Chapter 6 Office

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Chapter 6Office Industrial Property
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Major Topics

• Office Property
• Defining office space quality
• The demand drivers for office space
• Translating employment growth to office space
  demand
• The trends that shape the amount of space
  required per worker
• Industrial Property
• The demand drivers for Industrial property
• Factors driving the location decisions
• Affect of e-commerce

Real Estate Principles for the New Economy
Norman G. Miller and David M. Geltner
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Reasons for cyclic Real Estate market

• Competition and Lead time factor
• Inconsistent capital flows
• Lease terms

Expansion Phase Rising occupancy and Rents,
increased construction rates
Mature phase increased vacancy, construction
still on going
Recovery Phase Excess supply keeps rent low,
little or no construction, demand picks up
Correction phase rents declining, minimum new
construction
Typical Cycle
Real Estate Principles for the New Economy
Norman G. Miller and David M. Geltner
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Office Property Definitions

• Occupancy (Vacancy) rate -- of total square
  footage of leaseable space that is occupied
  (vacant)
• (Net) Absorption -- net change in space available
  for lease between two dates

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Texas Market Reports

• http//recenter.tamu.edu/mreports/

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Austin Office Space 1/2005
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Austin Office Space 1/2005
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Austin Office Space 1/2005
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Office Property Definitions

• Class A
• Excellent location and accessibility
• Rent rates in upper 33 of total office market
  range
• Class B
• Good location and access
• Rent rates in upper 60 of market sectors range
• Class C
• Buildings generally more than 15 years old
• Rent rates in lower 40

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Rental Rates/SF/Year
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Office Property Definitions

• Net Usable or Leaseable Area
• The actual area of a floor or an office suite
  that can be occupied
• Efficiency Ratio
• The percentage of total usable space to the total
  gross space in the building.
• Load Factor
• The percentage of space on a floor that is not
  usable

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Office Market Demand Analysis

• Employment trends
• Net new demand expected new employees avg
  space required
• Space Required
• Archiving, telecommuting and hotelling
• Types of businesses
• Location
• Impact of local taxes

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Location

• Actual rate of absorption is almost always biased
  towards the suburbs
• Over 2/3 of the office space in the last 10 years
  in the largest U.S. cities has been absorbed in
  the suburbs
• Tax benefits, enterprise zones

Real Estate Principles for the New Economy
Norman G. Miller and David M. Geltner
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National Office Market Trends

• Increase in office hotelling and hence decrease
  in per employee space requirement
• Increase in telecommuting and office sharing
• Suburban office markets have fared better than
  CBDs
• City governments in turn have increased
  incentives to keep major employers in the city

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Introduction to Industrial Property

• Industrial property is of two types
• Manufacturing (Heavy and Light) property
• Distribution Warehouse property
• Flex space ? both on property
• Build-to-Suit properties
• Impact on own vs. lease decision?

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Six-Month Absorption -- Austin-RR
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Office/Manufacturing/Warehouse
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Flex Space
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Factors Influencing Location Decisions

• Labor Cost, Labor Climate and Skills
• Proximity to Suppliers
• Access to Transportation Facilities
• Quality of Life
• Utilities, Taxes, Insurance, Unemployment and
  other Real Estate costs
• Environmental regulations

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Distribution Warehouse Property

• Demand is driven by the location of inventory
  requirements
• Criteria of location selection for warehouse are
• Price/Weight ratio of product
• Minimization of transportation cost
• Speed of delivery

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END
Real Estate Principles for the New Economy
Norman G. Miller and David M. Geltner