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There are certainly plenty of exceptions but the vast majority of office-using businesses are facing up to the fact that the hybrid work schedule is here to stay. It started before the pandemic but now it’s in widespread use. The haggling over how many days per week employees will have to appear in the office will continue but, in the end, employers will have to adapt to the new flex work week, and they will have to adapt their offices too. Instead of viewing the obliteration of the traditional work schedule as a loss, office managers have an opportunity to transform their space into one that is highly desirable to the worker and conducive to productivity. The transformation, however, entails much more than creating more collaboration areas. It’s all about a multi-faceted real estate strategy that will take occupiers’ offices into the future, taking their employees along with them.
The need for change in office workspace is becoming increasingly evident to companies. Some may be slow to act, but it is certainly on their minds. A full 66 percent of business decision-makers are considering executing a redesign of their workspace offerings to better serve hybrid workers’ needs, according to Colliers’ new 2023 Global Occupier Outlook report. “Ideally, the workplace should give people everything that they get at home plus a lot more, commute notwithstanding,” Scott Nelson, global CEO of Occupier Services with Colliers, told Propmodo. “The workplace should provide access to more amenities inside the space, inside the building and in
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VTS has become one of the most prolific commercial property technology companies. They have captured much of the market when it comes to lease and transaction management in the U.S. in multiple commercial property types. With such a prominent position in the commercial property industry, the company has expanded into other categories to keep up its breakneck growth. They raised eyebrows (and the bar for valuation) when they acquired the tenant engagement app Lane for $200 million and the property operations tool Rise for $100 million, both in 2021. Now many, myself included, wondered why they decided to branch into building management software and what other categories they have on their roadmap. I recently had a chat with a co-founder of the company, Ryan Masiello, to learn about their product expansion strategy.
The first thing he told me was that he wants VTS to be known for pushing boundaries. “We want to be the company that is always getting into the newest, craziest stuff,” he said. He explained that the company has already shifted a lot since its inception. They started out as a virtual property showing company (VTS stands for View The Space) but shifted into a transaction platform.
Their new product, Activate, is a building management platform that will connect to their other suite of products. The reasoning behind the move is to become the go-to product for managing a building just like they have done for leasing one. “We have become an operating system for brokers,” Masiello said.
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Master-planned communities don’t always turn out to be the success that their developers envisioned but at Lake Nona, a 17-square-mile master-designed development in Orlando, Florida, developer Tavistock’s vision appears to have come to fruition. The development encompasses all the requisite ingredients for a 24/7 destination, including neighborhoods with housing options ranging from multifamily units to residential estates to accommodate a spectrum of incomes, primary and secondary schools and a junior college, hospitality offerings, expansive green space, retail packed into commercial clusters, and office space, plenty and plenty of office space. This is the place where Disney, until just a couple of months ago, had planned to build its new $1 billion campus. Carefully designed to be more of a cutting-edge city-within-a-city than a traditional master-planned community, Lake Nona centers on one key concept: innovation. Innovation in health and wellness, innovation in technology, and perhaps most unique, innovation in collaboration.
Lake Nona encompasses approximately 1.3 million square feet of office space, all Class A, with more on the way. As Orlando continues to fight to regain its footing post-pandemic, Lake Nona’s roughly 15-year-old office segment is performing very well. The master-planned community’s total office vacancy rate of just 7.3 percent in the first quarter of 2023 was less than half that of the Class A stock in metropolitan Orlando, which recorded a total vacancy rate of 14.7 percent, according to research from JLL. And while the metro area experienced negative net absorption, Lake Nona posted positive net absorption.
So, what is Lake Nona’s
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Everybody likes to talk about Blackstone, especially when it’s less-than-positive news about the world’s largest private REIT. This was the case with the release of Blackstone’s first quarter 2023 earnings report. The REIT’s Class 1 shares recorded a negative net return of 0.5 percent, belying the fact that BREIT has yielded an annual 12 percent net returns since its establishment as a REIT in 2017. It turns out, no one is impervious to the consequences of economic uncertainty and market turmoil. Excluding the $4.5 billion commitment from the University of California System, Blackstone reported $1 billion in capital raised in its non-listed BREIT in the first quarter of 2023, which is down compared to $2 billion of inflows in the fourth quarter of 2022. When the big kid on the block logs lackluster numbers, everyone wants to know why.
BREIT, which predominantly invests in stabilized income-generating commercial real estate across the United States, has come a long way in a short time. While one might assume a gargantuan player like BREIT would be limited to institutional investors, such is not the case. BREIT only requires a minimum initial investment of just $2,500, and its suitability standards call for an investor to have a minimum net worth of $250,000 or a gross annual income of at least $70,000. After an offering of up to $5 billion in shares of common stock in 2016, by the close of 2018 (a year after the company had elected to be taxed as a REIT) the
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It’s been a tumultuous few years for the office market, and the volatility is being felt by publicly traded real estate companies that have made their name developing and acquiring office properties. Looking at office REITs in particular, many of the firms with the largest portfolios are down significantly from highs early last year. Still, these investors seem to be sticking with their premier office buildings and in some cases, developing new ones. At the same time, while office remains their core asset class, some REITs are exploring adjacent sectors like life sciences, where demand has continued to be strong, and the nicely-rebounded retail sector, and even casinos.
Office REITs are also rethinking their geographic strategy. Some companies are expanding their footprint in new cities while others continue to focus on New York City, the country’s biggest office market. To help understand how the largest office REITs are spread out across the country, we have mapped out their portfolios.
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Boston Office Properties
Boston-based office REIT Boston Office Properties (BXP) owns 194 properties totaling 54.1 million square feet as of December 2022. Of the total portfolio, 5.6 million square feet is life sciences space, which makes since their hometown of Boston is the largest life science real estate market in the country. In the company’s 2022 fourth quarter earnings call, BXP President Doug Linde said he doubted that the company’s portfolio would see positive absorption in 2023, admitting that overall, the number of companies growing their space footprints has fallen.
Industrial properties have long been a favored investment for those seeking stable cash flow with minimal effort. Often featuring “triple net” leases, tenants cover expenses such as taxes, insurance, and maintenance. Due to low vacancy rates, most industrial landlords primarily focus on collecting checks. However, the rise of e-commerce has transformed the industrial landscape. Online purchases require an intricate network of warehouses and distribution facilities, which has led logistics companies to demand more from their landlords in terms of building improvements and additional services, and they are willing to pay for these enhancements.
The sustainability movement has further intensified the need for industrial landlords to expand their offerings, as logistics giants like Amazon and UPS have committed to aggressive decarbonization goals. Consequently, industrial property owners must adapt to the evolving market demands and expectations driven by the growing influence of e-commerce and an increasing emphasis on environmental responsibility.
All this adds up to industrial real estate going from the property type with the least amount of tenant collaboration to one with the most in just a few decades. To meet this challenge, large industrial owners have transformed their businesses into much more of a partnership model. The largest of these industrial and logistics landlords is Prologis. They own over 1.2 billion square feet of space across the globe. Rather than just lease out space to their tenants, they work with them hand in hand to try to tailor properties and services to help them advance their business goals.
Prologis collaborates with logistics firms,
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The conversation surrounding which amenities are a must-have for multifamily properties has a funny way of changing as the market cycles. From a landlord’s perspective, offering unique or highly desirable amenities can give a property the extra oomph it needs to stand out in the marketplace. With a recession around the corner and the Fed gearing up to raise interest rates yet again, nearly everyone is bracing for the impending economic downturn. So what’s the trendy amenity forecast for this market cycle? All signs point to one in particular: flexible rent payments.
2023 is slated to be a bumpy financial year, especially for renters. Projections from the Federal Reserve Bank of Dallas show that rent inflation is expected to accelerate this year, which puts additional monetary pressure on multifamily tenants. Landlords aren’t spared from this strain either. Aside from the emotional toll and reputational damage that comes with having to evict a tenant whose only offense is a financial struggle, landlords know that it costs more to acquire new residents than it does to keep current residents. But by offering a flexible rent payment schedule, where renters can split up their rent payments into smaller increments over the course of the month, property owners and managers can support their residents without sacrificing revenue.
See AlsoFebruary 26, 2023Flexible Living Is the Path to Growth in Multifamily
The gift of time
Flexible rent payments have been around for a long time, although the specific types and options have evolved over the years.
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