What the Top Brokers Across the U.S. are Discussing
The Top Insights and Topics from SIOR’s Fall Conference
By Elizabeth Holmes
The Fall 2022 SIOR Conference was recently hosted in Dallas and drew in a number of top brokerage professionals from across the United States. This year’s event saw a variety of insightful presentations covering topics such as the change in office tenant needs, investment trends, and industrial
shifts. Here are some key insights that drew particular interest from the R.W. Holmes team.
Change in Office Tenant Needs
In addition to high-image buildings and top-of-the-line amenities, ease of commute is a major factor in drawing tenants back to the office. With many employees moving to the suburbs during the pandemic, we see this as a major opportunity for suburban office.
More and more companies are being required to report their ESG metrics. We are starting to see tenants relocate to sustainable buildings in order to help with their ESG reporting. This was seen with Wellington’s lease at 140 Kendrick Street in Needham and the success of both Winthrop Center and 888 Boylston in Boston. We expect this trend to continue both in downtown and suburban Boston.
The pandemic was a health crisis, not a financial one. With that, we saw that companies overall have been financially strong over the past three years. The changes that have since come to office space have shifted office decision-making from primarily a financial decision to a Human Resources decision. It will be critical moving forward for brokers to provide the tools and analysis Human Resource executives need to make them confident that the building location, layout, and amenities will improve employee utilization, productivity, and retention.
With the rise in interest rates, it is just obvious that the building valuations of 2021/early 2022 cannot continue. As interest rates are expected to climb further, valuations will have to follow. The difficulty for brokers now is getting sellers to reset expectations when they have been seeing comps 20% or higher than today’s property valuations.
Economists, institutional investors, and local investors have all been talking about the freeze on capital. Whether it be from banks, institutional partners, or high-net-worth individuals, investors who have yet to raise significant capital have been finding it more challenging to raise money for acquisitions. In the short term, this will affect investment sales.
With these changes in the investment market, it is expected that opportunities will arise for investors who are well-capitalized and able to move quickly. We expect to see opportunities in properties that could not refinance short-term loans at favorable terms, institutional owners reallocating capital, and family trusts/long-term holders who want to get out before values drop too significantly.
In several areas of the country, lenders have put a hold on spec financing. With industrial vacancy rates still hovering around 4% across Greater Boston’s industrial market, more supply is critical to meet tenant demand. In particular, there is a significant unmet demand for tenants needing 10,000 – 40,000 SF of space. Low supply will continue to push tenants to look in neighboring markets (NH, RI, and CT) to find the space they need.
The government has just passed an executive order ordering that all semiconductor manufacturing return to the US and can no longer be performed in China. These massive facilities returning to the US will significantly impact the overall US industrial market in terms of increased demand.
Robotics and automation are quickly becoming an integral part of warehouse operations. While only 20% of warehouses currently use robots, that number is expected to double by 2025. This will significantly impact warehouse design and space requirements, and labor pool. We will also see an increase in robotics facilities to test and produce the robots.