A Market Outlook & Industry Overview from the C-Suite

By Dennis Kaiser

Connect Los Angeles brought together more than 450 CRE leaders for an information packed conference June 21^st at the Hotel Indigo DTLA. Connect Media has shared in-depth reports on panels including a conference overview and recap of a panel discussion titled, Gauging the Climate: Buy, Build, Sell or Hold conversations.

Today, we look at the market from the C-Suite. In a discussion moderated by Ten-X’s W. Eric Paulsen, CRE Industry leaders examined the the state of the industry from a national perspective. The deep-dive explored the outlook for the balance of the year and discussed the key factors driving and influencing the deals.

Market Overview

The market view is perhaps best described by Colliers International’s Martin Pupil as “in-flux, with peaks and valleys.”

That sentiment was expanded upon by Manulife’s Ted Willcocks who believes the market is in a “period of recalibration” as it nears a peak. Clearly the factors that are impacting investment decisions are where the interest rate cycle is and where the economic cycle is, he noted.

Avison Young’s Mark Rose described the market as remarkably strong, confused and pausing. Occupiers are caught between working in Mexico and the U.S. and unsure of what strategy to deploy. That confusion has caused those who can pause to do so until new rules get written. Yet, the “bid-ask gap is pretty wide right now,” between buyers and sellers, he notes.

Investment Opportunities

Pupil says he likes right to work states because they help create positive job growth. That’s occurring in Texas and Michigan. The certainty around taxes makes Texas No. 1 in his view as a place to look for investment opportunities.

For Avison Young’s Rose, he wishes there were more opportunities on the buy side since sellers want to sell now because they recognize the market upswing won’t last forever. Yet, buyers are not where sellers want to be. He believes once interest rates land, it will “unleash the biggest wave of investment.”

Manulife’s Willcocks notes there’s a huge amount of capital looking at gateway cities. He points out that industrial is “outperforming retail as a favorite investment asset class,” which he finds interesting.

Pupil agreed that industrial continues to be a strong performer and favors every price category from $5 million assets to $20 million ones and even those in the $100 million range. He believes the supply chain logistics sector will be in demand for the next five years whether that be a smaller facility in DTLA for same-day deliveries or a larger regional facility.

Millennial Impact

A big trend driving the market are Millennials. This demographic group is expected to continue impacting the way projects are perceived and conceived for some time. With 50% of the workforce transitioning to Millennials, Rose says the real estate industry must adapt, especially the retail sector. “Millennials are changing everything,” said Rose. There will be changes in the U.S.’s “over-retailed market.”

Pupil believes retail is not going away, and doesn’t envision a time with “zero retail.”  The successful shopping malls and retailers will be the ones that create experiences. He says it will be interesting to see how creative some retailers will get in repositioning properties including partnering with multifamily developers and creating lifestyle types of centers.

In the properties Manulife is redeveloping, the focus is on updates that create an “experience” where people want to go to.

Technology Impact

Rose says adoption of technology is “not an all or nothing” equation for retailers. He envisions most retailers offering a blend of showroom space or condensing space with a distribution or fulfillment and data component.

For Willcocks, the emergence of technology has been beneficial for owners since it adds to the flow of transparency and eliminated information gaps that existed before surrounding property information, comps, and other closely guarded information. These days, an owner may get two or three tech application pitches a week. That may involve how to market or show space, executing LOI’s, building space plans or creating marketing brochures.

Ultimately, Pupil says the best technology is used to deliver value to clients as the service industry shifts and evolves.

For comments, questions or concerns, please contact Dennis Kaiser