The year ahead

Happy New Year
Wave goodbye to 2015. It’s time to embrace the New Year and look ahead with anticipation (or trepidation) toward what’s to come. Just a few of the questions that will be answered during the course of the year include: Will viewers deem any of the Super Bowl ads worthy of their hefty price tag? Will the 2016 Summer Olympic Games put host country Brazil on a course for sustainable economic growth, or will it intensify the country’s social and economic issues? Will the United States have its first female president? Below are a few significant dates in 2016, including some that will provide answers to these and other burning questions.

February 7
The NFL’s top two teams will line up for Super Bowl 50 at Levi’s Stadium, home of the San Francisco 49ers, in Santa Clara, Calif. While the outcome of the game is still to be determined, one winner is already celebrating: broadcaster CBS, which is charging advertisers $5 million for a 30-second spot. Last year’s Super Bowl thriller between the Seattle Seahawks and New England Patriots, aired by NBC, was the most watched broadcast in the history of U.S. television with 114.4 million viewers on average.

February 29
2016 is a leap year! The good news: You have one more day this year. The bad news: It’s a Monday.

March 23
The much anticipated superhero showdown, Batman v Superman: Dawn of Justice, debuts in theaters. Does the Caped Crusader/Bruce Wayne/Ben Affleck actually have a chance against The Man of Steel/Clark Kent/Henry Cavill?

July 4
NASA’s unmanned spacecraft Juno is expected to arrive at the planet Jupiter after a five-year trek. The spacecraft will settle into orbit for a planned 20-month information-gathering mission.
In addition, the United States will celebrate the 240th anniversary of its independence. Americans will celebrate by spending approximately $700 million on fireworks, more than $200 million on hamburger patties and approximately $1 billion on beer.

August 5
The Summer Olympic Games in Rio de Janeiro kick off with the opening ceremony. Will Brazilian soccer icon Pelé be the chosen one to light the Olympic cauldron? Can 30-year-old U.S. swimmer Michael Phelps, the most decorated Olympic athlete of all time, add to his record 18 gold medals?

November 8
The U.S. presidential election will decide the country’s 45th chief executive. In 2015, Donald Trump proved to doubters that his hair was real. Whether the same can be said of his presidential candidacy is still too early to say, as of this writing. In 2008, the United States elected its first African-American president. Will Hillary Clinton follow as the country’s first female president?

Mark your calendars, stay tuned and best wishes for the New Year.

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LarryFinalwebv2Larry Gray is editorial director of Institutional Real Estate, Inc.

My New Year’s resolution is …

Most of us make resolutions every time the new year rolls around: be more healthy, stop biting my nails, read more, save more money, take a trip, volunteer, be more organized, etc.

For many people, a New Year’s resolution is a way to have a more positive outlook on the coming year, and for others it is a way to challenge themselves a bit more.

Business Insider polled some top business industry leaders about their resolutions for 2016. Here are a few of the answers:

  • Dan Ariely, a professor of psychology and behavioral economics at Duke University, plans to say “no” more often.
  • Chad Dickerson, CEO of Etsy, plans to learn Korean.
  • Arianna Huffington, co-founder and editor-in-chief of The Huffington Post, hopes to get enough sleep.
  • Jane McGonigal, an author and designer of alternate-reality games, would like to say “thanks” more often.
  • Karen Quintos, the CMO at Dell, plans to speak up for women in business.
  • Tony Robbins, a business strategist and author of Money: Master the Game, wants to give back.
  • John Schnatter, CEO of Papa John’s Pizza, wants to get back in shape.
  • Julie Sweet, Accenture’s North American group chief executive, wants to explore the world.

For the full list, click here.

My resolution? To save up and take a trip to Scotland. What’s yours?

No matter what the reason and no matter what the resolution, the only problem is trying to keep that resolution. Good luck!

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DenisewebfinalDenise DeChaine is special projects editor and video production specialist at Institutional Real Estate, Inc.

An increase in rates

The Federal Reserve raised interest rates last week (as many had expected). This is the first increase since 2006. The benchmark rate was lowered to nearly zero in December 2008 to help stimulate the economy following the global financial crisis.

In a statement, the Federal Open Market Committee noted:

“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.”

In the commercial real estate industry, the question has been: Will a rise in interest rates affect cap rates? The market consensus appears to be that a modest rise is unlikely to have a significant effect on cap rates. A MarketFlash from CBRE noted:

“We do not believe today’s move will have any impact on the commercial real estate markets and that the Fed likely has significantly more room to move before we begin to see real pressure on cap rates. That said, certain markets may be more susceptible than others to interest rate increases.”

The move by the Fed means that U.S. monetary policy is now moving in a different direction than that of Europe. According to Fergus Hicks, associate director at Cushman & Wakefield:

“The widely anticipated move by the Fed to increase U.S. interest rates highlights the divergence between the U.S. and European economies. European economies are showing modest growth, unemployment remains high and inflation is hovering around zero. Moreover, in contrast to the Fed, the European Central Bank continues to ease policy and implement its QE program, which it has also now extended. The U.K. is more closely aligned with the U.S., although Mark Carney has made clear that he is in no rush to follow the Fed in rate rises. That said, U.K. interest rates do look set to rise at some point next year.”

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LorettawebfinalLoretta Clodfelter is editor of Institutional Real Estate Americas.

U.S. high-net-worth market largest in the world

Houston skyline and Memorial reflection Texas USIt’s no secret that one’s rising wealth can lead to increased spending on a goods, services and homes. And the number of those capable of spending more on a whole host of things has grown in the United States, which is worthy of note by institutional investors.

According to Capgemini’s recently released U.S. Wealth Report 2015, high-net-worth individuals in the United States increased their wealth by more than $1 trillion during 2014. The number of high-net-worth individuals — defined as those with more than $1 million in investable assets excluding primary residence, consumables and collectibles — expanded by 8.6 percent to 4.4 million people, and their actual wealth increased by 9.4 percent, or $15.2 billion. As a result, the United States maintains its status as the largest high-net-worth individual market globally.

Based on the Capgemini report, Think Advisors compiled a list of the top 12 fastest-growing U.S. cities for millionaires:

  1. Houston
  2. Seattle
  3. San Jose
  4. San Francisco (tie)
  5. Dallas (tie)
  6. Los Angeles
  7. Boston
  8. Detroit
  9. Philadelphia
  10. New York City
  11. Washington, D.C.
  12. Chicago

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Jennifer-Molloy91x119Jennifer Molloy is senior editor of Institutional Real Estate Asia Pacific.

Fun and games

It’s approaching Christmas. While our minds may slowly be tuning in to that happy occasion — whether you are a Christian or not, we all like a festive season, even if there is an element of enforced jollity — the minds of property forecasters are taken up with projections for the year ahead. It’s an inexact science, forecasting, for none of us can foretell the future. But we can have fun trying.

Two forecasts last week for the U.K. commercial real estate market from two eminent commentators, Savills and Schroder Real Estate, contain fun news next year for Europe’s largest property market.

Savills is predicting that average total returns in 2016 will slow to around 7.5 percent and says that investors next year will focus on the income-generation potential of property subsectors. This may mean paying greater attention to unlocking the latent value of individual assets through active management and a further shift toward investment in regional markets, given that recent capital growth in London markets has left yields at record-low levels.

The United Kingdom’s planned referendum on membership of the European Union presents the greatest uncertainty for U.K. real estate in 2016–2017, according to Savills:

“The prospects for a pre-referendum investment slowdown may well depend on how close polling companies believe the outcome will be.”

Mark Ridley, CEO of Savills U.K. and Europe, comments that U.K. real estate will move into a new stage of the property cycle next year and will also face a number of “known unknowns.” These include the in-out E.U. referendum within the next 18 months, new regulation coming into force and a potential end to more than six years of record-low interest rates. Ridley says:

“As we’re unlikely to see a repeat of the strong capital growth witnessed recently, we’re predicting that investors’ attention will turn to maximizing rental growth and income returns. There are still numerous opportunities across all the sectors we’ve explored, however, particularly outside the capital, and we expect to see the shift toward investment in the regions that began this year to strengthen in 2016.”

For Schroder Real Estate, 2016 will see performance across different parts of the various real estate sectors become more polarized over the next 12 months. 2015 was a good year for U.K. commercial real estate, the firm says, with unleveraged total returns likely to be close to 15 percent. Duncan Owen, head of real estate, points to the impact of the broad-based recovery in rental values:

“While central London offices have led the upswing, several other cities including Brighton, Bristol, Cambridge, Manchester, Leeds and Oxford have also seen a significant increase in office rents.”

Owen concedes that some commentators are asking whether we are now at the top of the cycle. Capital values have risen by 25 percent in less than three years. “Surely, this cannot continue?” he asks. But he answers his own question:

“This sentiment is understandable, but not necessarily rational. The immediate trigger for previous downturns has been a recession, which has depressed rents and pushed up real estate yields as investors have withdrawn from the market and liquidity has dropped. In addition, commercial real estate has had a habit of contributing to its own downfall, either through excessive borrowing that inflated prices (eg. 2005–2007) or because of a boom in development that left an oversupply of space (eg. 1988–1990) and falls in rents.”

Things are different this time. Oh no they’re not. Oh yes they are. The economic outlook is positive and the consensus is that U.K. GDP will grow by 2.25–2.50 percent through 2016–2017. Also borrowing is under control and new commercial development remains at a low point in most markets. One exception is the City of London, where a number of new offices are due to complete in 2018–2019.

Schroders expects that total returns from U.K. commercial real estate in 2016 “will still be respectable, at between 7 percent and 9 percent.” One risk centers on 10-year government bond yields, where there is a possibility that these could jump more sharply in 2016 than anticipated. A second risk is the E.U. referendum:

“If the United Kingdom were to leave the E.U., then U.K. real estate could be hit as various investment banks and institutions, as well as some manufacturers, switch to continental European locations.”

Ho hum. Here’s another forecast. The Fed will increase interest rates this week. Oh yes it will. By a fraction of 1 percent. How big a fraction? Ooh, about t h a t big.

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RichardFlemingRichard Fleming is editor of Institutional Real Estate Europe.

Now training for the 2020 Olympics: robot taxis

#IMG_2972Some people look forward to driverless cars with excitement and anticipation. Others consider them a blue-sky technology that will not make it to market in a timely or appreciable way until their great-great-grandchildren are shopping for their first dirigibles.

Maybe by time the 2020 Tokyo Olympics are completed there will be many more people in the former group than in the latter.

The Japanese, who sometimes seem obsessed with robots, have a company that has announced plans to roll out hundreds of driverless Robot Taxis to ferry Olympic-goers from venue to venue. The company in question is Tokyo-based Robot Taxi, and it still needs to obtain regulatory clearances from the government to swing its plan into action, and that will not be forthcoming until is successfully completes field tests of its driverless taxi service, starting in March 2016.

The Olympics will, of course, be a showcase for the company’s technology, but there are bigger, more abiding plans hanging in the balance, such as serving Japan’s rapidly expanding population of senior citizens, some of whom live in rural areas where driver shortages are a concern.

Then there is the economics of transportation services, where 70 percent of expenses are related to labor costs — which explains why Uber and trucking companies are hot for driverless technologies and self-driving cars and trucks.

There is also the startling case being made by some real estate analysts that driverless vehicles will dramatically reshape cities and alter property values, for better and for worse. (See “The driverless-car revolution” in the January issue of Institutional Real Estate – Americas and Real Assets Adviser magazines.)

I’m pulling for the Japanese because I’m looking forward to eating an amino-acid-rich breakfast and reading my daily quotient of news while being chauffeured on my daily commute to work.

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MikeCfinalwebMike Consol is editor of Real Assets Adviser.

IREN breaks 2014 records

The last month of the year is here, and IREN is ending the year breaking records. To date, the IREN Daily email has published more than 948 original stories and has already exceeded last year’s total number of IREN stories, when 937 stories were published.

When I started at Institutional Real Estate, Inc., IREN was a weekly PDF that published fewer than 100 original stories each year, while the majority of the stories were from other media outlets.

Not only have we increased our speed on breaking news, delivering IREN on a weekly basis, we have increased our exposure internationally. This year, Americas-focused stories makes up more than 69 percent of our coverage, while Europe is 22 percent and Asia Pacific is 18 percent. Compare that to last year’s numbers: Americas stories were approximately 70 percent, Europe approximately 20 percent and Asia Pacific approximately 10 percent.

In November, our top five stories were:

If you missed last week’s IREN Friday, click here.

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AndreafinalwebAndrea Waitrovich is IREN editor and web content editor of Institutional Real Estate, Inc.

A time to be grateful

It wasn’t that long ago the commercial real estate sector was down in the dumps, knocked for a loop by the global financial crisis. Maybe you remember some of these headlines:

2009: A Terrible Year for the Record Books (Real Capital Analytics)
For those who thought 2008 was a terrible year in the annals of U.S. commercial property investing — and who didn’t think so? — 2009’s results put a surprising glow on such bleak memories. With $51.9 billion in investment sales showing a 64 percent retreat from 2008’s $146 billion — and a 90 percent plunge from 2007’s $522 billion — 2009 limped ingloriously out of sight.

U.S. Apartment Vacancy Rate Hits 30-Year High (Reis Inc.)
The U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump in 2009, according to real estate research company Reis Inc. For 2009 asking rents fell 2.3 percent, also the largest decline in 30 years.

Office Vacancy Rate Hits 16-Year High (Reis Inc.)
The U.S. office vacancy rate rose to 17.2 percent, a level unseen since 1994, as the market lost about 11.6 million net square feet of occupied space during the first quarter [2010], according to a report by real estate research firm Reis Inc.

California Pension Funds Get Burned Again on Real Estate (Sacramento Bee)
CalPERS’ real estate portfolio lost 47 percent of its value in a year’s time and was valued at $13.7 billion at the end of January [2010]. CalSTRS’ real estate holdings declined by 38 percent in the 12 months ending last June 30, [2009] falling to $13 billion.

Trying Times for Investors and Fundraisers (Institutional Real Estate, Inc.)
Dogged by previous overleveraged investments, weakening property fundamentals and a tight credit market, many investors have moved to the sidelines, licking their wounds and nursing their portfolios. Uncertainty in the economy and capital markets, combined with recent poor performance by the real estate asset class, have left investors questioning their allocations, strategies and LP-GP relationships. These market conditions produced a limited number of fund closings in 2009, totaling only $39.6 billion, which pales in comparison to the 2008 total of $134.9 billion.

All of these headlines are circa 2009–2010.

Five to six years later, the commercial real estate story is one of redemption, for the asset class, for investors and for investment managers. In the aftermath of the Great Recession, the real estate market didn’t shrivel up and blow away, investors didn’t abandon the asset class, and, surprisingly, most lenders got it right this time with their patient “extend and pretend” strategy. Real estate has not only survived, it has thrived.

As of third quarter 2015, the NCREIF Property Index posted an annualized total return for the past five years of 12.55 percent. And buoyed by continued low interest rates and an improving economy, the U.S. property markets should continue to experience higher occupancies, rents and NOIs in 2016.

The bottom line: If you’re in the commercial real estate investment industry, you probably have more to be thankful for than most. With the holidays upon us, take some time to reflect, enjoy the company of family and friends, and be grateful. And, as often-quoted author Robert Brault advises, “Enjoy the little things, for one day you may look back and realize they were the big things.”

Happy holidays!

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LarryFinalwebv2Larry Gray is editorial director of Institutional Real Estate, Inc.

A new story for Oakland

UptownStationRenderingDuring the 2014 NFL season, the Oakland Raiders went 3–13. A team that was once dominant hasn’t won a Super Bowl since 1983. That isn’t going to change this year, but they are definitely taking steps in the right direction. The same could be said for the city in which the team plays.

This year has been a year of significant growth for Oakland, Calif. In the third quarter, vacancy rates of class A office properties decreased from 5.8 percent to 3.7 percent and class B office vacancy decreased from 10 percent to 4.4 percent, according to Colliers International’s Oakland Metropolitan Area Office Q3 2015 Research & Forecast Report.

Uber recently began the process of moving its headquarters to Oakland, acquiring a 372,000-square-foot property that is set for completion by 2017. Additionally, Pandora Media added nearly 50,000 square feet onto the firm’s 230,000-square-foot headquarters. Other recent moves into Oakland have included Brown and Tolland Physicians, The Sierra Club and CoreLogic, according to the Colliers report.

With San Francisco rents high and office supply low, it is not surprising that major companies are moving to the city across the bay.

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ZoeWolff119x91Zoë Wolff is a reporter at Institutional Real Estate, Inc.

Lap of luxury

ThinkstockPhotos-487745566Luxury is the name of the game for many high-net-worth individuals seeking to enjoy their lives by doing whatever they choose with all that money, and high-net-worth individuals in Asia are no exception.

Julius Baer recently released its fifth annual Wealth Report: Asia, which tracks the cost of luxury goods and services, along with wealth creation, in 11 Asian cities — Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Manila, Mumbai, Seoul, Shanghai, Singapore, Taipei and Tokyo. According to the report, the pool of investable assets held by high-net-worth individuals in Asia could reach $14.5 trillion by 2020, amounting to growth of 160 percent in the next five years.

Of this amount, Chinese high-net-worth individuals are the projected regional leaders, with wealth of $8.25 trillion expected by 2020 (up from $5.1 trillion anticipated for 2016). Thomas Meier, Asia Pacific region head with Julius Baer, says in a statement:

“Our forecasts reflect the belief and confidence that China has ample room to ease monetary and fiscal policy to both stabilize and boost the economy.”

According to the report, the wealth gap between high-net-worth individuals in China and India is expected to narrow in the next decade, with Indian high-net-worth individuals’ wealth projected to reach $1.425 trillion in 2016 and $2.3 trillion by 2020. And, despite anticipated GPD growth of only 3.2 percent this year because of the depreciation of the rupee against the U.S. dollar, India’s economy “has found its footing and is in a period of positive development,” notes the report.

Given India’s high-net-worth wealth creation is projected to rise 94 percent between 2014 and 2020 versus 74 percent for China during this same period, a continuation of this trend for at least a decade will help shrink India’s wealth and economic gap with China.

Results for the 2015 Julius Baer Lifestyle Index, included in the report, indicate the most expensive cities for goods exclusively are Shanghai, Bangkok and Singapore, which overlaps with the list of the most expensive cities for goods and services — Shanghai, Hong Kong and Singapore.

With respect to residential property, lifestyle cost has increased by 17 percent year-over-year (and in local currency) in Hong Kong, according to the report. This is the most for all 11 cities covered by the index. Residential asset costs in Shanghai took second place, up 15 percent between 2015 and 2014. Most cities saw decreased residential lifestyle costs, including Mumbai (–9 percent), Kuala Lumpur (–8 percent) and Tokyo (–6 percent).

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Jennifer-Molloy91x119Jennifer Molloy is senior editor of Institutional Real Estate Asia Pacific.