of the lowest vacancy rates among the country’s leading industrial markets. Specifically, the Inland Empire remained the tightest market with a vacancy rate of just 1.6%. Furthermore, Phoenix tied with Indianapolis for the fifth lowest vacancy rate among leading markets at just 2.4%, with L.A. close behind at 2.8%. Admittedly, some Western markets had somewhat higher vacancy rates. Specifically, Portland, Denver and Seattle surpassed the 4% national average, with January vacancy rates at 4.7%, 5.4% and 5.5%, respectively. 

Tight vacancy rates continue to push new construction across the country, with most of that supply developed in a handful of leading markets. In fact, the 10 most significant industrial markets account for 40% of stock currently under construction, with about 15% of the national construction pipeline to be delivered in Dallas and Phoenix.  

Industrial Space Under Construction & Planned (% of stock) 

As has increasingly been the case since the pandemic, the still-growing pressure of demand placed on Southern California has increasingly spilled over into Phoenix, where there are fewer challenges for industrial development, especially in terms of land availability and land acquisition costs.  

As a result, Phoenix reached an under-construction pipeline of 52.5 million square feet, the largest pipeline on a percentage of stock basis and second only to Dallas in terms of square feet. At the same time, the Inland Empire’s pipeline closed January at 30 million square feet for the third largest pipeline nationwide, while Denver’s 12.8 million square foot under construction total equaled 5.1% of its current stock — the fourth largest in the U.S. on a percentage-of-stock basis. 

Looking at transactions, the Bay Area led the country in the first month of 2023, closing $169 million in sales at $237 per square foot. Seattle also stood out with the fifth largest sales volume in January at $48 million for an average price of $325 per square foot, a rate surpassed only by Los Angeles at $449 per square foot. 

Midwestern Markets: Rent Growth Remains Slow Even in Established Logistics Hubs 

The Midwest’s most active logistics markets registered some of the lowest industrial vacancy rates in the country, with Columbus at 1.7% and Indianapolis at 2.4%. And while these rates outperformed even port markets, including Los Angeles’ and New Jersey’s 2.8% rates, the Midwest’s markets remained among the slowest in the U.S. 

To begin with, rent growth has been sluggish in the Midwest. Even low-vacancy markets such as Indianapolis and Columbus, recorded year-over-year increases below the 6.9% national rate in January. Specifically, Indianapolis logged a 3.4% rent increase, with Chicago and Columbus inching up 3.5%. The Twin Cities market experienced a rate gain of 3.3% and St. Louis a mere 2.1%.  

Lease spreads were also the lowest in Midwestern markets, especially those that have not established themselves as logistics hubs. In Kansas City the spread was 4.4%, in St. Louis it stood at 4.8%, while Chicago and the Twin Cities registered spreads of 5.4% and 5.8%, respectively. Yet even in Indianapolis, one of the most active logistics markets in the country, the lease spread was only 7.6% in January. 

Midwest Regional Highlights 

The slower growth in rents and lease spreads in the region can be attributed to a more rapidly expanding industrial inventory. New supply is much easier to build in these places than the port markets, giving tenants more of an upper hand in rent negotiations than they would have in Southern California or along the East Coast.  

On a percentage-of-stock basis, Indianapolis had the largest construction pipeline in the Midwest, with 4.6% of its stock underway, followed by Columbus with 4.5% of inventory under construction. In terms of square footage, Chicago came in first with more than 26.8 million square feet of space under construction.  

As markets with substantial lease spreads are expected to be the most attractive to investors, sales activity in January remained low in the Midwest overall. Nonetheless, Indianapolis recorded the third largest sales volume nationwide with $112 million, traded at $123 per square foot. The fourth largest volume was recorded in Columbus, where investors closed $50 million in industrial sales at an average of $303 per square foot. 

Southern Markets: Logistics Drives Dallas Construction 

Among the top 30 U.S. industrial markets CommercialEdge surveyed, Charlotte recorded the third lowest vacancy rate at 2.2%, coming in after the Inland Empire (1.6%) and Columbus (1.7%). Miami, Nashville and Atlanta followed with 2.6%, 3.0% and 3.2%, respectively. Most leading markets in the South registered vacancy rates below the national rate of 3.8%, except for Memphis (4.5%), Tampa (5.5%) and Houston (8.8%). In fact, Houston had the highest vacancy rate nationwide.  

Despite the low vacancy rate, rent growth was slow in Charlotte, rising only 2.8% year-over-year in January. Nonetheless, markets such as Miami and Atlanta saw average lease prices rise 7.2%, exceeding the 6.9% national rate.  

The widest lease spread in the South was recorded in Nashville, where in-place rents stood at $5.47 per square foot, while new leases signed over the past 12 months averaged $8.82 per square foot. Tenants in Miami also signed at robust premiums, with new leases costing $3.31 more than in-place rents. These were also some of the widest spreads recorded nationwide, although they were comfortably outpaced only by Southern California markets and New Jersey.  

When it came to markets with high vacancy rates, lease spreads were more modest: Houston in-place rents stood at $6.26 per square foot, whereas new leases were signed at $6.40. 

South Regional Highlights 

Dallas – Fort Worth had the largest pipeline in the country with 61.6 million square feet under construction and an additional 49.5 million square feet in the planning stages. The Metroplex has been an industrial boomtown for a while now, delivering more than 199 million square feet (23% of stock) since the start of 2016, with much of that in logistics parks or large fulfillment centers. Despite massive levels of new supply, the Dallas industrial vacancy rate sat at 3.6% in January. 

Among southern markets, Charlotte recorded the largest sales volume in January: It closed $47 million in industrial deals at $111 per square foot. However, in terms of price per square foot, Dallas came in first with $125, in line with the national average. At $105 per square foot, Nashville was the only other Southern market with a sale price above $100 per square foot. 

Northeastern Markets: $149 Million New Jersey Sales Volume Second Highest in the U.S. 

Akin to what’s happening on the West Coast, overflow demand on the East Coast is driving up lease spreads both in port markets and in adjacent places. For example, Allentown-Bethlehem had a lease spread of 21.6% as of January, Boston sat at 22.5% and New Jersey at 18.8%. In Boston, that translated into a premium of $2.42 per square foot for newly inked leases, while New Jersey industrial contracts were signed for an average $3.61 per square foot more in January.  

It also meant that in both Boston and New Jersey, new leases surpassed the $10 per square foot threshold. They were two of only nine markets nationwide to reach that level. Specifically, new leases averaged a rate of $12.82 per square foot in New Jersey, while Boston tenants signed at $11.57 per square foot in January. 

While Boston’s vacancy rate was on the higher end, New Jersey continued to post one of the lowest figures among leading industrial markets at 2.8%. At the same time, Philadelphia was in line with the national average of 4.0%, closing January with a vacancy rate of 4.1%. 

Northeast Regional Highlights 

In terms of development, Philadelphia had close to 20 million square feet of new industrial space under construction in January, representing 4.8% of its existing stock — the sixth highest supply pipeline in the U.S. But Philadelphia is planning for even more, with projects under construction and those in the planning stages potentially increasing the local stock by as much as 12.6%.  

New Jersey also ended January with a robust pipeline: 11 million square feet of space were under construction that will increase this East Coast port market’s footprint by 2.0%, while planned projects might add another 2.2%. Boston had a more modest pipeline compared to both cities, but the 6.6 million square feet of space under construction here will increase the local industrial stock by 2.8%. 

When it came to sales, both Boston and Philadelphia were off to a slower start: January sales totaled $3 million in Boston and $4 million in Philadelphia. While Boston posted a modest average sale price, Philadelphia’s industrial deals averaged $149 per square foot. New Jersey, however, was off to a dynamic start: industrial assets traded for an average of $202 per square foot, totaling $149 million. That meant that New Jersey had the second largest sales volume in January, surpassed only by the Bay Area’s $169 million total.   

Economic Indicators: Warehouse Employment Continues to Slide

The e-commerce boom that began with the pandemic led to a massive upsurge in employment in the warehousing and storage sector of the economy, according to the Bureau of Labor Statistics. Between April of 2020 and June of 2022, the sector grew by 46%, adding 695,000 workers. Since that June peak, however, the sector has lost 20,000 workers. 

Economic Indicators 

There are multiple drivers of the decline in warehousing and storage employment. A tight labor market is allowing workers to find higher-paying jobs, while service jobs that disappeared during the pandemic have since returned. Yet the main force behind the contraction is the largest employer in the sector: Amazon.  

The e-commerce behemoth has delayed, paused or outright canceled facilities and listed millions of square feet for sublease. Amazon’s frenzied hiring during the first two years of the pandemic fueled most of the growth in the sector but now the company has slowed hiring. A turnover rate estimated to be higher than 100% means that a slowdown in hiring leads to declining employment. 

Warehousing and Storage Employment 

Download the complete February 2023 report for a full picture of how U.S. industrial markets fared in the first month of the year, including insights on industry and economic recovery fundamentals.

You can also see our previous industrial reports.

Methodology

The monthly CommercialEdge national industrial real estate report considers data recorded throughout the course of 12 months and tracks top U.S. industrial markets with a focus on average rents; vacancies (including subleases but excluding owner-occupied properties); deals closed; pipeline yield; forecasts; and the economic indicators most relevant to the performance of the industrial sector.

CommercialEdge collects listing rate and occupancy data using proprietary methods.

• Average Rents —Provided by Yardi Market Expert, a cutting-edge service that uses anonymized and aggregated data from other Yardi platforms to provide the most accurate rental and expense information available.
• Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations.

Stage of the supply pipeline:

• Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.
• Under Construction — Buildings for which construction and excavation has begun.

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size.

Year-to-date metrics and data include the time period between January 1 of the current year through the month prior to publishing the report.   

Market boundaries in the CommercialEdge industrial report coincide with the ones defined by Yardi Matrix and may differ from regional boundaries defined by other sources. 

The post Port Markets and Logistics Hubs Record Hefty Premiums for New Industrial Leases  appeared first on CommercialEdge.

For real estate companies with a leasing or brokerage division, commission management can be a complex, multistage accounting process that consumes a lot of staff time and resources. If you’re involved in brokerage and consolidated financial activities and looking to make these processes more straightforward and efficient, consider combining those operations with property management on one platform.

Inefficiencies With Separate Platforms

Historically, property management and brokerage operations have been performed on separate operating systems. This scenario can produce several inefficiencies. For example, calculating complex agent commissions for each deal requires much manual data entry into the property management and accounting system, with agents moving across split plan tiers and different tier structures within a deal.

Invoice processing and commission splits often are entered into the property management and accounting system long after the fact. Yardi clients have reported that up to 25% of commissions they calculated manually were incorrect.

Additional complexities include:

• Commission variations due to the type of transaction, such as a lease, sale or fee.
• Brokers’ custom commission structuring can vary by region.
• Cash vs. accrual accounting methods.
• Commission invoicing and receipt.
• Distribution calculations and payments to agents.

Executing all these operations accurately and keeping detailed accounting records is crucial not just for staying compliant with tax regulations and monitoring a company’s financial performance but also for providing transparency to the agents.

Handling property management and broker activities separately also prevents executives from obtaining a complete, real-time financial picture of what’s happening across the business.

When a broker transaction generates an invoice, for example, that invoice wouldn’t be visible for months until the tenant moved into the building. An open receivables report would show upcoming property management fees and rent payments to be collected from tenants but not brokerage activity or what agents were owed from that income.

CommercialEdge Commissions: Simple and Sophisticated

Is it possible to manage property management and brokerage activities from a single platform? One that synchronizes accounting and property management to deliver a consolidated financial image more accurately and with less staff labor? Yes, and that is where CommercialEdge Commissions comes in.

The CRE solution, part of CommercialEdge and fully integrated with Voyager Commercial and Yardi Elevate, connects agents, operations and accounting processes by centralizing all deal data, documents, invoice dates and commission splits. It tracks invoices, monitors due dates and automates even the most complex commission distributions.

CommercialEdge Commissions provides complete commission and back-office solutions for brokerages and leasing teams by streamlining operations, elevating productivity and boosting revenue with automated workflows powered by real-time business analytics.

Equally important, Commissions brings property management, brokerage and commission generation into one system. All activity is recorded in Voyager in real-time and can be configured to support cash or accrual basis transactions.

This centralization is much more efficient than tracking brokerage transactions with spreadsheets outside Voyager, then repeating those transactions to keep Voyager up to date. There is no more unnecessary manual data entry and manual calculation of complex commission splits among agents and brokerages.

Yardi clients find Commissions simple enough for busy brokers yet sophisticated enough for small, medium or large enterprises, as Susan Olinsky, senior VP of finance for Colliers Philadelphia, notes:

“CommercialEdge Commissions has automated what we were doing manually, which was prone to error. It can handle all transaction types, so to me, that’s the highest recommendation you can get — that it can handle your business needs.”

Susan Olinsky, Senior VP, Finance, Colliers Philadelphia

Managers can view commissions, rent, property management, receivables and more and gain a real-time, consolidated view of the enterprise in Voyager, with the added convenience of being able to pull the data into Yardi Forecast Manager. Commissions can also accommodate the accrual accounting favored by most brokerages.

CommercialEdge Commissions eliminates siloed data, provides a deal data repository, generates custom-branded invoices, calculates broker distributions, provides transparency to agents on their earnings and commission calculations and supports accrual, cash and hybrid accounting methods. The complete integration with Voyager provides consolidated financials for a real-time understanding of business health and broker performance.

Conclusions

Real estate business operators are discovering they can standardize operations on a single connected solution, with Voyager and Elevate on the property and asset management platforms and CommercialEdge for revenue lifecycle and brokerage operations.

With tools for marketing, listings and syndication, pipeline and deal management, legal and research and market data, the CRE software is a one-stop solution that saves time, costs and staff labor.

The post Key Tools for Simplifying Brokerage and Financial Management appeared first on CommercialEdge.

• The average U.S. office listing rate stood at $38.04 per square foot, up 1.1% year-over-year  
• Up 80 basis points year-over-year, the national vacancy rate rested at 16.6%  
• Under-construction office space reached 123 million square feet or 1.9% of total stock 
• Office sales totaled $1.9 billion in January, with assets trading at $202 per square foot 
• Remote work and tech layoffs continue to push Denver vacancy rates higher, reaching 18.3% 
• Listing rates in Chicago and the Twin Cities were among the four lowest in the country 
• Dallas led development in the South with nearly 7.4 million square feet underway 
• Boston recorded the highest average sale price at $1,054 per square foot 

In the years since the pandemic unsettled the office market, many have been anticipating an increase in distressed offices. While distressed activity has been muted to this point, weak demand, falling prices and a potential recession could lead to an increase in distressed sales in 2023, as well as one of the smallest sales volumes since the Great Recession, the CommercialEdge U.S. office market report reveals. 

Higher interest rates have already put pressure on owners with floating-rate debt and will provide a substantial challenge for loans that need to be refinanced this year. Remote and hybrid work have become entrenched and the tech industry — which drove much of the leasing of office space in recent years — is now contracting and laying off workers, thus further decreasing demand for office spaces.   

“We know distress activity will increase this year. We are closely monitoring the loans that are coming due and how they are being handled on both the owner and lender side.”

– Peter Kolaczynski, CommercialEdge Senior Manager

Metros with high quality office products might be better positioned to weather the storm, as tenants continue to look for well-amenitized, Class A office space in premium locations. This trend is expected to put downward pressure on older assets, especially those that are not well-located and well-kept, positioning these at a higher risk of distress as well.  

Additionally, with demand for office space continuing to be lower, we expect that many of the distressed properties that are sold may be targeted for redevelopment and conversion into life sciences or multifamily properties. 

Listing Rates and Vacancy: Vacancy Increases Accelerate in Tech-Heavy Metros 

Across the top 50 U.S. office markets, the average full-service equivalent listing rate was $38.04 in January, an increase of 1.1% over the past 12 months. At the same time, the U.S. office vacancy rate continued to rise, reaching 16.6%, up 80 basis points over January 2022. 

Although office vacancy rates continued to climb in most markets, some places have seen rates rise more rapidly than others since the pandemic upended the office market. Metros that owe their rapid growth to the tech sector have particularly felt the pressure of the remote work culture and recent tech layoffs.  

Top Listings by Metro Area: January 2023

Despite the steady rise in vacancy rates over the last couple of years, listing rates are still holding steady, thanks to tenants’ flight to quality. In January, the average listing rate for Class A and A+ office space was $46.70 per square foot, marking a 2.0% increase year-over-year. At the same time, Class B rates fell 0.7% to $30.11 per square foot.  

In terms of location, office assets in CBDs claimed the highest listing rates at $51.43, up 3% over the past 12 months, while suburban assets stood at $30.47, also up 3.1% year-over-year. Urban office spaces, however, continued to depreciate, with rents falling 4.3% below the figures recorded at the beginning of 2022. 

Supply: Five Markets Account for One Quarter of National Construction Pipeline

As of January, there was 123.6 million square feet of office space under construction nationally, accounting for 1.9% of total inventory. The top five markets by total square footage — Boston, Manhattan, Dallas, Austin and San Francisco — accounted for more than a quarter of all new supply being built. 

Office Space Under Construction (Million Sq. Ft) 

The influx of people into Texas in recent years has helped prop up office markets that have been hit by remote work. Dallas has let developers remain active in the market, with 4.1 million square feet started last year and more soon on the way. The Fields — a 180-acre, $2 billion mixed-use project in Frisco — will eventually include four million square feet of office space alongside retail, restaurants, apartments and hotels. 

Although offices in urban locations experienced the sharpest decline in asking rents, developers were most active in these areas. As of January, there were more than 66.5 million square feet of office space under construction in urban locations, representing 4.9% of total stock. Meanwhile, offices in CBDs and suburban areas are set to increase the national stock by 1.4% and 1.2%, respectively.  

Transactions: Distressed Sales Likely to Increase in 2023

CommercialEdge recorded $1.9 billion in office transactions in January, with properties trading at $202 per square foot.  

But taking into account the overall economic uncertainty, the entrenchment of remote work and the upheavals triggered by increased interest rates, office market outlooks anticipate that there will not be much capital for office transactions this year.  

Investors may still be able to find loans for well-located buildings with strong occupancy and cash-flow, but for the most part, deals for office buildings will likely fail to materialize. It’s expected that office transaction volumes in 2023 will be at their lowest levels since the years following the Great Financial Crisis. 

Year-to-Date Sales (Millions) 

Higher interest rates have already put pressure on owners with floating rate debt and will provide a substantial challenge for loans that need to be refinanced in 2023. The national average sale price of an office property fell from $269 per square foot in the first quarter of 2022 to $214 per square foot in the fourth quarter. A flood of distressed office sales could trigger a downward price spiral for offices. 

Distressed sales will most likely increase in frequency this year, but it is too early to say whether it will be a large wave. With demand for office space continuing to be soft, many of the distressed properties that are sold may be targeted for conversions into life sciences or multifamily, with some razed and entirely redeveloped. 

Western Markets: Remote Work Drives Up Vacancies in Denver 

With vacancy rates rising across the nation’s largest office markets, the West also followed suit. For instance, Denver’s vacancy rate in January stood at 18.3%, up 200 basis points (bps) over the last 12 months and 370 basis points over the last two years. Other leading tech markets, such as Seattle, San Francisco, and Portland also saw their office vacancy rates increase by 1.47%, 2.87 % and 3.20% year-over-year in January.  

In fact, all leading western markets experienced continued increases in vacancies over the past 12 months. While Portland’s 3.2% rise was the most significant, even San Diego — with its thriving life sciences sector — saw a year-over-year uptick of 0.27%. This lifted the local vacancy rate to 14.09%, which is still the lowest among leading western office markets. 

Circling back to Denver, the main cause of increasing office vacancy rates in the Mile High City is remote work. According to the Census Bureau’s American Community Survey, 28% of respondents in the market reported working from home, one of the highest shares in the country. Additionally, Denver has benefited from robust growth in the tech sector in recent years, and the layoffs currently hitting that industry will hamper the market. Denver’s sublease rate was 1.8%, a figure that could move upward in the future. 

West Regional Highlights 

Despite a nearly 19% vacancy rate, San Francisco continued to lead the West in asking rents at $67.43 per square foot. Local trends show that listing rates were still growing at a healthy pace here, further widening the pricing gap between San Francisco and other West Coast markets. Those include the Bay Area which at $57.06 per square foot demanded the second highest asking rents. 

Additionally, the West Coast’s top markets also led the region in terms of office development: San Francisco and Seattle both had 6.5 million square feet under construction in January, accounting for 4.2% and 4.7% of their existing stocks, respectively. And while the Bay Area’s office pipeline is set to increase the existing local stock by just 2.9%, that will still add 5.8 million square feet of new offices.

The three markets also had ample new stock in the planning stages, with San Francisco’s under construction and planned pipeline as high as 20%. However, considering the increasing headwinds faced by both the office and tech sectors, much of that planned pipeline may not materialize. In particular, there is growing nationwide concern regarding a potential spike in distressed office sales, due to low occupancy, expiring leases and maturing loans.  

Sale Price by Asset Type 

Tenant flight-to-quality has been taking place since the pandemic, with firms decreasing the size of their footprints but increasing the quality of the space they lease. This puts older assets, especially those that are not well-located and have not been well-maintained, at high risk of distress as well. Yet even trophy towers are not exempt, with Brookfield defaulting on $784 million in loans for two office towers in downtown Los Angeles. 

For now, however, distressed sales have remained mostly in the realm of future worries. But what has materialized is the decrease in sale prices for office assets: While Q1 2022 averaged $290 per square foot, Q4 ended at $271 per square foot. Moreover, January assets traded at an average $202 per square foot, totaling $1.9 billion, a third of which was concentrated in just two markets: Houston and Miami. On the West Coast, Los Angeles had the highest sales volume with $96 million in office deals, followed by San Francisco’s $73 million sales volume and Phoenix with $57 million.  

Midwestern Markets: Chicago & Twin Cities Off to a Slow Start in 2023 

The Midwest office market remained one of the most sluggish nationwide, with key fundamentals in the region’s leading markets changing little overall. Asking rents in Chicago saw a slight 0.26% uptick month-over-month in January, ticking up to $27.80 per square foot.  

At the same time, the St. Paul – Minneapolis market closed the month at $25.85 per square foot, decreasing 0.8% compared to December. These rates were among the four lowest in the country, accompanied by Phoenix’s $27.58 per square foot and Orlando’s $24.75 per square foot rates.  

At 19.44%, Chicago also recorded the fourth highest vacancy rate across the country in January, remaining flat both month-over-month and year-over-year. In the Twin Cities, vacancy rates did increase somewhat, inching up 0.12% on a month-over-month basis. Year-over-year, however, the metro experienced a higher 0.55% increase in vacancy rates, stabilizing at 15.07%. 

Midwest Regional Highlights  

Considering the region’s fundamentals and Chicago’s recent incentives to encourage office conversions, developers continue to remain wary of bringing too much new supply to the market. As of January, the Windy City had nearly 2.7 million square feet in the pipeline, accounting for 0.9% of its stock. Meanwhile, the Twin Cities had 676,369 square feet of office space underway in January, representing 0.6% of total inventory, outpacing only Tampa’s 382,099 square feet. 

And while Chicago ended 2022 among the top 10 metros for office transactions with $3.2 billion in sales, investors closed a mere $22 million in deals in January. The Twin Cities recorded the same amount in transactions, with the average sale price per square foot coming in at $203.  

Southern Markets: Developers’ Confidence in Dallas Continues to Increase  

Markets in the South continued to reap the benefits of the pandemic-driven worker migration and company relocation trends. Thanks to the more affordable local cost of living and business-friendly environment, Texas markets have especially benefited from the influx of residents, boosting developers’ confidence in the region. 

Although Austin had the largest construction pipeline on a percentage-of-stock basis at 7.6% (both in the region and nationally), Dallas led development in the region in terms of square footage, with nearly 7.4 million square feet underway. Vacancy rates have also been more resilient in the metro, increasing only 0.4% over the past 12 months, underscoring developers’ confidence in the market despite the headwinds faced by the office sector.  

Office Space Under Construction & Planned (% of stock) 

In terms of sales volume, another Texas market, Houston, took the lead nationally, closing $324 million in office deals in the first month of the year. This also broke down to an average price of $184 per square foot. Miami had the second largest sales volume nationwide at $316 million but resulted in a significantly higher sale price of $549 per square foot. 

Moreover, Miami also had the fourth-highest listing rate among the country’s top 25 markets, closing January at $47.24 per square foot. Austin and Washington, D.C. also recorded rates in the $40 range, exceeding the $38.04 per square foot national average. At the bottom of the list stood Tampa ($28.11), and Orlando ($24.43), although both metros saw slight increases on a month-over-month basis. 

South Regional Highlights 

Vacancy rates remained in the high teens in most markets in the South, with the exception of Houston and Atlanta where vacancy rates hit 25.99% and 20.03%, respectively. Austin had the third-highest vacancy rate in the region at 19.13%, up 283 basis points compared to January 2022. Nonetheless, this uptick in Austin office vacancies is negligible, considering the large amount of space that hit the market last year. At the same time, office vacancy rates remained flat month-over-month in Charlotte, with the metro’s 13.21% vacancy still one of the lowest rates in the region. 

Northeastern Markets: Boston Leads the Nation with Largest Construction Pipeline by Square Footage 

Among the 25 largest office markets in the U.S., Manhattan remained on the top for office asking rates at $75.74 per square foot, well above the second-highest rate recorded in San Francisco ($67.43) per square foot and the third-highest rate of $57.06 per square foot in the Bay Area. Overall, most office markets in the Northeast registered rates below the national average of $38.04 per square foot, with Philadelphia’s the lowest at $31.42 per square foot. 

In terms of vacancies, Brooklyn still had the largest amount of vacant space in the Northeast in January, with rates at 19.71%. On the national level, this rate was exceeded only by Atlanta’s 20.3% and Houston’s 25.99%. But Manhattan’s average vacancy rate grew at the fastest pace in the region, increasing by 2.59% compared to January 2022. 

Northeast Regional Highlights 

Developers were most active in Boston, with 12.9 million square feet of office space underway as of January, accounting for 5.4% of its total stock. Looking at it in terms of square footage, Boston had the highest pipeline nationwide, but also the second highest on a percentage-of-stock basis. Conversely, New Jersey had the lowest pipeline in the region, with roughly 1.5 million square feet or 0.8% of its total inventory under construction. 

In line with national trends, sales activity was muted across leading Northeastern markets: New Jersey was in the lead with $96 million in office transactions, followed by Philadelphia’s $69 million sales volume and Boston’s $56 million. Nonetheless, Boston saw the highest average sale price at $1,054 per square foot. 

Office-Using Employment: Washington D.C. Struggles to Add Jobs 

Office-using sectors of the labor market grew 3.1% year-over-year in January, with professional and business services adding 82,000 workers in the month and financial activities adding 6,000 according to the Bureau of Labor Statistics (BLS). However, the information sector lost 5,000 jobs per the same source. 

Office-Using Employment Growth by Sector  

In the nation’s capital, office-using employment growth remained sluggish. Metro employment data for December showed Washington, D.C. growing at just 0.4% year-over-year, the lowest rate of growth among the top 25 office markets covered by CommercialEdge.  

Yet slow growth in traditional office-using sectors only paints a partial picture of the struggles in D.C.’s office industry. Unlike other markets, much of D.C.’s office employment is made up of government workers, and BLS data shows that employment in the federal government sector fell 3.5% in 2022. Further compounding issues for the market, the federal government has embraced remote and hybrid work as well, considering it a competitive advantage in a tight labor market. 

Download the PDF report to view more, including the map for office-using employment growth. 

You can also see our previous office reports. 

Methodology 

This report covers office buildings 25,000 square feet and above. CommercialEdge subscribers have access to more than 14,000,000 property records and 300,000 listings for a continually growing list of markets. 

CommercialEdge collects listing rate and occupancy data using proprietary methods. 

Listing Rates — Listing Rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period. CommercialEdge uses aggregated and anonymized expense data to create full-service equivalent rates from triple-net and modified gross listings. Expense data is available to CommercialEdge subscribers. National average listing rate is for the top 50 markets covered by CommercialEdge. 

Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations. 

A and A+/Trophy buildings have been combined for reporting purposes. 

Stage of the supply pipeline: 

Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction. 

Under Construction — Buildings for which construction and excavation has begun. 

Office-Using Employment is defined by the Bureau of Labor Statistics as including the sectors Information, Financial Activities, and Professional and Business Services. Employment numbers are representative of the Metropolitan Statistical Area and do not necessarily align exactly with CommercialEdge market boundaries. 

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size. 

Year-to-date metrics and data include the time period between January 1 of the current year through the month prior to publishing the report.   

Market boundaries in the CommercialEdge office report coincide with the ones defined by Yardi Matrix and may differ from regional boundaries defined by other sources. 

The post Weak Demand, Falling Prices and Potential Distressed Activity Predict Muted Sales for 2023   appeared first on CommercialEdge.

Enabling brokers to send information quickly and ensuring that their messaging and branding are standardized can be challenging. But leveraging a marketing platform that provides email automation tools empowers brokerages to help their team send key information promptly to clients and prospects while providing assurance that all communication is on brand.

Below are six examples of commercial real estate email marketing messages that can be optimized through automation. The list is organized based on specific examples for listing and tenant brokers.

FOR LISTING REPS 

1. Sending Availability Updates

Listing reps can send vacant properties and spaces to tenant reps via newsletter-like emails that keep potential clients up to date about availabilities. An effective marketing tool streamlines the process through automation and leverages a centralized database to ensure consistency across listing data, marketing collateral, branding and contact details. 

For instance, a listing broker working with CommercialEdge Marketing is notified of spaces soon to become available. Before these spaces are listed, the marketing team reviews all space and property information to make sure everything is up-to-date and accurate. Then, using the email marketing tool, the listing rep can easily pull the listings into an email — even before the spaces are listed — and send it out to a pre-built list of tenant reps to let them know of spaces coming on the market. 

2. Responding to Space Inquiries 

When a lead comes in, it’s imperative to promptly get in touch with potential clients to move deals forward. After a phone call to review options and availabilities, the prospect or tenant rep generally requires more information and will request an email summary from the listing rep.  

That is when, instead of having to pull together different brochures and ask someone to update them, the listing rep just clicks a few buttons in CommercialEdge Marketing, selects the spaces they want to share and quickly sends out the email. These messages can include brochures, virtual tours and other engaging marketing collateral.  

And, since the marketing tool is connected to the listing database, all listing data is synced, up-to-date and on-brand, ensuring that the broker only sends out the most accurate information. 

3. Qualifying and Nurturing Leads

Sending follow-up messages is key for qualifying and nurturing leads. Using a comprehensive email marketing platform to send follow-up emails with specific questions is a great way to filter leads and eliminate poor-quality ones. Depending on asset type, questions can pertain to the intended start date of the lease, business specifics, number of people in the company, space preferences, specific requirements and more.   

Consider sending follow-ups to keep prospects engaged during periods of slow activity or after important milestones such as tours or client meetings. Staying in touch with prospects is not only essential for keeping them motivated but also a great way to demonstrate your commitment and willingness to assist.

FOR TENANT REPS 

4. Prospecting for New Clients

A targeted, research-driven process helps tenant reps narrow the prospect pool when prospecting for new business. Tailor-made emails are more likely to engage and prompt action, so it’s essential to communicate based on the specific needs and interests of potential clients.  

Certain factors can help identify the most qualified person when deciding whom to contact with this top-of-the-funnel message type. Contact the right people directly and personally considering: 

• Role and seniority within the organization 
• Level of authority (e.g., they can make budget-related decisions) 
• Prior positive experience/familiarity with your services 

For example, a tenant rep specializing in retail and restaurant space in a specific market puts together a curated list of restaurant operators in that area. Using the CommercialEdge email marketing tool, with just a few clicks, the broker creates a bespoke, branded email that introduces themselves and highlights their market knowledge. This is a great way for listing reps to present their unique perspective in a specific real estate sector and offer their services to potential clients who might be looking to open a new location, relocate or renegotiate their current lease and so on.

5. “Tenants in the Market” Mailing Lists

When working with a tenant with very specific space requirements, tenant reps can use various tools to serve their clients better. For instance, a tenant rep has researched listing marketplaces and has gotten in touch with listing rep brokers but has exhausted all availabilities without finding a space that would meet their client’s requirements. 

A solution, in this case, is using marketing tools that bring this information to the market and uncover space opportunities that cannot be found through typical means. With the CommercialEdge email marketing tool, brokers can create emails encompassing their clients’ needs, and with just a few clicks, send them out to a list of owners and landlord rep-focused brokers in their client’s target market to uncover unlisted availability that meets a unique client requirement.

FOR LISTING AND TENANT REPS 

6. Nurturing Client Relationships

Once a deal is closed, broker-client relationships may not require frequent communication. Still, a proactive approach and occasional check-ins can benefit the parties involved and contribute to building a long-term partnership.  

As a listing rep, consider sending recurring informative emails to a mailing list of existing tenants in the properties you represent. Relevant information can include building-, space- or area-related updates, industry news, market trends and so on. 

As a tenant rep, keep in touch with clients to develop long-term relationships and ensure future collaboration. Consider sending emails in the early stages of the lease term to let tenants know of your availability to assist. Later, send a reminder before lease expiration and offer to discuss the next steps, such as potential lease renewal, extension or finding new space options.

• As a general best practice, we always suggest including a compelling call-to-action and ensuring that your contact details are visible and accessible. In addition, consider including a headshot, which adds a personal touch and contributes to ensuring a brand-consistent experience across your messaging. 

How Commercial Real Estate Email Marketing Tools Help 

Whether you are a listing rep or a tenant rep, an effective marketing plan coupled with a powerful CRE solution can maximize your email marketing strategy — CommercialEdge Marketing optimizes communications through powerful automation. Powered by a single database of real-time property and space information, the marketing solution ensures consistency across your marketing collateral, branding and contact details. 

The CRE solution syncs email marketing processes with your CRM for seamless access to your contact database. And, since segmenting contact lists is an essential step in any commercial real estate email marketing strategy, the CommercialEdge tool allows you to build custom contact lists and group relationships by specific criteria such as market, asset type, lease term and more. This makes it easy to craft more targeted, prospect- and client-facing emails. 

The CommercialEdge Marketing email tools empower you to: 

• Auto-populate email templates and brochures 
• Customize content with an intuitive drag-and-drop editor 
• Automate email sending and scheduling 
• Track and assess performance with real-time email analytics 

What’s more, email and brochure templates are optimized for different devices, from mobile to web browsers, ensuring your content is adapted to and visually appealing on every platform.   

CommercialEdge Marketing is available standalone or fully integrated with Yardi property management software. For Yardi clients, property and space information is in sync with Voyager Commercial to ensure that only the most accurate and up-to-date information is marketed to prospects and clients. 

The post 6 Ways Brokers Benefit from Commercial Real Estate Email Marketing appeared first on CommercialEdge.

Walkable urban spaces are known as well-connected, mixed-use areas, including different real estate products from multifamily and single-family housing to retail and office spaces, as well as recreational areas, such as museums or sports venues, located within a half-mile radius. 

The 2023 Foot Traffic Ahead report, released by Smart Growth America and produced in collaboration with Places Platform LLC, takes an extensive look at walkable urbanism in the U.S. by ranking the top 35 metros based on what percent of their real estate inventory (by square footage) is in walkable areas. The report focuses on four asset types: office, multifamily, retail and for-sale housing. 

Across the 35 metros ranked, around 16% of all four real estate products are in walkable urban places, the report reveals. However, the proportions between these product types in walkable spaces differ significantly. Overall, 42.1% of all office spaces in the top 35 metro areas are in walkable urban spaces. Multifamily makes up 30.4%, retail 18.5%, whereas for-sale housing accounts for 11.6%.  

To rank the metros, the study draws on data from Yardi Matrix, Rocktop Partners, the American Enterprise Institute Housing Center and other publicly available data.

Coastal Metros Take the Lead in Walkability 

Looking at all four property types, the highest-ranking metro regions for walkability are New York City, Boston, Washington, D.C., Seattle, Portland, San Francisco, Chicago and Los Angeles. On the other end of the spectrum, the lowest-scoring regions include Orlando, San Antonio and Las Vegas.  

Unsurprisingly, the most walkable urban metros tend to be on the coast, with historic rail transit networks and a history of more compact urbanism predating 1940. However, the lowest-scoring metros — mostly in the Sunbelt — are just undertaking the effort to introduce walkable urbanism for the first time in generations, the study notes. 

While the percentage share of different product types varies across the metros, office and multifamily products are the most concentrated in walkable urban places, followed by retail. New York City stands out with 73.2% of its office, 70.3% of its multifamily and a significant 59.1% of its retail space in walkable areas.  

At the same time, Boston has 47.3% of its office, 44.4% of its multifamily and only 11.2% of its retail inventory in walkable urban spaces. The lowest ranking metro, Las Vegas, has only 6.5% of all office, 4.4% of all multifamily and 7.4% of all retail in walkable areas.  

Walkable Urbanism Puts Upward Pressure on Real Estate Prices 

The walkability scores have a notable economic impact on metropolitan regions and the overall U.S. economy. Although walkable urbanism accounts for roughly 1.2% of the land within the largest 35 metros, it accounts for 19.1% of all U.S. real GDP. Evidently, this means that walkable hubs account for a large amount of the region’s tax revenues from land values and other sales taxes. However, this also resulted in a price premium for office and multifamily products in these areas.   

While the percent change in premiums has decreased since 2018 in almost every metro region largely due to the pandemic, real estate in walkable urban spaces is by no means more affordable now. For instance, in New York City, the price for office product premium decreased by 52% from 2018 to 2021, but still stood at 105%. At the same time, the premium in Boston was positioned at 83%, down only 5% over the same period.  

Conclusions 

The high demand for walkable urbanism and the lack of supply is expected to continue to drive up price premiums in the near future. According to the report, the imbalance between supply and demand underscores the urgency of policy and zoning reforms regarding the development of well-connected mixed-use communities to promote social equity, drive economic activity and boost overall health and resident satisfaction.  

The post Walkable Urbanism to Drive Future Real Estate Development in the U.S.  appeared first on CommercialEdge.

However, maximizing listing exposure can be challenging without the right technology. Relying on outdated or manual processes to sync information across marketing channels can hinder lead opportunities. Thus, it’s crucial to centralize property information in a single, connected system that allows for automation and eliminates inconsistencies for a seamless experience for prospective tenants. 

Utilizing multiple listing services feeds (MLSs) and listing syndication services is one of the primary methods of ensuring heightened listing visibility and an increased lead flow. A single content distribution platform allows you to keep all your listings up to date on all marketplaces where they have been syndicated. For example, as soon as lease information is updated on a property, the listing will disappear from all listing services without the need to manually remove the space from different marketplaces. 

Maximize Leads on Your Listings  

By leveraging the CommercialEdge Listing Network, part of the Yardi commercial marketplaces, you can automatically distribute to the rapidly expanding network of marketing channels, which includes CommercialCafe, CommercialSearch, PropertyShark, Point2 Commercial and 42Floors.  

These marketplaces rank on the first page of Google, bring in more than 2 million visits per month and generate over 300,000 qualified commercial real estate leads annually. The CommercialEdge Listing Network ranks in the top 10 spots on Google with more than 1,500 keywords and hundreds of those claim the top three positions. Some of the search phrases with high rankings are “New York City office space for rent,” “Los Angeles commercial real estate,” “Chicago commercial real estate,” “Austin commercial real estate” and more. 

Commercial real estate professionals can publish their listings on the network by creating a free account on the CommercialEdge Marketing platform. This allows agents and brokers to post unlimited free commercial real estate listings (covering all asset classes), with the option to syndicate to the entire CommercialEdge Listing Network.  

Additionally, for heightened exposure and maximized lead opportunities, CRE professionals can strategically promote listings with premium ads, ensuring they are on the top of search pages across the entire network. 

The CommercialEdge Listing Network 

• CommercialCafe 

CommercialCafe markets commercial offerings across multiple asset types. Tenants can search for commercial and coworking spaces across the country, with the possibility to compare listings and contact brokers who list their spaces on our network. 

• CommercialSearch 

CommercialSearch is updated daily and tailored for all commercial asset types. This marketplace encompasses properties listed for sale and lease, and easily connects tenants with brokers for a seamless experience. The internet listing site provides CRE brokers the opportunity to market their properties and manage their portfolio of listings while increasing exposure across the entire CommercialEdge network of marketplaces.    

• PropertyShark 

PropertyShark provides entry-level research and data on residential and commercial real estate properties across the U.S., offering insights into sales, ownership and distressed assets to a wide range of real estate professionals from brokers to investors. Beyond this, PropertyShark also provides residential, commercial real estate and coworking listing services, allowing real estate professionals to find and research investment opportunities across the country. 

• Point2  

Point2 is another site within the CommercialEdge Listing Network with a reliable and up-to-date listings inventory that includes all commercial property types, as well as single-family homes and residential communities marketed by major brokerages, attracting an active and engaged audience. Tenants can search hundreds of thousands of listings and easily connect with a broker through our intuitive platform. Point2 is available in the U.S. and Canada.     

• 42Floors 

The most recent addition to the CommercialEdge network, 42Floors can bring your property in front of a growing audience to help you maximize exposure and boost your business’ growth. The recently redesigned website provides access to a high-quality commercial property search engine, including more than 320,000 listings across the country.    

The Yardi network of listing platforms also includes CoworkingCafe and the recently acquired CoworkingMag. Both websites consistently rank high in Google searches, helping operators and commercial brokers boost exposure for flexible office spaces. 

A Complete Solution to Power Effective Marketing 

CommercialEdge Marketing, part of the CommercialEdge complete software solution for CRE brokerages, provides a streamlined way to maximize leads on CRE listings. Through centralized and automated listing management, CommercialEdge Marketing allows for an easy and optimized publication of listings, ranking your properties high in search results. The marketing module also ensures effortless syndication to leading third-party marketplaces as well as your own website to boost exposure. 

Additionally, the CommercialEdge marketing platform can be synced with Yardi property management software to automatically update data on spaces and properties regarding key lease information, such as expiration dates. This data can be used to automatically publish and unpublish listings as spaces become available or occupied. 

Other tools for optimized marketing available through the CommercialEdge platform include automated emails and brochures. The platform automatically pulls in property and listing data and sends emails to a contact or list of contacts, eliminating any manual processes. Similarly, it’s possible to create brochures using branded templates and real-time listing information — these brochures are efficient in email marketing or listing websites. 

• • • 

With continuously changing CRE market dynamics, leasing professionals who draw on finely tuned marketing strategies will capture the most opportunities to elevate business growth. Leveraging the power of a strong listing network in one centralized system can help you boost your lead pipeline with less effort and more efficiency. CommercialEdge Marketing offers a streamlined solution for powerful lead generation and listing syndication.   

The post Capture Leads with the 2^nd Largest Commercial Listing Network in the U.S.   appeared first on CommercialEdge.

Headquartered in Bethesda, Maryland, Global Medical REIT is a net-lease medical office real estate investment trust. With a portfolio exceeding 4.9 million square feet across the U.S. as reported as of Sept. 30, 2022, the REIT acquires and leases purpose-built healthcare facilities to leading healthcare systems and physician groups.  

The company’s disciplined investment strategy focuses on uncovering high retention and patient-centric acquisition opportunities in premier secondary markets bolstered by favorable demographic and decentralization trends. Through this approach, Global Medical REIT consistently provides strong returns for its shareholders and ensures lasting relationships with its tenants. 

The Challenge: Limited Portfolio Reporting and Multiple Systems 

With 189 medical properties across the U.S., Global Medical REIT strives for total transparency and requires access to portfolio-wide reporting for easy data access across teams that streamlines leasing activities and deal flow processes.  

Before implementing CommercialEdge Deal Manager, the firm encountered difficulties with its previous solution due to high costs and the lack of access to portfolio-wide reporting, leading to inefficiencies in their deal management processes. Additionally, the tool lacked the possibility of business-wide process integration, which resulted in discrepancies in the leasing data.   

The Solution: Access to On-Demand Data and Detailed Reporting 

Deal Manager, part of the CommercialEdge solution suite, is a leading CRM and deal-making software offering full transparency and visibility into deal metrics throughout the lease lifecycle. Key metrics can be viewed on demand for proposal evaluations and more, while detailed reporting provides actionable insights and helps with performance analysis by property, market, agent and other attributes. 

By integrating Deal Manager with Yardi property management software, clients gain real-time tenant- and lease-level data such as schedules, expenses and clauses, as well as access to current unit availability, floor plans and interactive stacking plans. This integration streamlines communication and enables clients to enter deal terms, track proposals and calculate and store net effective rent at the deal level.  

“Deal Manager has helped us streamline our leasing activity and deal flow. The system has facilitated better communication and coordination between brokers and internal decisions makers, and the integration with Voyager has automated processes, which has increased productivity.”

Daniel Magney, Asset Manager, Global Medical REIT

The Story: One Connected Solution with Portfolio-Wide Reporting and Insights 

As a Yardi client since 2018, Global Medical REIT was already an active user of Yardi Voyager and, by adding Deal Manager, the company found the answer to its portfolio-wide reporting challenges. Moreover, this one connected solution helped the firm streamline its leasing activity and deal flow. 

“Deal Manager provides an excellent tracking system for busy asset managers and brokers and greatly assists with the progression of the deal as well as the analysis needed to make good leasing decisions. Since we are already Yardi users, it is an efficient way to assist in our budget forecast program. This program is also very intuitive for our users and requires little handholding with third-party users.”

 Dawna Powell, VP, Asset Management, Global Medical REIT

Easy and fast access to accurate leasing data 

Thanks to Deal Manager, the Global Medical REIT accounting team is more self-sufficient and can access leasing activity without asking the asset management team for information. 

Global Medical REIT captures every property’s activity across its portfolio and can provide reports to investors with greater speed and accuracy. At the same time, working with external brokers is also easier due to the tool’s intuitive interface, which requires little training and ensures effective collaboration for all parties involved.  

Seamless implementation 

Since smoothly transitioning from its previous system to Deal Manager, Global Medical REIT can generate portfolio-wide reports and has a complete pipeline overview, all in one place. The company was able to transfer all its deals and go live with Deal Manager in just a matter of weeks. 

“Deal Manager provides our organization with a cost-effective tool that enables us to manage our leasing pipeline all in an easy-to-use interface. The Yardi team made the implementation quick and easy; we were able to go live in a few weeks.”

Sean Tu, SVP of Asset Management, Global Medical REIT

The post Global Medical REIT Streamlines Deal Flow and Portfolio-Wide Reporting with Deal Manager  appeared first on CommercialEdge.

• National industrial in-place rents averaged $7.03 per square foot, up 6.3% year-over-year as demand continued to outpace supply 
• The national vacancy rate contracted 180 basis points in 2022 as new deliveries were absorbed at a rapid pace 
• More than 450 million square feet of industrial space was delivered last year, setting a new industry record 
• The year ended with $88 billion in industrial sales, a robust volume but one that was noticeably below 2021 totals 
• Western markets posted the six highest sale prices nationwide, with Orange County closing 2022 at $369 per square foot 
• Columbus tied with Nashville for second-lowest vacancy rate nationwide at just 1.8%, and Indianapolis close behind at 2.3%  

• Dallas led the nation in development with 64 million square-foot pipeline as well as sales with $8.8 billion volume 
• At $3.53 per square foot, New Jersey lease premiums ranked among the five highest in the country 

New industrial supply hit record levels in 2022, and 2023 is expected to reach yet another generous volume of new deliveries. In the 118 markets covered by CommercialEdge, more than 450 million square feet were delivered last year, with another 713 million square feet under construction at the end of the year, according to the latest U.S. industrial market report. 

“Even as demand waned slightly the last third of the year, the appetite for these new, high-quality facilities was incredibly strong throughout 2022.” 

Peter Kolaczynski, CommercialEdge Senior Manager

Despite historic levels of new supply, this pace of development was not enough to keep up with demand. Thus, the average vacancy rate for the top 30 markets fell steadily throughout the year, closing 2022 at 3.9%. Our industrial property outlook predicts that due to a cooling economy and healing supply chains, absorption will be positive this year, but lower than in previous years. 

Nonetheless, demand for industrial space will remain substantial across the U.S., driven by high import levels, e-commerce and the need for last-mile facilities. In light of this, developers will continue to expand the national industrial stock — over the next five years, the U.S. industrial footprint could increase by roughly 12.6%, according to CommercialEdge supply forecasts.   

Construction: Completed & Forecasted

Rents and Occupancy: Southern California Drives Largest Gains in Leases 

National in-place rents for industrial space averaged $7.03 per square foot in December, growing 6.3% year-over-year and three cents over the previous month. Leases signed in the last 12 months reached a national average of $8.84 per square foot, $1.81 more than in-place contracts. 

The largest spreads between new leases and the market average were in Los Angeles ($7.24), the Inland Empire ($5.66), Orange County ($4.96), Nashville ($3.75) and New Jersey ($3.53), trends that were mostly steady throughout the year.  

Average Rent by Metro

Up 10 basis points from November, the national industrial vacancy rate stood at 3.9% in December, dropping 180 basis points over the last 12 months. The lowest vacancy rates in the nation were in the Inland Empire (1.1%), Nashville (1.8%), Columbus (1.8%), Indianapolis (2.3%) and Los Angeles (2.4%), markets that contended with low vacancies throughout the year. 

In order to ease that pressure, many of these low-vacancy markets have robust development pipelines, such as the 31 million square feet under construction in the Inland Empire and the nearly 18 million square feet Indianapolis is currently developing.   

Supply: Record 450 Million Square Feet of New Supply Delivered in 2022

Nationally, 713.0 million square feet of industrial stock were under construction at the end of 2022, representing 4.0% of stock. An additional 698.4 million square feet were in the planning stages. 

Last year saw more than 450 million square feet of industrial supply delivered, a record for new development. The markets with the most supply delivered last year were Dallas (31.5 million square feet), Indianapolis (24.8 million), Chicago (23.4 million), Phoenix (21.3 million) and the Inland Empire (20.4 million). While industrial development was and remains widespread across the country, those top five markets accounted for 27% of all new stock in 2022. 

Industrial Space Under Construction (Million Sq. Ft)

In 2022, 25 of the 118 markets covered by CommercialEdge had their highest levels of new development since at least the turn of the century. Indianapolis, Phoenix, Savannah-Hilton Head (14.6 million square feet), Kansas City (11.7 million), New Jersey (11.1 million) and Austin (10.4 million) were among the markets that saw record levels of new industrial stock delivered in 2022. With more new supply than ever currently under construction, 2023 is expected to be another record-setting year for industrial deliveries. 

Transactions: Deal Flow Slows in Second Half of 2022

There were $88.3 billion in industrial transactions during 2022, although a certain lag in collecting sales data means that 2022 numbers will continue to climb. One thing is undeniable, however: Last year is certain to come in under the $125.7 billion in 2021. 

Year-over-year sales were up in the first half of last year but fell quickly in response to rate increases by the Federal Reserve. Rising interest rates were the main reason why the national sales volume fell in the second half of 2022, but the fact that industrial properties are much more expensive than they were even a few years ago is also a factor. The average sale price of an industrial building has skyrocketed, from $83 per square foot in 2019 to $132 in 2022, representing an increase of 57%.

Year-to-Date Sales (Millions)

Even as rents have increased rapidly, investor appetite for industrial has pushed prices high enough to diminish opportunities for yield. Investors may now need to assume current rent growth will continue for the foreseeable future in order for deals to pencil out, given current prices and borrowing costs. 

Under these circumstances, transaction volumes are likely to continue to slow in 2023, although once the Fed pauses interest rate hikes it may provide enough stability to the market for deal flow to pick up steam again. With demand for industrial space still elevated and supply still playing catch-up, prices are not expected to fall much, if at all, in 2023. 

Western Markets: Phoenix Construction Pipeline Reaches 55 Million Sq. Ft. With Planned Projects Potentially Doubling That Volume 

The Inland Empire led the country in industrial rent growth, with rates increasing 14.2% over the last 12 months. Although backlogs that were plaguing the ports of Los Angeles and Long Beach eased during 2022, demand for space in Southern California continued to be hot and vacancy rates remained tight. Los Angeles was the second-fastest market for rent growth at 10.4%, and Orange County was fourth with 7.3% growth in the last 12 months.  

The demand for industrial space in Southern California has been so intense that there has been a spillover into Phoenix, a six-hour drive from the ports of Los Angeles and Long Beach. In Phoenix, rents have grown 7.1% over the last 12 months despite 21.3 million square feet being delivered in 2022.  

To further absorb spillover demand from Southern California, Phoenix has an astounding 55 million square feet of new supply underway which will increase the existing local stock by 18.3%. That is by far the largest supply pipeline on a percentage-of-stock basis in the country, with the next-closest being the Dallas-Fort Worth market at 7.5%. And the Phoenix industrial boom is far from slowing down, as planned projects would further increase the local stock by 20.8%.

West Regional Highlights  

While many companies are reorienting to Phoenix for their industrial space needs, Southern California is also pushing ahead with development where space availability allows. Los Angeles and Orange County struggle with space constraints, evident in their respective construction pipelines: 3.3 million square feet in Los Angeles and 1.2 million in Orange County. But the Inland Empire has the third largest development pipeline in the country, with 31 million square feet under construction at the end of 2022, with nearly the same amount currently in the planning stage. 

Although its sales volume was a far more modest $1.15 billion, Orange County boasted the highest sale price nationally by a wide margin, averaging $369 per square foot. In fact, the six highest sale prices were all claimed by Western markets: The Inland Empire featured the second-highest sale price nationally at $289 per square foot, with Los Angeles close behind at $287 per square foot. They were followed by Seattle’s $246 per square foot rate, the Bay Area’s $232 per square foot average and Phoenix at $198 per square foot. 

Returning to Southern California, Los Angeles and Orange County also had the second- and third-largest sales volumes in 2022, outpaced only by Dallas’ $8.78 billion total. Specifically, Los Angeles totaled $5.1 billion in industrial sales last year, followed closely by the Inland Empire’s $4.99 billion.  

On the other end of the spectrum stood Central Valley with only $640 million in industrial deals, the second-lowest volume among the country’s leading markets. It also had the lowest sale price among the West’s top markets, averaging $92 per square foot in 2022.  

Midwestern Markets: Columbus and Indianapolis Post Two of the Three Lowest Vacancy Rates Nationwide  

While the Inland Empire remained the uncontested leader in occupancy, closing 2022 with a vacancy rate of just 1.1%, Midwest markets also stood out. Specifically, Columbus tied with Nashville for the second-lowest vacancy rate in the country at just 1.8%, followed by Indianapolis at 2.3%, outpacing Los Angeles and its 2.4% rate. 

But while Southern California rents remain the highest in the country by wide margins, Midwestern markets, including its tightest, continued to post some of the most affordable rents among the country’s top markets. Columbus, for example, had the lowest lease rate at just $4.14 per square foot, Indianapolis had the second lowest at $4.29 per square foot, with St. Louis and its $4.32 per square foot rate next.  

Midwestern markets also closed 2022 with some of the lowest sale prices the country’s most important industrial markets, remaining — as they have been throughout the year — among the more affordable markets for commercial real estate players looking to enter the industrial sector with lower stakes investments.  

Midwest Regional Highlights

For example, Kansas City posted the lowest sale price among leading markets at just $53 per square foot which also resulted in the smallest sales volume: $631 million in total. Detroit and Columbus were next at $76 per square foot and $78 per square foot respectively. In fact, the Twin Cities market was the only one to surpass $100, closing the year at an average sale price of $102 per square foot. 

Consequently, Midwestern markets also had more modest sales volumes, ranging between $1.04 billion and $1.37 billion, with two notable exceptions: Chicago and Kansas City. The latter had the lowest sales volume among the country’s top industrial markets, having totaled just $631 million in industrial deals in 2022. Chicago, however, had the fourth-highest sales volume nationwide: It closed $1.16 billion in industrial deals, despite a sale price of just $87 per square foot.  

One major factor in keeping industrial leases far more affordable than those in comparably tight markets was the region’s robust construction pipeline. Chicago closed 2022 with the fourth-largest development pipeline in the country at 28 million square feet. That represented 2.8% of Chicago’s existing stock, while planned projects could add the equivalent of 3.5%. 

When looking at development pipelines from the perspective of percentage-of-stock, Columbus and Indianapolis stood out as two of the five leading markets. Specifically, Columbus had the equivalent of 5.8% of its stock under construction at the end of 2022, while Indianapolis was developing 5.3%. 

Southern Markets: Dallas Leads the Nation in Development, Sales Volume 

Nashville remained the leading Southern industrial market in terms of occupancy rate, with only 1.8% of available space across the market. It was followed by Miami at 3.0%, Atlanta and Charlotte at 3.3%, and Dallas – Fort Worth at 3.8% — the only markets with industrial vacancy rates below the 3.9% national average. In contrast, Houston had the highest industrial vacancy rate at 7.7% both in the South and nationwide. 

At the same time, markets with higher vacancies also saw more modest rent increases. For instance, Houston saw lease rates increase 2.1% year-over-year in December, while Memphis and Tampa rents gained 2.6% and 2.9%, respectively. Atlanta led rent growth in the region at 6.9%, becoming the only Southern market that outpaced the national growth rate of 6.3%. Baltimore, for example, was up 5.6% and Nashville lease rates appreciated 5%. 

Although Southern markets had more modest lease spreads, Nashville stood out: While in-place rents averaged $5.23 per square foot here, new leases signed over the past 12 months averaged $8.98. Similarly, Miami’s in-place rents stood at an average of $9.72 per square foot, whereas new contracts signed at $13.05 per square foot.  

South Regional Highlights

The Dallas – Fort Worth Metroplex led construction in the South, as well as the nation, with 64.2 million square feet of industrial space under construction as of December, accounting for 7.5% of total stock. Considering projects in the planning phases as well, the Metroplex’s industrial stock could increase by as much as 13.5%.  

The Dallas – Fort Worth industrial market also attracted the most capital in 2022 nationwide, recording $8.78 billion in sales, at an average price per square foot of $180. Despite its sluggish fundamentals, Houston had the second-largest sales volume in the South and the fifth-largest across the U.S., with more than $4 billion in industrial deals. When it came to pricing, industrial facilities traded at an average of $131 per square foot in Houston, in line with the $132 national rate.   

Northeastern Markets: Imports Expected to Keep Demand High for New Jersey Industrial Space 

New Jersey continued as one of the strongest industrial markets in the nation, with its vacancy rate resting at 2.6% at the end of 2022, slightly above the 2.4% recorded in Los Angeles but below Orange County’s 3.0% rate. New Jersey also saw a robust uptick in industrial rents in the 12 months ending in December, climbing 8.4%. This is above the 6.3% year-over-year national growth and the third highest in the country.  Rent growth in New Jersey is expected to continue, as new lease premiums reached $3.53 per square foot — the fifth widest lease spread in the U.S. 

Boston and Philadelphia registered rent increases more in line with the national average, up 6.5% and 6.0% year-over-year in December. Rates for new leases were also higher than in-place rents in both markets, with a spread of $1.68 per square foot in Boston and $1.48 in Philadelphia.  

Northeast Regional Highlights

Across leading northeastern industrial markets, investors closed roughly $8.28 billion in transactions over the course of 2022. New Jersey topped the list with $3.42 billion in sales, at a price per square foot of $182 — also the highest in the region. Comparatively, Boston totaled merely $1.78 billion in sales over the same period, although its average price of $180 per square foot was close to that of New Jersey.  

Philadelphia led the Northeast in terms of new supply, with nearly 20 million square feet of industrial space in the pipeline, representing 4.9% of total stock. Meanwhile, Boston had 6.5 million square feet, or 2.9% of its stock underway, and New Jersey had 12.4 million square feet, or 2.3% of the local stock under development. 

Economic Indicators: Producer Prices Cool in December 

Wholesale prices for goods and services fell in December, according to the Bureau of Labor Statistics. The headline Producer Price Index — which measures the prices paid by business — fell by 0.5% in December and finished 2022 up 6.2% on the year. 

The decline in December was the biggest drop in the PPI since April 2020. The goods component of the index fell 1.6% in the month (up 7.9% year-over-year) and service increased 0.1% (up 5.0% year-over-year). Much of the decline was driven by decreases in energy prices. Core PPI, which excludes food and energy, increased by 0.1% in the month (5.5% year-over-year). 

Producer Price Index

The Fed’s interest rate hikes have been aggressive in an attempt to bring down inflation, and the latest readings of the PPI and Consumer Price Index indicate that the rate increases may be working. Price pressures such as supply chain backlogs have eased, and the outlook for inflation in 2023, while higher than averages seen in recent decades, looks to be much tamer than in 2022. 

Trends & Industry News: Industrial Market Outlook Solid for 2023 

Industrial went through a massive shift in recent years: Demand skyrocketed, vacancies plummeted, and investors drove up average sale prices by more than 50% in three years. But 2023 may be when things finally normalize. The CommercialEdge industrial property market report predicts that the sector will cool somewhat but continue to expand and remain one of the more attractive asset classes in commercial real estate. 

Rising interest rates and a looming recession will slow leasing activity as businesses pause expansion plans and grapple with a higher cost of borrowing. Supply-chain normalization will lead to less need for increased inventories than was common in recent years, further slowing leasing.  

Still, import flow will continue to drive demand in already tight port markets, and we anticipate the overcrowding of Southern California ports and increased demand for industrial space along the East Coast in markets like New Jersey, Houston and Savannah-Hilton Head. Interest rate hikes will also continue to put downward pressure on transaction volume. 

Economic Indicators

E-commerce will continue to create industrial demand in 2023, albeit at lower levels than seen during previous years. Online purchases will continue to grow their share of retail sales, and big-box retailers will continue to embrace digital and omnichannel sales.  

Amazon’s 2022 pullback will not be reversed this year, and consequently, there will be less demand for multimillion-square-foot distribution centers this year than during the first two years of the pandemic. However, our industrial market outlook reveals that demand for last-mile distribution facilities will grow, especially for well-located facilities in high-growth markets. 

Download the complete January 2023 report for a full picture of how U.S. industrial markets fared throughout 2022, including insights on industry and economic recovery fundamentals. 

You can also see our previous industrial reports. 

Methodology 

The monthly CommercialEdge national industrial real estate report considers data recorded throughout the course of 12 months and tracks top U.S. industrial markets with a focus on average rents; vacancies (including subleases but excluding owner-occupied properties); deals closed; pipeline yield; forecasts; and the economic indicators most relevant to the performance of the industrial sector.  

CommercialEdge collects listing rate and occupancy data using proprietary methods. 

• Average Rents —Provided by Yardi Market Expert, a cutting-edge service that uses anonymized and aggregated data from other Yardi platforms to provide the most accurate rental and expense information available. 
• Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations. 

Stage of the supply pipeline: 

• Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction. 

• Under Construction — Buildings for which construction and excavation has begun. 

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size. 

The post 2022 Sets Industry Record with 450 Million Square Feet of Deliveries appeared first on CommercialEdge.

Lease Creation: A Fraught Process 

When executed manually, commercial lease documents comprise numerous Word templates for leases, amendments, addenda and exhibits that are stored separately. The legal department’s staff must then manually populate the draft lease with information about the property and space occupied, start and end dates, rent amounts and increments, insurance and other terms applicable to the deal under negotiation. 

Clauses and legal language are often manually copied from other documents or websites into the draft lease. And because different property management companies might be involved for different regions, lease documents might be managed differently with different language. Amending the draft and circulating it for review can be akin to restarting the process and entering new data. Communication is often executed via email, with the document downloaded, edited and uploaded again; in some cases, the parties edit a shared document. In any case, there is no formal tracking of versions or approval steps. 

As an added complication, the leasing team often has no means of knowing the document’s status, so members must query the legal department for updates. What’s more, determining which clauses need to be in the lease, drawing them from documents stored on a shared drive and then manually copying them to the new lease document can add more opportunities for error. The process might also prove costly as it can require hiring outside counsel or a staff paralegal to amend terms from an old lease document with terms of the current deal. 

This scenario holds true for options as well. As with clauses, options require the legal team to confirm with the leasing agent what was discussed with the tenant, back-and-forth email negotiations, phone tags, video conferences or other channels that lack the capability for tracking approval steps or versions. 

The whole process can be time-consuming, costly and slow down the deal. 

CRE Solutions That Provide an Edge 

Fortunately, CRE platforms that use automation dramatically streamline lease document creation, making the process easier, faster and more accurate at every step. In addition, these solutions centralize template organization and storage, enabling the auto-generation of single or multiple documents that can be separated or combined. 

Lease documents can be created from fewer templates while containing accurate data for any number of lease and property types, regions, markets and other criteria. Additionally, terms, clause additions and signature blocks are automatically populated based on the deal under negotiation. 

CommercialEdge Legal, part of the CommercialEdge revenue solution suite for CRE, is a Deal Manager module that eliminates the time-consuming, labor-intensive and costly legal aspects of lease creation through powerful automation. The CRE tool makes finalizing lease agreements much simpler by automatically generating lease agreements with customized approval workflows, document templates and sophisticated formatting capabilities, ensuring that prospective tenants get the proper documents faster and without manual intervention.  

Lease Creation at the Click of a Button 

With the Legal module, custom terms can easily be populated into a template, along with basic information such as the tenant’s and building managers’ names, space to be leased, security deposit and lease start and end dates.  

The system also contains a library of lease- and property-level clauses — sections covering conditions such as janitorial service, common area maintenance, repairs and lease terminations that are specific to certain tenants — grouped for easy insertion into the appropriate section of the template and automatically included into the tenant record.  

With all information populated into the draft, the lease document, including all applicable clauses, can be created at the click of a button with 95% accuracy, with only a few minutes’ worth of tweaks remaining to be made. The document is then ready for automated online routing to legal counsel and others for review and revision. 

Simplified review 

From that point on, any changes to the draft are made within the centralized system, with multiple versions tracked and maintained throughout the process. The Legal module makes it easy to upload and compare redlined versions following internal and external reviews.  

With a powerful approval workflow, the documents can be reviewed and approved before being sent to the external party. As a result, there’s no need to send emails with separate documents and different versions.  

Easy electronic signing 

The last but crucial step — getting signatures on the final document by using proprietary electronic signature capability within CommercialEdge Deal Manager — is just as easy and efficient. The system configures default signers, sends multiple copies in a single envelope with document visibility control, and regulates signer changes based on deal square footage or total rent as a threshold.  

Benefits of automation and centralization 

The automation and centralized storage in the Legal module make lease completion vastly simpler and better organized than chasing documents through different versions. The solution can also reduce the number of templates a property management company needs to maintain. The Legal module users have documented the following results: 

• Lease documents produced in 5-10 minutes 

• Elimination of rekeying and duplicate entries with automated data flow to the Yardi property management system (Yardi Voyager) 
• Easy assembly of the template, deal term data and clause/option information into one document 
• A clause library created and maintained with the latest lease language to embed data points from the deal into the clause language seamlessly 
• Clause group creation to organize clause language that’s relevant to, but not limited by, property, lease type or market 
• Effortless redlining and revision tracking and built-in version comparison with lease agreements populated by information from the finalized proposals 

• Enhanced online editing capabilities directly within the application 
• Full transparency so the entire leasing team can see each step as it happens 
• Staff efficiency enhanced by leasing teams’ ability to access versions on their own, without the Legal department’s assistance or added legal services costs 
• Expedited signing with built-in, secure electronic signatures that sync with Yardi Voyager 

Additionally, efficiency comes from bulk editing clauses in one screen, with immediate rendering in the document. This keeps the entire process in one platform instead of scattered across emails, Word docs and PDFs. 

CommercialEdge Legal provides a straightforward and efficient approach to lease document creation. If you are looking to eliminate the challenges of putting together a lease agreement through manual effort, consider using an automated CRE solution that reduces lease creation to a few clicks. 

The post Lease Creation in Just a Few Clicks with CommercialEdge Legal  appeared first on CommercialEdge.

• The average U.S. office listing rate stood at $38.19 per square foot, down 0.7% year-over-year 
• Up 90 basis points year-over-year, the national vacancy rate rested at 16.5% 
• Under-construction office space totaled 135 million square feet at the end of the year, with another 261 million square feet in the planning stages  
• 2022 office sales totaled $30 billion less than 2021’s $116 billion volume
• At $930 per square foot, San Francisco remained the unchallenged leader of office sales prices in 2022 
• Construction pipelines in Chicago and the Twin Cities stayed under 1% of their respective local stocks 
• With 8.7% of its stock under construction, Austin continues to lead U.S. office development  
• Manhattan asking rents remained the highest nationwide, closing the year at $76.09 per square foot

Nearly three years after the COVID-19 pandemic upended the office sector, its future remains unsettled. Even as some firms become more forceful in bringing workers back into the office, many have fully committed to hybrid and remote work policies. The CommercialEdge U.S. office market report anticipates 2023 to bring more uncertainty and change in the office sector as it moves towards a post-pandemic status quo.

Higher interest rates are expected to hamper the new supply pipeline as well as transactional activity in 2023. Some buildings in attractive locations will break ground but many projects will be paused or altogether canceled. Higher rates will lead not only to fewer office sales but also to lower prices for properties that do trade.

Additionally, tenants’ flight-to-quality is expected to persist in 2023. Businesses that want employees in the office more often, but do not want to use a heavy-handed approach, are looking for high-quality amenitized space to entice workers to come in, embracing smaller footprints in premium locations.

As a result, developers are focused on increasing the national Class A office supply to support the evolving needs of future tenants. At the end of 2022, Class A and A+ office space under construction totaled nearly 126 million square feet nationally, while Class B space accounted for less than 10 million.

As the flight-to-quality continues, we will be watching to see how much of a role space reduction plays in these leasing decisions, and to what degree coworking becomes an option as a high-quality landing spot.

Peter Kolaczynski, CommercialEdge Senior Manager

Listing Rates & Vacancy: High-Quality Sublease Space Keeps Rates Steady

The average full-service equivalent listing rate was $38.19 in December, down 0.7% year-over-year but up 16 cents over November. At the same time, the national vacancy rate was 16.5% in December, an increase of 90 basis points over the last 12 months.

While U.S. office vacancy rates have risen steadily over the last few years, average listing rates have yet to fall in response. This is because average rates reflect both the quality of space listed as well as underlying fundamentals. With plenty of high-quality space hitting the market in recent years, not only through direct vacancies but subleases as well, average listing rates have managed to hold fairly steady so far.

Top Listings by Metro Area: December 2022

In Seattle, for example, where the sublease vacancy rate is 3.8%, large blocks of space have been listed well above the average market rate. Zillow — which has been hampered by a rapid downturn in the home market and laid off thousands of workers in 2022 — recently listed seven of its 12 leased floors at the Russell Investments Center in the Commercial Business District of Seattle, an A+ building.

Overall, class A and A+ buildings did more than just hold steady as the flight-to-quality trend intensified: In 2022 top tier spaces commanded an average rate of $46.69 nationwide, marking a 1.9% increase over 2021 figures. At the same time, class B rates slid 0.4%.

Moreover, despite the early panic of CBDs being abandoned, it was, in fact, CBD office assets that saw listing rates inch up 2.3% year-over-year, while suburban assets contracted 0.5%. Urban office spaces had an even more noticeable depreciation in listing rates: 2022 closed with rents 4.4% below figures logged at the end of 2021.

Supply: Office Starts Remained High in Select Markets in 2022

Nationally, 135.3 million square feet of office stock were under construction nationally, representing 2.1% of stock. An additional 261.3 million square feet are currently in the planning stages of development, representing 4% of stock. Due to the rising cost of capital, economic uncertainty, and firms permanently reducing their office footprints, many of the projects in the planned portion of the pipeline are expected to be delayed or outright canceled in 2023, according to office real estate outlooks

While new office development has slowed in recent years, developers still seized opportunities to build high-quality, well-located buildings. Austin, for example, was popular with developers last year, as it consistently led the nation in office utilization metrics, while also increasing its labor pool by a significant margin by adding 59,000 office jobs since the start of 2021.

Office Space Under Construction (Million Sq. Ft)

Thus, the Texas capital saw 5.7 million square feet in office starts in 2022, an increase of 2 million square feet over 2021 starts. Among last year’s iconic starts was Waterline, a mixed-use tower that will include 700,000 square feet of office space, and The Republic, a 48-story tower with ground floor retail and more than 50,000 square feet of amenities. Notably, both broke ground in the second half of 2022, further increasing Austin’s already robust pipeline.

Transactions: Sales Slow in Second Half of 2022

CommercialEdge has recorded $83.6 billion in office transactions for 2022, at yearly average of $247 per square foot. A lag in collecting data for all sales means that these numbers are not yet final, but it is certain that last year’s investment volume will be lower than 2021’s $116 billion at an average of $280 per foot.

At the market level, Manhattan remained the leader of the pack, closing more than $6 billion in office sales in 2022, with Boston’s $4.71 billion the next-highest, closely followed by Dallas at $4.66 billion. In terms of pricing, San Francisco also held on to its leading position, with assets here trading at an average $930 per square foot, followed by Manhattan at $733 per square foot and Seattle coming in third at $542 per square foot.

Year-to-Date Sales (Millions)

Houston, Orlando and the Twin Cities stood on the other end of the pricing spectrum among the country’s 25 largest markets in the U.S., with office spaces selling for $132 per square foot, $176 per square foot and $180 per square foot, respectively. Orlando was also among leading markets with more muted sales totals as well. Specifically, Portland, Orlando and Brooklyn closed the year with the smallest sales volumes among leading office markets, totaling $184 million, $667 million and $767 million, respectively.

Looking to the year ahead, office sales will likely be even more muted in 2023 due to rising interest rates and a potential looming recession. Uncertainty will lead to growth in the bid/ask spread, limiting the number of sales until there is more clarity in the evolution of the economy and interest rates.

Sale Prices by Asset Class

Western Markets: Five of the Eight Highest Office Sales Prices Claimed by the West

While Portland did indeed have the lowest sales volume among the county’s top 25 markets at $184 million, leading Western markets closed 2022 with sales volumes that ranged between $2 billion (San Francisco) and $3.39 billion (Los Angeles). The Bay Area was the only other exception besides Portland, closing $4.58 billion in office sales — the fourth largest volume nationwide. It achieved that figure with an average price per square foot of $439, one of the highest not only in the West but nationwide as well.

In fact, western markets claimed five of the eight highest sales prices, including two of the top three. Specifically, Seattle had the third highest price per square foot at $542, and San Francisco remained the unchallenged price leader at $930 per square foot.

Sales Price Per Square Foot

Taking into account the prices claimed by properties traded in these markets, developers have continued to develop office spaces here, with the construction pipelines of both Seattle and San Francisco accounting for 4.2% of their respective stocks. But San Diego’s 4.77 million-square-foot pipeline accounted for 5.1% of its stock — the highest share among markets in the West.

The Bay Area’s under construction and planned office projects now total the equivalent of 16.6% of its existing footprint. Conversely, projects under construction in Phoenix are set to add the equivalent of just 0.6% of the existing local office stock for an increase of 845,000 square feet.

The Bay Area and San Francisco also led in terms of asking rents, with their 2022 averages coming in at $55.89 per square foot and $67.18 per square foot, respectively. Only Manhattan’s $76.09 rate was higher in the entirety of the U.S. Rents in leading western markets were mostly on the rise year-over-year, with Denver the only exception: Rents declined 2% here, stabilizing at $29.89 per square foot at the end of the year.

West Regional Highlights

Of note is also the fact that San Diego continued to stay ahead of Los Angeles, closing 2022 with an asking rate of $43.58 per square foot, compared to Los Angeles average of $42.62 per square foot. In fact, San Diego’s office market outperformed Los Angeles in vacancies as well, posting a slightly lower rate of 14.24%. However, these office vacancy rates were some of the lowest among the country’s top 25 office markets, with Seattle and Denver’s vacant spaces surpassing 18% of the local stock and San Francisco reaching 19.28%.

Midwestern Markets: Chicago Ends 2022 with $3.2 Billion in Office Sales, Despite One of the Lowest Prices per Square Foot

Despite pressures from macroeconomic headwinds and overall weakening office fundamentals, Chicago remained an attractive investment market for investors. Over the past year, the Windy City saw nearly $3.2 billion in closed office deals, despite recording a price per square foot of just $187, one of the lowest across the U.S. In fact, Chicago outpaced only Philadelphia ($186), the Twin Cities ($180), Orlando ($176) and Houston ($132). 

With a price per square foot slightly below Chicago’s, the St. Paul – Minneapolis market registered a more sluggish sales volume in 2022, totaling just over $1.5 billion. Moreover, with the vacancy rate also holding steady in the metro — just below 15% — developers remained cautious about increasing the existing office stock.

In December, the Twin Cities had merely 632,500 square feet of office space under construction, accounting for 0.5% of total inventory, exceeding only Portland’s 416,000 square feet and Tampa’s 344,00-square-foot pipeline. 

Midwest Regional Highlights

Although Chicago is now offering incentives to boost office conversions to housing and other mixed-use properties, the metro had around 2.3 million square feet of office space underway as of December. That accounted for 0.9% of total stock, and with an additional 5.3% in the planning stages. Nonetheless, amid the current market pressures, it remains to be seen how much of that will actually materialize in 2023 and beyond.

While Chicago saw a slight uptick in asking rates on a year-over-year basis, reaching $27.73 per square foot, the metro continued to post one of the lowest rates nationwide. At the same time, listing rates in St. Paul – Minneapolis remained virtually unchanged compared to December 2021 figures, closing 2022 at $26.07 per square foot.

Southern Markets: Office Construction Remains Robust in the South, as Austin’s Pipeline Reaches 8.7% of Its Stock

While the national construction pipeline stood at 2.1% at the end of 2022, Southern markets, especially those in the Sunbelt, continued to lead at much higher rates. In fact, the four largest construction pipelines on a percentage-of-stock basis were in Austin (8.7%), Charlotte (6.3%), Atlanta (6.3%) and Nashville (5.4%). Austin remained the darling of developers looking to increase top tier office space in a market with one of the highest office usages nationwide — one that also saw a significant increase in office sector jobs.

Thus, the Texas capital closed 2022 with the equivalent of 8.7% of its existing stock under construction that will increase Austin’s office footprint by 7.7 million square feet. While a slowdown in development is expected at a national level, the bullishness of industry players regarding this market may result in much of its planned stock also materializing. If all planned projects were to go through, it would further increase Austin’s office footprint by 15%.

Office Space Under Construction & Planned (% of stock)

On the other end of the spectrum stood Tampa, where office projects with shovels in the ground represented 0.5% of the local stock or nearly 344,000 square feet, by far the lowest pipeline among leading office markets. Tampa also had one of the smallest sales volumes in 2022, closing the year with $847 million in office sales. However, Orlando had an even slower sales year, with only $667 million in office deals, outperforming only Portland’s $184 million total.

Moreover, Orlando also had one of the lowest sales prices among the country's top 25 markets with the average office sales price for 2022 coming in at $176 per square foot. Only Houston’s average was lower at a mere $132 per square foot. Meanwhile, Miami and Austin ranked among the 10 priciest office markets in terms of sales prices, with Miami at #9 with an average of $396 per square foot and Austin at #10 with a $380 per square foot average.

South Regional Highlights

In terms of asking rents, Orlando yet again stood out, with its $24.16 per square foot rate, the lowest of the South’s top office markets, despite a fairly robust increase over 2021 figures. The highest asking rents were claimed by Miami, as expected. Its $47 per square foot rate was followed by Washington, D.C.’s $41.42 rate and Austin’s $41.06 average as the only three Southern markets with asking rents north of $40 per square foot.

Vacancy rates remained in the high teens in the South, with Charlotte’s 13.21% vacancy rate the lowest by a significant margin, while Houston’s 25.81% vacancy was the highest. In fact, it continued to increase in 2022, coming in 1.43% higher compared to December 2021. But the highest increase in vacancies unfolded in Austin, where millions of square feet of new space hit the market last year. Taking that into account, a 2.54% year-over-year increase in the local vacancy rate actually signals continued strong demand in the market.

Northeastern Markets: Manhattan Remains Priciest Office Market for Asking Rents by Significant Margin

Manhattan remained the most expensive market for office rents in 2022 as well, closing the year at $76.09 per square foot, following a slight uptick over year-ago figures. In fact, Manhattan asking rents were nearly $9 higher than the next priciest rate, San Francisco’s $67.18, and $20 higher compared to the third highest average asking rent of $55.89 in the Bay Area. Office rents in Boston, New Jersey and Philadelphia stayed in the $30 per square foot range, with Philadelphia’s 2022 average stabilizing at $31.30 per square foot.

Vacancies in the Northeast’s leading office markets remained mostly in the teens, with Brooklyn’s 19.11% the highest. At the same time, Manhattan’s average vacancy rate grew at the region’s fastest pace: 2.41% year-over-year.

Manhattan also closed 2022 with the largest development pipeline in terms of square feet, with 13 million square feet under construction, representing 2.8% of its existing stock. Although intensifying headwinds mean it's unlikely that the additional 2.2% of planned office projects will all materialize. Boston was close behind with its 12.69 million square feet of under-construction office space that are set to boost the existing office stock by 5.3%, with another 6.2% in the planning stages.

Northeast Regional Highlights

Manhattan also claimed the largest sales volume nationwide, accounting for $6 billion of the $83.6 billion national total. Boston boasted the second largest volume, totaling $4.7 billion in office sales, while New Jersey amassed $3.6 billion over the course of the year. Conversely, Brooklyn’s transactional sector was the third- slowest among leading markets, closing $767 million in office sales, despite a $532 per square foot sales price. In fact, Philadelphia’s $1.16 billion sales total was double that of Brooklyn, even as it featured one of the lower sales prices of $186 per square foot.

Office-Using Employment: Office Jobs Decline in December

Office-using sectors of the labor markets lost 6,000 jobs in December, according to the Bureau of Labor Statistics, marking the second monthly decrease since the onset of the pandemic in early 2020. Overall, financial activities gained 5,000 jobs in December 2022, but information lost 5,000 positions, while professional and business services lost another 6,000.

However, the downward trend has been apparent in most of the second half of 2022. From April 2021 through September of 2022, year-over-year office job growth was higher than 4% every month but fell to just 2.6% in December.

At the same time, between January 2021 and July of 2022, the office sector added an average of 117,000 jobs a month. But in the last five months, they have averaged only 25,000 jobs per month. This is yet another unfortunate development for the office industry, which needs job creation to replace demand that disappeared due to remote and hybrid work.

Office-Using Employment Growth by Sector

Despite the murky picture on a national level, some markets — mainly in the Sunbelt — continue to see robust growth in office employment. Metro data for the month of November, which trails the national release, showed strong annual growth in Dallas (6.4%), Atlanta (6.1%) San Francisco (6.0%) and Charlotte (5.9%).

While some regional markets allow for careful optimism, office-using employment will likely further decelerate as tech layoffs bleed into 2023 and a potential recession emerges. However, even with the recent woes of the tech sector, giants like Apple and Twitter, as well as other tech companies, have shied away from fully remote work, allowing for a potentially more positive office market outlook.

Trends & Industry News: Tech Lays Off Workers and Downsizes Offices

Interest in conversions of office buildings into residential and mixed-used properties will likely remain high in 2023 but projects may continue to struggle to gain traction. With offices vacant and housing in short supply across the county, converting offices seems like a logical solution.

However, many offices are ill-suited to conversions and without tax incentives and other financial resources from state and local governments, many projects may not pencil out in a high-interest-rate environment. Chicago was among cities that promised such incentives while soliciting bids for conversions of office buildings on La Street Corridor. It got nine proposals totaling $1.2 billion for a wide array of uses, from housing to an e-sports gaming arena.

National New Supply Completed & Forecast

Looking ahead to other trends for the year, demand for coworking will continue to grow in 2023, CommercialEdge’s U.S. office market report predicts Even with hybrid and remote work becoming prominent, most firms still want office space for face-to-face collaboration, trainings, and team building.

Flex spaces provide this without the long-term commitment of a traditional office lease. As a result, in 2023, demand will lead to growth not only for traditional coworking providers but will likely also lead to further flex space offerings from brokerages and office owners that are looking to increase occupancy and cash flow.

Download the PDF report to view more, including the map for office-using employment growth.

You can also see our previous office reports.

Methodology

This report covers office buildings 25,000 square feet and above. CommercialEdge subscribers have access to more than 14,000,000 property records and 300,000 listings for a continually growing list of markets.

CommercialEdge collects listing rate and occupancy data using proprietary methods.

• Listing Rates — Listing Rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period. CommercialEdge uses aggregated and anonymized expense data to create full-service equivalent rates from triple-net and modified gross listings. Expense data is available to CommercialEdge subscribers. National average listing rate is for the top 50 markets covered by CommercialEdge.
• Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations.
• A and A+/Trophy buildings have been combined for reporting purposes.

Stage of the supply pipeline:

• Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.
• Under Construction — Buildings for which construction and excavation have begun.

Office-Using Employment is defined by the Bureau of Labor Statistics as including the sectors Information, Financial Activities, and Professional and Business Services. Employment numbers are representative of the Metropolitan Statistical Area and do not necessarily align exactly with CommercialEdge market boundaries.

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size.

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