Investments in Infrastructure in the New Administration

Both major party presidential candidates have emphasized increased investments in infrastructure in their economic plans. Once the 2016 presidential election has concluded, will infrastructure be a bipartisan priority or will it hit policy and political gridlock? Gain insight from NAIOP’s Government Affairs team on what to anticipate for infrastructure spending after the election.

The Suburban Office Parking Conundrum

By: Robert T. Dunphy

Do today’s densifying suburban office parks need less, more or different types of parking?

ASTUTE PARKING analysts face extraordinary conflicts in estimating parking needs today, especially in the suburbs. Conventional suburban office parking standards have typically required more parking than building occupants actually need. But changing business practices are creating office layouts that pack workers closer together, which have the potential to increase demand for parking and, eventually, parking requirements. On the other hand, as more employees work remotely, fewer individuals may use the office, resulting in less demand for parking.

A growing body of research was started by UCLA Professor Donald Shoup, whose book “The High Cost of Free Parking” (APA Planners Press, 2005), showed how municipal regulations have traditionally required too many parking spaces for most developments. Shoup reported that there was little theory in how parking standards were established, and that jurisdictions tended to indiscriminately adopt minimum parking ratios used by other jurisdictions. The result was a self-selected, circular process that is widely believed to have resulted in excessive minimum parking requirements. A parking ratio of three spaces per 1,000 square feet of floor space, low by conventional standards, would require about 1,000 square feet of surface parking for every 1,000 square feet of floor space. In other words, a 100,000-square-foot suburban office building with parking at a 3/1,000 ratio would need to dedicate about 100,000 square feet of land to parking.

Many communities are responding by reducing their parking requirements, or shifting the codes from minimum to maximum requirements, allowing developers to establish appropriate amounts of parking for each project. (See “Smaller Cities Lighten Up on Minimum Parking Requirements,” Development, summer 2016.) Getting the parking right is certainly in the developers’ interest, so why not let them figure it out?

Recent trends favoring open workplaces, however, can increase the density of workers in a building, leading to greater demand for parking. A blog post by Cresa Atlanta, an international real estate advisory firm that exclusively represents tenants, noted that “Two hundred square feet [of workspace] per person (5 [people]/1000 [square feet]) isn’t uncommon – and 5.5/1000 to 6/1000 ratio needs are being seen more and more.” These higher employee/square footage ratios “used to be found mostly [among] large space users such as insurance claims, data processing and call centers with high space costs and lower-cost workers.”

While the trend toward collaborative working environments and denser workspaces may be great for teamwork and keeping office space costs down, “it’s a nightmare for parking,” the blog post continued, “the next black hole for tenants and a new matrix for brokers to track; … it’s a ‘rock and a hard place’ situation” for both landlords and tenants. While some workplaces now provide as little as 125 square feet per employee, existing buildings still provide only three or four parking spaces per 1,000 square feet. That is putting pressure on parking.

Kevin Cantley, president of the design and planning firm Cooper Carry as well as a member of NAIOP’s Urban Redevelopment National Forum, says that existing office properties are being repurposed, “with parking ratios going from three per 1,000 square feet to 4.5/1,000, which can be accommodated for now.”

What should developers and property owners do in such unsettled times? In the short term, they must do what is necessary to “make things work,” selectively adding some parking where needed, while also mitigating the increased demand to the extent possible through aggressive programs to get workers to leave their cars behind.

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U.S. Supreme Court Denies Petition on Local Inclusionary Zoning Ordinance

Earlier this year, the U.S. Supreme Court issued a decision to deny the petition for the writ of certiorari – letting the lower court’s decision stand – regarding San Jose, California’s inclusionary zoning. This decision sets national guidelines for other localities and states to consider in addressing affordable housing concerns. The Supreme Court’s decision to not hear the case left standing the ruling of the California Supreme Court that upheld San Jose’s ordinance mandating inclusionary zoning in order to address the city’s affordable housing situation. Developers in San Jose are now required to designate at least 15 percent of their projects’ total number of condos or homes for affordable housing or, in-lieu of this, satisfy certain options such as housing trust fund payments or the purchase of surplus inclusionary zoning housing credits from another developer.

In California Building Industry Association v. City of San Jose, the building community had challenged the zoning ordinance as an infringement on private rights that constituted an unconstitutional taking of property. However, the California Supreme Court unanimously upheld the law, citing local authority to regulate a property’s use through zoning that serves the legitimate interest of the community and the public.

The debate on affordable housing is not occurring only in San Jose or California; city councils across the country are taking up the issue which often targets commercial real estate through inclusionary zoning and linkage or impact fees. NAIOP chapters must continue to engage city leaders in developing comprehensive solutions to their housing situation that does not target one industry, nor discourage economic development and job creation.

2016 REBIC Election Guide – Get Out and Vote!

REBIC has put together an Election Guide to help you cast your vote for candidates who support the real estate industry.

Click here to view the 2016 REBIC Election Guide.

6.1 Percent Cap Rate on Single-tenant Retail is Historic Low

Strong demand from private investors has pushed the cap rate on the single-tenant net lease retail sector down to 6.1 percent in the third quarter of 2016, another historic low, according to John Feeney, vice president, The Boulder Group, writing in the company’s publication, “The Net Lease Market Report Q3 2016.

“During the same period, cap rates for the office and industrial sectors decreased to 7.08% and 7.14% respectively. The overall net lease market remains active with 1031 and private investors due to the passive nature of the leases and attractiveness of relative investment returns when compared to other asset classes,” according to the report.

The net lease market should stay strong for the rest of the year with the expectation that cap rates will hold firm, according to Feeney: “The market will remain favorable to sellers as investors continue to seek this asset class due to the passive nature of the leases and institutional and fund investors attempt to reach fund allocations by years end.”

$655.8 Billion – a 3.6 Percent Increase – is Forecast for Holiday Sales

Experts predict a 3.6 percent increase in holiday sales to $655.8 billion, excluding autos, gas and restaurant sales; this is significantly higher than the 10-year average of 2.5 percent and above the seven-year average of 3.4 percent since the recovery from the recession began in 2009, according to the National Retail Federation (NRF). Additionally, NRF predicts non-store sales to increase between seven percent and 10 percent to as much as $117 billion.

“All of the fundamentals are in a good place, giving strength to consumers and leading us to believe that this will be a very positive holiday season,” NRF president and CEO Matthew Shay said. “This year hasn’t been perfect, starting with a long summer and unseasonably warm fall, but our forecast reflects the very realistic steady momentum of the economy and industry expectations. We remain optimistic that the pace of economic activity will pick up in the near term.”

NRF’s economist Jack Kleinhenz said that consumers have seen steady job and income gains throughout the year, resulting in continued confidence and the greater use of credit, “which bodes well for more spending throughout the holiday season,” he noted. “Increased geopolitical uncertainty, the presidential election outcome and unseasonably warm weather are the main issues at play with the greatest potential to shake consumer confidence and impact shopping patterns. However, the economic spending power of the consumer is resilient and it should never be underestimated.”

The Natural Capitalism Concept Comes to Industrial

By Karl Heitman

Method’s new soap factory in Chicago’s Pullman neighborhood has resulted in a more profitable, localized supply chain.

Why stop with just building the first LEED Platinum soap factory, when you can also transform your product supply chain and a neighborhood’s food supply? Method, a retail soap company, found a way to achieve even higher profitability by completely rethinking its product supply chain, in part by leasing the roof of its new factory to an urban farm.  At the same time, Method cleared a path to a strong triple bottom line (people, planet and profit) for other manufacturers to follow, offering them ideas for future sustainable facilities.

Industrial developments have only lately begun to jump on the sustainability bandwagon. Even in Chicago, a city known for green building, Method’s award-winning factory, dubbed the “South Side Soapbox,” pushes the envelope. Designed to be emulated in part or whole by others, the facility offers multiple sustainability features.

Method is now operating its 150,000-square-foot “factory of the future,” a one-stop shop for bottling, production and shipping of 200 products. The visionary partnerships behind the facility have earned it the 2016 CoreNet Global Sustainable Leadership Award, resulting in a coveted position on the shortlist for global innovators. Situated on 22 newly green acres in Chicago’s historic Pullman neighborhood, the factory boasts an array of eye-catching green building features, from a 23-story wind turbine to the 75,000-square-foot rooftop greenhouse.

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