Sands Anderson’s Commercial Real Estate Law practice group was again pleased to participate in the annual VCU Real Estate Trends Conference in Richmond, Virginia. The conference continues to cement its position as one of the leading forums on commercial real estate in the region, providing useful information on the current state of the real estate industry and forecasts for the years to come. This year’s presenters were Andrew Florance, the Founder, President, and CEO of CoStar Group, Inc., a leading commercial real estate information company; and Josh Linkner, the CEO of Hypergrowth LLC and the author of the New York Times bestsellers Disciplined Dreaming: A Proven System to Drive Breakthrough Creativity and The Road to Reinvention: How to Drive Disruption and Accelerate Transformation.
Mr. Florance offered his perspective on the state of the real estate sector both in the U.S. economy at large and specifically here in Richmond, highlighting a variety of different topics that may be of particular interest to commercial real estate practitioners. Among Mr. Florance’s observations and insights were the following:
For the U.S. economy…
- There is stable growth in the GDP and a resurgence of manufacturing, both fundamental indicators of a strong economy.
- Corporate profits, another key indicator, are also positive, holding at 10% – 12%.
- Employment growth appears to have peaked nationally, but Richmond is head of the pack on this metric. The city has outperformed 80% of all other cities measured and, while this level of exceptional growth likely isn’t sustainable, the local economy is forecasted to perform in line with other cities in the years to come.
- On the other end of the job market, the unemployment rate is declining, and is likely to hit a multi-decade low with the forecasted continued job growth.
- Wage growth is overdue, with some of the stagnation potentially due to millennials replacing retiring baby boomers in the marketplace.
In the real estate sector generally…
- Housing affordability is declining as expenses rise, which should drive demand for new homebuilding.
- Office occupancy growth remains well below the demand levels observed in the last two expansion cycles. Historically, a lag in office occupancy demand during periods of job growth reflects a pent up stock of available space which is eventually exhausted. However, the current marketplace seems to not be following this trend, likely reflecting a more permanent shift in the US towards using less office space overall.
- Again, Richmond is bucking the trends, and has some of the lowest sublet vacancy rates in the country. Indeed, Richmond’s vacancy rates are half the rates observed in DC, and our area is outperforming other comparable cities in the region like Baltimore and Charlotte.
In the U.S. apartment market…
- There is no evidence of overbuilding. While supply levels are higher than they were in 2008 (when building was focused on single family homes during the housing boom), if we control for population growth, current levels are at half the levels observed between the 1960’s and 1990’s.
- This, in turn, accounts for the low vacancy rates.
- Mr. Florance observed that in particular, apartments are looking very solid, especially 1 and 2 star workforce housing, where there is a significant shortage. In fact, 85% of housing stock is targeted at tenants earning $75,000 or more, meaning that a majority of properties are targeted at a very small portion of the market.
- In Richmond in particular, demand justifies construction. Household growth is exceeding new construction, and this trend is likely to continue as millennials reach their peak years for starting families. Mr. Florance estimated a deficit of roughly 20,000 units in Richmond in this regard.
Mr. Linkner’s presentation focused on innovation, offering recommendations on how practitioners in any industry, including real estate, can reap benefits from new perspectives and tactics. He detailed the 5 Obsessions of Innovators, which are:
- Get Curious
- Defy Tradition
- Crave What’s Next
- Get Scrappy, and
- Adapt Fast
With the information and insights provided by Mr. Florance and the techniques for innovation detailed by Mr. Linkner, local real estate practitioners are well positioned to take advantage of a bustling and competitive marketplace. As you do so, Sands Anderson is there to assist and support your legal needs. To speak with someone from our commercial real estate team, please feel free to contact us here.