Archive for December, 2013

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Changing Office Trends Impact Future Demand

Changing office trends toward increased densification, more efficient use of space, greater integration with technology, and a shift toward more collaborative work spaces, as well as greater acceptance of remote access, hold major implications for developers, investors and building owners.

Tenants are downsizing their offices, particularly larger public firms, as they increasingly adopt policies for sharing non-dedicated offices, and implement technology to support their employees’ ability to work anywhere and anytime, according to Norm G. Miller, PhD, a professor at the University of San Diego Burnham-Moore’s Center for Real Estate. In addition, most of the downsizing is coming from decreased square footage for “work space” in buildings, and not in the amount of public and shared space, which actually is increasing, according to Norm Miller.

“Based on anecdotal evidence, I’d say for every two square feet a firm gives up in individual office space, they add one square foot of extra and flexible meeting space,” Miller said. “This mitigates the downsizing somewhat, and instead of going from say 250 square feet to 125 square feet, they end up at 150 or 175 square feet, and firms targeting to go down to 100 square feet will probably end up at 125 to 130 square feet based on my simulation research,” Miller said.

To be competitive in the future, office space needs to offer natural light, better temperature controls, better ventilation, and options for more flexible reconfiguration, according to Miller.

Downsizing appears to be here to stay, as this new generation demands a more collaborative, flexible and social work environment.  The increased density of populations and increased ability to work mobile will soon render obsolete the huge corner offices and closed-wall work environments.

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Fast Food Property Cravings Continue

The insatiable investor appetite for fast food restaurants persists, as evidenced by the increasing volume and average price of sales in 2013. Cap rates averaged 6.9% for fast food transactions in the third quarter of 2013, compared to an average of 6.5% in the second quarter, and 7% a year ago.  Upper-tier fast food properties are generally moving with cap rates below 6% nationally; with some higher quality assets in great locations with more desirable long-term tenancies in place (e.g., McDonald’s, Jack in the Box, Chick-Fil-A, In-N-Out) trading at sub-5% cap rates. Nationally, middle-tier fast food properties are averaging 6-8% cap rates, and lower-tier and/or value-add properties are  generally trading at cap rates above 8%. However, despite current demand, expect cap rates to increase by the latter part of 2014, as interest rates rise.

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Dodd-Frank Mortgage Reform Makes Qualifying for a Home Loan More Difficult in 2014

As of January 2014, some homebuyers will have more difficulty qualifying for a mortgage.  Under Dodd-Frank, lenders must scrutinize a borrower’s income and assets more diligently to confirm his or her capacity to make the monthly mortgage payments, including any second mortgage, property taxes, insurance and homeowner association fees.  Additionally, any child support and alimony obligations must be factored, and the borrower’s debt-to-income ratio must be lower than 38 percent to meet the definition of a safe loan. 

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