The National Association of Realtors (NAR) has released new research on the conversion of hotels and motels into housing. While the study was spurred by a 37% drop in hotel occupancy rates driven by the pandemic, the findings have broader implications. Hotel conversions provide a means to simultaneously create renewed profitability and help address the national housing shortage.

Commercial members surveyed

A survey was sent to 75,000 commercial members of the NAR between February and March of 2021. 168 reported being engaged in the sale, leasing, development, property management or appraisal of converted hotels/motels between 2018 and 2020. Of the reported conversions:

• 79% were for housing.
• 12% were for homeless shelters, either temporary or permanent.
• 6% were for healthcare or quarantine facilities.
• 3% were for retail, industrial, ranch land or other development.

Success stories

The report ends with five case studies detailing acquisition, zoning, renovations and expected final property values. For those interested in engaging in hotel/motel conversions, they’ll find an excellent road map in this report.

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There’s no question that technology is making an impact on the construction industry – even though construction is an industry that’s been historically slow to embrace innovation. The reluctance to change and evolve is due to fragmentation in the industry. With so many small firms specializing in different aspects of the construction process, it’s a challenge to adopt seamless processes and adapt to new technologies.

But recent advances that increase the efficiency, flexibility and adaptability of many emerging construction technologies are making them more cost-effective for firms to adopt. Just a few of the new technologies in use today include modular construction (using free-standing, integrated modules that are manufactured off-site and then transported to a site for installation), geospatial technologies (used to visualize, measure and analyze Earth’s features) and wearable technologies (such as head-mounted displays).

There’s more on the horizon. Some emerging technologies in the construction industry include mass timber (an engineered wood product), construction robotics (using robots to build) and autonomous construction vehicles (equipment operated by a computer).

To read a NAIOP report about new construction technologies, click here.

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Thanks to the pandemic, the number of employees who work from home swelled over the past year. Even though offices are beginning to open, with workers returning to the workplace, surveys show that many plan to telework at least part-time in the future.

Apartment owners and managers need to take notice of this trend. After all, at a time when unemployment remains high, remote workers are employed – and capable of paying their rent. They also represent a large pool of prospective tenants, so targeting them can turn into a competitive advantage.

Here are three things you can do to attract the work-from-home cohort:

• Provide the tools teleworkers need. High-speed internet service and reliable cell phone reception are a must. The 2020 NMHC/Kingsley Apartment Resident Preferences Report found that 92% of tenants want high-speed internet access, while 91% said the community amenity they most desire is reliable cell phone reception. Tenants are even willing to pay higher rent for high-speed internet — $35.05 per month more, the survey found.
• Tweak your marketing plan. Help the prospect envision working in your space. Stage model units (live or virtually) to include work spaces in bedrooms, or create zoom-worthy spaces on balconies or rooftops.
• Don’t focus only on attracting new tenants; meet the needs of existing ones. Happy tenants are more likely to renew their leases, saving you the cost of turnover. They also can be a source of referrals. Convert business centers from open spaces to individual offices, and add programming designed to meet the needs of remote workers, such as a poolside yoga class to relieve stress or an online time-management workshop. People are craving human interaction these days, and programming can enhance a sense of community.

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Thanks to the pandemic, the number of employees who work from home swelled over the past year. Even though offices are beginning to open, with workers returning to the workplace, surveys show that many plan to telework at least part-time in the future.

Apartment owners and managers need to take notice of this trend. After all, at a time when unemployment remains high, remote workers are employed – and capable of paying their rent. They also represent a large pool of prospective tenants, so targeting them can turn into a competitive advantage.

Here are three things you can do to attract the work-from-home cohort:

• Provide the tools teleworkers need. High-speed internet service and reliable cell phone reception are a must. The 2020 NMHC/Kingsley Apartment Resident Preferences Report found that 92% of tenants want high-speed internet access, while 91% said the community amenity they most desire is reliable cell phone reception. Tenants are even willing to pay higher rent for high-speed internet — $35.05 per month more, the survey found.
• Tweak your marketing plan. Help the prospect envision working in your space. Stage model units (live or virtually) to include work spaces in bedrooms, or create zoom-worthy spaces on balconies or rooftops.
• Don’t focus only on attracting new tenants; meet the needs of existing ones. Happy tenants are more likely to renew their leases, saving you the cost of turnover. They also can be a source of referrals. Convert business centers from open spaces to individual offices, and add programming designed to meet the needs of remote workers, such as a poolside yoga class to relieve stress or an online time-management workshop. People are craving human interaction these days, and programming can enhance a sense of community.

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New commercial real estate development, and the ongoing operations of existing CRE buildings in the United States, had a vital impact on the U.S. economy in 2020, supporting 8 million jobs and contributing $1.01 trillion to U.S. GDP, according to a study released last month by the NAIOP Research Foundation.

The study broke out several key measures by sector – and demonstrate the impact of the pandemic:

• Office construction expenditures totaled $38.8 billion in 2020, down 28.5% from 2019.
• Retail construction totaled $11.7 billion in 2020, down 29.5% YOY. This was the fifth straight year of decline.
• Warehouse construction outlays decreased slightly in 2020, down just 0.3% YOY.
• Industrial (manufacturing) construction spending was hard hit, declining 29.5%.

The top five states in 2020, by development impact, were Texas, New York, Florida, California and Illinois.

This year, job growth is expected to improve, and GDP growth will make up some of what it lost in 2020. And NAIOP remains optimistic. “Many factors point to a commercial real estate rebound in 2021,” said Thomas J. Bisacquino, president and CEO. “We believe that while the pandemic has accelerated trends already progressing in real estate, we have a bright future.”

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The COVID-19 pandemic has resulted in many behavioral changes, not the least of which is the acceleration of the work-from-home trend. As the location of many workplaces remains flexible, there’s been a shift in the nature of work, its location and employment implications. Commercial real estate investment firm Graceada Partners has identified this trend and defined it, referring to it in a new report as the “outpost economy.”

The outpost economy is defined as the rise of a more dispersed economy and employment base away from major cities, to smaller cities with a high quality of life that draws workers who have become untethered from their offices in major cities. Clearly, this has implications for the real estate market – on both primary markets, as corporate headquarters become decentralized, and on secondary markets, as they evolve into “outpost economies.”

Takeaways from the Graceada report include:

• Prior to COVID-19, many workers built their lives around the cities where they were employed. But, today, Millennials and younger workers are nesting, focusing on purchasing homes in smaller cities or suburbs and growing families there. The pandemic has enabled them to do this due to greater acceptance of remote working.
• Still, the office is not dead. Many remote workers have already returned to the office, and offices are migration evolving as well. Employers may end up leasing smaller spaces in secondary markets to allow employees in those areas to work from those hubs.
• Three outposts singled out in the report are Austin, Charlotte and Sacramento.
• Despite the rise of many outposts, primary markets like New York and San Francisco have been economic hubs for major industries for many years and aren’t expected to go away overnight.

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Investors have long been interested in adaptive reuse – the process of repurposing a vacant or underutilized building and converting it into another use. Vacant malls, for example, are now being transformed into medical uses, schools and even housing. And with COVID-19 changing the way we work and travel, savvy investors are now eyeing office buildings and hotels as ripe for redevelopment.

Adaptive reuse offers many advantages to developers over ground-up construction. It’s cheaper – as much as 20% less, according to the Urban Land Institute. It’s also sustainable because there’s less construction required to convert a building than to create a new one. That results in savings on construction materials and energy. And adaptive reuse allows the historic character of a neighborhood to be maintained.

One example of a successful – and creative – adaptive reuse project is 888 Tower, the conversion of a high-rise office building in Santa Ana, California into 148 units of workforce housing by Alliant Strategic, a multifamily real estate investment firm.

The 10-story office building was designed in the 1960s by architect Welton Becket, who is also responsible for landmarks such as Hollywood’s Capital Records building and Los Angeles International Airport. In addition to the apartments, the finished project will include a fitness center and yoga studio in the basement, which also houses an old vault from Security Pacific Bank, a prior occupant of the building. There’s also 3,500 square feet of space that will be used as an art gallery for a nearby school of the arts.

The $60 million project is slated to receive a certificate of occupancy this month, and it will deliver much-needed workforce housing – created from a vacant office building.

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A recent study by Zumper, an online rental marketplace, reveals massive shifts in renter behavior and historic market changes for renting in 2020.

The company’s “State of the American Renter” report for 2020 was based on surveys of more than 14,000 Americans conducted between June 2020 and August 2020. It demonstrates how the coronavirus pandemic is altering renter behavior and reversing rental market trends. Key findings include:

• Renters are moving back in with mom and dad. Nearly 50% more renters are moving back in with their parents, with Millennials moving most often.
• The majority of renters are under financial stress, with tenant unemployment at 12.7%.
• Renters are moving more than ever before. A quarter reported moving to a new city within the past year, up 33% from 2019.
• Renters are abandoning expensive cities in favor of cheaper, often neighboring, markets. For example, Bay Area residents are moving to Sacramento.
• The country’s priciest cities are seeing the sharpest rent declines. The median rents in San Francisco, New York, Boston, Oakland, San Jose, Washington, D.C., Los Angeles, and Seattle declined 15% from the start of 2020.

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The office sector is experiencing unprecedented challenges due to COVID-19. As shelter-in-place orders rolled out earlier this year and companies allowed their employees to work from home, the need for physical office space declined. So, what will happen to the office sector?  

CoreNet Global, a nonprofit that represents over 11,000 corporate real estate executives, recently released a survey on the effects of the pandemic. Here are some key findings about the future of the office.

• One-half of the survey respondents said it will be at least June 2021 before 50% of their workers return to work onsite.
• Once workers do return, the office will be a place for collaboration and teamwork, rather than individual work, according to 86% of respondents.
• 64% said that the typical 9-5 workday is a thing of the past.
• Survey respondents expect their company’s employees to spend about half their time in a traditional office, 42% in a home-based office and 7% in a co-working space.
• 70% of survey respondents say their corporate real estate footprint will shrink over the next two years.
• 71% report that their company will not shy away from densely packed urban areas, but 66% say that pandemic readiness on the part of cities will be a factor in their company’s site-selection plans going forward.

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Which metro areas have performed best during the coronavirus pandemic?

COVID-19 has had a substantial impact on commercial real estate in top-tier metropolitan areas — particularly the gateway markets, many of which were forced to completely shut down businesses in an effort to control the pandemic. Most secondary markets suffered the same fate, but according to a recent report by data firm Trepp LLC, some fared better than others.

Trepp analyzed the performance of 21 secondary MSAs and created a list of the top 10 areas based on their commercial real estate investment potential. Here are the top five:

1.  Austin-Round Rock, Texas. Austin ranked first due to a high rate of population growth, a low unemployment rate, a strong influx of high-tech and warehousing jobs and an increase in new CMBS issuance.

2.  San Jose-Sunnyvale-Santa Clara, California. San Jose has strong employment and population growth, low CMBS delinquency rates and a high average occupancy rate.

3.  Denver-Aurora-Lakewood, Colorado. Denver saw the largest growth in the total outstanding CMBS balance as well as a low delinquency rate and limited exposure for retail and lodging loans.

4.  San Antonio-New Braunfels Texas. The MSA has had strong population growth and a minimal increase in its unemployment rate. The CMBS delinquency rate is low even though retail accounts for the largest balance.

5.  Sacramento-Roseville-Arden-Arcade, California. The MSA ranks relatively high due to its average occupancy rate and low CMBS delinquency rate.

Wondering which MSAs didn’t perform as well? The lowest-ranking secondary metros were Cleveland-Elyria, Ohio and Minneapolis-St. Paul-Bloomington, Minn.-Wisc. Both MSAs had high delinquency and unemployment rates.

For more information, click here or use the contact information below.

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