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Are You Working in a Vacuum?

That’s the question that IREM President Donald B. Wilkerson, CPM, posed as he pondered the nature of strategic property management for his latest column in NREI. Wilkerson writes that property managers should avoid getting so caught up in daily firefighting that they forget the bigger picture:

That’s the question that IREM President Donald B. Wilkerson, CPM, posed as he pondered the nature of strategic property management for his latest column in NREI. Wilkerson writes that property managers should avoid getting so caught up in daily firefighting that they forget the bigger picture:

“We have to address the needs of our tenants in a timely and professional manner. But we also have to respond--rather proactively provide answers--to our ownership clients. This means looking beyond the day-to-day to see and understand what’s happening around us in the greater environment of commercial real estate value.”

To that end, he urges members to turn to IREM’s annual Income/Expense Analysis Reports. “The 2018 edition, which was released earlier this month, reveals some interesting trends with which property managers can evaluate the performance of their properties against the larger market and, if necessary, create strategies to enhance that value.”

Such as? Wilkerson takes examples from the condo, traditional apartment, office and retail markets:

“The ongoing recovery of the single-family housing market translates, at least in part, to a growing set of expectations on the part of potential multifamily occupants, particularly in the condo and co-op market,” he writes. “These include luxury comforts and urban amenities that rival a five star-hotel; integrated retail buildings that include built-in retail elements such as coffee shops and boutiques; and startup housing that allows entrepreneurial millennials to work from home.”

On the apartment side, he reports robust performance, despite the single-family home recovery. In fact, “Garden buildings reported the highest increase--3.8%--up to $12.56 per square foot. Rents in elevator buildings reported the highest rents and the second highest increase--$20.53 per foot, representing a 3.2% increase.”

He goes on to say that, among low-rises, buildings with less than 25 units posted rents of $13.03 per foot last year, an uptick of 3.4%. Meanwhile, rents in low-rises of 25 units or more logged a 3.0% increase, to $11.29.”

NOI fared well to boot, and the Income/Expense reports reveal that “elevator buildings top the list, with increases from 6.5% to $11.13 per square foot.” NOI for low-rises with 25 or more units rose 2.7%--to $5.70 per foot in 2017. Garden buildings reported in at $6.74 per square foot in 2017, a 3.5% increase. The only decrease came in low-rise buildings with 12 to 24 units, which also reported the lowest NOI at $5.57 per foot in 2017, a 1.8% decrease from 2016.

In the office market, vacancies were down for suburban and downtown properties, by as much as 3%, depending on the market. But, oddly, collections were down.

In fact they dipped “from $19.76 per square foot in 2016 to $19.66 in 2017 in the suburbs; and from $24.05 per foot in 2016 to $22.19 in the nation’s downtown markets,” the IREM president reports. “On the other hand, net operating costs were up year over year in both downtown and suburban markets: from $7.41 to $7.63 per foot and from $5.90 to $5.92, respectively.”

Of course, data for the retail segment reveals that sector’s ongoing issues. “Shopping centers that are prospering in this period of disruption are being looked at through a different lens,” WIlkerson writes. “Savvy owners and managers no longer see them strictly as places to purchase clothing and housewares and other products.

“Rather,” the report continues, “they are repositioning their properties as gathering spots, entertainment centers, and places to meet friends and take part in community-like experiences. This is especially true of open-air shopping centers and malls, which more readily lend themselves to this type of environment.” The numbers underscore the sector’s woes, revealing the downward pressure on gross rents, from $15.22 per square foot in 2016 to $14.57 last year.

“Clearly, from market to market, and from product type to product type, the nuances of the marketplace bear close watching for an accurate, comparative picture of performance, for building managers and for our constituents,” Wilkerson concludes.


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