Cassidy Turley report: Columbus office market continues to improve

Construction continues on the new home for Columbia Gas in Columbus.

Construction continues on the new home for Columbia Gas in Columbus.

by Dan Rafter

The office market has been a sluggish one in most Midwest cities. But in Columbus, at least, this sector is showing steady improvement.

That’s the takeaway from Cassidy Turley’s third-quarter Columbus office report, which found improvements in both vacancy rates and net absorption in the third quarter in Ohio’s capital city.

“The Columbus office market is alive and well,” said Robin Mitchell, research analyst for Cassidy Turley’s Columbus office, in a written statement.

How well is the market performing today? Mitchell said that as of the end of the third quarter, the Columbus office market had absorbed more than 330,000 square feet in 2014. That figure matches the office absorption for the entire year of 2013.

The city’s Northeast submarket had a strong showing, absorbing almost 70,000 square feet in the third quarter. A key deal here was Zulily’s lease of 34,000 square feet at Columbus’ Tech Center III.

Columbus’ downtown market, though, saw even more activity in the third quarter, absorbing nearly 120,000 square feet. Excel Inc.’s lease of an additional 22,000 square feet in the quarter was a boon to the downtown market. And Excel’s deal came after the company had already leased 26,000 square feet in downtown Columbus in the first quarter of the year.

At the end of the third quarter, Columbus’ office market had a vacancy rate of 15.6 percent, the lowest since before 2008. The Northeast submarket’s office vacancy rates stood at 13.03 percent, down from 14.48 percent in the second quarter.

Today, almost 900,000 square feet of construction is underway in the Columbus office. This is the most construction activity in this sector since 2008. New expansion projects are now in progress at such key office complexes as Waters Edge, Westar and New Albany Tech.

The biggest project in the office market is The Columbia Gas Building. At 288,000 square feet, it is the largest building under construction in the Columbus market. Construction should wrap on this building in the fourth quarter of this year.

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Pop-up stores keep popping up; They’re not just for Halloween

by Dan Rafter

Seem like there’s a Halloween pop-up store — open in September, closed by early November — in every strip center in your town? You’re probably wrong. But not by as much as you’d think.

Halloween pop-up stores have become big business. Business research firm IBISWorld reported that operators opened 1,706 Halloween pop-up stores across the United States last year. That’s an increase of 30 percent from four years earlier. Spirit Halloween, one of the biggest operators of these shops, is running more than 1,100 locations in the United States and Canada this year.

But here’s the most surprising part: Pop-ups aren’t just for Halloween, or for Christmas. Many retailers open these temporary retail locations to promote new products or services.

A good example? Shorenstein Properties LLC earlier this year signed a pair of these short-term retail leases at Minneapolis City Center, a 1.5-million-square-foot mixed-use property in downtown Minneapolis: The Elixery, an artisan cosmetics retailer, and Indulge & Bloom, a floral design and gift store that has already operated in Minneapolis for 15 years.

Earlier this year, Ronnie Ragoff, senior vice president at Shorenstein, told Midwest Real Estate News that such pop-up leases will continue to grow in popularity as more retailers seek less expensive ways to test out unproven products, concepts or locations.

“For us, it’s a way to allow artisans the opportunity to come into a center and show their wares,” Ragoff said back in February. “Some might not have been able to do that in the past. They might not have the money to sign a long-term lease. These short-term leases also provide additional activity in a center that we are trying to transform. It’s an opportunity, too, for our tenants at the center to have exposure to local artisans.”

What’s behind the surge in pop-up shops? Joanne Podell, vice chairman of Cushman & Wakefield in retail-clogged New York City, said that pop-up shops come with a number of advantages for landlords.

It’s true that landlords would rather sign long-term leases for their empty storefronts. But a pop-up store at least provides an influx of temporary cash. And having a pop-up store operating in a location might make it easier for landlords to eventually rent that space to a long-term client.

“Having a store open and operating, having people walking in and out of the store, can be very helpful when landlords are trying to lease a store,” Podell said. “For a broker or potential tenant to walk into a dark, closed store, that is not as exciting or inviting.”

There are potential pitfalls with pop-up stores, too. They simply aren’t good fits for every retail location.

Podell points to first-floor retail space located in high-end office buildings. Landlords might not want to set up a pop-up store in such storefronts, Podell said.

“You don’t want a junky store in the ground floor of a beautiful office building,” Podell said.

Podell said that she has during the last few months received inquiries from overseas clients about the potential of pop-up stores. These clients aren’t sure if they can succeed in business in the United States. Opening a temporary pop-up store gives them the opportunity to discover if their business can survive here.

Expect more pop-up stores — of greater variety — to open in the coming years. Podell cites the National Basketball Association. During its yearly draft in New York City, the league opens a pop-up shop to sell branded merchandise. Several years ago, retail giant Target opened its own temporary pop-up shop in Times Square to promote new products.

“If an existing retailer wants to open a pop-up store for some introductory purpose, it has to be tied to a new product or timed for a specific launch,” Podell said. “It has to be in a well-traficked area. You need a lot of foot traffic. It’s a tougher concept to pull off than you might think.”

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DTZ Research: Gap between warehouse salaries in United States and Asia starting to narrow

dtz 1by Dan Rafter

Warehouse workers earn the smallest salaries in China and India. In the United states? The salary of the average warehouse worker here is nearly five times higher than what the average warehouse worker brings home in China.

But here’s a surprise: A new report from DTZ Research finds that occupancy and labor costs for logistics operators have fallen in both the United States and Europe. At the same time, these costs have increased dtz 2sharply in Asia.

Of course, occupancy and labor costs are still far higher in Europe and the United States. But DTZ in its 2014 Global Occupancy Costs — Logistics Report found that the gap is shrinking, at least slightly.

The report says that global occupancy costs will increase at a modest average annual rate of 1.9 percent through the end of 2018. That’s below the global inflation rate, good news for operators.

dtz 3The news was good, too, for landlords in the United States, said Richard Yorke, global head of occupier research for DTZ.

“Landlords in the U.S. are starting to get the upper-hand as demand for warehouse space grows,” Yorke said in a written statement. “This will translate into cost increases that will surpass the U.S. inflation level.”

Yorke said that Atlanta and Houston should experience some of the fastest growth in occupancy costs across the globe through 2018.

dtz 4Some of the more interesting research, though, focuses on labor costs for warehouse workers across the globe. According to DTZ, while the average warehouse worker salary in the United States remains about five times higher than in China, the Asia Pacific region has seen the highest increase in labor costs since 2009, an average annual growth rate of 11 percent. That is far higher than the annual average growth rate of 1.4 percent for warehouse worker salaries in the United States and Europe.

Milena Kuljanin, author of the DTZ report, pointed to the city of Shenzhen in southern China. Here, warehouse workers’ wages have increased by more than 15 percent each year since 2009.

“This reflects an imbalance between the demand and supply of labor, and also indicates a shift in the economics of global logistics,” Kuljanin said. “Future increases in wages and occupancy costs will further reduce China’s cost advantage.”

Europe has seen declines in occupancy costs during the last five years. But it still remains the least affordable region for occupiers across the globe, according to DMZ. Six of the top-10 most expensive markets are in Europe, with London coming in at the top. In the United States, the most affordable markets for occupiers are clustered in the south, markets such as Memphis, Atlanta and New Orleans. Costlier markets are generally on the West Coast, cities such as San Francisco and Los Angeles.

Greg Schementi, head of U.S. tenant representation at DTZ, said that the report offers plenty of evidence that operators in the United States need to rely more than ever on technology.

“Increased occupier demand in the United States, and with it rising costs, will require logistics facilities to deliver greater efficiencies,” Schementi said in a written statement. “This is driving the supply of larger, more technologically advanced warehousing in close proximity to urban areas.”

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KeyBank ready to boost its already strong community development lending efforts

KeyBank's community development arm has provided significant financial support to Cleveland's Uptown project.

KeyBank’s community development arm has provided significant financial support to Cleveland’s Uptown project in the University Circle neighborhood.

by Dan Rafter

How big of an impact does KeyBank’s Community Development Lending divison have on the the markets it serves? Just look at the numbers: Last year, KeyBank provided $2.9 billion in debt and equity financing to developments in underserved communities. This helped finance the construction of more than 119,000 units of affordable housing.

And the leaders of the Cleveland-based bank’s Community Development Lending division hope to make an even bigger impact.

“Our goal is to put a lot of capital into the market for very specific uses,” said Jim Poznik, senior vice president of community development lending for KeyBank. “The company’s culture is one that encourages this kind of business. The company gives us the space to do it. It’s an important business for KeyBank. It’s about being a good corporate citizen and about providing capital for the community it works in. That’s the overarching philosophy.”

KeyBank recently named NormanC Bliss senior vice president and director of community development. In this role, Bliss will oversee the community development lending program, and will help the bank prepare to meet the requirements of the Community Reinvestment Act exam.

This exam is an important one. It charts how well banks meet the lending needs of low- to moderate-income communities.

KeyBank, to meet the requirements of the Community Reinvestment Act, focuses on lending to developers who will bring affordable housing and other construction and renovation projects to areas that are struggling economically.

“KeyBank is making a huge difference in the communities that we serve,” said Bliss, who has worked in community development lending for 25 years. “It’s not about getting outstanding ratings on our exams. That’s not what drives us. I’m proud of that. What does drive us is a deep commitment to the communities we serve. Because of that commitment, we receive the outstanding ratings on our exams.”

The challenge with community development lending, of course, is to make sure that dollars are going to the right projects. This means sending development dollars to projects that will make a positive impact in struggling communities. But it also means providing financing to projects backed by developers that have a long track record of success in the affordable-housing area.

Poznik said that KeyBank has during the last two years been lending dollars to several supportive-housing projects. Such projects feature affordable rental housing but also provide services to help renters find jobs, build their resumes and learn new technology that can help them boost their incomes.

“We want to make sure we are working with clients that are providing decent affordable housing,” Poznik said. “We want to work with developers who have a good reputation in the market, clients that are delivering needed services in their communities.”

An example of KeyBank’s community development work can be found right in Cleveland. KeyBank last year provided $9 million in New Markets Tax Credit loans and nearly another $9 million in equity to the Uptown development, an apartment and retail project in University Circle, one of Cleveland’s oldest neighborhoods.

Bliss, who has been with KeyBank’s Community Development Lending division for nearly two months now, said that he is looking forward to expanding the bank’s community efforts.

“It is a great scene here,” Bliss said. “This is a team of veteran, experienced community development professionals that I have inherited. We want to continue to provide that outstanding service to our markets. But we also want to continue to be innovative in our approaches and strategies. We want to continue to be the leader that we are. There is still more to learn. Along the way, I’m sure we’ll find some things that can be tweaked and enhanced. This is a great team for me to be a part of.”

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Industrial vacancies keep falling in Cincinnati market

van trust specby Dan Rafter

The industrial market in greater Cincinnati continues its hot streak, with bulk warehouse vacancies at all-time lows, according to the latest research from CBRE.

According to CBRE’s third-quarter industrial report, bulk warehouse vacancies ended the third quarter with a vacancy rate of just 4.8 percent. The report also said that the greater Cincinnati market has seen more than four straight years of positive net absorption in its industrial market. So far for 2014, the market has seen 3.4 million square feet of industrial absorption.

Some of the bigger projects in the Cincinnati area include IDI’s 786,435-square-foot inventory facility. IDI recently started construction on this facility at the Park South industrial park in Richwood, Ken.

DCT industrial also notched a major industrial deal, selling an 840,000-square-foot complex at Port Union Commerce Park to Founders/Opus Group. The buyer has plans to build an additional industrial development on the 98-acre site.

Van Trust has made an impact, too, recently completing a 273,600-square-foot spec warehouse in Hebron, Ken.

In all, new construction activity in the Cincinnati industrial market now totals more than 2.1 million square feet. This is the highest this figure has stood since 2008.

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It’s not just industrial that’s booming in Indianapolis

The multi-family market is a strong one in Indianapolis.

The multi-family market is a strong one in Indianapolis.

by Dan Rafter

The best news about the Indianapolis CRE market? It’s strong not just in industrial — which has received the most press — but in most every segment today.

That holds true even for the most troubled of commercial segments. Jeff Merritt, vice president of commercial services for Colliers in Indiana, said that vacancy rates in the office market continue to drop in the Indianapolis area, both in the suburban and CBD submarkets.

Merritt said that the office market is showing steady improvements in the more popular suburban markets, places like Fishers and Carmel on the north side of the Indianapolis region. What’s behind the improvement in this sector? Merritt points to a local unemployment rate that is falling and an influx of tech companies targeting Indianapolis.

“The suburbs are certainly doing better. And the CBD is starting to come back, too,” Merritt said. “We are seeing definite improvement in the office market.”

Of course, the multi-family market is thriving in Indianapolis, as it is in markets across the Midwest. Renters are flocking to urban areas, and Indianapolis is benefiting from this trend today, said Michael Wernke, senior vice president of investment and multi-family services with Colliers’ Indiana region.

“People need a place to live, and downtown Indianapolis is a pretty robust market right now,” Wernke said. “There are some definite hot areas here for multi-family.”

The multi-family market, though, faces the same question facing the city’s industrial market: Will there be enough demand to fill all the new multi-family developments that have sprung up in the Indianapolis market?

Michael Drew, also a senior vice president of investment and multi-family services with Colliers, says that the demand is there for these new units. He said that about 3,500 new apartments have either been recently delivered or are under construction in the Indianapolis market.

Drew doesn’t think that the owners of these buildings will struggle to fill them with tenants.

“The young professionals want to live downtown,” Drew said. “The empty nesters, they want to live downtown, too. They are increasingly inclined to sell their suburban homes with all that maintenance and upkeep and head downtown to an apartment. We are seeing many examples of that happening.”

And as multi-family improves, so does the retail market in Indianapolis. Greg Smith, vice president of retail services with the Indiana region of Colliers, said that rising consumer confidence, higher employee wages and a falling unemployment rate have all combined to provide a boost to the city’s retail market.

As in many Midwest markets, the hottest retail segment in Indianapolis remains the grocery segment. Giant Eagle is entering the Indianapolis market, planning a store in the suburb of Carmel.

“Retail growth is going to continue to boom,” Smith said. “Our whole team feels that way.”

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Lincoln’s CRE market benefitting from a winning formula

The Flats at 84 is an example of the new multi-family developments hitting Lincoln.

The Flats at 84 is an example of the new multi-family developments hitting Lincoln.

by Dan Rafter

There’s a winning formula common to the most successful commercial real estate markets in the Midwest today: Low unemployment rates and a major university near the CBD.

This formula is working today for Nebraska’s capital city of Lincoln, where all CRE sectors are showing continued improvement.

Activity is especially strong in the city’s Haymarket district near the still-new Pinnacle Bank Arena, said Richard Meginnis, executive vice president and business manager with Lincoln’s NAI FMA Realty.

But the Haymarket area, as strong as it is, is far from the only slice of Lincoln that is booming today.

“Commercial is really picking up all throughout Lincoln,” Meginnis said. “It’s catching up with the rest of the country right now. The improvement has been led by the apartment sector. That sector was the first to really heat up. Also, being the home of the University of Nebraska has helped. Like a lot of university towns, there has been a boom in student-housing construction around the university.”

Being the home of a major university — and one that sits right next to its CBD — is just one of the factors that makes Lincoln a good place for business owners and commercial real estate pros today. The city also boasts low unemployment, under 5 percent. There’s a strong labor force here, and the larger employers that call Lincoln home are all stable ones.

The city’s office market, in fact, is seeing solid gains largely because of the low unemployment rates and stable businesses here.

And Meginnis says that he expects this sector to only show more improvement as 2015 arrives.

“The companies coming out of the recession, the last thing they are adding now is personnel,” Meginnis said. “The last thing they are adding is employees. We are now starting to see that many of these companies have to add to their office spaces eventually.”

The numbers back up the optimism expressed by Meginnis. According to NAI FMA Realty’s first half 2014 report, the office, retail and industrial markets in the Lincoln market all posted positive net absorption in the first six months of 2014. The report cites the city’s rapidly expanding technology, manufacturing and restaurant/hospitality services industries as the forces behind this good news.

In fact, the city’s retail and industrial markets are approaching vacancy rate lows not seen since 2009, according to NAI FMA Realty. And in the first half of 2014, the total value of applications for commercial building permits — not counting multi-family and schools — soared past $94 million. Of this, $54 million is going toward new construction.

Tom Graf, a sales associate with NAI FMA Realty, said that he expects the good news for Lincoln to continue in 2015 and beyond. The city, he says, just has too many positives in its favor to think otherwise.

“We have a big university here. It’s where the state government is headquartered. We have a lot of good things going for us,” Graf said. “We have very stable and successful larger employers. Some are growing dramatically. Historically, our unemployment rate is low. That inspires confidence in our consumers, so they are willing to open their wallets.”

At the same time, the University of Nebraska continues to reach out to local entrepreneurs and start-ups. This brings a steady stream of new tech ventures to the city, Graf said.

“It’s impressive the results you do get when you have the university participating at the level it does,” Graf said. “There are so many new tech ventures in Lincoln today. The university is reaching out and directly engaging these young entrepreneurs. It all adds up to what looks like a good future here.”

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