Metros with High Numbers of STEM Workers post Above-average Growth, Jobs, Income

As technology spreads across the globe, metros with high numbers of STEM workers (science, technology, engineering and math) are well positioned to post above-average growth in jobs and incomes, according to Newmark Grubb Knight Frank’s “Friday Market Insight” by Robert Bach, director of research – Americas.

“STEM workers account for 6.2% of U.S. employees, and they can be found in nearly every economic sector,” said Bach. “About one-third of STEM workers are in the professional, scientific and technical services sector. Somewhat counterintuitively in this brutal election season, 16% of STEM workers are in the manufacturing sector; U.S. manufacturers need high-skilled workers to run increasingly sophisticated assembly operations focused on high-value-add products.”

Among metro areas with at least 500,000 residents, the San Jose metro area (Silicon Valley) has the highest share of STEM workers. About 22.2 percent of its employees are STEM workers, followed by Huntsville, Alabama; Durham-Chapel Hill, North Carolina; Seattle-Tacoma-Bellevue, Washington; and metro Washington, D.C. “Perhaps the biggest surprise is Detroit,” said Bach, “where the concentration of auto manufacturing and related industries boosts STEM employment to 9.2%, about even with Denver and San Diego.”

Where is New York, Boston and Los Angeles in this ranking? “On an absolute basis,” noted Bach, “the greater New York City area leads with over 500,000 STEM workers, followed by Washington, DC, greater Los Angeles, Boston and Chicago. However, some of the markets with the largest absolute numbers of STEM workers don’t have the highest concentrations, simply because their economies are so diverse, e.g., New York, Los Angeles and Chicago.”

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2.8 Percent Annual Rental Growth is Just One of the Contradictions of the US Retail Market

U.S. retail today is a case study in contradictions, with growing demand from new retailers adding hundreds of stores across the country while at the same time many old, established chains are scaling back, closing stores or going bankrupt, according to CoStar’s “Midyear/Second Quarter 2016 Retail Market Review and Forecast.”

Here is a closer look at the report’s key takeaways:

  • Retail vacancy rates are down and trending lower, with shopping centers and malls adding 25 million square feet of total net absorption in the second quarter.
  • Rental rate growth has held stubbornly at about 2.8 percent annually since 2014, which has “kept retail bottled up as the last CRE property sector still shy of its pre-recession rent peak.”
  • Store closures are rising again: Office Depot added 300 stores to the list of 400 stores slated to be closed. Bankruptcies such as The Sports Authority and closures by Sears and other department stores have left vacancy holes in shopping centers.

“From a high-level perspective, the fundamentals outlook indicates the market is quite healthy,” said CoStar senior real estate economist Ryan McCullough, who joined Suzanne Mulvee, director of U.S. Retail Research for CoStar Portfolio Strategy, in presenting the second quarter and midyear update.

“The contradicting nature of the changes roiling the retail sector have largely kept developers on the sidelines. Only 12 million square feet entered the retail inventory across all shopping center types in second-quarter 2016, less than half of the 25 million square feet of total net absorption. Demand has now outpaced new construction for 16 straight quarters since mid-2012. During the 2004-2007 period, developers delivered 30 million square feet a year – in the big-box power center category alone,” according to the report.

“We’re just getting back to the lower range of what would be considered normal. Tenants can only pay landlords a certain percentage of their sales, and until full productivity recovers, we won’t see a full recovery in rents,” Mulvee said. “Given the manageable supply pipeline we forecast over the next two years, there’s no reason to believe productivity will not keep rising, and rent growth along with it.”

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100 Percent of Companies Will Feel Impact of “Digital Disruption”

The evolution of technology, consumers and business is creating a world of digital disruption, with far-reaching impacts for every business model and every company in every sector, according to a new Cushman & Wakefield report titled “Digital Disruption in the Workplace 2016.”

“We see digitization as the driving strategy for many global businesses,” the report states.

But what does it mean to become a truly digital company? Transforming into a Facebook or a Google? “It is no longer about just technology but a whole state of mind – more open and transparent, more agile and dynamic, more informal and creative and with a strong focus on community and experience,” says the study. “As businesses try to burst the corporate bubble, the workplace is a major catalyst for such a transformation. To become truly digital means starting from inside out and leaving the corporate baggage behind.”

The impacts of digital disruption on the workplace include:

  • With tech-savvy people entering the workplace, pressure to embrace a digital culture will only increase.
  • Talented young candidates have high expectations of the workplace and want flexibility, formal and informal collaboration, learning, choice, work-life balance and an opportunity to make their mark.
  • The traditional workplace is unappealing to these people who want options to work at home or in a public space. The pull of the urban core is powerful.
  • Young employees want a choice over when, where and how they work. It is the most important factor driving satisfaction and engagement.

“The drive towards radical openness and digital culture means that the workplace needs to address these considerations,” the report noted. “What was once seen as the ‘radical workspaces’ of the TMT [Technology, Media and Telecommunications] sector are now becoming mainstream, as corporations from all sector occupiers are using the same principles of workplace design and management, even if tailored to their own brand and market.”

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Trump Tax Plan Continues to Raise Questions About Real Estate Impact

In the aftermath of his speech in Detroit on his economic and tax policies, analysts are raising additional questions regarding the impact of presidential candidate Donald Trump’s proposals on the real estate industry. Initially, critics voiced concerns that Trump’s plan would allow the improper use of pass-through entities to avoid paying higher ordinary income tax rates on wages and salaries (See NAIOP Source, August 16, 2016). Last week, the Wall Street Journal reported Trump’s tax proposals could potentially result in a substantial, if perhaps unintended, benefit to highly leveraged real estate firms.

Trump’s plan would call for allowing an immediate tax write-off, otherwise known as full expensing, for investments in equipment and buildings. Current law requires depreciation – deducting the cost of the investment from taxes owed over a set period of years. However, tax proposals that adopt full expensing also eliminate the deductibility of interest on business debt. Otherwise, a business could borrow heavily to purchase assets, immediately get a tax write-off to offset any payment of income taxes it owes, then deduct the interest on the borrowed amount for the term of the loan. The result, according to tax analysts, would essentially be negative income rates – resulting in a federal subsidy for the activity.

House Republicans have embraced full expensing in their tax reform blueprint, but included elimination of business interest deductibility (See NAIOP Source June 28, 2016). As quoted in the Wall Street Journal, Trump’s economic advisors said he did not want to eliminate interest deductibility, but that they were still working on the particular details of the expensing proposal so that it would be used with new investment and not for purchases of existing real estate portfolios.

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Four Innovation District Case Studies Offer Insights, Strategies

By: Dustin C. Read, Ph.D., J.D., Assistant Professor of Property Management and Real Estate, Virginia Tech, Blacksburg, Virginia

Innovation districts are widely believed to be an effective way to promote the formation and growth of knowledge-intensive businesses. They can take a variety of forms and emerge in a host of different settings. This report provides those interested in innovation district development with a better understanding of the factors contributing to the success of these projects, as well as the challenges they must frequently overcome. It presents case studies of four projects in different phases of development and offers suggested “best practices” for real estate practitioners and policymakers.

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10 Ways to Help Boost Productivity and GDP in a Slow-growth World

Between 2005 and 2014, real incomes in about two-thirds of households in the 25 most advanced economies of the world were flat or fell; the equivalent of over 540 million people. This compared with less than 2 percent, or fewer than 10 million people, who experienced this phenomenon between 1993 and 2005. Unless action is taken, this phenomenon could have corrosive economic and social consequences, according to a new McKinsey Global Institute report titled “Poorer than Their Parents? Flat or Falling Incomes in Advanced Economies.”

“Flat or falling incomes for the majority of the population could reduce demand growth and increase the need for social spending. Social consequences are also possible; in our survey, nearly a third of those who felt they were not advancing thought that their children and the next generation would also advance more slowly in the future, and they expressed negative opinions about trade and immigration,” warned the report.

The report listed 10 recommendations to help boost productivity and GDP growth:

  1. Create tools to gauge the extent and evolution of flat or falling incomes.
  2. Promote growth to raise incomes for all households.
  3. Ease the transition from education to employment.
  4. Improved job matching and increased labor mobility.
  5. Increase labor-force participation for women, unemployed workers and older workers.
  6. Adapt taxes and transfers for low- and middle-income earners.
  7. Shape labor regulation and policies, i.e. minimum wages, non-traditional labor contracts and work sharing.
  8. Engage on issues encouraging growth that create employment and collaboration with local stakeholders.
  9. Adopt a long-term mindset about employees.
  10. Create more jobs.

At 50,000 Units a Quarter, the Multifamily Sector Still Has Room to Grow

Analysts say that despite a four-year building boom in multifamily, there is no glut of product in the overwhelming majority of U.S. markets, according to a report by Scotsman Guide, a resource guide for mortgage originators. The report comes on the heels of concerns raised by the Federal Deposit Insurance Corporation (FDIC), which echoed earlier worries by the Federal Reserve, cautioning banks that certain markets may have reached their supply limits.

The report quoted Kim Betancourt, director of economics and multifamily research at Fannie Mae, who said: “At a national level, the numbers are not that scary for new construction. The problem is that most of it is centered in just about 10 metros.”

“Betancourt said high-rent metros, like New York City, Washington and Dallas, have gotten the bulk of the new apartments,” the report continued. “In Tucson, Arizona, for example, less than 500 units are underway and job growth has topped 4 percent in that city. Many smaller markets also are still playing catch-up from the recession.”

The report offered statistics from Reis on the multifamily market including:

  • Landlords are giving special deals to some tenants in some markets – an indication of oversupply – but leasing and rental trends are still healthy with vacancies at 4.5 percent in the second quarter of 2016, below the long-term average of 5.4 percent.
  • Rents rose 4.1 percent over four quarters through the second quarter of 2016.
  • About 50,000 multifamily units have been added on average each quarter across the U.S. over the past year and a half.

“Some apartments markets are especially tight, like Sacramento, California, where vacancies were at 2.1 percent in the second quarter,” the reported noted. “Eight markets have an average vacancy rate of less than 3 percent.”

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