The Future Has Arrived. A Time of Challenges, Opportunities & Surprises.

“The Future Has Arrived
A Time Of Challenges, Opportunities & Surprises”
27th Annual
BOMA Idaho CRE Symposium
Boise, Idaho
February 14, 2017
Presented by
Christopher Lee
CEL & Associates, Inc.

 Future Headlines
 A Perfect Storm of Transformative Events
 Real Estate Cycles
 Real Estate Industry’s Megashifts
 Real Estate Outlook
 Real Estate Company Trends
 Predictions…What Is Ahead For 2025?
2
― Office ― Retail ― Industrial ― Multifamily
― Where Are We…What Is Ahead?

FUTURE HEADLINES
3

Monday, February 18, 2020 Daily $3.50
Today's
Highlights
NYC Office
4
Apple Announces New
iOffice Technology
“Our Goal is to create the first virtual office
Building,” states Apple CEO.

Robots Construct First
Mid-Rise Office Building
Tuesday, June 17, 2025 Daily $5.75
Today's
Highlights
NYC Apartments
5

First Office Building Constructed That
Consumes Smog And
Generates Its Own Power
Monday, February 18, 2018 Daily 2.75¢
Today's
Highlights
NYC Office
6

Amazon Launches
First Flying Warehouse
Today's
Highlights
Office
7

Congress Passes National Building Code
Standards Making It Unlawful To Sell A Building
That Is Non-Compliant!
Today's
Highlights
NYC Office
8

A PERFECT STORM
OF TRANSFORMATIVE
EVENTS
9

 Abundance of Capital  Geo-Centric Market Shifts  Retrenchment of Debt Markets
 Accelerating Technological
Advancements
 Growth of the Sharing &
Collaborative Economy
 Rise of Experiential Real Estate
 Uncertain Economic Growth  Housing Affordability Challenges  Rise of the Independent Worker
 Changing Global Economy and
Borderless Marketplace
 Increasing Government Regulations
& Oversight
 Rising Operating Costs, Tenant
Expectations & TIs
 Declining Workforce Participation
Rate
 Increasing Role of Big Data  Robotics & Artificial Intelligence
 Demographic And Generational
Shifts
 Industry Consolidation  Shifting Consumption Patterns
 Disruptive Technologies  Internet Of Everything
 Shifting Household Formation
Patterns
 Emergence of New Competitors
 Legacy Exits Amid Multi-Generational
Workforce Shifts
 Unprecedented Federal Debt
 Energy Shifts & Emergence of
Alternative Options
 Product & Service Innovation
 Urbanization and the Emergence of
Multi-Purpose Real Estate
10
Source: CEL & Associates, Inc.

REAL ESTATE CYCLES
11

Source: CEL & Associates, Inc. CEL & Associates, Inc.
12
Ends On
Yr. 7, 8 or 9
Starts On
Yr. 2, 3 or 4

 Access To Credit
 Acts Of Terrorism & Cyber Attacks
 Capital Markets (Equity & Debt)
 Commodity Pricing & Availability
 Competition/Industry Factors
 Consumer Confidence
 Demographic Shifts
 Economic Growth
 Global Uncertainty
 Government Policies
 Household Formation
 Household Income & Net Worth
 Inflation
 Interest Rates/Fed Policy
 Job Growth
 Lifestyle Choices
 Market Deregulation
 Monetary Policy
 Natural Disasters
 Regulations – Fed/State/Local
 Resource Scarcity
 Social Factors
 Supply/Demand Factors
 Tax Policy
 Technological Advancements
 Tenant Demand & Expectations
 Trade Agreements
13

Time Period Cycle
1983 - 1988 Age of Awakening Boomers & Entrepreneurism
1993 - 1998 Age of Technology & Start-Ups
2003 - 2008 Age of Exuberance & Debt
2013 - 2018 Age of Capital, Asset & Entity Rebalancing
2023 - 2028 Age of Accelerators & Technology
2033 - 2038 Age of AI & Non-Land-Based Environments
Source: CEL & Associates., Inc.
14

15
Ends On
Yr. 7, 8 or 9
Starts On
Yr. 2, 3 or 4
1st Quarter
2017

16
Ends On
Yr. 7, 8 or 9
Starts On
Yr. 2, 3 or 4
 Multifamily
Office 
F
Retail  F
Industrial  F

PROOF POINTS
17

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Cap RateSales (in billions)
Source: ©2017 Real Capital Analytics, Inc. All rights reserved. Combined Office, Industrial, Retail and Multifamily.
20062002 2003 2004 20052001 2007 2008 2009 2010 20122011 2013 2014 2015 2016
18

19
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0
50
100
150
200
250
300
350
400
Source: Mortgage Bankers Association thru 3Q 2016. Origination Volume Index.
Index

Source: Moodys / ©2016 Real Capital Analytics, Inc. All rights reserved.
Dec2000
Mar2001
Jun2001
Sep2001
Dec2001
Mar2002
Jun2002
Sep2002
Dec2002
Mar2003
Jun2003
Sep2003
Dec2003
Mar2004
Jun2004
Sep2004
Dec2004
Mar2005
Jun2005
Sep2005
Dec2005
Mar2006
Jun2006
Sep2006
Dec2006
Mar2007
Jun2007
Sep2007
Dec2007
Mar2008
Jun2008
Sep2008
Dec2008
Mar2009
Jun2009
Sep2009
Dec2009
Mar2010
Jun2010
Sep2010
Dec2010
Mar2011
Jun2011
Sep2010
Dec2010
Mar2012
Jun2012
Sep2012
Dec2012
Mar2013
Jun2013
Sep2013
Dec2013
Mar2014
Jun2014
Sep2014
Dec2014
Mar2015
Jun2015
Sep2015
Dec2015
Mar2016
Jun2016
Sep2016
Dec2016
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
National - All Properties
20
Peaking?

* 2017 through January.
Source: NAREIT.
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
*
Peaking?

22
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
40
50
60
70
80
90
100
110
120
130
100.0
61.2
126.7
Source: Green Street Advisors, December 2016.
Peaking?

23
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$11,000
$12,000
$13,000
$14,000
$15,000
$16,000
Source: BIFMA (2016 and 2017 projected).
Sales (in millions)
Peak Peaking?
Peak

WHAT HAPPENS WHEN A
REAL ESTATE CYCLE
IS PEAKING?
24

 CBRE acquires Global Workplace Solutions ($1.5 billion) from Johnson Controls.
 DTZ/Cassidy Turley merger ($500 million - $600 million).
 DTZ/Cushman & Wakefield merger ($2.0 billion).
 Newmark acquires ARA ($100+ million).
 Colliers expands owned platform in North America.
 CBRE acquires Forum Analytics and Tax Credit Group.
 Cushman & Wakefield acquires Multi Housing Advisors.
 MAA (Mid-America Apt. Communities) acquires Colonial Properties Trust ($8.6b).
 Essex Property Trust acquires BRE Properties ($4.3b).
 Regency and Equity One merge ($4.6b).
 Colony Capital merger with NorthStar.
 Multiple regional and niche mergers/acquisitions pending.
“Real estate company mergers and acquisitions are approaching
the 2007 peak.” Ernst & Young
Source: Various sources and multiple publications.
25

2010 2011 2012 2013 2014 2015 2016
0
50
100
150
200
250
300
350
220
264
311
303 297
274
214
55
75 78
105
113
123
104
Source: Preqin Real Estate Online.
No. of Funds Closed Aggregate Capital Raised ($ billions)
26

REAL ESTATE INDUSTRY’S
MEGASHIFTS
27

28
Category Yesterday Today Tomorrow Overmorrow
Business Focus Local / Regional Regional / National National / Global Cyber
Operational Focus
Collecting
Assets
Collecting
Fees
Collecting
Relationships
Collecting
Predictive Data
Market Focus
Seeking
Sites
Seeking
Market Share
Seeking
Customer Share
Seeking
Connective Share
Service Platform
Focus On
Service
Focus On
Solutions
Focus On
Connectivity
Focus On
Customization
Business Driver Market-Driven Capital-Driven Knowledge-Driven AI Driven
Brokerage A Representative A Broker A Consultant An Advisor
Property Management Facility Manager Property Manager Business Leader Enterprise Leader
Leadership Founder(s) Executives Transformational Visionary
Organization Organization Flatarchies Holacracy Virtual
Training Manuals Trainers Online Personalized

29
Optimal
Performance
Time
Solutions-
Based
Customer-
Centric
Market-
Based
Building-
Centric
Company-
Based
Services-
Centric

30
Optimal
Performance
Time
Predictive
Analytics
Big Data
Era
Back Of The
Envelope
Boots On The
Ground Era
Excel
Spreadsheets
Digital
Era

31
Optimal
Performance
Time
Customer
Controlled
Data
Transparency
Broker
Controlled
Opinions &
Insights
Company
Controlled
CRE
Data

REAL ESTATE OUTLOOK
“Generational & Technology Driven”
32
 Office  Industrial  Retail  Multifamily

Source: CEL & Associates, Inc., 2014 Projected For 2016. U.S. Census data and PEW Research Center.
0
5
10
15
20
25
30
Silent Generation
(1928 - 1945)
71 – 88 years
26.9 million
Millions
Boomer Generation
(1946 - 1964)
52 – 70 years
74.4 million
Post-Millennial
(1998 - 2016)
>18 years
77.9 million
Generation X
(1965 - 1980)
36 – 51 years
65.8 million
Millennials
(1981 - 1997)
19 – 35 years
75.9 million
97+
years
93 – 96
years
61 – 65
years
57 – 60
years
52 – 56
years
46 – 51
years
41 – 45
years
36 – 40
years
30 – 35
years
66 – 70
years
71 – 74
years
75 – 79
years
80 – 83
years
84 – 88
years
89 – 92
years
27 – 30
years
23 – 26
years
19 – 22
years
14 – 18
years
9 – 13
years
5 – 8
years
>5
years
Greatest Generation
(Before 1928)
89+ years
3.1 million
33

OFFICE
34

Generation View Of Work
View Of Work
Environment
View Of
Office Space
Square Feet Per
Worker
Baby Boomers
74.4 million
(1946 – 1964)
“About to retire…not
about to change.”
“I want the
trappings of
success.”
Dedicated office
with title-based
amenities.
350 Square Feet
Gen Xers
65.8 million
(1965 – 1980)
“Flexible hours for
more personal TO.”
“I want more
money, portable
skills and to work
on my own.”
Cube space with
external amenities.
250 Square Feet
Millennials
75.9 million
(1981 – 1997)
“Meaningful
hours…no
schedule.”
“I want teamwork,
personal growth
and opportunities.”
Collaborative space
with internal
amenities.
<150 Square Feet
Generation Z
77.9 million
(1998 – )
“Productive hours
on my terms.”
“I want it my way,
when I need it.”
Digital / virtual
space with 24/7
mobile connectivity.
<100 Square Feet
35

36
 By 2020, 46% of the U.S. workforce will be Millennials.
 37% of workers did some or all of their work at home (vs. 9% in 1995) .
 Four million workers telecommute.
 Only 10 of the top 50 occupations with the most job openings require office space.
 The average individual workspace is occupied only 55% of the time in a normal work week.
 The average U.S. tenant has 33% of its space as excess shadow space based on the new
square footage per employee.
 Coworking/Shared workspace now comprises 27 million square feet.

$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Office-CBD Office-Sub
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Source: ©2017 Real Capital Analytics, Inc. All rights reserved.
Sales (in billions)
20062002 2003 2004 20052001 2007 2008 2009 2010 20122011 2013 2014 2015 2016
Cap Rate
38

 Net absorption reached its highest level in 2016.
― 2014: 753,000 sf
― 2015: 500,000 sf
― 2016: 468,000 sf
 Vacancy level lower than 1Q 2014.
― 1Q 2014: 12.50%
― 4Q 2016: 11.70%
 The addition of Simplot headquarters (351,000 SF) in the downtown will remain
high until their vacant space is re-leased.
 Over 23.5 msf of office space in the Treasure Valley.
39
Source: CEL & Associates, Inc., Thornton, Oliver, Keller; Colliers International.

INDUSTRIAL
40

41
 Workers are now producing 47% more than 20 years ago.
 Manufacturing workers now number 12.3 million [14.5 million in 2006].
 Amazon has over 30,000 kiva robots that work alongside 250,000 humans.
 By 2017, there will be 1.9 million industrial robots…growing to a $45 billion industry by
2025.
 By 2025, there will be 128,000 Co-Bots in the U.S. (workers and robots working together).
 The cost savings through technological advancements and robotics is now 25% - 33%.
 Globalization has kept wages low.
 The emergence of “Fetch Robots” will transform warehouse space.

$0.0
$2.5
$5.0
$7.5
$10.0
$12.5
$15.0
$17.5
$20.0
$22.5
$25.0
$27.5
Flex Warehouse
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Sales (in billions) Cap Rate
20062002 2003 2004 20052001 2007 2008 2009 2010 20122011 2013 2014 2015 2016
43

 Net absorption reached its highest level, originally set in 2006.
― 2006: 1,160,000 sf
― 2014: 656,000 sf
― 2015: 665,000 sf
― 2016: 1,164,000 sf (New record)
 Vacancy levels continue their decline from 1Q 2014.
― 1Q 2014: 6.8%
― 4Q 2016: 4.5%
 13 out of 15 submarkets have vacancy levels below 5%, and five have a vacancy
rate below 1%.
 Over 45 msf of industrial space in the Treasure Valley.
44
Source: CEL & Associates, Inc., Thornton, Oliver, Keller; Colliers International.

RETAIL
45

46
View Of… Baby Boomers Xers Millennials
Retailers Trust the brand. Trust the connectivity. Trust the experience.
Groceries Food as a necessity. Food as a connector. Food as a nutrient.
Frequency Of Shopping Structured and consistent. Based on time availability. As needed…24/7.
Retail Motivation Advertisements. Ratings. Word-of-mouth/Twitter.
Shopping One stop. Digital retailing. Unlimited stops.
Physical Plant Mega centers. Smaller stores. Omni-channel.
Restaurants Place to eat. Place to socialize. Place to connect.
Stores Place to see products. Place to interact with products. Place to experience products.
Display Space Floor space. Display space. Mental space.
“Technology has changed the definition of retail real estate.”
“When online sales reach 15% – 20%, the current retail model begins to fail.”

47
 The consumer has now taken hold of retail interactions.
 81% of consumers go online before going to a store to make a major purchase.
 On average, consumers visit three online and two brick-and-mortar stores before making a
major purchase.
 66% of mobile shoppers comparative shop online while in a retail store.
 66% of major-purchase shoppers do product research at home.
 52% of online shoppers have purchased products directly from the manufacturers.
 Only 41% of Millennials shop at traditional grocery stores.
 Online retail sales will reach $523 billion by 2020.
 Mobile commerce sales in the U.S. will reach $336 billion by 2020.

$0
$3
$6
$9
$12
$15
$18
$21
$24
$27
$30
AllRetail
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
20062002 2003 2004 20052001 2007 2008 2009 2010 20122011 2013 2014 2015 2016
49

50
2012 2013 2014 2015 2016 2017 2018 2019 2020
$0
$100
$200
$300
$400
$500
$600
$231
$262
$291
$338
$373
$410
$449
$489
$531
Billions
Source: Forrester Research.

 Net absorption was negative in 2016 (first time since 2009)
― 2014: 336,000 sf
― 2015: 517,000 sf
― 2016: -151,000 sf (negative)
 Vacancy level lower than 1Q 2014, but moving up.
― 1Q 2014: 9.05%
― 4Q 2016: 8.5% (7.1% in 1Q 2016)
 Over 22.3 msf of retail space in the Treasure Valley.
 Class A space demand remains good.
51
Source: CEL & Associates, Inc., Thorton, Oliver, Keller; Colliers International.

MULTIFAMILY
OUTLOOK
52

'64 '65 '66 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
60
61
62
63
64
65
66
67
68
69
70
Source: Current Population Survey/Housing Vacancy Survey, Series H-111 Reports, U.S. Bureau of the Census. 4Q 2016.
63.7%
4Q16
Increase Due
To
Homeowner
Incentive
50 Yr. Avg.
1964-2013
65.3%
30 Yr. Avg.
1964-1993
64.3%
Percent
Community Reinvestment Act
Amended 1995
Oct. 1997 Bear Stearns First
Securitized CRA Loan Pool
53

$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
$55
Garden Mid/highrise
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
20062002 2003 2004 20052001 2007 2008 2009 2010 20122011 2013 2014 2015 2016
54

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$0
$10
$20
$30
$40
$50
$60
$70
Billions
Numbers have been rounded.
Source: CMD Insight.
55

Source: Multiple published sources.
Rent as a percent of income remains lower in Boise than in the State of Idaho
and the U.S.
Between 32% - 33% of Boise and Idaho residents rent (below U.S. average).
Vacancy rate remains low (4.5% - 4.75%)…lower than U.S. average.
Boise home values have increased 10.4% over the past year (median price of
homes on the market today is $239,000…faster than wage growth).
56

REAL ESTATE COMPANY
TRENDS
57

and Participating Firms.
58
Top Priorities Rank
Reshaping The Business Model For The Future 1
Growing Recurring Revenues 2
Attracting And Retaining Talent 3
Brand Differentiation And Brand Management 4
Securing Growth Capital 5
Containing Operating Costs 6
Acquiring And Keeping Clients 7
Mitigating Risk 8
Building The Balance Sheet 9
Keeping Up With Technology 10
Growing Market And Client Share 11
Succession Planning 12
Tax Reform That Is Unfavorable to Real Estate 13
Increase In Interest Rates 14
Rising Tenant/Resident Demands And Expectations 15
Cyber Security 16

Benefit
Percent Real Estate
Firms Are Providing
Telecommuting 35%
Flex Time 45%
Free/Subsidized Parking 44%
Business Casual Days 67%
Wellness Programs 49%
Onsite Workout Facility 28%
Paid/Subsidized Professional Dues 47%
Tuition Reimbursement 58%
59
Source: CEL & Associates, Inc. 2015 Compensation & Benefits Survey

60
Category
Percent
Respondents
Within:
― 1 – 2 Years 7%
― 3 – 4 Years 12%
― 5 – 6 Years 13%
― 7 – 8 Years 9%
― 9 – 10 Years 14%
― More Than 10 Years 37%
― Don’t Know 8%
Total 100%
Source: CEL & Associates, Inc., IREM Survey 2015.
55%

PREDICTIONS…
WHAT IS AHEAD
FOR 2025?
61

62
 The U.S. will move ever closer to becoming a cashless society…the impact on
retail real estate will be significant.
 Between 25% - 30% of real estate firms in existence in 2015 will be gone.
 Between 35% - 40% of training for real estate professionals will be online or
led remotely. Training will be more “on-demand.”
 Online retail sales could be 19% of all retail sales (currently around 7%),
rendering many retail centers irrelevant or in need of drastic transformation.
 Watch for the emergence of the “Certified Underwriter.” Within a decade,
50% of today’s real estate Brokers will be gone.
 By 2025, 10 million or more jobs will be lost to robotics. Do not by surprised
to see many office buildings less than 250,000 sf in size being managed
remotely.

63
 Homeownership will drop to the high 50s (currently around 63%) as America
shifts to a renter-based society.
 Growing food in commercial buildings will be commonplace and many of the
700,000 unused shipping containers will become urban farms.
 Watch for the rapid adoption of taxes and fines for all commercial and
residential buildings unable to meet energy efficiency standards. The
“Green” escrow could be commonplace.
 Do not be surprised if Amazon controls 15% - 20% of grocery sales.
 There will be multiple cyber attacks on real estate firms over the next
decade.
 Women could comprise nearly 40% of the C-Suite positions within real estate
firms.

64
 Human Resources Directors will increasingly make or have significant impact
on lease negotiations and space design.
 The real estate industry will be faced with a potential shortage of 15,000 –
25,000 “qualified” workers per year through 2025.
 Watch for legislation requiring ALL Property and Community Managers to be
“licensed and certified.”
 Do not be surprised to see the government require monies to be set aside
every time a building is sold to bring that building into compliance with a
minimal, government “Green” standard.
 Cell phones will be replaced by . . .

The Future Has Arrived. A Time of Challenges, Opportunities & Surprises.

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to The Future Has Arrived. A Time of Challenges, Opportunities & Surprises.

Similar to The Future Has Arrived. A Time of Challenges, Opportunities & Surprises. (20)

Recently uploaded

Recently uploaded (20)

The Future Has Arrived. A Time of Challenges, Opportunities & Surprises.