by Dave Gardner
The commercial real estate arena appears to be responding to uplifting market forces as the nation moves farther away from the dark days of the Great Recession.
GlobeSt.com recently cited data from the nation’s real estate executives that was compiled within the ninth annual Akerman U.S. Real Estate Sector Report. According to this data, the advent of technology, plus last year’s extensive rewrite of the federal tax code, are among the most positive trends underway for the commercial sector.
Two thirds of executives surveyed say associated job creation during 2018 will be either marginally or significantly higher than what occurred during 2017. As a group, however, they share concerns about the resultant effects of rising interest rates that could deter current market momentum.
Despite Washington’s call for the Americanization of business, the executives reported foreign investors are continuing their aggressive pursuit of U.S. assets. Yet more than half of survey participants identified private equity and banks as the top sources for commercial real estate funding.
On a regional basis, the move from “east to west” searching for commercial real estate within the Northeast Corridor continues, according to John Cognetti, president of Hinerfeld Commercial Real Estate. He noted within the Allentown area quality commercial land can be priced at $300,000 an acre, while variable costs within NEPA for similar locations total only a fraction of that amount.
“The NEPA labor force is still somewhat of an issue here, but as a region we have a great lifestyle to offer,” said Cognetti. “The availability of cheap and reliable natural gas also provides a great financial advantage for companies looking to relocate here.”
Cognetti explained that, on a macro level, companies such as his are dealing with tight inventories of commercial locations, which is a huge change from the years after the 2008 financial crash. Prices for available properties are therefore increasing, creating questions about how long this boom market will last.
“Within the commercial real estate arena, the players must be careful because greed by the sellers can be a very negative force,” said Cognetti. “Over-extension by buyers can also create problems down the road. There must be a balance.”
Another economic problem identified by Cognetti within NEPA involves the fact that the region’s warehousing and logistics companies are paying employees somewhere between $12 and $15 an hour. According to Cognetti, people are available who want to work within the associated job opportunities and strive for a logistics career, but cost-of-living increases have made the compensation unattractive.
“How can a family of four live on that salary when you add in the costs of traveling to work?” said Cognetti. “One of the high costs associated with living in NEPA is commuting to work, and we therefore have to reduce these costs with tactics such as ride sharing to draw more quality workers to our logistics jobs.”
Big flex demand
Flex commercial buildings where users can subdivide the sections for multi-use are still popular, reported Jim Cummings, vice president of marketing with Mericle Commercial Real Estate Services. He noted his company dealt with an especially big run on flex space during the last six months, particularly with packaging and building supply firms.
This contrasts with the sluggish situation many retail marketers are dealing with.
“Overall, retail is in a very tough situation, and the survivors of this market will undoubtedly evolve into specialized destination retail locations,” Cummings said.
Limits are also appearing with the amount of commercial land available within NEPA because of practical factors that include legacy coal mine damage and zoning regulations. The limits of available space are therefore driving up prices for land that can be developed.
Bulk industrial, e-commerce distribution centers, third-party logistics, medical practitioners, administrative facilities and back offices are leading the demand for Mericle’s available space. Many of these are labor-intensive enterprises, while demand is weak for financial and sales offices.
“Often the medical practitioners prefer to stay downtown so that they are close to public transportation, but now we are seeing some desire for suburban locations,” said Cummings. “This contrasts with distribution centers, where a suburban location offers the needed space for trailer parking and docks.”
Cummings added that, as the nation’s economy heats up, a big story now quietly unfolding involves labor shortages for quality workers. As demand increases for the limited supply of qualified staff, wage inflation could become a reality as employers are forced to pay more, thereby creating an inflationary spiral.
“This is all part of a typical up and down economic cycle with many unknowns as the next cycle begins,” said Cummings.