Hey, everybody, it's Ken, and I'm very excited for today.
We got Paul Hendershot and Paul works with CoStar.
You guys all know who CoStar is.
He's a senior director of analytics.
Costar is big! Costar basically bought up some of the biggest brands in the world,
including a part Overstock.com Homes.com.
Ten-X, they say
they're continuing to buy leaders in the industry
and they're they are
undisputedly the number one
commercial data information company in the world right now.
Paul, great to have you on. Pleasure's all mine.
Thank you. Thanks for having me.
So let's jump right into it because obviously you guys are like,
you know, you're the kings of data.
And I love the fact that you have your hands in everything.
I was looking at your Web site this morning.
I mean, it's everything you got retail, industrial commercial office homes.
I even saw you had a whole thing.
You bought a company for hotels.
So it's it's really, really cool to have you on and I think
what everybody wants to know is,
what are you guys seeing and where's all this gauze, all this madness going?
You know, because these markets and these these real estate classes, they're all
of course, they're all very different and independent of each other.
But, you know, what?
What do you see?
What are what are some of the bigger trends
you're seeing right now with your data?
Because you guys are your guys are rolling out this quarter right now, right?
Yeah.
We just rolled out actually the most recent
quarter data and our forecasts have just been updated.
And realistically, you know, it really is you know,
we're seeing so many different storylines depending on the specific asset
in terms of
obviously just the big headline.
Industrial was kind of the darling throughout the pandemic.
We saw record levels of absorption, leasing, construction,
Amazon alone in Dallas.
Fort Worth is the largest industrial user of space
in the in the Metroplex with over 18 million square feet.
Just to put that into perspective,
like big companies like FedEx has like four and a half billion.
So they've definitely dominated the market.
But the latest headlines I've seen in in a few publications
is this trend
you know, they might have overextended themselves a little bit,
but in terms of where the market is, in terms of industrial, I think we're just
we're going to see as long as demographics is destiny,
kind of like the multifamily market as well.
You know, when you take these high growth Sunbelt,
you know, non gateway markets and just the number of people
moving Dallas-Fort Worth is adding 120,000 people a year.
Austin continues to
have the same story re San Antonio and Houston as well.
And it's just one of those things where if you just look at really
you know the population growth in Texas alone
we've added over 4 million people in the over
the last decade that is the equivalent of Oklahoma
moving or Oregon moving to Texas
which is rather unprecedented.
So as long as I think that activity keeps keeps driving,
the industrial market fundamentals will remain solid.
In terms of the office, I think there's a lot more question marks
with the office market than we have than we anticipated.
Obviously, the hybrid return to work,
you know, just has really caused a lot of uncertainty.
One area I'm looking at really closely
is the amount of sublease space on the market.
We continue to see just a groundswell
of sublease space, just really affecting rent growth.
Very few metropolitan areas are experiencing any any true rent growth
right now in the in the in the
any office space,
multifamily, I think, you know, there's been a lot of it's definitely
we're seeing the strong markets I think are getting stronger.
Those Dallas and Nashville, Charlotte, Phenix,
they are in a strong position.
You know why I don't think we'll see double digit growth.
We're not forecasting double digit rent growth next year
but I mean 2021 was a record year pretty much.
You know like I said, whole digit rent growth and record levels of absorption
and even new trends that we'll discuss later, even in terms of
some of the new building techniques and this build to rent market really
I'd I'd say coming into its own now and kind of spreading across the country
and the retail you know what
everyone thought retail was dead.
I call retail the Lazarus sort of asset classes.
You know, every time you write it off it just seems to reinvent itself.
You know we had a lot of obviously e-commerce
total retail sales e-commerce
accounted for 18% during the peak of the pandemic.
Now that has kind of gone back down to a normal about 14%
kind of where we were heading into pre-pandemic levels. And
and just in terms of
where consumers are, I believe, you know the
the American consumer is truly the consumer of last resort.
And we will spend our way out of this economic fast
possible economic downturn like we usually do.
But retail's on solid footing.
One of the more interesting areas that I keep tracking closely is really
the malls and a lot of the adaptive reuse and this reimagining of mall space.
I think that's one of the more exciting trends in in the retail sector.
Let's talk a little about some, you know, because I agree with what you said.
You know, I always tell people real estate exists
for people, you know, and if people aren't there, like, it doesn't do well.
If they're there, it does well you know, and if there's more of them,
that does really well.
So it's really not that that complicated.
But so let's talk a little about demographic shifts.
You know, things really changed.
I've heard people talk about, you know, some of these core inner urban cities.
They call them donuts.
You know, where the inside of the city,
like people aren't really living there, but they are moved around it,
you know, cities, what they're calling donut, the donut zone.
What are you seeing on demographics and what do you think
where we're headed with all this?
Yeah, I mean, I think well, there's a lot of forces at work.
One is the millennial age population is now.
And they're they're no longer the you know, the cool kids
that were driving all the technology.
Now they're 40 years old.
And they're the, the the the oldest ones.
And they're looking to settle down and they're getting in.
They're really looking for either a larger larger apartments in the suburbs
to kind of have an excess to basically the school districts
are starting to have children.
And really, you know, that's a consideration
and the second thing is we have the baby boomers that are essentially looking
to downsize at the same time, which is also good
I guess for the
well it's good for the build to Renmark and also the multifamily market is
they're looking for more amenities and more of a sense of community.
That's why we're seeing more pickleball
courts and in apartments than anywhere else.
But it really is this this migration
to the south over the last, I'd say you know, 20
years has really shifted the the political base, the tax base
and just just looking at like Austin for example,
over the last decade they grew by nearly 35%.
Raleigh, North Carolina grew by 25%.
Orlando grew by nearly 25%.
San Antonio grew by over 20%.
You know,
those are strong, strong growth numbers.
And a lot of it is you know, it has to do with our favorable business,
climate favorable, you know, just climate in general.
A lot of people decided they don't want to shovel snow.
And also just where the jobs are going, that's where,
you know, the opportunities are.
When you look at a place like Austin, for example, Facebook signed
a huge one large one of their largest leases recently and it's really been
transforming it, really redefine them as not a government and
college town, but a true tech hub.
And we see this time across the
southeast and the southwest right now
another interesting particularly which relates to multifamily is the
there's more females graduating from college than ever before.
And that means that they're holding off getting married.
So later in life and we're so we're
seeing more educated
female tenants looking for space as well.
And what that is really changing, it is kind of the way
folks are building apartment complexes to meet the needs of the
this kind of emerging emerging demographic.
They in terms of the, you know, what I call the sidewalk to SOFA security,
really, you know, it's going to be more commonplace, more security
cameras, even single use credentials
is really going to to transform the multifamily market.
What are some of the fundamentals and some of the drivers that make that happen
you know, like like because I would not a known
obviously to invest north of Dallas had I not been there.
Are there some things that people can look at from the data that would
maybe help them make some good decisions in their investing in the future?
Yeah.
I mean, and this is we go through this exercise with a lot of investors.
I get increasingly getting calls from from around the country.
I think the Canadians must have a chat group or something on Dallas, Texas,
because we're literally getting a half a dozen calls from Canadian investors
for some some some odd reason but the things I look for
are a just look at the first the headline numbers that vacancy rate,
because there is not that there's a threat of overbuilding,
but you have to be aware of let's just be aware of that vacancy rate.
And right now it should be hovering right around 5% in most submarkets.
And that's really kind of your first indicator of how the health of a market.
And then look at the historical trends.
You know, what is the net absorption look like?
How many units, how many units can you count on
this submarket or this area absorbing a year?
How much of that how much is currently in the pipeline and is there a big delta?
So is there anything that could basically, you know,
not say may make the market unstable?
But, you know, what is what and also what is being built there?
Is it a high quality asset?
Is it is it going to be able to push rents?
Or if you're a value add investor, look at the properties
that look at the age of the properties around in that submarket and understand,
okay, well where where you kind of really fit in, fit in that area.
And those are a few of the things that I that I take a look at.
And then it really
comes down to you know, if you really want to get creative,
you know, with Costar, we do have access to, you know, the office
industrial and even, you know, retail data.
See where we look at office leasing activity is
and see where people are big companies are signing leases
or there's a lot of police activity because the same way retail fellows
rooftops multifamily tends to also follow large office developments as well
and that kind of and if you know where people are moving
as a result of jobs chances are
they're going to want to work near where that employment opportunity is.
And another phenomenon we're even seeing
is the you know in addition to what I call the Amazon effect for the first time
we're seeing multifamily developers
chasing industrial areas.
One area that I'm really, really hot on is kind of the 40
if you're familiar, it's out in east East Dallas.
It's kind of, I'd say the next emerging industrial frontier a good year.
Just put a large facility out there.
Amazon followed suit. There's
a lot of spec
buildings, a lot of spec building construction and the the
the industrial jobs of today are not the industrial jobs of the past.
They're paying about 15, $20 an hour
which makes a pretty solid renter for most folks.
And they're employing these aren't just like the,
you know, warehouses where you'd have five guys drive around a forklift.
They're employing often thousands of people in these facilities
and they're basically looking for attainable housing
or some type of affordable housing.
So if there is a value play around there, you could either buy that and improve it
or even possibly build something up from ground up
because A the land is probably a little bit affordable.
That's more affordable and you'll find it some of the
the more the hotter markets you want to say. But
because they're building industrial is probably there.
You want to run in the same
not in my backyard type of situation, which you might come across.
And some of the more wanted some you know, different some
some of the suburbs around as well.
Hey, I'd love to have you back on again.
This is great.
You know, let let's let's give this sub churn a little bit and then,
you know, see where all these people go and what happens
with all these different markets and see whether we got inflation, recession,
interest rates, all that kind of stuff would be fun to revisit.
Yeah. And it's been a blast.
And I appreciate that.
Appreciate you having me on.
Yeah. Paul, as always, I appreciate your time.
I know you're super busy and in demand and I'm grateful
that you took the time for for our for our listeners.
Thank you. Thank you. Have a great day. Cheers.