What’s happening in… Hamilton, NZ?

New Zealand’s city of Hamilton – or Kirikiriroa in Maori – sits on the banks of the famous Waikato River which features heavily in its sights and site. In this city known for its beautiful greenery and walks, the most popular tourist attraction is the 54-hectare Hamilton Gardens.

With a population of just under 200,000 people, Hamilton is the fourth most populous city in the country. In 2020, it was named ‘most beautiful large city in New Zealand’. The wider Hamilton Urban Area includes Ngāruawāhia, Te Awamutu, and Cambridge, which collectively cover some 110 square kilometers of land. It is also the third fastest-growing urban area.

Leading industries and outputs

Hamilton’s economic heritage is as an agricultural services hub, particularly dairy cattle, and vegetable farming, but it also has thriving business services, construction, and health and community services. Additionally, R&D is an emerging sphere, given the city’s high tertiary educated population.

Residential market factors

New Zealand has typically seen high demand and low supply for residential housing in recent years which has kept prices elevated. There are, however, some movements in the markets, and new regulations around lending coming into play that could mean fewer residential buyers would qualify and those that do could be in for “bargains” in 2022 – according to a January 2022 report from Stuff.co.nz citing Mortgage Lab chief executive Rupert Gough.

Additionally, Realestate.co.nz recently reported new house listings in November 2021 were hitting their highest level in seven years, and Stuff.co.nz added that data from Infometric showing consent and permissions for new build projects were also much increased, compared year on year.

The latest CoreLogic Home Price Index (HPI) report shows that property values have declined in Hamilton, where housing values were down 0.9% in March.

Commercial property outlook

New property rating valuations from Hamilton City Council – released in April 2022 – put the city’s worth at NZ$ 71.4 billion.

Our Hamilton reports that the city’s “total property Capital Value (the total value of the land and any buildings on it) increased 53%, and Land Value 67% since 2018”. “On average,” the article continues, ‘Capital Values for commercial and industrial property have increased by 40% across the city”.

Insight from NAI Harcourts in the country suggests that industrial will remain “the darling of the three commercial property sectors”, but also that there is momentum in the Hamilton office market, which they characterized as coming from a “flight to quality” that was pushing local business in the central business districts to up their game.For more regional insight, contact NAI Global’s partners in Hamilton and surrounds.

Three “glass-half-full” forecasts for the new year

Despite the ongoing uncertainty of the new virulent Omicron variant of Covid-19, there are a lot of positive signs that we can expect in 2022 for commercial real estate (CRE), according to a round-up of sources.

The case for optimism

First, however, an important caveat: Of course, all of these predictions are opinion. No matter how great the historical data used to inform those opinions, they are still not to be considered “financial advice”. Having said that, after a difficult two years (for global business, not just real estate), a little optimism is a welcome break.

Survey says…

First up, Deloitte’s annual forecast report for the CRE sector is out, and generally reflects a high degree of buoyancy.

“Eighty percent of respondents [to their survey] expect their institution’s revenues in 2022 to be slightly or significantly better than 2021 levels,” writes the report’s authors.

…And so does the data

Meanwhile, Forbes real estate contributor and economic analyst Calvin Schnure has done a list of predictions for the year ahead, starting with this one: “Property transactions will rise further in 2022 as the economic recovery gains momentum, and CRE prices will maintain growth in the mid-single digits. REIT mergers and acquisitions could top 2021 as well,” writes Schnure.

How does he come to this conclusion? It’s a matter of looking at the bigger (data) picture trends, he says – plotting this graph from RCA, Bloomberg and NAREIT data.

Source: https://www.forbes.com/sites/calvinschnure/2021/12/01/top-10-things-to-watch-in-commercial-real-estate-in-2022/?sh=352375d63002

“All in alert”

Finally, in December 2021, investment and commercial analysis publication The Motley Fool issued a “rare ‘all in’ buy alert” for CRE, offering three key points of their bullish positioning:

  • “Industrial and multifamily sectors look the most promising in the new year.”
  • “Retail and office CRE should have its good performers but see more headwinds.”
  • “REITs remain a promising avenue for overall returns.”

For the nitty-gritty in how they came to this conclusion, read the full analysis by author Marc Rappaport here.

As we said above, a prediction isn’t a guarantee, a forecast isn’t fact, but we think these bold analysts make a great case for optimism and a solid-looking year ahead for commercial property and investing.

From us to you, happy new year to our CRE network and peers!

Work smarter not harder: The impact of blockchain on CRE

So far in this blog series, we’ve looked at some of the most cutting-edge emerging technologies: The Internet of Things (IoT), robotics, and virtual reality. We’ve discussed the potential these developments have to revolutionize the way we do business and work in the real estate space. 

While each of those has its applications, none hold quite the same promise for changing the fundamental aspects of how we make, and document, commercial real estate (CRE) deals as blockchain. In this fourth entry in the emerging tech series, we have a look at the implications of this pivotal technology.

Blockchain basics

Nowadays, blockchain is a term everyone’s hearing with increasing regularity. To start, it’s worth having a brief recap of exactly what the tech is. At its simplest, a blockchain is a ledger – a record of information. Not all that different from the databases you’re already using to record details of properties, clients, or transactions. 

The feature that makes blockchain unique is the way that information is recorded. Each “block” can hold a certain amount of data. Once a block is full, a new block is started and the previous block forms part of an immutable chain – essentially a timeline extending outwards from the first block to the current one. 

Information on the blockchain is public and distributed across a network of computer systems – meaning that it’s very, very difficult for one person to hack or alter the information stored in the chain. 

Streamlined data

The opportunity blockchain presents for the CRE space, is the ability to streamline a lot of time-consuming tasks. Imagine having all of the paperwork for a given property digitized, accessible to everyone involved in the deal, and confirmed as accurate by multiple parties. 

Steve Weikal, MIT’s Head of Industry Relations at the Center for Real Estate, describes it like this:

“There are two areas where I think the blockchain is. There’s going to be the intersection with legal tech, so that’s land registry and recording and ownership, and all of that paperwork that exists in the system… the other is the intersection with fintech.”

Of course, an issue that comes up here is how this system can be used with potentially sensitive information – client details that shouldn’t be a matter of public record. For business networks, private blockchains can be set up to only allow access to specified parties. In this case, the identity of participants is verified in the network as well, unlike public blockchain where users can remain anonymous. Private blockchains function more like a traditional database in this sense, trading off some of the immutability of their data for privileged access. 

Sealing the smart deal

Maybe the most promising application of blockchain for CRE deals is being able to deploy “Smart Contracts” for things like tenancy agreements. Smart contracts hard code the details of an agreement on the blockchain, and are uniquely suited to real estate deals, because they can handle conditional clauses. 

As an example, startups like UK-based Midasium are already providing a prototype platform that replaces traditional landlord-tenant agreements. Using smart tenancy contracts, clauses of the agreement are automatically enforced when certain conditions are met. This can include paying rent, returning a security deposit, and directly deducting maintenance costs from the rental amount paid across to the landlord. 

It’s a system designed for transparency and rapid settlement, and the concept is gaining traction in other parts of the world. An added bonus of using smart contracts for tenancy is the possibility of building up a database of real-time data for rental prices and trends in the rental market.

A growing sector

Overall, enterprise reliance on blockchain is set for rapid acceleration. Forbes, quoting an International Data Corporation (IDC) report notes that:

“Investment in blockchain technology by businesses is forecast to reach almost $16 billion by 2023. By comparison, spending was said to be around $2.7 billion in 2019, and we will see this acceleration ramping up over the coming year.”

Blockchain adoption in CRE, however, is still in the early stages. The tech still needs to overcome a few growing pains – in terms of privacy concerns, operational complexity, and a lack of standardized processes – before we’ll necessarily see it forming the backbone of CRE transactions.

That said, it’s a space well worth keeping an eye on. There’s been growing interest, for example, in CRE tokenization –  splitting the value of a given asset into separately buyable blockchain-based tokens. What this means in practice is that instead of looking for one buyer for an expensive asset the value gets subdivided and opened to a much broader market. Which in turn may actually boost the value of the underlying asset.

There’s a lot of potential and little doubt that blockchain will make its way into CRE one way or another. But, like many things in the cryptocurrency and blockchain space, the real challenge will be separating the wheat from the chaff, the fact from the hype, and identifying functional applications of the tech rather than purely fanciful ones. 

Capital markets news bite: Daily fund indices showing record strength

The National Council of Real Estate Investment Fiduciaries’ (NCREIF) latest report on the performance of daily-priced fund indices (NFI‐DP) indicates remarkable strength in the sphere. The report covers the September 2021 period – the latest at the time of going to print – and the data shows the asset class had its highest monthly returns in a decade.

This would put year-to-date (nine months) returns for this group of daily-priced funds at 13.08%

Performance and make-up

The NFI‐DP at the end of Sept 21 was at 2.36%, up from 1.68% in the preceding month. According to the NCREIF, the index represents “the performance of a group of daily‐priced open‐end funds that invest predominantly in private real estate, generally ranging from 75% to 95% allocation”. The balance of allocation for these funds sits in liquid investments (including cash and securities). This makes for a “small universe of qualifying funds” and returns that are equal-weighted and gross of brokerage fees, as well as advisory and incentive fees.

Industry relevance

NCREIF’s data is used by various media and industry analysts as one element (of many) in the determination of market health. They put together various data products, of which this is one, by collecting property and fund level information drawn directly from members – usually on a quarterly basis. The NFI‐DP however is drawn monthly. They have data from over 35 000 properties and 150 funds on their database, which dates back to 1977.

National property index

The decade-high record for daily-priced fund indices (NFI‐DP) noted above is not the only record-level they have noted this year. The last results from the quarterly NCREIF Property Index (NPI) (published in August 2021, representing Q2 2021) show the highest return in the past ten years, sitting at 3.59% up from 1.72% in the previous quarter. This is the top return result since the second quarter of 2011 (3.94%). NCREIF writes, these “are unleveraged returns for what is primarily ‘core’ real estate held by institutional investors throughout the US”.

SOCIAL: What industry facts and figures do you use to inform your understanding of the state of the market?

Robotics in CRE: How automation is changing the real estate value proposition

From smart buildings and smart cities to AI and machine learning, there’s little room for doubt that the world is rapidly moving towards a fully tech-enabled society. Forward-looking commercial real estate (CRE) professionals are embracing these new capabilities, and revolutionizing the way we add value to commercial real estate operations.

In the previous article, we discussed the impact of IoT (the Internet of Things) and Artificial Intelligence (AI) in CRE. In part three of this ongoing series, we examine the role robotics plays in moving real estate into the future.

Hard-working hardware

One of the areas where the use of robotics in CRE has really taken off is drone-assisted operations. Drone technology is being used to target some key challenges faced in the industry. 

Processes that used to be far more complicated and expensive, like aerially mapping a property, can now be accomplished in a fraction of the time, and at a lesser expense. Part of the benefit is that drones allow developers and marketers to tell a story, as the development unfolds week by week in stunning images from on-high. Large construction sites can also be more easily managed when material stocks and inventory are being monitored with drones.

Another use of the tech is cutting down the time spent on surveying properties for maintenance and compliance purposes. Aerial surveys can easily reveal damage or deterioration and allow owners to address the problem sooner. 

Drones equipped with specialized imaging cameras can also detect major issues like gas leaks or help pinpoint areas of heatloss for energy optimization. Given the drive towards cleaner, more energy-efficient buildings, this is a technology that is likely to become a cornerstone of future CRE operations.

Virtual presence

Robots have also gained some traction working in building interiors. Machine technology can be used to map interior spaces and even, to present them to prospective tenants. 

San Francisco-based operator Zenplace uses small telepresence robots to show properties, complete with a screen for the realtor to interact with clients – all from the convenience of the office. This means a more convenient process for prospective tenants, who can gain access to a property using an app on their phone while cutting down travel time for the agent.

A bot by any other name

Another area where robotics is taking CRE by storm is software robots aka “bots”. Robotic Process Automation (RPA) is the use of bots to automate mundane and repetitive tasks that would otherwise need to be done by human workers. This means time-intensive work like document management or invoice processing can be outsourced, leaving brokers free to focus on larger strategic goals and more creative problem-solving. 

Using RPA, brokerages can also extract large amounts of untapped data from existing databases. This is likely to be an increasingly useful application in years to come, as digitization in CRE increases and large volumes of new data start pouring in from a slew of smart buildings being added to existing portfolios. 

What the bots can’t currently do is analyze that data – the creative interpretation that task requires is best left to humans.

Reimagining Logistics Assets

On the back of a burgeoning e-commerce industry, robotics is also adding value through streamlined logistics processes. The landscape of logistics assets is changing, with a movement towards micro-distribution centers and multi-purpose retail spaces opening up new opportunities. 

In a research report from the Commercial Real Estate Development Association (NAIOP) these new trends, and the robotics enabling them, are explored in detail. Some key findings are that previously underutilized spaces, including areas in malls or old parking garages, are finding new purposes as distribution sites that help solve the Last Mile problem of logistics. 

Given their location in urban and suburban centers, these new types of logistic assets are blurring the lines between logistics and retail. Landlords and owners can now install logistics mini-sites in existing buildings, largely thanks to automated storage and retrieval systems that shrink the operational footprint. It’s a new way of imagining space and how assets can best be put to work. 

An additional interesting trend is that larger logistics assets are now often being established further away from city centers. While this may sound counter-intuitive, with greater automation the need for on-site staff decreases, and companies can take advantage of cheaper land and operations costs in more remote areas. The NAIOP report goes on to quote ABI Research’s projection that, by 2025, some 4 million commercial robots will be hard at work in over 50 000 warehouses.

The human face of robotics

By now, you could be forgiven for thinking that this sounds like the start of a robot revolution that will put a lot of people out of work in the long run. The truth is, we are far from independently functioning robotics and AI. 

Advances in these technologies allow people to do their jobs faster and more easily, taking a lot of the monotonous aspects out. As rapid-fire data-handling, logistics, and site management become the norm, there will also be an even greater need for people to oversee those processes. And the potential robotics offer for improving CRE operations means more ways to add value for customers and CRE professionals alike.