Editors’ Weekly News Roundup, Jan 2nd – 6th

It’s now 2023, but a new year doesn’t always bring about a whole new set of circumstances. As a case in point, the headline of this past week’s most-read story, Industrial Vacancies Drop, Rents Increase Despite Record New Supply, could have been written a year ago. Moreover, the CommercialEdge report behind this story found that e-commerce is continuing to propel the industrial market—not much of a difference from what we’ve seen in the past couple of years. 

What has changed from January 2022 is the interest rate environment: rates have gone up considerably and are likely to continue doing so throughout 2023. That has begun to dull investors’ appetite for industrial real estate, and recent pricing has reflected this. However, we’ll have to wait until January 2024 to find out if the trends around sales volume and valuation have continued over the long term. 

Meanwhile, industrial development remains hot and so does residential development in Sunbelt markets such as Austin. Developable land isn’t a limitless quantity, though, especially not in clearly defined submarkets like Austin’s popular Rainey Street District.  

There’s a modest, single-story house for sale in that neighborhood, most recently appraised for $353,000. To buy that house and the land it sits on—representing the last available parcel in the district—somebody will have to pay several times that amount. That’s according to last week’s second most-read story, Tiny House on Austin’s Signature Street Listed for $10,000,000. The house is likely to be razed for an apartment tower as soon as the sale closes. 

LaSalle Street, known as the hub of Chicago’s financial district, hasn’t been a hot spot for developers in many years. That has changed as a result of the pandemic, which led to the specter of largely empty office buildings along the corridor—often due to competition from new Class A construction—and the city’s realization that having these older properties sitting idle was an economic liability. 

With a promise of public subsidies, the Lightfoot administration has begun incentivizing development along LaSalle Street that would repurpose existing buildings for residential use, and Chicago developers have stepped up to the plate. Developers Submit $1B of Proposals for LaSalle Street Redevelopment details their response to the mayor’s call for ideas on revitalizing the neighborhood. 

Along with office, another sector that was hit hard by the pandemic was brick-and-mortar retail. Although shopping center landlords are often faring considerably better today than they were in 2020, Unibail-Rodamco-Westfield decided in 2022 to substantially reduce its U.S. exposure, and the company hasn’t wasted time putting that plan into action. 

One of the latest results of that initiative was the basis for the week’s fourth best-read story, URW Sells The Village Shopping Center for $325M. The sale of this open-air center in Los Angeles’ San Fernando Valley occurred a few months after the French owner-developer set a new record for U.S. retail pricing by divesting the Santa Anita center in nearby Arcadia.  

Elsewhere in the country, URW last year announced plans to redevelop its Garden State Plaza in New Jersey and Old Orchard in suburban Chicago for mixed-use, including apartments. Less noticed by Connect CRE readers this past week was another URW story, about its divestiture of two centers in the New York metro area for $196 million. 

While Piedmont Office Realty Trust’s latest move isn’t quite as radical as URW’s plan for its U.S. holdings, the REIT has now done what large owner-operators do from time to time, which is to exit a market altogether. In this case, the market was Cambridge, MA, which Piedmont determined wasn’t essential to its long-term strategy. Piedmont Office Realty Trust Sells Two Cambridge Assets for $160M Combined Proceeds rounds out the top five of the week’s most-read stories. 

A regional story with national implications, UC Forms Venture with Blackstone, Invests $4B in BREIT Shares didn’t make this week’s top five but raises a couple of questions that may be answered over the course of 2023. The Wall Street Journal reported a few months ago that pension funds were losing interest in commercial real estate; could the University of California’s investment arm prove to be a bellwether for large institutions to reverse course? And will such allocations, if they occur, help stem the recent tide of redemption requests at non-publicly traded private equity real estate and credit funds such as BREIT? Neither question has an immediate answer, of course.